Document:

Exhibit10.4

 

 

CREDIT AGREEMENT

Dated as of October 6, 2006

by and among

MORGANS GROUP LLC,

as Borrower,

BEACH
HOTEL ASSOCIATES LLC

as Florida Borrower,

MORGANS HOTEL GROUP CO.,

Holdings,

WACHOVIA CAPITAL MARKETS,
LLC,

and

CITIGROUP GLOBAL MARKETS
INC.,

as Joint Lead
Arrangers

and

Joint Book Runners,

WACHOVIA BANK, NATIONAL
ASSOCIATION,

as Administrative Agent,

CITIGROUP GLOBAL MARKETS
INC.,

as Syndication Agent,

and

THE FINANCIAL
INSTITUTIONS INITIALLY SIGNATORY HERETO

AND THEIR ASSIGNEES PURSUANT TO SECTION 13.5.,

as Lenders

 

 

 

TABLE OF CONTENTS

	
  Article I. Definitions

  	
  1

  
	
   

  	
   

  
	
  Section 1.1. Definitions

  	
  1

  
	
  Section 1.2. General; References to Times

  	
  24

  
	
  Section 1.3. Financial Attributes of Non-Wholly
  Owned Subsidiaries

  	
  25

  
	
  Section 1.4. Pro Forma Calculations

  	
  25

  
	
  Section 1.5. Florida Borrower Representative

  	
  25

  
	
  Section 1.6. Joint and Several Obligations

  	
  26

  
	
   

  	
   

  
	
  Article II.
  Credit Facility

  	
  26

  
	
   

  	
   

  
	
  Section 2.1. Revolving Loans

  	
  26

  
	
  Section 2.2. Swingline Loans

  	
  27

  
	
  Section 2.3. Letters of Credit

  	
  29

  
	
  Section 2.4. Rates and Payment of Interest on
  Loans

  	
  33

  
	
  Section 2.5. Number of Interest Periods

  	
  34

  
	
  Section 2.6. Repayment of Loans

  	
  34

  
	
  Section 2.7. Prepayments

  	
  34

  
	
  Section 2.8. Continuation

  	
  35

  
	
  Section 2.9. Conversion

  	
  36

  
	
  Section 2.10. Notes

  	
  36

  
	
  Section 2.11. Voluntary Reductions of the
  Commitment

  	
  37

  
	
  Section 2.12. Expiration or Maturity Date of
  Letters of Credit Past Termination Date

  	
  37

  
	
  Section 2.13. Amount Limitations

  	
  37

  
	
  Section 2.14. Increase of Commitments

  	
  38

  
	
   

  	
   

  
	
  Article III.
  Payments, Fees and Other General Provisions

  	
  38

  
	
   

  	
   

  
	
  Section 3.1. Payments

  	
  38

  
	
  Section 3.2. Pro Rata Treatment

  	
  39

  
	
  Section 3.3. Sharing of Payments, Etc.

  	
  39

  
	
  Section 3.4. Several Obligations

  	
  40

  
	
  Section 3.5. Minimum Amounts

  	
  40

  
	
  Section 3.6. Fees

  	
  41

  
	
  Section 3.7. Computations

  	
  42

  
	
  Section 3.8. Usury

  	
  42

  
	
  Section 3.9. Agreement Regarding Interest and
  Charges

  	
  42

  
	
  Section 3.10. Statements of Account

  	
  42

  
	
  Section 3.11. Defaulting Lenders

  	
  43

  
	
  Section 3.12. Taxes

  	
  44

  
	
   

  	
   

  
	
  Article IV.
  Collateral Properties

  	
  45

  
	
   

  	
   

  
	
  Section 4.1. Eligibility of Properties

  	
  45

  
	
  Section 4.2. Conditions Precedent to a Property
  Becoming a Collateral Property

  	
  47

  
	
  Section 4.3. Release of Collateral Properties

  	
  50

  

 

 

 

	
  Section 4.4. Frequency of
  Calculations of Borrowing Base

  	
  51

  
	
  Section 4.5. Frequency of Appraisals

  	
  52

  
	
  Section 4.6. Additional Appraisals Required
  under Applicable Law

  	
  52

  
	
  Section 4.7. Increase of Florida Sublimit

  	
  53

  
	
   

  	
   

  
	
  Article V. Yield
  Protection, Etc.

  	
  54

  
	
   

  	
   

  
	
  Section 5.1. Additional Costs; Capital Adequacy

  	
  54

  
	
  Section 5.2. Suspension of LIBOR Loans

  	
  55

  
	
  Section 5.3. Illegality

  	
  56

  
	
  Section 5.4. Compensation

  	
  56

  
	
  Section 5.5. Treatment of Affected Loans

  	
  57

  
	
  Section 5.6. Change of Lending Office

  	
  57

  
	
  Section 5.7. Assumptions Concerning Funding of
  LIBOR Loans

  	
  57

  
	
   

  	
   

  
	
  Article VI.
  Conditions Precedent

  	
  58

  
	
   

  	
   

  
	
  Section 6.1. Initial Conditions Precedent

  	
  58

  
	
  Section 6.2. Conditions Precedent to All Loans
  and Letters of Credit

  	
  60

  
	
   

  	
   

  
	
  Article VII.
  Representations and Warranties

  	
  61

  
	
   

  	
   

  
	
  Section 7.1. Representations and Warranties

  	
  61

  
	
  Section 7.2. Survival of Representations and
  Warranties, Etc.

  	
  66

  
	
   

  	
   

  
	
  Article VIII.
  Affirmative Covenants

  	
  67

  
	
   

  	
   

  
	
  Section 8.1. Preservation of Existence and
  Similar Matters

  	
  67

  
	
  Section 8.2. Compliance with Applicable Law and
  Material Contracts

  	
  67

  
	
  Section 8.3. Maintenance of Property

  	
  67

  
	
  Section 8.4. Insurance

  	
  67

  
	
  Section 8.5. Payment of Taxes and Claims

  	
  68

  
	
  Section 8.6. Visits and Inspections

  	
  68

  
	
  Section 8.7. Use of Proceeds; Letters of Credit

  	
  68

  
	
  Section 8.8. Environmental Matters

  	
  69

  
	
  Section 8.9. Books and Records

  	
  69

  
	
  Section 8.10. Further Assurances

  	
  69

  
	
  Section 8.11. New Subsidiaries/Guarantors;
  Release of Guarantors

  	
  69

  
	
  Section 8.12. Exchange Listing

  	
  70

  
	
   

  	
   

  
	
  Article IX.
  Information

  	
  71

  
	
   

  	
   

  
	
  Section 9.1. Quarterly Financial Statements

  	
  71

  
	
  Section 9.2. Year-End Statements

  	
  71

  
	
  Section 9.3. Compliance Certificate; Borrowing
  Base Certificate; Etc.

  	
  71

  
	
  Section 9.4. Other Information

  	
  72

  
	
  Section 9.5. Electronic Delivery of Certain
  Information

  	
  73

  
	
   

  	
   

  
	
  Article X.
  Negative Covenants

  	
  74

  
	
   

  	
   

  
	
  Section 10.1. Indebtedness; Certain Equity
  Securities

  	
  74

  
	
  Section 10.2. Liens

  	
  77

  
	
  Section 10.3. Fundamental Changes

  	
  79

  

 

 

 

	
  Section 10.4.
  Investments, Loans, Advances, Guarantees and Acquisitions

  	
  79

  
	
  Section 10.5. Asset Sales

  	
  81

  
	
  Section 10.6. Swap Agreements

  	
  82

  
	
  Section 10.7. Restricted Payments

  	
  83

  
	
  Section 10.8. Transactions with Affiliates

  	
  83

  
	
  Section 10.9. Restrictive Agreements

  	
  84

  
	
  Section 10.10. Amendment of Material Documents

  	
  84

  
	
  Section 10.11. Financial Covenants

  	
  85

  
	
  Section 10.12. Changes in Fiscal Periods

  	
  85

  
	
  Section 10.13. ERISA Exemptions

  	
  85

  
	
  Section 10.14. Availability of Exceptions

  	
  85

  
	
   

  	
   

  
	
  Article XI.
  Default

  	
  85

  
	
   

  	
   

  
	
  Section 11.1. Events of Default

  	
  85

  
	
  Section 11.2. Remedies Upon Event of Default

  	
  88

  
	
  Section 11.3. Remedies Upon Default

  	
  89

  
	
  Section 11.4. Allocation of Proceeds

  	
  89

  
	
  Section 11.5. Collateral Account

  	
  90

  
	
  Section 11.6. Performance by Agent

  	
  91

  
	
  Section 11.7. Rights Cumulative

  	
  91

  
	
   

  	
   

  
	
  Article XII. The
  Agent

  	
  92

  
	
   

  	
   

  
	
  Section 12.1. Authorization and Action

  	
  92

  
	
  Section 12.2. Agent’s Reliance, Etc.

  	
  92

  
	
  Section 12.3. Notice of Defaults

  	
  93

  
	
  Section 12.4. Wachovia as Lender

  	
  93

  
	
  Section 12.5. Approvals of Lenders

  	
  94

  
	
  Section 12.6. Collateral Matters

  	
  94

  
	
  Section 12.7. Lender Credit Decision, Etc.

  	
  95

  
	
  Section 12.8. Indemnification of Agent

  	
  96

  
	
  Section 12.9. Successor Agent

  	
  97

  
	
  Section 12.10. Titled Agents

  	
  97

  
	
   

  	
   

  
	
  Article XIII.
  Miscellaneous

  	
  97

  
	
   

  	
   

  
	
  Section 13.1. Notices

  	
  97

  
	
  Section 13.2. Expenses

  	
  98

  
	
  Section 13.3. Setoff

  	
  99

  
	
  Section 13.4. Litigation; Jurisdiction; Other
  Matters; Waivers

  	
  99

  
	
  Section 13.5. Successors and Assigns

  	
  100

  
	
  Section 13.6. Amendments

  	
  104

  
	
  Section 13.7. Nonliability of Agent and Lenders

  	
  105

  
	
  Section 13.8. Confidentiality

  	
  105

  
	
  Section 13.9. Indemnification

  	
  106

  
	
  Section 13.10. Termination; Survival

  	
  108

  
	
  Section 13.11. Severability of Provisions

  	
  109

  
	
  Section 13.12. GOVERNING LAW

  	
  109

  

 

 

 

	
  Section 13.13. Patriot
  Act

  	
  109

  
	
  Section 13.14. Counterparts

  	
  109

  
	
  Section 13.15. Obligations with Respect to Loan
  Parties

  	
  109

  
	
  Section 13.16. Limitation of Liability

  	
  109

  
	
  Section 13.17. Entire Agreement

  	
  110

  
	
  Section 13.18. Construction

  	
  110

  
	
   

  	
   

  
	
  ANNEX 1

  	
  Additional Provisions Applicable to NY Properties

  
	
   

  	
   

  
	
  SCHEDULE 1.1.(A)

  	
  Formation and Structuring Transactions

  
	
  SCHEDULE 1.1.(B)

  	
  List of Loan Parties

  
	
  SCHEDULE 4.1.

  	
  Initial Collateral Properties

  
	
  SCHEDULE 7.1.(b)

  	
  Ownership Structure

  
	
  SCHEDULE 7.1.(d)

  	
  Governmental Approvals

  
	
  SCHEDULE 7.1.(f)

  	
  Title to Properties; Liens

  
	
  SCHEDULE 7.1.(g)

  	
  Indebtedness

  
	
  SCHEDULE 7.1.(h)

  	
  Material Contracts

  
	
  SCHEDULE 7.1.(i)

  	
  Litigation

  
	
  SCHEDULE 10.4.

  	
  Existing Investments

  
	
  SCHEDULE 10.9.

  	
  Restrictive Agreements

  
	
   

  	
   

  
	
  EXHIBIT A

  	
  Form of Assignment and Assumption

  
	
  EXHIBIT B

  	
  Form of Notice of Borrowing

  
	
  EXHIBIT C

  	
  Form of Notice of Continuation

  
	
  EXHIBIT D

  	
  Form of Notice of Conversion

  
	
  EXHIBIT E

  	
  Form of Notice of Swingline Borrowing

  
	
  EXHIBIT F

  	
  Form of Swingline Note

  
	
  EXHIBIT G-1

  	
  Form of Revolving Note (Borrower)

  
	
  EXHIBIT G-2

  	
  Form of Revolving Note (Florida Borrower)

  
	
  EXHIBIT H

  	
  Form of Opinion of Counsel

  
	
  EXHIBIT I

  	
  Form of Compliance Certificate

  
	
  EXHIBIT J

  	
  Form of Guaranty

  
	
  EXHIBIT K

  	
  Form of Security Deed

  
	
  EXHIBIT L

  	
  Form of Assignment of Leases and Rents

  
	
  EXHIBIT M

  	
  Form of Environmental Indemnity Agreement

  
	
  EXHIBIT N

  	
  Form of Assignment of Contracts, Documents and
  Rights

  
	
  EXHIBIT O

  	
  Form of Property Management Contract Assignment

  
	
  EXHIBIT P

  	
  Form of Pledge Agreement

  
	
  EXHIBIT Q

  	
  Form of Security Agreement

  
	
  EXHIBIT R

  	
  Form of Borrowing Base Certificate

  
			

 

 

THIS
CREDIT AGREEMENT (this “Agreement”) dated as of October 6, 2006 by and
among MORGANS GROUP LLC, a limited liability company formed under the laws of
the State of Delaware (the “Borrower”), BEACH HOTEL ASSOCIATES LLC, a limited
liability company formed under the laws of the State of Delaware (the “Florida
Borrower”), MORGANS HOTEL GROUP CO., a corporation formed under the laws of the
State of Delaware (“Holdings”), WACHOVIA CAPITAL MARKETS, LLC and CITIGROUP
GLOBAL MARKETS INC., as Joint Lead Arrangers and Joint Book Runners (the “Arrangers”),
WACHOVIA BANK, NATIONAL ASSOCIATION, as Agent, CITIGROUP GLOBAL MARKETS INC.,
as Syndication Agent (the “Syndication Agent”), and each of the financial
institutions initially a signatory hereto together with their assignees
pursuant to Section 13.5.(b).

WHEREAS,
the Agent and the Lenders desire to make available to the Borrower a revolving
credit facility in the initial amount of $225,000,000, which will include a
$50,000,000 letter of credit subfacility and a $25,000,000 swingline
subfacility, on the terms and conditions contained herein.

NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties
hereto, the parties hereto agree as follows:

ARTICLE I. DEFINITIONS

Section 1.1. Definitions.

In
addition to terms defined elsewhere herein, the following terms shall have the
following meanings for the purposes of this Agreement:

“Accession Agreement” means an Accession Agreement
substantially in the form of Annex I to the Guaranty.

“Additional Costs” has the meaning given that term in
Section 5.1.

“Additional Mortgage Indebtedness” means Indebtedness incurred
after the Effective Date to finance any real property or interest therein
and/or the improvements thereto, or to finance the acquisition of any real
property or interest therein by the Borrower or any Subsidiary and, in either
case, secured by a mortgage on such property or a pledge of the Equity
Interests of the entity that directly or indirectly owns or acquires such
property or interest, provided that such entity is not a Loan Party.

“Adjusted LIBOR” means, with respect to each Interest Period
for any LIBOR Loan, the rate obtained by dividing (a) LIBOR for such
Interest Period by (b) a percentage equal to 1 minus the stated maximum
rate (stated as a decimal) of all reserves, if any, required to be maintained
with respect to Eurocurrency funding (currently referred to as “Eurocurrency
liabilities”) as specified in Regulation D of the Board of Governors of
the Federal Reserve System (or against any other category of liabilities which
includes deposits by reference to which the interest rate on LIBOR Loans is
determined or any applicable category of extensions of credit or other assets
which includes loans by an office of any Lender outside of the United States of
America to residents of the United States of America). Any change in such
maximum 

 1
 

 

rate shall result
in a change in Adjusted LIBOR on the date on which such change in such maximum
rate becomes effective.

“Affiliate” means, with respect to a specified Person,
another Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified; provided, however, that for purposes of
Section 10.8., the term “Affiliate” shall also include any Person that
directly, or indirectly through one or more intermediaries, owns 5% or more of
any class of Equity Interests of the Person specified or that is an officer or
director of the Person specified.

“Agent” means Wachovia, as contractual representative for the
Lenders under the terms of this Agreement, and any of its successors.

“Agreement Date” means the date as of which this Agreement is
dated.

“Applicable Law” means all applicable provisions of
constitutions, statutes, laws, rules, regulations and orders of all
governmental bodies and all orders and decrees of all courts, tribunals and
arbitrators.

“Applicable Margin” means the percentage set forth below
corresponding to the Leveraged Ratio as determined in accordance with
Section 10.11. in effect at such time:

	
  Level

  	
   

  	
  Leverage Ratio

  	
   

  	
  Applicable Margin for 

  LIBOR Loans

  	
   

  	
  Applicable Margin for 

  Base Rate Loans

  	
   

  
	
  1

  	
   

  	
  < 5.50 to 1.00

  	
   

  	
  1.35%

  	
   

  	
  0.35%

  	
   

  
	
  2

  	
   

  	
  > 5.50 to 1.00 and < 6.50 to
  1.00

  	
   

  	
  1.50%

  	
   

  	
  0.50%

  	
   

  
	
  3

  	
   

  	
  > 6.50 to 1.00 and < 7.00 to
  1.00

  	
   

  	
  1.75%

  	
   

  	
  0.75%

  	
   

  
	
  4

  	
   

  	
  > 7.00 to 1.00

  	
   

  	
  1.90%

  	
   

  	
  0.90%

  	
   

  

 

The Applicable
Margin shall be determined by the Agent from time to time, based on the
Leverage Ratio as set forth in the Compliance Certificate most recently
delivered by the Borrower pursuant to Section 9.3.(a). Any adjustment to
the Applicable Margin shall be effective (a) in the case of a Compliance
Certificate delivered in connection with quarterly financial statements of the
Borrower delivered pursuant to Section 9.1., as of the date 46 days
following the end of the last day of the applicable fiscal quarter covered by
such Compliance Certificate, and (b) in the case of a Compliance
Certificate delivered in connection with annual financial statements of the
Borrower delivered pursuant to Section 9.2., as of the date 91 days
following the end of the last day of the applicable fiscal year covered by such
Compliance Certificate. If the Borrower fails to deliver a Compliance
Certificate as and when required by Section 9.3.(a), the Applicable Margin
shall equal the percentages corresponding to Level 4 until the date of the
delivery of the required Compliance Certificate. As of the Agreement Date, and
thereafter until changed as provided above, the Applicable Margin is determined
based on Level 4.

“Appraisal” means, in respect of any
Property, an appraisal prepared by an M.A.I. designated member of the Appraisal
Institute commissioned by and addressed to the Agent (acceptable to the Agent
as to form, substance and appraisal date), prepared by a professional 

 2
 

 

appraiser
acceptable to the Agent, having at least the minimum qualifications required
under Applicable Law governing the Agent and the Lenders, including FIRREA, and
determining the “as is” market value of such Property as between a willing
buyer and a willing seller.

“Appraised Value” means, with respect to any
Property, the “as is” market value of such Property as reflected in the then
most recent Appraisal of such Property as the same may have been reasonably
adjusted by the Agent based upon its internal review of such Appraisal which is
based on criteria and factors then generally used and considered by the Agent
in determining the value of similar properties, which review shall be conducted
prior to acceptance of such Appraisal by the Agent.

“Approved Fund”
means any Fund that is administered or managed by (a) a Lender,
(b) an affiliate of a Lender or (c) an entity or an affiliate of an
entity that administers or manages a Lender.

“Arrangers” means each of Wachovia Capital
Markets, LLC and Citigroup Global Markets Inc., together with their respective
successors and permitted assigns.

“Assignee” has the meaning given that term in
Section 13.5.(b).

“Assignment and Assumption” means an Assignment and
Assumption entered into by a Lender and an Eligible Assignee (with the consent
of any party whose consent is required by Section 13.5.), and accepted by the Agent, substantially in the form of
Exhibit A or any other form approved by the Agent.

“Assignment of Contracts, Documents and Rights”
means an Assignment of Interest in Contracts, Documents and Rights executed by
a Loan Party in favor of the Agent for the benefit of the Lenders,
substantially in the form of Exhibit N or otherwise in form and substance
satisfactory to the Agent.

“Assignment of Leases and Rents” means an
Assignment of Leases and Rents executed by a Loan Party in favor of the Agent
for the benefit of the Lenders, substantially in the form of Exhibit L or
otherwise in form and substance satisfactory to the Agent.

“Base Rate” means the per annum rate of interest equal to the
greater of (a) the Prime Rate or (b) the Federal Funds Rate plus
one-half of one percent (0.5%). Any change in the Base Rate resulting from a
change in the Prime Rate or the Federal Funds Rate shall become effective as of
12:01 a.m. on the Business Day on which each such change occurs. The Base Rate
is a reference rate used by the Lender acting as the Agent in determining
interest rates on certain loans and is not intended to be the lowest rate of
interest charged by the Lender acting as the Agent or any other Lender on any
extension of credit to any debtor.

“Base Rate Loan” means a Revolving Loan bearing interest at a
rate based on the Base Rate.

 3
 

 

“Benefit Arrangement” means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.

“Borrower” has the meaning set forth in the introductory
paragraph hereof and shall include the Borrower’s successors and permitted
assigns.

“Borrowers” means the Borrower and the Florida Borrower,
collectively.

“Borrowing Base” means the aggregate amount of the Borrowing
Base Values of all Collateral Properties. Notwithstanding the foregoing (and
subject to Annex 1), a Collateral Property shall be excluded from calculations
of the Borrowing Base if (x) at any time such Property shall cease to be
an Eligible Property, (y) the Agent shall cease to hold a valid and
perfected first priority Lien in such Collateral Property (except for prior
Liens expressly permitted hereunder), or (z) there shall have occurred and
be continuing an event of default under the Security Deed or any other Security
Document relating to such Collateral Property. In addition, until the Florida
Sublimit has been increased to an amount equal to the Appraised Value of the
Florida Property, the Borrowing Base shall equal the Borrowing Base Value of
only the Florida Property.

“Borrowing Base Certificate” means a report
certified by the chief financial officer of the Borrower, setting forth the
calculations required to establish the Borrowing Base for all Collateral
Properties as of a specified date, substantially in the form of Exhibit R or
otherwise in form and detail satisfactory to the Agent.

“Borrowing Base Value” means (a) with respect to a
Collateral Property other than the Florida Property, an amount equal to the
lesser of (i) 70.0% of the Appraised Value of such Collateral Property and
(ii) the Implied Debt Service Coverage Value of such Collateral Property
and (b) with respect to the Florida Property, an amount equal to the
lesser of (i) 70.0% of the Appraised Value of such Collateral Property,
(ii) the Implied Debt Service Coverage Value of such Collateral Property
and (iii) the Florida Sublimit.

“Business Day” means (a) any day other than a Saturday,
Sunday or other day on which banks in Charlotte, North Carolina or New York,
New York are authorized or required to close and (b) with reference to a
LIBOR Loan, any such day that is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.

“Capital Lease Obligations” of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.

 4
 

 

“Capital Reserves” means, for any period and with respect to
a Property, an amount equal to (a) 4.0% of the gross revenue of such
Property for such period, times (b) a fraction, the numerator of
which is the number of days in such period and the denominator of which is 365.

“Change in Control” means (a)(i) the cessation of
Holdings being the sole managing member of the Borrower or (ii) the
gaining by any member of the Borrower (other than Holdings) of the right to
exercise control or management power over the business and affairs of the
Borrower, except as otherwise expressly permitted in the LLC Agreement and as
required by Applicable Law, (b)(i) the acquisition of ownership, directly
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934, as amended, and the rules of
the SEC thereunder), of Equity Interests representing more than 40% of either
the aggregate ordinary voting power or the aggregate equity value represented
by the issued and outstanding Equity Interests in Holdings, and (ii) the
ownership, directly or indirectly, beneficially or of record, by the Permitted
Investors of Equity Interests in Holdings representing in the aggregate a
lesser percentage of either the aggregate ordinary voting power or the aggregate
equity value represented by the issued and outstanding Equity Interests in
Holdings than such Person or group, (c) the occupation of a majority of
the seats (other than vacant seats) on the board of directors of Holdings by
individuals who were neither (i) nominated by the board of directors of
Holdings or the Permitted Investors nor (ii) appointed by directors so
nominated or (d) the acquisition of direct or indirect Control of Holdings
by any Person or group other than the Permitted Investors.

“Collateral” means any real or personal
property directly or indirectly securing any of the Obligations or any other
obligation of a Person under or in respect of any Loan Document to which it is
a party, and includes, without limitation, all “Collateral” under and as
defined in any Security Deed, all “Contract Documents” as defined in any
Assignment of Contracts, Documents and Rights, any “Management Agreement” as
defined in any Property Management Contract Assignment, all “Leases and Rents”
as defined in any Assignment of Leases and Rents, all “Collateral” as defined
in the Pledge Agreement, all “Collateral” as defined in the Security Agreement,
and all other property subject to a Lien created by a Security Document.

“Collateral Account” means a special non-interest bearing
deposit account or securities account maintained by, or on behalf of, the Agent
and under its sole dominion and control.

“Collateral Property” means a Property which
the Agent and the Requisite Lenders have agreed to include in calculations of
the Borrowing Base pursuant to Section 4.1. and for which each of the conditions set forth in
Section 4.2. have been
satisfied or waived pursuant to Section 13.6.

“Commitment” means, as to each Lender (other than the
Swingline Lender), such Lender’s obligation (a) to make Revolving Loans
pursuant to Section 2.1., (b) to issue (in the case of the Lender
then acting as Agent) or participate in (in the case of the other Lenders)
Letters of Credit pursuant to Section 2.3.(a) and 2.3.(i), respectively
(but in the case of the Lender acting as the Agent excluding the aggregate
amount of participations in the Letters of Credit held by the other Lenders),
and (c) to participate in Swingline Loans pursuant to
Section 2.2.(e), in each case, in an amount up to, but not exceeding, the
amount set forth for such 

 5
 

 

Lender on its
signature page hereto as such Lender’s “Commitment Amount” or as set forth in
the applicable Assignment and Assumption, as the same may be reduced from time
to time pursuant to Section 2.11. or increased or reduced as appropriate
to reflect any assignments to or by such Lender effected in accordance with
Section 13.5.

“Commitment Percentage” means, as to each Lender, the ratio,
expressed as a percentage, of (a) the amount of such Lender’s Commitment to
(b) the aggregate amount of the Commitments of all Lenders; provided,
however, that if at the time of determination the Commitments have terminated
or been reduced to zero, the “Commitment Percentage” of each Lender shall be
the Commitment Percentage of such Lender in effect immediately prior to such
termination or reduction.

“Compliance Certificate” has the meaning given that term in
Section 9.3.(a).

“Communications” has the meaning given that term in
Section 9.5.(d).

“Consolidated EBITDA” means, for any period, Consolidated Net
Income for such period plus without duplication and to the extent deducted in
determining such Consolidated Net Income, the sum of (i) consolidated
interest expense for such period, (ii) consolidated income tax expense for
such period, (iii) all amounts attributable to depreciation and
amortization for such period (excluding amortization expense attributable to a
prepaid cash item that was paid in a prior period and excluding depreciation
expense of minority interests in consolidated joint ventures), (iv) other
non-operating expense or loss (or, if applicable, minus non-operating income or
gain) (in each case as defined in the Combined Statement of Operations and
Comprehensive Loss of Holdings) for such period, (v) non-cash expenses
resulting from the grant of stock options or other equity-related incentives to
any director, officer or employee of Holdings, the Borrower or any Subsidiary
pursuant to a written plan or agreement approved by the board of directors of
Holdings, (vi) non-cash exchange, translation or performance losses
relating to any foreign currency hedging transactions or currency fluctuations
and (vii) all amounts attributable to equity in income/loss of
Unconsolidated Affiliates; provided that Consolidated EBITDA for the four
fiscal quarter periods ended September 30, 2006 and December 31, 2006
shall be determined on a pro forma basis giving effect to the Formation and
Structuring Transactions as if they occurred on the first day of each such four
consecutive fiscal quarter period (including cost savings to the extent such
cost savings would be permitted to be reflected in pro forma financial
information complying with the requirements of GAAP and Article XI of
Regulation S-X under the Securities Act, as interpreted by the Staff of
the SEC, and as certified by a Financial Officer).

“Consolidated Net Income” means, for any period, the net
income or loss of Holdings, the Borrower and the Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP provided that
there shall be excluded (a) the income of any Subsidiary to the extent
that the declaration or payment of dividends or other distributions by such
Subsidiary of that income is not at the time permitted by Applicable Law or any
agreement or instrument applicable to such Subsidiary, except to the extent of
the amount of cash dividends or other cash distributions actually paid to the
Borrower or any Subsidiary during such period to the extent such dividends or
distribution are attributable to the operating income of such Subsidiary,
(b) the 

 6
 

 

income of any
Unconsolidated Affiliate, except to the extent of the amount of cash dividends
or other cash distributions actually paid to the Borrower or any Subsidiary
during such period to the extent such dividends or distribution are
attributable to the operating income of such Unconsolidated Affiliate, and
(c) the income of the Excluded Subsidiary.

“Consulting Agreement” means the consulting agreement, dated
as of June 24, 2005, by and between Morgans Hotel Group LLC and Ian
Schrager.

“Continue”, “Continuation”
and “Continued” each refers to the
continuation of a LIBOR Loan from one Interest Period to another Interest
Period pursuant to Section 2.8.

“Control” means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies, or
the dismissal or appointment of the management, of a Person, whether through
the ability to exercise voting power, by contract or otherwise. “Controlling”
and “Controlled” have meanings correlative thereto.

“Convert”, “Conversion” and
“Converted” each refers to the
conversion of a Revolving Loan of one Type into a Revolving Loan of another
Type pursuant to Section 2.9.

“Credit Event” means any of the following: (a) the
making (or deemed making) of any Loan, (b) the Continuation of a LIBOR
Loan, (c) the Conversion of a Base Rate Loan into a LIBOR Loan, and
(d) the issuance of a Letter of Credit.

“Default” means any of the events specified in
Section 11.1., whether or not there has been satisfied any requirement for
the giving of notice, the lapse of time, or both.

“Defaulting Lender” has the meaning given that term in
Section 3.11.

“Development Debt” means Indebtedness of a Subsidiary that is
a special purpose entity relating to a development project in respect of which
interest is being capitalized in accordance with GAAP and for which payment has
been provided for, provided that such Indebtedness is not recourse to the Loan
Parties, and provided further  that such
Indebtedness shall cease to constitute Development Debt on the date on which
interest with respect to such Indebtedness is not required to be capitalized in
accordance with GAAP.

“Disqualified Equity Interests” means Equity Interests that
(a) mature or are mandatorily redeemable or subject to mandatory
repurchase or redemption or repurchase at the option of the holders thereof, in
each case in whole or in part and whether upon the occurrence of any event,
pursuant to a sinking fund obligation on a fixed date or otherwise, prior to
the date that is 180 days after the Termination Date (other than
(i) upon payment in full of the Obligations and termination of the
Commitments or (ii) upon a “change in control”; provided that any
payment required pursuant to this clause (ii) is contractually
subordinated in right of payment to the Obligations on terms reasonably
satisfactory to the Agent and such requirement is applicable only in
circumstances that are market on the date of issuance of such Equity
Interests), (b) require the maintenance or achievement of any financial
performance standards other than as a condition to the taking of specific
actions, or provide remedies to holders thereof (other than 

 7
 

 

voting and
management rights and increases in pay-in-kind dividends) or (c) are
convertible or exchangeable, automatically or at the option of any holder
thereof, into any Indebtedness (other than Indebtedness permitted under
Section 10.1.), Equity Interests or other assets other than Qualified
Equity Interests or Trust Preferred Securities otherwise permitted hereunder.

“Dollars” or “$” means the
lawful currency of the United States of America.

“Effective Date” means the later of: (a) the Agreement
Date; and (b) the date on which all of the conditions precedent set forth
in Section 6.1. shall have been fulfilled or waived in writing by the
Requisite Lenders.

“Eligible Assignee”
means (a) a Lender, (b) an affiliate of a Lender, (c) an
Approved Fund, and (d) any other Person (other than a natural person)
approved by (i) the Agent and (ii) unless a Default or Event of
Default shall exist, the Borrower (each such approval not to be unreasonably
withheld or delayed); provided that notwithstanding the foregoing, “Eligible
Assignee” shall not include the Borrower or any of the Borrower’s Affiliates or
Subsidiaries.

“Eligible Property” means a Property which
satisfies all of the following requirements: (a) such Property is a full
service lodging Property; (b) all material occupancy and operating permits
and licenses relating to the use, occupancy, operation, maintenance, enjoyment
or ownership of such Property have been obtained with respect to such Property;
(c) at the time the Borrower is requesting that such Property be included
as a Collateral Property, such Property is open for business to the public and
has been continuously operating for the immediately preceding twelve month
period; (d) such Property is either managed by (i) the Borrower, any of its
Subsidiaries or any Affiliate or (ii) a nationally recognized third-party
property management company approved by the Agent and Requisite Lenders;
(e) at the time the Borrower is requesting that such Property be included
as a Collateral Property, such Property is free of title defects that
materially affect the marketability of such Property (excluding Liens securing
any Indebtendess to be repaid by the time such Property is included as a
Collateral Property); (f) the Property is owned in fee simple, or, with
the consent of the Agent, leased under a Ground Lease; (g) such Property
is free of all structural defects, environmental conditions or other adverse
matters except for defects, deficiencies, conditions or other matters
individually or collectively which are not material to the profitable operation
of such Property.

“Environmental Indemnity Agreement” means an
Environmental Indemnity Agreement executed by a Loan Party in favor of the
Agent and the Lenders and substantially in the form of Exhibit M.

“Environmental Laws” means any Applicable Law relating to
environmental protection or the manufacture, storage, remediation, disposal or
clean-up of Hazardous Materials including, without limitation, the following:
Clean Air Act, 42 U.S.C. § 7401 et seq.; Federal Water Pollution Control Act,
33 U.S.C. § 1251 et seq.; Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601
et seq.; National Environmental Policy Act, 42 U.S.C. § 4321 et seq.;
regulations of the Environmental Protection 

 8
 

 

Agency and any
applicable rule of common law and any judicial interpretation thereof relating
primarily to the environment or Hazardous Materials.

“Equity Interests” means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person.

“Equity Issuance” means any issuance by a Person of any
Equity Interest in such Person and shall in any event include the issuance of
any Equity Interest upon the conversion or exchange of any security
constituting Indebtedness that is convertible or exchangeable, or is being
converted or exchanged, for Equity Interests.

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

“ERISA Group” means the Borrower, any Subsidiary and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower or any Subsidiary, are treated as a single employer under
Section 414 of the Internal Revenue Code.

“Event of Default” means any of the events specified in
Section 11.1., provided that any requirement for notice or lapse of time
or any other condition has been satisfied.

“Excluded Subsidiary” means Clift Holdings LLC, a Delaware
limited liability company.

“Exempt Subsidiary” means any Subsidiary (a) holding
title to or beneficially owning assets in which Liens have been or are intended
to be granted as security for Indebtedness of such Subsidiary, or that is a
beneficial owner of a Subsidiary holding title to or beneficially owning such
assets (but having no material assets other than such beneficial ownership
interests) and (b) which (i) is, or is expected to be, prohibited
from Guaranteeing the Indebtedness of any other Person pursuant to any
document, instrument or agreement evidencing such Indebtedness or (ii) is
prohibited from Guaranteeing the Indebtedness of any other Person pursuant to a
provision of such Subsidiary’s organizational documents which provision was
included in such Subsidiary’s organizational documents as a condition or
anticipated condition to the extension of such Indebtedness.

“Existing Credit Agreements” means (i) that certain
Credit Agreement dated as of February 17, 2006 by and among Holdings, the
Borrower, the lenders party thereto, Citicorp North America, Inc., as
Administrative Agent, and the other parties thereto and (ii) that certain
Credit Agreement dated as of February 17, 2006 by and among Holdings,
Morgans Hotel Group Management LLC, the lenders party thereto, Citicorp North
America, Inc., as Administrative Agent, and the other parties thereto.

“Federal Funds Rate” means, for any day, the rate per annum
(rounded upward to the nearest 1/100th of 1%) equal to the weighted average of
the rates on overnight Federal funds 

 9
 

 

transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day, and (b) if no such rate is so published on
such next succeeding Business Day, the Federal Funds Rate for such day shall be
the average rate quoted to the Agent by federal funds dealers selected by the
Agent on such day on such transaction as determined by the Agent.

“Fees” means the fees and commissions provided for or
referred to in Section 3.6. and any other fees payable by the Borrower
hereunder or under any other Loan Document.

“Financial Officer” means the chief financial officer,
principal accounting officer, treasurer or controller of Holdings and for purposes
of Section 9.4.(e), shall include the chief executive officer of Holdings.

“FIRREA” means the Financial Institution
Recovery, Reform and Enforcement Act of 1989, as amended.

“Fixed Charges” means, for any period, the sum of
(a) total interest expense of Holdings, the Borrower and its Subsidiaries,
including capitalized interest not funded under a construction loan interest
reserve account, in each case determined on a consolidated basis (but excluding
the Excluded Subsidiary and interest expense allocable to the minority interest
share of Indebtedness of any Subsidiary) in accordance with GAAP for such
period, (b) all regularly scheduled principal payments made with respect
to Indebtedness of Holdings, the Borrower and its Subsidiaries (other than the
Excluded Subsidiary and such principal payments to the extent allocable to the
minority interest share of Indebtedness of any Subsidiary) during such period,
other than any balloon, bullet or similar principal payment which repays such
Indebtedness in full, and (c) all Preferred Dividends paid during such
period. Fixed Charges for the four consecutive fiscal quarter periods ended
September 30, 2006 and December 31, 2006 shall be determined on a pro
forma basis giving effect to the Formation and Structuring Transactions as if
they occurred on the first day of each such four consecutive fiscal quarter
period (including cost savings to the extent such cost savings would be
permitted to be reflected in pro forma financial information complying with the
requirements of GAAP and Article XI of Regulation S-X under the
Securities Act, as interpreted by the Staff of the SEC, and as certified by a
Financial Officer).

“Florida Borrower” has the meaning set forth in the
introductory paragraph hereof and shall include the Florida Borrower’s
successors and permitted assigns.

“Florida Property” means the Delano Hotel located in Miami,
Florida.

“Florida Sublimit” means an amount equal to $65,166,598.61,
which is the maximum principal amount of Obligations secured by the Security
Deed encumbering the Florida Property, as such amount may be increased in
accordance with Section 4.7.

“Foreign Lender” means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is resident for
tax purposes. For purposes of this 

 10
 

 

definition, the
United States of America, each State thereof and the District of Columbia shall
be deemed to constitute a single jurisdiction.

“Foreign Subsidiary”
means a Subsidiary that is not incorporated or organized under the laws of any
state of the United States or the District of Columbia.

“Formation and Structuring Transactions” means the formation
and structuring transactions described on Schedule 1.1.(A).

“GAAP” means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.

“Governmental Approvals” means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all Governmental Authorities.

“Governmental Authority” means any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasi-governmental, judicial, public or statutory
instrumentality, authority, body, agency, bureau, commission, board, department
or other entity (including, without limitation, the Federal Deposit Insurance
Corporation, the Comptroller of the Currency or the Federal Reserve Board, any
central bank or any comparable authority) or any arbitrator with authority to
bind a party at law.

