-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P76DmStgrEQsRYpE5MsKnIJpdu0x6XeBUgdfyyxFks6Bu/EaQncV6VquzDnZZIQ2 8Sx3vyIjAbxf0SsYZFRwZw== 0001072613-01-500800.txt : 20010815 0001072613-01-500800.hdr.sgml : 20010815 ACCESSION NUMBER: 0001072613-01-500800 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTCOAST HOSPITALITY CORP CENTRAL INDEX KEY: 0001052595 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 911032187 STATE OF INCORPORATION: WA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13957 FILM NUMBER: 1708029 BUSINESS ADDRESS: STREET 1: 201 W NORTH RIVER DRIVE STREET 2: SUITE 100 CITY: SPOKANE STATE: WA ZIP: 99201 BUSINESS PHONE: 5094596100 FORMER COMPANY: FORMER CONFORMED NAME: CAVANAUGHS HOSPITALITY CORP DATE OF NAME CHANGE: 19980108 10-Q 1 form10q_10809.txt FORM 10-Q (FOR PERIOD ENDED 06/30/2001) ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR (15)d OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to ------------ ------------ Commission file number 001-13957 --------- WESTCOAST HOSPITALITY CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Washington 91-1032187 - ------------------------------ ---------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 201 W. North River Drive, Suite 100, Spokane, WA 99201 ------------------------------------------------------ (Address of principal executive office) (509) 459-6100 ---------------------------------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of July 31, 2001, there were 12,948,396 shares of the Registrant's common stock outstanding. ================================================================================ WESTCOAST HOSPITALITY CORPORATION Form 10-Q For the Quarter Ended June 30,2001 INDEX PART I - FINANCIAL INFORMATION Item 1 - Financial Statements: - Consolidated Balance Sheets -- June 30,2001 and December 31, 2000 3-4 - Consolidated Statements of Income -- Three and Six Months Ended June 30, 2001 and 2000 5-6 - Consolidated Statements of Cash Flows -- Six Months Ended June 30, 2001 and 2000 7-8 - Notes to Consolidated Financial Statements 9-13 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14-21 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of 22 Security Holders Item 6 - Exhibits and Reports on Form 8-K 22 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WESTCOAST HOSPITALITY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, 2001 and December 31, 2000 (in thousands, except share data)
June 30, December 31, 2001 2000 ---------- ---------- ASSETS - ------ Current assets: Cash and cash equivalents $ 2,934 $ 3,476 Accounts receivable 8,144 6,232 Income taxes refundable -- 5 Inventories 1,150 1,130 Prepaid expenses and deposits 1,959 733 ---------- ---------- Total current assets 14,187 11,576 Property and equipment, net 245,376 242,548 Intangible assets, net 28,469 28,897 Other assets, net 22,004 21,813 ---------- ---------- Total assets $ 310,036 $ 304,834 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 2,786 $ 3,432 Accrued payroll and related benefits 2,584 2,453 Income taxes payable 760 -- Accrued interest payable 921 708 Other accrued expenses 8,168 5,052 Long-term debt, due within one year 2,788 2,393 Capital lease obligations, due within one year 440 529 ---------- ---------- Total current liabilities 18,447 14,567 Long-term debt, due after one year 88,835 52,861 Notes payable to bank 64,800 106,500 Capital lease obligations, due after one year 447 657 Deferred income taxes 18,523 16,631 Minority interest in partnerships 2,971 2,881 ---------- ---------- Total liabilities 194,023 194,097 ---------- ----------
3 WESTCOAST HOSPITALITY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED), CONTINUED June 31, 2001 and December 31, 2000 (in thousands, except share data)
June 30, December 31, 2001 2000 ---------- ---------- Commitments and contingencies Stockholders' equity: Preferred stock - 5,000,000 shares authorized, $0.01 par value, -0- shares issued and outstanding $ -- $ -- Common stock - 50,000,000 shares authorized, $0.01 par value; 12,948,396 and 12,933,106 shares issued and outstanding 129 129 Additional paid-in capital 83,913 83,845 Retained earnings 31,971 26,763 ---------- ---------- Total stockholders' equity 116,013 110,737 ---------- ---------- Total liabilities and stockholders' equity $ 310,036 $ 304,834 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 4 WESTCOAST HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) for the three and six months ended June 30, 2001 and 2000 (in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenues: Hotels and Restaurants $ 27,373 $ 28,629 $ 50,317 $ 51,137 Franchise, Central Services and Development 795 831 1,463 1,727 TicketsWest 1,723 1,066 3,676 2,482 Real Estate Division 2,469 2,333 4,958 4,649 Corporate Services 58 172 156 244 ---------- ---------- ---------- ---------- 32,418 33,031 60,570 60,239 ---------- ---------- ---------- ---------- Operating expenses: Direct: Hotels and Restaurants 19,324 20,419 37,544 38,804 Franchise, Central Services and Development 416 311 754 559 TicketsWest 1,677 1,111 3,500 2,225 Real Estate Division 1,124 1,147 2,258 2,243 Corporate Services 45 91 84 135 Depreciation and amortization of tangible assets 2,535 2,400 5,028 4,744 Amortization of goodwill 214 219 428 433 ---------- ---------- ---------- ---------- Total direct expenses 25,335 25,698 49,596 49,143 Undistributed corporate expenses 588 579 1,172 1,178 ---------- ---------- ---------- ---------- Total expenses 25,923 26,277 50,768 50,321 ---------- ---------- ---------- ---------- Operating income 6,495 6,754 9,802 9,918 Other income (expense): Interest expense (2,994) (3,719) (6,351) (7,233) Interest income 60 77 142 129 Other income 3,787 9 4,808 13 Conversion expenses (3) (13) (5) (13) Equity in investments 18 15 27 22 Minority interest in partnerships (159) (60) (146) (2) ---------- ---------- ---------- ----------
5 WESTCOAST HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) for the three and six months ended June 30, 2001 and 2000 (in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Income before income taxes $ 7,204 $ 3,063 $ 8,277 $ 2,834 Income tax provision 2,649 1,124 3,046 1,042 ---------- ---------- ---------- ---------- Income before extraordinary item 4,555 1,939 5,231 1,792 Extraordinary item, net of taxes (23) -- (23) -- Net income $ 4,532 $ 1,939 $ 5,208 $ 1,792 ========== ========== ========== ========== Net income per share - basic and diluted $ 0.35 $ 0.15 $ 0.40 $ 0.14 ========== ========== ========== ========== Weighted-average common shares outstanding -- basic 12,948 12,946 12,947 12,939 ========== ========== ========== ========== Weighed-average common shares outstanding -- diluted 13,244 13,242 13,243 13,235 ========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 6 WESTCOAST HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) for the six months ended June 30, 2001 and 2000 (in thousands)
2001 2000 ---------- ---------- Operating activities: Net income $ 5,208 $ 1,792 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 5,456 5,177 Gain on disposition of property & equipment (1,027) 13 Gain on insurance settlement (3,782) -- Deferred income tax provision 1,892 -- Extraordinary item 9 -- Minority interest in partnerships 146 2 Equity in investments (27) (22) Compensation expense related to stock issuance 8 165 Change in: Accounts receivable (1,888) (912) Inventories (20) 51 Prepaid expenses and deposits (1,219) (567) Income taxes receivable/payable 926 (1,515) Accounts payable (646) (1,907) Accrued payroll and related benefits 131 (498) Accrued interest payable 52 117 Other accrued expenses 3,116 (2,078) ---------- ---------- Net cash provided by (used in)operating activities 8,335 (182) ---------- ---------- Investing activities: Additions to property and equipment (3,749) (4,341) Cash paid for acquisitions -- (133) Proceeds from disposition of property and equipment 1,338 -- Cash received from partnership investments 66 -- Other, net (353) 72 ---------- ---------- Net cash used in investing activities (2,698) (4,402) ---------- ---------- Financing activities: Distribution to minority interest holders (56) (8) Proceeds from note payable to bank -- 15,137 Repayment of note payable to bank (41,700) (3,400) Proceeds from long-term debt 47,550 -- Repayment of long-term debt (11,181) (8,520) Proceeds from issuance of common stock under employee stock purchase plan 60 88 Principal payments on capital lease obligations (299) (330) Additions to deferred financing costs (553) (367) ---------- ---------- Net cash provided by (used in) financing activities (6,179) 2,600 ---------- ----------
7 WESTCOAST HOSPITALITY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) for the six months ended June 30, 2001 and 2000 (in thousands)
2001 2000 ---------- ---------- Change in cash and cash equivalents: Net decrease in cash and cash equivalents $ (542) $ (1,984) Cash and cash equivalents at beginning of period 3,476 4,357 ---------- ---------- Cash and cash equivalents at end of period $ 2,934 $ 2,373 ========== ========== Supplemental disclosure of cash flow information: Noncash investing and financing activities: Acquisition of property through assumption of capital leases $ -- $ 87 Acquisition of property -- 277
The accompanying notes are an integral part of the consolidated financial statements. 8 WESTCOAST HOSPITALITY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. QUARTERLY INFORMATION: The unaudited consolidated financial statements included herein have been prepared by WestCoast Hospitality Corporation (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by such rules and regulations. The balance sheet as of December 31, 2000 has been compiled from the audited balance sheet as of such date. The Company believes that the disclosures included herein are adequate; however, these consolidated statements should be read in conjunction with the financial statements and the notes thereto for the year ended December 31, 2000 previously filed with the SEC on Form 10-K. In the opinion of management, these unaudited consolidated financial statements contain all of the adjustments (normal and recurring in nature) necessary to present fairly the consolidated financial position of the Company at June 30, 2001 and the consolidated results of operations for the three and six months ended June 30, 2001 and 2000 and cash flows for the six months ended June 30, 2001 and 2000. The results of operations for the periods presented may not be indicative of those which may be expected for a full year. 2. ORGANIZATION: As of June 30, 2001,the Company had ownership interests and operated 23 hotel properties, managed an additional 10 properties and franchised an additional 13 properties, totaling 46 hotels in 9 states, including Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Utah and Washington. Additionally, the Company provides computerized ticketing for entertainment events and arranges Broadway and other entertainment event productions. Also, during the second quarter of 1999, the Company launched TicketsWest, an Internet ticketing service offering consumers up-to-the-minute information on live entertainment and the ability to make real-time ticket purchases to events through the website. The Company owns and manages ticketing operations in Colorado, Idaho, Montana, Oregon and Washington. The Company also leases retail and office space in buildings owned by the Company and manages residential and commercial properties for others in Idaho, Montana and Washington. 9 WESTCOAST HOSPITALITY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 3. LONG-TERM DEBT AND LINE OF CREDIT: The Company obtained a $120 million revolving secured credit facility with a consortium of banks. In May 2001,in conjunction with refinancing a portion of the credit facility with long term debt, the Company lowered the total commitment to $90 million. The credit facility is collateralized by certain property and requires that the Company maintain certain financial ratios, minimum levels of cash flows and restricts the payment of dividends. Any outstanding borrowings bear interest based on the prime rate or LIBOR, plus 180 to 325 basis points depending on the total funded debt levels. The credit facility matures in May 2003. At June 30, 2001, $64.8 million is outstanding under the credit facility. The Company was in compliance with all required covenants at June 30, 2001. 4. BUSINESS SEGMENTS: The Company has four operating segments: (1) Hotels and Restaurants; (2) TicketsWest (entertainment and e-commerce); (3) Real Estate Division and (4) Franchise, Central Services and Development. Corporate Services and other consists primarily of miscellaneous revenues and expenses, cash and cash equivalents, certain receivables and certain property and equipment, which are not specifically associated with an operating segment. TicketsWest has significant inter-segment revenues, which are eliminated in the consolidated financial statements. Management reviews and evaluates the operations of TicketsWest including the inter-segment revenues. Therefore, the total revenues, including inter-segment revenues are included in the segment information below. Management reviews and evaluates the operating segments exclusive of interest expense. Therefore, interest expense is not allocated to the segments. Selected information with respect to the segments is as follows (in thousands): 10 WESTCOAST HOSPITALITY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. BUSINESS SEGMENTS, CONTINUED:
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Revenues: Hotels and Restaurants $ 27,373 $ 28,629 $ 50,317 $ 51,137 Franchise, Central Services and Development 795 831 1,463 1,727 TicketsWest 2,034 1,355 4,235 3,102 Less: inter-segment revenues (311) (289) (559) (620) Real Estate Division 2,469 2,333 4,958 4,649 Corporate Services and other 58 172 156 244 -------- -------- -------- -------- $ 32,418 $ 33,031 $ 60,570 $ 60,239 ======== ======== ======== ======== Operating income: Hotels and Restaurants $ 6,037 $ 6,324 $ 8,772 $ 8,560 Franchise, Central Services and Development 278 420 508 968 TicketsWest (61) (135) (36) 91 Real Estate Division 1,003 856 2,025 1,750 Corporate Services and other (762) (711) (1,467) (1,451) -------- -------- -------- -------- $ 6,495 $ 6,754 $ 9,802 $ 9,918 ======== ======== ======== ========
11 WESTCOAST HOSPITALITY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. EARNINGS PER SHARE: The following table presents a reconciliation of the numerators and denominators used in the basic and diluted EPS computations (in thousands, except per share amounts). Also shown is the number of stock options that would have been considered in the diluted EPS computation if they were not anti-dilutive.
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Numerator: Income before extraordinary item $ 4,555 $ 1,939 $ 5,231 $ 1,792 Extraordinary item (23) -- (23) -- -------- -------- -------- -------- Net income - basic 4,532 1,939 5,208 1,792 Income effect of dilutive OP Units 85 31 91 16 -------- -------- -------- -------- Net income - dilutive $ 4,617 $ 1,970 $ 5,299 $ 1,808 ======== ======== ======== ======== Denominator: Weighted-average shares outstanding - basic 12,948 12,946 12,947 12,939 Effect of dilutive common OP Units 286 296 286 296 Effect of dilutive common stock options (A) (A) (A) (A) -------- -------- -------- -------- Weighted-average shares outstanding - diluted 13,234 13,242 13,233 13,235 ======== ======== ======== ======== Earnings per share - basic and diluted: Net income per share - basic and diluted $ 0.35 $ 0.15 $ 0.40 $ 0.14 ======== ======== ======== ========
(A) At June 30, 2001 and 2000, 962,420 and 1,034,645 stock options were outstanding, respectively. The effects of the shares which would be issued upon the exercise of these options have been excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2001 and 2000 because they are anti-dilutive. The effect of the shares which would be issued upon conversion of the convertible notes have been excluded from the calculation of diluted earnings per share because they are anti-dilutive. 12 WESTCOAST HOSPITALITY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations". This standard eliminates the pooling method of accounting for business combinations initiated after June 30, 2001. In addition, SFAS 141 addresses the accounting for intangible assets and goodwill acquired in a business combination. This portion of SFAS 141 is effective for business combinations completed after June 30, 2001. There will be no effect on the Company's financial position, results of operations or cash flows of adopting SFAS 141. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Intangible Assets", which revises the accounting for purchased goodwill and intangible assets. Under SFAS 142, goodwill and intangible assets with indefinite lives will no longer be amortized, but will be tested for impairment annually and also in the event of an impairment indicator. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company expects that adoption of SFAS 142 will increase annual operating income by approximately $856 thousand. 13 WESTCOAST HOSPITALITY CORPORATION ITEM II. QUARTERLY INFORMATION: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The following discussion and analysis addresses the results of operations for the Company for the three and six months ended June 30, 2001 and 2000. The following should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in "Risk Factors" and elsewhere in the Form 10-K filed by the Company for the year ended December 31, 2000. The Company's revenues are derived primarily from the Hotels and reflect revenue from rooms, food and beverage, third party management contracts, and other sources, including telephone, guest services, banquet room rentals, gift shops and other amenities. Hotel revenues accounted for 84.4% of total revenue in the three months ended June 30, 2001 and decreased 4.4% to $27.4 million in 2001 from $28.6 million in 2000. The balance of the Company's revenues is derived from its Franchise, Central Services and Development, TicketsWest, Real Estate Division, and Corporate Services divisions. These revenues are generated from franchise fees, ticket distribution handling fees, Internet services, real estate management fees, sales commissions and rents. Franchise, Central Services and Development accounted for 2.5% of the Company's revenue for the three months ended June 30, 2001, TicketsWest accounted for 5.3% and Real Estate Division accounted for 7.6% of total revenues for the period. As is typical in the hospitality industry, REVPAR, ADR and occupancy levels are important performance measures. The Company's operating strategy is focused on enhancing revenue and operating margins by increasing REVPAR, ADR, occupancy and operating efficiencies of the Hotels. These performance measures are impacted by a variety of factors including national, regional and local economic conditions, degree of competition with other hotels in their respective market areas and, in the case of occupancy levels, changes in travel patterns. 14 The following table sets forth selected items from the consolidated statements of operations as a percent of total revenues and certain other selected data:
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenues Hotels & Restaurants 84.4% 86.7% 83.1% 84.9% Franchise, Central Services & Development 2.5 2.5 2.4 2.9 TicketsWest 5.3 3.2 6.1 4.1 Real Estate Division 7.6 7.1 8.2 7.7 Corporate Services & Other 0.2 0.5 0.2 0.4 ---------- ---------- ---------- ---------- Total Revenues 100.0% 100.0% 100.0% 100.0% ========== ========== ========== ========== Direct Operating Expenses 78.2% 77.8% 81.9% 81.6% Undistributed Corporate Operating Expense 1.8 1.8 1.9 2.0 Operating Income 20.0 20.4 16.2 16.5 Interest Expense 9.2 11.3 10.5 12.0 Income Tax Provision 8.2 3.4 5.0 1.7 Net income 14.0% 5.9% 8.6% 3.0% Hotel Statistics (1) Hotels open at end of period 46 46 46 46 Available Rooms 8,607 8,789 8,607 8,789 REVPAR (2)(3) $ 60.11 $ 59.20 $ 54.99 $ 52.42 ADR (4) $ 91.61 $ 88.06 $ 89.80 $ 85.57 Occupancy (5) 65.6% 67.2% 61.2% 61.3%
(1) Hotel statistics for the three and six months ended June 30, 2001, and 2000, are presented for Combined Hotels. Combined Hotels includes hotels owned, managed, or franchised by the Company in the current period, with same hotel pro forma statistics for prior period. (2) REVPAR represents the total room revenues divided by total available rooms, net of rooms out of service due to significant renovations. (3) Rooms, which were under renovation, were excluded from REVPAR and average occupancy percentage. Due to the short duration of renovation, in the opinion of management, excluding these rooms did not have a material impact on REVPAR and average occupancy percentage. (4) ADR represents total room revenues divided by the total number of rooms occupied by hotel guests on a paid basis. (5) Average occupancy percentage represents total rooms occupied divided by total available rooms. Total available rooms represents the number of rooms available multiplied by the number of days in the reported period. 15 RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED JUNE 30, 2001 TO THE THREE MONTHS ENDED JUNE 30, 2000 Total revenues decreased $613 thousand, or 1.9%, to $32.4 million in 2001 from $33.0 million in 2000. This is attributed primarily to a decrease in hotel revenue of 4.4% which was partially offset with an increase in revenue from the TicketsWest division. Total hotel and restaurant revenues decreased $1.3 million, or 4.4%, to $27.4 million in 2001 from $28.6 million in 2000. Combined Hotel ADR increased $3.55, or 4.0%, to $91.61 in 2001 from $88.06 in 2000. Combined Hotel REVPAR increased $0.91, or 1.5%, to $60.11 in 2001 from $59.20 in 2000. Total Franchise, Central Services and Development revenues decreased $35 thousand, or 4.3% to $795 thousand in 2001 from $831 thousand in 2000. TicketsWest revenues increased $657 thousand, or 61.6%, to $1.7 million in 2001 from $1.1 million in 2000. TicketsWest revenue increased primarily from increased ticket sales revenue by the Company in Colorado, increased entertainment presentations and the addition of revenue from the expansion of the Company and the expansion of Internet services and fees. Real Estate Division revenue increased $137 thousand, or 5.9%, to $2.5 million in 2001 from $2.3 million in 2000 primarily from additional occupancy and lease income in the Company owned commercial office buildings. Direct operating expenses decreased $364 thousand, or 1.4 %, to $25.3 million in 2001 from $25.7 million in 2000. The decrease in direct expenses is primarily from reduced labor and operating expenses in the hotels and was offset partially by increased 800 Center and entertainment expenses in the TicketsWest Division. Direct operating expenses increased as a percentage of total revenues to 78.2 % in 2001 from 77.8% in 2000. Total undistributed corporate operating expenses increased $10 thousand, or 1.7%, to $588 thousand in 2001 from $579 thousand in 2000. Total undistributed corporate operating expenses as a percentage of total revenues was 1.8% in both periods. Operating income decreased $259 thousand, or 3.8%, to $6.5 million in 2001 from $6.8 million in 2000. As a percentage of total revenues, operating income decreased to 20.0% in 2001 from 20.4% in 2000. Interest expense decreased $726 thousand, or 19.5%, to $3.0 million in 2001 from $3.7 million in 2000. This decrease is primarily related to a reduction in the average interest rate paid on the Company's variable rate debt and reduced total debt outstanding. 16 Other income increased to $3.8 million in 2001 from $10 thousand in 2000. The other income in 2001 reflects a one time gain which is the result of the final settlement of insurance claims for a fire in the Lincoln Building. Income tax provision increased 135.6%, to $2.6 million in 2001 from $1.1 million in 2000, due to the increase in income before taxes. The effective income tax provision rate was 36.8% and 36.7% for 2001 and 2000,respectively. Net income increased $2.6 million, or 133.8%, to $4.5 million in 2001 from $1.9 million in 2000. Earnings per share before extraordinary item increased 133.3% to $0.35 in 2001 from $0.15 in 2000. Net income increased primarily from the one time gain from the insurance settlement and the reduction of interest expenses. Excluding the impact of the insurance settlement, the pro forma earnings per share would be $0.17 versus $0.15 in 2000, a 13% increase. COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED JUNE 30, 1999 Total revenues increased $331 thousand, or 0.5%, to $60.6 million in 2001 from $60.2 million in 2000. Total hotel and restaurant revenues decreased $820 thousand, or 1.6%, to $50.3 million in 2001 from $51.1 million in 2000. Combined Hotel ADR increased $4.23, or 4.9%, to $89.80 in 2001 from $85.57 in 2000. Combined Hotel REVPAR increased $2.57, or 4.9%, to $54.99 in 2001 from $52.42 in 2000. Franchise, Central Services and Development revenues decreased $264 thousand, or 15.3%, to $1.5 million in 2001 from $1.7 million in 2000. TicketsWest revenues increased $1.2 million, or 48.1%, to $3.7 million in 2001 from $2.5 million in 2000. TicketsWest revenue increased primarily from increased shows presented by the Company, increased attendance at entertainment events and the addition of revenue from the expansion of the Company in Colorado and the expansion of Internet services and fees. Real Estate Division revenue increased $309 thousand, or 6.7%, to $5.0 million in 2001 from $4.6 million in 2000 primarily from additional lease revenue from Company owned real estate. Direct operating expenses increased $453 thousand, or 0.9%, to $49.6 million in 2001 from $49.1 million in 2000, primarily due to the increased expenses to operate the TicketsWest Division in Colorado, increased 800 Center expenses and offset with reduced expenses in the Hotel and Restaurant Division which has improved its operating efficiencies. This represents an increase in direct operating expenses as a percentage of total revenues to 81.9% in 2001 to 81.6% in 2000. 17 Total undistributed corporate operating expenses decreased $6 thousand, or 0.5%, to $1.2 million in 2001. Total undistributed corporate operating expenses as a percentage of total revenues was 1.9%. Operating income decreased $116 thousand, or 1.2%, to $9.8 million in 2001 from $9.9 million in 2000. As a percentage of total revenues, operating income decreased to 16.2% in 2001 from 16.5% in 2000. Interest expense decreased $882 thousand, or 12.2%, to $6.4 million in 2001 from $7.2 million in 2000. This decrease is attributed to a decrease in the total debt outstanding and a decrease in the interest rates charged on the Company's variable rate debt. Income tax provision increased 192.3%, to $3.1 million in 2001 from $1.0 million in 2000, due to the increase in income before taxes. The effective income tax provision rate was 36.8% and 36.8 for 2001 and 2000 respectively. Net income increased $3.4 million, or 190.6%, to $5.2 million in 2001 from $1.8 million in 2000. Earnings per share before extraordinary item and cumulative effect of accounting change, increased to $0.40 in 2001 from $0.14 in 2000. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's principal sources of liquidity have been cash on hand, cash generated by operations and borrowings under an $120.0 million revolving credit facility. Cash generated by operations in excess of operating expenses is used for capital expenditures and to reduce amounts outstanding under the Revolving Credit Facility. In May 2001, the Company refinanced a portion of the Revolving Credit Facility with 10 year fixed rate debt and reduced the commitment to $90 million. Hotel acquisitions, development and expansion have been and will be financed through a combination of internally generated cash, borrowing under credit facilities, and the issuance of Common Stock or OP Units. The Company's short-term capital needs include food and beverage inventory, payroll and the repayment of interest expense on outstanding mortgage indebtedness. Historically, the Company has met these needs through internally generated cash. The Company's long-term capital needs include funds for property acquisitions, scheduled debt maturities and renovations and other non-recurring capital improvements. The Company anticipates meeting its future long-term capital needs through the additional debt financing secured by the Hotels, by unsecured private or public debt offerings or by additional equity offerings or the issuances of OP Units, along with cash generated from internal operations. 18 At June 30, 2001, the Company had $2.9 million in cash and cash equivalents. The Company has made extensive capital expenditures over the last three years, $3.7 million, $8.5 million, $63.3 million and $123.6 million in owned and joint venture properties in the six months ended June 30, 2001, and the years ended December 31, 2000, 1999,and 1998. These expenditures included guest room, lounge and restaurant renovations, public area refurbishment, telephone and computer system upgrades, tenant improvements, property acquisitions, construction, and corporate expenditures and were funded from the initial public offering, issuance of operating partnership units, operating cash flow and debt. The Company establishes reserves for capital replacement in the amount of 4.0% of the prior year's actual gross hotel income to maintain the Hotels at acceptable levels. Acquired hotel properties have a separate capital budget for purchase, construction, renovation, and branding costs. Capital expenditures planned for Hotels in 2001 are expected to be approximately $6.0 million. Management believes the consistent renovation and upgrading of the Hotels and other properties is imperative to its long-term reputation and customer satisfaction. To fund its acquisition program and meet its working capital needs, the Company has a Revolving Credit Facility. The Revolving Credit Facility has a term ending May 2003 and an annualized fee for the unutilized portion of the facility. The Company selects from four different interest rates when it draws funds: the lender's prime rate or one, three, or six month LIBOR plus the applicable margin of 180 to 325 basis points, depending on the Company's ratio of EBITDA-to-total funded debt. The Revolving Credit Facility allows for the Company to draw funds based on the trailing 12 months performance on a pro forma basis for both acquired and owned properties. Funds from the Revolving Credit Facility may be used for acquisitions, renovations, construction and general corporate purposes. The Company believes the funds available under the Revolving Credit Facility and additional debt instruments will be sufficient to meet the Company's near term growth plans. The Operating Partnership is the borrower under the Revolving Credit Facility. The obligations of the Operating Partnership under the Revolving Credit Facility are fully guaranteed by the Company. Under the Revolving Credit Facility, the Company is permitted to grant new deeds of trust on any future acquired properties. Mandatory prepayments are required to be made in various circumstances including the disposition of any property, or future acquired property, by the Operating Partnership. The Revolving Credit Facility contains various representations, warranties, covenants and events of default deemed appropriate for a Credit Facility of similar size and nature. Covenants and provisions in the definitive credit agreement governing the Revolving Credit Facility include, among other things, limitations on: (i) substantive changes in the Company's and Operating Partnership's current business activities, (ii) liquidation, dissolution, mergers, consolidations, dispositions of material property or assets involving the Company and its affiliates or their assets, as the case may be, and acquisitions of property or assets of others, (iii) the creation or existence of deeds of trust or other liens on property or assets, (iv) the addition or existence of indebtedness, including guarantees and other contingent obligations, (v) loans and advances to others and investments in others, (vi) redemption of subordinated debt, (vii) amendment or modification of certain 19 material documents or of the Articles in a manner adverse to the interests of the lenders under the Revolving Credit Facility, (viii) payment of dividends or distributions on the Company's capital stock, and (ix) maintenance of certain financial ratios. Each of the covenants described above provides for certain ordinary course of business and other exceptions. If the Company breaches any of these covenants and does not obtain a waiver of that breach, the breach will constitute an event of default under the Revolving Credit Facility. At June 30, 2001, the Company had $64.8 million outstanding under the Revolving Credit Facility and was in compliance with all required covenants. The Revolving Credit Facility restricted the Company from paying any dividends as of June 30, 2001. In addition to the Revolving Credit Facility, as of June 30, 2001, the Company had debt and capital leases outstanding of approximately $92.5 million consisting of primarily variable and fixed rate debt secured by individual properties. The Company believes that cash generated by operations will be sufficient to fund the Company's operating strategy for the foreseeable future, and that any remaining cash generated by operations, together with capital available under the Revolving Credit Facility (subject to the terms and covenants to be included therein) and additional debt financing, will be adequate to fund the Company's growth strategy in the near term. Thereafter, the Company expects that future capital needs, including those for property acquisitions, will be met through a combination of net cash provided by operations, borrowings and additional issuances of Common Stock or OP Units. SEASONALITY The lodging industry is seasonal in nature, with the months from May through October generally accounting for a greater portion of annual revenues than the months from November through April. For example, for the year ended December 31, 2000, our revenues in the first through fourth quarters were 21.6%, 26.3%, 29.3% and 22.8%, respectively, of our total revenue for such year and our net income for the first through fourth quarters was (2.5)%, 33.3%, 63.3% and 5.9%, respectively, of our total net income for that year. Quarterly earnings also may be adversely affected by events beyond our control, such as extreme weather conditions, economic factors and other considerations affecting travel. INFLATION The effect of inflation, as measured by fluctuations in the Consumer Price Index, has not had a material impact on the Company's revenues or net income during the periods under review. 20 NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations." This standard eliminates the pooling method of accounting for business combinations initiated after June 30, 2001. In addition, SFAS 141 addresses the accounting for intangible assets and goodwill acquired in a business combination. This portion of SFAS 141 is effective for business combinations completed after June 30, 2001. There will be no effect on the Company's financial position, results of operations or cash flows of adopting SFAS 141. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Intangible Assets", which revises the accounting for purchased goodwill and intangible assets. Under SFAS 142, goodwill and intangible assets with indefinite lives will no longer be amortized, but will be tested for impairment annually and also in the event of an impairment indicator. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company expects that adoption of SFAS 142 will increase annual operating income by approximately $856 thousand. 21 PART II - OTHER INFORMATION - --------------------------- ITEMS 1, 2, 3 and 5 of Part II are omitted from this report, as they are not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of shareholders on May 21, 2001, the following actions were taken: Total Outstanding Shares: 12,948,396 1. Election of Directors Votes Votes Name Votes For PCT Against Abstained - ------------------ ---------- ----- --------- ----------- Donald K. Barbieri 12,135,278 93.7% 104,335 Ronald R. Taylor 12,135,278 93.7% 104,335 Arthur M. Coffey 12,135,278 93.7% 104,335 2. Ratification of PricewaterhouseCoopers LLP as independent auditors for the year ending December 31, 2001. Votes Votes Votes For PCT Against Abstained ---------- ----- --------- ----------- 12,235,687 94.5% 525 3,401 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 - IDS-American Express Deed of Trust 10.2 - JP Morgan Deed of Trust 10.3 - Second Amendment to the Amended and Restated Credit Agreement (b) Reports on Form 8-K The Company filed a report on Form 8-K to show a change in the Registrant's Certifying Accountant on June 29, 2001. 