“Ground Lease” means a ground
lease containing the following terms and conditions: (a) a remaining term
(exclusive of any unexercised extension options) of 40 years or more from the
Agreement Date; (b) the right of the lessee to mortgage and encumber its
interest in the leased property without the consent of the lessor; (c) the
obligation of the lessor to give the holder of any mortgage Lien on such leased
property written notice of any defaults on the part of the lessee and agreement
of such lessor that such lease will not be terminated until such holder has had
a reasonable opportunity to cure or complete foreclosures, and fails to do so;
(d) reasonable transferability of the lessee’s interest under such lease,
including ability to sublease; and (e) such other rights customarily
required by mortgagees making a loan secured by the interest of the holder of
the leasehold estate demised pursuant to a ground lease.

“Guarantee” of or by any Person (the “guarantor”)
means any obligation, contingent or otherwise, of the guarantor guaranteeing or
having the economic effect of guaranteeing any Indebtedness or other obligation
of any other Person (the “primary obligor”) in any manner, whether
directly or indirectly, and including any obligation of the guarantor, direct
or indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation or to purchase
(or to advance or supply funds for the purchase of) any security for the
payment thereof, (b) to purchase or lease property, securities or services for
the purpose of assuring the owner of such Indebtedness or other obligation of
the payment thereof, (c) to maintain working capital, equity capital or any
other financial statement condition 

 11
 

 

or liquidity of
the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation, provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.

“Guarantor” means any Person that is a party to the Guaranty
as a “Guarantor” and in any event shall include Holdings, the Management
Company and each Material Subsidiary (unless an Exempt Subsidiary or a Foreign
Subsidiary).

“Guaranty” means the Guaranty to which the Guarantors are
parties substantially in the form of Exhibit J.

“Hazardous Materials” means all or any of the following:
(a) substances that are defined or listed in, or otherwise classified
pursuant to, any applicable Environmental Laws as “hazardous substances”, “hazardous
materials”, “hazardous wastes”, “toxic substances” or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, “TCLP” toxicity or “EP toxicity”; (b) oil,
petroleum or petroleum derived substances, natural gas, natural gas liquids or
synthetic gas and drilling fluids, produced waters and other wastes associated
with the exploration, development or production of crude oil, natural gas or
geothermal resources; (c) any explosives or any radioactive materials;
(d) asbestos in any form; (e) toxic mold; and (f) electrical
equipment which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million.

“Holdings” has the meaning set forth in the introductory
paragraph hereof and shall include Holding’s successors and permitted assigns.

“Implied Debt Service Coverage Value” means, as of any date
of determination and with respect to any Collateral Property, an amount equal
to (a) the Net Operating Income of such Collateral Property for the most
recently ending period of four consecutive fiscal quarters of the Borrower divided
by (b) 1.35, divided by (c) the mortgage constant for a
30-year loan bearing interest at a per annum rate equal to the greater of
(i) the yield on a 10-year United States Treasury Note plus 1.75% and
(ii) 7.00%.

“Indebtedness” of any Person means, without duplication,
(a) all obligations of such Person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charges are customarily paid,
(d) all obligations of such Person under conditional sale or other title
retention agreements relating to property acquired by such Person, (e) all
obligations of such Person in respect of the deferred purchase price of
property or services (excluding trade accounts payable and other accrued
obligations, in each case incurred in the ordinary course of business),
(f) all Indebtedness of others 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 owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (g) all Guarantees by such
Person of Indebtedness of others, (h) all Capital Lease Obligations of
such Person, (i) all obligations,

 12
 

 

contingent or otherwise,
of such Person as an account party in respect of letters of credit and letters
of guaranty and (j) all obligations,  contingent or otherwise, of such Person in
respect of bankers’ acceptances. The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person’s ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor. Notwithstanding the foregoing, in connection
with any Permitted Acquisition, the term “Indebtedness” shall not include
contingent post-closing purchase price adjustments or earn-outs to which the
seller in such Permitted Acquisition may become entitled.

“Indemnified Cost” has the meaning given that term in
Section 13.9.(a).

“Indemnified Party” has the meaning given that term in
Section 13.9.(a).

“Indemnity Proceeding” has the meaning given that term in
Section 13.9.(a).

“Information” has the meaning given that term in
Section 9.5.(a).

“Intellectual Property” has the meaning given that term in
Section 7.1.(t).

“Interest Period” means with respect to any LIBOR Loan, each
period commencing on the date such LIBOR Loan is made, or in the case of the
Continuation of a LIBOR Loan the last day of the preceding Interest Period for
such Loan, and ending 1, 2, 3 or 6 months or, if available from all of the
Lenders, 9 months or 1 year thereafter, as the Borrower may select in a Notice
of Borrowing, Notice of Continuation or Notice of Conversion, as the case may
be, except that each Interest Period that commences on the last Business Day of
a calendar month, or on a date for which there is no corresponding date in the
appropriate subsequent calendar month, shall end on the last Business Day of
the appropriate subsequent calendar month. Notwithstanding the foregoing:
(i) if any Interest Period would otherwise end after the Termination Date,
such Interest Period shall end on the Termination Date; and (ii) each
Interest Period that would otherwise end on a day which is not a Business Day
shall end on the immediately following Business Day (or, if such immediately
following Business Day falls in the next calendar month, on the immediately
preceding Business Day).

“Internal Revenue Code” means the Internal Revenue Code of
1986, as amended.

“L/C Commitment Amount” equals $50,000,000.

“Lender” means each financial institution from time to time
party hereto as a “Lender,” together with its respective successors and
permitted assigns, and as the context requires, includes the Swingline Lender.

“Lending Office” means, for each Lender and for each Type of
Loan, the office of such Lender specified as such on its signature page hereto
or in the applicable Assignment and 

 13
 

 

Assumption, or
such other office of such Lender of which such Lender may notify the Agent in
writing from time to time.

“Letter of Credit” has the meaning given that term in
Section 2.3.(a).

“Letter of Credit Documents” means, with respect to any
Letter of Credit, collectively, any application therefor, any certificate or
other document presented in connection with a drawing under such Letter of
Credit and any other agreement, instrument or other document governing or
providing for (a) the rights and obligations of the parties concerned or
at risk with respect to such Letter of Credit or (b) any collateral
security for any of such obligations.

“Letter of Credit Liabilities” means, without duplication, at
any time and in respect of any Letter of Credit, the sum of (a) the Stated
Amount of such Letter of Credit plus (b) the aggregate unpaid principal amount
of all Reimbursement Obligations of the Borrower at such time due and payable
in respect of all drawings made under such Letter of Credit. For purposes of
this Agreement, a Lender (other than the Lender acting as the Agent) shall be
deemed to hold a Letter of Credit Liability in an amount equal to its
participation interest in the related Letter of Credit under
Section 2.3.(i), and the Lender acting as the Agent shall be deemed to
hold a Letter of Credit Liability in an amount equal to its retained interest
in the related Letter of Credit after giving effect to the acquisition by the
Lenders other than the Lender acting as the Agent of their participation
interests under such Section.

“Leverage Ratio” means, on any date, the ratio of
(a) Total Indebtedness as of such date to (b) Consolidated EBITDA for
the period of four consecutive fiscal quarters of the Borrower ended on such
date (or, if such date is not the last day of a fiscal quarter, ended on the
last day of the fiscal quarter of the Borrower most-recently ended prior to
such date).

“LIBOR”
means, for any LIBOR Loan and any Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If for any reason such rate is not available, the term “LIBOR”
shall mean, for any LIBOR Loan and any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
the Reuters Screen LIBO Page as the London interbank offered rate for deposits
in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period; provided, however, if more than one rate is specified on the Reuters
Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such
rates. If for any reason none of the foregoing rates is available, LIBOR shall
be, for any LIBOR Loan and any Interest Period therefor, the rate per annum
reasonably determined by the Agent as the rate of interest at which Dollar
deposits in the approximate amount of the LIBOR Loan comprising part of such
borrowing would be offered by the Agent to major banks in the London interbank
Eurodollar market at their request at or about 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period.

“LIBOR Loan” means a Revolving Loan bearing interest at a
rate based on LIBOR.

 14

 

“Lien” means, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or
security interest in, on or of such asset, (b) the interest of a vendor or
a lessor under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic effect
as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.

“LLC Agreement” means the amended and restated limited
liability agreement of the Borrower dated as of February 17, 2006 as amended
from time to time to the extent not prohibited by Section 10.10.

“Loan” means a Revolving Loan or a Swingline Loan.

“Loan Document” means this Agreement, each Note, each Letter
of Credit Document, the Guaranty, each Security Document and each other
document or instrument (other than a Swap Agreement) now or hereafter executed
and delivered by a Loan Party in connection with, pursuant to or relating to
this Agreement.

“Loan Party” means Holdings, the Borrower, the Florida
Borrower or any other Guarantor. Schedule 1.1.(B) sets forth the Loan Parties in addition to the Borrower
and Holdings as of the Agreement Date.

“Management Company” means Morgans Hotel Group Management
LLC, a limited liability company formed under the laws of the State of
Delaware, and its successors and permitted assigns.

“Material Adverse Effect” means a materially adverse effect
on (a) the business, assets, liabilities, financial condition or  results of operations of the Borrower and its
Subsidiaries taken as a whole, (b) the ability of the Borrower or any
other Loan Party to perform its obligations under any Loan Document to which it
is a party, (c) the validity or enforceability of any of the Loan
Documents, (d) the rights and remedies of the Lenders and the Agent under
any of the Loan Documents or (e) the timely payment of the principal of or
interest on the Loans or other amounts payable in connection therewith or the
timely payment of all Reimbursement Obligations.

“Material Contract” means any contract or other arrangement
(other than Loan Documents), whether written or oral, to which the Borrower,
any Subsidiary or any other Loan Party is a party as to which the breach,
nonperformance, cancellation or failure to renew by any party thereto could
reasonably be expected to have a Material Adverse Effect.

“Material Indebtedness” means Indebtedness (other than the
Loans), or obligations in respect of one or more Swap Agreements, of any one or
more of Holdings, the Borrower and the Subsidiaries that are Loan Parties in an
aggregate principal amount exceeding $10,000,000. For purposes of determining
Material Indebtedness, the “principal amount” of the obligations of Holdings,
the Borrower or any Subsidiary that is a Loan Party in respect of any Swap
Agreement 

 15
 

 

at any time shall
be the maximum aggregate amount (giving effect to any netting agreements) that
Holdings, the Borrower or such Subsidiary would be required to pay if such Swap
Agreement were terminated at such time.

“Material Subsidiary” means any Subsidiary (a) that owns
or leases a Property developed as a hotel or other lodging facility;
(b) that operates or provides management services to any Person that owns
or operates, Property developed as a hotel or other lodging facility; or
(c) that owns, operates, leases or has an interest in, any Property
developed as bar or restarant.

“Moody’s” means Moody’s Investors Service, Inc., and its
successors.

“Multiemployer Plan” means at any time a multiemployer plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.

“Net Operating Income” means, for any Property and for a
given period, the sum of the following (without duplication and determined on a
consistent basis with prior periods): (a) room rents and other revenues
received in the ordinary course from such Property (including proceeds of
business interruption insurance) minus (b) all expenses paid
(excluding interest but including an appropriate accrual for property taxes and
insurance) related to the ownership, operation or maintenance of such Property,
including but not limited to property taxes, assessments and the like,
insurance, utilities, payroll costs, maintenance, repair and landscaping
expenses, marketing expenses, and general and administrative expenses
(including an appropriate allocation for legal, accounting, advertising,
marketing and other expenses incurred in connection with such Property, but specifically
excluding general overhead expenses of the Borrower or any Subsidiary and any
property management fees) minus (c) the Capital Reserves for such
Property as of the end of such period minus (d) the greater of
(i) the actual property management fee paid during such period and
(ii) an imputed management fee in the amount of 4.0% of the gross revenues
for such Property for such period.

“Note” means a Revolving Note or a Swingline Note.

“Notice of Borrowing” means a notice in the form of
Exhibit B to be delivered to the Agent pursuant to Section 2.1.(b)
evidencing the Borrower’s request for a borrowing of Revolving Loans.

“Notice of Continuation” means a notice in the form of
Exhibit C to be delivered to the Agent pursuant to Section 2.8.
evidencing the Borrower’s request for the Continuation of a LIBOR Loan.

“Notice of Conversion” means a notice in the form of
Exhibit D to be delivered to the Agent pursuant to Section 2.9.
evidencing the Borrower’s request for the Conversion of a Loan from one Type to
another Type.

 16
 

 

“Notice of Swingline Borrowing” means a notice in the form of
Exhibit E to be delivered to the Agent pursuant to Section 2.2.
evidencing the Borrower’s request for a Swingline Loan.

“NY Properties” means the Morgans Hotel located in New York,
New York and the Royalton Hotel located in New York, New York.

“Obligations” means, individually and collectively:
(a) the aggregate principal balance of, and all accrued and unpaid
interest on, all Loans; (b) all Reimbursement Obligations and all other
Letter of Credit Liabilities; and (c) all other indebtedness, liabilities,
obligations, covenants and duties of the Borrower and the other Loan Parties
owing to the Agent or any Lender (or, in the case of a Swap Agreement or
Treasury Management Services Agreement, any affiliate of any Lender) of every
kind, nature and description, under or in respect of this Agreement or any of
the other Loan Documents or any Swap Agreement or Treasury Management Services
Agreement entered into by the Borrower with Person that is or was a Lender (or
any affiliate of any Lender) at the time such Swap Agreement or Treasury
Management Services Agreement was executed, including, without limitation, the
Fees and indemnification obligations, whether direct or indirect, absolute or contingent,
due or not due, contractual or tortious, liquidated or unliquidated, and
whether or not evidenced by any promissory note.

“OFAC” means U.S. Department of the Treasury’s Office of
Foreign Assets Control and any successor Governmental Authority.

“Participant” has the meaning given that term in
Section 13.5.(d).

“PBGC” means the Pension Benefit Guaranty Corporation and any
successor agency.

“Permitted Acquisition” means any acquisition by the Borrower
or a Wholly Owned Subsidiary of all the outstanding Equity Interests (other
than directors’ qualifying shares) in, all or substantially all the assets of,
or all or substantially all the assets constituting a division or line of
business of, a Person if (a) no Default or Event of Default has occurred
and is continuing or would result therefrom, (b) such acquisition and all
transactions related thereto are consummated in accordance with applicable
laws, (c) the Borrower is in compliance, on a Pro Forma Basis after giving
effect to such acquisition as of the last day of the most-recently ended fiscal
quarter of the Borrower, with the covenants contained in Section 10.11.,
(d) the business of such Person or such assets, as the case may be,
constitutes a business permitted by Section 10.3.(b), and (e) the
Borrower has delivered to the Agent a certificate of a Financial Officer to the
effect set forth in clauses (a), (b), (c), and (d) above, together with
all relevant financial information for the Person or assets to be acquired and
setting forth reasonably detailed calculations demonstrating compliance with
clause (c) above (which calculations shall, if made as of the last day of
any fiscal quarter of the Borrower for which the Borrower has not delivered to
the Agent the financial statements and certificate of a Financial Officer
required to be periodically delivered by Sections 9.1. and 9.2. and
Section 9.3.(a), respectively, be accompanied by a reasonably detailed
calculation of Consolidated EBITDA and Fixed Charges for the relevant period).

 17
 

 

“Permitted Investments” means (a) direct obligations of,
or obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of America (or by any agency thereof to the
extent such obligations are backed by the full faith and credit of the United
States of America), in each case maturing within one year from the date of
acquisition thereof; (b) investments in commercial paper maturing within
270 days from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P or from Moody’s;
(c) investments in certificates of deposit, banker’s acceptances and time
or demand deposits maturing within 180 days from the date of acquisition
thereof issued or guaranteed by or placed with, and money market deposit
accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State thereof
that has a combined capital and surplus and undivided profits of not less than
$500,000,000; (d) fully collateralized repurchase agreements with a term
of not more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria described in
clause (c) above; and (e) investments in “money market funds” within
the meaning of Rule 2a-7 of the Investment Company Act of 1940, as
amended, substantially all of whose assets are invested in investments of the
type described in clauses (a) through (d) above.

“Permitted Investors” means NCIC MHG Subsidiary LLC, North
Star Partnership, L.P., W. Edward Scheetz, David T. Hamamoto and Marc Gordon.

“Permitted Liens” means (a) Liens imposed by law for
taxes, assessments or other governmental charges that are not yet due or are
being contested in compliance with Section 8.5.; (b) carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlords’ and other
like Liens imposed by law, arising in the ordinary course of business and
securing obligations that are not overdue by more than 30 days or are being
contested in compliance with Section 8.5.; (c) pledges and deposits
made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or
regulations; (d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature, in each case in the ordinary
course of business; (e) judgment liens in respect of judgments that do not
constitute an Event of Default under Section 11.1.(k); (f) easements,
zoning restrictions, rights-of-way and similar encumbrances on real property
imposed by law or arising in the ordinary course of business that do not secure
any monetary obligations and do not materially detract from the value of the
affected property or interfere with the ordinary conduct of business of the
Borrower or any Subsidiary; and (g) Liens arising from Permitted
Investments described in clause (d) of the definition of the term “Permitted
Investments”.

“Person” means an individual, corporation, partnership,
limited liability company, association, trust or unincorporated organization,
or a government or any agency or political subdivision thereof.

“Plan” means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (a) is maintained, or contributed to, by any
member of the ERISA Group for employees of any member of the ERISA Group or
(b) has at 

 18
 

 

any time within
the preceding five years been maintained, or contributed to, by any Person
which was at such time a member of the ERISA Group for employees of any Person
which was at such time a member of the ERISA Group.

“Platform” has the meaning given that term in
Section 9.5.(a).

“Pledge Agreement” means the Pledge Agreement to which
various Loan Parties are parties substantially in the form of Exhibit P.

“Post-Default Rate” means a rate per annum equal to the Base
Rate as in effect from time to time plus the Applicable Margin for Base
Rate Loans plus four percent (4.0%).

“Preferred Dividends” means, for any period and without
duplication, all Restricted Payments paid during such period on Preferred
Equity Interests issued by Holdings, the Borrower or a Subsidiary. Preferred
Dividends shall not include dividends or distributions (a) paid or payable
solely in Equity Interests payable to holders of such class of Equity Interests;
(b) paid or payable to Holdings, the Borrower or a Subsidiary; or
(c) constituting or resulting in the redemption of Preferred Equity
Interests, other than scheduled redemptions not constituting balloon, bullet or
similar redemptions in full. Payments made with respect to the Trust Preferred
Securities will be considered Preferred Dividends.

“Preferred Equity Interest” means, with respect to any
Person, Equity Interests in such Person which are entitled to preference or
priority over any other Equity Interest in such Person in respect of the
payment of dividends or distribution of assets upon liquidation or both, and in
the case of the Borrower, shall include the Trust Preferred Securities.
Preferred Equity Interests include Equity Interests in the form of preferred
stock, trust preferred securities and other similar securities with regularly
scheduled cash or payment-in-kind dividend payments and other “debt-like”
characteristics, but do not include customary real estate joint venture and
other similar equity ownership arrangements, even if such arrangements involve
some disproportionate sharing of cash flows of the applicable entity.

“Prime Rate” means the rate of interest per annum announced
publicly by the Lender then acting as the Agent as its prime rate from time to
time. The Prime Rate is not necessarily the best or the lowest rate of interest
offered by the Lender acting as the Agent or any other Lender.

“Principal Office” means the address of the Agent specified
in Section 13.1., or any
subsequent office which the Agent shall have specified by written notice to the
Borrower and Lenders as the Principal Office referred to herein, to which
payments due are to be made and at which Loans will be disbursed and Letters of
Credit requested.

“Pro Forma Basis” means, with respect to the calculation of
the financial covenants contained in Section 10.11. and the negative
covenant contained in Section 10.1.(a)(iii) as of any date, that such
calculation shall give pro forma effect to all acquisitions and other investments,
all issuances, incurrences or assumptions of Indebtedness (with any such
Indebtedness being deemed to be amortized during the applicable testing period
in accordance with its terms) and all sales, 

 19
 

 

transfers or other
dispositions of any material assets outside the ordinary course of business
that have occurred during (or, if such calculation is being made for the
purpose of determining whether any proposed acquisition will constitute a
Permitted Acquisition, any Additional Mortgage Indebtedness may be incurred,
since the beginning of) the four consecutive fiscal quarter period of the
Borrower most-recently ended on or prior to such date as if they occurred on
the first day of such four consecutive fiscal quarter period (including cost
savings to the extent such cost savings would be permitted to be reflected in
pro forma financial information complying with the requirements of GAAP and
Article XI of Regulation S-X under the Securities Act, as interpreted
by the Staff of the SEC, and as certified by a Financial Officer).

“Property” means any parcel of real property owned or leased
(in whole or in part) or operated by the Borrower or any Subsidiary.

“Property Management Agreement” means, collectively, all
agreements entered into by a Loan Party pursuant to which such Loan Party
engages a Person to advise it with respect to the management of a Collateral
Property.

“Property Management Contract Assignment” means a an
Assignment of Management Agreement and Subordination of Management Fees
executed by a Loan Party in favor of the Agent for the benefit of the Lenders
substantially in the form of Exhibit O or otherwise in form and substance
reasonably satisfactory to the Agent. Such document may, at the Agent’s
election, constitute a subordination of the relevant Property Management
Agreement, rather than an assignment thereof.

“Qualified Equity Interests” means Equity Interests of
Holdings or the Borrower other than Disqualified Equity Interests.

“Register” has the meaning given that term in
Section 13.5.(c).

“Regulatory Change” means, with respect to any Lender, any
change effective after the Agreement Date in Applicable Law (including without
limitation, Regulation D of the Board of Governors of the Federal Reserve
System) or the adoption or making after such date of any interpretation,
directive or request applying to a class of banks, including such Lender, of or
under any Applicable Law (whether or not having the force of law and whether or
not failure to comply therewith would be unlawful) by any Governmental
Authority or monetary authority charged with the interpretation or
administration thereof or compliance by any Lender with any request or
directive regarding capital adequacy.

“Reimbursement Obligation” means the absolute, unconditional
and irrevocable obligation of the Borrower to reimburse the Agent for any
drawing honored by the Agent under a Letter of Credit.

“Requisite Lenders” means, as of any date, Lenders having
more than 50.0% of the aggregate amount of the Commitments (not held by
Defaulting Lenders, who are not entitled to vote), or, if the Commitments have
been terminated or reduced to zero, Lenders holding more than 50.0% of the
principal amount of the aggregate outstanding Loans and Letter of Credit 

 20
 

 

Liabilities (not
held by Defaulting Lenders, who are not entitled to vote). Commitments,
Revolving Loans and Letter of Credit Liabilities held by Defaulting Lenders
shall be disregarded when determining the Requisite Lenders. For purposes of
this definition, a Lender (other than the Swingline Lender) shall be deemed to
hold a Swingline Loan or a Letter of Credit Liability to the extent such Lender
has acquired a participation therein under the terms of this Agreement and has
not failed to perform its obligations in respect of such participation.

“Restricted Payment” means any dividend or other distribution
(whether in cash, securities or other property) with respect to any Equity
Interests in Holdings, the Borrower or any Subsidiary, or any payment (whether
in cash, securities or other property), including any sinking fund or similar
deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any Equity Interests in Holdings, the Borrower
or any Subsidiary or any option, warrant or other right to acquire any such
Equity Interests in Holdings, the Borrower or any Subsidiary, or any other
payment (including any payment under any Swap Agreement) that has a
substantially similar effect to any of the foregoing.

“Revolving Loan” means a loan made by a Lender to the
Borrower pursuant to Section 2.1.(a)(i) or to the Florida Borrower
pursuant to Section 2.1.(a)(ii).

“Revolving Note” has the meaning given that term in
Section 2.10.(a).

“Sanctioned Entity” means (a) an agency of the
government of, (b) an organization directly or indirectly controlled by,
or (c) a Person resident in, in each case, a country that is subject to a
sanctions program identified on the list maintained by the OFAC and published
from time to time, as such program may be applicable to such agency,
organization or Person.

“Sanctioned Person” means a Person named on the list of
Specially Designated Nationals or Blocked Persons maintained by the OFAC as
published from time to time.

“SEC” means the Securities and Exchange Commission or any
Governmental Authority succeeding to any of its principal functions.

“Securities Act” means the Securities Act of 1933, as amended
from time to time, together with all rules and regulations issued thereunder.

“Security Agreement” means the Security Agreement to which
various Loan Parties are parties substantially in the form of Exhibit Q.

“Security Deed” means a deed to secure debt,
deed of trust or other mortgage executed by a Loan Party in favor of the Agent
and substantially in the form of Exhibit K or otherwise in form and
substance satisfactory to the Agent.

“Security Document” means any Security Deed,
any Assignment of Contracts, Documents and Rights, any Assignment of Leases and
Rents, any Property Management Contract Assignment, the Pledge Agreement, the Security
Agreement and any other security agreement, financing statement, or other
document, instrument or agreement creating, evidencing 

 21
 

 

or perfecting any
of the Agent’s Liens in any of the Collateral or any Lien of the Borrower in
any Collateral that has been collaterally assisted to the Agent for the benefit
of the Lenders under any Security Document.

“Solvent” means, when used with respect to any Person, that
(a) the fair value and the fair salable value of its assets (excluding any
Indebtedness due from any affiliate of such Person) are each in excess of the
fair valuation of its total liabilities (including all contingent liabilities
computed at the amount which, in light of all the facts and circumstances
existing at such time, represents the amount that could reasonably be expected
to become an actual and matured liability); (b) such Person is able to pay
its debts or other obligations in the ordinary course as they mature; and
(c) such Person has capital not unreasonably small to carry on its business
and all business in which it proposes to be engaged.

“S&P” means Standard & Poor’s Rating Services, a
division of The McGraw-Hill Companies, Inc., and its successors.

“Stated Amount” means the amount available to be drawn by a
beneficiary under a Letter of Credit from time to time, as such amount may be
increased or reduced from time to time in accordance with the terms of such
Letter of Credit.

“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.

“Swap Agreement” means any agreement with respect to any cap,
swap, forward, future or derivative transaction or option or similar agreement
involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial
or pricing indices or measures of economic, financial or pricing risk or value
or any similar transaction or any combination of these transactions,  provided 
that no phantom stock or similar plan providing for payments only on
account of services provided by current or former directors, officers,
employees or consultants of Holdings, the Borrower or the Subsidiaries shall be
a Swap Agreement.

“Swingline Commitment” means the Swingline Lender’s
obligation to make Swingline Loans pursuant to Section 2.2. in an amount
up to, but not exceeding, $25,000,000, as such amount may be reduced from time
to time in accordance with the terms hereof.

“Swingline Lender” means Wachovia, together with its
respective successors and assigns.

“Swingline Loan” means a loan made by the Swingline Lender to
the Borrower pursuant to Section 2.2.(a).

 22
 

 

“Swingline Note” means the promissory note of the Borrower
payable to the order of the Swingline Lender in a principal amount equal to the
amount of the Swingline Commitment as originally in effect and otherwise duly
completed, substantially in the form of Exhibit F.

“Taxes” has the meaning given that term in Section 3.12.

“Termination Date” means October 5, 2011.

“Tie-In Jurisdiction” means a jurisdiction
in which a “tie-in” endorsement may be obtained for a title insurance policy
covering property located in such jurisdiction which endorsement effectively
ties coverage to other title insurance policies covering properties located in
other jurisdictions.

“Titled Agents” means each of the Arrangers, the Syndication
Agent, any documentation agent, any other Person awarded a similar honorific
title in connection with the Agreement, and their respective successors and
permitted assigns.

“Total Assets” means, as of any date, the total assets
(without deducting accumulated depreciation) of Holdings, the Borrower and the
Subsidiaries (other than the Excluded Subsidiary) determined on a consolidated
basis in accordance with GAAP.

“Total Indebtedness” means, as of any date, the aggregate
principal amount of Indebtedness of Holdings, the Borrower and the Subsidiaries
(other than the Excluded Subsidiary) outstanding as of such date determined on
a consolidated basis in accordance with GAAP, provided that the term “Indebtedness”
shall not include Trust Preferred Securities or contingent obligations of
Holdings, the Borrower or any Subsidiary as an account party or applicant in
respect of any letter of credit or letter of guaranty unless such letter of
credit or letter of guaranty supports an obligation that constitutes
Indebtedness minus (a) Development Debt, (b) the aggregate
amount of cash and cash equivalents (other than restricted cash) of Holdings,
the Borrower and the Subsidiaries (other than the Excluded Subsidiary) (in each
case, free and clear of all Liens, other than nonconsensual Liens permitted by
Section 10.2.) included in the consolidated balance sheet of Holdings, the
Borrower and the Subsidiaries (other than the Excluded Subsidiary) in
accordance with GAAP and all obligations to pay the deferred purchase price of
property or services (other than (i) trade accounts payable in the ordinary
course of business and (ii) any earn-out obligation until (A) such obligation
becomes a liability on the consolidated balance sheet of Holdings, the Borrower
and the Subsidiaries (other than the Excluded Subsidiary) in accordance with
GAAP and (B) such obligation is earned by and payable to the applicable seller
under the terms and conditions of the underlying agreement with such seller)
and (c) the minority interest share of Indebtedness of any Subsidiary.

“Treasury Management Services Agreement” means any cash
management, controlled disbursement services, or related services including the
automatic clearing house transfer of funds of the account of the Borrower or
any Subsidiary.

“Trust Preferred Securities” means (a) the $50,000,000
in trust preferred securities issued by MHG Capital Trust I, a Subsidiary
of the Borrower, the proceeds of which were used 

 23
 

 

by such Subsidiary
to acquire the Borrower’s Junior Subordinated Notes due October 30, 2036
and (b) any other trust preferred securities issued by any Subsidiary of
the Borrower on then applicable market terms and otherwise substantially
similar thereto, the proceeds of which are used to acquire notes from the
Borrower that are subordinated to the Loans and other Obligations on terms no
less favorable to the Lenders than the Junior Subordinated Notes referred to in
the immediately preceding clause (a) and none of which securities or notes
mature prior to the date 10 years after the Termination Date and cannot be
required to be repurchased, repaid or otherwise retired at the option of the
holders thereof prior to the date 10 years after the Termination Date.

“Type” with respect to any Revolving Loan, refers to whether
such Loan is a LIBOR Loan or Base Rate Loan.

“Unconsolidated Affiliate” means, with respect to any Person,
any other Person in whom such Person holds an investment, which investment is
accounted for in the financial statements of such Person on an equity basis of
accounting and whose financial results would not be consolidated under GAAP
with the financial results of such Person on the consolidated financial
statements of such Person.

“Unfunded Liabilities” means, with respect to any Plan at any
time, the amount (if any) by which (a) the value of all benefit
liabilities under such Plan, determined on a plan termination basis using the
assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA,
exceeds (b) the fair market value of all Plan assets allocable to such
liabilities under Title IV of ERISA (excluding any accrued but unpaid
contributions), all determined as of the then most recent valuation date for
such Plan, but only to the extent that such excess represents a potential
liability of a member of the ERISA Group to the PBGC or any other Person under
Title IV of ERISA.

“Wachovia” means Wachovia Bank, National Association,
together with its successors and assigns.

“Wholly Owned Subsidiary” means any Subsidiary of a Person in
respect of which all of the equity securities or other ownership interests
(other than, in the case of a corporation, directors’ qualifying shares) are at
the time directly or indirectly owned or controlled by such Person or one or
more other Subsidiaries of such Person or by such Person and one or more other
Subsidiaries of such Person.

Section 1.2. General; References to
Times.

Unless
otherwise indicated, all accounting terms, ratios and measurements shall be
interpreted or determined in accordance with GAAP as in effect from time to
time; provided that, if at any time any change in GAAP would affect the
computation of any financial ratio or requirement set forth in any Loan
Document, and either the Borrower or the Requisite Lenders shall so request,
the Agent, the Lenders and the Borrower shall negotiate in good faith to amend
such ratio or requirement to preserve the original intent thereof in light of
such change in GAAP (subject to the approval of the Requisite Lenders);
provided further that, until so amended, (i) such ratio or requirement shall
continue to be computed in accordance with GAAP prior to such 

 24
 

 

change therein and
(ii) the Borrower shall provide to the Agent and the Lenders financial
statements and other documents required under this Agreement or as reasonably
requested hereunder setting forth a reconciliation between calculations of such
ratio or requirement made before and after giving effect to such change in
GAAP. References in this Agreement to “Sections”, “Articles”, “Exhibits”, “Schedules”
and “Annexes” are to sections, articles, exhibits, schedules and annexes herein
and hereto unless otherwise indicated. References in this Agreement to any
document, instrument or agreement (a) shall include all exhibits,
schedules and other attachments thereto, (b) shall include all documents,
instruments or agreements issued or executed in replacement thereof, to the
extent permitted hereby and (c) shall mean such document, instrument or
agreement, or replacement or predecessor thereto, as amended, supplemented,
restated or otherwise modified as of the date of this Agreement and from time
to time thereafter to the extent not prohibited hereby and in effect at any
given time. Wherever from the context it appears appropriate, each term stated
in either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter. Unless explicitly set forth to the
contrary, a reference to “Subsidiary” means a Subsidiary of the Borrower or a
Subsidiary of such Subsidiary and a reference to an “Affiliate” means a
reference to an Affiliate of Holdings. Titles and captions of Articles,
Sections, subsections and clauses in this Agreement are for convenience only,
and neither limit nor amplify the provisions of this Agreement. Unless
otherwise indicated, all references to time are references to Charlotte, North
Carolina time.

Section 1.3. Financial Attributes of
Non-Wholly Owned Subsidiaries.

When
determining the Borrower’s compliance with any financial covenant contained in
any of the Loan Documents, only the Borrower’s pro rata share of the financial
attributes of a Subsidiary that is not a Wholly Owned Subsidiary shall be
included.

Section 1.4. Pro Forma Calculations.

With
respect to any period during which any Permitted Acquisition or any sale,
transfer or other disposition of any material assets occurs, for purposes of
determining compliance with the covenants contained in Section 10.11. and
the negative covenant contained in Section 10.1.(a)(iii), or for purposes
of determining the Leverage Ratio, Consolidated EBITDA or Fixed Charges,
calculations with respect to such period shall be made on a Pro Forma Basis.

Section 1.5. Florida Borrower Representative.

The
Florida Borrower hereby appoints the Borrower to act as the Florida Borrower’s
exclusive agent for all purposes under this Agreement and the other Loan
Documents (including, without limitation, with respect to all matters related
to the borrowing, repayment and administration of Loans as described in
Article II. and III.). The Florida Borrower acknowledges and agrees that
(a) the Borrower may execute such documents on behalf of the Florida
Borrower as the Borrower deems appropriate in its sole discretion and the
Florida Borrower shall be bound by and obligated by all of the terms of any
such document executed by the Borrower on behalf of the Florida Borrower,
(b) any notice or other communication delivered by the Agent or any Lender
hereunder to the Borrower shall be deemed to have been delivered to the Florida
Borrower and (c) the Agent and each of the Lenders shall accept (and shall
be permitted to rely 

 25
 

 

on) any document
or agreement executed by the Borrower on behalf of the Florida Borrower. The
Florida Borrower must act through the Borrower for all purposes under this
Agreement and the other Loan Documents. Notwithstanding anything contained
herein to the contrary, to the extent any provision in this Agreement requires
the Florida Borrower to interact in any manner with the Agent or the Lenders,
the Florida Borrower shall do so through the Borrower.

Section 1.6. Joint and Several
Obligations.

THE
BORROWER SHALL BE JOINTLY AND SEVERALLY OBLIGATED IN RESPECT OF THE OBLIGATIONS
OF THE FLORIDA BORROWER, AND ACCORDINGLY, THE BORROWER CONFIRMS THAT IT IS
LIABLE FOR THE FULL AMOUNT OF THE “OBLIGATIONS” AND ALL OF THE OTHER
OBLIGATIONS AND LIABILITIES OF THE FLORIDA BORROWER HEREUNDER AND UNDER THE
OTHER LOAN DOCUEMNTS.

ARTICLE II. CREDIT FACILITY

Section 2.1. Revolving Loans.

(a)           Generally.

(i)            Loans to Borrower. Subject to
the terms and conditions hereof, including without limitation,
Section 2.13., during the period from the Effective Date to but excluding
the Termination Date, each Lender severally and not jointly agrees to make
Revolving Loans to the Borrower in an aggregate principal amount at any one
time outstanding up to, but not exceeding, the lesser of (x) the amount of
such Lender’s Commitment and (y) such Lender’s Commitment Percentage of the
Borrowing Base.

(ii)           Loans to Florida Borrower.
Subject to the terms and conditions hereof, including without limitation,
Section 2.13., during the period from the Effective Date to but excluding
the Termination Date, each Lender severally and not jointly agrees to make
Revolving Loans to the Florida Borrower in an aggregate principal amount at any
one time outstanding up to, but not exceeding, the lesser of (x) the amount of
such Lender’s Commitment and (y) such Lender’s Commitment Percentage of the
Florida Sublimit.

(iii)          Revolving Nature of Loans.
Subject to the terms and conditions of this Agreement, during the period from
the Effective Date to but excluding the Termination Date, the Borrowers may
borrow, repay and reborrow Revolving Loans hereunder.

(b)           Requesting Revolving Loans.
The Borrower shall give the Agent notice pursuant to a Notice of Borrowing or
telephonic notice of each borrowing of Revolving Loans. Each Notice of
Borrowing shall be delivered to the Agent before 11:00 a.m. (i) in
the case of LIBOR Loans, on the date three Business Days prior to the proposed
date of such borrowing and (ii) in the case of Base Rate Loans, on the
date one Business Day prior to the proposed date of such borrowing. Any such
telephonic notice shall include all information to be specified in a written
Notice of Borrowing and shall be promptly confirmed in writing by the Borrower
pursuant to a Notice of Borrowing sent to the Agent by telecopy on the same day
of the giving of such 

 26
 

 

telephonic notice.
The Agent will transmit by telecopy the Notice of Borrowing (or the information
contained in such Notice of Borrowing) to each Lender promptly upon receipt by
the Agent. Each Notice of Borrowing or telephonic notice of each borrowing
shall be irrevocable once given and binding on the Borrower or the Florida
Borrower, as applicable.

(c)           Disbursements of Revolving Loan
Proceeds. No later than 1:00 p.m. on the date specified in the Notice of
Borrowing, each Lender will make available for the account of its applicable
Lending Office to the Agent at the Principal Office, in immediately available
funds, the proceeds of the Revolving Loan to be made by such Lender. Unless the
Agent shall have been notified by any Lender prior to the specified date of
borrowing that such Lender does not intend to make available to the Agent the
Revolving Loan to be made by such Lender on such date, the Agent may assume
that such Lender will make the proceeds of such Revolving Loan available to the
Agent on the date of the requested borrowing as set forth in the Notice of
Borrowing and the Agent may (but shall not be obligated to), in reliance upon
such assumption, make available to the Borrower the amount of such Revolving
Loan to be provided by such Lender. Subject to satisfaction of the applicable
conditions set forth in Article VI. for such borrowing, the Agent will
make the proceeds of such borrowing available to the Borrower or the Florida
Borrower, as applicable, no later than 2:00 p.m. on the date and at the account
specified by the Borrower in such Notice of Borrowing.

Section 2.2. Swingline Loans.

(a)           Swingline Loans. Subject to
the terms and conditions hereof, during the period from the Effective Date to
but excluding the Termination Date, the Swingline Lender agrees to make
Swingline Loans to the Borrower in an aggregate principal amount at any one
time outstanding up to, but not exceeding, the amount of the Swingline
Commitment. If at any time the aggregate principal amount of the Swingline
Loans outstanding at such time exceeds the Swingline Commitment in effect at
such time, the Borrower shall immediately pay the Agent for the account of the
Swingline Lender the amount of such excess. Subject to the terms and conditions
of this Agreement, the Borrower may borrow, repay and reborrow Swingline Loans
hereunder.

(b)           Procedure for Borrowing Swingline
Loans. The Borrower shall give the Agent and the Swingline Lender notice
pursuant to a Notice of Swingline Borrowing or telephonic notice of each
borrowing of a Swingline Loan. Each Notice of Swingline Borrowing shall be
delivered to the Swingline Lender no later than 3:00 p.m. on the proposed date
of such borrowing. Any such notice given telephonically shall include all
information to be specified in a written Notice of Swingline Borrowing and shall
be promptly confirmed in writing by the Borrower pursuant to a Notice of
Swingline Borrowing sent to the Swingline Lender by telecopy on the same day of
the giving of such telephonic notice. On the date of the requested Swingline
Loan and subject to satisfaction of the applicable conditions set forth in
Article VI. for such borrowing, the Swingline Lender will make the
proceeds of such Swingline Loan available to the Borrower in Dollars, in
immediately available funds, at the account specified by the Borrower in the
Notice of Swingline Borrowing not later than 4:00 p.m. on such date.

(c)           Interest. Swingline Loans
shall bear interest at a per annum rate equal to the Base Rate plus the
Applicable Margin for Base Rate Loans. Interest payable on Swingline Loans is 

 27
 

 

solely for the
account of the Swingline Lender. All accrued and unpaid interest on Swingline
Loans shall be payable on the dates and in the manner provided in
Section 2.4. with respect to interest on Base Rate Loans (except as the
Swingline Lender and the Borrower may otherwise agree in writing in connection
with any particular Swingline Loan).

(d)           Swingline Loan Amounts, Etc.
Each Swingline Loan shall be in the minimum amount of $5,000,000 and integral
multiples of $1,000,000 or such other minimum amounts agreed to by the
Swingline Lender and the Borrower. Any voluntary prepayment of a Swingline Loan
must be in integral multiples of $1,000,000 or the aggregate principal amount
of all outstanding Swingline Loans (or such other minimum amounts upon which
the Swingline Lender and the Borrower may agree) and in connection with any
such prepayment, the Borrower must give the Swingline Lender prior written
notice thereof no later than 10:00 a.m. on the date of such prepayment.
The Swingline Loans shall, in addition to this Agreement, be evidenced by the
Swingline Note.

(e)           Repayment and Participations of
Swingline Loans. The Borrower agrees to repay each Swingline Loan within
one Business Day of demand therefor by the Swingline Lender and in any event,
within 5 Business Days after the date such Swingline Loan was made; provided,
that the proceeds of a Swingline Loan may not be used to repay a Swingline
Loan. Notwithstanding the foregoing, the Borrower shall repay the entire
outstanding principal amount of, and all accrued but unpaid interest on, the
Swingline Loans on the Termination Date (or such earlier date as the Swingline
Lender and the Borrower may agree in writing). In lieu of demanding repayment
of any outstanding Swingline Loan from the Borrower, the Swingline Lender may,
on behalf of the Borrower (which hereby irrevocably directs the Swingline
Lender to act on its behalf for such purpose), request a borrowing of Base Rate
Loans from the Lenders in an amount equal to the principal balance of such Swingline
Loan. The amount limitations of Section 3.5.(a) shall not apply to any
borrowing of Base Rate Loans made pursuant to this subsection. The Swingline
Lender shall give notice to the Agent of any such borrowing of Base Rate Loans
not later than 12:00 noon on the proposed date of such borrowing and the Agent
shall give prompt notice of such borrowing to the Lenders. No later than
2:00 p.m. on such date, each Lender will make available to the Agent at
the Principal Office for the account of Swingline Lender, in immediately
available funds, the proceeds of the Base Rate Loan to be made by such Lender
and, to the extent of such Base Rate Loan, such Lender’s participation in the
Swingline Loan so repaid shall be deemed to be funded by such Base Rate Loan.
The Agent shall pay the proceeds of such Base Rate Loans to the Swingline
Lender, which shall apply such proceeds to repay such Swingline Loan. At the
time each Swingline Loan is made, each Lender shall automatically (and without
any further notice or action) be deemed to have purchased from the Swingline
Lender, without recourse or warranty, an undivided interest and participation
to the extent of such Lender’s Commitment Percentage in such Swingline Loan. If
the Lenders are prohibited from making Loans required to be made under this
subsection for any reason, including without limitation, the occurrence of any
Default or Event of Default described in Section 11.1.(h) or 11.1.(i),
upon notice from the Agent or the Swingline Lender, each Lender severally agrees
to pay to the Agent for the account of the Swingline Lender in respect of such
participation the amount of such Lender’s Commitment Percentage of each
outstanding Swingline Loan. If such amount is not in fact made available to the
Agent by any Lender, the Swingline Lender shall be entitled to recover such
amount on demand from such Lender, 

 28
 

 

together with
accrued interest thereon for each day from the date of demand thereof, at the
Federal Funds Rate. If such Lender does not pay such amount forthwith upon demand
therefor by the Agent or the Swingline Lender, and until such time as such
Lender makes the required payment, the Swingline Lender shall be deemed to
continue to have outstanding Swingline Loans in the amount of such unpaid
participation obligation for all purposes of the Loan Documents (other than
those provisions requiring the other Lenders to purchase a participation
therein). Further, such Lender shall be deemed to have assigned any and all
payments made of principal and interest on its Loans, and any other amounts due
such Lender hereunder, to the Swingline Lender to fund Swingline Loans in the
amount of the participation in Swingline Loans that such Lender failed to
purchase pursuant to this Section until such amount has been purchased (as a
result of such assignment or otherwise). A Lender’s obligation to make payments
in respect of a participation in a Swingline Loan shall be absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including without limitation, (i) any claim of setoff, counterclaim,
recoupment, defense or other right which such Lender or any other Person may
have or claim against the Agent, the Swingline Lender or any other Person
whatsoever, (ii) the occurrence or continuation of a Default or Event of Default
(including without limitation, any of the Defaults or Events of Default
described in Section 11.1.(h) or 11.1.(i)) or the termination of any
Lender’s Commitment, (iii) the existence (or alleged existence) of an
event or condition which has had or could have a Material Adverse Effect,
(iv) any breach of any Loan Document by the Agent, any Lender or the
Borrower or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.

Section 2.3. Letters of Credit.

(a)           Letters of Credit. Subject to
the terms and conditions of this Agreement, the Agent, on behalf of the
Lenders, agrees to issue for the account of the Borrower during the period from
and including the Effective Date to, but excluding, the date 30 days prior to
the Termination Date one or more letters of credit (each a “Letter of Credit”)
up to a maximum aggregate Stated Amount at any one time outstanding not to
exceed the L/C Commitment Amount.

(b)           Terms of Letters of Credit. At
the time of issuance, the amount, form, terms and conditions of each Letter of
Credit, and of any drafts or acceptances thereunder, shall be subject to
approval by the Agent and the Borrower. Notwithstanding the foregoing, in no
event may the expiration date of any Letter of Credit extend beyond the earlier
of (i) the date one year from its date of issuance or (ii) the Termination
Date; provided, however, a Letter of Credit may contain a provision providing
for the automatic extension of the expiration date in the absence of a notice
of non-renewal from the Agent but in no event shall any such provision permit
the extension of the expiration date of such Letter of Credit beyond the
Termination Date.

(c)           Requests for Issuance of Letters
of Credit. The Borrower shall give the Agent written notice (or telephonic
notice promptly confirmed in writing) at least 5 Business Days prior to the
requested date of issuance of a Letter of Credit, such notice to describe in
reasonable detail the proposed terms of such Letter of Credit and the nature of
the transactions or obligations proposed to be supported by such Letter of
Credit, and in any event shall set forth with respect to such Letter of Credit
the proposed (i) Stated Amount, (ii) beneficiary, and
(iii) expiration date. 

 29
 

 

The Borrower shall
also execute and deliver such customary letter of credit application forms as
requested from time to time by the Agent. Provided the Borrower has given the
notice prescribed by the first sentence of this subsection and subject to the
other terms and conditions of this Agreement, including the satisfaction of any
applicable conditions precedent set forth in Article VI. and delivery to
the Agent of all items required to be delivered in connection with the issuance
of such Letter of Credit, the Agent shall issue the requested Letter of Credit
on the requested date of issuance for the benefit of the stipulated
beneficiary. The Agent shall not at any time be obligated to issue any Letter
of Credit if such issuance would conflict with, or cause the Agent or any Lender
to exceed any limits imposed by, any Applicable Law. References herein to “issue”
and derivations thereof with respect to Letters of Credit shall also include
extensions or modifications of any outstanding Letters of Credit, unless the
context otherwise requires. Upon the written request of the Borrower, the Agent
shall deliver to the Borrower a copy of each issued Letter of Credit within a
reasonable time after the date of issuance thereof. To the extent any term of a
Letter of Credit Document is inconsistent with a term of any Loan Document, the
term of such Loan Document shall control.

(d)           Reimbursement Obligations.
Upon receipt by the Agent from the beneficiary of a Letter of Credit of any
demand for payment under such Letter of Credit, the Agent shall promptly notify
the Borrower of the amount to be paid by the Agent as a result of such demand
and the date on which payment is to be made by the Agent to such beneficiary in
respect of such demand; provided, however, the Agent’s failure to give, or delay
in giving, such notice shall not discharge the Borrower in any respect from the
applicable Reimbursement Obligation. The Borrower hereby unconditionally and
irrevocably agrees to pay and reimburse the Agent for the amount of each demand
for payment under such Letter of Credit on or prior to the date on which
payment is to be made by the Agent to the beneficiary thereunder, without
presentment, demand, protest or other formalities of any kind (other than
notice as provided in this subsection). Upon receipt by the Agent of any
payment in respect of any Reimbursement Obligation, the Agent shall promptly
pay to each Lender that has acquired a participation therein under the second
sentence of Section 2.3.(i) such Lender’s Commitment Percentage of such
payment.

(e)           Manner of Reimbursement. Upon
its receipt of a notice referred to in the immediately preceding
subsection (d), the Borrower shall advise the Agent whether or not the
Borrower intends to borrow hereunder to finance its obligation to reimburse the
Agent for the amount of the related demand for payment and, if it does, the
Borrower shall submit a timely request for such borrowing as provided in the
applicable provisions of this Agreement. If the Borrower fails to so advise the
Agent, or if the Borrower fails to reimburse the Agent for a demand for payment
under a Letter of Credit by the date of such payment, then (i) if the
applicable conditions contained in Article VI. would permit the making of
Revolving Loans, the Borrower shall be deemed to have requested a borrowing of
Revolving Loans (which shall be Base Rate Loans) in an amount equal to the
unpaid Reimbursement Obligation and the Agent shall give each Lender prompt
notice of the amount of the Revolving Loan to be made available to the Agent
not later than 1:00 p.m. and (ii) if such conditions would not permit the
making of Revolving Loans, the provisions of subsection (j) of this
Section shall apply. The limitations of Section 3.5.(a) shall not apply to any
borrowing of Base Rate Loans under this subsection.

 30
 

 

(f)            Effect of Letters of Credit on
Commitments. Upon the issuance by the Agent of any Letter of Credit and
until such Letter of Credit shall have expired or been terminated, the
Commitment of each Lender shall be deemed to be utilized for all purposes of
this Agreement in an amount equal to the product of (i) such Lender’s
Commitment Percentage and (ii) the sum of (A) the Stated Amount of such
Letter of Credit plus (B) any related Reimbursement Obligations then
outstanding.

(g)           Agent’s Duties Regarding Letters
of Credit; Unconditional Nature of Reimbursement Obligations. In examining
documents presented in connection with drawings under Letters of Credit and
making payments under Letters of Credit against such documents, the Agent shall
only be required to use the same standard of care as it uses in connection with
examining documents presented in connection with drawings under letters of
credit in which it has not sold participations and making payments under such
letters of credit. The Borrower assumes all risks of the acts and omissions of,
or misuse of the Letters of Credit by, the respective beneficiaries of such
Letters of Credit. In furtherance and not in limitation of the foregoing,
neither the Agent nor any of the Lenders shall be responsible for, and the
Borrower’s obligations in respect of the Letters of Credit shall not be
affected in any manner by, (i) the form, validity, sufficiency, accuracy,
genuineness or legal effects of any document submitted by any party in
connection with the application for and issuance of or any drawing honored
under any Letter of Credit even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit, or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason; (iii) failure of the
beneficiary of any Letter of Credit to comply fully with conditions required in
order to draw upon such Letter of Credit; (iv) errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telex, telecopy or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or
delay in the transmission or otherwise of any document required in order to
make a drawing under any Letter of Credit, or of the proceeds thereof;
(vii) the misapplication by the beneficiary of the proceeds of any drawing
under any Letter of Credit; or (viii) any consequences arising from causes
beyond the control of the Agent or the Lenders. None of the above shall affect,
impair or prevent the vesting of any of the Agent’s or any Lender’s rights or
powers hereunder. Any action taken or omitted to be taken by the Agent under or
in connection with any Letter of Credit, if taken or omitted in the absence of
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final, non-appealable judgment), shall not create against the
Agent or any Lender any liability to the Borrower or any Lender. In this
regard, the obligation of the Borrower to reimburse the Agent for any drawing
made under any Letter of Credit, and to repay any Revolving Loan made pursuant
to the second sentence of the immediately preceding subsection (e), shall
be absolute, unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement and any other applicable Letter of
Credit Document under all circumstances whatsoever, including without
limitation, the following circumstances: (A) any lack of validity or
enforceability of any Letter of Credit Document or any term or provisions therein;
(B) any amendment or waiver of or any consent to departure from all or any
of the Letter of Credit Documents; (C) the existence of any claim, setoff,
defense or other right which the Borrower may have at any time against the
Agent, any Lender, any beneficiary of a Letter of Credit or any other Person,
whether in 

 31
 

 

connection with this
Agreement, the transactions contemplated hereby or in the Letter of Credit
Documents or any unrelated transaction; (D) any breach of contract or
dispute between the Borrower, the Agent, any Lender or any other Person;
(E) any demand, statement or any other document presented under a Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein or made in connection therewith being untrue
or inaccurate in any respect whatsoever; (F) any non-application or
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; (G) payment by the Agent under any
Letter of Credit against presentation of a draft or certificate which does not
strictly comply with the terms of such Letter of Credit; and (H) any other
act, omission to act, delay or circumstance whatsoever that might, but for the
provisions of this Section, constitute a legal or equitable defense to or
discharge of the Borrower’s Reimbursement Obligations. Notwithstanding anything
to the contrary contained in this Section or Section 13.9., but not in
limitation of the Borrower’s unconditional obligation to reimburse the Agent for
any drawing made under a Letter of Credit as provided in this Section and to
repay any Revolving Loan made pursuant to the second sentence of the
immediately preceding subsection (e), the Borrower shall have no
obligation to indemnify the Agent or any Lender in respect of any liability
incurred by the Agent or such Lender arising solely out of the gross negligence
or willful misconduct of the Agent or such Lender in respect of a Letter of
Credit as determined by a court of competent jurisdiction in a final,
non-appealable judgment. Except as otherwise provided in this Section, nothing
in this Section shall affect any rights the Borrower may have with respect to
the gross negligence or willful misconduct of the Agent or any Lender with
respect to any Letter of Credit.

(h)           Amendments, Etc. The issuance
by the Agent of any amendment, supplement or other modification to any Letter
of Credit shall be subject to the same conditions applicable under this
Agreement to the issuance of new Letters of Credit (including, without
limitation, that the request therefor be made through the Agent), and no such
amendment, supplement or other modification shall be issued unless either
(i) the respective Letter of Credit affected thereby would have complied
with such conditions had it originally been issued hereunder in such amended,
supplemented or modified form or (ii) the Requisite Lenders (or all of the
Lenders if required by Section 13.6.) shall have consented thereto. In
connection with any such amendment, supplement or other modification, the
Borrower shall pay the Fees, if any, payable under the last sentence of
Section 3.6.(b).

(i)            Lenders’ Participation in Letters
of Credit. Immediately upon the issuance by the Agent of any Letter of
Credit each Lender shall be deemed to have irrevocably and unconditionally
purchased and received from the Agent, without recourse or warranty, an
undivided interest and participation to the extent of such Lender’s Commitment
Percentage of the liability of the Agent with respect to such Letter of Credit,
and each Lender thereby shall absolutely, unconditionally and irrevocably
assume, as primary obligor and not as surety, and shall be unconditionally
obligated to the Agent to pay and discharge when due, such Lender’s Commitment
Percentage of the Agent’s liability under such Letter of Credit. In addition,
upon the making of each payment by a Lender to the Agent in respect of any
Letter of Credit pursuant to the immediately following subsection (j),
such Lender shall, automatically and without any further action on the part of
the Agent or such Lender, acquire (i) a participation in an amount equal
to such payment in the Reimbursement Obligation owing to the Agent by the
Borrower in 

 32
 

 

respect of such
Letter of Credit and (ii) a participation in a percentage equal to such
Lender’s Commitment Percentage in any interest or other amounts payable by the
Borrower in respect of such Reimbursement Obligation (other than the Fees
payable to the Agent pursuant to the third and last sentences of
Section 3.6.(b)).

(j)            Payment Obligation of Lenders.
Each Lender severally agrees to pay to the Agent on demand in immediately
available funds in Dollars the amount of such Lender’s Commitment Percentage of
each drawing paid by the Agent under each Letter of Credit to the extent such
amount is not reimbursed by the Borrower pursuant to Section 2.3.(d);
provided, however, that in respect of any drawing under any Letter of Credit,
the maximum amount that any Lender shall be required to fund, whether as a
Revolving Loan or as a participation, shall not exceed such Lender’s Commitment
Percentage of such drawing. If the notice referenced in the second sentence of
Section 2.3.(e) is received by a Lender not later than 11:00 a.m., then such
Lender shall make such payment available to the Agent not later than 2:00 p.m.
on the date of demand therefor; otherwise, such payment shall be made available
to the Agent not later than 1:00 p.m. on the next succeeding Business Day. Each
Lender’s obligation to make such payments to the Agent under this subsection,
and the Agent’s right to receive the same, shall be absolute, irrevocable and
unconditional and shall not be affected in any way by any circumstance
whatsoever, including without limitation, (i) the failure of any other
Lender to make its payment under this subsection, (ii) the financial
condition of the Borrower or any other Loan Party, (iii) the existence of
any Default or Event of Default, including any Event of Default described in
Section 11.1.(h) or 11.1.(i) or (iv) the termination of the
Commitments. Each such payment to the Agent shall be made without any offset,
abatement, withholding or deduction whatsoever.

(k)           Information to Lenders. The
Agent shall periodically deliver to the Lenders information setting forth the
Stated Amount of all outstanding Letters of Credit. Other than as set forth in
this subsection, the Agent shall have no duty to notify the Lenders regarding
the issuance or other matters regarding Letters of Credit issued hereunder. The
failure of the Agent to perform its requirements under this subsection shall
not relieve any Lender from its obligations under Section 2.3.(j).

Section 2.4. Rates and Payment of
Interest on Loans.

(a)           Rates. The Borrower promises
to pay to the Agent for the account of each Lender interest on the unpaid
principal amount of each Loan made by such Lender, and the Borrower and the
Florida Borrower jointly and severally promise to pay to the Agent for the
account of each Lender interest on the unpaid principal amount of each Loan
made by such Lender to or for the benefit of the Florida Borrower, for the
period from and including the date of the making of such Loan to but excluding
the date such Loan shall be paid in full, at the following per annum rates::

(i)            during such periods as such Loan is
a Base Rate Loan, at the Base Rate (as in effect from time to time) plus the
Applicable Margin; and

(ii)           during such periods as such Loan is a
LIBOR Loan, at Adjusted LIBOR for such Loan for the Interest Period therefor
plus the Applicable Margin.

 33
 

 

Notwithstanding
the foregoing, while an Event of Default exists, the Borrower and the Florida
Borrower each shall pay to the Agent for the account of each Lender interest at
the Post-Default Rate on the outstanding principal amount of any Loan made by
such Lender to or for the benefit of the Borrower or the Florida Borrower, as
the case may be, on all Reimbursement Obligations (in the case of the Borrower)
and on any other amount payable by the Borrower or the Florida Borrower, as
applicable, hereunder or under the Notes held by such Lender to or for the
account of such Lender (including without limitation, accrued but unpaid
interest to the extent permitted under Applicable Law).

(b)           Payment of Interest. Accrued
and unpaid interest on each Loan shall be payable (i) in the case of a
Base Rate Loan, monthly in arrears on the first day of each calendar month,
(ii) in the case of a LIBOR Loan, in arrears on the last day of each
Interest Period therefor, and, if such Interest Period is longer than three
months, at three-month intervals following the first day of such Interest
Period, and (iii) in the case of any Loan, in arrears upon the payment,
prepayment or Continuation thereof or the Conversion of such Loan to a Loan of
another Type (but only on the principal amount so paid, prepaid, Continued or
Converted). Interest payable at the Post-Default Rate shall be payable from
time to time on demand. Promptly after the determination of any interest rate
provided for herein or any change therein, the Agent shall give notice thereof
to the Lenders to which such interest is payable and to the Borrower. All
determinations by the Agent of an interest rate hereunder shall be conclusive
and binding on the Lenders and the Borrowers for all purposes, absent manifest
error.

Section 2.5. Number of Interest Periods.

There
may be no more than 12 different Interest Periods for LIBOR Loans outstanding
at the same time.

Section 2.6. Repayment of Loans.

The
Borrower shall repay the entire outstanding principal amount of, and all accrued
but unpaid interest on, the Revolving Loans made to or for the benefit of the
Borrower on the Termination Date. The Borrower and the Florida Borrower jointly
and severally agree to repay the entire outstanding principal amount of, and
all accrued but unpaid interest on, the Revolving Loans made to or for the
benefit of the Florida Borrower on the Termination Date.

Section 2.7. Prepayments.

(a)           Optional. Subject to
Section 5.4., the Borrower and the Florida Borrower may prepay any Loan
owing by it at any time without premium or penalty. The Borrower shall give the
Agent at least one Business Day’s prior written notice of the prepayment of any
Revolving Loan.

(b)           Mandatory.

(i)            By Borrower. If at any time
the aggregate principal amount of all outstanding Loans, together with the
aggregate amount of all Letter of Credit Liabilities, exceeds (x) the
aggregate amount of the Commitments in effect at such time or (y) the 

 34
 

 

Borrowing Base at such time, the Borrower shall
immediately pay to the Agent for the account of the Lenders the amount of such
excess.

(ii)           By Florida Borrower. If at any
time the aggregate principal amount of all outstanding Revolving Loans owing by
the Florida Borrower exceeds (x) the lesser of (A) the aggregate
amount of the Commitments at such time or (B) the Borrowing Base as such
time minus (y) the aggregate principal amount of all outstanding Loans
owing by the Borrower, together with the aggregate amount of all Letter of
Credit Liabilities, the Borrower and the Florida Borrower jointly and severally
agree to pay immediately to the Agent for the account of the Lenders the amount
of such excess.

(c)           Application of Prepayments.
All payments under the immediately preceding subsection (b)(i) shall be
applied to pay all amounts of principal outstanding on the Loans and any
Reimbursement Obligations pro rata in accordance with Section 3.2. and if
any Letters of Credit are outstanding at such time the remainder, if any, shall
be deposited into the Collateral Account for application to any Reimbursement
Obligations. All payments under the immediately preceding
subsection (b)(ii) shall be applied to pay all amounts of principal
outstanding on the Revolving Loans owing by the Florida Borrower pro rata in
accordance with Section 3.2. If
as a result of this Section any outstanding LIBOR Loan is prepaid prior to the
end of the applicable Interest Period therefor, the Borrower or the Florida
Borrower, as applicable, shall pay all amounts due under Section 5.4.

(d)           Swap Agreements. No repayment
or prepayment pursuant to this Section shall affect any of the obligations of
the Borrower or the Florida Borrower under any Swap Agreement between the
Borrower or the Florida Borrower, as applicable, and any Lender (or any
affiliate of any Lender).

Section 2.8. Continuation.

So
long as no Default or Event of Default shall exist, the Borrower may on any
Business Day, with respect to any LIBOR Loan, elect to maintain such LIBOR Loan
or any portion thereof as a LIBOR Loan by selecting a new Interest Period for
such LIBOR Loan. Each new Interest Period selected under this Section shall
commence on the last day of the immediately preceding Interest Period. Each
selection of a new Interest Period shall be made by the Borrower giving to the
Agent a Notice of Continuation not later than 11:00 a.m. on the third Business
Day prior to the date of any such Continuation. Such notice by the Borrower of
a Continuation shall be by telephone or telecopy, confirmed promptly in writing
if by telephone, in the form of a Notice of Continuation, specifying
(a) the proposed date of such Continuation, (b) the LIBOR Loans and
portions thereof subject to such Continuation and (c) the duration of the
selected Interest Period, all of which shall be specified in such manner as is
necessary to comply with all limitations on Loans outstanding hereunder. Each
Notice of Continuation shall be irrevocable by and binding on the Borrowers
once given. Promptly after receipt of a Notice of Continuation, the Agent shall
notify each Lender by telecopy, or other similar form of transmission, of the
proposed Continuation. If the Borrower shall fail to select in a timely manner
a new Interest Period for any LIBOR Loan in accordance with this Section, or if
a Default or Event of Default shall exist, such Loan will automatically, on the
last day of the current Interest Period therefor, 

 35
 

 

Convert into a
Base Rate Loan notwithstanding the first sentence of Section 2.9. or the
Borrower’s failure to comply with any of the terms of such Section.

Section 2.9. Conversion.

The Borrower may on any Business Day, upon the
Borrower’s giving of a Notice of Conversion to the Agent, Convert all or a
portion of a Loan of one Type into a Loan of another Type; provided, however, a
Base Rate Loan may not be Converted to a LIBOR Loan if a Default or Event of
Default shall exist. Any Conversion of a LIBOR Loan into a Base Rate Loan shall
be made on, and only on, the last day of an Interest Period for such LIBOR Loan
and, upon Conversion of a Base Rate Loan into a LIBOR Loan, the Borrower shall
pay accrued interest to the date of Conversion on the principal amount so
Converted. Each such Notice of Conversion shall be given not later than 11:00
a.m. on the Business Day prior to the date of any proposed Conversion into Base
Rate Loans and on the third Business Day prior to the date of any proposed
Conversion into LIBOR Loans. Promptly after receipt of a Notice of Conversion,
the Agent shall notify each Lender by telecopy, or other similar form of
transmission, of the proposed Conversion. Subject to the restrictions specified
above, each Notice of Conversion shall be by telephone (confirmed promptly in
writing) or telecopy in the form of a Notice of Conversion specifying
(a) the requested date of such Conversion, (b) the Type of Loan to be
Converted, (c) the portion of such Type of Loan to be Converted,
(d) the Type of Loan such Loan is to be Converted into and (e) if
such Conversion is into a LIBOR Loan, the requested duration of the Interest
Period of such Loan. Each Notice of Conversion shall be irrevocable by and
binding on the Borrowers once given.

Section 2.10. Notes.

(a)           Revolving Note. The Revolving
Loans made by each Lender to or for the benefit of the Borrower shall, in
addition to this Agreement, also be evidenced by a promissory note of the
Borrower substantially in the form of Exhibit G-1, payable to the order of
such Lender in a principal amount equal to the amount of its Commitment as
originally in effect and otherwise duly completed. The Revolving Loans made by
each Lender to or for the benefit of the Florida Borrower shall, in addition to
this Agreement, also be evidenced by a promissory note of the Florida Borrower
substantially in the form of Exhibit G-2, payable to the order of such
Lender in a principal amount equal to the amount of such Lender’s Commitment
Percentage of the Florida Sublimit, as originally in effect and otherwise duly
completed. Each promissory note described in this subsection is referred to as “Revolving
Note.”

(b)           Records. The date, amount,
interest rate, Type and duration of Interest Periods (if applicable) of each
Loan made by each Lender to the Borrower or the Florida Borrower, and each
payment made on account of the principal thereof, shall be recorded by such
Lender on its books and such entries shall be binding on the Borrowers, absent
manifest error; provided, however, that the failure of a Lender to make any
such record shall not affect the obligations of the Borrowers under any of the
Loan Documents.

(c)           Lost, Stolen, Destroyed or
Mutilated Notes. Upon receipt by the Borrower of (i) written notice
from a Lender that a Note of such Lender has been lost, stolen, destroyed or
mutilated, and (ii) (A) in the case of loss, theft or destruction, an
unsecured agreement of 

 36
 

 

indemnity from
such Lender in form reasonably satisfactory to the Borrower, or (B) in the
case of mutilation, upon surrender and cancellation of such Note, the Borrower
shall at its own expense cause to be executed and delivered to such Lender a
new Note dated the date of such lost, stolen, destroyed or mutilated Note.

Section 2.11. Voluntary Reductions of
the Commitment.

The
Borrower shall have the right to terminate or reduce the aggregate unused
amount of the Commitments (for which purpose use of the Commitments shall be
deemed to include the aggregate amount of Letter of Credit Liabilities and the
aggregate principal amount of all outstanding Swingline Loans) at any time and
from time to time without penalty or premium upon not less than 5 Business Days’
prior written notice to the Agent of each such termination or reduction, which
notice shall specify the effective date thereof and the amount of any such
reduction and shall be irrevocable once given and effective only upon receipt
by the Agent; provided, however, if the Borrower seeks to reduce the aggregate
amount of the Commitments below $100,000,000, then the Commitments shall all
automatically and permanently be reduced to zero. The Agent will promptly
transmit such notice to each Lender. The Commitments, once terminated or
reduced, may not be increased or reinstated.

Section 2.12. Expiration or Maturity
Date of Letters of Credit Past Termination Date.

If on
the date the Commitments are terminated or reduced to zero (whether
voluntarily, by reason of the occurrence of an Event of Default or otherwise),
there are any Letters of Credit outstanding hereunder, the Borrower shall, on
such date, pay to the Agent an amount of money sufficient to cause the balance
of available funds on deposit in the Collateral Account to equal the Stated
Amount of such Letter(s) of Credit for deposit into the Collateral Account.

Section 2.13. Amount Limitations.

Notwithstanding
any other term of this Agreement or any other Loan Document, no Lender shall be
required to make a Loan, the Agent shall not be required to issue a Letter of
Credit and no reduction of the Commitments pursuant to Section 2.11. shall
take effect, if immediately after the making of such Loan, the issuance of such
Letter of Credit or such reduction in the Commitments, any of the following conditions
would exist:

(a)           the aggregate principal amount of all
outstanding Loans, together with the aggregate amount of all Letter of Credit
Liabilities, would exceed the lesser of (i) the aggregate amount of the
Commitments at such time or (ii) the Borrowing Base as such time; or

(b)           the aggregate principal amount of all
outstanding Revolving Loans owing by the Florida Borrower would exceed
(i) the lesser of (x) the aggregate amount of the Commitments at such
time or (y) the Borrowing Base as such time minus (ii) the aggregate
principal amount of all outstanding Loans owing by the Borrower, together with
the aggregate amount of all Letter of Credit Liabilities.

 37

 

Section 2.14. Increase of Commitments.

With
the prior consent of the Agent, the Borrower shall have the right at any time
during the term of this Agreement to request increases in the aggregate amount
of the Commitments (provided that after giving effect to any increases in the
Commitments pursuant to this Section, the aggregate amount of the Commitments
may not exceed $350,000,000) by providing written notice to the Agent, which
notice shall be irrevocable once given. Each such increase in the Commitments must
be in an aggregate minimum amount of $25,000,000 and integral multiples of
$5,000,000 in excess thereof. No Lender shall be required to increase its
Commitment and any new Lender becoming a party to this Agreement in connection
with any such requested increase must be an Eligible Assignee. If a new Lender
becomes a party to this Agreement, or if any existing Lender agrees to increase
its Commitment, such Lender shall on the date it becomes a Lender hereunder (or
increases its Commitment, in the case of an existing Lender) (and as a
condition thereto) purchase from the other Lenders its Commitment Percentage
(or in the case of an existing Lender, the increase in the amount of its
Commitment Percentage, in each case as determined after giving effect to the
increase of Commitments) of any outstanding Revolving Loans, by making
available to the Agent for the account of such other Lenders at the Principal
Office, in same day funds, an amount equal to the sum of (A) the portion
of the outstanding principal amount of such Revolving Loans to be purchased by
such Lender plus (B) the aggregate amount of payments previously made by
the other Lenders under Section 2.3.(j) which have not been repaid plus
(C) interest accrued and unpaid to and as of such date on such portion of
the outstanding principal amount of such Revolving Loans. The Borrower shall
pay to the Lenders amounts payable, if any, to such Lenders under
Section 5.4. as a result of the prepayment of any such Revolving Loans. No
increase of the Commitments may be effected under this Section if (x) a
Default or Event of Default shall be in existence on the effective date of such
increase or (y) any representation or warranty made or deemed made by the
Borrower or any other Loan Party in any Loan Document to which any such Loan
Party is a party is not (or would not be) true or correct on the effective date
of such increase (except for representations or warranties which expressly
relate solely to an earlier date). In connection with any increase in the
aggregate amount of the Commitments pursuant to this Section, any Lender
becoming a party hereto (or increasing its Commitment) and the Borrower shall
execute such documents and agreements (in the case of the Borrower, including
resolutions) as the Agent may reasonably request.

ARTICLE III. PAYMENTS, FEES AND
OTHER GENERAL PROVISIONS

Section 3.1. Payments.

Except
to the extent otherwise provided herein, all payments of principal, interest
and other amounts to be made by the Borrowers under this Agreement or any other
Loan Document shall be made in Dollars, in immediately available funds, without
deduction, set-off or counterclaim, to the Agent at its Principal Office, not
later than 2:00 p.m. on the date on which such payment shall become due
(each such payment made after such time on such due date to be deemed to have
been made on the next succeeding Business Day). Subject to Section 11.4.,
the Borrower may, at the time of making each payment under this Agreement 

 38
 

 

or any Note,
specify to the Agent the amounts payable by the Borrowers hereunder to which
such payment is to be applied. Each payment received by the Agent for the
account of a Lender under this Agreement or any Note shall be paid to such
Lender at the applicable Lending Office of such Lender no later than 5:00 p.m.
on the date of receipt. If the Agent fails to pay such amount to a Lender as
provided in the previous sentence, the Agent shall pay interest on such amount
until paid at a rate per annum equal to the Federal Funds Rate from time to
time in effect. If the due date of any payment under this Agreement or any
other Loan Document would otherwise fall on a day which is not a Business Day
such date shall be extended to the next succeeding Business Day and interest
shall be payable for the period of such extension.

Section 3.2. Pro Rata Treatment.

Except
to the extent otherwise provided herein: (a) each borrowing from the
Lenders under Section 2.1.(a), 2.2.(e) and 2.3.(e) shall be made from the
Lenders, each payment of the Fees under Section 3.6.(a) and the first
sentence of Section 3.6.(b) shall be made for the account of the Lenders,
and each termination or reduction of the amount of the Commitments under
Section 2.11. shall be applied to the respective Commitments of the
Lenders, pro rata according to the amounts of their respective Commitments;
(b) each payment or prepayment of principal of Revolving Loans by the
Borrower or the Florida Borrower shall be made for the account of the Lenders
pro rata in accordance with the respective unpaid principal amounts of the
Revolving Loans held by them and owing by the Borrower or the Florida Borrower,
as applicable, provided that if immediately prior to giving effect to any such
payment in respect of any Revolving Loans the outstanding principal amount of
the Revolving Loans shall not be held by the Lenders pro rata in accordance
with their respective Commitments in effect at the time such Loans were made,
then such payment shall be applied to the Revolving Loans in such manner as
shall result, as nearly as is practicable, in the outstanding principal amount
of the Revolving Loans being held by the Lenders pro rata in accordance with
their respective Commitments; (c) each payment of interest on Revolving
Loans by the Borrower or the Florida Borrower shall be made for the account of
the Lenders pro rata in accordance with the amounts of interest on such Loans
then due and payable to the respective Lenders; (d) the making, Conversion
and Continuation of Revolving Loans of a particular Type (other than Conversions
provided for by Section 5.5.) shall be made pro rata among the Lenders
according to the amounts of their respective Commitments (in the case of making
of Revolving Loans) or their respective Revolving Loans (in the case of
Conversions and Continuations of Revolving Loans) and the then current Interest
Period for each Lender’s portion of each Revolving Loan of such Type shall be
coterminous; (e) the Lenders’ participation in, and payment obligations in
respect of, Letters of Credit under Section 2.3., shall be pro rata in
accordance with their respective Commitments; and (f) the Lenders’
participation in, and payment obligations in respect of, Swingline Loans under
Section 2.2., shall be pro rata in accordance with their respective
Commitments. All payments of principal, interest, fees and other amounts in
respect of the Swingline Loans shall be for the account of the Swingline Lender
only (except to the extent any Lender shall have acquired and funded a
participating interest in any such Swingline Loan pursuant to
Section 2.2.(e), in which case such payments shall be pro rata in
accordance with such participating interests).

Section 3.3. Sharing of Payments, Etc.

If a
Lender shall obtain payment of any principal of, or interest on, any Loan, or
shall obtain payment on any other Obligation owing by the Borrower or any other
Loan Party through the exercise of any right of set-off, banker’s lien or
counterclaim or similar right or otherwise or 

 39
 

 

through voluntary
prepayments directly to a Lender or other payments made by a Loan Party to a
Lender not in accordance with the terms of this Agreement and such payment
should be distributed to the Lenders pro rata in accordance with
Section 3.2. or Section 11.4., as applicable, such Lender shall
promptly purchase from the other Lenders participations in (or, if and to the
extent specified by such Lender, direct interests in) the Loans made by the
other Lenders or other Obligations owed to such other Lenders in such amounts,
and make such other adjustments from time to time as shall be equitable, to the
end that all the Lenders shall share the benefit of such payment (net of any
reasonable expenses which may be incurred by such Lender in obtaining or
preserving such benefit) pro rata in accordance with Section 3.2. or Section 11.4.,
as applicable. To such end, all the Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored. The Borrower and the
Florida Borrower each agrees that any Lender so purchasing a participation (or
direct interest) in the Loans or other Obligations owed by the Borrower or the
Florida Borrower, as applicable, to such other Lenders may exercise all rights
of set-off, banker’s lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans in the
amount of such participation. Nothing contained herein shall require any Lender
to exercise any such right or shall affect the right of any Lender to exercise,
and retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Borrower.

Section 3.4. Several Obligations.

No
Lender shall be responsible for the failure of any other Lender to make a Loan
or to perform any other obligation to be made or performed by such other Lender
hereunder, and the failure of any Lender to make a Loan or to perform any other
obligation to be made or performed by it hereunder shall not relieve the
obligation of any other Lender to make any Loan or to perform any other
obligation to be made or performed by such other Lender.

Section 3.5. Minimum Amounts.

(a)           Borrowings and Conversions.
Except as otherwise provided in Sections 2.2.(e) and 2.3.(e), each
borrowing of Base Rate Loans shall be in an aggregate minimum amount of
$5,000,000 and integral multiples of $1,000,000 in excess thereof. Each
borrowing, Conversion and Continuation of LIBOR Loans shall be in an aggregate
minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of
that amount.

(b)           Prepayments. Each voluntary
prepayment of Revolving Loans shall be in an aggregate minimum amount of
$1,000,000 and integral multiples of $500,000 in excess thereof (or, if less,
the aggregate principal amount of Revolving Loans then outstanding).

(c)           Reductions of Commitments.
Each reduction of the Commitments under Section 2.11. shall be in an
aggregate minimum amount of $10,000,000 and integral multiples of $5,000,000 in
excess thereof.

(d)           Letters of Credit. The initial
Stated Amount of each Letter of Credit shall be at least $750,000.

 40
 

 

Section 3.6. Fees.