22 WESTCOAST HOSPITALITY CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities stated and on the date indicated. WESTCOAST HOSPITALITY CORPORATION (Registrant) Date: August 14, 2001 By: /s/ Arthur M. Coffey ------------------------------------- Arthur M. Coffey, Executive Vice President and Chief Financial Officer 23 EX-10.1 3 ex10-1_10809.txt AMERICAN EXPRESS DEED OF TRUST EXHIBIT 10.1 ------------ WHEN RECORDED, RETURN TO: Fennemore Craig Suite 2600 3003 North Central Avenue Phoenix, Arizona 85012 Attention: William L. Kurtz IDS LIFE LOAN NO. 694-001-637 AMENDMENT AND RESTATEMENT OF DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT WITH ASSIGNMENT OF LEASES AND RENTS ----------------------------------- Grantor: WESTCOAST HOSPITALITY, LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP WHICH ACQUIRED TITLE AS Cavanaughs Hospitality Limited partnership Grantee: IDS Life Insurance Company, a Minnesota corporation Legal Description: 1. ALL OF LOTS 1, 2, 3 AND THE EAST 39 FEET OF LOT 4 IN BLOCK 13 OF RESURVEY AND ADDITION TO SPOKANE FALLS, As PER PLAT THEREOF RECORDED IN VOLUME "A" OF PLATS, PAGE 1; 2. Complete legal description is on Exhibit A to this document REFERENCE NO.: recorded May 13, 1996, Recording No. 9605130001, in the office of the Spokane County Recorder Assessor's Property Tax Parcel Account Number: 35183.0401 MAY 21, 2001 AMENDMENT AND RESTATEMENT OF DEED OF TRUST AND ---------------------------------------------- SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT WITH ------------------------------------------------------- ASSIGNMENT OF LEASES AND RENTS ------------------------------ This AMENDMENT AND RESTATEMENT OF DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT WITH ASSIGNMENT OF LEASES AND RENTS, made this 21st day of May, 2001, between WESTCOAST HOSPITALITY, LIMITED PARTNERSHIP, a Delaware limited partnership which acquired title as Cavanaughs Hospitality Limited Partnership ("Grantor"), whose post office address is c/o WestCoast Hospitality Corporation, 201 West North River Drive, Suite 100, Spokane, Washington 99201, and IDS LIFE INSURANCE COMPANY, a Minnesota corporation ("Beneficiary"), whose address is c/o American Express Financial Corporation, 25540 AXP Financial Center, Minneapolis, Minnesota 55474. PRELIMINARY RECITALS: A. WEST 201 NORTH RIVER DRIVE L.P., a Washington limited partnership ("Original Grantor"), has executed and delivered that certain Promissory Note dated May 7, 1996 (the "Initial Note"), made by Original Grantor, as Borrower, to the order of Beneficiary, as Lender, in the face amount of ELEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($11,500,000), which Initial Note has been amended by that certain Amendment to Promissory Note dated February 24, 1998 (the "Note Amendment"), by and between Original Grantor, as Borrower, and Beneficiary, as Lender, (the Initial Note, as amended by the Note Amendment, is herein referred to as the "Original Note"). B. The Original Note was secured by that certain Deed of Trust and Security Agreement and Fixture Financing Statement with Assignment of Leases and Rents dated May 7, 1996 (the "Initial Deed of Trust"), by Original Grantor, as Grantor, to TRANSNATION TITLE INSURANCE COMPANY, an Arizona corporation, as Trustee, for the use and benefit of Beneficiary, as Beneficiary, recorded May 13, 1996, in Recording No. 9605130001, in the office of the Spokane County Recorder (all recording information contained herein refers to recordings in the office of the Spokane County Recorder), which Initial Deed of Trust was modified by that certain Assumption and Modification Agreement dated February 24, 1998 (the "Assumption and Modification"), by and between Beneficiary, as Lender, Original Grantor, as Borrower, and Grantor, as Transferee, recorded February 24, 1998, in Recording No. 4190343, (the Initial Deed of Trust, as modified by the Assumption and Modification, is herein referred to as the "Original Deed of Trust"), on certain property located in Spokane County, Washington and legally described in the Assumption and Modification (the "Premises"). C. The Original Note was further secured by that certain Assignment of Leases and Rents dated May 7, 1996 (the "Initial Assignment of Leases"), by Original Grantor, as Assignor, to Beneficiary, as Lender, recorded May 13, 1996, in Recording -a- No. 9605130005, which Initial Assignment of Leases was modified by the Assumption and Modification, (the Initial Assignment of Leases, as modified by the Assumption and Modification, is herein referred to as the "Original Assignment of Leases"). D. The Premises were transferred from Original Grantor to Grantor and Grantor assumed all obligations of Original Grantor under the terms of the Original Note, the Original Deed of Trust, and the Original Assignment of Leases pursuant to the Assumption and Modification accruing from and after February 24, 1998. E. The terms of the Original Note and the Original Assignment of Leases, respectively, have been modified by an Amendment and Restatement of Promissory Note, and by an Amendment and Restatement of Assignment of Leases and Rents, each dated of even date herewith between Grantor and Beneficiary. F. The parties hereto desire to amend and fully restate the terms of the Original Deed of Trust in its entirety. NOW, THEREFORE, in consideration of the above recitals and other good and valuable consideration, the receipt of which is hereby acknowledged, Grantor and Beneficiary do hereby amend and fully restate the terms of the Original Deed of Trust in its entirety as follows: -b- DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT WITH ASSIGNMENT OF LEASES AND RENTS ----------------------------------- WESTCOAST HOSPITALITY, LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP WHICH ACQUIRED TITLE AS Cavanaughs Hospitality Limited partnership, GRANTOR, TRANSNATION TITLE INSURANCE COMPANY, AN ARIZONA CORPORATION, TRUSTEE, AND IDS LIFE INSURANCE COMPANY, A MINNESOTA CORPORATION, BENEFICIARY MAY 21, 2001 Deed of Trust and Security Agreement and Fixture Financing Statement with Assignment of Leases and Rents Table of Contents Section Heading Page - ------- ------- ---- Parties and Recitals.........................................................1 Granting Clauses.............................................................1 Article 1 General Representations and Warranties........4 - --------- -------------------------------------- 1.1 Representations and Warranties................4 1.2 Continuing Obligation.........................7 Article 2 Covenants and Agreements......................7 - --------- ------------------------ 2.1 Payment of Indebtedness; Observance of Covenants....................7 2.2 Maintenance and Repairs.......................8 2.3 Payment of Operating Costs; Liens; and Other Indebtedness..............8 2.4 Payment of Impositions........................8 2.5 Contest of Liens and Impositions..............9 2.6 Protection of Security........................9 2.7 Annual Statements.............................9 2.8 Additional Assurances........................10 2.9 Due on Sale or Mortgaging, Etc...............11 2.10 Transfer Permitted...........................12 Article 3 Insurance and Escrows........................14 - --------- --------------------- 3.1 Insurance....................................14 3.2 Escrows......................................16 Article 4 Uniform Commercial Code......................17 - --------- ----------------------- 4.1 Security Agreement...........................17 4.2 Fixture Filing...............................17 4.3 Representations and Agreements...............17 4.4 Maintenance of Property......................18 Article 5 Application of Insurance and Awards..........19 - --------- ----------------------------------- 5.1 Damage or Destruction of the Premises........19 5.2 Condemnation.................................19 -i- 5.3 Disbursement of Insurance and Condemnation Proceeds.....................20 Article 6 Leases and Rents.............................22 - --------- ---------------- 6.1 Grantor to Comply with Leases................22 6.2 Beneficiary's Right to Perform under Leases..............................23 6.3 Assignment of Leases and Rents...............23 Article 7 Rights of Beneficiary........................25 - --------- --------------------- 7.1 Right to Cure Event of Default...............25 7.2 No Claim Against Beneficiary.................25 7.3 Inspection...................................25 7.4 Waivers; Releases; Resort to Other Security; Etc.......................25 7.5 Rights Cumulative............................26 7.6 Subsequent Agreements........................26 7.7 Waiver of Appraisement, Homestead, Marshaling................................26 7.8 Business Loan Representation.................26 7.9 Dishonored Checks............................26 Article 8 Events of Default and Remedies...............27 - --------- ------------------------------ 8.1 Events of Default............................27 8.2 Beneficiary's Right to Accelerate............28 8.3 Remedies of Beneficiary and Right to Foreclose..............................29 8.4 Receiver.....................................29 8.5 Rights Under Uniform Commercial Code......................................29 8.6 Right to Discontinue Proceedings.............30 8.7 Waivers......................................30 Article 9 Hazardous Materials..........................30 - --------- ------------------- 9.1 Definitions .................................30 9.2 Representations by Grantor...................30 9.3 Covenants by Grantor.........................31 9.4 Events of Default and Remedies...............31 9.5 Indemnification..............................32 9.6 Loss of Value ...............................32 Article 10 Miscellaneous................................32 - ---------- ------------- 10.1 Release of Deed of Trust.....................32 10.2 Choice of Law................................33 10.3 Successors and Assigns.......................33 10.4 Partial Invalidity...........................33 -ii- 10.5 Captions and Headings........................33 10.6 Notices......................................33 10.7 Building Use.................................34 10.8 Management of the Premises...................34 10.9 Amendment/Modification.......................34 10.10 Substitution of the Trustee..................34 10.11 Representations of Grantor...................34 10.12 Beneficiary's Expense........................34 10.13 Beneficiary's Right to Counsel...............35 10.14 Other Representations and Warranties................................35 10.15 Limitation of Interest.......................36 10.16 Time of the Essence..........................36 10.17 Survival of Representations, Warranties and Covenants..................36 10.18 Waiver of Jury Trial.........................36 10.19 Minimum Requirement..........................37 10.20 Interest Rate Adjustment ....................37 10.21 Oral Agreements or Commitments ..............37 10.22 Powers of Trustee............................37 10.23 Partial Non-Recourse to Trustor and the Partners of Trustor................38 10.24 Annex Property and Declaration...............38 10.25 Counterparts.................................38 10.26 Dating of this Deed of Trust.................38 List of Exhibits ---------------- A Legal Description -iii- DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT WITH ASSIGNMENT OF LEASES AND RENTS ----------------------------------- THIS DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT WITH ASSIGNMENT OF LEASES AND RENTS ("Deed of Trust") is made and delivered as of the 21st day of May, 2001, by WESTCOAST HOSPITALITY, LIMITED PARTNERSHIP, a Delaware limited partnership which acquired title as Cavanaughs Hospitality Limited Partnership ("Grantor"), whose mailing address is c/o WestCoast Hospitality Corporation, 201 West North River Drive, Suite 100, Spokane, Washington 99201, to TRANSNATION TITLE INSURANCE COMPANY, an Arizona corporation ("Trustee"), having a mailing address of 720 North Argonne Road, Spokane, Washington 99212, for the use and benefit of IDS LIFE INSURANCE COMPANY, a Minnesota corporation ("Beneficiary"), having a mailing address of c/o American Express Financial Corporation, 25540 AXP Financial Center, Minneapolis, Minnesota 55474. WITNESSETH, that, in consideration of the "Indebtedness" (as hereinafter defined) and the sums advanced to Grantor in hand paid by Beneficiary, receipt whereof is hereby acknowledged, and other good and valuable consideration, GRANTOR DOES HEREBY IRREVOCABLY MORTGAGE, GRANT, BARGAIN, SELL AND CONVEY UNTO TRUSTEE, ITS SUCCESSORS AND ASSIGNS, IN TRUST FOREVER, WITH POWER OF SALE AND RIGHT OF ENTRY AND POSSESSION, AND GRANTS TO BENEFICIARY A SECURITY INTEREST IN all of Grantor's right, title and interest now owned or hereafter acquired in and to the following properties (all of the following being hereafter collectively referred to as the "Premises") to secure (a) payment of the "Note" (as hereinafter defined); (b) due, prompt and complete observance and performance of each and every obligation, covenant and agreement of Grantor contained in the Note, this Deed of Trust and any other "Loan Documents" (as hereinafter defined); and (c) all other sums of money secured hereby as hereinafter provided: GRANTING CLAUSE A ----------------- REAL PROPERTY ------------- All the tracts or parcels of real property lying and being in the County of Spokane, State of Washington, all as more fully described in Exhibit A attached hereto and made a part hereof, together with all the estates and rights in and to the real property, water, mineral or oil rights and in and to lands lying in streets, alleys and roads or gores of land adjoining the real property and all buildings, structures, improvements, fixtures and annexations, access rights, easements, rights of way or use, servitudes, licenses, tenements, hereditaments and appurtenances now or hereafter belonging or pertaining to the real property and all proceeds and products derived therefrom whether now owned or hereafter acquired. GRANTING CLAUSE B ----------------- IMPROVEMENTS, FIXTURES, EQUIPMENT AND ------------------------------------- PERSONAL PROPERTY ----------------- All buildings, equipment (including Grantor's interest in any lease of such equipment), fixtures, improvements, building supplies and materials and personal property now or hereafter attached to, located in, placed in or necessary to the use, operation or maintenance of the improvements on the Premises including, but without being limited to, all machinery, fittings, fixtures, apparatus, equipment or articles used to supply heating, gas, electricity, air conditioning, water, light, waste disposal, power, refrigeration, ventilation, and fire and sprinkler protection, as well as all elevators, escalators, overhead cranes, hoists and assists, and the like, and all furnishings, supplies, draperies, maintenance and repair equipment, window and structural cleaning rigs and equipment, floor coverings, appliances, screens, storm windows, blinds, awnings, shrubbery and plants (it being understood that the enumeration of specific articles of property shall in no way be held to exclude items of property not specifically enumerated), as well as renewals, replacements, proceeds, additions, accessories, increases, parts, fittings, insurance payments, awards and substitutes thereof, together with all interest of Grantor in any such items hereafter acquired, and all personal property which by the terms of any lease shall become the property of Grantor at the termination of such lease, all of which personal property mentioned herein shall be deemed fixtures and accessory to the freehold and a part of the realty and not severable in whole or in part without material injury to the Premises, but excluding therefrom the removable personal property owned by tenants in the Premises. GRANTING CLAUSE C ----------------- RENTS, LEASES AND PROFITS ------------------------- All rents, issues, income, revenue, receipts, fees, and profits now due or which may hereafter become due under or by virtue of and together with all right, title and interest of Grantor in and to any lease, license, sublease, contract or other kind of occupancy agreement, whether written or verbal, for the use or occupancy of the Premises or any part thereof together with all security therefor and all monies payable thereunder, including, without limitation, tenant security deposits, and all books and records which contain information pertaining to payments made thereunder and security therefor, subject, however, to the conditional permission herein given to Grantor to collect the rents, income and other normal income benefits arising under any agreements. Beneficiary shall have the right, not as a limitation or condition hereof but as a personal covenant available only to Beneficiary, at any time and from time to time, to notify any lessee of the rights of Beneficiary hereunder. Together with all right, title and interest of Grantor in and to any and all contracts for sale and purchase of all or any part of the property described in Granting -2- Clauses (A), (B) and (C) hereof, and any down payments, earnest money deposits or other sums paid or deposited in connection therewith. GRANTING CLAUSE D ----------------- JUDGMENTS, CONDEMNATION AWARDS, ------------------------------- INSURANCE PROCEEDS, ------------------- AND OTHER RIGHTS ---------------- All awards, compensation or settlement proceeds made by any governmental or other lawful authorities for the threatened or actual taking or damaging by eminent domain of the whole or any part of the Premises, including any awards for a temporary taking, change of grade of streets or taking of access, together with all insurance proceeds resulting from a casualty to any portion of the Premises; all rights and interests of Grantor against others, including adjoining property owners, arising out of damage to the property including damage due to environmental injury or release of hazardous substances. GRANTING CLAUSE E ----------------- LICENSES, PERMITS, EQUIPMENT LEASES ----------------------------------- AND SERVICE AGREEMENTS ---------------------- All right, title and interest of Grantor in and to any licenses, permits, regulatory approvals, government authorizations, franchise agreements and equipment or chattel leases, service contracts or agreements and all proceeds therefrom, arising from, issued in connection with or in any way related to the use, occupancy, operation, maintenance or security of the Premises, together with all replacements, additions, substitutions and renewals thereof, which may be assigned pursuant to agreement or law. GRANTING CLAUSE F ----------------- PROCEEDS -------- All sale proceeds, refinancing proceeds or other proceeds, including deposits and down payments derived from or relating to the property described in Granting Clauses A through E above. AND Grantor for Grantor, Grantor's heirs, administrators, personal representatives, successors and assigns, covenants with Beneficiary, its successors and assigns, that Grantor is lawfully seized of the Premises and has good right to sell and convey the same; that the Premises are free from all encumbrances except as may be set forth in the ALTA Loan Policy (the "Title Policy") to be issued to Beneficiary and insuring the first lien position of this Deed of Trust (the "Permitted Encumbrances"); that Beneficiary, its successors and assigns, shall quietly enjoy and possess the Premises; -3- and that Grantor will WARRANT AND DEFEND the title to the same against all lawful claims not specifically excepted in this Deed of Trust. Grantor makes the foregoing grant to Trustee to hold the Premises in trust for the benefit of Beneficiary and for the purposes and upon the terms and conditions hereinafter set forth. TO HAVE AND TO HOLD THE SAME, together with the possession and right of possession of the Premises, unto Beneficiary, its successors and assigns, forever. PROVIDED NEVERTHELESS, that if Grantor, Grantor's heirs, administrators, personal representatives, successors or assigns, shall pay to Beneficiary, its successors or assigns, the sum of ELEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($11,500,000), according to the terms of that certain Amendment and Restatement of Promissory Note in said principal amount (the "Note") of even date herewith, executed by Grantor, as Borrower, and payable to Beneficiary, as Lender, the terms and conditions of which are incorporated herein by reference and made a part hereof, together with any extensions, modifications, substitutions, replacements, consolidations or renewals thereof, due and payable with interest thereon as provided therein, the balance of said principal sum together with interest thereon being due and payable in any event on June 1, 2011, and shall repay to Beneficiary, its successors or assigns, at the times demanded and with interest thereon at the same rate specified in the Note, all sums advanced in protecting the lien of this Deed of Trust, in payment of taxes on the Premises, in payment of insurance premiums covering improvements thereon, in payment of principal and interest on prior liens, in payment of expenses and attorneys' fees herein provided for and all sums advanced for any other purpose authorized herein (the Note and all such sums, together with interest thereon, being hereinafter collectively referred to as the "Indebtedness"), and shall keep and perform all of the covenants and agreements herein contained, then this Deed of Trust shall become null and void, and shall be released by Beneficiary, at no out-of-pocket expense to Beneficiary, executing such documents as are necessary to release this Deed of Trust, which documents shall be procured at Grantor's expense. AND IT IS FURTHER COVENANTED AND AGREED AS FOLLOWS: ARTICLE 1 --------- GENERAL REPRESENTATIONS AND WARRANTIES -------------------------------------- SECTION 1.1 REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants to Beneficiary, its successors and assigns, that, as of the date hereof: (a) Grantor is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware, -4- duly registered to transact business as a foreign limited partnership in, and in good standing under the laws of, the State of Washington, and has all requisite power and authority to own and operate the Premises, to enter into the Note, this Deed of Trust, that certain Amendment and Restatement of Assignment of Leases and Rents of even date herewith (the "Assignment of Leases"), by Grantor, as Assignor, to Beneficiary, as Lender, and any other document securing the Note, to execute all other documents relating to the loan (the "Loan") evidenced by the Note, and to make all representations and covenants contained in such documentation. The Note, this Deed of Trust, the Assignment of Leases, all UCC Financing Statements and all other documents, instruments and agreements relating to any of them or evidencing or securing the Loan are hereinafter referred to as the "Loan Documents". Grantor has the power and authority to borrow the monies and otherwise assume and perform as contemplated hereunder and under all documents relating to or executed in connection with the Indebtedness, and is in compliance with all laws, regulations, ordinances and orders of public authorities applicable to it. (b) Neither the borrowing of the monies nor the execution and delivery of the Note, this Deed of Trust, the Assignment of Leases or any other Loan Document nor the performance of the provisions of the agreements therein contained on the part of Grantor will contravene, violate or constitute a default under the partnership agreement of Grantor, or any agreement with the partners of Grantor or any creditors of Grantor, or any law, ordinance, governmental regulation, agreement or indenture to which Grantor is a party or by which Grantor or Grantor's properties are bound. (c) There are no (i) bankruptcy proceedings involving Grantor or any partner of Grantor and none is contemplated; (ii) dissolution proceedings involving Grantor or any partner of Grantor and none is contemplated; (iii) unsatisfied judgments of record against Grantor or any partner of Grantor; or (iv) tax liens filed against Grantor or any partner of Grantor. (d) The Note, this Deed of Trust, the Assignment of Leases and the other Loan Documents have been duly executed and delivered by Grantor and constitute the legal, valid and binding obligations of Grantor, enforceable in accordance with their terms. (e) There are no judgments, suits, actions or proceedings at law or in equity or by or before any governmental instrumentality or agency now pending against or, to the best of Grantor's knowledge, threatened against Grantor or its properties, or both, nor has any judgment, decree or order been issued against Grantor or its properties, or both, which would -5- have a material adverse effect on the Premises or the financial condition of Grantor or Grantor's properties. (f) No consent or approval of any regulatory authority having jurisdiction over Grantor is necessary or required by law as a prerequisite to the execution, delivery and performance of the terms of the Note, this Deed of Trust, the Assignment of Leases or any other Loan Document. (g) Grantor is not, as of the date hereof, in default in the payment or performance of any of Grantor's obligations in connection with borrowed money or any other major obligation. (h) The Premises is free from any mechanics' or materialmen's liens or claims. There has been no labor or materials furnished to the Premises that has not been paid for in full. (i) Grantor has no notice, information or knowledge of any change contemplated in any applicable law, ordinance, regulation, or restriction, or any judicial, administrative, governmental or quasi-governmental action, or any action by adjacent land owners, or natural or artificial condition existing upon the Premises which would limit, restrict, or prevent the contemplated or intended use and purpose of the Premises. (j) There is no pending condemnation or similar proceeding affecting the Premises, or any portion thereof, nor, to the best knowledge of Grantor, is any such action being presently contemplated. (k) No part of the Premises is being used or will be used principally, or at all, for agricultural purposes or being used for a personal residence by Grantor or any partner of Grantor. (l) The Premises is undamaged by fire, windstorm, or other casualty. (m) The Premises complies with all zoning ordinances, energy and environmental codes, building and use restrictions and codes, and any requirements with respect to licenses, permits and agreements necessary for the lawful use and operation of the Premises. (n) The heating, electrical, sanitary sewer plumbing, storm sewer plumbing, potable water plumbing and other building equipment, fixtures and fittings in the existing improvements on the Premises are in good condition and working order, are adequate in quantity and quality for normal and usual use, and are fit for the purposes intended and the use contemplated. -6- (o) The Premises is covered by one or more tax parcels which pertain to the Premises only and not to any property which is not subject to this Deed of Trust. (p) The Premises is improved with an office retail building and has frontage on and direct access for ingress and egress to Main Avenue and Wall Street. (q) Grantor has good and clear record and marketable title in fee to such of the Premises as is real property subject to no liens, encumbrances or restrictions other than the Permitted Encumbrances. (r) That certain Declaration of Easements dated February 24, 1998 (the "Declaration"), by Grantor, as Owner, recorded February 24, 1998, in Recording No. 4190344, in the office of the Spokane County Recorder, has not been modified or amended and remains in full force and effect as of the date hereof. SECTION 1.2 CONTINUING OBLIGATION. Grantor further warrants and represents that all statements made hereunder are true and correct and that all financial statements, data and other information provided to Beneficiary by Grantor relating to or provided in connection with this transaction has not and does not contain any statement which, at the time and in the light of the circumstances under which it was made, would be false or misleading with respect to any material fact, or would omit any material fact necessary in order to make any such statement contained therein not false or misleading in any material respect, and since such statement, data or information was provided there has been no material change thereto or to the condition of Grantor. Should Grantor subsequently obtain knowledge that such representation was or is untrue, Grantor shall immediately notify Beneficiary as to the untrue nature of said representation and agrees, to the extent possible, to take action as may be necessary to cause such representation to become true. ARTICLE 2 --------- COVENANTS AND AGREEMENTS ------------------------ Grantor covenants and agrees for the benefit of Beneficiary, its successors and assigns, as follows: SECTION 2.1 PAYMENT OF INDEBTEDNESS; OBSERVANCE OF COVENANTS. Grantor will duly and punctually pay each and every installment of principal, premium (if any) and interest on the Note, all deposits required herein, and all other Indebtedness secured hereby, as and when the same shall become due, and shall duly and punctually perform and observe all of the covenants, agreements and provisions contained herein, in the Note and any other instrument given as security for -7- the payment of the Note as such instrument may be amended, modified, restated and in effect from time to time. SECTION 2.2 MAINTENANCE AND REPAIRS. Grantor agrees that it will keep and maintain the Premises in good, first class condition, repair and operating condition, free from any waste or misuse, and will comply with all requirements of law, municipal ordinances and regulations, restrictions and covenants affecting the Premises and their use, and will promptly repair or restore any buildings, improvements or structures now or hereafter on the Premises, which may become damaged or destroyed, to their condition prior to any such damage or destruction. Grantor further agrees that without the prior written consent of Beneficiary, it will not remove or expand any improvements on the Premises, erect any new improvements or make any material alterations in any improvements which will alter the basic structure, adversely affect the market value or change the existing architectural character of the Premises, and agrees that any other buildings, structures and improvements now or hereafter constructed on or in the Premises or repairs made to the Premises shall be completed in a good and workmanlike manner, in accordance with all applicable governmental laws, regulations, requirements and permits and in accordance with plans and specifications previously delivered to, and approved in advance and in writing by, Beneficiary. Grantor agrees not to acquiesce in any rezoning classification, modification or restriction affecting the Premises without the prior written consent of Beneficiary. Grantor agrees that it will not abandon or vacate the Premises. Grantor agrees that it will provide, improve, grade, surface and thereafter maintain, clean, repair and adequately light all parking areas within the Premises, together with any sidewalks, aisles, streets, driveways and curb cuts and sufficient paved areas for ingress and right of way to and from the adjacent public thoroughfare necessary or desirable for the use thereof and maintain all landscaping thereon. Grantor shall obtain and at all times keep in full force and effect such governmental approvals as may be necessary to comply with all governmental requirements relating to Grantor and the Premises. SECTION 2.3 PAYMENT OF OPERATING COSTS; LIENS; AND OTHER INDEBTEDNESS. Grantor agrees that it will pay all operating costs and expenses of the Premises; keep the Premises free from mechanics' liens, materialmen's liens, judgment liens and other liens, executions, attachments or levies (hereinafter collectively referred to as "Liens"); and will pay when due all permitted indebtedness which may be secured by a deed of trust, mortgage, lien or charge on the Premises, whether prior to, subordinate to or of equal priority with the lien hereof, and upon request will exhibit to Beneficiary satisfactory evidence of such payment and discharge. SECTION 2.4 PAYMENT OF IMPOSITIONS. Grantor will pay when due and before any penalty or interest attaches because of delinquency in payment, all taxes, installments of assessments, water charges, sewer charges, and other fees, taxes, charges and assessments of every kind and nature whatsoever assessed or charged against or constituting a lien on the Premises or any interest therein or the Indebtedness (hereinafter collectively referred to as the "Impositions"); and will upon demand furnish to Beneficiary proof of the payment of any such Impositions. In the -8- event of a court decree or an enactment after the date hereof by any legislative authority of any law imposing upon a beneficiary under a deed of trust the payment of the whole or any part of the Impositions herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust or debts secured by deeds of trust or a beneficiary's interest in mortgaged premises, so as to impose such Imposition on Beneficiary or on the interest of Beneficiary in the Premises, then, in any such event, Grantor shall bear and pay the full amount of such Imposition, provided that if for any reason payment by Grantor of any such Imposition would be unlawful, or if the payment thereof would constitute usury or render the Indebtedness wholly or partially usurious, Beneficiary, at its option, may declare the whole sum secured by this Deed of Trust with interest thereon to be immediately due and payable, without prepayment fee, or Beneficiary, at its option, may pay that amount or portion of such Imposition as renders the Indebtedness unlawful or usurious, in which event Grantor shall concurrently therewith pay the remaining lawful and non-usurious portion or balance of said Imposition. SECTION 2.5 CONTEST OF LIENS AND IMPOSITIONS. Grantor shall not be required to pay, discharge or remove any Liens or Impositions so long as Grantor shall in good faith contest the same or the validity thereof by appropriate legal proceedings which shall operate to prevent the collection of the Liens or Impositions so contested and the sale of the Premises, or any part thereof, to satisfy the same, provided that Grantor shall, prior to any such contest, have given such security as may be demanded by Beneficiary to ensure such payments and prevent any sale or forfeiture of the Premises by reason of such nonpayment. Any such contest shall be prosecuted in accordance with the laws and rules pertaining to such contests and in all events with due diligence and Grantor shall promptly after final determination thereof pay the amount of any such Liens or Impositions so determined, together with all interest and penalties, which may be payable in connection therewith. Notwithstanding the provisions of this Section, Grantor shall (and if Grantor shall fail so to do, Beneficiary, may but shall not be required to) pay any such Liens or Impositions notwithstanding such contest if in the sole opinion of Beneficiary, the Premises shall be in jeopardy or in danger of being forfeited or foreclosed. SECTION 2.6 PROTECTION OF SECURITY. Grantor agrees to promptly notify Beneficiary of and appear in and defend any suit, action or proceeding that affects the value of the Premises, the Indebtedness or the rights or interest of Trustee or Beneficiary hereunder. Beneficiary may elect to appear in or defend any such action or proceeding and Grantor shall, and does hereby agree to, indemnify and reimburse Beneficiary from any and all loss, damage, expense or cost arising out of or incurred in connection with any such suit, action or proceeding, including without limitation, costs of evidence of title and attorneys' fees and paralegals' fees. SECTION 2.7 ANNUAL STATEMENTS. Within ninety (90) days after the end of each of its fiscal years during the term of this Deed of Trust, Grantor, and any successor to the interest of Grantor in the Premises, will furnish to Beneficiary annual financial statements of Grantor or such successor and of any guarantor of the Loan and -9- annual certified operating statements of the Premises, which shall include all relevant financial information showing at a minimum, but shall not be limited to, gross income (itemized as to source), operating expenses (itemized), depreciation charges, and net income before and after federal income taxes, and such additional information as Beneficiary may from time to time request. The financial statements of Grantor and the operating statements shall be certified by the general partner of Grantor. The financial statements of any guarantor shall be certified by each guarantor or by an independent public accountant in good standing, and shall include a balance sheet and income statement. Both the financial and operating statements shall be prepared at the expense of Grantor. All of the above required statements shall be prepared in reasonable detail, conform to generally accepted accounting principles, and be satisfactory in form and content to Beneficiary. Grantor or any successor Grantor, if the Premises are conveyed pursuant to a transfer permitted by Beneficiary, shall provide (a) as to a corporate entity, such entity shall submit annual audited financial statements of the corporation and any supplemental schedules provided stockholders or officers; (b) as to an individual(s), such individual(s) shall submit annual statements certified by each individual or by an independent certified public accountant in good standing and shall include a balance sheet and a profit and loss statement; and (c) as to a partnership, trust entity or limited liability company, the partnership, trust or limited liability company shall submit annual reports certified by an authorized partner, trustee or member. Grantor covenants that it shall keep true and accurate records of the operation of the Premises. In the event Grantor fails to furnish any of the above statements or upon an "Event of Default" (as hereinafter defined), Beneficiary may cause an audit to be made of the respective books and records at the sole cost and expense of Grantor. Beneficiary also shall have the right to examine at their place of safekeeping all books, accounts and records relating to the operation of the Premises, to make copies or abstracts therefrom and to discuss the affairs, finances or accounts with the partners of Grantor and Grantor's accountants. Said examination shall be at Beneficiary's expense unless an Event of Default has occurred or Grantor's statements are found to contain significant discrepancies, in which case the examination shall be at Grantor's expense. Grantor shall also furnish a rent roll in form acceptable to Beneficiary of all tenants having leases on the Premises on an annual basis along with the operating statements provided for above or at such other times as requested by Beneficiary from time to time. SECTION 2.8 ADDITIONAL ASSURANCES. Grantor agrees upon request by Beneficiary to execute and deliver further instruments, financing statements and/or continuation statements under the Uniform Commercial Code and assurances and will do such further acts as may be necessary or proper to carry out more effectively the purposes of this Deed of Trust and without limiting the foregoing, to make subject to the lien hereof any property agreed to be subjected hereto or covered by the granting clauses hereof, or intended so to be. Grantor agrees to pay any recording fees, filing fees, stamp taxes or other charges arising out of or incident to the filing, the issuance and delivery of the Note, the recording of this Deed of Trust and the Assignment of Leases or the delivery of such further assurances and instruments as may be required pursuant to the terms of this Section. -10- SECTION 2.9 DUE ON SALE OR MORTGAGING, ETC. In the event that without the written consent of Beneficiary being first obtained: (a) Grantor, or any successor, sells, conveys, transfers, further mortgages, changes the form of ownership, or encumbers or disposes of the Premises, or any part thereof, or any interest therein, or agrees so to do; or (b) any shares of privately-held corporate stock or ownership interest in Grantor, or any successor, are sold, conveyed, transferred, pledged or encumbered or there is an agreement so to do; or (c) any partnership, trust, member or privately-held corporate ownership interest in Grantor is sold, transferred, conveyed, pledged or encumbered or there is an agreement so to do; or (d) any partnership, member or privately-held corporate ownership interest in any general partner of Grantor is sold, conveyed, transferred, pledged or encumbered or there is an agreement so to do; whether any such event described in (a), (b), (c) or (d) above is voluntary, involuntary or by operation of law, then at Beneficiary's sole option, Beneficiary may declare the Indebtedness immediately due and payable in full and call for payment of the same at once, together with the prepayment fee then in effect under the terms of the Note. In the event Grantor shall request the consent of Beneficiary in accordance with this Section 2.9, Grantor shall deliver a written request to Beneficiary together with (i) a review fee of Five Hundred and No/100 Dollars ($500.00), and (ii) complete information regarding such conveyance or encumbrance (including complete information concerning the person or entity to acquire the interest to be conveyed). Beneficiary shall be allowed thirty (30) days after receipt of all requested information for evaluation of such request. In the event that such request is not approved within such thirty (30) day period, it shall be deemed not approved. If such a conveyance or encumbrance is approved, Grantor shall pay to Beneficiary a processing fee in the amount of Three Thousand and No/100 Dollars ($3,000.00) to compensate Beneficiary for processing the request. Approval may be conditioned upon payment of a one percent (1%) transfer fee and such modifications of the Loan terms, interest rate and maturity date as determined by Beneficiary in its sole discretion. Consent as to any one transaction shall not be deemed to be a waiver of the right to require consent to future or successive transactions. Death of Grantor, or if Grantor is not an individual, (i) the dissolution of Grantor, or (ii) the death of an individual general partner, member, beneficiary or stockholder of Grantor shall constitute a transfer of such interest. In the event of death of any individual Grantor, or if Grantor is not an individual, (y) the dissolution of Grantor, or (z) the death of an individual general partner, member, beneficiary or stockholder of Grantor, Beneficiary shall be provided with written notice thereof within thirty (30) days of the occurrence thereof and Grantor shall within ninety (90) days of the occurrence thereof provide (A) a replacement Grantor, if Grantor is an individual, or (B) if Grantor is not an individual, (1) a replacement Grantor in the event of the dissolution of Grantor, or (2) a replacement general partner, member, beneficiary or stockholder of Grantor in the event of the death of any such person, such replacement to be in any event acceptable to Beneficiary. If such replacement is acceptable to Beneficiary, such transfer shall be permitted without a transfer fee or change in the Loan terms. -11- Notwithstanding the above restrictions, and provided no Event of Default has occurred and remains uncured, Beneficiary's consent will not be required, and there will be no transfer fee required or change in the Loan terms, for (a) the dissolution of Grantor if WESTCOAST HOSPITALITY CORPORATION, a Washington corporation formerly known as CAVANAUGHS HOSPITALITY CORPORATION ("Guarantor"), which is the sole general partner of Grantor, becomes the owner of the Premises following such dissolution; or (b) the transfer of any partnership interest in Grantor to Guarantor; provided that (1) Beneficiary is provided with written notice of any such occurrence specified in (a) or (b) above and copies of the documentation with respect to any such occurrence, (2) if title to the Premises becomes vested in Guarantor, (y) Beneficiary shall be entitled to receive the review fee and the processing fee specified above, and (z) the Title Policy shall be endorsed, at Grantor's expense, to reflect such vesting of title, and (3) Beneficiary is put to no expense with respect thereto. Beneficiary acknowledges that Guarantor is a publicly traded company and its shares are freely transferable without Beneficiary's consent so long as it remains a publicly traded company. In the event Guarantor should cease to be a publicly traded company, Beneficiary's consent will be required for the transfer, after taking into account any prior transfers pursuant to this sentence, of more than forty-nine percent (49%) of the ownership interest in Guarantor to anyone other than existing controlling owners. SECTION 2.10 TRANSFER PERMITTED. Notwithstanding the above restrictions in Section 2.9 hereof, and provided no Event of Default, nor event which with the passage of time or giving of notice or both would become an Event of Default, exists, upon written request, Beneficiary will approve one and only one transfer of the Premises at any time and will not require modification of the interest rate or maturity date stated in the Note, provided: (a) The transfer shall be to a transferee determined by Beneficiary, in its sole judgment and discretion, to be a reputable and competent entity that: (i) has experience in the business of owning commercial real estate of similar type, size and quality to the Premises and has a favorable reputation with respect to such business; and (ii) has experience or has retained management with experience in the management of similar properties; and (iii) has the necessary financial ability to perform and will assume all of Grantor's obligations under the Loan Documents, including, without limitation, that certain Hazardous Materials Indemnity Agreement of even date herewith, from Grantor and Guarantor, as Indemnitors, to Beneficiary, as Lender. (b) For the twelve (12) month period immediately preceding the date of the proposed transfer, the annualized "Net Income" (as hereinafter defined) prior -12- to the payment of debt service is at least one hundred fifteen percent (115%) of the annual debt service on the Note and on all subordinate financing secured by the Premises, or any part thereof. (c) The proposed purchaser must assume and agree to perform all obligations under the Loan Documents pursuant to an assumption agreement acceptable to Beneficiary. Grantor and all existing guarantors shall remain liable for payment of the Note and performance of the other terms and conditions of the Loan Documents, including any separate guarantees or indemnity agreements made in favor of Beneficiary, if required by Beneficiary. (d) In addition to the processing fee and/or review fee, Beneficiary shall receive a transfer fee equal to one percent (1%) of the outstanding principal balance of the Note. If the request is approved, the Five Hundred Dollar ($500) review fee shall be credited to the processing fee. (e) The purchaser must acknowledge that future transfers and encumbrances will be subject to Beneficiary's approval, which may, at Beneficiary's sole discretion, be withheld or be conditioned upon payment of a fee and/or modification of the terms of the Note and/or other Loan Documents. (f) Notice of such transfer together with such documentation regarding the transfer and the assuming person or entity as Beneficiary shall request shall be given to Beneficiary at least thirty (30) days prior to such transfer. (g) Transfer of the Premises may only be as a whole and not in part. (h) Beneficiary shall receive an appraisal of the Premises (exclusive of chattels), satisfactory to Beneficiary, which shows sufficient value so that the total of all loans secured by the Premises does not exceed seventy-five percent (75%) of such appraised value. If the appraisal shows that the total of all liens against the Premises exceeds seventy-five percent (75%) of the value of the Premises, Beneficiary may require, at Beneficiary's option, payment on the Note or payment of other liens on the Premises so that such total will not exceed seventy-five percent (75%). (i) Grantor shall pay all costs and expenses in connection with such transfer, including Beneficiary's attorneys' fees, in reviewing and processing such consent to assumption and/or transfer, and the fees of any broker. (j) Grantor shall execute, deliver and record (when necessary) such amendments, supplements, corrections and replacements in regard to the Loan Documents and shall deliver endorsements to the Title Policy as Beneficiary may require, including an endorsement to the Title Policy insuring the first lien position of this Deed of Trust, such endorsement to insure that transferee is the owner of -13- the Premises, subject to no liens or encumbrances other than those shown in the Title Policy and current taxes not yet due and payable. For the purposes of this Deed of Trust, the term "Net Income" for any period shall mean the aggregate rent, receipts and other revenues which shall have accrued to the benefit of the owner of the Premises during such period from bona fide arms-length tenants in actual possession of space in the Premises (based upon the then current certified rent roll), less the sum of all operating expenses, maintenance costs, management fees, insurance premiums, real estate taxes and assessments, and other costs, expenses and expenditures (including required capital expenditures) attributable to ownership of the Premises (other than payments of principal and interest on the Indebtedness or on any secondary financing on the Premises, depreciation or other non-cash charges and income taxes) accrued during such period. Beneficiary shall have the right to require delivery of evidence it deems necessary to establish operating income from the Premises. ARTICLE 3 --------- INSURANCE AND ESCROWS --------------------- SECTION 3.1 INSURANCE. During the term of this Deed of Trust, Grantor shall obtain and keep in full force and effect at its sole cost and expense the following insurance: (a) Insurance against loss by fire, lightning and risk customarily covered by standard extended coverage endorsement, including the cost of debris removal, together with a vandalism and malicious mischief endorsement, sprinkler leakage endorsement, such perils endorsements as determined by Beneficiary, all in the amount of not less than full replacement cost without deduction for depreciation of the improvements (as shown in the appraisal submitted to and approved by Beneficiary), on the Premises, and together with an agreed-amount endorsement, a replacement cost endorsement and a waiver of subrogation endorsement; (b) Broad Form Boiler and Machinery Insurance on all equipment and pressure fired vehicles or apparatus located on the Premises, and providing for full repair and replacement cost coverage; (c) Flood Insurance in the maximum amount available at any time during the term of this Deed of Trust that the Premises are designated as lying within a flood plain as defined by the Federal Insurance Administration; (d) Loss of Rents and/or Business Interruption Insurance covering risk of loss due to the occurrence of hazards insured against under the policies required in subsections (a), (b) and (c) hereof in an -14- amount equal to: (i) rental for a twelve (12) month period, plus (ii) real estate taxes and assessments, insurance premiums and other expenses required to be paid by the tenants under each lease of the Premises for such twelve (12) month period; (e) Comprehensive General Public Liability Insurance covering the legal liability of Grantor against claims for bodily injury, death or property damage occurring on, in or about the Premises in such minimal amounts and with such minimal limits as Beneficiary may reasonably require; (f) Builder's Risk Insurance and Workers' Compensation Insurance during the making of any alterations or improvements to the Premises; and (g) Such other forms of insurance as Beneficiary may require or as may be required by law. In addition, Beneficiary is to be furnished with such engineering data as it may require regarding the risk of earthquake or sinkhole damage to the Premises. If Beneficiary shall determine in its sole opinion that there is a material earthquake or sinkhole risk, or if insurance against earthquake or sinkhole is required by law, Grantor will provide such earthquake or sinkhole insurance. Such insurance policies shall be written on forms and with insurance companies which are satisfactory to Beneficiary, shall name as the insured parties Grantor and Beneficiary, as their interests may appear, shall be in amounts sufficient to prevent Grantor from becoming a co-insurer of any loss thereunder, and shall bear a satisfactory mortgagee clause in favor of Beneficiary with loss proceeds under any such policies to be made payable to Beneficiary. All required policies of insurance together with evidence of the payment of current premiums therefor shall be delivered to Beneficiary and shall provide that Beneficiary shall receive at least thirty (30) days' advance written notice prior to cancellation, amendment or termination of any such policy of insurance. Grantor shall, within ten (10) days prior to the expiration of any such policy, deliver original policies evidencing the renewal of such insurance together with evidence of the payment of current premiums therefor. Grantor shall at its expense furnish on renewal of insurance policies or upon request of Beneficiary evidence of the replacement value of the improvements on the Premises in form satisfactory to Beneficiary. Insurance coverage must at all times be maintained in proper relationship to such replacement value and must always provide for agreed amount coverage. If the Premises are included within a blanket policy, Beneficiary will accept a certified or conformed copy of the blanket policy together with an original certificate naming Beneficiary as mortgagee. In the event of foreclosure of this Deed of Trust or acquisition of the Premises by Beneficiary, all such policies and any proceeds payable therefrom, whether payable before or after a foreclosure sale, or during the period of redemption, if any, shall become the absolute property of Beneficiary to be utilized at its discretion. In the event -15- of foreclosure or the failure to obtain and keep any required insurance, Grantor empowers Beneficiary to effect insurance upon the Premises at Grantor's expense and for the benefit of Beneficiary in the amounts and types aforesaid for a period of time covering the time lapse of insurance including lapse during redemption from foreclosure sale, and if necessary, to cancel any or all existing insurance policies. Grantor agrees to furnish Beneficiary copies of all inspection reports and insurance recommendations received by Grantor from any insurer. Beneficiary makes no representations that the above insurance requirements are adequate protection for a prudent owner. SECTION 3.2 ESCROWS. Grantor shall deposit with Beneficiary, or at Beneficiary's request, with its servicing agent, on the first day of each and every month, commencing with the date the first payment of interest and/or principal and interest shall become due on the Note, a deposit to pay the Impositions and insurance premiums (hereinafter collectively referred to as the "Charges") in an amount equal to: (a) One-twelfth (1/12th) of the annual Impositions next to become due upon the Premises; provided that, with the first such deposit, there shall be deposited in addition an amount as estimated by Beneficiary which, when added to monthly deposits to be made thereafter as provided for herein, shall assure to Beneficiary's satisfaction that there will be sufficient funds on deposit to pay the Impositions as they come due; plus (b) One-twelfth (1/12th) of the annual premiums on each policy of insurance required to be maintained hereunder; provided that with the first such deposit there shall be deposited, in addition, an amount equal to one-twelfth (1/12th) of such annual insurance premiums multiplied by the number of months elapsed between the date premiums on each policy were last paid to and including the date of deposit; provided that the amount of such deposits shall be based upon Beneficiary's estimate as to the amount of Impositions and premiums of insurance next to be payable and may require that the full amount of such payment will be available to Beneficiary at least one month in advance of the due date. Beneficiary will, upon timely presentation to Beneficiary by Grantor of the bills therefor, pay the Charges from such deposits. Grantor agrees to cooperate and assist in obtaining of tax bills when requested by Beneficiary. In the event the deposits on hand shall not be sufficient to pay all of the estimated Charges when the same shall become due from time to time, or the prior deposits shall be less than the currently estimated monthly amounts, then Grantor shall immediately pay to Beneficiary on demand any amount necessary to make up the deficiency. The excess of any such deposits shall be credited towards subsequent Charges. If an Event of Default shall occur under the terms of this Deed of rust, Beneficiary may, at its option, without being required so to do, apply any deposits on hand to the payment of Charges whether then due or not or to the Indebtedness, in such order and manner as Beneficiary may elect. When the Indebtedness has been -16- fully paid, any remaining deposits shall be returned to Grantor as its interest may appear. All deposits are hereby pledged as additional security for the Indebtedness, shall be held for the purposes for which made as herein provided, may be held by Beneficiary or its servicing agent and may be commingled with other funds of Beneficiary or its servicing agent, shall be held without any allowance of interest thereon and without fiduciary responsibility on the part of Beneficiary or its agents and shall not be subject to the direction or control of Grantor. Neither Beneficiary nor its servicing agent shall be liable for any act or omission made or taken in good faith. In making any payments, Beneficiary or its servicing agent may rely on any statement, bill or estimate procured from or issued by the payee without inquiry into the validity or accuracy of the same. If the taxes shown in the tax statement shall be levied on property more extensive than the Premises, Beneficiary shall be under no duty to seek a tax division or apportionment of the tax bill, any payment of taxes based on a larger parcel shall be paid by Grantor, the deposits to be made hereunder shall be based on the larger tax parcel and Grantor shall expeditiously cause a tax subdivision to be made. ARTICLE 4 --------- UNIFORM COMMERCIAL CODE ----------------------- SECTION 4.1 SECURITY AGREEMENT. This Deed of Trust shall constitute a security agreement as defined in the Uniform Commercial Code in effect in the State of Washington, as amended from time to time (hereinafter referred to as the "Code"), and Grantor hereby grants to Beneficiary a security interest within the meaning of the Code in favor of Beneficiary on the Improvements, Fixtures, Equipment and Personal Property, the Rents, Leases and Profits, the Judgments, Condemnation Awards and Insurance Proceeds and other rights, the Licenses, Permits, Equipment Leases and Service Agreements, and the Proceeds described in Granting Clauses B, C, D, E and F of this Deed of Trust (hereinafter referred to as the "Collateral"). SECTION 4.2 FIXTURE FILING. As to those items of Collateral described in this Deed of Trust that are, or are to become fixtures related to the real estate mortgaged herein, it is intended as to those items that THIS DEED OF TRUST SHALL BE EFFECTIVE AS A FINANCING STATEMENT FILED AS A FIXTURE FILING from the date of its filing in the real estate records of the County where the Premises are situated. The name of the record owner of said real estate is Grantor and the address of Grantor is set forth in page one of this Deed of Trust. Information concerning the security interest created by this document may be obtained from Beneficiary, as secured party, at its address as set forth in page one of this Deed of Trust. The address of Grantor, as debtor, is as set forth in page one to this Deed of Trust. This document covers goods which are or are to become fixtures. SECTION 4.3 REPRESENTATIONS AND AGREEMENTS. Grantor represents and agrees: (a) Grantor is and will be the true and lawful owner of the Collateral, subject to no liens, charges, security interests and encumbrances other than the lien hereof and the Permitted Encumbrances; (b) the Collateral is to be used by -17- Grantor solely for business purposes, being installed upon the Premises for Grantor's own use or as the equipment and furnishing leased or furnished by Grantor, as landlord, to tenants of the Premises; (c) the Collateral will not be removed from the Premises without the consent of Beneficiary except in accordance with Section 4.4 hereof; (d) unless stated otherwise in this Deed of Trust, the only persons having any interest in the Collateral are Grantor and Beneficiary and no financing statement covering any such property and any proceeds thereof is on file in any public office except pursuant hereto; (e) the remedies of Beneficiary hereunder are cumulative and separate, and the exercise of any one or more of the remedies provided for herein or under the Code shall not be construed as a waiver of any of the other rights of Beneficiary including having such Collateral deemed part of the realty upon any foreclosure thereof; (f) if notice to any party of the intended disposition of the Collateral is required by law in a particular instance, such notice shall be deemed commercially reasonable if given at least ten (10) days prior to such intended disposition and may be given by advertisement in a newspaper accepted for legal publications either separately or as part of a notice given to foreclose the real property or may be given by private notice if such parties are known to Beneficiary; (g) Grantor will from time to time provide Beneficiary on request with itemizations of all Collateral; (h) the filing of a financing statement pursuant to the Code shall never impair the stated intention of this Deed of Trust that all Improvements, Fixtures, Equipment and Personal Property described in Granting Clause B hereof are, and at all times and for all purposes and in all proceedings both legal or equitable shall be regarded as, part of the real property mortgaged hereunder irrespective of whether such item is physically attached to the real property or any such item is referred to or reflected in a financing statement; (i) Grantor will on demand deliver all financing statements and/or continuations that may from time to time be required by Beneficiary to establish and perfect the priority of Beneficiary's security interest in such Collateral and all costs, including recording and filing fees, shall be paid by Grantor; (j) Grantor shall give advance written notice of any proposed change in Grantor's name, address, identity or structure and will execute and deliver to Beneficiary prior to or concurrently with such change all additional financing statements that Beneficiary may require to establish and perfect the priority of Beneficiary's security interest; and (k) Grantor shall renew and pay all expenses of renewing the financing statement covering the Collateral in the event the security interest in such Collateral will expire by reason of statutory law prior to the end of the term of this Deed of Trust. SECTION 4.4 MAINTENANCE OF PROPERTY. Subject to the provisions of this Section, in any instance where Grantor in its discretion determines that any item subject to a security interest under this Deed of Trust has become inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary for the operation of the Premises, Grantor may, at its expense, remove and dispose of it and substitute and install other items not necessarily having the same function, provided, that such removal and substitution shall not impair the operating utility and unity of the Premises. All substituted items shall become a part of the Premises and subject to the lien of this Deed of Trust. Any amounts received or allowed Grantor upon the sale or other disposition of the removed items of property shall be applied only against the cost of acquisition and installation of the substituted items. Nothing herein contained shall -18- be construed to prevent any tenant or subtenant from removing from the Premises trade fixtures, furniture and equipment installed by it and removable by such tenant under the terms of its lease, on the condition, however, that all damages to the Premises resulting from or caused by the removal thereof be repaired at the sole cost of Grantor if such tenant shall fail to so repair. ARTICLE 5 --------- APPLICATION OF INSURANCE AND AWARDS ----------------------------------- SECTION 5.1 DAMAGE OR DESTRUCTION OF THE PREMISES. Grantor will give Beneficiary prompt notice of damage to or destruction of the Premises, and in case of loss covered by policies of insurance, Beneficiary (whether before or after foreclosure sale) is hereby authorized at its option to settle and adjust any claim arising out of such policies and collect and receipt for the proceeds payable therefrom; provided, if Grantor is not in default hereunder, Grantor may itself adjust and collect for any losses arising out of a single occurrence aggregating not in excess of One Hundred Thousand and No/100 Dollars ($100,000.00). Any expense incurred by Beneficiary in the adjustment and collection of insurance proceeds (including the cost of any independent appraisal of the loss or damage on behalf of Beneficiary) shall be reimbursed to Beneficiary first out of any such insurance proceeds. The insurance proceeds or any part thereof shall be applied to reduction of the Indebtedness, whether due or not, or to the restoration or repair of the Premises, the choice of application to be solely at the discretion of Beneficiary. In the event Beneficiary does not make insurance proceeds available for restoration and applies the insurance proceeds to payment of the Indebtedness, no prepayment fee shall be due on the insurance proceeds so applied and the monthly installment payments of principal and interest set forth in the Note shall be adjusted to an amount sufficient to reamortize the then unpaid principal balance of the Note together with interest in equal monthly installment payments over the then remaining portion of the original amortization period. In the event Beneficiary does not make insurance proceeds available for reconstruction of the Premises, Grantor shall have the right to prepay the Loan in full without a prepayment fee in accordance with the provisions of the Note. SECTION 5.2 CONDEMNATION. Grantor will give Beneficiary prompt notice of any action, actual or threatened, in condemnation or eminent domain, and hereby assigns, transfers, and sets over to Beneficiary the entire proceeds of any award or claim for damages for all or any part of the Premises taken or damaged under the power of eminent domain or condemnation (herein referred to as "Condemnation"), Beneficiary being hereby authorized to intervene in any such action and to collect and receive from the condemning authorities and give proper receipts and acquittances for such proceeds. Grantor will not enter into any agreements with the condemning authority permitting or consenting to the taking of the Premises unless prior written consent of Beneficiary is obtained. Any expenses incurred by Beneficiary in intervening in such action or collecting such Condemnation proceeds (including the cost of any independent appraisal) shall be reimbursed to Beneficiary first out of Condemnation -19- proceeds prior to any other payments or disbursements. Grantor shall deliver all Condemnation proceeds to Beneficiary within five (5) days of receipt thereof and shall at Beneficiary's request direct the condemning authority to deliver the Condemnation proceeds to Beneficiary. Condemnation proceeds or any part thereof shall be applied upon or in reduction of the Indebtedness, whether due or not, or to the restoration or repair of the Premises, the choice of application to be solely at the discretion of Beneficiary. In the event Beneficiary does not make Condemnation proceeds available for restoration and applies Condemnation proceeds to payment of debt, no prepayment fee shall be due on Condemnation proceeds so applied and the monthly installment payments of principal and interest set forth in the Note shall be adjusted to an amount sufficient to reamortize the then unpaid principal balance of the Note together with interest in equal monthly installment payments over the then remaining portion of the original amortization period. SECTION 5.3 DISBURSEMENT OF INSURANCE AND CONDEMNATION PROCEEDS. Should any insurance or Condemnation proceeds be applied to the restoration or repair of the Premises in accordance with this Article 5, the restoration or repair shall be done under the supervision of an architect acceptable to Beneficiary (or, at Beneficiary's discretion, an engineer acceptable to Beneficiary) and pursuant to site and building plans and specifications approved by Beneficiary. The proceeds from insurance or condemnation, after payment of costs and expenses of collection ("Net Proceeds"), shall be held by Beneficiary for such purposes and will from time to time be disbursed by Beneficiary to defray the costs of such restoration or repair under such safeguards and controls as Beneficiary may require and in accordance with standard construction loan procedures. Net Proceeds may at the option of Beneficiary be disbursed through a title insurance company selected by Beneficiary and at the sole cost of Grantor. Prior to making Net Proceeds available for the payment of costs of repair or restoration of the improvements upon the Premises, Beneficiary shall be entitled to receive the following: (a) Evidence that no Event of Default exists under any of the terms, covenants and conditions of this Deed of Trust, the Note, or any other Loan Documents. (b) Evidence that all leasing requirements for the Premises as established by Beneficiary have been met. (c) Satisfactory proof that all improvements have been fully restored, or that the expenditure of Net Proceeds will be sufficient to pay the cost of repair, restoration or rebuilding of the improvements located on the Premises, free and clear of all liens, except the lien of this Deed of Trust. In the event Net Proceeds shall be insufficient to pay the cost for such repair, restoration or rebuilding, Grantor shall deposit with Beneficiary funds equaling such deficiency, which, together with the Net Proceeds, shall be sufficient to pay for such repair, restoration and rebuilding of the Premises. -20- (d) A statement of Grantor's architect, certifying the extent of the repair and restoration completed to the date thereof, and that such repair, restoration and rebuilding have been performed to date in conformity with the plans and specifications that have been approved by Beneficiary, together with evidence satisfactory to Beneficiary of payment for labor and materials furnished to the Premises, and total or partial lien waivers substantiating such payments. (e) A waiver of subrogation from any insurer to the effect that such insurer has no liability against Grantor or the then owner or other insured under the policy of insurance in question. (f) Evidence that zoning, building and other necessary permits and approvals have been obtained. (g) An opinion of Grantor's counsel in form and content acceptable to Beneficiary that such repair and reconstruction will not violate any authority or agreement to which Grantor may be subject. (h) Satisfactory evidence is delivered to Beneficiary that the improvements can be rebuilt to substantially to the same condition as when originally financed and can with restoration and repair continue to be operated for the purposes utilized prior to such damage. (i) Evidence that the then current loan balance shall not exceed seventy-five percent (75%) of the appraised value of the Premises after such restoration or repair. (j) Tenants of the Premises as designated by Beneficiary shall certify to Beneficiary their intention to continue to occupy the Premises without any abatement or adjustment of rental payments (other than temporary abatements during the period of restoration and repair). (k) Such performance and payment bonds, and such insurance, in such amounts, issued by such company or companies and in such forms and substance, as may be required by Beneficiary. (l) Evidence of fulfillment of all other requirements which Beneficiary may make in connection with repair of the improvements on the Premises. (m) Evidence that the appraised value of the Premises after such restoration or repair shall not be less than its appraised value as of the date hereof. -21- In the event Grantor shall fail to restore, repair or rebuild the improvements upon the Premises within a reasonable time, then such failure shall constitute an Event of Default hereunder and Beneficiary, at its option and upon not less than thirty (30) days written notice to Grantor, may in addition to its remedies contained in Article VII hereof, (i) restore, repair or rebuild the improvements for or on behalf of Grantor, and for such purpose, may perform all necessary or appropriate acts to accomplish such restoration, repair or rebuilding, or (ii) apply all or any part of the Net Proceeds on account of the Indebtedness whether then due or not, without application of a prepayment premium. In the event insurance proceeds or an eminent domain award shall exceed the amount necessary to complete the repair, restoration or the rebuilding of the improvements upon the Premises, such excess may, at Beneficiary's option, (y) be applied on account of the Indebtedness, in which event no prepayment fee shall be due on the proceeds so applied and the monthly installment payments of principal and interest set forth in the Note shall be adjusted to an amount sufficient to reamortize the then unpaid principal balance of the Note together with interest in equal monthly installment payments over the then remaining portion of the original amortization period, or (z) be returned to Grantor. ARTICLE 6 --------- LEASES AND RENTS ---------------- SECTION 6.1 GRANTOR TO COMPLY WITH LEASES. Grantor will, at its own cost and expense, perform, comply with and discharge all of the obligations of Grantor under leases of all or any part of the Premises and use its best efforts to enforce or secure the performance of each obligation and undertaking of the respective tenants under any such leases and will appear in and defend, at its own cost and expense, any action or proceeding arising out of or in any manner connected with Grantor's interest in any leases pertaining to the Premises. Grantor shall not (a) execute any other assignment of any rentals due under the leases; (b) execute any future leases of any portion of the Premises, without the prior written consent of Beneficiary, provided, however, that so long as no Event of Default then exists, Grantor may, in the ordinary course of business in the exercise of sound business judgment, execute future leases without the prior written consent of Beneficiary if such lease (i) is for a tenant which occupies not more than five thousand (5,000) square feet of space [any tenant occupying more than five thousand (5,000) square feet of space is herein referred to as a "Major Tenant"], (ii) is for a primary term of not more than five (5) years (including renewal options), (iii) provides for an annual rental rate of not less than Fifteen Dollars ($15.00) per square foot, and (iv) is on the standard form of lease attached as Exhibit D to that certain Borrower's Closing Certificate of even date herewith, from Grantor, as Borrower, to Beneficiary, as Lender; (c) terminate or consent to the cancellation or surrender of any lease or tenancy of the Premises or of any part thereof, now existing or hereafter to be made; (d) modify, alter, amend, renew or extend the terms of any lease or tenancy, including without limitation, shortening the unexpired term thereof or decreasing the amount of any rentals payable thereunder; (e) accept prepayments of any installments of rents to become due and payable under any lease -22- or tenancy for more than each current month in advance; (f) consent to an assignment or subletting, in whole or in part, without the prior written consent of Beneficiary; (g) consent to a release of any lessee obligation under any lease; (h) incur any indebtedness to any lessee; (i) agree to the settlement of any obligations of the lessee under a lease, without the prior written consent of Beneficiary; or (j) in any other manner materially impair the value of the Premises or the security of Beneficiary for the payment of the Note. Notwithstanding the foregoing, with respect to a lease with a tenant which is not a Major Tenant, Grantor may, without the prior written consent of Beneficiary, take any of the actions specified in subparagraphs (c), (d), (f), (g) and (i) above, provided that no Event of Default then exists and such action is taken in the ordinary course of business in the exercise of sound business judgment. SECTION 6.2 BENEFICIARY'S RIGHT TO PERFORM UNDER LEASES. Should Grantor fail to perform, comply with or discharge any obligations of Grantor under any lease of all or any part of the Premises or should Beneficiary become aware of or be notified by any tenant under any such lease of a failure on the part of Grantor to so perform, comply with or discharge its obligations under said lease, Beneficiary may, but shall not be obligated to, and without further demand upon Grantor, and without waiving or releasing Grantor from any obligation contained in this Deed of Trust, remedy such failure, and Grantor agrees to repay upon demand all sums incurred by Beneficiary in remedying any such failure including, without limitation, Beneficiary's attorneys' fees, together with interest at the "Default Rate" (as defined in the Note). All such sums, together with interest as aforesaid, shall become so much additional Indebtedness, but no such advance shall be deemed to relieve Grantor from any default hereunder. SECTION 6.3 ASSIGNMENT OF LEASES AND RENTS. Grantor does hereby unconditionally and absolutely sell, assign and transfer unto Beneficiary all of the leases, rents, issues, income and profits now due and which may hereafter become due under or by virtue of any lease, whether written or verbal, or any agreement or license for the use or occupancy of the Premises, whether now existing or entered into at any time during the term of this Deed of Trust, all guaranties of any lessee's obligations under any such lease and all security deposits, it being the intention of this Deed of Trust to establish an absolute transfer and assignment of all such leases and agreements and all of the rents, issues, income and profits from the Premises and/or Grantor's operation or ownership thereof unto Beneficiary, and Grantor does hereby appoint irrevocably Beneficiary as Grantor's true and lawful attorney in Grantor's name and stead, which appointment is coupled with an interest and shall not be revocable, to collect all of said rents, issues, income and profits; provided, Grantor shall have a license to collect and retain such rents, issues, income and profits unless and until an Event of Default exists under this Deed of Trust. Grantor assigns to Beneficiary all guarantees of lessee's obligations under leases and all proceeds from settlements relating to terminations of leases and all claims for damages arising from rejection of any lease under the bankruptcy laws. Upon the occurrence of an Event of Default and whether before or after the institution of legal proceedings to foreclose the lien hereof or before or after sale hereunder or during any period of redemption existing by law, -23- forthwith, upon demand of Beneficiary, Grantor shall surrender to Beneficiary and Beneficiary shall be entitled to enter upon and take and maintain possession of the Premises and any leases thereunder and collect and retain any rents, issues, income and profits from the Premises and hold, operate, manage and control the Premises and any such leases and to do such things in its discretion as may be deemed proper or necessary to enforce the payment or security of the rents, issues, income and profits of the Premises and the performance of the tenants' obligations under any leases of the Premises, with full power to cancel or terminate any lease for any cause or on any grounds which would entitle Grantor to cancel the same and to elect to disaffirm any lease made subsequent to this Deed of Trust or subordinated to the lien hereof. All rents and payments received by Grantor after Beneficiary has exercised any of its rights under this assignment or under the Assignment of Leases shall be held by Grantor in trust for Beneficiary and shall be delivered to Beneficiary immediately without demand. Beneficiary shall not be obligated to perform or discharge any obligation or liability of the landlord under any of said leases and Grantor shall, and does hereby agree to, indemnify and hold Beneficiary harmless of and from any and all expenses, liability, loss or damage which it might incur under said leases or under or by reason of this Deed of Trust. Any amounts incurred by Beneficiary in connection with its rights hereunder, including costs, expenses and attorneys' fees, shall bear interest thereon at the Default Rate, shall be additional Indebtedness and Grantor shall reimburse Beneficiary therefor immediately upon demand. Beneficiary may apply any of said rents, issues, income and profits received to the costs and expenses of collection, including attorneys' fees, to the payment of taxes, assessments and insurance premiums and expenditures for the upkeep of the Premises, to the performance of the landlord's obligations under the leases, to the performance of any of Grantor's covenants hereunder, and to any Indebtedness in such order as Beneficiary may determine. The entering upon and taking possession of the Premises, the collection of such rents, issues, income and profits and the application thereof as aforesaid shall not cure or waive any Event of Default under this Deed of Trust nor in any way operate to prevent Beneficiary from pursuing any other remedy which it may now or hereafter have under the terms of this Deed of Trust nor shall it in any way be deemed to constitute Beneficiary a mortgagee-in-possession. The rights hereunder shall in no way be dependent upon and shall apply without regard to whether the Premises are in danger of being lost, materially injured or damaged or whether the Premises are adequate to discharge the Indebtedness. Grantor represents and agrees that no rent has been or will be paid by any person in possession of any portion of the Premises for more than one installment in advance and that the payment of none of the rents to accrue for any portion of the Premises has been or will be waived, released, reduced, discounted, or otherwise discharged or compromised by Grantor, except as permitted in this Article 6. Grantor waives any right of set-off against any person in possession of any portion of the Premises. Grantor further agrees that Grantor will not execute or agree to any subsequent assignment of any of the rents, issues, income or profits from the Premises without the prior written consent of Beneficiary. The rights contained herein are in addition to and shall be cumulative with the rights given in the Assignment of Leases. To the extent inconsistent with the terms of this Article 6, the terms of the Assignment of Leases shall control. -24- ARTICLE 7 --------- RIGHTS OF BENEFICIARY --------------------- SECTION 7.1 RIGHT TO CURE EVENT OF DEFAULT. If Grantor shall fail to comply with any of the covenants or obligations of this Deed of Trust, Beneficiary may, but shall not be obligated to, without demand upon Grantor, and without waiving or releasing Grantor from any obligation in this Deed of Trust contained, remedy such failure, and Grantor agrees to repay upon demand all sums incurred by Beneficiary in remedying any such failure together with interest at the Default Rate. All such sums, together with interest as aforesaid shall become Indebtedness. No such advance shall be deemed to relieve Grantor from any failure hereunder. SECTION 7.2 NO CLAIM AGAINST BENEFICIARY. Nothing contained in this Deed of Trust shall constitute any consent or request by Beneficiary, express or implied, for the performance of any labor or services or for the furnishing of any materials or other property in respect of the Premises or any part thereof, nor as giving Grantor or any party in interest with Grantor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would create any personal liability against Beneficiary in respect thereof or would permit the making of any claim that any lien based on the performance of such labor or services or the furnishing of any such materials or other property is prior to the lien of this Deed of Trust. SECTION 7.3 INSPECTION. Grantor will permit Beneficiary or its authorized representatives to enter the Premises at all times during normal business hours for the purpose of inspecting the same; provided Beneficiary shall have no duty to make such inspections and shall not incur any liability or obligation for making or not making any such inspections. SECTION 7.4 WAIVERS; RELEASES; RESORT TO OTHER SECURITY; ETC. Without affecting the liability of any party liable for payment of any Indebtedness or performance of any obligation contained herein, and without affecting the rights of Beneficiary with respect to any security not expressly released in writing, Beneficiary may, at any time, and without notice to or the consent of Grantor or any party in interest with the Premises or the Note: (a) release any person liable for payment of all or any part of the Indebtedness or for performance of any obligation herein; (b) make any agreement extending the time or otherwise altering the terms of payment of all or any part of the Indebtedness or modifying or waiving any obligation, or subordinating, modifying or otherwise dealing with the lien or charge hereof; (c) accept any additional security; (d) release or otherwise deal with any property, real or personal, including any or all of the Premises, including making partial releases of the Premises; or (e) resort to any security agreements, pledges, contracts of guarantee, assignments of rents and leases or other securities, and exhaust any one or more of said securities and the -25- security hereunder, either concurrently or independently and in such order as it may determine. SECTION 7.5 RIGHTS CUMULATIVE. Each right, power or remedy herein conferred upon Beneficiary is cumulative and in addition to every other right, power or remedy, express or implied, now or hereafter arising, available to Beneficiary, at law or in equity, or under the Code, or under any other agreement, and each and every right, power and remedy of Beneficiary herein set forth or otherwise so existing shall be cumulative to the maximum extent permitted by law and may be exercised from time to time as often and in such order as may be deemed expedient by Beneficiary and any such exercise shall not be a waiver of the right to exercise at any time thereafter any other right, power or remedy. No delay or omission by Beneficiary in the exercise of any right, power or remedy arising hereunder or arising otherwise shall impair any such right, power or remedy or the right of Beneficiary to resort thereto at a later date or be construed to be a waiver of any Event of Default under this Deed of Trust or the Note. SECTION 7.6 SUBSEQUENT AGREEMENTS. Any agreement hereafter made by Grantor and Beneficiary pursuant to this Deed of Trust shall be superior to the rights of the holder of any intervening lien or encumbrance. SECTION 7.7 WAIVER OF APPRAISEMENT, HOMESTEAD, MARSHALING. Grantor hereby waives to the full extent lawfully allowed the benefit of any homestead, appraisement, evaluation, stay and extension laws now or hereafter in force. Grantor hereby waives any rights available with respect to marshaling of assets so as to require the separate sales of any portion of the Premises, or as to require Beneficiary to exhaust its remedies against a specific portion of the Premises before proceeding against the other and does hereby expressly consent to and authorize the sale of the Premises or any part thereof as a single unit or parcel. Grantor also hereby waives any and all rights of reinstatement and redemption from sale under any order or decree of foreclosure pursuant to rights herein granted, on behalf of Grantor, and each and every person acquiring any interest in, or title to the Premises described herein subsequent to the date of this Deed of Trust, and on behalf of all other persons to the extent permitted by applicable law. SECTION 7.8 BUSINESS LOAN REPRESENTATION. Grantor represents and warrants to Beneficiary that the Loan evidenced by the Note is a business loan transacted solely for the purpose of carrying on the business of Grantor and not a consumer transaction and that the Premises does not constitute the homestead of Grantor. SECTION 7.9 DISHONORED CHECKS. In the event Grantor shall send to Beneficiary two (2) or more checks in any twelve (12) month period which are not honored by the bank, for any reason, Beneficiary shall have the right to require that all future payments be made by certified check, or other good funds, at Beneficiary's option. -26- ARTICLE 8 --------- EVENTS OF DEFAULT AND REMEDIES ------------------------------ SECTION 8.1 EVENTS OF DEFAULT. In addition to the occurrence of any event designated as an Event of Default hereunder or under any other Loan Document, the occurrence of any of the following shall be deemed an event of default under this Deed of Trust (hereinafter referred to as an "Event of Default"): (a) Grantor or any co-maker, guarantor or surety shall fail to pay any principal, premium, if any, or interest on the Note when and as the same becomes due (whether at the stated maturity or at a date fixed for any