(a)           Unused Fee. During the period
from the Effective Date to but excluding the Termination Date, the Borrower
agrees to pay to the Agent for the account of the Lenders an unused facility
fee with respect to the average daily difference between the (i) aggregate
amount of the Commitments and (ii) the aggregate principal amount of all
outstanding Revolving Loans plus the aggregate amount of all Letter of Credit Liabilities
(the “Unused Amount”). Such fee shall be computed by multiplying the Unused
Amount with respect to the applicable quarter by one-quarter of one-percent
(0.25%). Such fee shall be payable in arrears on the last day of each March,
June, September or December of each calendar year. Any such accrued and unpaid
fee shall also be payable on the Termination Date or any earlier date of
termination of the Commitments or reduction of the Commitments to zero.

(b)           Letter of Credit Fees. The
Borrower agrees to pay to the Agent for the account of each Lender a letter of
credit fee at a rate per annum equal to the Applicable Margin for LIBOR Loans
(or while an Event of Default exists, at a per annum rate equal to 4.0%) times
the daily average Stated Amount of each Letter of Credit for the period from
and including the date of issuance of such Letter of Credit (x) through
and including the date such Letter of Credit expires or is terminated or
(y) to but excluding the date such Letter of Credit is drawn in full and
is not subject to reinstatement, as the case may be. The fees provided for in
the immediately preceding sentence shall be nonrefundable and payable in
arrears on (i) the last day of March, June, September and December in each
year, (ii) the Termination Date, (iii) the date the Commitments are
terminated or reduced to zero and (iv) thereafter from time to time on
demand of the Agent. In addition, the Borrower shall pay to the Agent for its
own account and not the account of any Lender, an issuance fee in respect of
each Letter of Credit equal to the greater of (i) $1,000 or
(ii) one-eighth of one percent (0.125%) per annum on the initial Stated
Amount of such Letter of Credit payable (A) for the period from and
including the date of issuance of such Letter of Credit through and including
the expiration date of such Letter of Credit and (B) if the expiration
date of any Letter of Credit is extended (whether as a result of the operation
of an automatic extension clause or otherwise), for the period from but excluding
the previous expiration date to and including the extended expiration date. The
fees provided for in the immediately preceding sentence shall be nonrefundable
and payable upon issuance (or in the case of an extension of the expiration
date, on the previous expiration date). The Borrower shall pay directly to the
Agent from time to time on demand all commissions, charges, costs and expenses
in the amounts customarily charged by the Agent from time to time in like
circumstances with respect to the issuance of each Letter of Credit, drawings,
amendments and other transactions relating thereto.

(c)           Collateral Property Review Fee.
With respect to each Property that becomes a Collateral Property (other than
the Properties that become Collateral Properties as contemplated by
Section 4.1.(a)), the Borrower agrees to pay a fee equal to $1,000 for
each Lender affirmatively approving (as opposed to having been deemed to have
approved) such Property. Such fee shall be payable upon such Property becoming
a Collateral Property as provided in Section 4.2.

(d)           Administrative and Other Fees.
The Borrower agrees to pay the administrative and other fees of the Agent as
may be agreed to in writing by the Borrower and the Agent from time to time.

 41
 

 

Section 3.7. Computations.

Unless
otherwise expressly set forth herein, any accrued interest on any Loan, any
Fees or any other Obligations due hereunder shall be computed on the basis of a
year of 365 or 366 days, as applicable, and the actual number of days elapsed;
provided, however, interest on LIBOR Loans shall be computed on the basis of a
year of 360 days and the actual number of days elapsed.

Section 3.8. Usury.

In no
event shall the amount of interest due or payable on the Loans or other
Obligations exceed the maximum rate of interest allowed by Applicable Law and,
if any such payment is paid by any Loan Party or received by any Lender, then
such excess sum shall be credited as a payment of principal, unless the
Borrower shall notify the respective Lender in writing that the Borrower elects
to have such excess sum returned to it forthwith. It is the express intent of
the parties hereto that the Borrowers not pay and the Lenders not receive,
directly or indirectly, in any manner whatsoever, interest in excess of that
which may be lawfully paid by the Borrowers under Applicable Law.

Section 3.9. Agreement Regarding
Interest and Charges.

The
parties hereto hereby agree and stipulate that the only charge imposed upon the
Borrowers for the use of money in connection with this Agreement is and shall
be the interest specifically described in Sections 2.4.(a)(i) and (ii) and
in the case of the Borrower, in Section 2.2.(c). Notwithstanding the foregoing,
the parties hereto further agree and stipulate that all agency fees, syndication
fees, facility fees, closing fees, letter of credit fees, underwriting fees,
default charges, late charges, funding or “breakage” charges, increased cost
charges, attorneys’ fees and reimbursement for costs and expenses paid by the
Agent or any Lender to third parties or for damages incurred by the Agent or
any Lender, in each case in connection with the transactions contemplated by
this Agreement and the other Loan Documents, are charges made to compensate the
Agent or any such Lender for underwriting or administrative services and costs
or losses performed or incurred, and to be performed or incurred, by the Agent
and the Lenders in connection with this Agreement and shall under no
circumstances be deemed to be charges for the use of money. All charges other
than charges for the use of money shall be fully earned and nonrefundable when
due.

Section 3.10. Statements of Account.

The
Agent will account to the Borrowers monthly with a statement of Loans, Letters
of Credit, accrued interest and Fees, charges and payments made pursuant to
this Agreement and the other Loan Documents, and such account rendered by the
Agent shall be deemed conclusive and binding on the Lenders and the Borrowers
absent manifest error. The failure of the Agent to deliver such a statement of
accounts shall not relieve or discharge the Borrowers from any of their
respective obligations hereunder.

 42
 

 

Section 3.11. Defaulting Lenders.

(a)           Generally. If for any reason
any Lender (a “Defaulting Lender”) shall fail or refuse to perform any of its
obligations under this Agreement or any other Loan Document to which it is a
party within the time period specified for performance of such obligation or,
if no time period is specified, if such failure or refusal continues for a
period of two Business Days after notice from the Agent, then, in addition to
the rights and remedies that may be available to the Agent or the Borrowers
under this Agreement or Applicable Law, such Defaulting Lender’s right to
participate in the administration of the Loans, this Agreement and the other
Loan Documents, including without limitation, any right to vote in respect of,
to consent to or to direct any action or inaction of the Agent or to be taken
into account in the calculation of the Requisite Lenders, shall be suspended
during the pendency of such failure or refusal. If a Lender is a Defaulting
Lender because it has failed to make timely payment to the Agent of any amount
required to be paid to the Agent hereunder (without giving effect to any notice
or cure periods), in addition to other rights and remedies which the Agent or
the Borrowers may have under the immediately preceding provisions or otherwise,
the Agent shall be entitled (i) to collect interest from such Defaulting
Lender on such delinquent payment for the period from the date on which the
payment was due until the date on which the payment is made at the Federal
Funds Rate, (ii) to withhold or setoff and to apply in satisfaction of the
defaulted payment and any related interest, any amounts otherwise payable to
such Defaulting Lender under this Agreement or any other Loan Document and
(iii) to bring an action or suit against such Defaulting Lender in a court
of competent jurisdiction to recover the defaulted amount and any related
interest. Any amounts received by the Agent in respect of a Defaulting Lender’s
Loans shall not be paid to such Defaulting Lender and shall be held uninvested
by the Agent and either applied against the purchase price of such Loans under
the following subsection (b) or paid to such Defaulting Lender upon such
Defaulting Lender’s curing of its default.

(b)           Purchase or Cancellation of
Defaulting Lender’s Commitment. Any Lender who is not a Defaulting Lender
may, but shall not be obligated, in its sole discretion, to acquire all or a
portion of a Defaulting Lender’s Commitment. Any Lender desiring to exercise
such right shall give written notice thereof to the Agent and the Borrower no
sooner than 2 Business Days and not later than 5 Business Days after such
Defaulting Lender became a Defaulting Lender. If more than one Lender exercises
such right, each such Lender shall have the right to acquire an amount of such
Defaulting Lender’s Commitment in proportion to the Commitments of the other
Lenders exercising such right. If after such 5th Business Day, the Lenders have
not elected to purchase all of the Commitment of such Defaulting Lender, then
the Borrower may, by giving written notice thereof to the Agent, such
Defaulting Lender and the other Lenders, either (i) demand that such Defaulting
Lender assign its Commitment to an Eligible Assignee subject to and in
accordance with the provisions of Section 13.5.(b) for the purchase price
provided for below or (ii) terminate the Commitment of such Defaulting
Lender, whereupon such Defaulting Lender shall no longer be a party hereto or
have any rights or obligations hereunder or under any of the other Loan
Documents. The Agent and the Lenders shall not have any obligation whatsoever
to initiate any such replacement or to assist in finding an Eligible Assignee.
Upon any such purchase or assignment, the Defaulting Lender’s interest in the
Loans and its rights hereunder (but not its liability in respect thereof or
under the Loan Documents or this Agreement to the extent the same relate to the
period prior to the effective date of the purchase except to the extent
assigned pursuant to such purchase) shall terminate on the date of purchase,
and the 

 43
 

 

Defaulting Lender
shall promptly execute all documents reasonably requested to surrender and
transfer such interest to the purchaser or assignee thereof, including an
appropriate Assignment and Assumption and, notwithstanding
Section 13.5.(b), shall pay to the Agent an assignment fee in the amount
of $7,000. The purchase price for the Commitment of a Defaulting Lender shall
be equal to the amount of the principal balance of the Loans outstanding and
owed by the Borrowers to the Defaulting Lender. Prior to payment of such
purchase price to a Defaulting Lender, the Agent shall apply against such
purchase price any amounts retained by the Agent pursuant to the last sentence
of the immediately preceding subsection (a). The Defaulting Lender shall
be entitled to receive amounts owed to it by the Borrowers under the Loan
Documents which accrued prior to the date of the default by the Defaulting
Lender, to the extent the same are received by the Agent from or on behalf of
the Borrowers. There shall be no recourse against any Lender or the Agent for
the payment of such sums except to the extent of the receipt of payments from
any other party or in respect of the Loans.

Section 3.12. Taxes.

(a)           Taxes Generally. All payments
by the Borrowers of principal of, and interest on, the Loans and all other
Obligations shall be made free and clear of and without deduction for any present
or future excise, stamp or other taxes, fees, duties, levies, imposts, charges,
deductions, withholdings or other charges of any nature whatsoever imposed by
any taxing authority, but excluding (i) franchise taxes, (ii) any
taxes imposed on or measured by any Lender’s assets, net income, receipts or
branch profits, (iii) any taxes (other than withholding taxes) with
respect to the Agent or a Lender that would not be imposed but for a connection
between the Agent or such Lender and the jurisdiction imposing such taxes
(other than a connection arising solely by virtue of the activities of the
Agent or such Lender pursuant to or in respect of this Agreement or any other
Loan Document), and (iv) any taxes, fees, duties, levies, imposts,
charges, deductions, withholdings or other charges to the extent imposed as a
result of the failure of the Agent or a Lender, as applicable, to provide and
keep current (to the extent legally able) any certificates, documents or other
evidence required to qualify for an exemption from, or reduced rate of, any
such taxes fees, duties, levies, imposts, charges, deductions, withholdings or
other charges or required by the immediately following subsection (c) to
be furnished by the Agent or such Lender, as applicable (such non-excluded
items being collectively called “Taxes”). If any withholding or deduction from
any payment to be made by the Borrower or the Florida Borrower hereunder is
required in respect of any Taxes pursuant to any Applicable Law, then the
Borrower will:

(i)            pay directly to the relevant
Governmental Authority the full amount required to be so withheld or deducted;

(ii)           promptly forward to the Agent an
official receipt or other documentation satisfactory to the Agent evidencing
such payment to such Governmental Authority; and

(iii)          pay to the Agent for its account or
the account of the applicable Lender, as the case may be, such additional
amount or amounts as is necessary to ensure that the net amount actually
received by the Agent or such Lender will equal the full amount that the Agent
or such Lender would have received had no such withholding or deduction been
required.

 44
 

 

(b)           Tax Indemnification. If the
Borrower or the Florida Borrower fails to pay any Taxes when due to the
appropriate Governmental Authority or fails to remit to the Agent, for its
account or the account of the respective Lender, as the case may be, the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Agent and the Lenders for any incremental Taxes, interest or
penalties that may become payable by the Agent or any Lender as a result of any
such failure. For purposes of this Section, a distribution hereunder by the
Agent or any Lender to or for the account of any Lender shall be deemed a
payment by the Borrower.

(c)           Tax Forms. Prior to the date
that any Foreign Lender becomes a party hereto, such Foreign Lender shall
deliver to the Borrower and the Agent such certificates, documents or other
evidence, as required by the Internal Revenue Code or Treasury Regulations
issued pursuant thereto (including Internal Revenue Service Forms W-8ECI and W-8BEN, as applicable, or
appropriate successor forms), properly completed, currently effective and duly
executed by such Foreign Lender establishing that payments to it hereunder and
under the Notes are (i) not subject to United States Federal backup
withholding tax and (ii) not subject to United States Federal withholding
tax imposed under the Internal Revenue Code. Each such Foreign Lender shall, to
the extent it may lawfully do so, (x) deliver further copies of such forms or
other appropriate certifications on or before the date that any such forms
expire or become obsolete and after the occurrence of any event requiring a
change in the most recent form delivered to the Borrower or the Agent and (y)
obtain such extensions of the time for filing, and renew such forms and
certifications thereof, as may be reasonably requested by the Borrower or the
Agent. The Borrower shall not be required to pay any amount pursuant to the last
sentence of subsection (a) above to any Foreign Lender or the Agent, if it
is organized under the laws of a jurisdiction outside of the United States of
America, if such Foreign Lender or the Agent, as applicable, fails to comply
with the requirements of this subsection. If any such Foreign Lender, to the
extent it may lawfully do so, fails to deliver the above forms or other
documentation, then the Agent may withhold from any payments to be made to such
Foreign Lender under any of the Loan Documents such amounts as are required by
the Internal Revenue Code. If any Governmental Authority asserts that the Agent
did not properly withhold or backup withhold, as the case may be, any tax or
other amount from payments made to or for the account of any Lender, such
Lender shall indemnify the Agent therefor, including all penalties and
interest, any taxes imposed by any jurisdiction on the amounts payable to the
Agent under this Section, and costs and expenses (including all reasonable fees
and disbursements of any law firm or other external counsel and the allocated
cost of internal legal services and all disbursements of internal counsel) of
the Agent. The obligation of the Lenders under this Section shall survive the
termination of the Commitments, repayment of all Obligations and the
resignation or replacement of the Agent.

ARTICLE IV. COLLATERAL PROPERTIES

Section 4.1. Eligibility of Properties.

(a)           As of the Agreement Date, the Lenders
have approved for inclusion in calculations of the Borrowing Base the Properties identified on
Schedule 4.1. having the Appraised Values and Implied Debt Service
Coverage Values as set forth on such Schedule. 

 45
 

 

Upon satisfaction
of the conditions set forth in Section 4.2., such Properties shall become
Collateral Properties.

(b)           If, after the Agreement Date, the
Borrower desires that any additional Property be included in calculations of
the Borrowing Base, the Borrower shall so notify the Agent in writing. No
Property will be evaluated for inclusion of calculations of the Borrowing Base
unless it is an Eligible Property, and unless and until the Borrower delivers
to the Agent each of the following, in form and substance satisfactory to the
Agent:

(i)            a description of such Property, such
description to include the age, location and size of such Property;

(ii)           an
operating statement with respect to such Property for each of the three prior
fiscal years and for the current fiscal year through the fiscal quarter most
recently ending and for the current fiscal quarter, certified by a representative
of the Borrower to the best of such representative’s knowledge as being true
and correct in all material respects; provided, that with respect to any period
such Property was not owned by a Loan Party, such information shall only be
required to be delivered to the extent reasonably available to the Borrower;

(iii)          a pro forma operating statement or an
operating budget for such Property with respect to the current and immediately
following fiscal years;

(iv)          a budget for capital expenditures for
the immediately following 12-month period showing funding sources acceptable to
the Agent;

(v)           a “Phase I” (and a “Phase II” where
warranted) environmental assessment of such Property not more than 12 months
old prepared by an environmental engineering firm acceptable to the Agent and
upon which the Agent and the Lenders are expressly permitted to rely, and any
additional environmental studies or assessments available to the Borrower
performed with respect to such Property;

(vi)          such other information the Agent may
reasonably request in order to evaluate such Property.

(c)           If,
after receipt and review of the foregoing, the Agent is prepared to proceed
with acceptance of such Property as a Collateral Property, the Agent will so
notify the Borrower and each Lender within 10 Business Days after receipt of
all of the above items, and the Agent will obtain an Appraisal of such Property
in order to determine the Appraised Value thereof. After obtaining such
Appraisal, the Agent will promptly submit the foregoing documents and
information, including the Appraisal and the Appraised Value, to the Lenders,
for approval by the Requisite Lenders. Each Lender shall notify the Agent
whether it approves of the designation of such Property as a Collateral
Property within 15 Business Days of receipt of all such documents and
information. If a Lender shall fail to so notify the Agent, then such Lender
shall be deemed to have approved of such Property. Upon approval of such
Property by the 

 46
 

 

Requisite Lenders,
and upon execution and delivery of all of the documents required to be provided
under Section 4.2., such Property shall become a Collateral Property.

(d)           In
the case of any Property located in a jurisdiction imposing a mortgage
recording tax, the Agent and the Lenders agree to take such actions as the
Borrower may reasonably request to achieve any mortgage recording tax savings,
including taking an assignment of an existing mortgage, in each case consistent
with local practice and Applicable Law.

Section 4.2. Conditions Precedent to a
Property Becoming a Collateral Property.

No
Property shall become a Collateral Property until the Borrower shall have
caused to be delivered to the Agent and the Lenders all documents and
instruments required to be delivered under Section 4.1., the Agent and the
Requisite Lenders shall have approved of, or shall have been deemed to have
approved of, such Property as provided in such Section, and the Borrower shall
have caused to be executed and delivered to the Agent the following
instruments, documents and agreements in respect of such Property, each to be
in form and substance satisfactory to the Agent (subject, in the case of the NY
Properties, to the provisions of Annex 1):

(a)           if such Property is owned by, or
leased to, a Subsidiary that is not already a Guarantor, an Accession Agreement
executed by such Subsidiary and all of the items that would have been required
to be delivered to the Agent under Section 6.1.(a)(iv) through (viii) and
(xv) had such Subsidiary been a Loan Party on the Effective Date;

(b)           a Security Deed executed by each
Subsidiary owning (or leasing) such Property, the form of such Security Deed to
be modified as appropriate (i) to conform to the Applicable Laws of the
jurisdiction in which such Property is located and (ii) to implement the
provisions of Section 4.1.(d);

(c)           an Assignment of Leases and Rents
executed by each such Subsidiary, the form of such Assignment of Leases and
Rents to be modified as appropriate (i) to conform to the Applicable Laws
of the jurisdiction in which such Property is located and (ii) to
implement the provisions of Section 4.1.(d);

(d)           an Environmental Indemnity Agreement
executed by each such Subsidiary and the Borrower;

(e)           copies
of all Property Management Agreements, franchise or license agreements and all
other material contracts, if any, which relate to the use, occupancy,
operation, management, maintenance, enjoyment or ownership of such Property;

(f)            a Property Management Contract
Assignment executed by each such Subsidiary and the applicable property
manager;

(g)           copies of all material occupancy and
operating permits and licenses relating to the use, occupancy, operation,
maintenance, enjoyment or ownership of such Property;

 47
 

 

(h)           if requested by the Agent, collateral
assignments of the other material contracts, operating permits and licenses,
franchise or license agreements and any other rights or benefits of such
Property, relating to the use, occupancy, operation, maintenance, enjoyment or
ownership of such Property, such assignment to be evidenced by an Assignment of
Contracts, Documents and Rights executed by each such Subsidiary and each other
Person party thereto, except to the extent the collateral assignment of any
such contract, operating permit or license, franchise, license agreement, or
other right or benefit would cause a default under any contract relating
thereto or allow the other party to terminate or otherwise exercise a right
detrimental to the applicable assignor under such contract;

(i)            the Pledge Agreement, or if the Pledge
Agreement is already in effect, a supplement to the Pledge Agreement, executed
by each Person owing any outstanding Equity Interest of each Subsidiary owning
(or leasing) such Property, subjecting all such Equity Interests to the Lien of
the Pledge Agreement;

(j)            all certificates, if any,
representing any such Equity Interests, together with an undated stock power
for each such certificate executed in blank by a duly authorized officer or
agent of the Loan Party with rights in any such Equity Interests, together with
an Acknowledgment and Consent, substantially in the form of Schedule 2 to
the Pledge Agreement, duly executed by the issuer of such Equity Interest;

(k)           the Security Agreement, or if the
Security Agreement is already in effect, a supplement to the Security
Agreement, executed by the Borrower and/or any Subsidiary having rights in any
reserve, operating account or deposit account, or any trademark, copyright or
other Intellectual Property, in each case, in any way relating to such Property,
subjecting all such property to the Lien of the Security Agreement;

(l)            each document (including, without
limitation, any UCC financing statement) required by the Pledge Agreement, the
Security Agreement or under Applicable Law or reasonably deemed necessary or
appropriate by the Agent to be entered into, filed, registered or recorded in
order to create in favor of the Agent, for the benefit of the Lenders, a
perfected first-priority Lien in (i) such Equity Interests and all other
related Collateral (as defined in the Pledge Agreement) and (ii) such
reserves, operating accounts, deposit accounts, trademarks, copyrights, other
Intellectual Property and all other related Collateral (as defined in the
Security Agreement), shall have been entered into, filed, registered or
recorded or shall have been delivered to the Agent and be in proper form for
filing, registration or recordation, as appropriate;

(m)          an
ALTA 1992 Form mortgagee’s Policy of Title Insurance (with deletion of the
creditor’s rights exclusion and deletion of the mandatory arbitration
provision) or other form acceptable to the Agent in favor of the Agent for the
benefit of the Lenders with respect to such Property, including endorsements
with respect to such items of coverage as the Agent may reasonably request (and
which endorsements are available in the applicable state), in a coverage amount
equal to no less than 100% of the Appraised Value of such Property (subject to
increase without material additional cost through the use of “tie-in” endorsements
or other provisions), issued by a title insurance company acceptable to the
Agent and with coinsurance or reinsurance 

 48
 

 

(with direct
access agreements) with title insurance companies acceptable to the Agent,
showing the fee simple title (or a leasehold estate if leased under a Ground
Lease) to the land and improvements described in the applicable Security Deed
as vested in a Subsidiary, and insuring that the Lien granted by such Security
Deed is a valid first priority Lien against such Property, subject only to such
restrictions, encumbrances, easements and reservations as are acceptable to the
Agent and nonconsensual Liens permitted by Section 10.2.;

(n)           copies of all documents of record
reflected in Schedule B of such Policy of Title Insurance;

(o)           if such Property is located in a
Tie-In Jurisdiction, endorsements to all other existing title insurance
policies issued to the Agent with respect to all other Properties located in
Tie-In Jurisdictions reflecting an increase in the aggregate insured amount under
the “tie-in” endorsements to an amount equal to the aggregate amount of the
Appraised Values of all such Properties (including the Property to be included
as a Collateral Property) but in no event in an amount in excess of the
aggregate amount of the Commitments;

(p)           a
current or currently certified survey of such Property certified to the Agent
and the Lenders by a surveyor licensed in the jurisdiction where such Property
is located to have been prepared in accordance with the then effective Minimum
Standard Detail Requirements for ALTA/ACSM Land Title Surveys;

(q)           if
not adequately covered by the survey certification, a certificate from a
licensed engineer or other professional satisfactory to the Agent that such
Property is not located in a Special Flood Hazard Area as defined by the
Federal Insurance Administration, or, if it is, evidence of flood insurance;

(r)            evidence that such Property complies
with applicable zoning and land use laws or that such Property is the subject
of a legal non-conforming use;

(s)           final certificates of occupancy
relating to such Property, if available;

(t)            an inspection report prepared by an
architect or engineer acceptable to the Agent and addressed to the Agent for
the benefit of the Lenders with respect to such Property;

(u)           if reasonably requested by the Agent,
copies of all engineering, mechanical, structural and maintenance studies
performed with respect to such Property not more than twelve months old;

(v)           evidence
that the insurance that will be required under the applicable Loan Document for
such Property if accepted as a Collateral Property will be in effect; and

(w)          UCC, tax, judgment and lien search
reports with respect to all applicable Loan Parties and such Property in all
necessary or appropriate jurisdictions and under all legal and appropriate
trade names indicating that there are no Liens of record on such Property or
any of the Collateral relating thereto other than Liens expressly permitted
under the Loan Documents to 

 49
 

 

exist on such
Property or any of the Collateral relating thereto or Liens to be terminated
prior to such Property’s acceptance as a Collateral Property;

(x)            copies of all leases of such
Property and lease abstracts in form and substance acceptable to Agent relating
to such leases covering any restaurant, bar, heath club or other amenity
serving such Property;

(y)           estoppel certificates from each
tenant under any such lease, and if requested by the Agent, subordination,
non-disturbance and attornment agreements from each tenant under any lease for
restaurant or bar space;

(z)            an opinion of counsel admitted to
practice law in the jurisdiction in which such Property is located and
reasonably acceptable to the Agent, addressed to the Agent and each Lender
covering the enforceability of the Security Deed and the other related Security
Documents that are to encumber such Property and such other legal matters
relating to the transactions contemplated hereby as the Agent may reasonably
request;

(aa)         an opinion of counsel qualified to
render legal opinions regarding the law of the jurisdiction of formation of
each Subsidiary owning (or leasing) such Property acceptable to the Agent,
addressed to the Agent and each Lender covering such legal matters relating to
the formation and existence and power of each Loan Party executing documents in
connection with the addition of such Property as a Collateral Property, and the
due authorization, execution and delivery of the applicable Security Documents
and other documents for consummating the transactions contemplated hereby as
the Agent may reasonably request;

(bb)         a Borrowing Base Certificate calculated
after giving effect to the inclusion of such Property as a Collateral Property;
and

(cc)         such other due diligence materials,
instruments, documents, agreements, financing statements, certificates,
opinions and other Security Documents as the Agent may reasonably request.

Section 4.3. Release of Collateral
Properties.

From
time to time the Borrower may request, upon not less than 10 Business Days
prior written notice to the Agent, that a Collateral Property be released from
the Liens created by the Security Documents applicable thereto, which release
(the “Release”) shall be effected by the Agent if all of the following
conditions are satisfied as of the date of such Release:

(a)           no Default or Event of Default exists
or would exist immediately after giving effect to such Release;

(b)           the representations and warranties
made or deemed made by the Borrower and each other Loan Party in the Loan
Documents to which any of them is a party, are true and correct in all material
respects immediately prior to and after giving effect to such Release with the
same force and effect as if made on and as of such date except to the extent
that such representations and warranties expressly relate solely to an earlier
date (in which case such 

 50
 

 

representations
and warranties shall have been true and correct in all material respects on and
as of such earlier date) and except for changes in factual circumstances not
prohibited under the Loan Documents;

(c)           the Borrower shall have delivered to
the Agent all documents and instruments reasonably requested by the Agent in
connection with such Release including, without limitation, the following:

(i)            a quitclaim deed, assignment,
termination statement or other instrument to be used to effect such Release;
and

(ii)           an appropriate endorsement to the
mortgagee title insurance policy in effect with respect to the affected
Collateral Property, if applicable, and appropriate corrective endorsements
with respect to any other mortgagee policies of title insurance on Collateral
Properties which have tie-in clauses which are affected by the Release; and

(d)           the Borrower shall have delivered a
Compliance Certificate showing compliance, on a Pro Forma Basis after giving
effect to such Release as of the last day of the most-recently ended fiscal
quarter of the Borrower, with the covenants set forth in Section 10.11.;

(e)           the Borrower shall have delivered to
the Agent a Borrowing Base Certificate reflecting the Borrowing Base after
giving effect to such Release and indicating that the outstanding principal
balance of the Loans, together with the aggregate principal amount of all
Letter of Credit Liabilities, will not exceed the Borrowing Base after giving
effect to such Release and any prepayment to be made and/or the acceptance of
any Property pursuant to Section 4.1. which is to be given concurrently
with such Release as an additional or replacement Collateral Property; and

(f)            after giving effect to such Release
70% of the aggregate Appraised Values (or in the case of the Florida Property,
the lesser of (i) 70% of the Appraised Value of the Florida Property or
(ii) the Florida Sublimit) of the remaining Collateral Properties equals
or exceeds $100,000,000.

In connection with
a Release, the Borrower shall deliver to the Agent a certificate of a Financial
Officer regarding the matters referred to in the immediately preceding clauses
(a), (b) and (f).

Section 4.4. Frequency of Calculations of
Borrowing Base.

Initially,
the Borrowing Base shall be the amount set forth as such in the Borrowing Base
Certificate delivered under Section 6.1. Thereafter, the Borrowing Base
shall be the amount set forth as such in the Borrowing Base Certificate
delivered from time to time under Section 4.2.(bb), 4.3.(e) or 9.3.(b).
Any increase in the Borrowing Base Value of a Collateral Property shall become
effective as of the next determination of the Borrowing Base as provided in
this Section, provided that (a) the applicable Borrowing Base Certificate
substantiates such increase and (b) if the increase in the Borrowing Base
Value is attributable in whole or in part to an increase in the Appraised Value
of a Collateral Property, the Borrower delivers to the Agent prior to the
effectiveness of such increase the following: (i) with respect to any such
Collateral 

 51
 

 

Property not
located in a Tie-In Jurisdiction, an endorsement to the title insurance policy
in favor of the Agent with respect to such Property increasing the coverage
amount thereof as related to such Property to not less than 100% of the
Appraised Value of such Property and (ii) with respect to any such
Collateral Property located in a Tie-In Jurisdiction, an endorsement to the
title insurance policy in favor of the Agent with respect to such Property
increasing the coverage amount thereof as related to such Property to not less
than the Appraised Value of such Property, as well as endorsements to all other
existing title insurance policies issued to the Agent with respect to all other
Properties located in Tie-In Jurisdictions reflecting an increase in the
aggregate insured amount under the “tie-in” endorsements to an amount equal to
the aggregate amount of the Appraised Values of all such Properties but in no
event in an amount in excess of the aggregate amount of the Commitments.

Section 4.5.
Frequency of
Appraisals.

The
Appraised Value of a Collateral Property shall be determined or redetermined,
as applicable, under each of the following circumstances:

(a)           In connection with the acceptance of
a Property as a Collateral Property the Agent shall determine the Appraised
Value thereof as provided in Section 4.1.;

(b)           From time to time upon at least 5
Business Days written notice to the Borrower and at the Borrower’s expense, the
Agent may (and shall at the direction of the Requisite Lenders) redetermine the
Appraised Value of a Collateral Property (based on a new Appraisal obtained by
the Agent) if a new Appraisal of such Collateral Property has been obtained
pursuant to the terms of Section 4.6.;

(c)           Following any “Casualty Event” under
and as defined in any Security Deed or any “Condemnation Event” under and as
defined in any Security Deed; and

(d)           Upon the Borrower’s written request
for a redetermination of the Appraised Value of a Property, the Agent shall
redetermine the Appraised Value of such Property (based on a new Appraisal of
such Property obtained by the Agent), all at the Borrower’s expense; provided,
that the Borrower may request a new Appraisal of a Property pursuant to this
subsection only 2 times.

Section 4.6.
Additional Appraisals Required under Applicable Law.

If under FIRREA or any other Applicable Law, a Lender is required to obtain an Appraisal of any Collateral Property in
addition to any other Appraisal previously obtained with respect to such
Property pursuant to this Agreement, the Agent shall have the right to cause such an Appraisal to be
prepared at the Borrower’s cost and expense. The Borrowing Base shall be
redetermined as a result of delivery of any such new Appraisal if Applicable
Law requires such redetermination, in which case the Borrowing Base  shall be redetermined in the manner required
under such Applicable Law.

 52
 

 

Section 4.7. Increase of Florida
Sublimit.

The
Borrower may request, upon at least 3 Business Days prior written notice to the
Agent, that the Florida Sublimit be increased to an amount not in excess of the
Appraised Value of the Florida Property, which increase shall be subject to
satisfaction of the following conditions:

(a)           no Default or Event of Default exists
or would exist immediately after giving effect to such increase;

(b)           the representations and warranties
made or deemed made by the Borrower and each other Loan Party in the Loan
Documents to which any of them is a party, are true and correct in all material
respects immediately prior to and after giving effect to such increase with the
same force and effect as if made on and as of such date except to the extent
that such representations and warranties expressly relate solely to an earlier
date (in which case such representations and warranties shall have been true
and correct in all material respects on and as of such earlier date) and except
for changes in factual circumstances not prohibited under the Loan Documents;

(c)           delivery to the Agent of the
following, each in form and substance satisfactory to the Agent:

(i)            Revolving Notes executed by the
Florida Borrower payable to each Lender in the principal amount of such Lender’s
Commitment Percentage of the increased Florida Sublimit;

(ii)           an amendment to the Security Deed
encumbering the Florida Property increasing the maximum principal amount of
Obligations secured thereby to the increased Florida Sublimit;

(iii)          evidence that all documentary stamp
taxes, intangibles taxes and other taxes due an payable in respect of the
filing of such amendment have been paid;

(iv)          an endorsement to the title insurance
policy in favor of Agent with respect to the Florida Property increasing the
amount thereof as related to the Florida Property to not less than the amount
of the increased Florida Sublimit;

(v)           a reaffirmation of the Guaranty
executed by each of the Guarantors;

(vi)          a certificate of incumbency signed by
the Secretary or Assistant Secretary (or other individual performing similar
functions) of the Florida Borrower with respect to each of the officers of the
Florida Borrower authorized to execute and deliver the Loan Documents being
executed in connection with such increase;

(vii)         copies certified by the Secretary or
Assistant Secretary (or other individual performing similar functions) of the
Florida Borrower of all member or other necessary 

 53
 

 

action taken by the
Florida Borrower to authorize the execution, delivery and performance of such
Loan Documents;

(viii)        a certificate from a Responsible Officer
of the Borrower certifying the matters referred to in the immediately preceding
subsections (a) and (b);

(ix)           an
opinion or opinions of counsel to the Florida Borrower, addressed to the Agent
and the Lenders, addressing such matters as the Agent may reasonably request in
connection with such increase, including without limitation, authority of the
Florida Borrower, enforceability of the amended Security Deed, and all
documentary stamp taxes, intangibles taxes and other taxes payable in respect of
the filing of such amendment having been paid; and

(x)            such other documents, agreements and
instruments as the Agent on behalf of the Lenders may reasonably request in
connection with such increase; and

(d)           any such increase, if not to an
amount equal to the Appraised Value of the Florida Property, shall be in the
amount of $10,000,000 or more.

ARTICLE V. YIELD PROTECTION, ETC.

Section 5.1. Additional Costs; Capital
Adequacy.

(a)           Additional Costs. The Borrower
shall promptly pay to the Agent for the account of each affected Lender from
time to time such amounts as such Lender may determine to be necessary to
compensate such Lender for any costs incurred by such Lender that it determines
are attributable to its making or maintaining of any LIBOR Loans or its
obligation to make any LIBOR Loans hereunder, any reduction in any amount
receivable by such Lender under this Agreement or any of the other Loan
Documents in respect of any of such Loans or such obligation or the maintenance
by such Lender of capital in respect of its Loans or its Commitment (such
increases in costs and reductions in amounts receivable being herein called “Additional
Costs”), to the extent resulting from any Regulatory Change that:  (i) changes the basis of taxation of any
amounts payable to such Lender under this Agreement or any of the other Loan
Documents in respect of any of such Loans or its Commitment (other than taxes,
fees, duties, levies, imposts, charges, deductions, withholdings or other
charges which are excluded from the definition of Taxes pursuant to the first
sentence of Section 3.12.(a)); or (ii) imposes or modifies any
reserve, special deposit or similar requirements (other than Regulation D of
the Board of Governors of the Federal Reserve System or other reserve requirement
to the extent utilized in the determination of Adjusted LIBOR for such Loan)
relating to any extensions of credit or other assets of, or any deposits with
or other liabilities of, such Lender, or any commitment of such Lender
(including, without limitation, the Commitment of such Lender hereunder); or
(iii) has or would have the effect of reducing the rate of return on
capital of such Lender to a level below that which such Lender could have
achieved but for such Regulatory Change (taking into consideration such Lender’s
policies with respect to capital adequacy).

(b)           Lender’s Suspension of LIBOR Loans.
Without limiting the effect of the provisions of the immediately preceding
subsection (a), if, by reason of any Regulatory Change, 

 54
 

 

any Lender either
(i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender that includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender that includes LIBOR Loans
or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets that it may hold, then, if such Lender so elects by
notice to the Borrower (with a copy to the Agent), the obligation of such
Lender to make or Continue, or to Convert any other Type of Loans into, LIBOR
Loans hereunder shall be suspended until such Regulatory Change ceases to be in
effect (in which case the provisions of Section 5.5. shall apply).

(c)           Additional Costs in Respect of
Letters of Credit. Without limiting the obligations of the Borrower under
the preceding subsections of this Section (but without duplication), if as a
result of any Regulatory Change or any risk-based capital guideline or other
requirement heretofore or hereafter issued by any Governmental Authority there
shall be imposed, modified or deemed applicable any tax, reserve, special
deposit, capital adequacy or similar requirement against or with respect to or
measured by reference to Letters of Credit and the result shall be to increase
the cost to the Agent of issuing (or any Lender of purchasing participations
in) or maintaining its obligation hereunder to issue (or purchase
participations in) any Letter of Credit or reduce any amount receivable by the
Agent or any Lender hereunder in respect of any Letter of Credit, then, upon
demand by the Agent or such Lender, the Borrower shall pay promptly, and in any
event within 3 Business Days of demand, to the Agent for its account or the
account of such Lender, as applicable, from time to time as specified by the
Agent or a Lender, such additional amounts as shall be sufficient to compensate
the Agent or such Lender for such increased costs or reductions in amount.

(d)           Notification and Determination of
Additional Costs. Each of the Agent and each Lender agrees to notify the
Borrower of any event occurring after the Agreement Date entitling the Agent or
such Lender to compensation under any of the preceding subsections of this
Section as promptly as practicable; provided, however, the failure of the Agent
or any Lender to give such notice shall not release the Borrower from any of
its obligations hereunder (and in the case of a Lender, to the Agent). The
Agent or such Lender agrees to furnish to the Borrower (and in the case of a
Lender, to the Agent) a certificate setting forth in reasonable detail the
basis and amount of each request by the Agent or such Lender for compensation under
this Section. Absent manifest error, determinations by the Agent or any Lender
of the effect of any Regulatory Change shall be conclusive, provided that such
determinations are made on a reasonable basis and in good faith.

Section 5.2. Suspension of LIBOR Loans.

Anything herein to the contrary notwithstanding, if,
on or prior to the determination of Adjusted LIBOR for any Interest Period:

(a)           the Agent reasonably determines
(which determination shall be conclusive) that by reason of circumstances affecting
the relevant market, adequate and reasonable means do not exist for
ascertaining Adjusted LIBOR for such Interest Period, or

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(b)           the Agent reasonably determines
(which determination shall be conclusive) that Adjusted LIBOR will not
adequately and fairly reflect the cost to the Lenders of making or maintaining
LIBOR Loans for such Interest Period;

then the Agent
shall give the Borrower and each Lender prompt notice thereof and, so long as
such condition remains in effect, the Lenders shall be under no obligation to,
and shall not, make additional LIBOR Loans, Continue LIBOR Loans or Convert
Loans into LIBOR Loans and the Borrower shall, on the last day of each current
Interest Period for each outstanding LIBOR Loan, either cause such Loan to be
repaid or cause such Loan to be Converted into a Base Rate Loan.

Section 5.3. Illegality.