installment payment or any accelerated payment date or otherwise); or (b) Grantor shall fail to deposit the Charges with Beneficiary or to pay when due any other Indebtedness; or (c) Grantor shall breach or fail to comply with or perform any other term, condition or covenant of the Note, this Deed of Trust, the Assignment of Leases or any other Loan Document, and, unless a different cure period is provided for (in which case such different cure period shall apply), the continuance of such breach or failure for a period of more than thirty (30) days after the giving of written notice of such breach or failure from Beneficiary to Grantor, provided, however, that if such breach or failure is of such a nature that it cannot be cured within the initial thirty (30) day period, Grantor shall have such additional time [not to exceed an additional thirty (30) days] within which to cure such breach or failure provided that Grantor commences to cure such breach or failure within the initial (30) day period, and thereafter diligently prosecutes such curing to completion. Notwithstanding anything to the contrary contained herein, Grantor shall not be entitled to receive any written notice or have the benefit of any grace period if such breach involves the breach of the provisions of Section 2.9 hereof; or (d) Grantor or any co-maker, guarantor or surety of the Note shall make an assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file a petition seeking any reorganization, dissolution, liquidation, arrangement, composition, readjustment or similar relief under any present or future bankruptcy or insolvency statute, law or regulation or shall file an answer admitting to or not contesting the material allegations of a petition filed against it in such proceedings, or shall not within sixty (60) days after the filing of such a petition have the same dismissed or vacated, or shall -27- seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of a material part of its properties, or shall not within sixty (60) days after the appointment without the consent or acquiescence of it of a trustee, receiver or liquidator of any material part of its properties have such appointment vacated; or (e) Any certification, representation or warranty made by Grantor herein, in the Note or in any other instrument or certificate now or hereafter given as security for the Note or made in connection with the application for the Loan or given as an inducement to Beneficiary to make the Loan shall be false, breached or dishonored in any material respect, and, provided that such certification, representation or warranty is of such a nature that it can be corrected so as to make it not false, breached or dishonored, and the continuance of such falsity, breach or dishonor for a period of more than thirty (30) days after the giving of written notice thereof from Beneficiary to Grantor, provided, however, that if such falsity, breach or dishonor is of such a nature that it cannot be cured within the initial thirty (30) day period, Grantor shall have such additional time [not to exceed an additional thirty (30) days] within which to cure such falsity, breach or dishonor provided that Grantor commences to cure such falsity, breach or dishonor within the initial (30) day period, and thereafter diligently prosecutes such curing to completion; or (f) The Premises shall be transferred in any manner other than that allowed herein; or (g) Grantor or Guarantor shall be dissolved, liquidated or go out of existence, except as permitted in Section 2.9 hereof; or (h) The occurrence of any event set forth in Sections 9.4 or 10.8 hereof; or (i) The institution of foreclosure or other proceedings to enforce against the Premises or Grantor any junior deed of trust or junior security interest or other lien or encumbrance of any kind upon the Premises or any portion thereof, except when contested to the extent permitted in Section 2.5 hereof. SECTION 8.2 BENEFICIARY'S RIGHT TO ACCELERATE. If an Event of Default shall occur, Beneficiary may immediately and without notice to Grantor declare the entire unpaid principal balance of the Note together with all other Indebtedness to be immediately due and payable, and thereupon all such unpaid principal balance of the Note together with all accrued interest thereon, any prepayment premium under the terms of the Note and all other Indebtedness shall be and become immediately due and payable. -28- SECTION 8.3 REMEDIES OF BENEFICIARY AND RIGHT TO FORECLOSE. Upon the occurrence of an Event of Default, Grantor hereby authorizes and fully empowers Beneficiary to foreclose this Deed of Trust, judicially or non-judicially, or by such other statutory procedures available in the state in which the Premises are located, at the option of Beneficiary, with full authority to sell the Premises at public auction and convey the same to the purchaser in fee simple, all in accordance with and in the manner prescribed by law, and out of the proceeds arising from sale and foreclosure to retain the principal and interest due on the Note and all other indebtedness together with all sums of money as Beneficiary shall have expended or advanced pursuant to this Deed of Trust or pursuant to statute together with interest thereon as herein provided and all costs and expenses of such foreclosure, including lawful attorneys' fees, with the balance, if any, to be paid to the persons entitled thereto by law. SECTION 8.4 RECEIVER. Upon the occurrence of an Event of Default, Beneficiary shall be entitled as a matter of right without notice and without regard to the solvency or insolvency of Grantor, or the existence of waste of the Premises or the value or adequacy of the security of the Premises, and without giving bond apply for the appointment of a receiver in accordance with the statutes and law made and provided for, who shall collect the rents, issues, profits and all other income of any kind; manage the Premises so to prevent waste; execute leases within or beyond the period of receivership, pay all expenses for normal maintenance of the Premises and perform the terms of this Deed of Trust and apply the rents, issues, income and profits to the costs and expenses of the receivership, including attorneys' fees, to the repayment of the Indebtedness and to the operation, maintenance and upkeep and repair of the Premises, including payment of taxes on the Premises and payments of premiums of insurance on the Premises and any other rights permitted by law. To the extent permitted by law, Grantor does hereby irrevocably consent to such appointment. The receiver may, to the extent permitted under applicable law, without notice, enter upon and take possession of the Premises, or any part thereof, by force, summary proceedings, ejectment or otherwise, and remove Grantor or any other person or entity and any personal property therefrom, and may hold, operate and manage the same, receive all rents, earnings, incomes, issues and proceeds and do the things the receiver finds necessary to preserve and protect the Premises, whether during pendency of foreclosure, during a redemption period, if any, or otherwise. SECTION 8.5 RIGHTS UNDER UNIFORM COMMERCIAL CODE. In addition to the rights available to a beneficiary of a deed of trust on, or to a mortgagee of, real property, Beneficiary shall also have all the rights, remedies and recourse available to a secured party under the Code including the right to proceed under the provisions of the Code governing default as to any Collateral as defined in this Deed of Trust which may be included on the Premises or which may be deemed non-realty in a foreclosure of this Deed of Trust or to proceed as to such Collateral in accordance with the procedures and remedies available pursuant to a foreclosure of real estate. -29- SECTION 8.6 RIGHT TO DISCONTINUE PROCEEDINGS. In the event Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted under this Deed of Trust and shall thereafter elect to discontinue or abandon the same for any reason, Beneficiary shall have the unqualified right to do so and in such event Grantor and Beneficiary shall be restored to their former positions with respect to the Indebtedness, in which case this Deed of Trust and all rights, remedies and recourse of Beneficiary shall continue as if such action or exercise of a right had not been invoked. SECTION 8.7 WAIVERS. Grantor also waives the benefit of all laws now existing or that may hereafter be enacted providing for (i) any appraisal before sale of any portion of the Premises, and (ii) in any way extending the time for the enforcement and collection of the Note or this Deed of Trust or creating or extending a period of redemption from any sale made in collecting said debt. To the full extent Grantor may do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter enforced providing for any appraisal, evaluation, stay, extension or redemption and Grantor, to the extent permitted by law, waives and releases all rights of redemption, valuation, appraisal, stay of execution, notice of election to mature or declare due the whole of the Indebtedness and marshaling in the event of foreclosure of the liens hereby created. ARTICLE 9 --------- HAZARDOUS MATERIALS ------------------- SECTION 9.1 DEFINITIONS. The term "Hazardous Materials or Wastes" shall mean any hazardous or toxic materials, pollutants, chemicals, or contaminants, including without limitation, asbestos, polychlorinated biphenyls (PCBs) and petroleum products as defined, determined or identified as such in any "Laws" (as hereinafter defined). The term "Laws" means any federal, state or local laws, rules or regulations (whether now existing or hereinafter enacted or promulgated) including, without limitation, the Clean Water Act, 33 U.S.C.ss.1251 et seq. (1972); the Clean Air Act, 42 U.S.C.ss.7401 et seq. (1970); the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Subsection 1802 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Subsection 6901 et seq.; the Hazardous Materials Transportation Act, as amended, 42 U.S.C.ss.1801 et seq.; any similar state laws, as well as any judicial or administrative interpretation thereof, including any judicial or administrative orders or judgments. SECTION 9.2 REPRESENTATIONS BY GRANTOR. Grantor hereby represents to Beneficiary that, to the best of Grantor's knowledge after due inquiry, and except as may be set forth in environmental report dated April 21, 1996, prepared by Northwest Envirocon Inc. with respect to the Premises, (a) the Premises has never been used either by previous owners or occupants or by Grantor or current occupants to generate, manufacture, refine, transport, treat, store, handle or dispose of asbestos or any Hazardous Materials or Wastes and no such asbestos or Hazardous Materials or Wastes exist on the Premises or in its soil or groundwater; (b) no portion of the -30- improvements on the Premises has been constructed with asbestos, asbestos- containing materials, urea formaldehyde insulation or any other chemical or substance which has been determined to be a hazard to health and/or the environment; (c) there are not now nor have there been electrical transformers or other equipment which have dielectric fluid-containing polychlorinated biphenyls (PCBs) located in, on or under the Premises; and (d) the Premises has never contained any underground storage tanks. Grantor has not received nor does it have any knowledge of any summons, citation, directive, letter or other communication, written or oral, from any local, state or federal governmental agency concerning (i) the existence of Hazardous Materials or Wastes on the Premises or in the immediate vicinity or (ii) the releasing, spilling, leaking, pumping, pouring, emitting, emptying, or dumping of Hazardous Materials or Wastes onto the Premises or into waters or other lands. SECTION 9.3 COVENANTS BY GRANTOR. Grantor hereby covenants to Beneficiary that, until such time as title to the Premises has passed to Beneficiary by foreclosure or otherwise, or Beneficiary or a receiver appointed at the request of Beneficiary has taken control of the Premises: (a) Grantor shall (i) comply and shall cause all occupants of the Premises to comply with all federal, state and local laws, rules, regulations and orders with respect to the discharge, generation, removal, transportation, storage and handling of Hazardous Materials or Wastes, (ii) remove any Hazardous Materials or Wastes immediately upon discovery of same, in accordance with applicable laws, ordinances and orders of governmental authorities having jurisdiction thereof, (iii) pay or cause to be paid all costs associated with such removal, and (iv) indemnify Beneficiary from and against all losses, claims and costs arising out of the migration of Hazardous Materials or Wastes from or through the Premises onto or under other properties; (b) Grantor shall keep the Premises free of any lien imposed pursuant to any state or federal law, rule, regulation or order in connection with the existence of Hazardous Materials or Wastes on the Premises; (c) Grantor shall not install or permit to be installed or to exist in or on the Premises any asbestos, asbestos-containing materials, urea formaldehyde insulation or any other chemical or substance which has been determined to be a hazard to health and environment; (d) Grantor shall not cause or permit to exist, as a result of an intentional or unintentional act or omission on the part of Grantor or any occupant of the Premises, a releasing, spilling, leaking, pumping, emitting, pouring, emptying or dumping of any Hazardous Materials or Wastes onto the Premises or into waters or other lands; and (e) Grantor shall give all notifications and prepare all reports required by Laws or any other law with respect to Hazardous Materials or Wastes existing on, released from or emitted from the Premises. SECTION 9.4 EVENTS OF DEFAULT AND REMEDIES. It shall constitute an Event of Default hereunder and Beneficiary shall be entitled to exercise all remedies available to it hereunder if: (a) any of Grantor's representations contained in Section 9.2 hereof prove to be false, inaccurate or misleading; (b) Grantor shall fail to comply with the covenants contained in Section 9.3 hereof; (c) any Hazardous Materials or Wastes are hereafter found to exist on the Premises or in its soil or groundwater; or (d) any summons, citation, directive, letter or other communication, written or oral, shall -31- be issued by any local, state or federal governmental agency concerning the matters described in Section 9.2(d)(i) and (ii) above. Grantor hereby grants Beneficiary and its employees and agents an irrevocable and non-exclusive license to enter the Premises, subject to rights of tenants, in order to inspect, conduct testing and remove Hazardous Materials or Wastes. All costs of such inspection, testing and removal shall immediately become due and payable to Beneficiary, shall bear interest at the Default Rate, shall be secured by this Deed of Trust and shall constitute additional Indebtedness. SECTION 9.5 INDEMNIFICATION. Grantor shall, and hereby agrees to, defend, indemnify and hold harmless Beneficiary, its directors, officers, employees, agents, contractors, subcontractors, licensees, invitees, successors and assigns (the "Indemnified Parties") from and against any and all claims, losses, damages, liabilities, judgments, costs and expenses (including, without limitation, attorneys' fees and costs incurred in the investigation, defense and settlement of claims or remediation of contamination) incurred by the Indemnified Parties as a result of or in connection with the presence or removal of Hazardous Materials or Wastes or as a result of or in connection with activities prohibited under this Article. Grantor shall bear, pay and discharge, as and when the same become due and payable, any and all such judgments or claims for damages, penalties or otherwise, against the Indemnified Parties, shall hold the Indemnified Parties harmless against all claims, losses, damages, liabilities, costs and expenses, and shall assume the burden and expense of defending all suits, administrative proceedings, and negotiations of any description with any and all persons, political subdivisions or government agencies arising out of any of the occurrences set forth in this Article. This indemnification shall remain in full force and effect and shall survive the repayment of the Indebtedness and the satisfaction of the documents securing the same, as well as the exercise of any remedy by Beneficiary hereunder or under the other documents securing this Deed of Trust or the acceptance of a deed in lieu of foreclosure. This indemnification shall not apply to any matter which Grantor proves occurred after title to the Premises has passed to Beneficiary by foreclosure or otherwise, or Beneficiary or a receiver appointed at the request of Beneficiary has taken control of the Premises. SECTION 9.6 LOSS OF VALUE. Grantor hereby assures Beneficiary that Beneficiary will not suffer loss due to diminution of value of the Premises, whether during the term hereof or thereafter, due to Hazardous Material or Wastes upon the Premises, except for those Grantor proves were introduced onto the Premises after title has passed to Beneficiary by foreclosure or otherwise, or Beneficiary or a receiver appointed at the request of Beneficiary has taken control of the Premises, and will, upon demand, reimburse Beneficiary for any such loss of value. ARTICLE 10 ---------- MISCELLANEOUS ------------- SECTION 10.1 RELEASE OF DEED OF TRUST. When all Indebtedness has been paid, this Deed of Trust and all assignments herein contained shall, except as -32- otherwise provided herein, terminate and shall be released by Beneficiary, at no out-of-pocket expense to Beneficiary, executing such documents as are necessary to release this Deed of Trust, which documents shall be procured at Grantor's expense. SECTION 10.2 CHOICE OF LAW. This Deed of Trust is made and executed under the laws of the State of Washington and is intended to be governed by and construed in accordance with the laws of said State. SECTION 10.3 SUCCESSORS AND ASSIGNS. This Deed of Trust and each and every covenant, agreement and other provision hereof shall be binding upon Grantor and its successors and assigns, including without limitation, each and every person or entity that may, from time to time, be record owner of the Premises or any person or entity, other than Beneficiary, having an interest therein, shall run with the land and shall inure to the benefit of Beneficiary and its successors and assigns. As used herein, the words "successors and assigns" shall also be deemed to include the heirs, representatives, administrators and executors of any natural person who is a party to this Deed of Trust. Nothing in this Section shall be construed to constitute consent by Beneficiary to assignment by Grantor. SECTION 10.4 PARTIAL INVALIDITY. All rights, powers and remedies provided herein are intended to be limited to the extent necessary so that they will not render this Deed of Trust invalid, unenforceable or not entitled to be recorded, registered or filed under any applicable law. If any term of this Deed of Trust shall be held to be invalid, illegal or unenforceable, the validity and enforceability of the other terms of this Deed of Trust shall in no way be affected thereby. SECTION 10.5 CAPTIONS AND HEADINGS. The captions and headings of the various articles and sections of this Deed of Trust are for convenience only and are not to be construed as confining or limiting in any way the scope or intent of the provisions hereof. Whenever the context requires or permits, the singular shall include the plural, the plural shall include the singular and the masculine, feminine and neuter shall be freely interchangeable. SECTION 10.6 NOTICES. Any notice which any party hereto may desire or may be required to give to any other party shall be in writing and either (a) mailed by certified mail, return receipt requested, or (b) sent by an overnight carrier which provides for a return receipt, or (c) sent by facsimile followed up by mailing of such notice by either of the methods set forth in (a) or (b) above on the day of sending such facsimile or the next succeeding business day. Any such notice shall be sent to the respective party's address as set forth on Page 1 of this Deed of Trust or to such other address as such party may, by notice in writing given in compliance with this Section 10.6, designate as its address. Any such notice shall constitute service of notice hereunder three (3) days after the mailing thereof by certified mail, one (1) day after the sending thereof by overnight carrier, and on the same day as the sending of a facsimile pursuant to the terms hereof. -33- SECTION 10.7 BUILDING USE. During the entire term of the Note and this Deed of Trust, Grantor agrees not to convert the Premises to a condominium of any kind or to any use other than as a retail office building. In that connection, Grantor covenants that the sale of units and/or recording of condominium documents on the Premises or any part thereof shall constitute an Event of Default hereunder. SECTION 10.8 MANAGEMENT OF THE PREMISES. Grantor acknowledges that the successful management of the Premises is of critical importance to Beneficiary and a primary inducement in the making of the Loan. In the event management becomes unsatisfactory, Beneficiary shall notify Grantor of the same and Grantor shall, within thirty (30) days of such notice, correct any management deficiencies. Failure to so correct shall constitute an Event of Default hereunder. Present management of the Premises by Guarantor is acceptable to Beneficiary at the time of execution of this Deed of Trust. SECTION 10.9 AMENDMENT/MODIFICATION. Amendment to, waiver of or modification of any provision of this Deed of Trust must be made in writing. No oral waiver, amendment, or modification may be implied. SECTION 10.10 SUBSTITUTION OF THE TRUSTEE. Beneficiary may remove the Trustee at any time or from time to time, with or without cause, and appoint a successor trustee, and upon such appointment, all powers, rights, duties and authority of the Trustee, as aforesaid, shall thereupon become vested in such successor. Such substitute trustee shall be appointed by written instrument duly recorded in the county or counties where the real property covered hereby is located, which appointment may be executed by any authorized agent of Beneficiary or in any other manner permitted by applicable law. SECTION 10.11 REPRESENTATIONS OF GRANTOR. Grantor affirmatively represents and warrants that the written terms of the Note, this Deed of Trust, the Assignment of Leases, the financing statements and other documents executed in connection with the Loan, and each of them, accurately reflect the understanding of Grantor, as to all matters addressed therein, and Grantor further represents and warrants that there are no other agreements or understandings, written or oral, which exist between Grantor and Beneficiary relating to the matters addressed in said documents. Grantor hereby waives any claims against Beneficiary that Grantor may now have or may hereafter acquire to the effect that the actual understanding of Grantor and Beneficiary may not be accurately set forth in such documents. SECTION 10.12 BENEFICIARY'S EXPENSE. Should Beneficiary make any payments hereunder or under the Note or under any of the other documents securing the Note or incur any liability, loss or damage under or by reason of this Deed of Trust, the Note or any other Loan Documents, or in the defense of any claims or demands, the amount thereof, and all costs and expenses, including all filing, recording, and title fees and any other expenses relating to the Loan, including without limitation, filing fees for UCC continuation statements and any expense involving modification -34- thereto, attorneys' fees, and any and all costs and expenses incurred in connection with making, performing, or collecting the Indebtedness or exercising any of Beneficiary's rights under the Note, this Deed of Trust or any other Loan Documents, including reasonable attorneys' fees, the cost of appraisals and the cost of any environmental inspections in connection therewith, and all claims for brokerage and finder's fees which may be made in connection with the making of the Loan, together with interest thereon, at the Default Rate, shall become part of the Indebtedness and shall be secured by this Deed of Trust and the other Loan Documents and Grantor hereby agrees to reimburse Beneficiary therefor immediately upon demand. Such sums, costs and expenses shall be, until so paid, part of the Indebtedness and Beneficiary shall be entitled, to the extent permitted by law, to receive and retain the full amount of the Indebtedness in any action for redemption by Grantor, for an accounting for the proceeds of a foreclosure sale or of insurance proceeds or for apportionment of an eminent domain damage award. SECTION 10.13 BENEFICIARY'S RIGHT TO COUNSEL. If Beneficiary retains attorneys to enforce any of the terms hereof or of the Note or of any of the other Loan Documents or because of the breach by Grantor of any of the terms hereof or of the Note or of any of the Loan Documents, or for the recovery of any sum secured hereby or by any of the other Loan Documents, Grantor shall pay to Beneficiary attorneys' fees and all costs and expenses, whether or not an action is actually commenced, and the right to such attorneys' fees and all costs and expenses shall be deemed to have accrued on the date such attorneys are retained, shall include fees and costs in connection with litigation (including at trial), arbitration, mediation and/or administrative proceedings, and shall be enforceable whether or not such action is prosecuted to judgment and shall include all appeals. Attorneys' fees and expenses shall for purposes of this Deed of Trust include all paralegal, electronic research, legal specialists and all other costs in connection with the performance of Beneficiary's attorneys. If Beneficiary is, by reason of being the holder of this Deed of Trust, made a party defendant in any litigation or other proceedings concerning this Deed of Trust or the Premises or any part thereof or therein, or the construction, maintenance, operation or the occupancy or use thereof by Grantor, then Grantor shall, and does hereby agree to, indemnify, defend and hold Beneficiary harmless from and against all liability by reason of said litigation or other proceedings, including reasonable attorneys' fees and all costs and expenses incurred by Beneficiary in any such litigation or other proceedings, whether or not any such litigation or other proceedings is prosecuted to judgment or other determination. SECTION 10.14 OTHER REPRESENTATIONS AND WARRANTIES. All statements contained in any loan application, certificate or other instrument delivered by or on behalf of Grantor to Beneficiary or Beneficiary's representatives in connection with the Loan, including without limitation, those certain representations and warranties made by Grantor in that certain Borrower's Closing Certificate of even date herewith from Grantor to Beneficiary, shall constitute representations and warranties made by Grantor hereunder. Such representations and warranties made hereunder and -35- thereunder shall survive the delivery of this Deed of Trust, and any misrepresentations thereunder shall be deemed as misrepresentations hereunder. SECTION 10.15 LIMITATION OF INTEREST. It is the intent of Grantor and Beneficiary in the execution of this Deed of Trust and the Note and all other Loan Documents to contract in strict compliance with the usury laws of the State of Washington governing the Note. In furtherance thereof, Beneficiary and Grantor stipulate and agree that none of the terms and provisions contained herein or in the Note or in any Loan Document shall ever be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by the laws of the State of Washington. Grantor, or any guarantor, endorser or other party now or hereafter becoming liable for the payment of the Note shall never be required to pay interest on the Note at a rate in excess of the maximum interest that may be lawfully charged under the laws of the State of Washington and the provisions of this Section shall control over all other provisions of the Note and any other instrument executed in connection herewith which may be in apparent conflict herewith. If, from any circumstances whatsoever fulfillment of any provision of the Note, this Deed of Trust or any Loan Document, at the time performance of such provision shall be due, shall involve transcending the limit on interest presently prescribed by any applicable usury statute or any other applicable law, with regard to obligations of like character and amount, then Beneficiary may, at its option (a) reduce the obligations to be fulfilled to such limit on interest, or (b) apply the amount that would exceed such limit on interest to the reduction of the outstanding principal balance of the Note, and not to the payment of interest, with the same force and effect as though Grantor had specifically designated such sums to be so applied to principal and Beneficiary had agreed to accept such extra payment(s) as a prepayment without a fee, so that in no event shall any exaction be possible under the Note that is in excess of the applicable limit on interest. If a surplus remains after full payment of principal and lawful interest, the surplus shall be remitted to Grantor by Beneficiary, and Grantor hereby agrees to accept such remittance. SECTION 10.16 TIME OF THE ESSENCE. Grantor agrees that time is of the essence with respect to all of the covenants, agreements and representations under this Deed of Trust. SECTION 10.17 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations, warranties and covenants contained herein or in any other Loan Document executed by Grantor in connection herewith shall survive the delivery of the Note, this Deed of Trust and all other Loan Documents executed in connection herewith and the provisions hereof shall continue to inure to the benefit of Beneficiary, its successors and assigns. SECTION 10.18 WAIVER OF JURY TRIAL. NO PARTY TO THIS DEED OF TRUST OR ANY ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL REPRESENTATIVE OF A PARTY SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEEDINGS -36- BASED UPON OR ARISING OUT OF THIS DEED OF TRUST, ANY RELATED AGREEMENT OR INSTRUMENT, ANY OTHER COLLATERAL FOR THE INDEBTEDNESS OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG THE PARTIES, OR ANY OF THEM. NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS SECTION HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. SECTION 10.19 MINIMUM REQUIREMENT. Grantor recognizes that the requirements imposed upon Grantor hereunder, including, without limitation, insurance requirements, are minimum requirements as determined by Beneficiary and do not constitute a representation that the requirements are complete or adequate. Grantor understands that it is Grantor's duty and responsibility to act prudently and responsibly at all times for Grantor's protection and for the protection of the Premises. SECTION 10.20 INTEREST RATE ADJUSTMENT. Pursuant to the terms of the Note, Beneficiary shall adjust the rate of interest on the Note at the end of the fifth (5th) Loan Year, all as more fully provided for in the Note, the terms of which are hereby incorporated herein by this reference. SECTION 10.21 ORAL AGREEMENTS OR COMMITMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. SECTION 10.22 POWERS OF TRUSTEE. From time to time upon written request of Beneficiary and presentation of this Deed of Trust for endorsement, and without affecting the personal liability of any person for payment of any indebtedness or performance of the obligation secured hereby, Trustee may, without liability therefor and without notice (a) reconvey all or any part of the Premises; (b) consent to the making of any map or plat thereof; (c) join in granting any easement thereon; (d) join in any declaration of covenants and restrictions; or (e) join in any extension agreement or any agreement subordinating the lien or charge hereof. Trustee or Beneficiary may from time to time apply to any court of competent jurisdiction for aid and direction in the execution of the trusts hereunder and the enforcement of the rights and remedies available hereunder, and Trustee or Beneficiary may obtain orders or decrees directing or confirming or approving acts in the execution of said trusts and the enforcement of said remedies. Trustee has no obligation to notify any party of any pending sale or any action or proceeding unless held or commenced and maintained by Trustee under this Deed of Trust. Trustor shall pay to Trustee reasonable compensation and reimbursement for services and expenses in the administration of the trusts created hereunder, including reasonable attorneys' fees. Trustor hereby agrees to indemnify Trustee against all -37- losses, claims, demands and liability which it may incur, suffer or sustain in the execution of the trust or trusts created hereunder or in the performance of any act required or permitted hereunder or by law. SECTION 10.23 PARTIAL NON-RECOURSE TO TRUSTOR AND THE PARTNERS OF TRUSTOR. The Note contains provisions with respect to limitation of the liability of Trustor and the partners of Trustor with respect to the Loan, which provisions are incorporated herein by this reference. SECTION 10.24 ANNEX PROPERTY AND DECLARATION. Grantor is the owner of certain real property (the "Annex Property") located in Spokane County, Washington, which Annex Property is contiguous to the Premises and which shares the use of certain common facilities with the Premises. The Declaration contains reciprocal easements for the respective benefit of the Premises and the Annex Property. Grantor shall comply with all terms and provisions of the Declaration, and shall pay all fees or charges of any kind in connection therewith. Grantor further covenants that it (a) shall not join in the termination or amendment of the Declaration without the prior written consent of Beneficiary; and (b) shall use its best efforts to give Beneficiary telephonic notice within one (1) day, and shall give Beneficiary written notice (which shall include a copy of any notice received by Grantor) within three (3) days, of Grantor's receipt of any notice received by or on behalf of Grantor with respect to Grantor's non-compliance with any of the provisions of the Declaration. If Grantor fails to correct the conditions specified in the notice to it, Beneficiary may do so, at the sole cost and expense of Grantor, and Grantor shall reimburse Beneficiary for such cost and expense upon demand. Any amount so expended by Beneficiary shall bear interest at the "Default Rate" (as defined in the Note) from the date of expenditure, until repaid to Beneficiary, and shall be secured by the Deed of Trust. SECTION 10.25 COUNTERPARTS. This Deed of Trust may be executed in any number of counterparts, all of which shall constitute but one and the same document. SECTION 10.26 DATING OF THIS DEED OF TRUST. The parties hereto hereby authorize and instruct TRANSNATION TITLE INSURANCE COMPANY, an Arizona corporation ("Transnation Title"), to fill in the date of this Deed of Trust with the date on which the "Loan Increase Advance" (as defined in the Note) is disbursed by Beneficiary by a wire transfer to the account of Transnation Title pursuant to the instructions of Grantor, notwithstanding the fact that such funds may not have been actually received by Transnation Title on the date of disbursement by Beneficiary, all as more fully provided in the Note. -38- IN WITNESS WHEREOF, Grantor and Beneficiary have executed this Amendment and Restatement of Deed of Trust and Security Agreement and Fixture Financing Statement with Assignment of Leases and Rents to be effective (although not necessarily signed) as of the date first above written. WESTCOAST HOSPITALITY, LIMITED PARTNERSHIP, a Delaware limited partnership By: WESTCOAST HOSPITALITY CORPORATION, a Washington corporation General Partner By ------------------------------------ Donald K. Barbieri Its President IDS LIFE INSURANCE COMPANY, a Minnesota corporation By ----------------------------------------------- Its ----------------------------------------------- By ----------------------------------------------- Its ----------------------------------------------- -39- STATE OF WASHINGTON) ) ss. County of Spokane ) I certify that I know or have satisfactory evidence that DONALD K. BARBIERI the person who appeared before me, and said person acknowledged that he signed this instrument, on oath stated that he was authorized to execute the instrument and acknowledged it as the President of WESTCOasT Hospitality CORPORATION, a Washington corporation, in its capacity as the General Partner of WESTCOAST Hospitality, Limited Partnership, a Delaware limited partnership, to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. DATED: May __, 2001. ------------------------------- (Signature) (Seal or Stamp) My Appointment Expires: ------------------------------- STATE OF MINNESOTA) ) ss. County of Hennepin) The foregoing instrument was acknowledged before me this ___ day of May, 2001, by ______________________ and ___________________________, the ________________________ and _____________________, respectively, of IDS LIFE INSURANCE COMPANY, a Minnesota corporation, on behalf of the corporation. -------------------------- Notary Public My Commission Expires: -40- EX-10.2 4 ex10-2_10809.txt JP MORGAN DEED OF TRUST EXHIBIT 10.2 ------------ ================================================================================ Loan No. V_17415 WHC809, LLC, as grantor (Borrower) to TRANSNATION TITLE INSURANCE COMPANY, as trustee (Trustee) for the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as beneficiary (Lender) ----------------------------------- DEED OF TRUST AND SECURITY AGREEMENT ----------------------------------- Dated: As of June 14, 2001 PREPARED BY AND UPON RECORDATION RETURN TO: Dechert 30 Rockefeller Plaza New York, New York 10112-2200 Attention: Paul A. Keenan, Esq. ================================================================================ TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1 - GRANTS OF SECURITY..............................................................1 Section 1.1. PROPERTY CONVEYED................................................1 Section 1.2. ASSIGNMENT OF RENTS..............................................4 Section 1.3. DEFINITION OF PERSONAL PROPERTY..................................4 Section 1.4. PLEDGE OF MONIES HELD............................................4 ARTICLE 2 - DEBT AND OBLIGATIONS SECURED....................................................4 Section 2.1. DEBT.............................................................4 Section 2.2. OTHER OBLIGATIONS................................................5 Section 2.3. DEBT AND OTHER OBLIGATIONS.......................................5 Section 2.4. PAYMENTS.........................................................5 ARTICLE 3 - BORROWER COVENANTS..............................................................6 Section 3.1. INCORPORATION BY REFERENCE.......................................6 Section 3.2. INSURANCE........................................................6 Section 3.3. PAYMENT OF TAXES, ETC...........................................12 Section 3.4. CONDEMNATION....................................................13 Section 3.5. USE AND MAINTENANCE OF PROPERTY.................................13 Section 3.6. WASTE...........................................................14 Section 3.7. COMPLIANCE WITH LAWS; ALTERATIONS...............................14 Section 3.8. BOOKS AND RECORDS...............................................14 Section 3.9. PAYMENT FOR LABOR AND MATERIALS.................................16 Section 3.10. PERFORMANCE OF OTHER AGREEMENTS.................................16 ARTICLE 4 - SPECIAL COVENANTS..............................................................16 Section 4.1. PROPERTY USE....................................................16 Section 4.2. ERISA...........................................................16 Section 4.3. SINGLE PURPOSE ENTITY...........................................17 ARTICLE 5 - REPRESENTATIONS AND WARRANTIES.................................................20 Section 5.1. BORROWER'S REPRESENTATIONS......................................20 Section 5.2. WARRANTY OF TITLE...............................................20 Section 5.3. STATUS OF PROPERTY..............................................21 Section 5.4. NO FOREIGN PERSON...............................................22 Section 5.5. SEPARATE TAX LOT................................................22 ARTICLE 6 - OBLIGATIONS AND RELIANCES......................................................22 Section 6.1. RELATIONSHIP OF BORROWER AND LENDER.............................22 Section 6.2. NO RELIANCE ON LENDER...........................................22 Section 6.3. NO LENDER OBLIGATIONS...........................................22 i Section 6.4. RELIANCE........................................................22 ARTICLE 7 - FURTHER ASSURANCES.............................................................23 Section 7.1. RECORDING FEES..................................................23 Section 7.2. FURTHER ACTS....................................................23 Section 7.3. CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS..........23 Section 7.4. CONFIRMATION STATEMENT..........................................24 Section 7.5. SPLITTING OF SECURITY INSTRUMENT................................24 Section 7.6. REPLACEMENT DOCUMENTS...........................................25 ARTICLE 8 - DUE ON SALE/ENCUMBRANCE........................................................25 Section 8.1. LENDER RELIANCE.................................................25 Section 8.2. NO SALE/ENCUMBRANCE.............................................25 Section 8.3. EXCLUDED AND PERMITTED TRANSFERS................................26 Section 8.4. NO IMPLIED FUTURE CONSENT.......................................28 Section 8.5. COSTS OF CONSENT................................................28 Section 8.6. CONTINUING SEPARATENESS REQUIREMENTS............................28 ARTICLE 9 - DEFAULT........................................................................28 Section 9.1. EVENTS OFDEFAULT................................................28 Section 9.2. DEFAULT INTEREST................................................30 ARTICLE 10 - RIGHTS AND REMEDIES...........................................................31 Section 10.1. REMEDIES........................................................31 Section 10.2. RIGHT OF ENTRY..................................................36 ARTICLE 11 - INDEMNIFICATION; SUBROGATION..................................................36 Section 11.1. GENERAL INDEMNIFICATION.........................................36 Section 11.2. ENVIRONMENTAL INDEMNIFICATION...................................38 Section 11.3. DUTY TO DEFEND AND ATTORNEYS AND OTHER FEES AND EXPENSES........40 Section 11.4. SURVIVAL OF INDEMNITIES.........................................40 ARTICLE 12 - SECURITY AGREEMENT............................................................40 Section 12.1. SECURITY AGREEMENT..............................................40 ARTICLE 13 - WAIVERS.......................................................................41 Section 13.1. MARSHALLING AND OTHER MATTERS...................................41 Section 13.2. WAIVER OF NOTICE................................................42 Section 13.3. SOLE DISCRETION OF LENDER.......................................42 Section 13.4. SURVIVAL........................................................42 Section 13.5. WAIVER OF TRIAL BY JURY.........................................42 Section 13.6. WAIVER OF AUTOMATIC OR SUPPLEMENTAL STAY........................43 ii ARTICLE 14 - NOTICES.......................................................................43 Section 14.1. NOTICES.........................................................43 ARTICLE 15 - APPLICABLE LAW................................................................44 Section 15.1. GOVERNING LAW; JURISDICTION.....................................44 Section 15.2. USURY LAWS......................................................44 Section 15.3. PROVISIONS SUBJECT TO APPLICABLE LAW............................45 ARTICLE 16 - SECONDARY MARKET..............................................................45 Section 16.1. TRANSFER OF LOAN................................................45 ARTICLE 17 - COSTS.........................................................................45 Section 17.1. PERFORMANCE AT BORROWER'S EXPENSE...............................45 Section 17.2. ATTORNEY'S FEES FOR ENFORCEMENT.................................45 ARTICLE 18 - DEFINITIONS...................................................................46 Section 18.1. GENERAL DEFINITIONS.............................................46 ARTICLE 19 - MISCELLANEOUS PROVISIONS......................................................46 Section 19.1. NO ORAL CHANGE..................................................46 Section 19.2. LIABILITY.......................................................46 Section 19.3. INAPPLICABLE PROVISIONS.........................................46 Section 19.4. HEADINGS, ETC...................................................46 Section 19.5. DUPLICATE ORIGINALS; COUNTERPARTS...............................46 Section 19.6. NUMBER AND GENDER...............................................47 Section 19.7. SUBROGATION.....................................................47 Section 19.8. ENTIRE AGREEMENT................................................47 ARTICLE 20 - TRUSTEE.......................................................................47 ARTICLE 21 - SPECIAL STATE OF WASHINGTON PROVISIONS........................................48 iii Index of Defined Terms ADA........................................................................................14 APPLICABLE LAWS............................................................................14 ATTORNEYS..................................................................................37 ATTORNEYS' FEES............................................................................46 BANKRUPTCY CODE.............................................................................2 BORROWER................................................................................1, 46 BUSINESS DAY...............................................................................44 COLLATERAL.................................................................................41 COUNSEL FEES...............................................................................46 DEBT........................................................................................4 DEFAULT RATE...............................................................................30 ENVIRONMENTAL INDEMNITY.....................................................................6 ENVIRONMENTAL LAW......................................................................38, 39 ENVIRONMENTAL LIEN.........................................................................39 ERISA......................................................................................16 ESCROW AGREEMENT............................................................................3 EVENT......................................................................................45 EVENT OF DEFAULT...........................................................................28 EXCULPATED PORTION.........................................................................36 FEES AND EXPENSES..........................................................................37 GUARANTOR..................................................................................18 HAZARDOUS SUBSTANCES.......................................................................39 IMPROVEMENTS................................................................................1 INDEMNIFIED PARTIES........................................................................39 INSURANCE PREMIUMS..........................................................................8 INSURED CASUALTY...........................................................................10 INTANGIBLES.................................................................................3 INVESTOR...................................................................................45 LAND........................................................................................1 LEASE.......................................................................................2 LEASES......................................................................................2 LEGAL FEES.................................................................................46 LENDER..................................................................................1, 46 LOAN.......................................................................................27 LOAN DOCUMENTS..............................................................................6 LOSSES.....................................................................................39 NOTE....................................................................................1, 46 OBLIGATIONS.................................................................................5 OTHER CHARGES..............................................................................12 Index - 1 OTHER LOAN DOCUMENTS........................................................................6 OTHER OBLIGATIONS...........................................................................5 PERMITTED EXCEPTIONS.......................................................................20 PERSON.....................................................................................46 PERSONAL PROPERTY...........................................................................4 POLICIES....................................................................................8 POLICY......................................................................................8 PROPERTY................................................................................1, 46 QUALIFIED INSURER...........................................................................8 RATING AGENCY..............................................................................45 RELEASE....................................................................................40 REMEDIATION................................................................................40 RENTS.......................................................................................2 SECURITIES.................................................................................45 SECURITY INSTRUMENT.........................................................................1 TAXES......................................................................................12 TRUSTEE.....................................................................................1 UNIFORM COMMERCIAL CODE.....................................................................2
Index - 2 THIS DEED OF TRUST AND SECURITY AGREEMENT (this "SECURITY INSTRUMENT") is made as of the ____ day of June, 2001, by WHC809, LLC, a Delaware limited liability company, having its principal place of business at /o West Coast Grand Hotel, 1415 Fifth Avenue, Seattle, Washington 98101 ("BORROWER"), to TRANSNATION TITLE INSURANCE COMPANY, an Arizona corporation ("TRUSTEE"), having its principal place of business at 4450 NE 29th Place, #200, Bellevue, Washington 98007-9926, for the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York banking corporation, having its principal place of business at 60 Wall Street, New York, New York 10260-0060, as beneficiary ("LENDER"). RECITALS: Borrower by its Fixed Rate Note of even date herewith given to Lender is indebted to Lender in the principal sum of $36,050,000 in lawful money of the United States of America (such Fixed Rate Note, together with all extensions, renewals, modifications, substitutions and amendments thereof, shall collectively be referred to as the "NOTE"), with interest from the date thereof at the rates set forth in the Note, principal and interest to be payable in accordance with the terms and conditions provided in the Note, and with a final maturity date of July 1, 2011. Borrower desires to secure the payment of the Debt (as defined in Article 2) and the performance of all of its obligations under the Note and the Other Obligations (as defined in Article 2). ARTICLE 1 - GRANTS OF SECURITY Section 1.1 PROPERTY CONVEYED. Borrower does hereby irrevocably, unconditionally and absolutely, grant, bargain, sell, pledge, enfeoff, assign, warrant, transfer and convey to Trustee IN TRUST, WITH POWER OF SALE, for the purposes herein set forth, the following property, rights, interests and estates now owned, or hereafter acquired, by Borrower (collectively, the "PROPERTY"): (a) Land. The real property described in Exhibit A attached hereto and made a part hereof (collectively, the "LAND"), together with additional lands, estates and development rights hereafter acquired by Borrower for use in connection with the development, ownership or occupancy of such real property, and all additional lands and estates therein which may, from time to time, by supplemental deed of trust or otherwise be expressly made subject to the lien of this Security Instrument; (b) Improvements. The buildings, structures, fixtures, additions, accessions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Land (the "IMPROVEMENTS"); (c) Easements. All easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating or pertaining to the Land and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both at law and in equity, of Borrower of, in and to the Land and the Improvements and every part and parcel thereof, with the appurtenances thereto; (d) Fixtures and Personal Property. All machinery, equipment, goods, inventory, consumer goods, furnishings, fixtures (including but not limited to all heating, air conditioning, plumbing, inventory, lighting, communications and elevator fixtures) and other personal property of every kind and nature, whether tangible or intangible, whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, and usable in connection with the present or future use, maintenance, enjoyment, operation and occupancy of the Land and the Improvements, including without limitation, beds, bureaus, chiffonniers, chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades, venetian blinds, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, linens, pillows, blankets, glassware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, mini-bars, liquor and other drink dispensers, icemakers, kitchen equipment, radios, television sets, cable t.v. equipment, intercom and paging equipment, electric and electronic equipment, dictating equipment, private telephone systems, reservation systems and related computer software, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, fittings, plants, apparatus, stoves, ranges, refrigerators, cutlery and dishes, laundry machines, tools, machinery, engineers, dynamos, motors, boilers, incinerators, washers and dryers, other customary hotel equipment, and all building equipment, materials and supplies of any nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, or usable in connection with the present or future operation, enjoyment and occupancy of the Land and the Improvements and the right, title and interest of Borrower in and to any of the Personal Property (as hereinafter defined) which may be subject to any security interests, as defined in the Uniform Commercial Code, as adopted and enacted by the state or states where any of the Property is located (the "UNIFORM COMMERCIAL CODE") superior in lien to the lien of this Security Instrument and all proceeds and products of the above; (e) Leases and Rents. All leases, subleases and other agreements affecting the use, enjoyment or occupancy of the Land and the Improvements heretofore or hereafter entered into (including, without limitation, any and all security interests, contractual liens and security deposits) whether before or after the filing by or against Borrower of any petition for relief under 11 U.S.C.ss.101 et seq. as the same may be amended from time to 2 time (the "BANKRUPTCY CODE") (individually, a "LEASE", collectively, the "LEASES") and all income, rents (including, without limitation, room rents, revenues, accounts and receivables derived from the use or occupancy of all or any portion of the Improvements), issues, profits and revenues (including all oil and gas or other mineral royalties and bonuses) from the Land and the Improvements whether paid or accruing before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code, including, without limitation, all revenues and credit card receipts collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms and recreational facilities, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Borrower or any operator or manager of the hotel or the commercial space located in the Improvements or acquired from others (including, without limitation, from the rental of any office space, retail space, guest rooms or other space, halls, stores, and offices, and deposits securing reservations of such space), license, lease, sublease and concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales (including mini-bar revenues), service charges, vending machine sales and proceeds, if any, from business interruption or other loss of income insurance (collectively, the "RENTS") and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Debt; (f) Condemnation Awards. All awards or payments, including interest thereon, which may heretofore and hereafter be made with respect to the Property, whether from the exercise of the right of eminent domain (including but not limited to any transfer made in lieu of or in anticipation of the exercise of the right), or for a change of grade, or for any other injury to or decrease in the value of the Property; (g) Insurance Proceeds. All proceeds of and any unearned premiums on any insurance policies covering the Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Property; (h) Tax Certiorari. All refunds, rebates or credits in connection with a reduction in real estate taxes and assessments charged against the Property as a result of tax certiorari or any applications or proceedings for reduction; (i) Conversion. All proceeds of the conversion, voluntary or involuntary, of any of the foregoing including, without limitation, proceeds of insurance and condemnation awards, into cash or liquidation claims; (j) Rights. The right, in the name and on behalf of Borrower, to appear in and defend any action or proceeding brought with respect to the Property and to commence any action or proceeding to protect the interest of Trustee and/or Lender in the Property; 3 (k) Agreements. All agreements, contracts (including purchase, sale, option, right of first refusal and other contracts pertaining to the Property), franchise agreements, certificates, instruments, franchises, permits, licenses, approvals, consents, plans, specifications and other documents, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction, management or operation of the Property (including any Improvements or respecting any business or activity conducted on the Land and any part thereof) and all right, title and interest of Borrower therein and thereunder, including, without limitation, the right, upon the happening of any default hereunder, to receive and collect any sums payable to Borrower thereunder; (l) Trademarks. All tradenames, trademarks, servicemarks, logos, copyrights, goodwill, books and records and all other general intangibles relating to or used in connection with the operation of the Property, subject to any rights therein which may be held by third parties; (m) Accounts. All accounts, accounts receivable, escrows (including, without limitation, all escrows, deposits, reserves and impounds established pursuant to that certain Escrow Agreement for Reserves and Impounds of even date herewith between Borrower and Lender; hereinafter the "ESCROW AGREEMENT"), documents, instruments, chattel paper, claims, reserves (including deposits) representations, warranties and general intangibles, as one or more of the foregoing terms may be defined in the Uniform Commercial Code, and all contract rights, franchises, books, records, plans, specifications, permits, licenses (to extent assignable), approvals, actions, choses, claims, suits, proofs of claims in bankruptcy and causes of action which now or hereafter relate to, are derived from or are used in connection with the Property, including, without limitation, all revenues and credit card receipts collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms, and recreational facilities, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Debtor or any operator or manager of the hotel or the commercial space located in the Improvements or acquired from others (including, without limitation, from the rental of any office space, retail space, guest rooms or other space, halls, stores, and offices, and deposits securing reservations of such space), license, lease, sublease and concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales, service charges, vending machine sales and proceeds, if any, from business interruption or other loss of income insurance, or arising from the sale of any Property or the rendition of services in the ordinary course of business or otherwise (whether or not earned by performance), together with any Property returned by or reclaimed from customers wherever such Property is located, or the use, operation, maintenance, occupancy or enjoyment thereof or the conduct of any business activities thereon (collectively called the "INTANGIBLES"); 4 (n) Liquor License. All licenses, permits, approvals and consents which are required for the sale and service of alcoholic beverages on the Property heretofore or hereafter obtained by Borrower from applicable state and local authorities, provided, however, the aforesaid licenses, permits, approvals and consents shall not be considered to be a part of the Property if applicable law prohibits the pledge, mortgage, transfer, assignment, sale or conveyance of the same; and (o) Other Rights. Any and all other rights of Borrower in and to the Property and any accessions, renewals, replacements and substitutions of all or any portion of the Property and all proceeds derived from the sale, transfer, assignment or financing of the Property or any portion thereof. Section 1.2 ASSIGNMENT OF RENTS. Borrower hereby absolutely and unconditionally assigns to Lender Borrower's right, title and interest in and to all current and future Leases and Rents; it being intended by Borrower that this assignment constitutes a present, absolute and unconditional assignment and not an assignment for additional security only. Nevertheless, subject to the terms of this Section 1.2 and the terms and conditions of that certain Assignment of Rents and Leases, of even date herewith between Borrower and Lender, Lender grants to Borrower a revocable license to collect and receive the Rents, which license shall be automatically revoked upon the occurrence and during the continuation of an Event of Default. Borrower shall hold the Rents, or a portion thereof sufficient to discharge all current sums due on the Debt, for use in the payment of such sums. Section 1.3 DEFINITION OF PERSONAL PROPERTY. For purposes of this Security Instrument, the Property identified in Subsections 1.1(d) through 1.1(o), inclusive, shall be collectively referred to herein as the "PERSONAL PROPERTY." Section 1.4 PLEDGE OF MONIES HELD. Borrower hereby pledges to Lender any and all monies now or hereafter held by Lender, including, without limitation, any sums deposited in the Funds (as defined in the Escrow Agreement), all insurance proceeds described in Section 3.2 and condemnation awards or payments described in Section 3.4, as additional security for the Obligations until expended or applied as provided in this Security Instrument. CONDITIONS TO GRANT TO HAVE AND TO HOLD the above granted and described Property unto and to the use and benefit of Trustee, and the successors and assigns of Trustee, forever; PROVIDED, HOWEVER, these presents are upon the express condition that, if Borrower shall well and truly pay to Lender the Debt at the time and in the manner provided in the Note and this Security Instrument, shall well and truly perform the Other Obligations as set forth in this Security Instrument and shall well and truly abide by and comply with each and every covenant and condition set forth herein and in the Note, these presents and the estate hereby granted shall cease, terminate and be void; provided however, that Borrower's obligation 5 to indemnify and hold harmless Lender pursuant to the provisions hereof with respect to matters relating to any period of time during which this Security Instrument was in effect shall survive any such payment or release. ARTICLE 2. - DEBT AND OBLIGATIONS SECURED Section 2.1 DEBT. This Security Instrument and the grants, assignments and transfers made in Article 1 are given for the purpose of securing the following, in such order of priority as Lender may determine in its sole discretion (the "DEBT"): (a) the payment of the indebtedness evidenced by the Note in lawful money of the United States of America; (b) the payment of interest, default interest, late charges and other sums, as provided in the Note, this Security Instrument or the Other Loan Documents (as hereinafter defined); (c) the payment of all other moneys agreed or provided to be paid by Borrower in the Note, this Security Instrument or the Other Loan Documents; (d) the payment of all sums advanced pursuant to this Security Instrument to protect and preserve the Property and the lien and the security interest created hereby; and (e) the payment of all sums advanced and costs and expenses incurred by Lender in connection with the Debt or any part thereof, any renewal, extension, or change of or substitution for the Debt or any part thereof, or the acquisition or perfection of the security therefor, whether made or incurred at the request of Borrower or Lender. Section 2.2 OTHER OBLIGATIONS. This Security Instrument and the grants, assignments and transfers made in Article 1 are also given for the purpose of securing the following (the "OTHER OBLIGATIONS"): (a) the performance of all other obligations of Borrower contained herein; (b) the performance of each obligation of Borrower contained in any other agreement given by Borrower to Lender which is for the purpose of further securing the obligations secured hereby, and any amendments, modifications and changes thereto; and (c) the performance of each obligation of Borrower contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of the Note, this Security Instrument or the Other Loan Documents. 6 Section 2.3 DEBT AND OTHER OBLIGATIONS. Borrower's obligations for the payment of the Debt and the performance of the Other Obligations shall be referred to collectively herein as the "OBLIGATIONS." Section 2.4 PAYMENTS. Unless payments are made in the required amount in immediately available funds at the place where the Note is payable, remittances in payment of all or any part of the Debt shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in funds immediately available at the place where the Note is payable (or any other place as Lender, in Lender's sole discretion, may have established by delivery of written notice thereof to Borrower) and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default (as hereinafter defined) until such time that Lender has accepted payment of the entire amount then due. ARTICLE 3 - BORROWER COVENANTS Borrower covenants and agrees that: Section 3.1 INCORPORATION BY REFERENCE. All the covenants, conditions and agreements contained in (a) the Note, and (b) all and any of the documents other than the Note or this Security Instrument now or hereafter executed by Borrower and/or others and by or in favor of Lender in connection with the creation of the Obligations, the payment of any other sums owed by Borrower to Lender or the performance of any Obligations (collectively the "OTHER LOAN DOCUMENTS"), are hereby made a part of this Security Instrument to the same extent and with the same force as if fully set forth herein. The term "LOAN DOCUMENTS" as used herein shall individually and collectively refer to the Note, this Security Instrument and the Other Loan Documents; provided, however, that notwithstanding any provision of this Security Instrument to the contrary, the Obligations of the Borrower under that certain Environmental Indemnity Agreement of even date herewith executed by Borrower in favor of Lender (the "ENVIRONMENTAL INDEMNITY") shall not be deemed or construed to be secured by this Security Instrument or otherwise restricted or affected by the foreclosure of the lien hereof or any other exercise by Lender of its remedies hereunder or under any other Loan Document, such Environmental Indemnity being intended by the signatories thereto to be its (or their) unsecured obligation. Section 3.2 INSURANCE. (a) Borrower shall obtain and maintain (or cause to be obtained and maintained), and shall pay all premiums in accordance with Subsection 3.2(b) below for, insurance for Borrower and the Property providing at least the following coverages: 7 (i) comprehensive all risk insurance (including, without limitation, riot and civil commotion, vandalism, malicious mischief, water, fire, burglary and theft) on the Improvements and the Personal Property and in each case (A) in an amount equal to 100% of the "Full Replacement Cost", which for purposes of this Security Instrument shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property waiving all co-insurance provisions; (C) providing that the deductible shall not exceed the lesser of $12,500.00 or one percent (1%) of the face value of the policy; and (D) containing Demolition Costs, Increased Cost of Construction and "Ordinance or Law Coverage" or "Enforcement" endorsements in amounts satisfactory to Lender if any of the Improvements or the use of the Property shall at any time constitute legal non-conforming structures or uses or the ability to rebuild the Improvements is restricted or prohibited. The Full Replacement Cost may be redetermined from time to time by an appraiser or contractor designated and paid by Lender or by an engineer or appraiser in the regular employ of the insurer. No omission on the part of Lender to request any such appraisals shall relieve Borrower of any of its obligations under this Subsection; (ii) comprehensive general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Property, such insurance (A) to be on the so-called "occurrence" form with a combined single limit of not less than $1,000,000.00 and not less than $3,000,000.00 if the Property has one or more elevators, as well as liquor liability insurance in a minimum amount of $2,000,000.00 if any part of the Property is covered by a liquor license and an aggregate coverage limit acceptable to Lender; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; (4) blanket contractual liability for all written and oral contracts; (5) contractual liability covering the indemnities contained in Article 11 ---------- hereof to the extent the same is available; and (D) to be without deductible; (iii) business income insurance (A) with loss payable to Lender; (B) covering losses of income and Rents derived from the Property and any non-insured property on or adjacent to the Property resulting from any risk or casualty whatsoever; (C) containing an extended period of indemnity endorsement which provides that after the physical loss to the Improvements and Personal Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of eighteen (18) months from the date of the loss, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and 8 (D) in an amount equal to 100% of the all unavoidable expenses from the Property (including debt service on the Loan) from the operation of the Property for a period of eighteen (18) months. The amount of such business income insurance shall be determined by Lender prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from the Property for the succeeding eighteen (18) month period. All insurance proceeds payable to Lender pursuant to this Subsection 3.2(a) shall be held by Lender and shall be applied to the obligations secured hereunder from time to time due and payable hereunder and under the Note and, provided that no Event of Default then exists and Lender determines in its sole discretion that sufficient funds will remain available for the payment amounts payable hereunder and under the Note, for the payment of operating expenses approved by Lender; provided, however, that nothing herein contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured hereunder on the respective dates of payment provided for in the Note except to the extent such amounts are actually paid out of the proceeds of such business income insurance; (iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements: (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in Subsection 3.2(a)(i) written in a so-called builder's risk completed value form (1) on a non-reporting basis, (2) against all risks insured against pursuant to Subsection 3.2(a)(i), (3) including permission to occupy the Property, and (4) with an agreed amount endorsement waiving co-insurance provisions; (v) workers' compensation, subject to the statutory limits of the state in which the Property is located, and employer's liability insurance with a limit of at least $1,000,000.00 per accident and per disease per employee, and $1,000,000.00 for disease aggregate in respect of any work or operations on or about the Property, or in connection with the Property or its operation (if applicable); (vi) comprehensive boiler and machinery insurance (without exclusion for explosion), if applicable, in amounts as shall be reasonably required by Lender and covering all boilers or other pressure vessels, machinery and equipment located at or about the Property (including, without limitation, electrical equipment, sprinkler systems, heating and air conditioning equipment, refrigeration equipment and piping); (vii) flood hazard insurance if any portion of the Improvements is currently or at any time in the future located in a federally designated "special flood hazard area," flood hazard insurance in an amount equal to the lesser of (a) 9 the outstanding principal balance of the Note, (b) the Full Replacement Cost, or (c) the maximum amount of such insurance available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended; and (viii) such other insurance and in such amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Property located in or around the region in which the Property is located, including, without limitation, earthquake insurance (in the event the Property is located in an area with a high degree of seismic activity), sinkhole insurance, mine subsidence insurance and environmental insurance. (b) All insurance provided for in Subsection 3.2(a) hereof shall be obtained under valid and enforceable policies (the "POLICIES" or in the singular, the "POLICY"), in such forms and, from time to time after the date hereof, in such amounts as may from time to time be satisfactory to Lender, issued by financially sound and responsible insurance companies authorized to do business in the state in which the Property is located as admitted or unadmitted carriers which, in either case, have been approved by Lender and which have a claims paying ability rating of AA or better issued by Standard & Poor's Ratings Group or with a claims paying ability rating otherwise acceptable to Lender (each such insurer shall be referred to below as a "QUALIFIED INSURER"). Such Policies shall not be subject to invalidation due to the use or occupancy of the Property for purposes more hazardous than the use of the Property at the time such Policies were issued. Not less than thirty (30) days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to Subsection 3.2(a), certified copies of the Policies marked "premium paid" or accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder (the "INSURANCE PREMIUMS"), shall be delivered by Borrower to Lender; provided, however, that in the case of renewal Policies, Borrower may furnish Lender with binders therefor to be followed by the original Policies when issued. (c) Borrower shall not obtain (i) separate insurance concurrent in form or contributing in the event of loss with that required in Subsection 3.2(a) to be furnished by, or which may be reasonably required to be furnished by, Borrower, or (ii) any umbrella or blanket liability or casualty Policy unless, in each case, Lender's interest is included therein as provided in this Security Instrument and such Policy is issued by a Qualified Insurer. If Borrower obtains separate insurance or an umbrella or a blanket Policy, Borrower shall notify Lender of the same and shall cause certified copies of each Policy to be delivered as required in Subsection 3.2(a). Any blanket insurance Policy shall specifically allocate to the Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Property in compliance with the provisions of Subsection 3.2(a). Subject to the foregoing requirements, Borrower may obtain umbrella or blanket 10 insurance policies which are maintained by the manager under the Management Agreement and cover other facilities which are owned, leased or managed by said manager. (d) All Policies of insurance provided for or contemplated by Subsection 3.2(a) shall name Lender, its successors and assigns, including any servicers, trustees or other designees of Lender, and Borrower as the insured or additional insured, as their respective interests may appear, and in the case of property damage, boiler and machinery, and flood insurance, shall contain a so-called New York standard non-contributing Lender clause in favor of Lender providing that the loss thereunder shall be payable to Lender. (e) All Policies of insurance provided for in Subsection 3.2(a) shall contain clauses or endorsements to the effect that: (i) no act or negligence of Borrower, or anyone acting for Borrower, or of any tenant under any Lease or other occupant, or failure to comply with the provisions of any Policy which might otherwise result in a forfeiture of the insurance or any part thereof, shall in any way affect the validity or enforceability of the insurance insofar as Lender is concerned; (ii) the Policy shall not be materially changed (other than to increase the coverage provided on the Property thereby) or canceled without at least thirty (30) days' prior written notice to Lender and any other party named therein as an insured; (iii) each Policy shall provide that the issuers thereof shall give written notice to Lender if the Policy has not been renewed thirty (30) days prior to its expiration; and (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder. (f) Borrower shall furnish to Lender within ten (10) calendar days after Lender's request therefor, a statement certified by Borrower or a duly authorized officer of Borrower of the amounts of insurance maintained in compliance herewith, of the risks covered by such insurance and of the insurance company or companies which carry such insurance and, if requested by Lender, verification of the adequacy of such insurance by an independent insurance broker or appraiser acceptable to Lender. (g) If Borrower fails to timely provide Lender written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right but not the obligation, without notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate, 11 and all expenses incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and until paid shall be secured by this Security Instrument and shall bear interest at the Default Rate (as hereinafter defined). (h) If the Property shall be damaged or destroyed, in whole or in part, by fire or other casualty, Borrower shall give prompt notice thereof to Lender. (i) In case of loss covered by Policies, Lender may either (1) settle and adjust any claim without the consent of Borrower, or (2) allow Borrower to agree with the insurance company or companies on the amount to be paid upon the loss; provided, that Borrower may adjust losses aggregating not in excess of $250,000.00 if such adjustment is carried out in a competent and timely manner, and provided that in any case Lender shall and is hereby authorized to collect and receive any such insurance proceeds; and the expenses incurred by Lender in the adjustment and collection of insurance proceeds shall become part of the Debt and be secured hereby and shall be reimbursed by Borrower to Lender upon demand (unless deducted by and reimbursed to Lender from such proceeds). (ii) In the event of any insured damage to or destruction of the Property or any part thereof (herein called an "INSURED CASUALTY"), if (A) less than 50% of the total floor area of the Improvements has been damaged, destroyed or rendered unusable as a result of such Insured Casualty and in the reasonable judgment of Lender, the Property can be restored within twelve (12) months after insurance proceeds are made available and at least six (6) months prior to the Maturity Date (as defined in the Note) to an economic unit not less valuable (including an assessment by Lender of the impact of the termination of any Leases due to such Insured Casualty) and not less useful than the same was prior to the Insured Casualty, and after such restoration will adequately secure the outstanding balance of the Debt, and (B) no Event of Default (hereinafter defined) shall have occurred and be then continuing, then the proceeds of insurance shall be applied to pay for or reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Property or part thereof which constitute the Insured Casualty, as provided below; and Borrower hereby covenants and agrees forthwith to commence and diligently to prosecute such restoring, repairing, replacing or rebuilding; provided, however, in any event Borrower shall pay all costs (and if required by Lender, Borrower shall deposit the total thereof with Lender in advance) of such restoring, repairing, replacing or rebuilding in excess of the net proceeds of insurance made available pursuant to the terms hereof. (iii) Except as provided above, the proceeds of insurance collected upon any Insured Casualty shall, at the option of Lender in its sole discretion, be applied to the payment of the Debt or applied to pay for the cost of restoring, repairing, replacing or rebuilding the Property or part thereof subject to the 12 Insured Casualty, in the manner set forth below. Any such application to the Debt shall not be considered a voluntary prepayment requiring payment of the prepayment consideration provided in the Note, and shall not reduce or postpone any payments otherwise required pursuant to the Note, other than the final payment on the Note. (iv) If proceeds of insurance, if any, are made available to Borrower for the restoring, repairing, replacing or rebuilding of the Property, Borrower hereby covenants to restore, repair, replace or rebuild the same to be of at least equal value and of substantially the same character as prior to such damage or destruction, all to be effected in accordance with applicable law and plans and specifications approved in advance by Lender. (v) If such insurance proceeds are to pay for the costs of restoring, repairing, replacing and rebuilding of the Property, Lender shall disburse such amounts from time to time upon Lender being furnished with (1) evidence satisfactory to it (which evidence may include inspection[s] of the work performed) that portion of the restoration, repair, replacement and rebuilding covered by the disbursement has been completed in accordance with plans and specifications approved by Lender, (2) evidence satisfactory to it of the estimated cost of completion of the restoration, repair, replacement and rebuilding, (3) funds, or, at Lender's option, assurances satisfactory to Lender that such funds are available, sufficient in addition to the proceeds of insurance to complete the proposed restoration, repair, replacement and rebuilding, and (4) such architect's certificates, waivers of lien, contractor's sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of cost, payment and performance as Lender may reasonably require and approve in connection with such disbursement; and Lender may, in any event, require that all plans and specifications for such restoration, repair, replacement and rebuilding be submitted to and approved by Lender prior to commencement of work. With respect to disbursements to be made by Lender: (A) no payment