Notwithstanding
any other provision of this Agreement, if any Lender shall reasonably determine
(which determination shall be conclusive and binding) that it has become unlawful
for such Lender to honor its obligation to make or maintain LIBOR Loans
hereunder, then such Lender shall promptly notify the Borrower thereof (with a
copy to the Agent) and such Lender’s obligation to make or Continue, or to
Convert Loans of any other Type into, LIBOR Loans shall be suspended until such
time as such Lender may again make and maintain LIBOR Loans (in which case the
provisions of Section 5.5. shall be applicable).

Section 5.4. Compensation.

The
Borrower shall pay to the Agent for the account of each Lender, upon the
request of such Lender through the Agent, such amount or amounts as shall be
sufficient (in the reasonable opinion of such Lender) to compensate it for any
loss (but not lost profits), cost or expense that such Lender reasonably
determines is attributable to:

(a)           any payment or prepayment (whether
mandatory or optional) of a LIBOR Loan, or Conversion of a LIBOR Loan, made by
such Lender for any reason (including, without limitation, acceleration) on a
date other than the last day of the Interest Period for such Loan; or

(b)           any failure by the Borrower or the
Florida Borrower for any reason (including, without limitation, the failure of
any of the applicable conditions precedent specified in Article VI. to be
satisfied) to borrow a LIBOR Loan from such Lender on the requested date for
such borrowing, or to Convert a Base Rate Loan into a LIBOR Loan or Continue a
LIBOR Loan on the requested date of such Conversion or Continuation.

Upon the Borrower’s
request, any Lender requesting compensation under this Section shall provide
the Borrower with a statement setting forth in reasonable detail the basis for
requesting such compensation and the method for determining the amount thereof.
Absent manifest error, determinations by any Lender in any such statement shall
be conclusive, provided that such determinations are made on a reasonable basis
and in good faith.

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Section 5.5. Treatment of Affected
Loans.

If the
obligation of any Lender to make LIBOR Loans or to Continue, or to Convert Base
Rate Loans into, LIBOR Loans shall be suspended pursuant to
Section 5.1.(b) or 5.3., then such Lender’s LIBOR Loans shall be
automatically Converted into Base Rate Loans on the last day(s) of the then
current Interest Period(s) for LIBOR Loans (or, in the case of a Conversion
required by Section 5.1.(b) or 5.3., on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until
such Lender gives notice as provided below that the circumstances specified in
Section 5.1. or 5.3. that gave rise to such Conversion no longer exist:

(a)           to the extent that such Lender’s
LIBOR Loans have been so Converted, all payments and prepayments of principal
that would otherwise be applied to such Lender’s LIBOR Loans shall be applied
instead to its Base Rate Loans; and

(b)           all Loans that would otherwise be
made or Continued by such Lender as LIBOR Loans shall be made or Continued
instead as Base Rate Loans, and all Base Rate Loans of such Lender that would
otherwise be Converted into LIBOR Loans shall remain as Base Rate Loans.

If such Lender
gives notice to the Borrower (with a copy to the Agent) that the circumstances
specified in Section 5.1. or 5.3. that gave rise to the Conversion of such
Lender’s LIBOR Loans pursuant to this Section no longer exist (which such
Lender agrees to do promptly upon such circumstances ceasing to exist) at a
time when LIBOR Loans made by other Lenders are outstanding, then such Lender’s
Base Rate Loans shall be automatically Converted, on the first day(s) of the
next succeeding Interest Period(s) for such outstanding LIBOR Loans, to the
extent necessary so that, after giving effect thereto, all Loans held by the
Lenders holding LIBOR Loans and by such Lender are held pro rata (as to
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.

Section 5.6. Change of Lending Office.

Each
Lender agrees that it will use reasonable efforts to designate an alternate
Lending Office with respect to any of its Loans affected by the matters or
circumstances described in Section 3.12., 5.1. or 5.3. to reduce the
liability of the Borrower or avoid the results provided thereunder, so long as
such designation is not disadvantageous to such Lender as determined by such
Lender in its sole discretion, except that such Lender shall have no obligation
to designate a Lending Office located in the United States of America.

Section 5.7. Assumptions Concerning
Funding of LIBOR Loans.

Calculation
of all amounts payable to a Lender under this Article V. shall be made as
though such Lender had actually funded 
LIBOR Loans through the purchase of deposits in the relevant market
bearing interest at the rate applicable to such LIBOR Loans in an amount equal
to the amount of the LIBOR Loans and having a maturity comparable to the
relevant Interest Period; provided, however, that each Lender may fund each of
its LIBOR Loans in any manner it sees fit and the foregoing assumption shall be
used only for calculation of amounts payable under this Article V.

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ARTICLE VI. CONDITIONS PRECEDENT

Section 6.1. Initial Conditions
Precedent.

The
obligation of the Lenders to effect or permit the occurrence of the first
Credit Event hereunder, whether as the making of a Loan or the issuance of a
Letter of Credit, is subject to the following conditions precedent:

(a)           The Agent shall have received each of
the following, in form and substance satisfactory to the Agent:

(i)            counterparts of this Agreement
executed by each of the parties hereto;

(ii)           Revolving Notes executed by the
Borrower and the Florida Borrower, payable to each Lender and complying with
the applicable provisions of Section 2.10., and the Swingline Note
executed by the Borrower;

(iii)          the Guaranty executed by Holdings,
each Subsidiary that owns or leases a Collateral Property as of the Effective
Date and each Material Subsidiary (other than any Exempt Subsidiary) as of the
Effective Date;

(iv)          an
opinion or opinions of counsel to the Loan Parties, addressed to the Agent and
the Lenders, addressing the matters set forth in Exhibit H;

(v)           the articles of incorporation,
articles of organization, certificate of limited partnership or other
comparable organizational instrument (if any) of each Loan Party certified as
of a recent date by the Secretary of State of the state of formation of such
Loan Party;

(vi)          a certificate of good standing or
certificate of similar meaning with respect to each Loan Party issued as of a
recent date by the Secretary of State of the state of formation of each such
Loan Party and certificates of qualification to transact business or other
comparable certificates issued by each Secretary of State (and any state
department of taxation, as applicable) of each state in which such Loan Party
is required to be so qualified and where the failure to be so qualified could
reasonably be expected to have a Material Adverse Effect;

(vii)         a certificate of incumbency signed by
the Secretary or Assistant Secretary (or other individual performing similar
functions) of each Loan Party with respect to each of the officers of such Loan
Party authorized to execute and deliver the Loan Documents to which such Loan
Party is a party, and in the case of the Borrower, the officers of the Borrower
then authorized to deliver Notices of Borrowing, Notices of Swingline
Borrowings, Notices of Continuation and Notices of Conversion and to request
the issuance of Letters of Credit;

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(viii)        copies certified by the
Secretary or Assistant Secretary (or other individual performing similar
functions) of each Loan Party of (i) the by-laws of such Loan Party, if a
corporation, the operating agreement of such Loan Party, if a limited liability
company, the partnership agreement of such Loan Party, if a limited or general
partnership, or other comparable document in the case of any other form of
legal entity and (ii) all corporate, partnership, member or other
necessary action taken by such Loan Party to authorize the execution, delivery
and performance of the Loan Documents to which it is a party;

(ix)           a certificate from a
Responsible Officer of the Borrower to the effect that (x) all representations
and warranties of the Loan Parties contained in the Loan Documents are true,
correct and complete in all material respects and (y) immediately after giving
effect to the transactions contemplated by this Agreement, no Default or Event
of Default shall exist;

(x)            evidence of the
payment of all Fees then due and payable under Section 3.6., and any other
Fees payable to the Agent, the Titled Agents and the Lenders on or prior to the
Effective Date;

(xi)           a Borrowing Base
Certificate calculated as of the Effective Date;

(xii)          a Compliance Certificate
calculated as of June 30, 2006 (giving pro forma effect to the financing
contemplated by this Agreement and the use of the proceeds of the Loans to be
funded on the Effective Date);

(xiii)         letters from the
administrative agent under each Existing Credit Agreement providing information
regarding the payment in full of amounts outstanding under such Existing Credit
Agreement and providing for the termination thereof and the release of all
Liens securing any obligations owing thereunder;

(xiv)        all of the items required
to be delivered under Sections 4.1. and 4.2. with respect to each Property
identified on Schedule 4.1.;

(xv)         such other documents,
agreements and instruments as the Agent on behalf of the Lenders may reasonably
request; and

(b)           In the good faith judgment
of the Agent and the Lenders:

(i)            There shall not have
occurred or become known to the Agent or
any of the Lenders any event, condition, situation or status since the date of
the information contained in the financial and business projections, budgets,
pro forma data and forecasts concerning Holdings, the Borrower, the other Loan
Parties and the other Subsidiaries delivered to the Agent and the Lenders prior
to the Agreement Date that has had or could reasonably be expected to result in
a Material Adverse Effect;

(ii)           No litigation, action,
suit, investigation or other arbitral, administrative or judicial proceeding
shall be pending or threatened which could reasonably be expected to

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(1) result in a Material Adverse Effect or (2)
restrain or enjoin, impose materially burdensome conditions on, or otherwise
materially and adversely affect the ability of any Loan Party to fulfill its
obligations under the Loan Documents to which it is a party;

(iii)          Holdings, the Borrower,
the other Loan Parties and the other Subsidiaries shall have received all
approvals, consents and waivers, and shall have made or given all necessary
filings and notices, as shall be required to consummate the transactions
contemplated hereby without the occurrence of any default under, conflict with
or violation of (1) any Applicable Law or (2) any agreement, document
or instrument to which the Borrower or any other Loan Party is a party or by
which any of them or their respective properties is bound, except for such
approvals, consents, waivers, filings and notices the receipt, making or giving
of which would not reasonably be likely to (A) have a Material Adverse
Effect, or (B) restrain or enjoin, impose materially burdensome conditions
on, or otherwise materially and adversely affect the ability of any Loan Party
to fulfill its obligations under the Loan Documents to which it is a party; and

(iv)          There shall not have
occurred or exist any other material disruption of financial or capital markets
that could reasonably be expected to materially and adversely affect the
transactions contemplated by the Loan Documents.

(c)           When all of the
conditions contained in the immediately preceding subsections (a) and (b)
have been satisfied or waived in accordance with the terms hereof, the Agent
shall promptly notify the Borrower and the Lenders thereof.

Section 6.2. Conditions Precedent to All
Loans and Letters of Credit.

The
obligations of the Lenders to make any Loans, of the Agent to issue Letters of
Credit, and of the Swingline Lender to make any Swingline Loan are all subject
to the further condition precedent that: (a) no Default or Event of
Default shall exist as of the date of the making of such Loan or date of
issuance of such Letter of Credit or would exist immediately after giving effect
thereto; and (b) the representations and warranties made or deemed made by
each Loan Party in the Loan Documents to which any of them is a party, shall be
true and correct in all material respects on and as of the date of the making
of such Loan or date of issuance of such Letter of Credit with the same force
and effect as if made on and as of such date except to the extent that such
representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall have been true and correct
in all material respects on and as of such earlier date) and except for changes
in factual circumstances not prohibited under the Loan Documents. Each Credit
Event shall constitute a certification by the Borrower to the effect set forth
in the preceding sentence (both as of the date of the giving of notice relating
to such Credit Event and, unless the Borrower otherwise notifies the Agent
prior to the date of such Credit Event, as of the date of the occurrence of
such Credit Event). In addition, if such Credit Event is the making of a Loan
or the issuance of a Letter of Credit, the Borrower shall be deemed to have
represented to the Agent and the Lenders at the time such Loan is made or
Letter of Credit issued that all conditions to the occurrence of such Credit
Event contained in this Article VI. have been satisfied.

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ARTICLE VII. REPRESENTATIONS AND
WARRANTIES

Section 7.1. Representations and
Warranties.

In
order to induce the Agent and each Lender to enter into this Agreement and to
make Loans and issue Letters of Credit, the Borrower represents and warrants to
the Agent and each Lender as follows:

(a)           Organization; Power;
Qualification. Each of Holdings, the Borrower, each other Loan Party and
each other Subsidiary is a corporation, partnership or other legal entity, duly
organized or formed, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or formation, has the power and authority
to own or lease its respective properties and to carry on its respective
business as now being and hereafter proposed to be conducted and is duly
qualified and is in good standing as a foreign corporation, partnership or
other legal entity, and authorized to do business, in each jurisdiction in
which the character of its properties or the nature of its business requires
such qualification or authorization and where the failure to be so qualified or
authorized could reasonably be expected to have, in each instance, a Material
Adverse Effect.

(b)           Ownership Structure.
As of the Agreement Date, Part I of Schedule 7.1.(b) is a complete and
correct list of all Subsidiaries of Holdings setting forth for each such
Subsidiary, (i) the jurisdiction of organization of such Subsidiary,
(ii) each Person holding any Equity Interests in such Subsidiary,
(iii) the nature of the Equity Interests held by each such Person,
(iv) the percentage of ownership of such Subsidiary represented by such
Equity Interests and (v) whether such Subsidiary is a Material Subsidiary,
an Exempt Subsidiary and/or a Foreign Subsidiary. Except as disclosed in such
Schedule, as of the Agreement Date (i) each of Holdings, the Borrower, the
other Loan Parties and the other Subsidiaries owns, free and clear of all Liens
(other than nonconsensual Liens permitted under Section 10.2.), and has
the unencumbered right to vote, all outstanding Equity Interests in each Person
shown to be held by it on such Schedule, (ii) all of the issued and
outstanding capital stock of each such Person organized as a corporation is
validly issued, fully paid and nonassessable and (iii) there are no
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders’ or
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, any
such Person. As of the Agreement Date Part II of Schedule 7.1.(b)
correctly sets forth all Unconsolidated Affiliates of the Borrower, including
the correct legal name of such Person, the type of legal entity which each such
Person is, and all Equity Interests in such Person held directly or indirectly
by Holdings.

(c)           Authorization of
Agreement, Etc. The Borrowers have the right and power, and have taken all
necessary action to authorize them, to borrow and obtain other extensions of
credit hereunder. Each Loan Party has the right and power, and has taken all
necessary action to authorize it, to execute, deliver and perform each of the
Loan Documents to which it is a party in accordance with their respective terms
and to consummate the transactions contemplated hereby and thereby. The Loan
Documents to which any Loan Party is a party have been duly executed and
delivered by the duly authorized officers of such Loan Party and each is a
legal, valid and

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binding obligation
of such Loan Party enforceable against such Loan Party in accordance with its
respective terms except as the same may be limited by bankruptcy, insolvency,
and other similar laws affecting the rights of creditors generally and the
availability of equitable remedies for the enforcement of certain obligations
(other than the payment of principal) contained herein or therein and as may be
limited by equitable principles generally.

(d)           Compliance of Loan
Documents with Laws, Etc. The execution, delivery and performance of this
Agreement and the other Loan Documents to which any Loan Party is a party in
accordance with their respective terms and the borrowings and other extensions
of credit hereunder do not and will not, by the passage of time, the giving of
notice, or both:  (i) except as set
forth in Schedule 7.1.(d), require any Governmental Approval or violate
any Applicable Law (including all Environmental Laws) relating to any Loan
Party; (ii) violate, result in a breach of or constitute a default under
the organizational documents of any Loan Party, or any indenture, agreement or
other instrument to which any Loan Party is a party or by which it or any of
its respective properties may be bound; or (iii) result in or require the
creation or imposition of any Lien upon or with respect to any property now
owned or hereafter acquired by any Loan Party other than Liens created pursuant
to the Security Documents.

(e)           Compliance with Law;
Governmental Approvals. Each of Holdings, the Borrower, each other Loan
Party and each other Subsidiary is in compliance with each Governmental
Approval applicable to it and in compliance with all other Applicable Laws
(including without limitation, Environmental Laws) relating to such Person
except for noncompliances which, and Governmental Approvals the failure to
possess which, could not, individually or in the aggregate, reasonably be
expected to cause a Default or Event of Default or have a Material Adverse
Effect.

(f)            Title to
Properties; Liens. As of the Agreement Date, Schedule 7.1.(f) is a
complete and correct listing of all of the real property owned or leased by
Holdings, the Borrower, each other Loan Party and each other Subsidiary. Each
such Person has good, marketable and legal title to, or a valid leasehold
interest in, its respective assets. As of the Agreement Date, except as set
forth on such Schedule, there are no Liens against any assets of Holdings, the
Borrower, any other Loan Party or any other Subsidiary except for Liens
permitted under Section 10.2.

(g)           Existing
Indebtedness. Schedule 7.1.(g) is, as of the Agreement Date, a
complete and correct listing of all Indebtedness of Holdings, the Borrower and
its Subsidiaries, including without limitation, Indebtedness in respect of
Guarantees.

(h)           Material Contracts. Schedule 7.1.(h) is, as of the
Agreement Date, a true, correct and complete listing of all Material Contracts.
No event or condition exists which with the giving of notice, the lapse of
time, or both, would permit any party to any such Material Contract to
terminate such Material Contract.

(i)            Litigation.
Except as set forth on Schedule 7.1.(i), there are no actions, suits,
investigations or proceedings pending (nor, to the knowledge of Holdings or the
Borrower, are there any actions, suits or proceedings threatened) against or in
any other way relating adversely

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to or affecting
Holdings, the Borrower, any other Loan Party, any other Subsidiary or any of
their respective property in any court or before any arbitrator of any kind or
before or by any other Governmental Authority which could reasonably be
expected to have a Material Adverse Effect. There are no strikes, slow downs,
work stoppages or walkouts or other labor disputes in progress or, to the
Borrower’s knowledge, threatened relating to Holdings, the Borrower, any other
Loan Party or any other Subsidiary which could reasonably be expected to have a
Material Adverse Effect.

(j)            Taxes. All
federal, state and other tax returns of Holdings, the Borrower, the other Loan
Parties and the other Subsidiaries required by Applicable Law to be filed have
been duly filed, and all federal, state and other taxes, assessments and other
governmental charges or levies upon Holdings, the Borrower, each other Loan
Party, each other Subsidiary and their respective properties, income, profits
and assets which are due and payable have been paid, except any such nonpayment
which is at the time permitted under Section 8.5. As of the Agreement
Date, none of the United States income tax returns of Holdings, the Borrower,
any other Loan Party or any other Subsidiary is under audit. All charges,
accruals and reserves on the books of Holdings, the Borrower, each other Loan
Party and each other Subsidiary in respect of any taxes or other governmental
charges are in accordance with GAAP.

(k)           Financial Statements.
The Borrower has furnished to each Lender copies of (i) the audited
consolidated balance sheet of Holdings and its consolidated Subsidiaries for
the fiscal year ending December 31, 2005, and the related audited consolidated
statements of operations and comprehensive loss, cash flows and net assets (deficit)
for the fiscal year ending on such dates, with the opinion thereon of BDO
Seidman, LLP, and (ii) the unaudited consolidated balance sheet of
Holdings and its consolidated Subsidiaries for the fiscal quarter ending June
30, 2006, and the related unaudited consolidated statements of operations and
comprehensive loss, cash flows and net assets (deficit) for the period of two
fiscal quarters ending on such date. Such financial statements (including in
each case related schedules and notes) present fairly, in all material respects
and in accordance with GAAP consistently applied throughout the periods
involved, the consolidated financial position of Holdings and its consolidated
Subsidiaries as at their respective dates and the results of operations and the
cash flow for such periods (subject, as to interim statements, to changes
resulting from normal year-end audit adjustments). Neither Holdings nor any of
its Subsidiaries has on the Agreement Date any material contingent liabilities,
liabilities, liabilities for taxes, unusual or long-term commitments or
unrealized or forward anticipated losses from any unfavorable commitments that
would be required to be set forth in its financial statements or in the notes
thereto, except as referred to or reflected or provided for in said financial
statements.

(l)            No Material Adverse
Change. Since December 31, 2005, there has been no material adverse change
in the business, assets, liabilities, financial condition or results of
operations of Holdings and its Subsidiaries taken as a whole. Each of Holdings,
the Borrower, the other Loan Parties and the other Subsidiaries is Solvent.

(m)          ERISA. Each
member of the ERISA Group is in compliance with its obligations under the
minimum funding standards of ERISA and the Internal Revenue Code with respect
to each Plan and is in compliance with the presently applicable provisions of
ERISA and the

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Internal Revenue
Code with respect to each Plan, except in each case for noncompliances which
could not reasonably be expected to have a Material Adverse Effect. As of the
Agreement Date, no member of the ERISA Group has (i) sought a waiver of
the minimum funding standard under Section 412 of the Internal Revenue Code in
respect of any Plan, (ii) failed to make any contribution or payment to
any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or
made any amendment to any Plan or Benefit Arrangement, which has resulted or
could result in the imposition of a Lien or the posting of a bond or other
security under ERISA or the Internal Revenue Code or (iii) incurred any
liability under Title IV of ERISA other than a liability to the PBGC for
premiums under Section 4007 of ERISA.

(n)           Not Plan Assets; No
Prohibited Transaction. None of the assets of Holdings, the Borrower, any
other Loan Party or any other Subsidiary constitutes “plan assets” within the
meaning of ERISA, the Internal Revenue Code and the respective regulations
promulgated thereunder. The execution, delivery and performance of this
Agreement and the other Loan Documents, and the borrowing and repayment of
amounts hereunder, do not and will not constitute “prohibited transactions”
under ERISA or the Internal Revenue Code.

(o)           Absence of Defaults.
None of the Holdings, the Borrower, any other Loan Party or any other Subsidiary
is in default under its articles of incorporation, bylaws, partnership
agreement or other similar organizational documents, and no event has occurred,
which has not been remedied, cured or waived, which, in any such case:  (i) constitutes a Default or an Event of
Default; or (ii) constitutes, or which with the passage of time, the
giving of notice, or both, would constitute, a default or event of default by
any such person under any agreement (other than this Agreement) or judgment,
decree or order to which any such Person is a party or by which any such Person
or any of its respective properties may be bound where such default or event of
default could, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.

(p)           Environmental Laws.
Each of Holdings, the Borrower, the other Loan Parties and the other
Subsidiaries has obtained all Governmental Approvals which are required under
Environmental Laws and is in compliance with all terms and conditions of such
Governmental Approvals which the failure to obtain or to comply with could
reasonably be expected to have a Material Adverse Effect. Except for any of the
following matters that could not be reasonably expected to have a Material
Adverse Effect, (i) neither Holdings nor the Borrower is aware of, and has
received notice of, any past, present, or future events, conditions,
circumstances, activities, practices, incidents, actions, or plans which, with
respect to Holdings, the Borrower, any other Loan Party or any other Subsidiary,
may interfere with or prevent compliance or continued compliance with
Environmental Laws, or may give rise to any common-law or legal liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, study, or investigation, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling or the emission, discharge, release or threatened release into the
environment, of any Hazardous Material, and (ii) there is no civil, criminal,
or administrative action, suit, demand, claim, hearing, notice, or demand
letter, notice of violation, investigation, or proceeding pending or, to the
knowledge of Holdings or the Borrower after due inquiry, threatened, against
Holdings, the Borrower, any other Loan Party or any other Subsidiary relating
to Environmental Laws.

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(q)           Investment Company;
Etc. None of Holdings, the Borrower, any other Loan Party or any other
Subsidiary is (i) an “investment company” or a company “controlled” by an “investment
company” within the meaning of the Investment Company Act of 1940, as amended,
or (ii) subject to any other Applicable Law which purports to regulate or
restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or to perform its obligations under any Loan
Document to which it is a party.

(r)            Margin Stock.
None of Holdings, the Borrower, any other Loan Party or any other Subsidiary is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying “margin stock” within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System.

(s)           Affiliate
Transactions. Except as permitted by Section 10.8., None of Holdings, the Borrower, any other Loan Party or any
other Subsidiary is a party to any transaction with an Affiliate.

(t)            Intellectual
Property. Each of Holdings, the Borrower, each other Loan Party and each
other Subsidiary owns or has the right to use, under valid license agreements
or otherwise, all material patents, licenses, franchises, trademarks, trademark
rights, service marks, service mark rights, trade names, trade name rights,
trade secrets and copyrights (collectively, “Intellectual Property”) necessary
to the conduct of its businesses as now conducted and as contemplated by the
Loan Documents, without known conflict with any patent, license, franchise,
trademark, trademark right, service mark, service mark right, trade secret,
trade name, copyright or other proprietary right of any other Person. Each of
Holdings, the Borrower, each other Loan Party and each other Subsidiary has
taken all such steps as they deem reasonably necessary to protect their
respective rights under and with respect to such Intellectual Property. No
material claim has been asserted by any Person with respect to the use of any
such Intellectual Property by Holdings, the Borrower, any other Loan Party or
any other Subsidiary, or challenging or questioning the validity or
effectiveness of any such Intellectual Property. The use of such Intellectual
Property by Holdings, the Borrower, the other Loan Parties and the other
Subsidiaries does not infringe on the rights of any Person, subject to such
claims and infringements as do not, in the aggregate, give rise to any
liabilities on the part of Holdings, the Borrower, any other Loan Party or any
other Subsidiary that could reasonably be expected to have a Material Adverse
Effect.

(u)           Business. As of
the Agreement Date, Holdings, the Borrower, the other Loan Parties and the
other Subsidiaries are engaged in the business of operating, owning, acquiring
and redeveloping boutique hotels, together with other business activities
incidental thereto.

(v)           Broker’s Fees.
No broker’s or finder’s fee, commission or similar compensation will be payable
with respect to the transactions contemplated hereby. No other similar fees or
commissions will be payable by any Loan Party for any other services rendered
to Holdings, the Borrower, any other Loan Party or any other Subsidiary
ancillary to the transactions contemplated hereby.

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(w)          Accuracy and
Completeness of Information. No written information, report or other papers
or data (excluding financial projections and other forward looking statements)
furnished to the Agent or any Lender by, on behalf of, or at the direction of,
Holdings, the Borrower, any other Loan Party or any other Subsidiary in
connection with, pursuant to or relating in any way to this Agreement,
contained any untrue statement of a fact material to the creditworthiness of
Holdings, the Borrower, any other Loan Party or any other Subsidiary or omitted
to state a material fact necessary in order to make such statements contained
therein, in light of the circumstances under which they were made, not
misleading. All financial statements (including in each case all related
schedules and notes) furnished to the Agent or any Lender by, on behalf of, or
at the direction of, Holdings, the Borrower, any other Loan Party or any other
Subsidiary in connection with, pursuant to or relating in any way to this
Agreement, present fairly, in all material respects and in accordance with GAAP
consistently applied throughout the periods involved, the financial position of
the Persons involved as at the date thereof and the results of operations for
such periods (subject, as to interim statements, to changes resulting from
normal year-end audit adjustments). All financial projections and other forward
looking statements prepared by or on behalf of Holdings, the Borrower, any
other Loan Party or any other Subsidiary that have been or may hereafter be
made available to the Agent or any Lender were or will be prepared in good
faith based on reasonable assumptions. As of the Effective Date, no fact is
known to Holdings or the Borrower which has had, or may in the future have (so
far as Holdings or the Borrower can reasonably foresee), a Material Adverse
Effect which has not been set forth in the financial statements referred to in
Section 7.1.(k) or in such information, reports or other papers or data or
otherwise disclosed in writing to the Agent and the Lenders.

(x)            Foreign Assets
Control. None of Holdings, the Borrower, any other Loan Party, any other
Subsidiary or any Affiliate: (i) is a Sanctioned Person, (ii) has any
of its assets in Sanctioned Entities, or (iii) derives any of its
operating income from investments in, or transactions with, Sanctioned Persons
or Sanctioned Entities; provided, however, to the extent that any such Person’s
operating income is derived from hotel guests, such representation is only to
such Person’s knowledge.

Section 7.2. Survival of Representations
and Warranties, Etc.

All
statements contained in any certificate, financial statement or other instrument
delivered by or on behalf of Holdings, the Borrower, any other Loan Party or
any other Subsidiary to the Agent or any Lender pursuant to or in connection
with this Agreement or any of the other Loan Documents (including, but not
limited to, any such statement made in or in connection with any amendment
hereto or thereto or any statement contained in any certificate, financial
statement or other instrument delivered by or on behalf of Holdings or the
Borrower prior to the Agreement Date and delivered to the Agent or any Lender
in connection with the underwriting or closing of the transactions contemplated
hereby) shall constitute representations and warranties made by the Borrower to
the Agent and the Lenders under this Agreement. All representations and
warranties made under this Agreement and the other Loan Documents shall be
deemed to be made at and as of the Agreement Date, the Effective Date and the
date of the occurrence of any Credit Event, except to the extent that such
representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall have been true and correct
in all material respects on and as of such earlier date) and except for

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changes in factual
circumstances not prohibited under the Loan Documents. All such representations
and warranties shall survive the effectiveness of this Agreement, the execution
and delivery of the Loan Documents and the making of the Loans and the issuance
of the Letters of Credit.

ARTICLE VIII. AFFIRMATIVE
COVENANTS

For so
long as this Agreement is in effect, unless the Requisite Lenders (or, if
required pursuant to Section 13.6., all of the Lenders) shall otherwise
consent in the manner provided for in Section 13.6., each of Holdings and
the Borrower, as applicable, shall comply with the following covenants:

Section 8.1. Preservation of Existence
and Similar Matters.

Except
as otherwise permitted under Section 10.3., Holdings and the Borrower shall, and shall cause each other
Loan Party and each other Subsidiary to, preserve and maintain its respective
existence, rights, franchises, licenses and privileges in the jurisdiction of
its incorporation or formation and qualify and remain qualified and authorized
to do business in each jurisdiction in which the character of its properties or
the nature of its business requires such qualification and authorization and
where the failure to be so authorized and qualified could reasonably be
expected to have a Material Adverse Effect.

Section 8.2. Compliance with Applicable
Law and Material Contracts.

Holdings
and the Borrower shall, and shall cause each other Loan Party and each other
Subsidiary to, comply with (a) all Applicable Laws, including the
obtaining of all Governmental Approvals, the failure with which to comply could
reasonably be expected to have a Material Adverse Effect, and (b) all
terms and conditions of all Material
Contracts to which it is a party, the failure with which to comply could
give any other party thereto the right to terminate such Material Contract.

Section 8.3. Maintenance of Property.

In
addition to the requirements of any of the other Loan Documents, Holdings and
the Borrower shall, and shall cause each other Loan Party and each other
Subsidiary to, (a) protect and preserve all of its respective material
properties, including, but not limited to, all Intellectual Property, and
maintain in good repair, working order and condition all material tangible
properties, ordinary wear and tear excepted, and (b)  make or cause to be
made all needed and appropriate repairs, renewals, replacements and additions
to such material properties, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.

Section 8.4. Insurance.

In
addition to the requirements of any of the other Loan Documents, Holdings and
the Borrower shall, and shall cause each other Loan Party and each other
Subsidiary to, maintain insurance (on a replacement cost basis) with
financially sound and reputable insurance

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companies (with an
A.M. Best policyholders rating of at least A-IX (with respect to liability) or
A-X (with respect to property damage)) against such risks (including, without
limitation, acts of terrorism) and in such amounts as is customarily maintained
by prudent Persons engaged in similar businesses and in similar locations and
in any event as may be required by Applicable Law, and from time to time
deliver to the Agent upon its request a detailed list, together with copies of
all policies of the insurance then in effect, stating the names of the
insurance companies, the amounts and rates of the insurance, the dates of the
expiration thereof and the properties and risks covered thereby.

Section 8.5. Payment of Taxes and
Claims.

Holdings
and the Borrower shall, and shall cause each other Loan Party and each other
Subsidiary to, pay and discharge when due (a) all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
upon any properties belonging to it, and (b) all lawful claims of
materialmen, mechanics, carriers, warehousemen and landlords for labor,
materials, supplies and rentals which, if unpaid, might become a Lien on any
properties of such Person; provided, however, that this Section shall not
require the payment or discharge of any such tax, assessment, charge, levy or
claim which is being contested in good faith by appropriate proceedings which
operate to suspend the collection thereof and for which adequate reserves have
been established on the books of Holdings, the Borrower, such other Loan Party
or such other Subsidiary, as applicable, in accordance with GAAP.

Section 8.6. Visits and Inspections.

Holdings
and the Borrower shall, and shall cause each other Loan Party and each other
Subsidiary to, permit representatives or agents of any Lender or the Agent,
from time to time after reasonable prior notice if no Event of Default shall be
in existence, as often as may be reasonably requested, but only during normal
business hours and at the expense of such Lender or the Agent (unless a Default
or Event of Default shall exist, in which case the exercise by the Agent or
such Lender of its rights under this Section shall be at the expense of the
Borrower), as the case may be, to: (a) visit and inspect all properties of
Holdings, the Borrower,  such other Loan
Party or such other Subsidiary to the extent any such right to visit or inspect
is within the control of such Person; (b) inspect and make extracts from
their respective books and records, including but not limited to management
letters prepared by independent accountants; and (c) discuss with its
officers and employees, and its independent accountants, its business,
properties, condition (financial or otherwise), results of operations and
performance. If requested by the Agent, each of Holdings and the Borrower shall
execute an authorization letter addressed to its accountants authorizing the
Agent or any Lender to discuss the financial affairs of Holdings, the
Borrower,  any other Loan Party or any
other Subsidiary with its accountants.

Section 8.7. Use of Proceeds; Letters of
Credit.

The
Borrowers shall use the proceeds of the Loans and the Letters of Credit for
general corporate purposes only. No part of the proceeds of any Loan or Letter
of Credit will be used (a) for the purpose of buying or carrying “margin
stock” within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or (b) to fund any operations
in, to

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finance any
investments or activities in, or to make any payments to, a Sanctioned Person
or Sanctioned Entity.

Section 8.8. Environmental Matters.

Holdings
and the Borrower shall, and shall cause the other Loan Parties and the other Subsidiaries
to, comply with all Environmental Laws the failure with which to comply could
reasonably be expected to have a Material Adverse Effect. If Holdings, the
Borrower, any other Loan Party or any other Subsidiary shall (a) receive
notice that any violation of any Environmental Law may have been committed or
is about to be committed by such Person, (b) receive notice that any
administrative or judicial complaint or order has been filed or is about to be
filed against Holdings, the Borrower, any other Loan Party or any other
Subsidiary alleging violations of any Environmental Law or requiring Holdings,
the Borrower, any other Loan Party or any other Subsidiary to take any action
in connection with the release of Hazardous Materials or (c) receive any
notice from a Governmental Authority or private party alleging that Holdings,
the Borrower, any other Loan Party or any other Subsidiary may be liable or
responsible for costs associated with a response to or cleanup of a release of
Hazardous Materials or any damages caused thereby, and the matters referred to
in such notices, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect, the Borrower shall provide the Agent with a
copy of such notice promptly, and in any event within 10 Business Days, after
the receipt thereof by Holdings, the Borrower, any other Loan Party or any
other Subsidiary. Holdings and the Borrower shall, and shall cause the other
Loan Parties and the other Subsidiaries to, take promptly all actions necessary
to prevent the imposition of any Liens on any of their respective properties
arising out of or related to any Environmental Laws.

Section 8.9. Books and Records.

Holdings
and the Borrower shall, and shall cause the other Loan Parties and the other
Subsidiaries to, maintain books and records pertaining to its respective
business operations in such detail, form and scope as is consistent with good
business practice and in accordance with GAAP.

Section 8.10. Further Assurances.

The
Borrower shall, at the Borrower’s cost and expense and upon request of the
Agent, execute and deliver or cause to be executed and delivered to the Agent
such further instruments, documents and certificates, and do and cause to be
done such further acts that may be reasonably necessary or advisable in the
reasonable opinion of the Agent to carry out the provisions and purposes of
this Agreement and the other Loan Documents.

Section 8.11. New
Subsidiaries/Guarantors; Release of Guarantors.

(a)           Requirement to
Become Guarantor. Within 10 days of any Person (other than an Exempt
Subsidiary or a Foreign Subsidiary) becoming a Material Subsidiary after the
Effective Date, the Borrower shall deliver to the Agent each of the following
items, each in form and substance satisfactory to the Agent: (i) an
Accession Agreement executed by such Material Subsidiary and (ii) the
items for such Material Subsidiary that would have been delivered under

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Sections 6.1.(a)(iv)
through (viii) and (xv) if such Material Subsidiary had been one on the Effective
Date; provided, however, promptly (and in any event within 10 days) upon any
Exempt Subsidiary ceasing to be subject to the restriction which prevented it
from becoming a Guarantor on the Effective Date or delivering an Accession
Agreement pursuant to this Section, as the case may be, such Subsidiary shall
comply with the provisions of this Section. The Borrower shall send to each
Lender copies of each of the foregoing items once the Agent has received all
such items with respect to a Material Subsidiary.

(b)           Release of a
Guarantor. The Borrower may request in writing that the Agent release, and
upon receipt of such request the Agent shall release, a Guarantor from the
Guaranty so long as: (i) such Guarantor (x) qualifies, or will
qualify simultaneously with its release from the Guaranty, as an Exempt
Subsidiary or (y) has ceased to
be, or simultaneously with its release from the Guaranty will cease to be, a
Material Subsidiary; (ii) such Guarantor will not own or lease a
Collateral Property immediately after giving effect to such release;
(iii) no Default or Event of Default shall exist immediately prior to, and
shall not exist immediately after giving effect to, such release; (iv) the
representations and warranties made or deemed made by each Loan Party in the
Loan Documents to which any of them is a party, shall be true and correct in
all material respects on and as of the date of such release with the same force
and effect as if made on and as of such date except to the extent that such
representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall have been true and correct
in all material respects on and as of such earlier date) and except for changes
in factual circumstances not prohibited under the Loan Documents; and
(v) the Agent shall have received such written request at least 10
Business Days prior to the requested date of release. Delivery by the Borrower
to the Agent of any such request shall constitute a representation by the
Borrower that the matters set forth in the preceding sentence (both as of the
date of the giving of such request and as of the date of the effectiveness of
such request) are true and correct with respect to such request. If such
Guarantor owns a Collateral Property, then the release of such Guarantor shall
also be subject to and in accordance with Section 4.3.

(c)           Release of Pledge.
The Borrower may request in writing that the Agent release, and upon receipt of
such request the Agent shall release, the Equity Interests of a Subsidiary from
the Lien of the Pledge Agreement so long as: (i) such Subsidiary will not
own or lease a Collateral Property immediately after giving effect to such
release; (ii) no Default or Event of Default shall then be in existence or
would occur as a result of such release; and (iii) the Agent shall have
received such written request at least 10 Business Days prior to the requested
date of release. Delivery by the Borrower to the Agent of any such request
shall constitute a representation by the Borrower that the matters set forth in
the preceding sentence (both as of the date of the giving of such request and
as of the date of the effectiveness of such request) are true and correct with
respect to such request. If such Guarantor owns a Collateral Property, then the
release of such Guarantor shall also be subject to and in accordance with
Section 4.3.

Section 8.12. Exchange Listing.

Holdings shall maintain at least one class of common
shares of Holdings having trading privileges on the New York Stock Exchange or
the American Stock Exchange or which is the subject of price quotations in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System.

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ARTICLE IX. INFORMATION

For so
long as this Agreement is in effect, unless the Requisite Lenders (or, if
required pursuant to Section 13.6.,
all of the Lenders) shall otherwise consent in the manner set forth in
Section 13.6., Holdings and
the Borrower, as applicable, shall comply with the following covenants:

Section 9.1. Quarterly Financial
Statements.

Not
later than 5 days following the filing by Holdings of its Form 10-Q with the
SEC, and in any event within 45 days after the end of each of the first
three fiscal quarters of each fiscal year of Holdings, the Borrower shall
furnish to each Lender a copy of Holdings’ unaudited consolidated balance sheet
and unaudited consolidated statements of operations and comprehensive income,
stockholders’ equity and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, setting forth in each
case in comparative form the figures for the corresponding period or periods of
(or, in the case of the balance sheet, as of the end of) the previous fiscal year,
all certified by a Financial Officer as presenting fairly in all material
respects the financial condition and results of operations of Holdings and its
subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and the absence of
footnotes.

Section 9.2. Year-End Statements.

Not
later than 5 days following the filing by Holdings of its Form 10-K with the
SEC, and in any event within 90 days after the end of each fiscal year of
Holdings, the Borrower shall furnish to each Lender a copy of Holdings’s
audited consolidated balance sheet and audited consolidated statements of
operations and comprehensive income, stockholders’ equity and cash flows as of
the end of and for such year, and related notes thereto, setting forth in each
case in comparative form the figures for the previous fiscal year, all reported
on by BDO Seidman, LLP or other independent registered public accountants of
recognized national standing (without a “going concern” or like qualification
or exception and without any qualification or exception as to the scope of such
audit) to the effect that such consolidated financial statements present fairly
in all material respects the financial condition and results of operations of
Holdings and its Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied.

Section 9.3. Compliance Certificate;
Borrowing Base Certificate; Etc.

Concurrently
with the delivery of financial statements under Sections 9.1. and 9.2., the Borrower shall furnish to each Lender each of the
following:

(a)           Compliance
Certificate. A certificate of a Financial Officer substantially in the form
of Exhibit I (a “Compliance Certificate”) (i) certifying as to
whether a Default has occurred and, if a Default has occurred, specifying the
details thereof and any action taken or proposed to be taken with respect
thereto, (ii) setting forth reasonably detailed calculations demonstrating
compliance with the covenants contained in Section 10.11. and (iii) stating whether any change in the
application of GAAP to the financial statements of Holdings has occurred since
the later of

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the date of the
Borrower’s audited financial statements referred to in Section 7.1.(k) and
the date of the prior certificate delivered pursuant to this Section indicating
such a change and, if any such change has occurred, specifying the effect of
such change on the financial statements accompanying such certificate;

(b)           Borrowing Base
Certificate. A Borrowing Base Certificate including a calculation of the
Net Operating Income of each Collateral Property and setting forth the other
information to be contained therein as of the last day of the applicable fiscal
period;

(c)           Income Statements.
An income statement for each Borrowing Base Property for the period covered by
the applicable financial statements;

(d)           ADR, Etc.
Average daily rate, occupancy and revenue per available room reports for each
Borrowing Base Property and for the Borrower, in each case, for the applicable
period; and

(e)           STAR Reports.
STAR reports from Smith Travel Research for each Borrowing Base Property for
the applicable period.

Section 9.4. Other Information.

Holdings
or the Borrower, as applicable, shall furnish to each Lender (or to the Agent
if so provided below) each of the following:

(a)           Securities Filings.
Within 5 Business Days of the filing thereof, copies of all registration
statements (excluding the exhibits thereto (unless requested by the Agent) and
any registration statements on Form S-8 or its equivalent), reports on Forms
10-K, 10-Q and 8-K (or their equivalents) and all other periodic reports which
Holdings, the Borrower, any other Loan Party or any other Subsidiary shall file
with the SEC or any national securities exchange;

(b)           Budgets. Prior to
the commencement of each fiscal year of Holdings, a detailed consolidated
budget for such fiscal year (including a projected consolidated balance sheet
and consolidated statements of projected operations, comprehensive income and
cash flows as of the end of and for such fiscal year and setting forth the
assumptions used for purposes of preparing such budget) and, promptly when
available, any significant revisions of such budget;

(c)           ERISA. If and
when any member of the ERISA Group (i) gives or is required to give notice
to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA)
with respect to any Plan which might constitute grounds for a termination of
such Plan under Title IV of ERISA, or knows that the plan administrator of any
Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to
the PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA or notice that any Multiemployer Plan is in
reorganization, is insolvent or has been terminated, a copy of such notice;
(iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard
under Section 412 of the Internal

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Revenue Code, a
copy of such application; (v) gives notice of intent to terminate any Plan
under Section 4041(c) of ERISA, a copy of such notice and other information
filed with the PBGC; (vi) gives notice of withdrawal from any Plan
pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails
to make any payment or contribution to any Plan or Multiemployer Plan or in
respect of any Benefit Arrangement or makes any amendment to any Plan or
Benefit Arrangement, which has resulted or could reasonably be expected to
result in the imposition of a Lien or the posting of a bond or other security,
a certificate of the chief executive officer or chief financial officer of
Holdings setting forth details as to such occurrence and the action, if any,
which Holdings or applicable member of the ERISA Group is required or proposes
to take;

(d)           Change of Financial
Condition. Prompt notice of any change in the business, operations,
properties, financial condition or results of operations of Holdings, the
Borrower, any other Loan Party or any other Subsidiary which has had or could
reasonably be expected to have a Material Adverse Effect;

(e)           Default.
Promptly upon a Financial Officer obtaining knowledge thereof, notice of the
occurrence of any Default or Event of Default;

(f)            Patriot
Act Information. From time to time and promptly upon each request,
information identifying any Loan Party as a Lender may request in order to
comply with the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law
October 26, 2001)); and

(g)           Other
Information. From time to time and promptly upon each request, such data,
certificates, reports, statements, opinions of counsel, documents or further
information regarding the business, assets, liabilities, financial condition,
results of operations or business prospects of Holdings, the Borrower, any other
Loan Party or any other Subsidiary as the Agent or any Lender may reasonably
request.

Section 9.5. Electronic Delivery of
Certain Information.

(a)           Holdings and the
Borrower may deliver documents, materials and other information required to be
delivered pursuant to Article IX. (collectively, “Information”) in an
electronic format acceptable to the Agent by e-mailing any such Information to
an e-mail address of the Agent as specified by the Agent from time to time. Any
Information provided in such manner shall only be deemed to have been delivered
to the Agent and the Lenders on the date on which the Agent posts such
Information (which the Agent shall do promptly upon receipt) on behalf of
Holdings or the Borrower, as applicable, on an internet or intranet website to
which each Lender and the Agent has access, whether a commercial, third-party
website (such as Intralinks or SyndTrak) or a website sponsored by the Agent
(the “Platform”).

(b)           In addition, Holdings
and the Borrower may deliver Information required to be delivered pursuant to
Sections 9.1., 9.2., and 9.4.(a) by posting any such Information to
Holdings’ internet website (as of the Agreement Date,
www.morganshotelgroup.com). Any such Information provided in such manner shall
only be deemed to have been delivered to the Agent or a Lender (i) on the
date on which the Agent or such Lender, as applicable, receives notice from
Holdings or the Borrower that such Information has been posted to Holdings’
internet website and (ii) only if such Information is publicly available
without charge on such website. If

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for any reason,
the Agent or a Lender either did not receive such notice or after reasonable
efforts was unable to access such website, then the Agent or such Lender, as
applicable, shall not be deemed to have received such Information. In addition
to any manner permitted by Section 13.1., Holdings and the Borrower may
notify the Agent or a Lender that Information has been posted to such a website
by causing an e-mail notification to be sent to an e-mail address specified
from time to time by the Agent or such Lender, as applicable.

(c)           Notwithstanding
anything in this Section to the contrary (i) Holdings and the Borrower
shall deliver paper copies of Information to the Agent or any Lender that
requests Holdings and the Borrower to deliver such paper copies until a written
request to cease delivering paper copies is given to Holdings and the Borrower
by the Agent or such Lender and (ii) in every instance Holdings shall be
required to provide to the Agent a paper original of the Compliance Certificate
required by Section 9.3.(a).

(d)           Each of Holdings and
the Borrower acknowledges and agrees that the Agent may make Information, as
well as any other written information, reports, data, certificates, documents,
instruments, agreements and other materials relating to Holdings, the Borrower,
any Subsidiary or any other Loan Party or any other materials or matters
relating to this Agreement, any of the other Loan Documents or any of the
transactions contemplated by the Loan Documents, in each case to the extent
that the Agent’s communication thereof to the Lenders is otherwise permitted
hereunder (collectively, the “Communications”) available to the Lenders by
posting the same on the Platform. Each of Holdings and the Borrower
acknowledges that (i) the distribution of material through an electronic
medium, such as the Platform, is not necessarily secure and that there are
confidentiality and other risks associated with such distribution,
(ii) the Platform is provided “as is” and “as available” and
(iii) neither the Agent nor any of its affiliates warrants the accuracy,
adequacy or completeness of the Communications or the Platform and each
expressly disclaims liability for errors or omissions in the Communications or
the Platform.

(e)           The Agent shall have no
obligation to request the delivery or to maintain copies of any of the
Information or other materials referred to above, and in no event shall have
any responsibility to monitor compliance by Holdings or the Borrower with any
such requests. Each Lender shall be solely responsible for requesting delivery
to it or maintaining its copies of such Information or other materials.

ARTICLE X. NEGATIVE COVENANTS

For so
long as this Agreement is in effect, unless the Requisite Lenders (or, if
required pursuant to Section 13.6., all of the Lenders) shall otherwise
consent in the manner set forth in Section 13.6., each of Holdings and the
Borrower, as applicable, shall comply with the following covenants:

Section 10.1. Indebtedness; Certain
Equity Securities.

(a)           The Borrower will not,
and will not permit any Subsidiary to, create, incur, assume or permit to exist
any Indebtedness, except:

(i)            Indebtedness created
under the Loan Documents;

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(ii)           Indebtedness existing
on the date hereof and set forth in Schedule 7.1.(g) and extensions,
renewals and replacements of any such Indebtedness, provided that such
extending, renewal or replacement Indebtedness (A) shall not be
Indebtedness of an obligor that was not an obligor with respect to the
Indebtedness being extended, renewed or replaced (unless such obligor is a
Subsidiary formed specifically for that purpose), (B) shall not be in a
principal amount that exceeds the principal amount of the Indebtedness being
extended, renewed or replaced (plus any accrued but unpaid interest and
redemption premium thereon), (C) shall not have an earlier maturity date
or shorter weighted average life than the Indebtedness being extended, renewed
or replaced and (D) shall not have terms (including covenants, events of
default, remedies, redemption provisions and sinking fund provisions, but
excluding financial terms such as interest rates and redemption provisions)
less favorable in any material respect to the Lenders than the terms of the
Indebtedness being extended, renewed or replaced;

(iii)          Additional Mortgage
Indebtedness and extensions, renewals and replacements thereof if, on the date
of such incurrence or extension, renewal or replacement and after giving effect
thereto on a Pro Forma Basis, the Leverage Ratio shall not exceed the ratio
then applicable under Section 10.11.(a);

(iv)          Indebtedness of the
Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other
Subsidiary, provided (A) that Indebtedness of any Subsidiary that
is not a Loan Party to the Borrower or any Subsidiary that is a Loan Party
shall be subject to Section 10.4. and (B) Indebtedness of the
Borrower to any Subsidiary and Indebtedness of any Subsidiary that is a Loan
Party to any Subsidiary that is not a Loan Party shall be subordinated to the
Obligations on terms reasonably satisfactory to the Agent;

(v)           Guarantees by the
Borrower of Indebtedness of any Subsidiary and by any Subsidiary of
Indebtedness of the Borrower or any other Subsidiary, provided that
(A) the Indebtedness so Guaranteed is permitted by this Section (other
than clause (a)(ii) or (a)(vii)), (B) Guarantees by the Borrower or
any Subsidiary that is a Loan Party of Indebtedness of any Subsidiary that is
not a Loan Party shall be subject to Section  10.4. and
(C) Guarantees permitted under this clause (v) shall be subordinated
to the Obligations of the applicable Subsidiary that is a Loan Party to the
same extent and on the same terms as the Indebtedness so Guaranteed is
subordinated to the Obligations;

(vi)
(A) Indebtedness of the Borrower or any Subsidiary incurred to finance the
acquisition, construction or improvement of any fixed or capital assets,
including Capital Lease Obligations and any Indebtedness assumed by the
Borrower or any Subsidiary in connection with the acquisition of any such
assets or secured by a Lien on any such assets prior to the acquisition
thereof, provided that such Indebtedness is incurred prior to or within
90 days after such acquisition or the completion of such construction or
improvement, and (B) extensions, renewals and replacements of any such
Indebtedness so long as the outstanding principal amount of such extensions,
renewals and replacements does not exceed the principal of the Indebtedness
being extended, renewed

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or replaced (plus any accrued but unpaid interest and
premium thereon); provided, however, that the aggregate principal
amount of Indebtedness permitted by this clause (vi) shall not exceed
$5,000,000 at any time outstanding;

(vii)         Indebtedness of any Person
that becomes a Subsidiary after the date hereof, provided that such
Indebtedness exists at the time such Person becomes a Subsidiary and was not
created in contemplation of or in connection with such Person becoming a
Subsidiary, and extensions, renewals and replacements of any such Indebtedness
so long as the principal amount of such extensions, renewals and replacements
does not exceed the principal of the Indebtedness being extended, renewed or
replaced (plus any accrued but unpaid interest and redemption premium thereon),
provided that the aggregate principal amount of Indebtedness permitted
by this clause (vii) shall not exceed $5,000,000 at any time outstanding;

(viii)        other unsecured
Indebtedness of the Borrower or any Subsidiary in an aggregate principal amount
not exceeding $5,000,000 at any time outstanding;

(ix)           Indebtedness owed to
any Person (including obligations in respect of letters of credit for the
benefit of such Person) providing workers’ compensation, health, disability or
other employee benefits or property, casualty or liability insurance, pursuant
to reimbursement or indemnification obligations to such Person, in each case
incurred in the ordinary course of business;

(x)            Indebtedness of the
Borrower or any Subsidiary in respect of performance bonds, bid bonds, appeal
bonds, surety bonds, performance and completion guarantees and similar
obligations (other than in respect of other Indebtedness), in each case
provided in the ordinary course of business;

(xi)           Indebtedness in respect
of Swap Agreements permitted by Section 10.6.;

(xii)          Capital Lease
Obligations of the Borrower or any Subsidiary resulting from any arrangement
whereby the Borrower or such Subsidiary sells or transfers any property, real
or personal, used or useful in its business, whether now owned or hereafter
acquired, and thereafter rents or leases such property or other property that
it intends to use for substantially the same purpose or purposes as the
property sold or transferred if, on the date of such incurrence on a Pro Forma
Basis, the Leverage Ratio shall not exceed the ratio then applicable under
Section 10.11.(a);

(xiii)         Guarantees and/or
indemnities (other than in respect of payment of principal or interest) by the
Borrower or any Subsidiary in respect of capital contributions, project
completions and cost-overruns and other performance matters (including
environmental, fraud, misappropriation, bankruptcy and other customary
non-recourse carveouts), in each case in connection with investments or
Indebtedness otherwise permitted under this Agreement; and

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(xiv)        Guarantees by the Borrower
or any Subsidiary of Indebtedness of any joint venture that is not a
Subsidiary.

(b)           Holdings will not
create, incur, assume or permit to exist any Indebtedness except
(i) Indebtedness created under the Loan Documents and
(ii) Indebtedness that would be permitted to be created, incurred or
assumed by the Borrower or any Subsidiary under Sections 10.1.(a)(v), (ix), (x), (xi) and
(xiii).

(c)           Neither Holdings nor
the Borrower will, nor will they permit any Subsidiary to, issue or permit to
remain outstanding any Preferred Equity Interests except in the case of
Holdings or the Borrower, Preferred Equity Interests that are Qualified Equity
Interests in an aggregate principal amount not exceeding $150,000,000 at any
time outstanding; provided that any such Preferred Equity Interests
issued by the Borrower to Holdings for purposes of matching Preferred Equity
Interests issued by Holdings shall be excluded from the calculation of such
amount.

Section 10.2. Liens.

(a)           Neither Holdings nor
the Borrower will, nor will they permit any Subsidiary to, create, incur,
assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:

(i)            Liens created under
the Loan Documents and in the case of any Collateral encumbered by a Security
Document, other Liens expressly permitted on such Collateral by such Security
Document;

(ii)           Permitted Liens;

(iii)          any Lien on any property
or asset of the Borrower or any Subsidiary existing on the date hereof and set
forth in Schedule 7.1.(f), provided that (A) such Lien shall
not apply to any other property or asset of the Borrower or any Subsidiary
(other than assets financed by the same financing source pursuant to the same
financing scheme in the ordinary course of business) and (B) such Lien
shall secure only those obligations that it secures on the date hereof and extensions,
renewals and replacements thereof so long as the principal amount of such
extensions, renewals and replacements does not exceed the principal amount of
the obligations being extended, renewed or replaced (plus any accrued but
unpaid interest and premium thereon);

(iv)          Liens securing
Indebtedness permitted by clause (a)(iii) of Section 10.1., provided
that (A) such Lien shall not apply to any other property or asset of the
Borrower or any Subsidiary (other than assets financed by the same financing source
pursuant to the same financing scheme in the ordinary course of business) and
(B) the Indebtedness secured thereby does not exceed the fair market value of
the property or assets securing such Indebtedness at the time such security
interest attaches;

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(v)           any Lien existing on
any property or asset prior to the acquisition thereof by the Borrower or any
Subsidiary or existing on any property or asset of any Person that becomes a
Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary,
provided that (A) such Lien is not created in contemplation of or in
connection with such acquisition or such Person becoming a Subsidiary, as the
case may be, (B) such Lien shall not apply to any other property or asset of
the Borrower or any Subsidiary (other than assets financed by the same
financing source pursuant to the same financing scheme in the ordinary course
of business) and (C) such Lien shall secure only those obligations that it
secures on the date of such acquisition or the date such Person becomes a
Subsidiary, as the case may be, and extensions, renewals and replacements
thereof so long as the principal amount of such extensions, renewals and
replacements does not exceed the principal amount of the obligations being
extended, renewed or replaced (plus any accrued but unpaid interest and premium
thereon);

(vi)          Liens on fixed or
capital assets acquired, constructed or improved (including any such assets
made the subject of a Capital Lease Obligation incurred) by the Borrower or any
Subsidiary, provided that (A) such Liens secure Indebtedness
incurred to finance such acquisition, construction or improvement and permitted
by clause (vi)(A) of Section 10.1.(a) or to extend, renew or replace
such Indebtedness and permitted by clause (vi)(B) of
Section 10.1.(a), (B) such Liens and the Indebtedness secured thereby
are incurred prior to or within 90 days after such acquisition or the
completion of such construction or improvement ( provided  that this clause (B) shall not apply to any
Indebtedness permitted by clause (vi)(B) of Section 10.1.(a) or any
Lien securing such Indebtedness), (C) the Indebtedness secured thereby
does not exceed the lesser of the cost of acquiring, constructing or improving
such fixed or capital asset or, in the case of Indebtedness permitted by
clause (vi)(A) of Section 10.1.(a), its fair market value at the time
such security interest attaches, and in any event, the aggregate principal
amount of such Indebtedness does not exceed $5,000,000 at any time outstanding
and (D) such Liens shall not apply to any other property or assets of the
Borrower or any Subsidiary (except assets financed by the same financing source
pursuant to the same financing scheme in the ordinary course of business);

(vii)         Liens of a collecting bank
arising in the ordinary course of business under Section 4-208 of the
Uniform Commercial Code in effect in the relevant jurisdiction covering only
the items being collected upon;

(viii)        Liens representing any
interest or title of a licensor, lessor or sublicensor or sublessor under any
lease or license permitted by this Agreement;

(ix)           Liens that are rights
of setoff relating to deposit accounts in favor of banks and other depositary
institutions arising in the ordinary course of business;

(x)            Liens not otherwise
permitted by this Section to the extent that neither (A) the aggregate
outstanding principal amount of the obligations secured thereby nor (B) the
aggregate fair market value (determined as of the date such Lien is incurred)
of the assets subject thereto exceeds $1,000,000 at any time outstanding;

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(xi)           Liens granted by a
Subsidiary that is not a Loan Party in favor of the Borrower or another Loan
Party in respect of Indebtedness or other obligations owed by such Subsidiary
to such Loan Party; and

(xii)          Liens securing
Indebtedness permitted by clause (a)(xii) of Section 10.1., provided
that such Lien shall not apply to any other property or asset of the Borrower
or any Subsidiary (other than assets financed by the same financing source
pursuant to the same financing scheme in the ordinary course of business).

Section 10.3. Fundamental Changes.

(a)           Neither Holdings nor
the Borrower will, nor will they permit any Subsidiary to, merge into or
consolidate with any other Person, or permit any other Person to merge into or
consolidate with it, or liquidate or dissolve, except that, if at the time
thereof and immediately after giving effect thereto no Default or Event of
Default shall have occurred and be continuing (i) any Person may merge
into the Borrower in a transaction in which the Borrower is the surviving
entity, (ii) any Person (other than the Borrower) may merge into any
Subsidiary in a transaction in which the surviving entity is a Subsidiary and
(if any party to such merger is a Subsidiary that is a Loan Party) is a
Subsidiary that is Loan Party, (iii) any Subsidiary (other than a
Subsidiary that is a Loan Party) may liquidate or dissolve if the Borrower
determines in good faith that such liquidation or dissolution is in the best
interests of the Borrower and is not materially disadvantageous to the Lenders
and (iv) any Subsidiary (other than any Subsidiary that is a Loan Party) may
merge into another Person in a transaction permitted by Section 10.5. in
which such Person is the surviving entity, provided that any such merger
involving a Person that is not a Wholly Owned Subsidiary immediately prior to
such merger shall not be permitted unless also permitted by Sections 10.4.
and 10.5.

(b)           The Borrower will not,
and Holdings and the Borrower will not permit any Subsidiary to, engage to any
material extent in any business other than businesses of the type conducted by
the Borrower and the Subsidiaries on the Effective Date and businesses
reasonably related thereto.

(c)           Holdings will not
engage in any business or activity other than the ownership of Equity Interests
of the Borrower, Investments permitted under Section 10.4.(p) and
activities incidental thereto and compliance with its obligations under the
Loan Documents. Holdings will not own or acquire any assets (other than Equity
Interests of the Borrower, cash, Permitted Investments and Investments
permitted under Section 10.4.(p)) or incur any liabilities (other than
liabilities under the Loan Documents, liabilities imposed by law, including tax
liabilities, and other liabilities incidental to its existence as a public
holding company and permitted business and activities).

Section 10.4. Investments, Loans,
Advances, Guarantees and Acquisitions.

Neither
Holdings nor the Borrower will, nor will they permit any Subsidiary to,
purchase, hold or acquire (including pursuant to any merger with any Person
that was not a wholly-owned Subsidiary prior to such merger) any Equity
Interests (but specifically excluding (x) Holdings’

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right to acquire
and hold additional Equity Interests in (including, for this purpose, to the
extent not otherwise falling within the definition of “Equity Interests”, any
trust preferred securities of) the Borrower and (y) redemptions or other
repurchases by the Borrower or Holdings of any such Equity Interests in
accordance with the provisions of Sections 4.2(e) and 7.4(d) of the LLC
Agreement) in or evidences of Indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any investment or any other interest in, any other Person,
or purchase or otherwise acquire (in one transaction or a series of
transactions) any assets of any other Person constituting a business unit,
except:

(a)           Permitted Investments;

(b)           Permitted Acquisitions;

(c)           investments existing on
the date hereof and set forth on Schedule 10.4.;

(d)           payroll, travel and
similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses of Holdings, the Borrower or any
Subsidiary for accounting purposes and that are made in the ordinary course of
business;

(e)           (i) investments by
Holdings in Equity Interests of the Borrower, by the Borrower or any other Loan
Party (other than Holdings) in Equity Interests of a Subsidiary that is a Loan
Party or any direct or indirect Wholly Owned Subsidiary of any Loan Party and
(ii) loans or advances made by the Borrower or any other Loan Party (other than
Holdings) to any Subsidiary that is a Loan Party or any direct or indirect
Wholly Owned Subsidiary of any Loan Party and (iii) any contribution of
assets from a Loan Party or a Wholly Owned Subsidiary of a Loan Party to
another Loan Party or Wholly Owned Subsidiary of a Loan Party;

(f)            investments received
in connection with the bankruptcy or reorganization of, or settlement of
delinquent accounts and disputes with, customers and suppliers, in each case in
the ordinary course of business;

(g)           investments in the form
of Swap Agreements permitted by Section 10.6.;

(h)           investments of any
Person existing at the time such Person becomes a Subsidiary or consolidates or
merges with the Borrower or any Subsidiary (including in connection with a
Permitted Acquisition) so long as such investments were not made in
contemplation of such Person becoming a Subsidiary or of such consolidation or
merger;

(i)            investments resulting
from pledges or deposits described in clause (c) or (d) of the definition of
the term “Permitted Lien”;

(j)            investments received
in connection with the disposition of any asset permitted by
Section 10.5.;

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(k)           receivables or other
trade payables owing to the Borrower or a Subsidiary if created or acquired in
the ordinary course of business and payable or dischargeable in accordance with
customary trade terms, provided that such trade terms may include such
concessionary trade terms as the Borrower or any Subsidiary deems reasonable
under the circumstances;

(l)            investments by the
Borrower or a Subsidiary in Equity Interests in joint ventures the primary
business of which are businesses of the type conducted by the Borrower and the
Subsidiaries on the Effective Date and businesses reasonably related thereto, provided
that immediately after giving effect to such investment, (i) the Borrower
or such Subsidiary will own Equity Interests in such joint venture representing
at least 50% of the aggregate equity value represented by the issued and
outstanding Equity Interests in such joint venture, (ii) the Borrower or a
Subsidiary will manage or otherwise be responsible for the day-to-day
operations of such joint venture pursuant to a customary management contract
(or will have been designated to act in such capacity upon project completion)
or will have influence over such day-to-day operations by virtue of a franchise
arrangement (or will have been designated to have such influence upon project
completion) or (iii) the Borrower or a Subsidiary will be the managing
member or day-to-day administrative member of such joint venture, or will have
approval rights over major decisions with respect to such joint venture;

(m)          other investments, loans
and advances by the Borrower or any Subsidiary in an aggregate amount, as
valued at cost at the time each such investment, loan or advance is made and
including all related commitments for future investments, loans or advances
(and the principal amount of any Indebtedness that is assumed or otherwise
incurred in connection with such investment, loan or advance other than
Guarantees permitted under Section 10.1.(a)(xiv)) and without giving
effect to any write-downs or write-offs thereof, that at the time of, and after
giving effect to, the making thereof would not exceed 25% of Total Assets as of
the end of the fiscal quarter immediately prior to the date of such investment
for which financial statements have been delivered pursuant to
Section 9.1. or 9.2.;

(n)           repurchases by either
of Holdings or the Borrower of common Equity Interests previously issued by
such entity, subject to an aggregate limit of not more than $75,000,000 in the
aggregate during the term of this Agreement;

(o)           any Guarantees and/or
indemnities permitted by Section 10.1.(a)(xiii); and

(p)           investments by Holdings
in Equity Interests of a Subsidiary or other Person who (i) is not a
Subsidiary of the Borrower and (ii) directly or indirectly owns the Hard
Rock Hotel and Casino in Las Vegas, Nevada and other assets incidental thereto.

Section 10.5. Asset Sales.

Neither
Holdings nor the Borrower will, nor will they permit any Subsidiary to, sell, transfer,
lease or otherwise dispose of any asset, including any Equity Interest owned by
it, nor will Holdings or the Borrower permit any Subsidiary to issue any
additional Equity Interest in such Subsidiary (other than issuing directors’
qualifying shares and other than issuing Equity Interests to the Borrower or
another Subsidiary in compliance with Section 10.4.(e)(i)), except:

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(a)           sales, transfers,
leases and other dispositions of (i) inventory, (ii) used or surplus
equipment and (iii) Permitted Investments, in each case in the ordinary
course of business;

(b)           sales, transfers,
leases and other dispositions to the Borrower or a Subsidiary, provided that
any such sales, transfers, leases or other dispositions involving a Subsidiary
that is not a Loan Party shall be made in compliance with Section 10.8.;

(c)           sales, transfers and
other dispositions of accounts receivable in connection with the compromise,
settlement or collection thereof consistent with past practice;

(d)           sales, transfers,
leases and other dispositions of property to the extent that such property
constitutes an investment permitted by clause (f), (h) or (j) of
Section 10.4. or another asset received as consideration for the
disposition of any asset permitted by this Section (in each case, other than
Equity Interests in a Subsidiary, unless all Equity Interests in such
Subsidiary are sold);

(e)           sale and leaseback
transactions not prohibited by any other Section of this Article X.;

(f)            leases entered into in
the ordinary course of business, to the extent that they do not materially
interfere with the business of Holdings, the Borrower or any Subsidiary;

(g)           licenses or sublicenses
of intellectual property in the ordinary course of business, to the extent that
they do not materially interfere with the business of Holdings, the Borrower or
any Subsidiary;

(h)           dispositions resulting
from any casualty or other insured damage to, or any taking under power of
eminent domain or by condemnation or similar proceeding of, any property or
asset of the Borrower or any Subsidiary;

(i)            sales, transfers and
other dispositions of assets or any direct or indirect interest therein,
provided that promptly following the receipt of any cash proceeds from such
sale, transfer or disposition, the Borrower or the applicable Subsidiary will
use such proceeds to (x) acquire, maintain, develop, construct, improve,
upgrade or repair assets useful in the business of the Loan Parties, or make
investments pursuant to Section 10.4.(b), in each case within nine months
of such receipt or (y) repay outstanding Indebtedness; and

(j)            sales, transfers and
other dispositions of assets (other than Equity Interests in a Subsidiary
unless all Equity Interests in such Subsidiary are sold) that are not permitted
by any other clause of this Section, provided that the aggregate fair
market value of all assets sold, transferred or otherwise disposed of in
reliance upon this clause (j) shall not exceed $5,000,000 during any
fiscal year of the Borrower.

Section 10.6. Swap Agreements.

Neither
Holdings nor the Borrower will, nor will they permit any Subsidiary to, enter
into any Swap Agreement, except (a) Swap Agreements entered into to hedge
or mitigate risks to

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which the Borrower
or any Subsidiary has actual exposure (other than those in respect of shares of
capital stock or other equity ownership interests of the Borrower or any
Subsidiary), (b) Swap Agreements entered into in order to effectively cap,
collar or exchange interest rates (from fixed to floating rates, from one
floating rate to another floating rate or otherwise) with respect to any
interest-bearing liability or investment of the Borrower or any Subsidiary and
(c) the Borrower or any Subsidiary will be entitled to issue interest rate
protection pursuant to one or more Swap Agreements if and to the extent that
one or more other Wholly Owned Subsidiaries of the Borrower or such Subsidiary
is purchasing or already owns offsetting interest rate protection for the same
duration (or longer) and notional amount (or greater).

Section 10.7. Restricted Payments.

Neither
Holdings nor the Borrower will, nor will they permit any Subsidiary to, declare
or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, or incur any obligation (contingent or otherwise) to do so, except (i) the
Subsidiaries may declare and pay dividends ratably with respect to their Equity
Interests, (ii) Holdings may declare and pay dividends with respect to its
common stock payable solely in shares of common stock, (iii) the Borrower
may, or may make Restricted Payments to Holdings so that Holdings may (and
Holdings may), make Restricted Payments pursuant to and in accordance with
stock option plans or other benefit plans approved by Holdings’ board of
directors for management or employees of Holdings, the Borrower and the
Subsidiaries, (iv) the Borrower may make Restricted Payments to Holdings
at such times and in such amounts (A) as shall be necessary to permit
Holdings to discharge its general corporate and overhead (including franchise
taxes and directors fees) expenses incurred in the ordinary course and other
permitted liabilities and (B) as shall be necessary to pay the tax liabilities
of Holdings directly attributable to (or arising as a result of) the operations
of the Borrower and the Subsidiaries; provided, however, that
(1) the amount of Restricted Payments pursuant to clause (B) of this
clause (iv) shall not exceed the amount that the Borrower and the
Subsidiaries would be required to pay in respect of federal, State and local
taxes were the Borrower and the Subsidiaries to pay such taxes as stand-alone
taxpayers, (2) all Restricted Payments made to Holdings pursuant to this
clause (iv) are used by Holdings for the purposes specified herein within
ten Business Days after Holdings’ receipt thereof and (3) no Default or
Event of Default shall have occurred and be continuing or would result
therefrom, (v) each of Holdings, the Borrower may declare and pay
dividends in respect of Qualified Equity Interests and/or Trust Preferred
Securities otherwise permitted hereunder and (vi) Holdings and the
Borrower may make repurchases of common Equity Interests permitted by
Section 10.4.(n).

Section 10.8. Transactions with
Affiliates.

Neither
Holdings nor the Borrower will, nor will they permit any Subsidiary to, sell,
lease or otherwise transfer any property or assets to, or purchase, lease or
otherwise acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (i) transactions in the
ordinary course of business at prices and on terms and conditions not less
favorable to the Borrower or such Subsidiary than could be obtained on an arm’s-length
basis from unrelated third parties or, in the case of management and/or
franchise agreements arising in the ordinary course of business, agreements
between any Subsidiary and the Borrower or any other Subsidiary as reasonably
deemed appropriate by the Borrower, (ii) transactions between or among the
Borrower and the Subsidiaries that are Loan Parties not involving any

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other Affiliate,
(iii) payroll, travel and similar advances to cover matters permitted
under Section 10.4.(d), (iv) the payment of reasonable fees to
directors or managers of Holdings, the Borrower or any Subsidiary who are not
employees of Holdings, the Borrower or any Subsidiary, and compensation and
employee benefit arrangements paid to, and indemnities provided for the benefit
of, directors, managers, officers or employees of Holdings, the Borrower or the
Subsidiaries in the ordinary course of business, (v) any issuances of
securities or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment agreements, stock options and stock
ownership plans approved by Holdings’ board of directors, (vi) employment
and severance arrangements entered into in the ordinary course of business
between Holdings, the Borrower or any Subsidiary and any employee thereof and
approved by Holdings’ board of directors, (vii) transactions contemplated
by and payments due to Ian Schrager under the Consulting Agreement,
(viii) any Restricted Payment permitted by Section 10.7. or any
distributions of cash or other assets from any Person to any Loan Party or any
Subsidiary in respect of Equity Interests held by such Loan Party or Subsidiary
in that Person and (ix) capital contributions by the Borrower to a
Subsidiary or by a Subsidiary to any other Subsidiary, provided that a
Financial Officer has determined in good faith that the terms of such
contribution are fair and reasonable to the contributing party.

Section 10.9. Restrictive Agreements.

Neither
Holdings nor the Borrower will, nor will they permit any Subsidiary to,
directly or indirectly, enter into, incur or permit to exist any agreement or
other arrangement that prohibits, restricts or imposes any condition upon
(a) the ability of Holdings, the Borrower or any Subsidiary to create,
incur or permit to exist any Lien upon any of its property or assets or
(b) the ability of any Subsidiary to pay dividends or other distributions
with respect to any of its Equity Interests or to make or repay loans or
advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness
of the Borrower or any other Subsidiary, provided that (i) the
foregoing shall not apply to restrictions and conditions imposed by
(A) law or (B) any Loan Document, (ii) the foregoing shall not
apply to restrictions and conditions existing on the date hereof identified on
Schedule 10.9. (but shall apply to any extension or renewal of, or any
amendment, modification or replacement expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to
customary restrictions and conditions contained in agreements relating to the
sale of a Subsidiary or any assets pending such sale, provided that such
restrictions and conditions apply only to the Subsidiary or assets that is or
are to be sold and such sale is permitted hereunder, (iv) the foregoing
shall not apply to restrictions or conditions imposed by any agreement relating
to secured Indebtedness permitted by this Agreement if such restrictions or
conditions apply only to the property or assets securing such Indebtedness and
(v) clause (a) of the foregoing shall not apply to customary
provisions in leases and other contracts restricting the assignment thereof.

Section 10.10. Amendment of Material
Documents.

Neither
Holdings nor the Borrower will, nor will they permit any Subsidiary to, amend,
modify, waive, terminate or release (a) its certificate of incorporation,
by-laws or other organizational documents, (b) the Indebtedness permitted
under Section 10.1.(a)(ii) or (c) any agreements governing joint
ventures of the Borrower or any Subsidiary as of the Effective Date,

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in each case if
the effect of such amendment, modification, waiver, termination or release is
materially adverse to Holdings, the Borrower, any Subsidiary or the Lenders.

Section 10.11. Financial Covenants.

The
Borrower shall not permit:

(a)           Maximum Leverage
Ratio. The Leverage Ratio (determined on a Pro Forma Basis in accordance
with Section 1.4.) to exceed (i) 8.0 to 1.0 at any time prior to
January 1, 2008, (ii) 7.0 to 1.0 at any time during the period
commencing on January 1, 2008 and ending December 31, 2008 and
(iii) 6.0 to 1.0 at any time after December 31, 2008.

(b)           Minimum Fixed Charge
Coverage Ratio. The ratio (determined on a Pro Forma Basis in
accordance with Section 1.4.) of (i) Consolidated EBITDA for the
period of four consecutive fiscal quarters of Holdings most recently ending to
(ii) Fixed Charges for such period, to be less than 1.75 to 1.00 at any
time.

Section 10.12. Changes in Fiscal
Periods.

Holdings
will neither (a) permit its fiscal year or the fiscal year of the Borrower
or any Subsidiary to end on a day other than December 31, nor
(b) change its method of determining fiscal quarters.

Section 10.13. ERISA Exemptions.

Holdings
and the Borrower shall not, and shall not permit any Subsidiary to, permit any
of its respective assets to become or be deemed to be “plan assets” within the
meaning of ERISA, the Internal Revenue Code and the respective regulations
promulgated thereunder.

Section 10.14. Availability of
Exceptions.

For
the avoidance of doubt, in determining compliance with the restrictions set
forth in this Article VI with respect to any proposed financing, purchase, sale
or other transaction, the Loan Parties shall be entitled
to elect and rely upon any single exception or any combination of
applicable exceptions as they deem appropriate.

ARTICLE XI. DEFAULT

Section 11.1. Events of Default.

Each
of the following shall constitute an Event of Default, whatever the reason for
such event and whether it shall be voluntary or involuntary or be effected by
operation of Applicable Law or pursuant to any judgment or order of any
Governmental Authority:

(a)           the Borrower or the
Florida Borrower shall fail to pay any principal of any Loan owing by it or, in
the case of the Borrower, any Reimbursement Obligation, when and as the

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same shall become
due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or otherwise;

(b)           the Borrower or the
Florida Borrower shall fail to pay any interest on any Loan owing by it or any
fee, any other amount (other than an amount referred to in paragraph (a)
of this Article) payable by it under any Loan Document or any other Obligation,
when and as the same shall become due and payable, and such failure shall
continue unremedied for a period of three Business Days;

(c)           any representation or
warranty made or deemed made by or on behalf of Holdings, the Borrower or any
Subsidiary in any Loan Document (other than a Security Deed, any Assignment of
Contracts, Documents and Rights, any Assignment of Leases and Rents, or any
Property Management Contract Assignment (collectively, the “Real Estate
Security Documents”)or any amendment or modification thereof or waiver
thereunder, or in any written report, certificate, financial statement or other
document furnished pursuant to or in connection with any Loan Document or any
amendment or modification thereof or waiver thereunder, shall prove to have
been incorrect in any material respect when made or deemed made;

(d)           Holdings or the
Borrower shall fail to observe or perform any covenant, condition or agreement
contained in (i) Section 8.1. (with respect to keeping in effect the
existence of Holdings or the Borrower), Section 8.7., subsection (c),
(d) or (e) of Section 9.4., Section 10.1. (indebtedness),
Section 10.3. (fundamental change), Section 10.7. (restricted
payments) or Section 10.11. (financial covenants), or (ii) any other
Section of Article X. not referred to in clause (i) above and in the case
of this clause (ii) only, such failure shall continue unremedied for a
period of 10 days after the Borrower receives written notice thereof from the
Agent;

(e)           any Loan Party shall
fail to observe or perform any covenant, condition or agreement contained in
any Loan Document (other than those specified in subsections (a), (b) or
(d) of this Section or in any Real Estate Security Document), and such failure
shall continue unremedied for a period of 30 days after Borrower receives
written notice thereof from the Agent to the Borrower;

(f)            Holdings, the Borrower
or any Subsidiary that is a Loan Party shall fail to make any payment of
principal or interest (regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable;

(g)           any event or condition
occurs that results in any Material Indebtedness becoming due prior to its
scheduled maturity; provided that this subsection (g) shall not
apply to secured Indebtedness that becomes due as a result of the sale,
transfer or other disposition (including as a result of a casualty or
condemnation event) of the property or assets securing such Indebtedness (to
the extent such sale, transfer or other disposition is not prohibited under
this Agreement);

(h)           an involuntary
proceeding shall be commenced or an involuntary petition shall be filed seeking
(i) liquidation, reorganization or other relief in respect of Holdings,
the Borrower, any Subsidiary that is a Loan Party or any other Material
Subsidiary or its debts, or of a substantial part of its assets, under any
federal, state or foreign bankruptcy, insolvency,

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receivership or
similar law now or hereafter in effect or (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
Holdings, the Borrower, any Subsidiary that is a Loan Party or any other
Material Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60 days
or an order or decree approving or ordering any of the foregoing shall be
entered;

(i)            Holdings, the
Borrower, any Subsidiary that is a Loan Party or any other Material Subsidiary
shall (i) voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in subsection (h)
of this Section, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
Holdings, the Borrower, any Subsidiary that is a Loan Party or any other
Material Subsidiary or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any formal action for the purpose of effecting any
of the foregoing;

(j)            Holdings, the
Borrower, any Subsidiary that is Loan Party, or any other Material Subsidiary
shall become unable, admit in writing its inability or fail generally to pay
its debts as they become due;

(k)           one or more judgments
for the payment of money in an aggregate amount in excess of $5,000,000 shall
be rendered against Holdings, the Borrower, or any Subsidiary or any
combination thereof (provided that in determining whether the foregoing
threshold is satisfied, there shall be excluded any portion of such judgments
that is fully covered by a solvent third party insurance company (less any
applicable deductible) and as to which the insurer has not disputed, in
writing, its responsibility to cover such judgment, order, decree or
arbitration award) and the same shall remain undischarged for a period of 30
consecutive days during which execution shall not be effectively stayed, or any
action shall be legally taken by a judgment creditor to attach or levy upon any
assets of Holdings, the Borrower or any Subsidiary to enforce any such
judgment;

(l)            any member of the
ERISA Group shall fail to pay when due an amount or amounts aggregating in
excess of $5,000,000 which it shall have become liable to pay under Title IV of
ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Liabilities in excess of $5,000,000 shall be filed under Title IV of
ERISA by any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate, to impose liability (other than for premiums
under Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer, any Plan or Plans having aggregate Unfunded
Liabilities in excess of $5,000,000; or a condition shall exist by reason of
which the PBGC would be entitled to obtain a decree adjudicating that any such
Plan must be terminated; or there shall occur a complete or partial withdrawal
from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with
respect to, one or more Multiemployer Plans which could cause one or more
members of the ERISA Group to incur a current payment obligation in excess of
$5,000,000;

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(m)          any Lien purported to be
created under any Security Document shall cease to be, or shall be asserted by
any Loan Party not to be, a valid and perfected Lien on any Collateral with a
fair value in excess of $5,000,000, with the priority required by the
applicable Security Document, except (i) as a result of the sale or other
disposition of the applicable Collateral in a transaction permitted under the
Loan Documents or (ii) as a result of the Agent’s failure to
(A) maintain possession of any stock certificates, promissory notes or
other instruments delivered to it under any Security Document or (B) file
Uniform Commercial Code continuation statements;

(n)           any Loan Document or
any Guarantee of the Obligations shall for any reason be asserted by any Loan
Party in writing not to be a legal, valid and binding obligation of any Loan
Party party thereto;

(o)           the Guaranty shall
cease to be in full force and effect (other than in accordance with the terms
of the Loan Documents); or

(p)           a Change in Control
shall occur.

Section 11.2. Remedies Upon Event of
Default.

Upon
the occurrence of an Event of Default the following provisions shall apply:

(a)           Acceleration;
Termination of Facilities.

(i)            Automatic. Upon
the occurrence of an Event of Default specified in Section 11.1.(h) or
11.1.(i), (A)(i) the principal of, and all accrued interest on, the Loans and
the Notes at the time outstanding, (ii) an amount equal to the Stated
Amount of all Letters of Credit outstanding as of the date of the occurrence of
such Event of Default for deposit into the Collateral Account pursuant to
Section 11.5. and (iii) all of the other Obligations (other than
obligations in respect of Swap Agreements and Treasury Management Services
Agreement), including, but not limited to, the other amounts owed to the
Lenders, the Swingline Lender and the Agent under this Agreement, the Notes or
any of the other Loan Documents shall become immediately and automatically due
and payable without presentment, demand, protest, or other notice of any kind,
all of which are expressly waived by the Borrower and (B) all of the
Commitments, the obligation of the Lenders to make Revolving Loans, the
Swingline Commitment, the obligation of the Swingline Lender to make Swingline
Loans, and the obligation of the Agent to issue Letters of Credit hereunder,
shall all immediately and automatically terminate.

(ii)           Optional. If any
other Event of Default shall exist, the Agent shall, at the direction of the
Requisite Lenders:  (A) declare
(1) the principal of, and accrued interest on, the Loans and the Notes at
the time outstanding, (2) an amount equal to the Stated Amount of all
Letters of Credit outstanding as of the date of the occurrence of such other
Event of Default for deposit into the Collateral Account pursuant to
Section 11.5. and (3) all of the other Obligations (other than
obligations in respect of Swap Agreements and Treasury Management Services
Agreement), including, but not limited to, the other

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amounts owed to the Lenders and the Agent under this
Agreement, the Notes or any of the other Loan Documents to be forthwith due and
payable, whereupon the same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived by the Borrowers and (B) terminate the Commitments, the
Swingline Commitment, the obligation of the Lenders to make Loans hereunder and
the obligation of the Agent to issue Letters of Credit hereunder.

(b)           Loan Documents.
The Requisite Lenders may direct the Agent to, and the Agent if so directed
shall, exercise any and all of its rights under any and all of the other Loan
Documents.

(c)           Applicable Law.
The Requisite Lenders may direct the Agent to, and the Agent if so directed shall,
exercise all other rights and remedies it may have under any Applicable Law.

(d)           Appointment of
Receiver. To the extent permitted by Applicable Law, the Agent and the
Lenders shall be entitled to the appointment of a receiver for the assets and
properties of the Borrower and its Subsidiaries, without notice of any kind
whatsoever and without regard to the adequacy of any security for the
Obligations or the solvency of any party bound for its payment, to take
possession of all or any portion of the business operations of the Borrower and
its Subsidiaries and to exercise such power as the court shall confer upon such
receiver.

(e)           Florida Property.
The Agent shall have the right to amend the Security Deed encumbering the
Florida Property to increase the maximum principal amount of Obligations
secured by such Security Deed. Accordingly, the Florida Borrower hereby
constitutes and appoints the Agent as the attorney-in-fact of the Florida
Borrower with full power of substitution either in the Agent’s name or in the
name of the Florida Borrower to do any of the following: (a) execute an
amendment to such Security Deed to increase the maximum principal amount of
Obligations secured by such Security Deed and (b) to take any other action
and execute any other document, instrument or agreement which the Agent may
deem necessary or advisable to accomplish the purposes of this subsection. All
documentary stamp taxes, intangibles taxes and other taxes paid by the Agent in
respect of the filing of any such amendment shall constitute Obligations of the
Borrower. The power of attorney granted herein is irrevocable and coupled with
an interest.

Section 11.3. Remedies Upon Default.

Upon
the occurrence of a Default specified in Section 11.1.(h), the Commitments
shall immediately and automatically terminate.

Section 11.4. Allocation of Proceeds.

If an
Event of Default shall exist and maturity of any of the Obligations has been
accelerated, all payments received by the Agent under any of the Loan
Documents, in respect of any principal of or interest on the Obligations or any
other amounts payable by the Borrowers hereunder or thereunder, shall be
applied in the following order and priority:

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(a)           amounts due the Agent
in respect of fees and expenses due under Section 13.2.;

(b)           amounts due the Lenders
in respect of fees and expenses due under Section 13.2., pro rata in the
amount then due each Lender;

(c)           payments of interest on
Swingline Loans;

(d)           payments of interest on
all other Loans and Reimbursement Obligations, to be applied for the ratable
benefit of the Lenders;

(e)           payments of principal
of Swingline Loans;

(f)            payments of principal
of all other Loans, Reimbursement Obligations and other Letter of Credit
Liabilities and amounts then due and payable under any Swap Agreement or
Treasury Management Services Agreement between the Borrower and any Lender (or
any affiliate of a Lender), to be applied for the ratable benefit of the
Lenders (and in the case of any Swap Agreement or Treasury Management Services
Agreement, any affiliate of a Lender); provided, however, to the extent that
any amounts available for distribution pursuant to this subsection are
attributable to the issued but undrawn amount of an outstanding Letter of
Credit, such amounts shall be paid to the Agent for deposit into the Collateral
Account;

(g)           amounts due the Agent
and the Lenders pursuant to Sections 12.8. and 13.9.;

(h)           payment of all other
Obligations and other amounts due and owing by the Borrower and the other Loan
Parties under any of the Loan Documents, if any, to be applied for the ratable
benefit of the Lenders; and

(i)            any amount remaining
after application as provided above, shall be paid to the Borrower or whomever
else may be legally entitled thereto.

Section 11.5. Collateral Account.

(a)           As collateral security
for the prompt payment in full when due of all Letter of Credit Liabilities and
the other Obligations, the Borrower hereby pledges and grants to the Agent, for
the ratable benefit of the Agent and the Lenders as provided herein, a security
interest in all of its right, title and interest in and to the Collateral
Account and the balances from time to time in the Collateral Account (including
the investments and reinvestments therein provided for below). The balances
from time to time in the Collateral Account shall not constitute payment of any
Letter of Credit Liabilities until applied by the Agent as provided herein.
Anything in this Agreement to the contrary notwithstanding, funds held in the
Collateral Account shall be subject to withdrawal only as provided in this
Section.

(b)           Amounts on deposit in
the Collateral Account shall be invested and reinvested by the Agent in
Permitted Investments as the Agent shall determine in its sole discretion. All
such

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investments and
reinvestments shall be held in the name of and be under the sole dominion and
control of the Agent for the ratable benefit of the Lenders. The Agent shall
exercise reasonable care in the custody and preservation of any funds held in
the Collateral Account and shall be deemed to have exercised such care if such
funds are accorded treatment substantially equivalent to that which the Agent
accords other funds deposited with the Agent, it being understood that the
Agent shall not have any responsibility for taking any necessary steps to
preserve rights against any parties with respect to any funds held in the
Collateral Account.

(c)           If a drawing pursuant
to any Letter of Credit occurs on or prior to the expiration date of such
Letter of Credit, the Borrower and the Lenders authorize the Agent to use the
monies deposited in the Collateral Account and proceeds thereof to make payment
to the beneficiary with respect to such drawing or the payee with respect to
such presentment.

(d)           If an Event of Default
exists, the Requisite Lenders may, in their discretion, at any time and from
time to time, instruct the Agent to liquidate any such investments and
reinvestments and apply proceeds thereof to the Obligations in accordance with
Section 11.4.

(e)           So long as no Default
or Event of Default exists, and to the extent amounts on deposit in or credited
to the Collateral Account exceed the aggregate amount of the Letter of Credit
Liabilities then due and owing, the Agent shall, from time to time, at the
request of the Borrower, deliver to the Borrower within 10 Business Days
after the Agent’s receipt of such request from the Borrower, against receipt
but without any recourse, warranty or representation whatsoever, such amount of
the credit balances in the Collateral Account as exceeds the aggregate amount
of the Letter of Credit Liabilities at such time.

(f)            The Borrower shall pay
to the Agent from time to time such fees as the Agent normally charges for
similar services in connection with the Agent’s administration of the
Collateral Account and investments and reinvestments of funds therein.

Section 11.6. Performance by Agent.

If the
Borrower shall fail to perform any covenant, duty or agreement contained in any
of the Loan Documents, the Agent may, after notice to the Borrower, perform or
attempt to perform such covenant, duty or agreement on behalf of the Borrower
after the expiration of any cure or grace periods set forth herein. In such
event, the Borrower shall, at the request of the Agent, promptly pay any amount
reasonably expended by the Agent in such performance or attempted performance
to the Agent, together with interest thereon at the applicable Post-Default
Rate from the date of such expenditure until paid. Notwithstanding the
foregoing, neither the Agent nor any Lender shall have any liability or
responsibility whatsoever for the performance of any obligation of the Borrower
under this Agreement or any other Loan Document.

Section 11.7. Rights Cumulative.

The
rights and remedies of the Agent and the Lenders under this Agreement and each of
the other Loan Documents shall be cumulative and not exclusive of any rights or
remedies which any of them may otherwise have under Applicable Law. In
exercising their respective rights and remedies the Agent and the Lenders may
be selective and no failure or delay by the Agent or any

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of the Lenders in
exercising any right shall operate as a waiver of it, nor shall any single or
partial exercise of any power or right preclude its other or further exercise
or the exercise of any other power or right.

ARTICLE XII. THE AGENT

Section 12.1. Authorization and Action.

Each Lender hereby appoints and authorizes the Agent
to take such action as contractual representative on such Lender’s behalf and
to exercise such powers under this Agreement and the other Loan Documents as
are specifically delegated to the Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto. Not in
limitation of the foregoing, each Lender authorizes and directs the Agent to
enter into the Loan Documents for the benefit of the Lenders. Each Lender
hereby agrees that, except as otherwise set forth herein, any action taken by
the Requisite Lenders in accordance with the provisions of this Agreement or
the Loan Documents, and the exercise by the Requisite Lenders of the powers set
forth herein or therein, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of the Lenders.
Nothing herein shall be construed to deem the Agent a trustee or fiduciary for
any Lender or to impose on the Agent duties or obligations other than those
expressly provided for herein. At the request of a Lender, the Agent will
forward to such Lender copies or, where appropriate, originals of the documents
delivered to the Agent pursuant to this Agreement or the other Loan Documents.
The Agent will also furnish to any Lender, upon the request of such Lender, a
copy of any certificate or notice furnished to the Agent by the Borrower, any
other Loan Party or any other Affiliate of the Borrower, pursuant to this
Agreement or any other Loan Document not already delivered to such Lender
pursuant to the terms of this Agreement or any such other Loan Document. As to
any matters not expressly provided for by the Loan Documents (including,
without limitation, enforcement or collection of any of the Obligations), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Requisite Lenders (or all of the Lenders if explicitly required under any other
provision of this Agreement), and such instructions shall be binding upon all
Lenders and all holders of any of the Obligations; provided, however, that,
notwithstanding anything in this Agreement to the contrary, the Agent shall not
be required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or any other Loan Document or Applicable
Law. Not in limitation of the foregoing, the Agent shall not exercise any right
or remedy it or the Lenders may have under any Loan Document upon the
occurrence of a Default or an Event of Default unless the Requisite Lenders (or
all of the Lenders if explicitly required under any provision of this
Agreement) have so directed the Agent to exercise such right or remedy.

Section 12.2. Agent’s Reliance, Etc.

Notwithstanding
any other provisions of this Agreement or any other Loan Documents, neither the
Agent nor any of its directors, officers, agents, employees or counsel shall be
liable for any action taken or omitted to be taken by it or them under or in
connection with this Agreement or any other Loan Document, except for its or
their own gross negligence or willful misconduct as determined by a court of
competent jurisdiction in a final, non-appealable

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judgment. Without
limiting the generality of the foregoing, the Agent: (a) may treat the
payee of any Note as the holder thereof until the Agent receives written notice
of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent; (b) may consult with legal counsel (including
its own counsel or counsel for the Borrower or any other Loan Party),
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts;
(c) makes no warranty or representation to any Lender or any other Person
and shall not be responsible to any Lender or any other Person for any
statements, warranties or representations made by any Person in or in
connection with this Agreement or any other Loan Document; (d) shall not have
any duty to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions of any of this Agreement or any other
Loan Document or the satisfaction of any conditions precedent under this
Agreement or any Loan Document on the part of the Borrower or other Persons
(except for the delivery to it of any certificate or document specifically
required to be delivered to it pursuant to Section 6.1.) or inspect the
property, books or records of the Borrower or any other Person; (e) shall
not be responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any
other Loan Document, any other instrument or document furnished pursuant
thereto or any collateral covered thereby or the perfection or priority of any
Lien in favor of the Agent on behalf of the Lenders in any such collateral; and
(f) shall incur no liability under or in respect of this Agreement or any other
Loan Document by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telephone or telecopy) believed by it to
be genuine and signed, sent or given by the proper party or parties.

Section 12.3. Notice of Defaults.

The
Agent shall not be deemed to have knowledge or notice of the occurrence of a
Default or Event of Default unless the Agent has received notice from a Lender
or the Borrower referring to this Agreement, describing with reasonable
specificity such Default or Event of Default and stating that such notice is a “notice
of default.”  If any Lender (excluding
the Lender which is also serving as the Agent) becomes aware of any Default or
Event of Default, it shall promptly send to the Agent such a “notice of
default.”  Further, if the Agent receives
such a “notice of default”, the Agent shall give prompt notice thereof to the
Lenders.

Section 12.4. Wachovia as Lender.

Wachovia,
as a Lender, shall have the same rights and powers under this Agreement and any
other Loan Document as any other Lender and may exercise the same as though it
were not the Agent; and the term “Lender” or “Lenders” shall, unless otherwise
expressly indicated, include Wachovia in each case in its individual capacity.
Wachovia and its affiliates may each accept deposits from, maintain deposits or
credit balances for, invest in, lend money to, act as trustee under indentures
of, serve as financial advisor to, and generally engage in any kind of business
with, the Borrower, any other Loan Party or any other Affiliate thereof as if
it were any other bank and without any duty to account therefor to the other
Lenders. Further, the Agent and any affiliate may accept fees and other
consideration from the Borrower or any other Loan Party for services in
connection with this Agreement and otherwise without having to account for the
same to the other Lenders. The Lenders acknowledge that, pursuant to such
activities, Wachovia

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or its affiliates
may receive information regarding the Borrower, other Loan Parties, other
Subsidiaries and other Affiliates (including information that may be subject to
confidentiality obligations in favor of such Person) and acknowledge that the
Agent shall be under no obligation to provide such information to them.

Section 12.5. Approvals of Lenders.

All
communications from the Agent to any Lender requesting such Lender’s
determination, consent, approval or disapproval (a) shall be given in the
form of a written notice to such Lender, (b) shall be accompanied by a
description of the matter or issue as to which such determination, approval,
consent or disapproval is requested, or shall advise such Lender where
information, if any, regarding such matter or issue may be inspected, or shall
otherwise describe the matter or issue to be resolved, (c) shall include,
if reasonably requested by such Lender and to the extent not previously
provided to such Lender, written materials and, as appropriate, a brief summary
of all oral information provided to the Agent by the Borrower in respect of the
matter or issue to be resolved, and (d) shall include the Agent’s
recommended course of action or determination in respect thereof. Each Lender
shall reply promptly, but in any event within 10 Business Days (or such lesser
or greater period as may be specifically required under the Loan Documents) of
receipt of such communication. Except as otherwise provided in this Agreement,
unless a Lender shall give written notice to the Agent that it specifically
objects to the recommendation or determination of the Agent (together with a
written explanation of the reasons behind such objection) within the applicable
time period for reply, such Lender shall be deemed to have conclusively
approved of or consented to such recommendation or determination.

Section 12.6. Collateral Matters.

(a)           The Agent is authorized
on behalf of all of the Lenders, without the necessity of any notice to or
further consent from any Lender, from time to time prior to an Event of
Default, to take any action with respect to any Collateral or Loan Documents
which may be necessary to perfect and maintain perfected the Liens upon the
Collateral granted pursuant to any of the Loan Documents.

(b)           The Lenders hereby
authorize the Agent, at its option and in its discretion, to release any Lien
granted to or held by the Agent upon any Collateral (i) upon termination
of this Agreement in accordance with Section 13.10.; or (ii) as
required or permitted by Section 4.3.
or Section 8.11. Upon
request by the Agent at any time, the Lenders will confirm in writing the Agent’s
authority to release particular types or items of Collateral pursuant to this
Section or any other applicable provision of any of the other Loan Documents.

(c)           Upon any sale and
transfer of Collateral which is expressly permitted pursuant to the terms of
this Agreement, and upon at least 5 Business Days’ prior written request by the
Borrower, the Agent shall (and is hereby irrevocably authorized by all of the
Lenders to) execute such documents as may be necessary to evidence the release
of the Liens granted to the Agent for the benefit of the Lenders herein or
pursuant hereto upon the Collateral that was sold or transferred; provided,
however, that (i) the Agent shall not be required to execute any such
document on terms which, in the Agent’s opinion, would expose the Agent to
liability or create

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any obligation or
entail any consequence other than the release of such Liens without recourse or
warranty; and (ii) such release shall not in any manner discharge, affect
or impair the Obligations or any Liens upon (or obligations of the Borrower or
any other Loan Party in respect of) all interests retained by the Borrower or
any other Loan Party, including (without limitation) the proceeds of the sale,
all of which shall continue to constitute part of the Collateral. In the event
of any sale or transfer of Collateral, or any foreclosure with respect to any
of the Collateral, the Agent shall be authorized to deduct all of the expenses
reasonably incurred by the Agent from the proceeds of any such sale, transfer
or foreclosure.

(d)           The Agent shall have no
obligation whatsoever to the Lenders or to any other Person to assure that the
Collateral exists or is owned by any Loan Party or is cared for, protected or
insured or that the Liens granted to the Agent herein or pursuant hereto have
been properly or sufficiently or lawfully created, perfected, protected or
enforced or are entitled to any particular priority, or to exercise or to
continue exercising at all or in any manner or under any duty of care,
disclosure or fidelity any of the rights, authorities and powers granted or
available to the Agent in this Section or in any of the Loan Documents, it
being understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, the Agent may act in any manner it may deem appropriate,
in its sole discretion, given the Agent’s own interest in the Collateral as one
of the Lenders and that the Agent shall have no duty or liability whatsoever to
the Lenders, except to the extent found in a final non-appealable judgment by a
court of competent jurisdiction to have resulted from the Agent’s gross
negligence or willful misconduct.

Section 12.7. Lender Credit Decision,
Etc.

Each
Lender expressly acknowledges and agrees that neither the Agent nor any of its
officers, directors, employees, agents, counsel, attorneys-in-fact or other
affiliates has made any representations or warranties as to the financial
condition, operations, creditworthiness, solvency or other information
concerning the business or affairs of Holdings, the Borrower, any other Loan
Party, any other Subsidiary or any other Person to such Lender and that no act
by the Agent hereafter taken, including any review of the affairs of Holdings,
the Borrower, any other Loan Party or any other Subsidiary, shall be deemed to
constitute any such representation or warranty by the Agent to any Lender. Each
Lender acknowledges that it has made its own credit and legal analysis and
decision to enter into this Agreement and the transactions contemplated hereby,
independently and without reliance upon the Agent, any other Lender or counsel
to the Agent, or any of their respective officers, directors, employees and
agents, and based on the financial statements of the Holdings, Borrower, the
other Subsidiaries or any other Affiliate thereof, and inquiries of such
Persons, its independent due diligence of the business and affairs of the
Borrower, the other Loan Parties, the Subsidiaries and other Persons, its
review of the Loan Documents, the legal opinions required to be delivered to it
hereunder, the advice of its own counsel and such other documents and
information as it has deemed appropriate. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent, any other Lender or
counsel to the Agent or any of their respective officers, directors, employees
and agents, and based on such review, advice, documents and information as it
shall deem appropriate at the time, continue to make its own decisions in
taking or not taking action under the Loan Documents. Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by the Agent under this Agreement or any of the other Loan
Documents, the Agent shall have no duty or responsibility to provide any Lender
with any

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credit or other
information concerning the business, operations, property, financial and other
condition or creditworthiness of Holdings, the Borrower, any other Loan Party
or any other Affiliate thereof which may come into possession of the Agent, or any
of its officers, directors, employees, agents, attorneys-in-fact or other
affiliates. Each Lender acknowledges that the Agent’s legal counsel in
connection with the transactions contemplated by this Agreement is only acting
as counsel to the Agent and is not acting as counsel to such Lender.

Section 12.8. Indemnification of Agent.

Each
Lender agrees to indemnify the Agent (to the extent not reimbursed by the
Borrower and without limiting the obligation of the Borrower to do so) pro rata
in accordance with such Lender’s respective Commitment Percentage, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, reasonable out-of-pocket costs and expenses, or
disbursements of any kind or nature whatsoever which may at any time be imposed
on, incurred by, or asserted against the Agent (in its capacity as Agent but
not as a Lender) in any way relating to or arising out of the Loan Documents,
any transaction contemplated hereby or thereby or any action taken or omitted
by the Agent under the Loan Documents (collectively, “Indemnifiable Amounts”);
provided, however, that no Lender shall be liable for any portion of such
Indemnifiable Amounts to the extent resulting from the Agent’s gross negligence
or willful misconduct as determined by a court of competent jurisdiction in a
final, non-appealable judgment or if the Agent fails to follow the written
direction of the Requisite Lenders (or all of the Lenders if expressly required
hereunder) unless such failure results from the Agent following the advice of
counsel to the Agent of which advice the Lenders have received notice. Without
limiting the generality of the foregoing but subject to the preceding proviso,
each Lender agrees to reimburse the Agent (to the extent not reimbursed by the
Borrower and without limiting the obligation of the Borrower to do so),
promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees of the counsel(s) of the Agent’s own choosing) incurred
by the Agent in connection with the preparation, negotiation, execution, or
enforcement of, or legal advice with respect to the rights or responsibilities
of the parties under, the Loan Documents, any suit or action brought by the
Agent to enforce the terms of the Loan Documents and/or collect any
Obligations, any “lender liability” suit or claim brought against the Agent
and/or the Lenders, and any claim or suit brought against the Agent, and/or the
Lenders arising under any Environmental Laws. Such out-of-pocket expenses
(including counsel fees) shall be advanced by the Lenders on the request of the
Agent notwithstanding any claim or assertion that the Agent is not entitled to
indemnification hereunder upon receipt of an undertaking by the Agent that the
Agent will reimburse the Lenders if it is actually and finally determined by a
court of competent jurisdiction that the Agent is not so entitled to
indemnification. The agreements in this Section shall survive the payment of
the Loans and all other amounts payable hereunder or under the other Loan
Documents and the termination of this Agreement. If the Borrower shall
reimburse the Agent for any Indemnifiable Amount following payment by any
Lender to the Agent in respect of such Indemnifiable Amount pursuant to this Section,
the Agent shall share such reimbursement on a ratable basis with each Lender
making any such payment.

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Section 12.9. Successor Agent.

The
Agent may resign at any time as Agent under the Loan Documents by giving
written notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Requisite Lenders shall have the right to appoint a successor
Agent which appointment shall, provided no Default or Event of Default exists,
be subject to the Borrower’s approval, which approval shall not be unreasonably
withheld or delayed (except that the Borrower shall, in all events, be deemed
to have approved each Lender and its affiliates as a successor Agent). If no
successor Agent shall have been so appointed in accordance with the immediately
preceding sentence, and shall have accepted such appointment, within 30 days
after the resigning Agent’s giving of notice of resignation, then the resigning
Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be
a Lender, if any Lender shall be willing to serve, and otherwise shall be a
commercial bank having total combined assets of at least $50,000,000,000 and
provided no Default or Event of Default exists, shall be subject to the
Borrower’s approval, which approval shall not be unreasonably withheld or
delayed. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Loan Documents. Such successor Agent shall issue letters
of credit in substitution for the Letters of Credit, if any, outstanding at the
time of such succession or shall make other arrangements satisfactory to the
current Agent, in either case, to assume effectively the obligations of the
current Agent with respect to such Letters of Credit. After any Agent’s
resignation hereunder as Agent, the provisions of this Article XII. shall continue
to inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under the Loan Documents.

Section 12.10. Titled Agents.

Each of the Titled Agents in each such respective
capacity, assumes no responsibility or obligation hereunder, including, without
limitation, for servicing, enforcement or collection of any of the Loans, or
for any duties as an agent hereunder for the Lenders. The titles of “Arrangers”,
“Syndication Agent”, and other similar titles are solely honorific and imply no
fiduciary responsibility on the part of the Titled Agents to the Agent, the
Borrower or any Lender and the use of such titles does not impose on the Titled
Agents any duties or obligations greater than those of any other Lender or
entitle the Titled Agents to any rights other than those to which any other
Lender is entitled.

ARTICLE XIII. MISCELLANEOUS

Section 13.1. Notices.

Unless
otherwise provided herein, communications provided for hereunder shall be in
writing and shall be mailed, telecopied or delivered as follows:

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If to
the Borrower or Holdings, to it at:

475 Tenth Avenue

New York, New York  10018

Attn:  Richard Szymanski

Telephone:            (212) 277-4188

Telecopy:              (212) 277-4270

If to
the Agent:

Wachovia Bank, National
Association

301 South College Street,
NC0172

Charlotte, North
Carolina  28288

Attn:  David M. Blackman

Telephone:            (704) 374-6272

Telecopy:              (704) 383-6205

If to a Lender:

To such Lender’s address or telecopy number, as
applicable, set forth on its signature page hereto or in the administrative
questionnaire required by the Agent and provided by such Lender;

or, as to each
party at such other address as shall be designated by such party in a written
notice to the other parties delivered in compliance with this Section. All such
notices and other communications shall be effective (i) if mailed, when
received; (ii) if telecopied, when transmitted; or (iii) if hand
delivered or sent by overnight courier, when delivered. Notwithstanding the
immediately preceding sentence, all notices or communications to the Agent or
any Lender under Article II. shall be effective only when actually
received. Neither the Agent nor any Lender shall incur any liability to any
Loan Party (nor shall the Agent incur any liability to the Lenders) for acting
upon any telephonic notice referred to in this Agreement which the Agent or
such Lender, as the case may be, believes in good faith to have been given by a
Person authorized to deliver such notice or for otherwise acting in good faith
hereunder. Failure of a Person designated to get a copy of a notice to receive
such copy shall not affect the validity of notice properly given to any other
Person.

Section 13.2. Expenses.

The
Borrower agrees (a) to pay or reimburse the Agent for all of its
reasonable out-of-pocket costs and expenses incurred in connection with the
preparation, negotiation and execution of, and any amendment, supplement or
modification to, any of the Loan Documents (including due diligence expenses
and travel expenses relating to closing), and the consummation of the transactions
contemplated thereby, including the reasonable fees and disbursements of
counsel to the Agent and costs and expenses in connection with (i) the use
of IntraLinks, Inc., SyndTrak or other similar information transmission systems
in connection with the Loan Documents and (ii) the costs and expenses
incurred by the Agent in connection with the review of Properties for inclusion
in calculations of the Borrowing Base and the Agent’s other activities under

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Article IV.,
including the cost of all Appraisals, title insurance, any inspection by the
Agent of any such Properties, and the reasonable fees and disbursements of
counsel to the Agent relating to all such activities, (b) to pay or
reimburse the Agent and the Lenders for all their reasonable costs and expenses
incurred in connection with the enforcement or preservation of any rights under
the Loan Documents, including the reasonable fees and disbursements of their
respective counsel (including the allocated fees and expenses of in-house
counsel) and any payments in indemnification or otherwise payable by the
Lenders to the Agent pursuant to the Loan Documents, (c) to pay, and
indemnify and hold harmless the Agent and the Lenders from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any failure to pay or delay in paying, documentary, stamp,
excise and other similar taxes, if any, which may be payable or determined to
be payable in connection with the execution and delivery of any of the Loan
Documents, or consummation of any amendment, supplement or modification of, or
any waiver or consent under or in respect of, any Loan Document and (d) to
the extent not already covered by any of the preceding subsections, to pay or
reimburse the Agent and the Lenders for all their costs and expenses incurred
in connection with any bankruptcy or other proceeding of the type described in
Section 11.1.(h) or 11.1.(i), including the reasonable fees and
disbursements of counsel to the Agent and any Lender, whether such fees and
expenses are incurred prior to, during or after the commencement of such
proceeding or the confirmation or conclusion of any such proceeding. If the
Borrower shall fail to pay any amounts required to be paid by it pursuant to
this Section, the Agent and/or the Lenders may pay such amounts on behalf of
the Borrower and either deem the same to be Loans outstanding hereunder or
otherwise Obligations owing hereunder.

Section 13.3. Setoff.

Subject
to Section 3.3. and in addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, to the
fullest extent permitted by law, the Borrower and the Florida Borrower each
hereby authorizes the Agent, each Lender, each affiliate of the Agent or any
Lender, and each Participant, at any time while an Event of Default exists,
without prior notice to the Borrowers or to any other Person, any such notice
being hereby expressly waived, but in the case of a Lender, an affiliate of a
Lender or a Participant subject to receipt of the prior written consent of the
Agent exercised in its sole discretion, to set off and to appropriate and to
apply any and all deposits (general or special, including, but not limited to,
indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness at any time held or owing by the Agent,
such Lender, any such affiliate of the Agent or such Lender, or such
Participant, to or for the credit or the account of the Borrower or the Florida
Borrower, as applicable, against and on account of any of the Obligations owing
by the Borrower or the Florida Borrower, as applicable, irrespective of whether
or not any or all of the Loans and all other Obligations have been declared to
be, or have otherwise become, due and payable as permitted by
Section 11.2., and although such obligations shall be contingent or
unmatured.

Section 13.4. Litigation; Jurisdiction;
Other Matters; Waivers.

(a)           EACH PARTY HERETO
ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY BETWEEN OR AMONG HOLDINGS, THE
BORROWERS, THE AGENT OR ANY OF THE LENDERS WOULD BE BASED ON DIFFICULT AND
COMPLEX

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ISSUES OF LAW AND
FACT AND WOULD RESULT IN DELAY AND EXPENSE TO THE PARTIES. ACCORDINGLY, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE LENDERS, THE AGENT, HOLDINGS
AND THE BORROWERS HEREBY WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION
MAY BE COMMENCED BY OR AGAINST ANY PARTY HERETO ARISING OUT OF THIS AGREEMENTOR
ANY OTHER LOAN DOCUMENT OR BY REASON OF ANY OTHER SUIT, CAUSE OF ACTION OR
DISPUTE WHATSOEVER BETWEEN OR AMONG HOLDINGS, THE BORROWERS, THE AGENT OR ANY
OF THE LENDERS OF ANY KIND OR NATURE RELATING TO ANY OF THE LOAN DOCUMENTS.

(b)           EACH OF HOLDINGS, THE
BORROWERS, THE AGENT AND EACH LENDER HEREBY AGREES THAT THE FEDERAL DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN OF NEW YORK, NEW YORK, SHALL HAVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG HOLDINGS, THE BORROWERS, THE
AGENT OR ANY OF THE LENDERS, PERTAINING DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, THE LOANS AND LETTERS OF CREDIT, THE NOTES OR ANY OTHER LOAN
DOCUMENT OR TO ANY MATTER ARISING HEREFROM OR THEREFROM. HOLDINGS, THE
BORROWERS AND EACH OF THE LENDERS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS WITH
RESPECT TO SUCH CLAIMS OR DISPUTES. EACH PARTY FURTHER WAIVES ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT FORUM, AND EACH AGREES NOT TO PLEAD OR CLAIM THE SAME. THE CHOICE
OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE BRINGING
OF ANY ACTION BY THE AGENT OR ANY LENDER OR THE ENFORCEMENT BY THE AGENT OR ANY
LENDER OF ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE
JURISDICTION.

(c)           THE PROVISIONS OF THIS
SECTION HAVE BEEN CONSIDERED BY EACH PARTY WITH THE ADVICE OF COUNSEL AND WITH
A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE THE
PAYMENT OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER THE OTHER
LOAN DOCUMENTS, THE TERMINATION OR EXPIRATION OF ALL LETTERS OF CREDIT AND THE
TERMINATION OF THIS AGREEMENT.

Section 13.5. Successors and Assigns.

(a)           Successors and
Assigns Generally. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns permitted hereby, except that the Borrowers may not assign or
otherwise transfer any of their respective rights or obligations hereunder
without the prior written consent of the Agent and each Lender and no Lender
may assign or otherwise transfer any of its rights or obligations

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hereunder except
(i) to an Eligible Assignee in accordance with the provisions of the
immediately following subsection (b), (ii) by way of participation in
accordance with the provisions of the immediately following subsection (d)
or (iii) by way of pledge or assignment of a security interest subject to
the restrictions of the immediately following subsection (f) (and any
other attempted assignment or transfer by any party hereto shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby, Participants to the extent provided in
the immediately following subsection (d) and, to the extent expressly
contemplated hereby, the affiliates and the partners, directors, officers,
employees, agents and advisors of the Agent and the Lenders and of their
respective affiliates) any legal or equitable right, remedy or claim under or
by reason of this Agreement.

(b)           Assignments by
Lenders. Any Lender may at any time assign to one or more assignees (an “Assignee”)
all or a portion of its rights and obligations under this Agreement (including
all or a portion of its Commitment and the Loans at the time owing to it); provided
that any such assignment shall be subject to the following conditions:

(i)            Minimum Amounts.

(A)          in the case of an
assignment of the entire remaining amount of the assigning Lender’s Commitment
and the Loans at the time owing to it or in the case of an assignment to a
Lender, an affiliate of a Lender or an Approved Fund, no minimum amount need be
assigned; and

(B)           in any case not
described in the immediately preceding subsection (A), the aggregate
amount of the Commitment (which for this purpose includes Loans outstanding
thereunder) or, if the applicable Commitment is not then in effect, the
principal outstanding balance of the Loans of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and Assumption
with respect to such assignment is delivered to the Agent or, if “Trade Date”
is specified in the Assignment and Assumption, as of the Trade Date) shall not
be less than $5,000,000 unless each of the Agent and, so long as no Default or
Event of Default shall exist, the Borrower otherwise consents (each such
consent not to be unreasonably withheld or delayed).

(ii)           Proportionate Amounts.
Each partial assignment shall be made as an assignment of a proportionate part
of all the assigning Lender’s rights and obligations under this Agreement with
respect to the Loans or the Commitment assigned. Not in limitation of the
foregoing, any assignment by a Lender of Revolving Loans must be of a
proportionate amount of Revolving Loans owing by the Borrower and owing by the
Florida Borrower.

(iii)          Required Consents.
No consent shall be required for any assignment except to the extent required
by clause (i)(B) of this subsection (b) and, in addition:

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(A)          the consent of the
Borrower (such consent not to be unreasonably withheld or delayed) shall be
required unless (x) a Default or Event of Default shall exist at the time
of such assignment or (y) such assignment is to a Lender, an affiliate of
a Lender or an Approved Fund;

(B)           the consent of the Agent
(such consent not to be unreasonably withheld or delayed) shall be required for
assignments in respect of a Commitment if such assignment is to a Person that
is not already a Lender with a Commitment, an affiliate of such Lender or an
Approved Fund with respect to such Lender; and

(C) the consent of the
Swingline Lender (such consent not to be unreasonably withheld or delayed)
shall be required for any assignment in respect of a Commitment.

(iv)          Assignment and
Acceptance. The parties to each assignment shall execute and deliver to the
Agent an Assignment and Acceptance, together with a processing and recordation
fee of $3,500 for each assignment, and the assignee, if it is not a Lender,
shall deliver to the Agent an administrative questionnaire in the form
customarily required by the Agent.

(v)           No Assignment to
Borrower. No such assignment shall be made to the Borrower or any of the
Borrower’s Affiliates or Subsidiaries.

(vi)          No Assignment to
Natural Persons. No such assignment shall be made to a natural person.

Subject to
acceptance and recording thereof by the Agent pursuant to the immediately
following subsection (c), from and after the effective date specified in
each Assignment and Acceptance, the assignee thereunder shall be a party to
this Agreement and, to the extent of the interest assigned by such Assignment
and Acceptance, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender’s rights and obligations under
this Agreement, such Lender shall cease to be a party hereto) but shall continue
to be entitled to the benefits of Sections 5.4., 13.2. and 13.9. and the other provisions of this
Agreement and the other Loan Documents as provided in Section 13.10. with respect to facts and
circumstances occurring prior to the effective date of such assignment. Any
assignment or transfer by a Lender of rights or obligations under this
Agreement that does not comply with this paragraph shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with the immediately following
subsection (d).

(c)           Register. The
Agent, acting solely for this purpose as an agent of the Borrower, shall
maintain at the Principal Office a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses
of the Lenders, and the

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Commitments of,
and principal amounts of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”). The entries in the Register shall be
conclusive, and the Borrowers, the Agent and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower and
any Lender, at any reasonable time and from time to time upon reasonable prior
notice.

(d)           Participations.
Any Lender may at any time, without the consent of, or notice to, the Borrowers
or the Agent, sell participations to any Person (other than a natural person or
the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”)
in all or a portion of such Lender’s rights and/or obligations under this
Agreement (including all or a portion of its Commitment and/or the Loans owing
to it); provided that (i) such Lender’s obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible
to the other parties hereto for the performance of such obligations and
(iii) the Borrowers, the Agent and the Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender’s rights
and obligations under this Agreement. Any agreement or instrument pursuant to
which a Lender sells such a participation shall provide that such Lender shall
retain the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any  provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver of any provision of any Loan Document
described in the second sentence of Section 13.6. that adversely affects
such Participant. Subject to the immediately following subsection (e), the
Borrowers agree that each Participant shall be entitled to the benefits of
Sections 3.12., 5.1., 5.4. to the same extent as if it were
a Lender and had acquired its interest by assignment pursuant to paragraph (b)
of this Section. To the extent permitted by Applicable Law, each Participant
also shall be entitled to the benefits of Section 13.3. as though it were a Lender, provided such Participant agrees
to be subject to Section 3.3.
as though it were a Lender. Upon request from the Agent, a Lender shall notify
the Agent and the Borrower of the sale of any participation hereunder.

(e)           Limitations upon
Participant Rights. A Participant shall not be entitled to receive any
greater payment under Sections 3.12.
and 5.1. than the applicable
Lender would have been entitled to receive with respect to the participation
sold to such Participant, unless the sale of the participation to such
Participant is made with the Borrower’s prior written consent. A Participant
that would be a Foreign Lender if it were a Lender shall not be entitled to the
benefits of Section 3.12.
unless the Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Borrowers and the Agent, to
comply with Section 3.12.(c)
as though it were a Lender.

(f)            Certain Pledges.
Any Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of such
Lender, including any pledge or assignment to secure obligations to a Federal
Reserve Bank; provided that no such pledge or assignment shall release such
Lender from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto.

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(g)           No Registration.
Each Lender agrees that, without the prior written consent of the Borrower and
the Agent, it will not make any assignment hereunder in any manner or under any
circumstances that would require registration or qualification of, or filings
in respect of, any Loan or Note under the Securities Act or any other
securities laws of the United States of America or of any other jurisdiction.

Section 13.6. Amendments.

(a)           Except as otherwise
expressly provided in this Agreement, any consent or approval required or
permitted by this Agreement or any other Loan Document to be given by the
Lenders may be given, and any term of this Agreement or of any other Loan
Document may be amended, and the performance or observance by the Borrower or
any other Loan Party or any Subsidiary of any terms of this Agreement or such
other Loan Document or the continuance of any Default or Event of Default may
be waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written consent of the
Requisite Lenders (and, in the case of an amendment to any Loan Document, the
written consent of each Loan Party a party thereto).

(b)           Notwithstanding the
foregoing, without the prior written consent of each Lender adversely affected
thereby, no amendment, waiver or consent shall do any of the following:

(i)            increase the
Commitments of the Lenders (except for any increase in the Commitments
effectuated pursuant to Section 2.14.) or
subject the Lenders to any additional obligations;

(ii)           reduce the principal
of, or interest that has accrued or the rates of interest that will be charged
on the outstanding principal amount of, any Loans or other Obligations;

(iii)          reduce the amount of any
Fees payable hereunder or postpone any date fixed for payment thereof;

(iv)          modify the definition of
the term “Termination Date” or otherwise postpone any date fixed for any
payment of any principal of, or interest on, any Loans or any other Obligations
(including the waiver of any Default or Event of Default as a result of the
nonpayment of any such Obligations as and when due), or extend the expiration
date of any Letter of Credit beyond the Termination Date;

(v)           amend or otherwise
modify the provisions of Section 3.2.;

(vi)          modify the definition of
the term “Requisite Lenders” or otherwise modify in any other manner the number
or percentage of the Lenders required to make any determinations or waive any
rights hereunder or to modify any provision hereof, including without
limitation, any modification of this Section 13.6. if such modification would
have such effect;

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(vii)         release any Guarantor
from its obligations under the Guaranty (except as otherwise permitted under
Section 8.11.(b) or in connection with the release of a Collateral
Property as permitted in Section 4.3.);

(viii)        release any of the
Collateral from the Lien of the Security Documents (except as otherwise
permitted under Section 8.11.(c) or in connection with the release of a
Collateral Property as permitted in Section 4.3.); or

(ix)           amend or otherwise
modify the provisions of Section 2.13.

(c)           No amendment, waiver or
consent, unless in writing and signed by the Agent, in such capacity, in
addition to the Lenders required hereinabove to take such action, shall affect
the rights or duties of the Agent under this Agreement or any of the other Loan
Documents. Any amendment, waiver or consent relating to Section 2.2. or
the obligations of the Swingline Lender under this Agreement or any other Loan
Document shall, in addition to the Lenders required hereinabove to take such
action, require the written consent of the Swingline Lender.

(d)           No waiver shall extend
to or affect any obligation not expressly waived or impair any right consequent
thereon and any amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose set forth therein. Except as
otherwise provided in Section 12.5., no course of dealing or delay or
omission on the part of the Agent or any Lender in exercising any right shall
operate as a waiver thereof or otherwise be prejudicial thereto. Any Event of Default occurring hereunder shall
continue to exist until such time as such Event of Default is waived in writing
in accordance with the terms of this Section, notwithstanding any attempted
cure or other action by the Borrower, any other Loan Party or any other Person
subsequent to the occurrence of such Event of Default. Except as
otherwise explicitly provided for herein or in any other Loan Document, no
notice to or demand upon the Borrower shall entitle the Borrower to any other
or further notice or demand in similar or other circumstances.

Section 13.7. Nonliability of Agent and
Lenders.

The
relationship between the Borrowers, on the one hand, and the Lenders and the
Agent, on the other hand, shall be solely that of borrower and lender. Neither
the Agent nor any Lender shall have any fiduciary responsibilities to the
Borrower or any other Loan Party and no provision in this Agreement or in any
of the other Loan Documents, and no course of dealing between or among any of
the parties hereto, shall be deemed to create any fiduciary duty owing by the
Agent or any Lender to any Lender, the Borrower, any Subsidiary or any other
Loan Party. Neither the Agent nor any Lender undertakes any responsibility to
the Borrowers to review or inform the Borrowers of any matter in connection
with any phase of the Borrowers’ business or operations.

Section 13.8. Confidentiality.

The Agent and each Lender shall use reasonable efforts
to assure that information about Holdings, the Borrower, the other Loan Parties
and the other Subsidiaries, and the Properties thereof and their operations,
affairs and financial condition, not generally disclosed to the public, which
is furnished to the Agent or any Lender pursuant to the provisions of this
Agreement or

 105
 

 

any other Loan Document, is used only for the purposes
of this Agreement and the other Loan Documents and shall not be divulged to any
Person other than the Agent, the Lenders, and their respective agents who are
actively and directly participating in the evaluation, administration or
enforcement of the Loan Documents and other transactions between the Agent or
such Lender, as applicable, and the Holdings or Borrower, as applicable, but in
any event the Agent and the Lenders may make disclosure: (a) to any of
their respective affiliates (provided they shall agree to keep such information
confidential in accordance with the terms of this Section 13.8.); (b) as
reasonably requested by any potential or actual Assignee, Participant or other
transferee in connection with the contemplated transfer of any Commitment or
participations therein as permitted hereunder (provided they shall agree to
keep such information confidential in accordance with the terms of this
Section); (c) as required or requested by any Governmental Authority or
representative thereof or pursuant to legal process or in connection with any
legal proceedings or as otherwise required by Applicable Law; (d) to the
Agent’s or such Lender’s independent auditors and other professional advisors
(provided they shall be notified of the confidential nature of the
information); (e) after the happening and during the continuance of an
Event of Default, to any other Person, in connection with the exercise by the
Agent or the Lenders of rights hereunder or under any of the other Loan
Documents; (f) upon the prior consent (which consent shall not be unreasonably
withheld) of Holdings or the Borrower, as applicable, to any contractual
counter-parties to any swap or similar hedging agreement or to any rating
agency; and (g) to the extent such information (x) becomes publicly
available other than as a result of a breach of this Section actually known to
such Lender to be such a breach or (y) becomes available to the Agent or any
Lender on a nonconfidential basis from a source other than the Borrower or any
Affiliate. Notwithstanding the foregoing, the Agent and each Lender may
disclose any such confidential information, without notice to the Borrower or
any other Loan Party, to Governmental Authorities in connection with any
regulatory examination of the Agent or such Lender or in accordance with the
regulatory compliance policy of the Agent or such Lender.

Section 13.9. Indemnification.

(a)           The Borrower shall and
hereby agrees to indemnify, defend and hold harmless the Agent, each of the
Lenders, any affiliate of the Agent or any Lender, and their respective
directors, officers, shareholders, agents, employees and counsel (each referred
to herein as an “Indemnified Party”) to the fullest extent permitted by law,
from and against any and all of the following (collectively, the “Indemnified
Costs”):  losses, costs, claims, damages,
liabilities, deficiencies, judgments or reasonable expenses of every kind and
nature (including, without limitation, amounts paid in settlement, court costs
and the reasonable fees and disbursements of counsel incurred in connection
with any litigation, investigation, claim or proceeding or any advice rendered
in connection therewith, but excluding losses, costs, claims, damages,
liabilities, deficiencies, judgments or expenses indemnification in respect of
which is specifically covered by Section 3.12. or 5.1. or expressly
excluded from the coverage of such Section 3.12. or 5.1.) incurred by an
Indemnified Party in connection with, arising out of, or by reason of, any
suit, cause of action, claim, arbitration, investigation or settlement, consent
decree or other proceeding (the foregoing referred to herein as an “Indemnity
Proceeding”) which is in any way related directly or indirectly to:
(i) this Agreement or any other Loan Document or the transactions
contemplated thereby; (ii) the making of any Loans or issuance of Letters
of Credit hereunder; (iii) any actual or proposed use by the Borrowers of
the proceeds of the Loans or Letters of

 106
 

 

Credit; (iv) the
Agent’s or any Lender’s entering into this Agreement; (v) the fact that
the Agent and the Lenders have established the credit facility evidenced hereby
in favor of the Borrowers; (vi) the fact that the Agent and the Lenders
are creditors of the Borrowers and have or are alleged to have information
regarding the financial condition, strategic plans or business operations of
the Borrower and the Subsidiaries; (vii) the fact that the Agent and the
Lenders are material creditors of the Borrowers and are alleged to influence
directly or indirectly the business decisions or affairs of the Borrower and
the Subsidiaries or their financial condition; (viii) the exercise of any
right or remedy the Agent or the Lenders may have under this Agreement or the
other Loan Documents; (ix) any civil penalty or fine assessed by the OFAC
against, and all reasonable costs and expenses (including counsel fees and
disbursements) incurred in connection with defense thereof by, the Agent or any
Lender as a result of conduct of the Borrower, any other Loan Party or any
Subsidiary that violates a sanction enforced by the OFAC; or (x) any
violation or non-compliance by the Borrower or any Subsidiary of any Applicable
Law (including any Environmental Law) including, but not limited to, any
Indemnity Proceeding commenced by (A) the Internal Revenue Service or
state taxing authority or (B) any Governmental Authority or other Person
under any Environmental Law, including any Indemnity Proceeding commenced by a
Governmental Authority or other Person seeking remedial or other action to
cause the Borrower or its Subsidiaries (or its respective properties) (or the
Agent and/or the Lenders as successors to the Borrower) to be in compliance
with such Environmental Laws; provided, however, that the Borrower shall not be
obligated to indemnify any Indemnified Party for (A) any acts or omissions
of such Indemnified Party in connection with matters described in this
subsection to the extent arising from the gross negligence or willful
misconduct of such Indemnified Party, as determined by a court of competent
jurisdiction in a final, non-appealable judgment or (B) Indemnified Costs
to the extent arising directly out of or resulting directly from claims of one
or more Indemnified Parties against another Indemnified Party.

(b)           The Borrower’s
indemnification obligations under this Section 13.9. shall apply to all
Indemnity Proceedings arising out of, or related to, the foregoing whether or
not an Indemnified Party is a named party in such Indemnity Proceeding. In this
regard, this indemnification shall cover all Indemnified Costs of any
Indemnified Party in connection with any deposition of any Indemnified Party or
compliance with any subpoena (including any subpoena requesting the production
of documents). This indemnification shall, among other things, apply to any
Indemnity Proceeding commenced by other creditors of the Borrower or any
Subsidiary, any shareholder of the Borrower or any Subsidiary (whether such
shareholder(s) are prosecuting such Indemnity Proceeding in their individual
capacity or derivatively on behalf of the Borrower), any account debtor of the
Borrower or any Subsidiary or by any Governmental Authority. If indemnification
is to be sought hereunder by an Indemnified Party, then such Indemnified Party
shall notify the Borrower of the commencement of any Indemnity Proceeding;
provided, however, that the failure to so notify the Borrower shall not relieve
the Borrower from any liability that it may have to such Indemnified Party
pursuant to this Section 13.9.

(c)           This indemnification
shall apply to any Indemnity Proceeding arising during the pendency of any
bankruptcy proceeding filed by or against the Borrower and/or any Subsidiary.

(d)           All out-of-pocket fees
and expenses of, and all amounts paid to third-persons by, an Indemnified Party
shall be advanced by the Borrower at the request of such Indemnified Party

 107
 

 

notwithstanding
any claim or assertion by the Borrower that such Indemnified Party is not
entitled to indemnification hereunder, upon receipt of an undertaking by such
Indemnified Party that such Indemnified Party will reimburse the Borrower if it
is actually and finally determined by a court of competent jurisdiction that
such Indemnified Party is not so entitled to indemnification hereunder.

(e)           An Indemnified Party
may conduct its own investigation and defense of, and may formulate its own
strategy with respect to, any Indemnity Proceeding covered by this Section and,
as provided above, all Indemnified Costs incurred by such Indemnified Party
shall be reimbursed by the Borrower. No action taken by legal counsel chosen by
an Indemnified Party in investigating or defending against any such Indemnity
Proceeding shall vitiate or in any way impair the obligations and duties of the
Borrower hereunder to indemnify and hold harmless each such Indemnified Party;
provided, however, that if (i) the Borrower is required to indemnify an
Indemnified Party pursuant hereto and (ii) the Borrower has provided
evidence reasonably satisfactory to such Indemnified Party that the Borrower
has the financial wherewithal to reimburse such Indemnified Party for any
amount paid by such Indemnified Party with respect to such Indemnity
Proceeding, such Indemnified Party shall not settle or compromise any such
Indemnity Proceeding without the prior written consent of the Borrower (which
consent shall not be unreasonably withheld or delayed). Notwithstanding the
foregoing, an Indemnified Party may settle or compromise any such Indemnity
Proceeding without the prior written consent of the Borrower where (x) no
monetary relief is sought against such Indemnified Party in such Indemnity
Proceeding or (y) there is an allegation of a violation of law by such
Indemnified Party.

(f)            If and to the extent
that the obligations of the Borrower under this Section are unenforceable for
any reason, the Borrower hereby agrees to make the maximum contribution to the
payment and satisfaction of such obligations which is permissible under Applicable
Law.

(g)           The Borrower’s
obligations under this Section shall survive any termination of this Agreement
and the other Loan Documents and the payment in full in cash of the
Obligations, and are in addition to, and not in substitution of, any other of
their obligations set forth in this Agreement or any other Loan Document to
which it is a party.

Section 13.10. Termination; Survival.

At
such time as (a) all of the Commitments have been terminated, (b) all
Letters of Credit have terminated or expired, (c) none of the Lenders nor
the Swingline Lender is obligated any longer under this Agreement to make any
Loans and (d) all Obligations (other than obligations which survive as
provided in the following sentence) have been paid and satisfied in full, this Agreement
shall terminate. The indemnities to which the Agent, the Lenders and the
Swingline Lender are entitled under the provisions of Sections 3.12.,
5.1., 5.4., 12.8., 13.2. and 13.9. and any other provision of this Agreement
and the other Loan Documents, and the provisions of Section 13.4., shall
continue in full force and effect and shall protect the Agent, the Lenders and
the Swingline Lender (i) notwithstanding any termination of this
Agreement, or of the other Loan Documents, against events arising after such
termination as well as before and (ii) at all times after any such party
ceases to be a party to this Agreement with respect to all matters and events
existing on or prior to the date such party ceased to be a party to this
Agreement. The

 108
 

 

Agent agrees to
furnish to the Borrower, upon the Borrower’s request and at the Borrower’s sole
cost and expense, any release, termination, or other agreement or document
evidencing the foregoing termination and the release of the Liens created under
any of the Security Documents as may be reasonably requested by the Borrower.

Section 13.11. Severability of
Provisions.

Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions or affecting the validity or
enforceability of such provision in any other jurisdiction.

Section 13.12. GOVERNING LAW.

THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN
SUCH STATE.

Section 13.13. Patriot Act.

The
Lenders and the Agent each hereby notifies the Borrowers that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)), it is required to obtain, verify and record information
that identifies the Borrower and the other Loan Parties, which information
includes the name and address of the Borrower and the other Loan Parties and
other information that will allow such Lender or the Agent, as applicable, to
identify the Borrower and the other Loan Parties in accordance with such Act.

Section 13.14. Counterparts.

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.

Section 13.15. Obligations with Respect
to Loan Parties.

The
obligations of the Borrower to direct or prohibit the taking of certain actions
by the other Loan Parties as specified herein shall be absolute and not subject
to any defense the Borrower may have that the Borrower does not control such
Loan Parties.

Section 13.16. Limitation of Liability.

Neither
the Agent nor any Lender, nor any affiliate, officer, director, employee,
attorney, or agent of the Agent or any Lender shall have any liability with
respect to, and each of Holdings and the Borrower hereby waives, releases, and
agrees not to sue any of them upon, any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by Holdings or the
Borrower in connection with, arising out of, or in any way related to, this
Agreement or any

 109
 

 

of the other Loan
Documents, or any of the transactions contemplated by this Agreement or any of
the other Loan Documents. Each of Holdings and the Borrower hereby waives,
releases, and agrees not to sue the Agent or any Lender or any of the Agent’s
or any Lender’s affiliates, officers, directors, employees, attorneys, or
agents for punitive damages in respect of any claim in connection with, arising
out of, or in any way related to, this Agreement or any of the other Loan
Documents, or any of the transactions contemplated by this Agreement or
financed hereby.

Section 13.17. Entire Agreement.

This
Agreement 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 thereof 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.

Section 13.18. Construction.

The Agent, each Lender, the Borrowers and Holdings
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 the Agent,
each Lender, the Borrowers and Holdings.

[Signatures on Following Pages]

 110
 

 

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

	
   

  	
  MORGANS HOTEL GROUP CO.

  
	
   

  	
   

  
	
   

  	
  MORGANS GROUP
  LLC

  
	
   

  	
    By:
  Morgans Hotel Group Co., its Managing Member

  
	
   

  	
   

  
	
   

  	
  BEACH HOTEL
  ASSOCIATES, LLC

  
	
   

  	
    By:
  Morgans Group, LLC, its Managing Member

  
	
   

  	
      By:
  Morgans Hotel Group Co., its Managing Member

  
	
   

  	
   

  
	
   

  	
  /s/ Marc
  S.Gordon

  	
   

  
	
   

  	
  Name:

  	
  Marc S. Gordon

  
	
   

  	
  Title:

  	
  Authorized Signatory

  
				

 

[Signatures Continued on Next Page]

 111
 

 

[Signature Page to Credit Agreement with Morgans
Group LLC]

	
   

  	
  WACHOVIA BANK, NATIONAL
  ASSOCIATION, as

  Agent, as a Lender and as Swingline Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dean
  R.Whitehill

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Dean R.Whitehill

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  Commitment
  Amount:

  
	
   

  	
   

  
	
   

  	
  $112,500,000

  
	
   

  	
   

  
	
   

  	
  Lending
  Office (all Types of Loans):

  
	
   

  	
   

  
	
   

  	
  Wachovia Bank,
  National Association

  
	
   

  	
  301 South
  College Street, NC0172

  
	
   

  	
  Charlotte, North
  Carolina 28288

  
	
   

  	
  Attn: David M.
  Blackman

  
	
   

  	
  Telephone:

  	
  (704) 374-6272

  
	
   

  	
  Telecopy:

  	
  (704) 383-6205

  
							

 

[Signatures
Continued on Next Page]

 112
 

 

[Signature Page to Credit Agreement with Morgans
Group LLC]

	
  

  	
  CITICORP NORTH AMERICA, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Niraj Shah

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Niraj Shah

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  Commitment
  Amount:

  
	
   

  	
   

  
	
   

  	
  $112,500,000

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending
  Office (all Types of Loans):

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Attn:

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  (

  	
   

  	
  )

  	
   

  	
   

  
	
   

  	
  Telecopy:

  	
  (

  	
   

  	
  )

  	
   

  	
   

  
													

 

 113<PAGE>

                                                                   EXHIBIT 10.7

                                                         [Senior Vice President
                                                               Split Bonus]

                              EMPLOYMENT AGREEMENT

         EMPLOYMENT AGREEMENT dated September 12, 2005 between PALL CORPORATION,
a New York corporation (the "Company") and Roberto Perez ("Executive").

         In consideration of the mutual agreements hereinafter set forth, the
parties hereto agree as follows:

SS 1. EMPLOYMENT AND TERM

         The Company hereby employs Executive, and Executive hereby agrees to
serve, as an executive employee of the Company with the duties set forth in
ss.2, for a term (hereafter called The "Term of Employment") beginning September
12, 2005 (the "Term Commencement Date") and ending, unless sooner terminated
under ss.4, on the effective date specified in a notice of termination given by
either party to the other except that such effective date shall not be earlier
than the second anniversary of the date on which such notice is given.

SS 2. DUTIES

         (a) Executive agrees that during the Term of Employment he will hold
such offices or positions with the Company, and perform such duties and
assignments relating to the business of the Company, as the Chief Executive
Officer of the Company shall direct except that Executive shall not be required
to hold any office or position or to perform any duties or assignment
inconsistent with his experience and qualifications.

         (b) If the Chief Executive Officer of the Company so directs, Executive
shall serve as an officer of one or more subsidiaries of the Company (provided
that the duties of such office are not inconsistent with Executive's experience
and qualifications) and part or all of the compensation to which Executive is
entitled hereunder may be paid by such subsidiary or subsidiaries. However, such
employment and/or payment of Executive by a subsidiary or subsidiaries shall not
relieve the Company from any of its obligations under this Agreement except to
the extent of payments actually made to Executive by a subsidiary.

         (c) During the Term of Employment Executive shall, except during
customary vacation periods and periods of illness, devote substantially all of
his business time and attention to the performance of his duties hereunder and
to the business and affairs of the Company and its subsidiaries and to promoting
the best interests of the Company and its subsidiaries and he shall not, either
during or outside of such normal business hours, engage in any activity inimical
to such best interests.

<PAGE>

SS 3. COMPENSATION DURING TERM OF EMPLOYMENT

         (a) Base Salary. With respect to the period beginning on the Term
Commencement Date and ending on the 31st day of July next following the Term
Commencement Date, the Company shall pay Executive a Base Salary (in addition to
the compensation provided for elsewhere in this Agreement) at the rate of
$318,000 per annum (hereinafter called the "original Base Salary"). With respect
to each Contract Year beginning with the Contract Year which starts on the first
day of August next following the Term Commencement Date, the Company shall pay
Executive a Base Salary at such rate as the Chief Executive Officer may
determine but not less than the Original base Salary adjusted as follows: The
Term "Contract Year" as used herein means the period from August 1 of each year
through July 31 of the following year. The term "Consumer Price Index" as herein
used means the "Consumer Price Index for all Urban Consumers" compiled and
published by the Bureau of Labor Statistics of the United States Department of
Labor for "New York - Northern N.J. - Long Island, NY-NJ-CT-PA". For each
Contract Year during the Term of Employment beginning with the Contract Year
which starts on the first day of August next following the Term Commencement
Date, the minimum compensation payable to Executive under this ss.3(a)
(hereinafter called the "Minimum Base Salary") shall be determined by increasing
(or decreasing) the Original Base Salary by the percentage increase (or
decrease) of the Consumer Price Index for the month of June immediately
preceding the start of the Contract Year in question over (or below) the
Consumer Price Index for the month of June next preceding the Term Commencement
Date. [To illustrate the operation of the foregoing provisions of the paragraph:
In an Employment Agreement as to which the Term Commencement Date was August 1,
2004, the executive's base salary for the Contract Year August 1, 2005 through
July 31, 2006 would be not less that the Original Base Salary under that
Employment Agreement adjusted by the percentage increase (or decrease) of the
Consumer price Index for June 2005 over (or below) said Index for June 2004].
Further adjustment in the Minimum Base Salary shall be made for each ensuing
Contract Year, in each case (i) using the Consumer Price Index for the month of
June next preceding the Term Commencement Date as the base except as provided in
the immediately following paragraph hereof and (ii) applying the percentage
increase (or decrease) in the Consumer Price Index since said base month to the
Original Base Salary to determine the Minimum Base Salary. The Base Salary shall
be paid in such periodic installments as the Company may determine but not less
often than monthly.

         If with respect to any Contract Year (including the Contract Year
beginning on the first day of August next following the Term Commencement Date)
the Chief Executive Officer fixes the Base Salary at an amount higher than the
Minimum Base Salary, then (unless the order fixing such higher Base Salary
provides otherwise), for the purpose of determining the Minimum Base Salary for
subsequent Contract Years: (i) the amount of the higher Base Salary so fixed
shall be deemed substituted for the Original Base Salary wherever the Original
Base Salary is referred to in the immediately preceding paragraph hereof, and
(ii) the base month for determining the Consumer Price Index adjustment shall be
June of the calendar year in which the Contract Year to which such higher Base
Salary is applicable begins. [To illustrate the operation of the foregoing
provisions of this paragraph: If the Chief Executive Officer were to fix a Base
Salary for a Contract Year beginning, say, August 1, 2006 which is higher than
the Minimum Base Salary for the Contract Year, then June 2006 would become the
base month for the purpose of making the Consumer Price Index adjustment to
determine the Minimum Base Salary for subsequent Contract Years unless and until
the Chief Executive Officer were to fix a Base Salary higher than the Minimum
Base Salary for a subsequent Contract Year.]

                                       2
<PAGE>

         (b) Bonus Compensation.

                  (i) Plan Bonus. With respect to each Fiscal Year of the
         Company falling in whole or in part within the Term of Employment
         beginning with the Fiscal Year ending on the Saturday nearest to the
         31st day of the month of July next following the Term Commencement
         Date, Executive shall be entitled to receive a Bonus pursuant to this
         Agreement in an amount determined in accordance with, and subject to
         all of the terms of, the Pall Corporation Executive Incentive Bonus
         Plan adopted by the Compensation Committee of the Board of Directors of
         the Company on October 16, 2003, approved by shareholders at the annual
         meeting of shareholders on November 19, 2003, effective for the Fiscal
         Year beginning August 3, 2003, a copy of which is annexed hereto and
         incorporated herein by reference (the "Bonus Plan"). Words and terms
         used herein with initial capital letters and not defined herein are
         used herein as defined in the Bonus Plan. For purposes of determining
         the amount of the Bonus payable to Executive for any Fiscal Year under
         the Bonus Plan (the "Plan Bonus"), Executive's Target Bonus Percentage
         shall be 42% of his Base Salary for such Fiscal Year.

                  (ii) Business Segment Bonus. Inasmuch as Executive's services
         for the company relate primarily to the operations of a subsidiary, a
         division or other segment of the overall operations of the Company and
         its subsidiaries (a "Business Segment"), Executive shall be considered
         for additional bonus compensation for each fiscal year based on the
         results of operations of such Business Segment for such fiscal year.
         The amount of such additional bonus compensation, if any, shall be
         determined by the Chief Executive Officer in his sole discretion but in
         no event shall such additional bonus compensation exceed 63% of
         Executive's Base Salary.

                  (iii) Payment of Bonus Compensation. Executive's Bonus
         Compensation (which term as used herein includes both the Plan Bonus
         and the Business Segment Bonus, if any) shall be paid in accordance
         with ss.5 of the Bonus Plan. With respect to any Fiscal Year which
         falls in part but not in whole within the Term of Employment, the pro
         rata portion of the Bonus Compensation to which Executive is entitled
         under this ss.3(b) shall be determined in accordance with ss.3(c) of
         the Bonus Plan.

         (c) Fringe Benefits and Perquisites. During the Term of Employment,
Executive shall enjoy the customary perquisites of office, including, but not
limited to, office space and furnishings, secretarial services, expense
reimbursements and any similar emoluments customarily afforded to senior
executive officers of the Company at the same level as Executive. Executive
shall also be entitled to receive or participate in all "fringe benefits" and
employee benefit plans provided or made available by the Company to its
executives or management personnel generally (such as, but not limited to, group
hospitalization, medical, life and disability insurance, and pension,
retirement, profit-sharing and stock option or purchase plans), at such time and
on such terms and conditions as each such plan provides.

         (d) Vacations. Executive shall be entitled each year to a vacation or
vacations in accordance with the policies of the Company as determined by the
Board or by an authorized senior officer of the Company from time to time. The
Company shall not pay Executive any additional compensation for any vacation
time not used by executive.

                                       3
<PAGE>

SS 4. TERMINATION BY REASON OF DISABILITY, DEATH, RETIREMENT OR CHANGE IN
CONTROL

         (a) Disability or Death. If, during the Term of Employment, Executive,
by reason of physical or mental disability, is incapable of performing his
principal duties hereunder for an aggregate of 130 working days out of any
period of twelve consecutive months, the Company at its option may terminate the
Term of Employment effective immediately by notice to Executive given within 90
days after the end of such twelve-month period. If Executive shall die during
the Term of Employment or if the Company terminates the Term of Employment
pursuant to the immediately preceding sentence by reason of Executive's
disability, the Company shall pay to Executive, or to Executive's legal
representatives, or in accordance with a direction given by Executive to the
Company in writing, the following: (i) Executive's Base Salary to the end of the
month in which such death or termination for disability occurs and Executive's
Bonus Compensation prorated to said last day of the month and (ii) for each
month in the period from the end of the month in which such death or termination
for disability occurs until the earlier of (x) the first anniversary of the date
of death or termination and (y) the date on which the Term of Employment would
have ended but for such death or termination for disability, monthly payments of
(I) an amount equal to 1/12th of one-half of the annual Base Salary in effect
for Executive immediately prior to the date on which Executive's death or
termination for disability occurs plus (II) an amount equal to 1/12th of
one-half of the maximum Bonus Compensation that Executive could receive with
respect to each of such months based on (A) the Target Bonus Percentage
specified in ss.3(b)(i) of this Agreement (as amended to the date on which
Executive's death or disability occurs) and (B) the maximum percentage of Base
Salary specified in ss.3(b)(ii) of this Agreement (as so amended).

         (b) Retirement. (i) The Term of Employment shall end automatically,
without action by either party, on Executive's 65th birthday unless, prior to
such birthday, Executive and the Company have agreed in writing that the Term of
Employment shall continue past such 65th birthday. In that event, unless the
parties have agreed otherwise, the Term of Employment shall be automatically
renewed and extended each year, as of Executive's birthday, for an additional
one-year term, unless either party has given a Non-Renewal Notice. A Non-Renewal
Notice shall be effective as of Executive's ensuing birthday only if given not
less than 60 days before such birthday, and shall state that the party giving
such notice elects that this Agreement shall not automatically renew itself
further, with the result that the Term of Employment shall end on Executive's
ensuing birthday. (ii) If the Term of Employment ends pursuant to this paragraph
by reason of a notice given by either party as herein permitted or automatically
at age 65 or any subsequent birthday, the Company shall pay to Executive, or to
another payee specified by Executive to the company in writing, Executive's Base
Salary and Bonus Compensation prorated to the date on which the Term of
Employment ends, (iii) Anything hereinabove to the contrary notwithstanding, if
any provision of this paragraph violates federal or applicable state law
relating to discrimination on account of age, such provision shall be deemed
modified or suspended to the extent necessary to eliminate such violation of
law. If at a later date, by reason of changed circumstances or otherwise, the
enforcement of such provision as set forth herein would no longer constitute a
violation of law, then it shall be enforced in accordance with its terms as set
forth herein.

                                       4
<PAGE>

         (c) Change in Control. In the event of a Change in Control (as defined
in the Bonus Plan), Executive shall have the right to terminate the Term of
Employment, by notice to the Company given at any time after such Change in
Control, effective on the date specified in such notice, which date shall not be
more than (but can be less than) one year after the giving of such notice.

SS 5. COVENANT NOT TO COMPETE

         For a period of eighteen months after the end of the Term of Employment
if the Term of Employment is terminated by notice to the Company given by
Executive under ss.1 or ss.4 hereof, or for a period of twelve months after the
end of the Term of Employment if the Term of Employment is terminated by notice
to Executive given by the Company under ss.1 or ss.4 hereof or terminates under
ss.4 by reason of Executive attaining the age of 65, Executive shall not render
services to any corporation, individual or other entity engaged in any activity,
or himself engage directly or indirectly in any activity, which is competitive
to any material extent with the business of the Company or any of its
subsidiaries, provided, however, that if the Company terminates under ss.1
following a Change in Control (as defined in ss.4(c)), the foregoing covenant
not to compete shall not apply.

SS 6. COMPANY'S RIGHT TO INJUNCTIVE RELIEF

         Executive acknowledges that his services to the Company are of a unique
character, which gives them a peculiar value to the Company, the loss of which
cannot be reasonably or adequately compensated in damages in an action at law,
and that therefore, in addition to any other remedy which the Company may have
at law or in equity, the company shall be entitled to injunctive relief for a
breach of this agreement by Executive.

SS 7. INVENTIONS AND PATENTS

         All inventions, ideas, concepts, processes, discoveries, improvements
and trademarks (hereinafter collectively referred to as intangible rights),
whether patentable or registrable or not, which are conceived, made, invented or
suggested either by Executive alone or by Executive in collaboration with others
during the Term of Employment, and whether or not during regular working hours,
shall be disclosed to the Company and shall be the sole and exclusive property
of the Company. If the Company deems that any of such intangible rights are
patentable or otherwise registrable under any federal, state or foreign law,
Executive, at the expense of the Company, shall execute all documents and do all
things necessary or proper to obtain patents and/or registrations and to vest
the Company with full title thereto.

SS 8. TRADE SECRETS AND CONFIDENTIAL INFORMATION

         Executive shall not, either directly or indirectly, except as required
in the course of his employment by the Company, disclose or use at any time,
whether during or subsequent to the Term of Employment, any information of a
proprietary nature owned by the Company, including but not limited to, records,
data, formulae, documents, specifications, inventions, processes, methods and
intangible rights which are acquired by him in the performance of his duties for
the Company and which are of a confidential information or trade-secret nature.
All records, files, drawings, documents, equipment and the like, relating to the
Company's business, which Executive shall prepare, use, construct or observe,
shall be and remain the Company's sole property. Upon the termination of his
employment or at any time prior thereto upon request by the Company, Executive
shall return to the possession of the Company any materials or copies thereof
involving any confidential information or trade secrets and shall not take any
material or copies thereof from the possession of the Company.

                                       5
<PAGE>

SS 9. MERGERS AND CONSOLIDATIONS; ASSIGNABILITY

         In the event that the Company, or any entity resulting from any merger
or consolidation referred to in this ss.9 or which shall be a purchaser or
transferee so referred to, shall at any time be merged or consolidated into or
with any other entity or entities, or in the event that substantially all of the
assets of the Company or any such entity shall be sold or otherwise transferred
to another entity, the provisions of this Agreement shall be binding upon and
shall inure to the benefit of the continuing entity in or the entity resulting
from such merger or consolidation or the entity to which such assets shall be
sold or transferred. Except as provided in the immediately preceding sentence of
this ss.9, this Agreement shall not be assignable by the Company or by any
entity referred to in such immediately preceding sentence. This Agreement shall
not be assignable by Executive, but in the event of his death it shall be
binding upon and inure to the benefit of his legal representatives to the extent
required to the benefit of his legal representatives to the extent required to
effectuate the terms hereof.

SS 10. CAPTIONS

         The captions in this Agreement are not part of the provisions hereof,
are merely for the purpose of reference and shall have no force or effect for
any purpose whatsoever, including the construction of the provisions of this
Agreement, and if any caption is inconsistent with any provisions of this
Agreement, said provisions shall govern.

SS 11. CHOICE OF LAW

         This Agreement is made in, and shall be governed by and construed in
accordance with the laws of, the State of New York.

SS 12. ENTIRE CONTRACT

         This instrument contains the entire agreement of the parties on the
subject matter hereof except that the rights of the Company hereunder shall be
deemed to be in addition to and not in substitution for its rights under the
Company's standard printed form of "Employee's Secrecy and Invention Agreement"
or "Employee Agreement" if heretofore or hereafter entered into between the
parties hereto so that the making of this Agreement shall not be construed as
depriving the Company of any of its rights or remedies under any such Secrecy
and Invention Agreement or Employee Agreement. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.

                                       6
<PAGE>

SS.13.     NOTICES

         All notices given hereunder shall be in writing and shall be sent by
registered or certified mail, overnight courier service such as Federal Express
or UPS Next Day Air or delivered by hand, and, if intended for the Company,
shall be addressed to it (if sent by mail) or delivered to it (if delivered by
hand) at its principal office for the attention of the corporate Secretary of
the Company, or at such other address and for the attention of such other person
of which the Company shall have given notice to Executive in the manner herein
provided, and, if intended for Executive, shall be delivered to him personally
or shall be addressed to him (if sent by mail or overnight courier service) at
his most recent residence address shown in the Company's employment records or
at such other address or to such designee of which Executive shall have given
notice to the Company in the manner herein provided. Each such notice shall be
deemed to be given on the date of mailing thereof or delivery to the overnight
courier service or, if delivered personally, on the date so delivered.

SS 14. TERMINATION OF EXISTING AGREEMENT

         With the exception of the letter dated November 24, 2004, signed by
Steve Haas and the Executive, which is annexed hereto, the terms of which letter
remain in full force and effect, and to the extent they provide benefits and
compensation above what is provided in this Agreement will supercede this
Agreement, any employment agreement between the parties hereto which is in
effect on the date hereof is hereby terminated and replaced and superseded by
this Agreement, effective on the Term Commencement Date. All payments, of Base
Salary or otherwise, made by the Company under any such existing agreement with
respect to any period commencing on or after the Term Commencement Date shall be
credited against the corresponding payment obligations of the Company under this
Agreement with respect to such period.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

                                     PALL CORPORATION

                                     By: /s/ ERIC KRASNOFF
                                             --------------------------------
                                             Name: Eric Krasnoff
                                             Title: Chief Executive Officer

                                     EXECUTIVE

                                     /s/ ROBERTO PEREZ
                                         ------------------------------------
                                         Roberto Perez

                                       7

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