made prior to the final completion of the restoration, repair, replacement and rebuilding shall exceed ninety percent (90%) of the value of the work performed from time to time; (B) funds other than proceeds of insurance shall be disbursed prior to disbursement of such proceeds; and (C) at all times, the undisbursed balance of such proceeds remaining in the hands of Lender, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Lender by or on behalf of Borrower for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the cost of completion of the restoration, repair, replacement or rebuilding, free and clear of all liens or claims for lien and the costs described in Subsection 3.2(h)(vi) below. Any surplus which may remain out of insurance proceeds held by Lender after payment of such costs of restoration, repair, replacement or rebuilding shall be paid to any party entitled thereto. In no event shall Lender assume any duty or obligation for the adequacy, 13 form or content of any such plans and specifications, nor for the performance, quality or workmanship of any restoration, repair, replacement and rebuilding. (vi) Notwithstanding anything to the contrary contained herein, the proceeds of insurance reimbursed to Borrower in accordance with the terms and provisions of this Security Instrument shall be reduced by the reasonable costs (if any) incurred by Lender in the adjustment and collection thereof and in the reasonable costs incurred by Lender of paying out such proceeds (including, without limitation, reasonable attorneys' fees and costs paid to third parties for inspecting the restoration, repair, replacement and rebuilding and reviewing the plans and specifications therefor). (i) Notwithstanding anything to the contrary contained herein, Borrower shall not be deemed to be in breach of its obligations under Subsection 3.2(a) if Lender fails to pay the premiums for the insurance required thereunder in accordance with the terms of the Escrow Agreement and funds sufficient to pay the same have been deposited by Borrower. Section 3.3 PAYMENT OF TAXES, ETC. (a) Borrower shall pay all taxes, assessments, water rates, sewer rents, governmental impositions, and other charges, including without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Land, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "TAXES"), all ground rents, maintenance charges and similar charges, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "OTHER CHARGES"), and all charges for utility services provided to the Property as same become due and payable. Borrower will deliver to Lender, promptly upon Lender's request, evidence satisfactory to Lender that the Taxes, Other Charges and utility service charges have been so paid or are not then delinquent. Borrower shall not allow and shall promptly cause to be paid and discharged any lien or charge whatsoever which may be or become a lien or charge against the Property, except for liens covering Taxes and Other Charges which are not yet due. Except to the extent sums sufficient to pay all Taxes and Other Charges have been deposited with Lender in accordance with the terms of this Security Instrument, Borrower shall furnish to Lender paid receipts for the payment of the Taxes and Other Charges prior to the date the same shall become delinquent. Notwithstanding anything to the contrary contained herein, Borrower shall not be deemed to be in breach of its obligations under this Subsection 3.3(a) if Lender fails to pay the Taxes and Other Charges in accordance with the terms of the Escrow Agreement and funds sufficient to pay the same have been deposited by Borrower. (b) After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any of 14 the Taxes, provided that (i) no Event of Default has occurred and is continuing under the Note, this Security Instrument or any of the Other Loan Documents, (ii) Borrower is permitted to do so under the provisions of any other mortgage, deed of trust or deed to secure debt affecting the Property, (iii) such proceeding shall suspend the collection of the Taxes from Borrower and from the Property or Borrower shall have paid all of the Taxes under protest, (iv) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder, (v) neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, canceled or lost, (vi) Borrower shall have set aside and deposited with Lender adequate reserves for the payment of the Taxes, together with all interest and penalties thereon, unless Borrower has paid all of the Taxes under protest, and (vii) Borrower shall have furnished the security as may be required in the proceeding, or as may be requested by Lender to insure the payment of any contested Taxes, together with all interest and penalties thereon. Section 3.4 CONDEMNATION. Borrower shall promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender is hereby irrevocably appointed as Borrower's attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain any award or payment for said condemnation or eminent domain and to make any compromise or settlement in connection with such proceeding, subject to the provisions of this Security Instrument. Notwithstanding the foregoing, Borrower may settle and compromise such award provided that (i) the same is effected in a competent and timely manner, (ii) the amount of the award does not exceed $250,000, (iii) the award is paid to Lender and applied in accordance with this Security Instrument and (iv) no Event of Default then exists. Notwithstanding any taking by any public or quasi-public authority through eminent domain or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Security Instrument and the Debt shall not be reduced until any award or payment therefor shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the award by the condemning authority but shall be entitled to receive out of the award interest at the rate or rates provided herein or in the Note. Borrower shall cause the award or payment made in any condemnation or eminent domain proceeding, which is payable to Borrower, to be paid directly to Lender. Lender may apply any award or payment to the reduction or discharge of the Debt whether or not then due and payable (such application to be free from any prepayment consideration provided in the Note, except that if an Event of Default, or an event which with notice and/or the passage of time, or both, would constitute an Event of Default, has occurred and is continuing, then such application shall be subject to the full prepayment consideration computed in accordance with the Note). If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the award or payment, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the award or payment, or a portion thereof sufficient to pay the Debt. 15 Section 3.5 USE AND MAINTENANCE OF PROPERTY. Borrower shall cause the Property to be maintained and operated in a good and safe condition and repair and in keeping with the condition and repair of properties of a similar use, value, age, nature and construction, subject, in the case of a casualty, to the availability of insurance proceeds. Borrower shall not use, maintain or operate the Property in any manner which constitutes a public or private nuisance or which makes void, voidable, or cancelable, or increases the premium of, any insurance then in force with respect thereto. The Improvements and the Personal Property shall not be removed, demolished or materially altered (except for normal replacement of the Personal Property with items of the same utility and of equal or greater value) without the prior written consent of Lender. Borrower shall promptly repair, replace or rebuild any part of the Property which may be destroyed by any casualty, or become damaged, worn or dilapidated or which may be affected by any proceeding of the character referred to in Section 3.4 hereof and shall complete and pay for any structure at any time in the process of construction or repair on the Land. Borrower shall not initiate, join in, acquiesce in, or consent to any change in any private restrictive covenant, zoning law or other public or private restriction, limiting or defining the uses which may be made of the Property or any part thereof. If under applicable zoning provisions the use of all or any portion of the Property is or shall become a nonconforming use, Borrower will not cause or permit the nonconforming use to be discontinued or abandoned without the express written consent of Lender. Borrower shall not take any steps whatsoever to convert the Property, or any portion thereof, to a condominium or cooperative form of management. Section 3.6 WASTE. Borrower shall not commit or suffer any waste of the Property or, without first obtaining such additional insurance as may be necessary to cover a proposed change in use of the Property, make any change in the use of the Property which will in any way materially increase the risk of fire or other hazard arising out of the operation of the Property, or take any action that might invalidate or give cause for cancellation of any Policy, or do or permit to be done thereon anything that may in any way impair the value of the Property or the security of this Security Instrument. Borrower will not, without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, regardless of the depth thereof or the method of mining or extraction thereof. Section 3.7 COMPLIANCE WITH LAWS; ALTERATIONS. (a) Borrower shall promptly comply with all existing and future federal, state and local laws, orders, ordinances, governmental rules and regulations or court orders affecting or which may be interpreted to affect the Property, or the use thereof, including, but not limited to, the Americans with Disabilities Act (the "ADA") (collectively "APPLICABLE LAWS"). (b) Notwithstanding any provisions set forth herein or in any document regarding Lender's approval of alterations of the Property, Borrower shall not alter the Property in any manner which would increase Borrower's responsibilities for compliance 16 with Applicable Laws without the prior written approval of Lender. Lender's approval of the plans, specifications, or working drawings for alterations of the Property shall create no responsibility or liability on behalf of Lender for their completeness, design, sufficiency or their compliance with Applicable Laws. The foregoing shall apply to tenant improvements constructed by Borrower or by any of its tenants. Lender may condition any such approval upon receipt of a certificate of compliance with Applicable Laws from an independent architect, engineer, or other person acceptable to Lender. (c) Borrower shall give prompt notice to Lender of the receipt by Borrower of any notice related to a violation of any Applicable Laws and of the commencement of any proceedings or investigations which relate to compliance with Applicable Laws. (d) Borrower shall take appropriate measures to prevent and will not engage in or knowingly permit any illegal activities at the Property. Section 3.8 BOOKS AND RECORDS. (a) Borrower shall keep accurate books and records of account in accordance with sound accounting principles in which full, true and correct entries shall be promptly made with respect to Borrower, the Property and the operation thereof, and will permit all such books and records (including without limitation all contracts, statements, invoices, bills and claims for labor, materials and services supplied for the construction, repair or operation to Borrower of the Improvements) to be inspected or audited and copies made by Lender and its representatives during normal business hours and at any other reasonable times. Borrower represents that its chief executive office is as set forth in the introductory paragraph of this Security Instrument and that all books and records pertaining to the Property are maintained at the Property or such other location as may be expressly disclosed to Lender in writing. Borrower will furnish, or cause to be furnished, to Lender on or before forty-five (45) calendar days after the end of each calendar quarter the following items, each certified by Borrower as being true and correct, in such format and in such detail as Lender or its servicer may request: (i) a written statement (rent roll) dated as of the last day of each such calendar quarter identifying each of the Leases by the term, space occupied, rental required to be paid, security deposit paid, any rental concessions, and identifying any defaults or payment delinquencies thereunder; (ii) a report of occupancy for the subject quarter, including an average daily rate, and any and all franchise inspection reports received by Borrower during the subject quarter; and (iii) monthly and year to date operating statements prepared for each calendar month during each such reporting period detailing the total revenues 17 received, total expenses incurred, total costs of capital improvements, total debt service and total cash flow. (b) Within ninety (90) calendar days following the end of each calendar year, Borrower shall furnish a statement of the financial affairs and condition of the Borrower and the Property including a statement of profit and loss for the Property in such format and in such detail as Lender or its servicer may request, and setting forth the financial condition and the income and expenses for the Property for the immediately preceding calendar year prepared and audited by an independent certified public accountant. Borrower shall deliver to Lender copies of all income tax returns, requests for extension and other similar items contemporaneously with its delivery of same to the Internal Revenue Service. (c) Borrower will permit representatives appointed by Lender, including independent accountants, agents, attorneys, appraisers and any other persons, to visit and inspect during its normal business hours and at any other reasonable times any of the Property and to make photographs thereof, and to write down and record any information such representatives obtain, and shall permit Lender or its representatives to investigate and verify the accuracy of the information furnished to Lender under or in connection with this Security Instrument or any of the Other Loan Documents and to discuss all such matters with its officers, employees and representatives. Borrower will furnish to Lender at Borrower's expense all evidence which Lender may from time to time reasonably request as to the accuracy and validity of or compliance with all representations and warranties made by Borrower in the Loan Documents and satisfaction of all conditions contained therein. Any inspection or audit of the Property or the books and records of Borrower, or the procuring of documents and financial and other information, by or on behalf of Lender, shall be at Borrower's expense and shall be for Lender's protection only, and shall not constitute any assumption of responsibility or liability by Lender to Borrower or anyone else with regard to the condition, construction, maintenance or operation of the Property, nor Lender's approval of any certification given to Lender nor relieve Borrower of any of Borrower's obligations; provided, however, Borrower shall not have any obligation to reimburse Lender for more than one (1) such audit or inspection per calendar year except in the event of a continuing Event of Default. (d) Prior to the transfer of the Loan by Lender pursuant to Section 16.1 hereof, Borrower shall deliver to Lender the reports required by Section 3.8(a) on a monthly basis. Such reports shall be delivered within twenty (20) calendar days after the end of each calendar month. Section 3.9 PAYMENT FOR LABOR AND MATERIALS. Borrower will promptly pay when due all bills and costs for labor, materials, and specifically fabricated materials incurred in connection with the Property and never permit to exist beyond the due date thereof in respect of the Property or any part thereof any lien or security interest, even though inferior to the liens and the security interests hereof, and in any event never permit to be created or exist in 18 respect of the Property or any part thereof any other or additional lien or security interest other than the liens or security interests hereof, except for the Permitted Exceptions (as hereinafter defined). Section 3.10 PERFORMANCE OF OTHER AGREEMENTS. Borrower shall observe and perform each and every term to be observed or performed by Borrower pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Property, or given by Borrower to Lender for the purpose of further securing an obligation secured hereby and any amendments, modifications or changes thereto. Section 3.11 CERTAIN HOTEL COVENANTS. Borrower further covenants and agrees with Lender as follows: (a) Borrower shall cause the hotel located on the Property to be operated pursuant to the Franchise Agreement (as hereinafter defined) and the Management Agreement (as hereinafter defined). (b) Borrower covenants and agrees that it shall: (i) promptly perform and/or observe all of the covenants and agreements required to be performed and observed by it under the Franchise Agreement and the Management Agreement and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii) promptly notify Lender of any default under the Franchise Agreement or the Management Agreement of which it is aware; (iii) promptly deliver to Lender upon request a copy of any financial statement, business plan, capital expenditures plan, notice, report and estimate received by Borrower under the Franchise Agreement or the Management Agreement; and (iv) promptly enforce the performance and observance of all of the covenants and agreements required to be performed and/or observed by the franchisor under the Franchise Agreement and the manager under the Management Agreement. (c) Borrower consents and agrees that it shall not, without Lender's prior written consent: (i) surrender, terminate or cancel the Franchise Agreement or the Management Agreement; (ii) reduce or consent to the reduction of the term of the Franchise Agreement or the Management Agreement; 19 (iii) increase or consent to the increase of the amount of any charges under the Franchise Agreement or the Management Agreement; or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, the Franchise Agreement or the Management Agreement in any material respect. (d) Borrower shall not, without Lender's prior consent, enter into transactions with any affiliate, including without limitation, any arrangement providing for the managing of the hotel on the Property, the rendering or receipt of services or the purchase or sale of inventory, except any such transaction in the ordinary course of business of Borrower if the monetary or business consideration arising therefrom would be substantially as advantageous to Borrower as the monetary or business consideration that would obtain in a comparable transaction with a person not an affiliate of Borrower. Lender acknowledges and agrees that Lender has approved of the Management Agreement and Franchise Agreement. (e) Borrower shall maintain the Management Agreement for the operation of the Property in full force and effect and timely perform all of Borrower's obligations thereunder and enforce performance of all obligations of the manager thereunder, and not permit the termination or amendment of such Management Agreement unless the prior written consent of Lender is first obtained. Borrower will enter into and cause the manager to enter into an assignment and subordination of such Management Agreement in form satisfactory to Lender, assigning and subordinating the manager's interest in the Property and all fees and other rights of the manager pursuant to such Management Agreement to the rights of Lender. Upon an Event of Default, Borrower at Lender's request made at any time while such Event of Default continues, shall terminate the Management Agreement and replace the manager with a manager selected by Lender. ARTICLE 4 - SPECIAL COVENANTS Borrower covenants and agrees that: Section 4.1 PROPERTY USE. The Property shall be used only as a hotel and for ancillary purposes (and for the rental of commercial office space to the extent currently used for such purpose) and for no other use without the prior written consent of Lender, which consent may be withheld in Lender's sole and absolute discretion. Section 4.2 ERISA. (a) It shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Security Instrument and the Other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). 20 (b) It shall deliver to Lender such certifications or other evidence from time to time throughout the term of the Security Instrument, as requested by Lender in its sole discretion, that (i) Borrower is not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is true: (i) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. ss.2510.3-101(b)(2); (ii) Less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R.ss.2510.3-101(f)(2); or (iii) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. ss.2510.3-101(c) or (e) or an investment company registered under The Investment Company Act of 1940. Section 4.3 SINGLE PURPOSE ENTITY. (1) So long as any obligation under the Note remains unsatisfied, Borrower covenants and agrees that it has not and shall not: (a) engage in any business or activity other than the acquisition, ownership, operation and maintenance of the Property, and activities incidental thereto; (b) acquire or own any material asset other than (i) the Property, and (ii) such incidental Personal Property as may be necessary for the operation of the Property; (c) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case Lender's consent; (d) fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of Borrower's Partnership Agreement, Articles or Certificate of Incorporation, Articles of Organization, Operating Agreement or similar organizational documents, as the case may be; (e) own any subsidiary or make any investment in or acquire the obligations or securities of any other person or entity without the consent of Lender; (f) commingle its assets with the assets of any of its partner(s), members, shareholders, affiliates, or of any other person or entity or transfer any assets to any such 21 person or entity other than distributions on account of equity interests in the Borrower permitted hereunder and properly accounted for; (g) incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Debt, except (i) unsecured trade and operational debt incurred with trade creditors in the ordinary course of its business of owning and operating the Property in such amounts as are normal and reasonable under the circumstances and (ii) debt incurred in connection with the financing of furniture fixtures and equipment at the Property, provided that such debt referenced in clauses (i) and (ii) is not evidenced by a note and is paid when due and provided in any event the outstanding principal balance of all such debt (including any exiting debt owed to MetLife Capital Corporation) shall not exceed at any one time four percent (4%) of the initial principal amount of the Debt; provided, however, that for purposes of this Section 4.3(g), indebtedness shall not include judgments against Borrower (other than judgments for contractual indebtedness); (h) allow any person or entity to pay its debts and liabilities (except a Guarantor or Indemnitor) or fail to pay its debts and liabilities solely from its own assets; (i) fail to maintain its records, books of account and bank accounts separate and apart from those of the shareholders, partners, members, principals and affiliates of Borrower, the affiliates of a shareholder, partner or member of Borrower, and any other person or entity or fail to prepare and maintain its own financial statements in accordance with generally accepted accounting principles and susceptible to audit, or if such financial statements are consolidated fail to cause such financial statements to contain footnotes disclosing that the Property is actually owned by the Borrower; (j) enter into any contract or agreement with any shareholder, partner, member, principal or affiliate of Borrower, any guarantor of all or a portion of the Debt (a "GUARANTOR") or any shareholder, partner, member, principal or affiliate thereof, except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any shareholder, partner, member, principal or affiliate of Borrower or Guarantor, or any shareholder, partner, member, principal or affiliate thereof; (k) seek dissolution or winding up in whole, or in part; (l) fail to correct any known misunderstandings regarding the separate identity of Borrower; (m) hold itself out to be responsible or pledge its assets or credit worthiness for the debts of another person or entity or allow any person or entity to hold itself out to be responsible or pledge its assets or credit worthiness for the debts of the Borrower (except for a Guarantor or Indemnitor); 22 (n) make any loans or advances to any third party, including any shareholder, partner, member, principal or affiliate of Borrower, or any shareholder, partner, member, principal or affiliate thereof; (o) fail to file its own tax returns or to use separate contracts, purchase orders, stationary, invoices and checks; provided that Borrower may file a consolidated tax return with its affiliates if required or permitted under applicable law; (p) fail either to hold itself out to the public as a legal entity separate and distinct from any other entity or person or to conduct its business solely in its own name in order not (i) to mislead others as to the entity with which such other party is transacting business, or (ii) to suggest that Borrower is responsible for the debts of any third party (including any shareholder, partner, member, principal or affiliate of Borrower, or any shareholder, partner, member, principal or affiliate thereof); (q) fail to allocate fairly and reasonably among Borrower and any third party (including, without limitation, any Guarantor) any overhead for common employees, shared office space or other overhead and administrative expenses; (r) allow any person or entity to pay the salaries of Borrower's employees or fail to maintain a sufficient number of employees for its contemplated business operations; (s) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (t) file a voluntary petition or otherwise initiate proceedings to have the Borrower or any general partner or managing member adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against the Borrower or any general partner or managing member, or file a petition seeking or consenting to reorganization or relief of the Borrower or any general partner or managing member as debtor under any applicable federal or state law relating to bankruptcy, insolvency, or other relief for debtors with respect to the Borrower or any general partner or managing member; or seek or consent to the appointment of any trustee, receiver, conservator, assignee, sequestrator, custodian, liquidator (or other similar official) of the Borrower or any general partner or managing member or of all or any substantial part of the properties and assets of the Borrower or any general partner or managing member, or make any general assignment for the benefit of creditors of the Borrower or any general partner or managing member, or admit in writing the inability of the Borrower or any general partner or managing member to pay its debts generally as they become due or declare or effect a moratorium on the Borrower or any general partner or managing member debt or take any action in furtherance of any such action; 23 (u) except in connection with the Franchise Agreement or Management Agreement, share any common logo with or hold itself out as or be considered as a department or division of (i) any shareholder, partner, principal, member or affiliate of Borrower, (ii) any affiliate of a shareholder, partner, principal, member or affiliate of Borrower, or (iii) any other person or entity or allow any person or entity to identify the Borrower as a department or division of that person or entity; (v) conceal assets from any creditor, or enter into any transaction with the intent to hinder, delay or defraud creditors of the Borrower or the creditors of any other person or entity; or (w) fail to conduct its business so that the assumptions made with respect to the Borrower and SPE Principal in that certain "substantive non-consolidation" opinion letter (the "INSOLVENCY Opinion") delivered by Riddell Williams P.S. in connection with the origination of the Loan shall be true and correct in all material respects. (2) If Borrower is a limited partnership or a limited liability company (other than a Single Member LLC (as defined below), its sole general partner or managing member (the "SPE PRINCIPAL") of Borrower, as applicable, is and shall be at all times a corporation whose sole asset is its interest in Borrower and such SPE Principal of Borrower will at all times comply, and will cause Borrower to comply, with each of the covenants, terms and provisions contained in Section 4.3(1) as if such representation, warranty or covenant was made directly by such SPE Principal. The SPE Principal (or Borrower if Borrower is a corporation or a Single Member LLC) shall not fail at any time to have at least one (1) independent director who is not at the time of initial appointment, has not been at any time during the preceding five (5) years and shall not be at any time while serving: (a) a stockholder, director (other than as an independent director), officer, employee, partner or member of the Borrower, the SPE Principal or any affiliate of either of them; (b) a customer, supplier or other person who purchases any goods or services from or derives any revenues from its activities with the Borrower, the SPE Principal or any affiliate of either of them; (c) a person or other entity controlling or under common control with any such stockholder, member, partner, customer, supplier or other person; (d) an attorney or counsel to the Borrower, the SPE Principal or any of their affiliates or (e) a member of the immediate family of any such stockholder, director, officer, employee, member, partner, customer, supplier or other person. Notwithstanding the foregoing, the ownership of DE MINIMUS amounts of stock in WHC shall not, in and of itself, disqualify an individual from serving as an Independent Director. As used herein, the term "affiliate" means any person controlling, under common control with, or controlled by the person in question, and the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a person or entity, whether through ownership of voting securities, by contract or otherwise. As used herein, the term "Single Member LLC" means a limited liability company that (i) is either a single member limited liability company or a multiple member limited liability company that does not have an SPE 24 Principal, (ii) is organized under the laws of the State of Delaware, (iii) provides in its organizational documents that it will at all times have either (x) a member which owns no economic interest in such Single Member LLC or (y) a "springing member" which will automatically become a member of such Single Member LLC immediately prior to the dissolution of the last remaining member and (iv) is otherwise acceptable to Lender. ARTICLE 5 - REPRESENTATIONS AND WARRANTIES Section 5.1 BORROWER'S REPRESENTATIONS. Borrower represents and warrants to Lender that each of the representations and warranties set forth in that certain Closing Certificate of even date herewith executed by Borrower in favor of Lender are true and correct as of the date hereof and are hereby incorporated and restated in this Security Instrument by this reference. Section 5.2 WARRANTY OF TITLE. Borrower represents and warrants that it has good and marketable title to the Property and has the right to grant, bargain, sell, pledge, assign, warrant, transfer and convey the same and that Borrower possesses an unencumbered fee simple absolute estate in the Land and the Improvements and that it owns the Property free and clear of all liens, encumbrances and charges whatsoever except for those exceptions shown in the title insurance policy insuring the lien of this Security Instrument and the lien of MetLife Capital Corporation in certain personal property financed by it (the "PERMITTED EXCEPTIONS"). Borrower represents and warrants that none of the Permitted Exceptions will materially and adversely affect the ability of the Borrower to pay in full the Loan, the use of the Property for the use currently being made thereof, the operation of the Property or the value of the Property. Borrower shall, at its sole cost and expense, forever warrant, defend and preserve the title and the validity and priority of the lien of this Security Instrument and shall, at its sole cost and expense, forever warrant and defend the same to Trustee and Lender against the claims of all persons whomsoever. Section 5.3 STATUS OF PROPERTY. (a) No portion of the Improvements is located in an area identified by the Secretary of Housing and Urban Development or any successor thereto as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as amended, or any successor law, or, if located within any such area, Borrower has obtained and will maintain the insurance prescribed in Section 3.2 hereof. (b) Borrower has obtained all necessary certificates, permits, certificates of incorporation, licenses and other approvals, governmental and otherwise, necessary for the use, occupancy and operation of the Property and the conduct of the business as a hotel (including, without limitation, any applicable liquor license, certificates of completion and certificates of occupancy) and all required zoning, building code, land use, environmental and other similar permits or approvals, all of which are in full force 25 and effect as of the date hereof and not subject to revocation, suspension, forfeiture or modification (collectively, the "LICENSES"). (c) The Property and the present and contemplated use and occupancy thereof are to the best knowledge of Borrower in full compliance with all Applicable Laws, including, without limitation, zoning ordinances, building codes, land use and environmental laws, laws relating to the disabled (including, but not limited to, the ADA) and other similar laws. (d) The Property is served by all utilities required for the current or contemplated use thereof. All utility service is provided by public utilities and the Property has accepted or is equipped to accept such utility service. (e) All public roads and streets necessary for service of and access to the Property for the current or contemplated use thereof have been completed, are serviceable and are physically and legally open for use by the public. (f) The Property is served by public water and sewer systems. (g) The Property is free from damage caused by fire or other casualty. There is no pending or, to the best knowledge of Borrower, threatened condemnation proceedings affecting the Property or any portion thereof. (h) All costs and expenses of any and all labor, materials, supplies and equipment used in the construction of the Improvements have been paid in full and no notice of any mechanics' or materialmen's liens or of any claims of right to any such liens have been received. (i) Borrower has paid in full for, and is the owner of, all furnishings, fixtures and equipment (other than tenants' property) used in connection with the operation of the Property, free and clear of any and all security interests, liens or encumbrances, except the lien and security interest created pursuant to the Loan Documents and the lien of MetLife Capital Corporation in certain personal property financed by it. (j) All liquid and solid waste disposal, septic and sewer systems located on the Property are to the best knowledge of Borrower in a good and safe condition and repair and in compliance with all Applicable Laws. (k) All Improvements lie within the boundary of the Land, except for such encroachments shown in the title insurance policy insuring the lien of this Security Instrument or on the survey which is incorporated into said title insurance policy. Section 5.4 NO FOREIGN PERSON. Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and the related Treasury Department regulations, including temporary regulations. 26 Section 5.5 SEPARATE TAX LOT. The Property is assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a part of such lot or lots, and no other land or improvements is assessed and taxed together with the Property or any portion thereof. Section 5.6 FRANCHISE AGREEMENT. The WestCoast Hotels Franchise Agreement dated as of May ___, 2001 (the "FRANCHISE AGREEMENT"), between Borrower and WestCoast Hotels, Inc., pursuant to which Borrower has the right to operate the hotel located on the Property under a name and/or hotel system controlled by such franchisor, is in full force and effect and there is no default, breach or violation existing thereunder by any party thereto and no event has occurred (other than payments due but not yet delinquent) that, with the passage of time or the giving of notice, or both, would constitute a default, breach or violation by any party thereunder. Section 5.7 MANAGEMENT AGREEMENT. The Management Agreement dated as of May ____, 2001 (the "MANAGEMENT AGREEMENT"), between Borrower and WestCoast Hospitality Limited Partnership ("WHLP"), pursuant to which such hotel manager operates the Property as a hotel, is in full force and effect and there is no default, breach or violation existing thereunder by any party thereto and no event has occurred (other than payments due but not yet delinquent) that, with the passage of time or the giving of notice, or both, would constitute a default, breach or violation by any party thereunder. Section 5.8 VALIDITY OF AGREEMENTS. Neither the execution and delivery of the Loan Documents, the Borrower's performance thereunder, the recordation of this Security Instrument, nor the exercise of any remedies under this Security Instrument, will adversely affect Borrower's rights under the Franchise Agreement, the Management Agreement, or any of the Licenses. ARTICLE 6 - OBLIGATIONS AND RELIANCES Section 6.1 RELATIONSHIP OF BORROWER AND LENDER. The relationship between Borrower and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Borrower, and no term or condition of any of the Note, this Security Instrument and the other Loan Documents shall be construed so as to deem the relationship between Borrower and Lender to be other than that of debtor and creditor. Section 6.2 NO RELIANCE ON LENDER. The partners, members, principals and (if Borrower is a trust) beneficial owners of Borrower are experienced in the ownership and operation of properties similar to the Property, and Borrower and Lender are relying solely upon such expertise and business plan in connection with the ownership and operation of the Property. Borrower is not relying on Lender's expertise, business acumen or advice in connection with the Property. Section 6.3 NO LENDER OBLIGATIONS. 27 (a) Notwithstanding the provisions of Subsections 1.1(e) and 1.1(l) or Section 1.2, Lender is not undertaking (i) any obligations under the Leases; or (ii) any obligations with respect to such agreements, contracts, certificates, instruments, franchises, permits, trademarks, licenses and other documents. (b) By accepting or approving anything required to be observed, performed or fulfilled or to be given to Lender pursuant to this Security Instrument, the Note or the Other Loan Documents, including without limitation, any officer's certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, Lender shall not be deemed to have warranted, consented to, or affirmed the sufficiency, legality or effectiveness of same, and such acceptance or approval thereof shall not constitute any warranty or affirmation with respect thereto by Lender. Section 6.4 RELIANCE. Borrower recognizes and acknowledges that in accepting the Note, this Security Instrument and the Other Loan Documents, Lender is expressly and primarily relying on the truth and accuracy of the warranties and representations set forth in Article 5 and that certain Closing Certificate of even date herewith executed by Borrower, without any obligation to investigate the Property and notwithstanding any investigation of the Property by Lender; that such reliance existed on the part of Lender prior to the date hereof; that such warranties and representations are a material inducement to Lender in accepting the Note, this Security Instrument and the Other Loan Documents; and that Lender would not be willing to make the Loan (as hereinafter defined) and accept this Security Instrument in the absence of the warranties and representations as set forth in Article 5 and such Closing Certificate. ARTICLE 7 - FURTHER ASSURANCES Section 7.1 RECORDING FEES. Borrower will pay all taxes, filing, registration or recording fees, and all expenses incident to the preparation, execution, acknowledgment and/or recording of the Note, this Security Instrument, the Other Loan Documents, any note or deed of trust supplemental hereto, any security instrument with respect to the Property and any instrument of further assurance, and any modification or amendment of the foregoing documents, and all federal, state, county and municipal taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Security Instrument, any deed of trust supplemental hereto, any security instrument with respect to the Property or any instrument of further assurance, and any modification or amendment of the foregoing documents, except where prohibited by law so to do. Section 7.2 FURTHER ACTS. Borrower will, at the cost of Borrower, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender the property and rights hereby granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter 28 so to be, or which Borrower may be or may hereafter become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument, or for complying with all Applicable Laws. Borrower, on demand, will execute and deliver to Lender one or more financing statements, chattel mortgages or other instruments, to evidence more effectively the security interest of Lender in the Property. Borrower grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender at law and in equity, including without limitation such rights and remedies available to Lender pursuant to this Section 7.2; provided that Lender shall not exercise such power of attorney unless Borrower fails to comply with the provisions of this Section 7.2 for ten (10) days after notice from Lender. Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS. (a) If any law is enacted or adopted or amended after the date of this Security Instrument which imposes a tax, either directly or indirectly, on the Debt or Lender's interest in the Property, requires revenue or other stamps to be affixed to the Note, this Security Instrument, or the Other Loan Documents, or imposes any other tax or charge on the same, Borrower will pay the same, with interest and penalties thereon, if any; provided, however, the foregoing shall not apply to any income or similar taxes which are imposed on Lender. If Lender is advised by counsel chosen by it that the payment of tax by Borrower would be unlawful or taxable to Lender or unenforceable or provide the basis for a defense of usury, then Lender shall have the option, by written notice of not less than ninety (90) calendar days, to declare the Debt immediately due and payable. (b) Borrower will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes or Other Charges assessed against the Property, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of the Property, or any part thereof, for real estate tax purposes by reason of this Security Instrument or the Debt. If such claim, credit or deduction shall be required by law, Lender shall have the option, by written notice of not less than ninety (90) calendar days, to declare the Debt immediately due and payable. Section 7.4 CONFIRMATION STATEMENT. (a) After request by Lender, Borrower, within ten (10) days, shall furnish Lender or any proposed assignee with a statement, duly acknowledged and certified, confirming to Lender (or its designee) (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest of the Note, (iv) the terms of payment and maturity date of the Note, (v) the date installments of interest and/or principal were last paid, and (vi) that, except as provided in such statement, there are no defaults or events which with the passage of time or the giving of notice or both, would constitute an event of default under the Note or this Security 29 Instrument; provided, however, Lender shall not be entitled hereunder to receive more than one (1) such statement in each calendar year. (b) Subject to the provisions of the Leases, Borrower shall deliver to Lender, promptly upon request (but not more frequently than once annually so long as Borrower is not in default hereunder), duly executed estoppel certificates from any one or more lessees as required by Lender attesting to such facts regarding the Lease as Lender may require, including but not limited to attestations that each Lease covered thereby is in full force and effect with no defaults thereunder on the part of any party, that none of the Rents have been paid more than one month in advance, and that the lessee claims no defense or offset against the full and timely performance of its obligations under the Lease. (c) Upon any transfer or proposed transfer contemplated by Section 16.1 hereof, at Lender's request, Borrower, any Guarantors and any Indemnitors shall provide an estoppel certificate to the Investor (defined in Section 16.1) or any prospective Investor in such form, substance and detail as Lender, such Investor or prospective Investor may require. Section 7.5 SPLITTING OF SECURITY INSTRUMENT. This Security Instrument and the Note shall, at any time until the same shall be fully paid and satisfied, at the sole election of Lender, be split or divided into two or more notes and two or more security instruments, each of which shall cover all or a portion of the Property to be more particularly described therein. To that end, Borrower, upon written request of Lender, shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered by the then owner of the Property, to Lender and/or its designee or designees substitute notes and security instruments in such principal amounts, aggregating not more than the then unpaid principal amount of Debt, and containing terms, provisions and clauses similar to those contained herein and in the Note, and such other documents and instruments as may be required by Lender. Section 7.6 REPLACEMENT DOCUMENTS. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any Other Loan Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or Other Loan Document, Borrower, at its expense, will issue, in lieu thereof, a replacement Note or Other Loan Document, dated the date of such lost, stolen, destroyed or mutilated Note or Other Loan Document in the same principal amount thereof and otherwise of like tenor. ARTICLE 8 - DUE ON SALE/ENCUMBRANCE Section 8.1 LENDER RELIANCE. Borrower acknowledges that Lender has examined and relied on the creditworthiness of Borrower and experience of Borrower and its partners, members, principals and (if Borrower is a trust) beneficial owners in owning and operating properties such as the Property in agreeing to make the Loan, and will continue to rely 30 on Borrower's ownership of the Property as a means of maintaining the value of the Property as security for repayment of the Debt and the performance of the Other Obligations. Borrower acknowledges that Lender has a valid interest in maintaining the value of the Property so as to ensure that, should Borrower default in the repayment of the Debt or the performance of the Other Obligations, Lender can recover the Debt by a sale of the Property. Section 8.2 NO SALE/ENCUMBRANCE. (a) Borrower agrees that Borrower shall not, without the prior written consent of Lender, Transfer the Property or any part thereof or permit the Property or any part thereof to be Transferred. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon Borrower's Transfer of the Property without Lender's consent. (b) As used in Section 8.2(a), "Transfer" shall mean any voluntary or involuntary sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment or transfer of all or any part of the Property or any interest therein including, but not limited to: (i) an installment sales agreement wherein Borrower agrees to sell the Property or any part thereof for a price to be paid in installments; (ii) an agreement by Borrower leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder; (iii) a sale, assignment or other transfer of, or the grant of a security interest in, Borrower's right, title and interest in and to any Leases or any Rents; (iv) if Borrower, Guarantor, or any managing member or general partner of Borrower or Guarantor is a corporation, any Transfer of such corporation's stock (or the stock of any corporation directly or indirectly controlling such Borrower, Guarantor, managing member or general partner by operation of law or otherwise) or the creation or issuance of new stock in one or a series of transactions by which an aggregate of forty-nine percent (49%) or more of such corporation's stock shall directly or indirectly be vested in or pledged to a party or parties who are not now stockholders (provided, however, in no event shall this subpart [iv] apply to any Guarantor whose stock or shares are traded on a nationally recognized stock exchange); (v) if Borrower, Guarantor, or any managing member or general partner of Borrower or Guarantor is a limited liability company or partnership, the Transfer by which an aggregate of forty-nine percent (49%) or more of the ownership interest in such limited liability company or forty-nine percent (49%) or more of the partnership interests in such partnership shall directly or indirectly be vested in or pledged to parties not having an ownership interest as of the date of this Security Instrument; and (vi) if Borrower, any Guarantor or any managing member or general partner of Borrower or any Guarantor is a partnership, limited liability company or joint venture, the change, removal or resignation of a general partner, managing member or joint venturer or the Transfer directly or indirectly of all or any portion of the partnership or ownership interest of any general partner, managing member or joint venturer. Section 8.3 EXCLUDED AND PERMITTED TRANSFERS. 31 (a) A Transfer within the meaning of this Article 8 shall not include Transfers of Shares of WestCoast Hospitality Corporation ("WHC") for so long as WHC is a publicly-traded company. In the event WHC is no longer a publicly-traded company, the provisions of Sections 8.2(a) and (b) shall thereafter apply to WHC. Additionally, Lender's consent shall not be required in connection with a merger of WHLP into WHC or the transfer to WHC of any interests held by WHLP. (b) Intentionally Omitted. (c) Notwithstanding the provisions of Section 8.2 above, Lender will give its consent to three separate sales or transfers of the Property or ownership interests in the Borrower, a general partner or managing member of the Borrower, or any Guarantor, if (but only if) no Event of Default under the Loan Documents has occurred and is continuing, and if each of the following conditions precedent have been fully satisfied (in each case as determined in Lender's sole and absolute discretion or, in connection with the first such transfer of the ownership interests in the sole Member of Borrower, Lender's reasonable discretion): (i) the grantee's or transferee's integrity, reputation, financial condition, character and management ability are satisfactory to Lender, and all information relating thereto requested by Lender is delivered to Lender at least 30 days prior to the proposed transfer, (ii) the grantee's or transferee's (and its sole general partner's or managing member's) single purpose and bankruptcy remote character are satisfactory to Lender, and all information relating thereto requested by Lender is delivered to Lender at least 30 days prior to the proposed transfer, (iii) Lender has obtained such estoppels from any guarantors of the Note or replacement guarantors and such other legal opinions regarding substantive consolidation issues, enforceability of the assumption documents, no adverse impact on the Securities or any REMIC holding the Note and similar matters as Lender may require, (iv) all of Lender's costs and expenses associated with the sale or transfer (including reasonable attorneys' fees) are paid by Borrower or the grantee or transferee, (v) the payment of a transfer fee not to exceed 1% of the then unpaid principal balance of the loan evidenced by the Note and secured hereby (the "LOAN"), except that the first such transfer of the ownership interests in the sole member of Borrower shall be subject to the payment of a transfer fee not to exceed 0.5% of the then unpaid principal balance of the Loan, (vi) the execution and delivery to Lender of a written assumption agreement and/or substitute guaranty (in its sole and absolute discretion) and such modifications to the Loan Documents executed by such parties and containing such terms and conditions as Lender may require prior to such sale or transfer (provided that in the event the Loan is included in a REMIC and is a performing Loan, no modification to the terms and conditions shall be made or permitted that would cause (A) any adverse tax consequences to the REMIC or any holders of any Mortgage-Backed Pass-Through Securities, (B) the Security Instrument to fail to be a Qualifying Security Instrument under applicable federal law relating to REMIC's, or (C) result in a taxation of the income from the Loan to the REMIC or cause a loss of REMIC status), and (vii) if applicable, the delivery to Lender of an endorsement (at Borrower's 32 sole cost and expense) to Lender's policy of title insurance then insuring the lien created by this Security Instrument in form and substance acceptable to Lender. (d) Without limiting the foregoing, if Lender shall consent to a transfer of the Property, the written assumption agreement described in Subsection 8.3(c)(vi) above shall provide for the release of Borrower and, if approved by Lender, each Guarantor and Indemnitor of personal liability under the Note and Other Loan Documents, but only as to acts or events occurring, or obligations arising, after the closing of such transfer. Section 8.4. NO IMPLIED FUTURE CONSENT. Lender's consent to one sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Property shall not be deemed to be a waiver of Lender's right to require such consent to any future occurrence of same. Any sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Property made in contravention of this Article 8 shall be null and void and of no force and effect. Section 8.5 COSTS OF CONSENT. Borrower agrees to bear and shall pay or reimburse Lender on demand for all reasonable expenses (including, without limitation, all recording costs, reasonable attorneys' fees and disbursements and title search costs) incurred by Lender in connection with the review, approval and documentation of any such sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer. Section 8.6 CONTINUING SEPARATENESS REQUIREMENTS. In no event shall any of the terms and provisions of this Article 8 amend or modify the terms and provisions contained in Section 4.3 herein. Section 8.7 NON-CONSOLIDATION OPINION. If as a result of any direct or indirect transfers of interests in Borrower (including any excluded and permitted transfers) more than forty-nine percent (49%) in the aggregate of direct or indirect interests in Borrower is owned by any person or entity that owned less than a forty-nine percent (49%) direct or indirect interest in Borrower as of the date hereof, Lender shall, as a condition to such transfer, receive a non-consolidation opinion acceptable to it and the Rating Agencies. ARTICLE 9 - DEFAULT Section 9.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "EVENT OF DEFAULT": (a) if any portion of the Debt is not paid prior to the fifth (5th) calendar day after the same is due or if the entire Debt is not paid on or before the maturity date, along with applicable prepayment premiums, if any; (b) if Borrower, or its general partner or managing member, if applicable, violates or does not comply with the provisions of Section 4.3 in all material respects or if (i) there is a transfer of title to the Property or any portion thereof in violation of Article 8, (ii) there is a transfer of title to any direct or indirect interest in Borrower in violation 33 of Article 8, (iii) Borrower voluntarily breaches or permits any other breach of Article 8, or (iv) there is any other breach of Article 8 and such breach continues for thirty (30) calendar days after Borrower has notice of same; (c) if any representation or warranty of Borrower or of its members, general partners, principals, affiliates, agents or employees, or of any Guarantor made herein or in the Environmental Indemnity or in any other Loan Document, in any guaranty, or in any certificate, report, financial statement or other instrument or document furnished to Lender shall have been false or misleading in any material respect when made; (d) if Borrower or any Guarantor shall make an assignment for the benefit of creditors or if Borrower or any Guarantor shall admit in writing its inability to pay, or Borrower's or any Guarantor's failure to pay its debts as they become due; (e) if (i) Borrower or any subsidiary or general partner or managing member of Borrower, or any Guarantor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or Borrower or any subsidiary or general partner or managing member of Borrower, or any Guarantor shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against Borrower or any subsidiary or general partner or managing member of Borrower, or any Guarantor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) calendar days; or (iii) there shall be commenced against Borrower or any subsidiary or general partner or managing member of Borrower or any Guarantor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) calendar days from the entry thereof; or (iv) Borrower or any subsidiary or general partner or managing member of Borrower, or any Guarantor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v) Borrower or any subsidiary or general partner or managing member of Borrower, or any Guarantor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; (f) subject to Borrower's right to contest certain liens as provided in this Security Instrument, if the Property becomes subject to any mechanic's, materialman's or 34 other lien other than a lien for local real estate taxes and assessments not then due and payable and the lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of thirty (30) calendar days; (g) if any federal tax lien is filed against Borrower, any general partner or managing member of Borrower, any Guarantor or the Property and same is not discharged of record within thirty (30) calendar days after same is filed, or if any final judgment or decree shall be entered against Borrower which is not fully insured or paid within thirty (30) calendar days; (h) except as permitted in this Security Instrument, the actual or threatened demolition or removal of any of the Improvements without the prior consent of Lender; (i) damage to the Property in any manner which is not covered by insurance, which lack of coverage arises solely as a result of Borrower's failure to maintain the insurance required under this Security Instrument; (j) if without Lender's prior consent, the hotel manager for the Property under the Management Agreement (or any successor management agreement) resigns or is removed, or there is any material change in the Management Agreement (or any successor management agreement); (k) this Security Instrument shall cease to constitute a first-priority lien on the Property (other than in accordance with its terms); (l) seizure or forfeiture of any material portion of the Property, or Borrower's interest therein, resulting from criminal wrongdoing or other unlawful action of Borrower, its affiliates, or any tenant in the Property under any federal, state or local law; (m) if Borrower consummates a transaction which would cause this Security Instrument or Lender's exercise of its rights under this Security Instrument, the Note or the Other Loan Documents to constitute a nonexempt prohibited transaction under ERISA or result in a violation of a state statute regulating governmental plans, subjecting Lender to liability for a violation of ERISA or a state statute governing employee benefit plans; (n) if any default occurs under any guaranty or indemnity including the Environmental Indemnity executed in connection herewith and such default continues after the expiration of applicable grace periods, or such guaranty or indemnity shall cease to be in full force and effect, or any guarantor or indemnitor shall deny or disaffirm its obligation thereunder; (o) if Borrower or any Guarantor, as the case may be, shall continue to be in default under any other term, covenant or condition of this Security Instrument or any Other Loan Documents for thirty (30) calendar days after notice from Lender; provided 35 that if such default cannot reasonably be cured within such thirty (30) calendar day period and Borrower (or such Guarantor as the case may be) shall have commenced to cure such default within such thirty (30) calendar day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) calendar day period shall be extended for so long as it shall require Borrower (or such Guarantor as the case may be) in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of sixty (60) calendar days after the notice from Lender referred to above; (p) if a default has occurred and continues beyond any applicable cure period under the Management Agreement (or any successor management agreement) if such default permits the hotel manager to terminate or cancel the Management Agreement (or any successor management agreements); (q) if without Lender's prior consent, there is any material change in the Franchise Agreement (or any successor franchise agreement); (r) if a default has occurred and continues beyond any applicable cure period under the Franchise Agreement (or any successor franchise agreement) if such default permits the franchisor to terminate or cancel the Franchise Agreement (or any successor franchise agreement); and (s) if Borrower ceases to do business as a hotel or motel on the Property or terminates such business for any reason whatsoever (other than temporary cessation in connection with any renovations to the Property). Section 9.2 DEFAULT INTEREST. Borrower will pay, from the date of an Event of Default through the earlier of the date upon which the Event of Default is cured or the date upon which the Debt is paid in full, interest on the unpaid principal balance of the Note at a per annum rate equal to the lesser of (a) the greater of (i) five percent (5%) plus the Prime Rate (as defined in the Note), and (ii) five percent (5%) plus the Applicable Interest Rate (as defined in the Note), and (b) the maximum interest rate which Borrower may by law pay or Lender may charge and collect (the "DEFAULT RATE"). ARTICLE 10 - RIGHTS AND REMEDIES Section 10.1 REMEDIES. Upon the occurrence of any Event of Default and prior to Lender's acceptance of any cure thereof, Borrower agrees that Lender may take such action, by or through Trustee, by Lender itself or otherwise, without notice or demand, as it deems advisable to protect and enforce its rights against Borrower and in and to the Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Lender may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Lender: 36 (a) Right to Perform Borrower's Covenants. If Borrower has failed to keep or perform any covenant whatsoever contained in this Security Instrument or the Other Loan Documents, Lender may, but shall not be obligated to any person to do so, perform or attempt to perform said covenant and any payment made or expense incurred in the performance or attempted performance of any such covenant, together with any sum expended by Lender that is chargeable to Borrower or subject to reimbursement by Borrower under the Loan Documents, shall be and become a part of the "Debt", and Borrower promises, upon demand, to pay to Lender, at the place where the Note is payable, all sums so incurred, paid or expended by Lender, with interest from the date when paid, incurred or expended by Lender at the Default Rate. (b) Right of Entry. Lender may, prior or subsequent to the institution of any foreclosure proceedings, enter upon the Property, or any part thereof, and take exclusive possession of the Property and of all books, records, and accounts relating thereto and to exercise without interference from Borrower any and all rights which Borrower has with respect to the management, possession, operation, protection, or preservation of the Property, including without limitation the right to rent the same for the account of Borrower and to deduct from such Rents all costs, expenses, and liabilities of every character incurred by Lender in collecting such Rents and in managing, operating, maintaining, protecting, or preserving the Property and to apply the remainder of such Rents on the Debt in such manner as Lender may elect. All such costs, expenses, and liabilities incurred by Lender in collecting such Rents and in managing, operating, maintaining, protecting, or preserving the Property, if not paid out of Rents as hereinabove provided, shall constitute a demand obligation owing by Borrower and shall bear interest from the date of expenditure until paid at the Default Rate, all of which shall constitute a portion of the Debt. If necessary to obtain the possession provided for above, Lender may invoke any and all legal remedies to dispossess Borrower, including specifically one or more actions for forcible entry and detainer, trespass to try title, and restitution. In connection with any action taken by Lender pursuant to this Subsection 10.1(b), Lender shall not be liable for any loss sustained by Borrower resulting from any failure to let the Property, or any part thereof, or from any other act or omission of Lender in managing the Property unless such loss is caused by the willful misconduct of Lender, nor shall Lender be obligated to perform or discharge any obligation, duty, or liability under any Lease or under or by reason hereof or the exercise of rights or remedies hereunder. Borrower shall and does hereby agree to indemnify Lender for, and to hold Lender harmless from, any and all liability, loss, or damage, which may or might be incurred by Lender under any such Lease or under or by reason hereof or the exercise of rights or remedies hereunder, and from any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants, or agreements contained in any such Lease. Should Lender incur any such liability, the amount thereof, including without limitation costs, expenses, and reasonable attorneys' fees, together with interest thereon from the date of expenditure until paid at the Default Rate, shall be secured hereby, and Borrower shall reimburse Lender therefor 37 immediately upon demand. Nothing in this Subsection 10.1(b) shall impose any duty, obligation, or responsibility upon Lender for the control, care, management, leasing, or repair of the Property, nor for the carrying out of any of the terms and conditions of any such Lease; nor shall it operate to make Lender responsible or liable for any waste committed on the Property by the tenants or by any other parties, or for any hazardous substances or environmental conditions on or under the Property, or for any dangerous or defective condition of the Property or for any negligence in the management, leasing, upkeep, repair, or control of the Property resulting in loss or injury or death to any tenant, licensee, employee, or stranger. Borrower hereby assents to, ratifies, and confirms any and all actions of Lender with respect to the Property taken under this subsection. (c) Right to Accelerate. Lender may, without notice (except as provided in Section 9.1(o) above), demand, presentment, notice of nonpayment or nonperformance, protest, notice of protest, notice of intent to accelerate, notice of acceleration, or any other notice or any other action, all of which are hereby waived by Borrower and all other parties obligated in any manner whatsoever on the Debt, declare the entire unpaid balance of the Debt immediately due and payable, and upon such declaration, the entire unpaid balance of the Debt shall be immediately due and payable. (d) Foreclosure-Power of Sale. Lender may institute a proceeding or proceedings, judicial, or nonjudicial, by advertisement or otherwise, for the complete or partial foreclosure of this Security Instrument or the complete or partial sale of the Property under power of sale or under any applicable provision of law. Lender may, through the Trustee, sell the Property, and all estate, right, title, interest, claim and demand of Borrower therein, and all rights of redemption thereof, at one or more sales, as an entirety or in parcels, with such elements of real and/or personal property, and at such time and place and upon such terms as it may deem expedient, or as may be required by applicable law, and in the event of a sale, by foreclosure or otherwise, of less than all of the Property, this Security Instrument shall continue as a lien and security interest on the remaining portion of the Property. (e) Rights Pertaining to Sales. Subject to the requirements of applicable law and except as otherwise provided herein, the following provisions shall apply to any sale or sales of all or any portion of the Property under or by virtue of Subsection 10.1(d) above, whether made under the power of sale herein granted or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale: (i) Trustee or Lender may conduct any number of sales from time to time. The power of sale set forth above shall not be exhausted by any one or more such sales as to any part of the Property which shall not have been sold, nor by any sale which is not completed or is defective in Lender's opinion, until the Debt shall have been paid in full. 38 (ii) Any sale may be postponed or adjourned by public announcement at the time and place appointed for such sale or for such postponed or adjourned sale without further notice. (iii) After each sale, Lender, Trustee or an officer of any court empowered to do so shall execute and deliver to the purchaser or purchasers at such sale a good and sufficient instrument or instruments granting, conveying, assigning and transferring all right, title and interest of Borrower in and to the property and rights sold and shall receive the proceeds of said sale or sales and apply the same as specified in the Note. Each of Trustee and Lender is hereby appointed the true and lawful attorney-in-fact of Borrower, which appointment is irrevocable and shall be deemed to be coupled with an interest, in Borrower's name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the property and rights so sold, Borrower hereby ratifying and confirming all that said attorney or such substitute or substitutes shall lawfully do by virtue thereof. Nevertheless, Borrower, if requested by Trustee or Lender, shall ratify and confirm any such sale or sales by executing and delivering to Trustee, Lender or such purchaser or purchasers all such instruments as may be advisable, in Trustee's or Lender's judgment, for the purposes as may be designated in such request. (iv) Any and all statements of fact or other recitals made in any of the instruments referred to in Subsection 10.1(e)(iii) given by Trustee or Lender shall be taken as conclusive and binding against all persons as to evidence of the truth of the facts so stated and recited. (v) Any such sale or sales shall operate to divest all of the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of Borrower in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against Borrower and any and all persons claiming or who may claim the same, or any part thereof or any interest therein, by, through or under Borrower to the fullest extent permitted by applicable law. (vi) Upon any such sale or sales, Lender may bid for and acquire the Property and, in lieu of paying cash therefor, may make settlement for the purchase price by crediting against the Debt the amount of the bid made therefor, after deducting therefrom the expenses of the sale, the cost of any enforcement proceeding hereunder, and any other sums which Trustee or Lender is authorized to deduct under the terms hereof, to the extent necessary to satisfy such bid. (vii) Upon any such sale, it shall not be necessary for Trustee, Lender or any public officer acting under execution or order of court to have present or constructively in its possession any of the Property. 39 (f) Lender's Judicial Remedies. Lender, or Trustee upon written request of Lender, may proceed by suit or suits, at law or in equity, to enforce the payment of the Debt to foreclose the liens and security interests of this Security Instrument as against all or any part of the Property, and to have all or any part of the Property sold under the judgment or decree of a court of competent jurisdiction. This remedy shall be cumulative of any other nonjudicial remedies available to Lender under this Security Instrument, the Note or the Other Loan Documents. Proceeding with a request or receiving a judgment for legal relief shall not be or be deemed to be an election of remedies or bar any available nonjudicial remedy of Lender. (g) Lender's Right to Appointment of Receiver. Lender, as a matter of right and (i) without regard to the sufficiency of the security for repayment of the Debt and without notice to Borrower, (ii) without any showing of insolvency, fraud, or mismanagement on the part of Borrower, (iii) without the necessity of filing any judicial or other proceeding other than the proceeding for appointment of a receiver, and (iv) without regard to the then value of the Property, shall be entitled to the appointment of a receiver or receivers for the protection, possession, control, management and operation of the Property, including (without limitation), the power to collect the Rents, enforce this Security Instrument and, in case of a sale and deficiency, during the full statutory period of redemption (if any), whether there be a redemption or not, as well as during any further times when Borrower, except for the intervention of such receiver, would be entitled to collection of such Rents. Borrower hereby irrevocably consents to the appointment of a receiver or receivers. Any receiver appointed pursuant to the provisions of this subsection shall have the usual powers and duties of receivers in such matters. (h) Commercial Code Remedies. Lender may exercise any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing: (i) the right to take possession of the Personal Property or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Personal Property, and (ii) request Borrower at its expense to assemble the Personal Property and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender with respect to the Personal Property sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Borrower. (i) Apply Escrow Funds. Lender may apply any Funds (as defined in the Escrow Agreement) and any other sums held in escrow or otherwise by Lender in accordance with the terms of this Security Instrument or any Other Loan Document to the payment of the following items in any order in its uncontrolled discretion: (i) Taxes and Other Charges; (ii) Insurance Premiums; 40 (iii) Interest on the unpaid principal balance of the Note; (iv) Amortization of the unpaid principal balance of the Note; and (v) All other sums payable pursuant to the Note, this Security Instrument and the Other Loan Documents, including without limitation advances made by Lender pursuant to the terms of this Security Instrument. (j) Other Rights. Lender (i) may, upon notice to Borrower, surrender the Policies maintained pursuant to this Security Instrument or any part thereof, and upon receipt shall apply the unearned premiums as a credit on the Debt, and, in connection therewith, Borrower hereby appoints Lender as agent and attorney-in-fact (which is coupled with an interest and is therefore irrevocable) for Borrower to collect such premiums; and (ii) may apply the Tax and Insurance Escrow Fund (as defined in the Escrow Agreement) and/or the Replacement Escrow Fund (as defined in the Escrow Agreement) and any other funds held by Lender toward payment of the Debt; and (iii) shall have and may exercise any and all other rights and remedies which Lender may have at law or in equity, or by virtue of any of the Loan Documents, or otherwise. (k) Discontinuance of Remedies. In case Lender shall have proceeded to invoke any right, remedy, or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon same for any reason, Lender shall have the unqualified right so to do and, in such event, Borrower and Lender shall be restored to their former positions with respect to the Debt, the Loan Documents, the Property or otherwise, and the rights, remedies, recourses and powers of Lender shall continue as if same had never been invoked. (l) Remedies Cumulative. All rights, remedies, and recourses of Lender granted in the Note, this Security Instrument and the Other Loan Documents, any other pledge of collateral, or otherwise available at law or equity: (i) shall be cumulative and concurrent; (ii) may be pursued separately, successively, or concurrently against Borrower, the Property, or any one or more of them, at the sole discretion of Lender; (iii) may be exercised as often as occasion therefor shall arise, it being agreed by Borrower that the exercise or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse; (iv) shall be nonexclusive; (v) shall not be conditioned upon Lender exercising or pursuing any remedy in relation to the Property prior to Lender bringing suit to recover the Debt; and (vi) in the event Lender elects to bring suit on the Debt and obtains a judgment against Borrower prior to exercising any remedies in relation to the Property, all liens and security interests, including the lien of this Security Instrument, shall remain in full force and effect and may be exercised thereafter at Lender's option. (m) Bankruptcy Acknowledgment. In the event the Property or any portion thereof or any interest therein becomes property of any bankruptcy estate or subject to 41 any state or federal insolvency proceeding, then Lender shall immediately become entitled, in addition to all other relief to which Lender may be entitled under this Security Instrument, to obtain (i) an order from the Bankruptcy Court or other appropriate court granting immediate relief from the automatic stay pursuant toss. 362 of the Bankruptcy Code so to permit Lender to pursue its rights and remedies against Borrower as provided under this Security Instrument and all other rights and remedies of Lender at law and in equity under applicable state law, and (ii) an order from the Bankruptcy Court prohibiting Borrower's use of all "cash collateral" as defined underss. 363 of the Bankruptcy Code. In connection with such Bankruptcy Court orders, Borrower shall not contend or allege in any pleading or petition filed in any court proceeding that Lender does not have sufficient grounds for relief from the automatic stay. Any bankruptcy petition or other action taken by the Borrower to stay, condition, or inhibit Lender from exercising its remedies are hereby admitted by Borrower to be in bad faith and Borrower further admits that Lender would have just cause for relief from the automatic stay in order to take such actions authorized under state law. (n) Application of Proceeds. The proceeds from any sale, lease, or other disposition made pursuant to this Security Instrument, or the proceeds from the surrender of any insurance policies pursuant hereto, or any Rents collected by Lender from the Property, or the Tax and Insurance Escrow Fund or the Replacement Escrow Fund (as defined in the Escrow Agreement) or proceeds from insurance which Lender elects to apply to the Debt pursuant to Article 3 hereof, shall be applied by Trustee, or by Lender, as the case may be, to the Debt in the following order and priority: (1) to the payment of all expenses of advertising, selling, and conveying the Property or part thereof, and/or prosecuting or otherwise collecting Rents, proceeds, premiums or other sums including reasonable attorneys' fees and a reasonable fee or commission to Trustee, not to exceed five percent of the proceeds thereof or sums so received; (2) to that portion, if any, of the Debt with respect to which no person or entity has personal or entity liability for payment (the "EXCULPATED PORTION"), and with respect to the Exculpated Portion as follows: first, to accrued but unpaid interest, second, to matured principal, and third, to unmatured principal in inverse order of maturity; (3) to the remainder of the Debt as follows: first, to the remaining accrued but unpaid interest, second, to the matured portion of principal of the Debt, and third, to prepayment of the unmatured portion, if any, of principal of the Debt applied to installments of principal in inverse order of maturity; (4) the balance, if any or to the extent applicable, remaining after the full and final payment of the Debt to the holder or beneficiary of any inferior liens covering the Property, if any, in order of the priority of such inferior liens (Trustee and Lender shall hereby be entitled to rely exclusively on a commitment for title insurance issued to determine such priority); and (5) the cash balance, if any, to the Borrower. The application of proceeds of sale or other proceeds as otherwise provided herein shall be deemed to be a payment of the Debt like any other payment. The balance of the Debt remaining unpaid, if any, shall remain fully due and owing in accordance with the terms of the Note and the other Loan Documents. 42 Section 10.2 RIGHT OF ENTRY. Lender and its agents shall have the right to enter and inspect the Property at all reasonable times. ARTICLE 11 - INDEMNIFICATION; SUBROGATION Section 11.1 GENERAL INDEMNIFICATION. (a) Borrower shall indemnify, defend and hold Lender and Trustee harmless against: (i) any and all claims for brokerage, leasing, finder's or similar fees which may be made relating to the Property or the Debt, and (ii) any and all liability, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses (including Lender's reasonable attorneys' fees, together with reasonable appellate counsel fees, if any) of whatever kind or nature which may be asserted against, imposed on or incurred by Lender or Trustee in connection with the Debt, this Security Instrument, the Property, or any part thereof, or the exercise by Lender or Trustee of any rights or remedies granted to it under this Security Instrument; provided, however, that nothing herein shall be construed to obligate Borrower to indemnify, defend and hold harmless Lender from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses enacted against, imposed on or incurred by Lender by reason of Lender's willful misconduct or gross negligence. (b) If Lender is made a party defendant to any litigation or any claim is threatened or brought against Lender concerning the secured indebtedness, this Security Instrument, the Property, or any part thereof, or any interest therein, or the construction, maintenance, operation or occupancy or use thereof, then Lender shall notify Borrower of such litigation or claim and Borrower shall indemnify, defend and hold Lender harmless from and against all liability by reason of said litigation or claims, including reasonable attorneys' fees (together with reasonable appellate counsel fees, if any). The right to such attorneys' fees (together with reasonable appellate counsel fees, if any) and expenses incurred by Lender in any such litigation or claim of the type described in this Subsection 11.1(b), whether or not any such litigation or claim is prosecuted to judgment, shall be deemed to have accrued on the commencement of such claim or action and shall be enforceable whether or not such claim or action is prosecuted to judgment. If Lender commences an action against Borrower to enforce any of the terms hereof or to prosecute any breach by Borrower of any of the terms hereof or to recover any sum secured hereby, Borrower shall pay to Lender its reasonable attorneys' fees (together with reasonable appellate counsel fees, if any) and expenses. If Borrower breaches any term of this Security Instrument, Lender may engage the services of an attorney or attorneys to protect its rights hereunder, and in the event of such engagement following any breach by Borrower, Borrower shall pay Lender reasonable attorneys' fees (together with reasonable appellate counsel fees, if any) and expenses incurred by Lender, whether or not an action is actually commenced against Borrower by reason of such breach. All references to "ATTORNEYS" in this Subsection 11.1(b) and elsewhere in this Security Instrument shall include without limitation any attorney or law firm engaged by Lender 43 and Lender's in-house counsel, and all references to "FEES AND EXPENSES" in this Subsection 11.1(b) and elsewhere in this Security Instrument shall include without limitation any fees of such attorney or law firm and any allocation charges and allocation costs of Lender's in-house counsel. (c) A waiver of subrogation shall be obtained by Borrower from its insurance carrier and, consequently, Borrower waives any and all right to claim or recover against Lender, its officers, employees, agents and representatives, for loss of or damage to Borrower, the Property, Borrower's property or the property of others under Borrower's control from any cause insured against or required to be insured against by the provisions of this Security Instrument. Section 11.2 ENVIRONMENTAL INDEMNIFICATION. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses (as hereinafter defined) imposed upon or incurred by or asserted against any Indemnified Parties (other than those arising solely from a state of facts that first came into existence after either (i) conveyance of all of Borrower's interest in the Property in accordance with the provisions of Article 8 hereof or (ii) Lender acquired title to the Property through foreclosure or a deed in lieu thereof), and directly or indirectly arising out of or in any way relating to any one or more of the following: (a) any presence of any Hazardous Substances (as hereinafter defined) in, on, above, or under the Property; (b) any past, present or future Release (as hereinafter defined) of Hazardous Substances in, on, above, under or from the Property; (c) any activity by Borrower, any person or entity affiliated with Borrower, and any tenant or other user of the Property in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Property of any Hazardous Substances at any time located in, under, on or above the Property; (d) any activity by Borrower, any person or entity affiliated with Borrower, and any tenant or other user of the Property in connection with any actual or proposed Remediation (as hereinafter defined) of any Hazardous Substances at any time located in, under, on or above the Property, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (e) any past, present or threatened non-compliance or violations of any Environmental Law (as hereinafter defined) (or permits issued pursuant to any Environmental Law) in connection with the Property or operations thereon, including but not limited to any failure by Borrower, any person or entity affiliated with Borrower, and any tenant or other user of the Property to comply with any order of any governmental authority in connection with any Environmental Laws; (f) the imposition, recording or filing or the future imposition, recording or filing of any Environmental Lien (as hereinafter defined) encumbering the Property; (g) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Section 11.2; and (h) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations under the Environmental Indemnity of even date executed by Borrower and Indemnitor. 44 The term "ENVIRONMENTAL LAW" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to protection of human health or the environment, relating to Hazardous Substances, relating to liability for or costs of Remediation or prevention of Releases of Hazardous Substances or relating to liability for or costs of other actual or threatened danger to human health or the environment. The term "ENVIRONMENTAL LAW" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Substances Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. The term "ENVIRONMENTAL LAW" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the Property; requiring notification or disclosure of Releases of Hazardous Substances or other environmental condition of the Property to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to the Property; and relating to wrongful death, personal injury, or property or other damage in connection with any physical condition or use of the Property. The term "ENVIRONMENTAL LIEN" means any lien or other encumbrance imposed pursuant to Environmental Law, whether due to any act or omission of Borrower or any other person or entity. The term "HAZARDOUS SUBSTANCES" means any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present or future Environmental Laws or that may have a negative impact on human health or the environment, including but not limited to petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead, lead-based paints, radon, radioactive materials, flammables and explosives. The term "INDEMNIFIED PARTIES" means Lender, any person or entity who is or will have been involved in originating the Loan evidenced by the Note, any person or entity who is or will have been involved in servicing the Loan, any person or entity in whose name the encumbrance created by this Security Instrument is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan (including but not limited to 45 those who may acquire any interest in Securities, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties), as well as the respective directors, officers, shareholders, partners, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, any other person or entity who holds or acquires or will have held a participation or other full or partial interest in the Loan or the Property, whether during the term of the Loan or as part of or following foreclosure pursuant to the Loan) and including but not limited to any successors by merger, consolidation or acquisition of all or a substantial part of Lender's assets and business. The term "LOSSES" means any claims, suits, liabilities (including but not limited to strict liabilities), administrative or judicial actions or proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, costs of Remediation (whether or not performed voluntarily), judgments, award, amounts paid in settlement, foreseeable and unforeseeable consequential damages, litigation costs, attorneys' fees, engineer's fees, environmental consultants' fees and investigation costs (including but not limited to costs for sampling, testing and analysis of soil, water, air, building materials, and other materials and substances whether solid, liquid or gas), of whatever kind or nature, and whether or not incurred in connection with any judicial or administrative proceedings. The term "RELEASE" with respect to any Hazardous Substance means any release, deposit, discharge, emission, leaking, leaching, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Substances. The term "REMEDIATION" means any response, remedial, removal, or corrective action; any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance; any actions to prevent, cure or mitigate any Release of any Hazardous Substance; any action to comply with any Environmental Laws or with any permits issued pursuant thereto; any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or evaluation relating to any Hazardous Substances or to anything referred to in this Article 11. Section 11.3 DUTY TO DEFEND AND ATTORNEYS AND OTHER FEES AND EXPENSES. Upon written request by any Indemnified Party, Borrower shall defend such Indemnified Party (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals approved by the Indemnified Parties. Borrower shall not be liable for the expenses of more than one separate counsel unless an Indemnified Party shall have reasonably concluded that there are legal defenses available to it that are different from or additional to those available to another Indemnified Party. Notwithstanding the foregoing, any Indemnified Parties may, in their sole and absolute discretion, engage their own attorneys and other professionals to defend or assist them, and, at the option of Indemnified Parties, their attorneys shall control the resolution of claim or proceeding; provided, however, that neither an Indemnified Party nor its counsel shall have any right to settle or compromise any claims covered by the indemnification set forth herein without the prior written consent of Borrower, such consent not to be unreasonably withheld, conditioned or delayed. Upon demand, Borrower 46 shall pay or, in the sole and absolute discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith. Section 11.4 SURVIVAL OF INDEMNITIES. Notwithstanding any provision of this Security Instrument or any other Loan Document to the contrary, the provisions of Section 11.1 and Section 11.2, and Borrower's obligations thereunder, shall survive (a) the repayment of the Note, (b) the foreclosure of this Security Instrument, and (c) the release (or reconveyance, as applicable) of the lien of this Security Instrument. ARTICLE 12 - SECURITY AGREEMENT Section 12.1 SECURITY AGREEMENT. This Security Instrument is both a real property mortgage and a "security agreement" within the meaning of the Uniform Commercial Code. The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Borrower in the Property. Borrower by executing and delivering this Security Instrument has granted and hereby grants to Lender, as security for the Obligations, a security interest in the Property to the full extent that the Property may be subject to the Uniform Commercial Code (said portion of the Property so subject to the Uniform Commercial Code being called in this paragraph the "COLLATERAL"). Borrower hereby agrees with Lender to execute and deliver to Lender, in form and substance satisfactory to Lender, such financing statements, continuation statements, other uniform commercial code forms and shall pay all expenses and fees in connection with the filing and recording thereof, and such further assurances as Lender may from time to time, reasonably consider necessary to create, perfect, and preserve Lender's security interest herein granted. This Security Instrument shall also constitute a "fixture filing" for the purposes of the Uniform Commercial Code. All or part of the Property are or are to become fixtures. Information concerning the security interest herein granted may be obtained from the parties at the addresses of the parties set forth in the first paragraph of this Security Instrument. If an Event of Default shall occur, Lender, in addition to any other rights and remedies which they may have, shall have and may exercise immediately and without demand, any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing, the right to take possession of the Collateral or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Collateral. Upon request or demand of Lender, Borrower shall at its expense assemble the Collateral and make it available to Lender at a convenient place acceptable to Lender. Borrower shall pay to Lender on demand any and all expenses, including legal expenses and attorneys' fees, incurred or paid by Lender in protecting the interest in the Collateral and in enforcing the rights hereunder with respect to the Collateral. Any notice of sale, disposition or other intended action by Lender with respect to the Collateral sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Borrower. The proceeds of any disposition of the Collateral, or any part thereof, may be applied by Lender to the payment of the Obligations in such priority and proportions as Lender in its discretion shall 47 deem proper. In the event of any change in name, identity or structure of any Borrower, such Borrower shall notify Lender thereof, and promptly after request shall execute, file and record such Uniform Commercial Code forms as are necessary to maintain the priority of Lender's lien upon and security interest in the Collateral, and shall pay all expenses and fees in connection with the filing and recording thereof. If Lender shall require the filing or recording of additional Uniform Commercial Code forms or continuation statements, Borrower shall, promptly after request, execute, file and record such Uniform Commercial Code forms or continuation statements as Lender shall deem necessary, and shall pay all expenses and fees in connection with the filing and recording thereof it being understood and agreed, however, that no such additional documents shall increase Borrower's obligations under the Note, this Security Instrument and the Other Loan Documents. Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to file with the appropriate public office on its behalf any financing or other statements signed only by Lender, as Borrower's attorney-in-fact, in connection with the Collateral covered by this Security Instrument. Notwithstanding the foregoing, Borrower shall appear and defend in any action or proceeding which affects or purports to affect the Property and any interest or right therein, whether such proceeding effects title or any other rights in the Property (and in conjunction therewith, Borrower shall fully cooperate with Lender in the event Lender is a party to such action or proceeding). ARTICLE 13 - WAIVERS Section 13.1 MARSHALLING AND OTHER MATTERS. Borrower hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, Borrower hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Security Instrument on behalf of Borrower, and on behalf of each and every person acquiring any interest in or title to the Property subsequent to the date of this Security Instrument and on behalf of all persons to the extent permitted by applicable law. Section 13.2 WAIVER OF NOTICE. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Security Instrument specifically and expressly provides for the giving of notice by Lender to Borrower and except with respect to matters for which Lender is required by applicable law to give notice, and Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Lender to Borrower. Section 13.3 SOLE DISCRETION OF LENDER. Wherever pursuant to this Security Instrument Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide that arrangements or terms are satisfactory or not satisfactory shall be in the sole discretion of Lender and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein. 48 Section 13.4 SURVIVAL. The indemnifications made pursuant to Article 11, shall continue indefinitely in full force and effect and shall survive and shall in no way be impaired by: any satisfaction or other termination of this Security Instrument, any assignment or other transfer of all or any portion of this Security Instrument or Lender's interest in the Property (but, in such case, shall benefit both Indemnified Parties and any assignee or transferee), any exercise of Lender's rights and remedies pursuant hereto including but not limited to foreclosure or acceptance of a deed in lieu of foreclosure, any exercise of any rights and remedies pursuant to the Note or any of the Other Loan Documents, any transfer of all or any portion of the Property (whether by Borrower or by Lender following foreclosure or acceptance of a deed in lieu of foreclosure or at any other time), any amendment to this Security Instrument, the Note or the Other Loan Documents, and any act or omission that might otherwise be construed as a release or discharge of Borrower from the obligations pursuant hereto. Section 13.5 WAIVER OF TRIAL BY JURY. BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS SECURITY INSTRUMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH INCLUDING, BUT NOT LIMITED TO THOSE RELATING TO (A) ALLEGATIONS THAT A PARTNERSHIP EXISTS BETWEEN LENDER AND BORROWER; (B) USURY OR PENALTIES OR DAMAGES THEREFOR; (C) ALLEGATIONS OF UNCONSCIONABLE ACTS, DECEPTIVE TRADE PRACTICE, LACK OF GOOD FAITH OR FAIR DEALING, LACK OF COMMERCIAL REASONABLENESS, OR SPECIAL RELATIONSHIPS (SUCH AS FIDUCIARY, TRUST OR CONFIDENTIAL RELATIONSHIP); (D) ALLEGATIONS OF DOMINION, CONTROL, ALTER EGO, INSTRUMENTALITY, FRAUD, REAL ESTATE FRAUD, MISREPRESENTATION, DURESS, COERCION, UNDUE INFLUENCE, INTERFERENCE OR NEGLIGENCE; (E) ALLEGATIONS OF TORTIOUS INTERFERENCE WITH PRESENT OR PROSPECTIVE BUSINESS RELATIONSHIPS OR OF ANTITRUST; OR (F) SLANDER, LIBEL OR DAMAGE TO REPUTATION. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER. Section 13.6 WAIVER OF AUTOMATIC OR SUPPLEMENTAL STAY. In the event of the filing of any voluntary or involuntary petition under the Bankruptcy Code by or against Borrower (other than an involuntary petition filed by or joined in by Lender), the Borrower shall not assert, or request any other party to assert, that the automatic stay under ss. 362 of the 49 Bankruptcy Code shall operate or be interpreted to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights it has by virtue of this Security Instrument, or any other rights that Lender has, whether now or hereafter acquired, against any guarantor of the Debt. Further, Borrower shall not seek a supplemental stay or any other relief, whether injunctive or otherwise, pursuant to ss. 105 of the Bankruptcy Code or any other provision therein to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights it has by virtue of this Security Instrument against any guarantor of the Debt. The waivers contained in this paragraph are a material inducement to Lender's willingness to enter into this Security Instrument and Borrower acknowledges and agrees that no grounds exist for equitable relief which would bar, delay or impede the exercise by Lender of Lender's rights and remedies against Borrower or any guarantor of the Debt. ARTICLE 14 - NOTICES Section 14.1 NOTICES. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged, (ii) one (1) Business Day after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, addressed as follows: If to Borrower: West Coast Grand Hotel 1415 Fifth Avenue Seattle, Washington 98101 Attention: Executive Offices Facsimile No.: (206) 971-8101 With a copy to: WestCoast Hospitality Limited Partnership c/o WestCoast Hospitality Corporation 201 W. North River Drive, Suite 100 Spokane, Washington 99201 Attention: Chief Financial Officer Facsimile No.: (509) 325-7324 With a copy to: Riddell Williams P.S. 1001 Fourth Avenue Plaza Suite 4500 Seattle, Washington 98154-1065 Attention: Bruce Bjerke, Esq. Facsimile No.: (206) 389 - 1708 50 If to Lender: Morgan Guaranty Trust Company of New York c/o J.P. Morgan Mortgage Capital, Inc. 400 Perimeter Center Terrace Suite 575 Atlanta, Georgia 30346 Attention: L. Edward Register, Jr. Facsimile No.: (770) 351-8398 With a copy to: Dechert 30 Rockefeller Plaza New York, New York 10112-2200 Attention: Paul A. Keenan, Esq. Facsimile No.: (212) 698-3599 or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this subsection, the term "BUSINESS DAY" shall mean a day on which commercial banks are not authorized or required by law to close in New York, New York. Any party by notice to the other parties may designate additional or different addresses for subsequent notices or communications. ARTICLE 15 - APPLICABLE LAW Section 15.1 GOVERNING LAW; JURISDICTION. This Security Instrument shall be governed by and construed in accordance with applicable federal law and the laws of the state where the Property is located, without reference or giving effect to any choice of law doctrine. Borrower hereby irrevocably submits to the jurisdiction of any court of competent jurisdiction located in the state in which the Property is located in connection with any proceeding arising out of or relating to this Security Instrument. Section 15.2 USURY LAWS. This Security Instrument and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Debt at a rate which could subject the holder of the Note to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of this Security Instrument or the Note, Borrower is at any time required or obligated to pay interest on the Debt at a rate in excess of such maximum rate, the rate of interest under the Security Instrument and the Note shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of the Note. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the Debt shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount 51 of interest on account of the Debt does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. Section 15.3 PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers and remedies provided in this Security Instrument may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Security Instrument invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Security Instrument or any application thereof shall be invalid or unenforceable, the remainder of this Security Instrument and any other application of the term shall not be affected thereby. ARTICLE 16 - SECONDARY MARKET Section 16.1 TRANSFER OF LOAN. Lender may, at any time, sell, transfer or assign the Note, this Security Instrument and the Other Loan Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (the "SECURITIES"). Lender may forward to each purchaser, transferee, assignee, servicer, participant, investor in such Securities or any Rating Agency rating such Securities (collectively, the "INVESTOR") and each prospective Investor, all documents and information which Lender now has or may hereafter acquire relating to the Debt and to Borrower, any Guarantor, any Indemnitor and the Property, whether furnished by Borrower, any Guarantor, any Indemnitor or otherwise, as Lender determines necessary or desirable. The term "RATING AGENCY" shall mean each statistical rating agency that has assigned a rating to the Securities. ARTICLE 17 - COSTS Section 17.1 PERFORMANCE AT BORROWER'S EXPENSE. Borrower acknowledges and confirms that Lender shall impose certain administrative processing and/or commitment fees in connection with (a) the extension, renewal, modification, amendment and termination (excluding the scheduled maturity of the Note) of its loans, (b) the release or substitution of collateral therefor, or (c) obtaining certain consents, waivers and approvals with respect to the Property (the occurrence of any of the above shall be called an "EVENT"). Borrower hereby acknowledges and agrees to pay, immediately, upon demand, all such fees (as the same may be increased or decreased from time to time), and any additional fees of a similar type or nature which may be imposed by Lender from time to time, upon the occurrence of any Event. Section 17.2 ATTORNEY'S FEES FOR ENFORCEMENT. (a) Borrower shall pay all legal fees incurred by Lender in connection with (i) the preparation of the Note, this Security Instrument and the Other Loan Documents and (ii) the items set forth in Section 17.1 above, and (b) Borrower shall pay to Lender on demand any and all expenses, including legal expenses and attorneys' fees, incurred or paid by Lender in protecting its interest in the Property or Personal 52 Property and/or collecting any amount payable or in enforcing its rights hereunder with respect to the Property or Personal Property, whether or not any legal proceeding is commenced hereunder or thereunder and whether or not any default or Event of Default shall have occurred and is continuing, together with interest thereon at the Default Rate from the date of payment or incurring by Lender until paid by Borrower. ARTICLE 18 - DEFINITIONS Section 18.1 GENERAL DEFINITIONS. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Security Instrument may be used interchangeably in singular or plural form and the word "BORROWER" shall mean "each Borrower and any subsequent owner or owners of the Property or any part thereof or any interest therein," the word "LENDER" shall mean "Lender and any subsequent holder of the Note," the word "NOTE" shall mean "the Note and any other evidence of indebtedness secured by this Security Instrument," the word "PERSON" shall include an individual, corporation, partnership, trust, unincorporated association, government, governmental authority, and any other entity, the word "PROPERTY" shall include any portion of the Property and any interest therein, and the phrases "ATTORNEYS' FEES," "LEGAL fees" and "COUNSEL FEES" shall include any and all attorneys', paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Property, the Leases and the Rents and enforcing its rights hereunder. ARTICLE 19 - MISCELLANEOUS PROVISIONS Section 19.1 NO ORAL CHANGE. This Security Instrument, the Note, and the Other Loan Documents and any provisions hereof or thereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. Section 19.2 LIABILITY. If Borrower consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. This Security Instrument shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns forever. Section 19.3 INAPPLICABLE PROVISIONS. If any term, covenant or condition of the Note or this Security Instrument is held to be invalid, illegal or unenforceable in any respect, the Note and this Security Instrument shall be construed without such provision. Section 19.4 HEADINGS, ETC. The headings and captions of various Sections of this Security Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. 53 Section 19.5 DUPLICATE ORIGINALS; COUNTERPARTS. This Security Instrument may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Security Instrument may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Security Instrument. The failure of any party hereto to execute this Security Instrument, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. Section 19.6 NUMBER AND GENDER. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. Section 19.7 SUBROGATION. If any or all of the proceeds of the Note have been used to extinguish, extend or renew any indebtedness heretofore existing against the Property, then, to the extent of the funds so used, Lender shall be subrogated to all of the rights, claims, liens, titles, and interests existing against the Property heretofore held by, or in favor of, the holder of such indebtedness and such former rights, claims, liens, titles, and interests, if any, are not waived but rather are continued in full force and effect in favor of Lender and are merged with the lien and security interest created herein as cumulative security for the repayment of the Debt, the performance and discharge of Borrower's obligations hereunder, under the Note and the Other Loan Documents and the performance and discharge of the Other Obligations. Section 19.8 ENTIRE AGREEMENT. The Note, this Security Instrument and the Other Loan Documents constitute the entire understanding and agreement between Borrower and Lender with respect to the transactions arising in connection with the Debt and supersede all prior written or oral understandings and agreements between Borrower and Lender with respect thereto. Borrower hereby acknowledges that, except as incorporated in writing in the Note, this Security Instrument and the Other Loan Documents, there are not, and were not, and no persons are or were authorized by Lender to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the transaction which is the subject of the Note, this Security Instrument and the Other Loan Documents. Section 19.9 RECONVEYANCE. Upon payment of all sums secured by this Instrument and satisfaction of all obligations under the Loan Documents, Lender shall request Trustee to reconvey the Property and shall surrender this Instrument and all notes evidencing indebtedness secured by this Instrument to Trustee. Trustee shall reconvey the Property without warranty to the person or persons legally entitled thereto. Such person or persons shall pay Trustee's reasonable costs incurred in so reconveying the Property. Section 19.10 ACCEPTANCE OF CURE. No provision of the Note, this Security Instrument and the Other Loan Documents which provide that a remedy, right or power of Lender exists only during the existence or of continuance of an Event of Default shall be construed as a imposing any obligation of Lender to accept any cure, or impair any such remedy, 54 right or power unless and until Lender, in its sole and absolute discretion, elects in writing to accept a cure. ARTICLE 20 - TRUSTEE Trustee may resign by the giving of notice of such resignation in writing or verbally to Lender. If Trustee shall die, resign, or become disqualified from acting in the execution of this trust, or if, for any reason, Lender shall prefer to appoint a substitute trustee or multiple substitute trustees, or successive substitute trustees or successive multiple substitute trustees, to act instead of the aforenamed Trustee, Lender shall have full power to appoint a substitute trustee (or, if preferred, multiple substitute trustees) in succession who shall succeed (and if multiple substitute trustees are appointed, each of such multiple substitute trustees shall succeed) to all the estates, rights, powers, and duties of the aforenamed Trustee. Such appointment may be executed by any authorized agent of Lender, and if such Lender be a corporation and such appointment be executed in its behalf by any officer of such corporation, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation. Borrower hereby ratifies and confirms any and all acts which the aforenamed Trustee, or his successor or successors in this trust, shall do lawfully by virtue hereof. If multiple substitute Trustees are appointed, each of such multiple substitute Trustees shall be empowered and authorized to act alone without the necessity of the joinder of the other multiple substitute trustees, whenever any action or undertaking of such substitute trustees is requested or required under or pursuant to this Security Instrument or applicable law. Any substitute Trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed, or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its or his predecessor in the rights hereunder with like effect as if originally named as Trustee herein; but nevertheless, upon the written request of Lender or of the substitute Trustee, the Trustee ceasing to act shall execute and deliver any instrument transferring to such substitute Trustee, upon the trusts herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and moneys held by such Trustee to the substitute Trustee so appointed in the Trustee's place. No fees or expenses shall be payable to Trustee, except in connection with a foreclosure of the Property or any part thereof or in connection with the release of the Property following payment in full of the Debt. ARTICLE 21 - SPECIAL STATE OF WASHINGTON PROVISIONS Section 21.1 Use of Property. The Property is not used principally for agricultural or farming purposes. Section 21.2 If Lender invokes the power of sale, Lender shall give written notice to Trustee of the occurrence of a Event of Default and of Lender's election to cause the Property to be sold. Trustee and Lender shall give such notices as the applicable laws may require to Borrower and to such other persons as the applicable laws prescribe, and after the lapse of such time as may be required by applicable law, Trustee shall sell the Property according to the 55 applicable laws. Trustee may sell the Property at the time and place and under the terms designated in the notice of sale in one or more parcels and in such order as Trustee may determine. Trustee may postpone sale of all or any parcel of the Property for a period or periods not exceeding the periods permitted by applicable law by taking the actions prescribed by applicable law. Lender or Lender's designee may purchase the Property at any sale. Section 21.3 ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING PAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 56 IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Borrower the day and year first above written. BORROWER: WHC809, LLC, a Delaware limited liability company By: ____________________________ Name: Title: State of Washington ) ) ss County of __________________ ) I hereby certify that I know or have satisfactory evidence that ___________________, in his capacity as ___________ of WHC809, LLC, a Delaware limited liability company, is the person who appeared before me and said person acknowledged that (he/she) signed this instrument and acknowledged it to be (his/her) free and voluntary act, on behalf of the limited liability company, for the uses and purposes mentioned in the instrument. (Seal) Dated: ____________________ - ----------------------------------------- Notary Public Serial number: My appointment expires ________________ EXHIBIT A (Description of Land) All of that certain lot, piece or parcel of land, with the buildings and improvements thereon, situate, lying and being described as follows: A - 1 EX-10.3 5 ex10-3_10809.txt AMENDED AND RESTATED CREDIT AGREEMENT EXHIBIT 10.3 ------------ SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This Second Amendment to Amended and Restated Credit Agreement ("Amendment") is made and entered into as of June 8, 2001, among WESTCOAST HOSPITALITY LIMITED PARTNERSHIP, a Delaware limited partnership, formerly known as Cavanaughs Hospitality Limited Partnership (the "Borrower"), the several financial institutions that are party to this Amendment (collectively, the "Lenders"; individually, a "Lender"), and U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank"), as administrative agent for the Lenders (the "Agent"). RECITALS: A. On December 29, 1999, the Borrower, the Lenders and the Agent entered into that certain Amended and Restated Credit Agreement (together with all amendments, supplements, exhibits, and modifications thereto, the "Credit Agreement") whereby the Lenders agreed to extend certain credit facilities to the Borrower. The Borrower, the Lenders and the Agent have entered into one amendment to the Credit Agreement. B. On May 25, 2001, the Borrower, the Lenders and the Agent entered into that certain Second Amendment to Amended and Restated Credit Agreement (the "Initial Second Amendment"), which did not become effective in that certain conditions to its effectiveness were not satisfied. This Amendment restates and supercedes the Initial Second Amendment in its entirety. C. The Borrower is in the process of refinancing four of its hotel properties, each of which constitutes Eligible Real Property. The Eligible Real Property located in Seattle, Washington is to be refinanced by Morgan Guaranty Trust Company of New York (the "Morgan Refinancing"). The Eligible Real Properties located in Helena, Montana, Spokane, Washington (Inn at the Park) and Olympia, Washington are to be refinanced by a lender or lenders yet to be determined (the "Subsequent Refinancings"). D. The lender under the Morgan Refinancing has required, and it is anticipated that the lenders under the Subsequent Refinancings will require, that the loans be made to special purpose, bankruptcy remote entities. In order to comply with this requirement, the Borrower has formed or intends to form a Delaware limited liability company for each of the properties to be refinanced, each of which shall be a wholly owned Subsidiary of the Borrower (the "Tier I LLCs"). Each Tier I Subsidiary has formed or intends to form a Delaware limited liability company that shall be a wholly owned Subsidiary of such Tier I LLC (the "Tier II LLCs"). Each property to be refinanced is to be contributed to the Tier I LLC formed for such property. The Tier I LLC formed for each property to be refinanced is 1 to contribute such property to its respective Tier II LLC. Each loan is to be made to a Tier II LLC on a nonrecourse basis and secured only by the property contributed to such Tier II LLC. E. The Borrower has requested the Lenders to amend certain provisions of the Credit Agreement and waive certain other provisions of the Credit Agreement in order to permit the Borrower to complete the Morgan Refinancing, the Subsequent Refinancings. F. The purpose of this Amendment is to set forth the terms and conditions under which the Lenders will agree to the Borrower's requests. NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth herein, the parties agree as follows: ARTICLE I. AMENDMENT The Credit Agreement, as well as all of the other Loan Documents, are hereby amended as set forth herein. Except as specifically provided for herein, all of the terms and conditions of the Credit Agreement and each of the other Loan Documents shall remain in full force and effect throughout the terms of the Loans, as well as any extensions or renewals thereof. ARTICLE II. DEFINITIONS 2.1 DEFINED TERMS As used herein, capitalized terms shall have the meanings given to them in the Credit Agreement, except as otherwise defined herein or as the context otherwise requires. 2.2 AMENDED DEFINED TERMS Section 1.1 of the Credit Agreement is hereby amended to add or modify (as the case may be) the following defined terms: "Adjustment to Book Value" means an amount equal to (a) the appraised value of all real property (including improvements thereon) owned by WHC and its Subsidiaries as of the last day of the applicable period, less (b) the net book value of such real property (including improvements thereon), less (c) an amount equal to all federal, state and local income and gross receipts taxes that would be payable in the event that such real property (including improvements thereon) were sold during the applicable period, assuming for purposes of such calculation that the amount of the gain is an amount equal to the amount of clause (a) less the amount of clause (b). The Borrower acknowledges and agrees that if the Adjustment to Book Value is a negative number, the effect of the Adjustment to Book Value is to reduce the Adjusted Tangible Net Worth. For purposes of determining the appraised value of such real property, the most recent M.A.I. appraisals of such real property that have been approved by the Agent in writing in its reasonable discretion shall be used. For purposes of this definition, the Agent reserves the right, in its discretion or at the request of the Required Lenders, to 2 require reappraisals of any real property at the Borrower's sole cost, provided that once an appraisal of a parcel of real property has been approved by the Agent in writing, the Agent may not require a reappraisal of such real property for one year from the date of the approved appraisal. In the event that there is no approved appraisal of any parcel of real property, then there shall be no Adjustment to Book Value for such parcel of real property. "Borrowing Base" means, on each day that any Loans are outstanding or any day that there is any Letter of Credit Usage, an amount equal to (a) during the time period from June 8, 2001, through the day immediately preceding the date of the initial funding of the Morgan Refinancing, the lesser of (i) 60% of the Collateral Pool Value or (ii) the Implied Debt Service Coverage Cap; (b) during the time period from the day of the initial funding of the Morgan Refinancing through the day immediately preceding the date of the initial funding under the first of the Subsequent Refinancings, the lesser of (i) $75,000,000, (ii) 67.86% of the Collateral Pool Value, or (iii) the Implied Debt Service Coverage Cap; (c) during the time period from the day of the initial funding under the first of the Subsequent Refinancings through December 30, 2001, the lesser of (i) 70% of the Collateral Pool Value, or (ii) the Implied Debt Service Coverage Cap; and (d) thereafter, the lesser of (i) 60% of the Collateral Pool Value or (ii) the Implied Debt Service Coverage Cap. Notwithstanding the foregoing, during the time period from June 8, 2001, through December 30, 2001, the Borrowing Base is subject to adjustment in accordance with the provisions of Section 4.4 of the Second Amendment. "Collateral Pool Value" means the sum of the Approved Appraised Values of all Eligible Real Property from time to time; provided that from the date of this Amendment through December 30, 2001, the Approved Appraised Values of the following parcels of Eligible Real Property shall be as follows (so long as each such parcel of property continues to constitute Eligible Real Property during that time period): (a) Salt Lake City, Utah - $8,838,000; (b) Spokane, Washington (Ridpath) - $5,365,000; and (c) Hillsboro, Oregon - $3,472,000. "Commitment" means an amount equal to $120,000,000 less the following: (a) $30,000,000 as of the date of the initial advance of funds under the Morgan Refinancing, (b) $13,800,000 as of the date of the initial advance of funds under the Subsequent Refinancing of the Eligible Real Property located in Spokane, Washington (Inn at the Park), (c) $6,200,000 as of the date of the initial advance of funds under the Subsequent Refinancing of the Eligible Real Property located in Olympia, Washington, and (d) the aggregate amount of mandatory prepayments made in accordance with Section 2.6, excluding any prepayments made as a result of the Morgan Refinancing and any of the Subsequent Refinancings. "Fixed Charge Coverage Ratio" means the ratio of (a) for the applicable period, the sum of (i) EBITDA less (ii) an amount equal to 4% of the aggregate of all amounts which, in accordance with GAAP, would be included as gross revenue on a consolidated statement of income of WHC and its Subsidiaries arising out of or related to hotel or restaurant operations (including, without limitation, gross revenues from the lease or licensing of space in any of 3 the hotels or restaurants of WHC and its Subsidiaries), to (b) for the applicable period, the sum of (i) scheduled payments of principal on Indebtedness of WHC and its Subsidiaries (including the portion of payments on capitalized leases allocable to principal, but excluding (A) mandatory prepayments of the Loans required under Section 2.6, and (B) balloon payments made with the proceeds of Indebtedness permitted pursuant to Section 8.5), whether or not made, (ii) Interest Expense, (iii) income and gross receipts taxes paid in cash or cash equivalents, (iv) dividends and distributions paid in cash or cash equivalents (excluding distributions of cash made by the Borrower to WHC in an amount necessary to allow WHC to pay income and gross receipts taxes on the taxable income of the Borrower that is recognized by WHC for tax purposes and excluding distributions made by any of the direct or indirect Subsidiaries of the Borrower to the Borrower or by the Tier II LLCs to the Tier I LLCs), plus (v) payments made to redeem or otherwise acquire for value any partnership units of the Borrower or shares of capital stock of WHC or any warrants, rights or options to acquire such partnership units or shares. "Morgan Refinancing" has the meaning set forth in Recital C to the Second Amendment. "Refinanced Properties" means the Eligible Real Properties located in Seattle, Washington that is to be refinanced under the Morgan Refinancing and the Eligible Real Properties located in Helena, Montana, Spokane, Washington (Inn at the Park) and Olympia, Washington that are to be refinanced under the Subsequent Refinancings. "Second Amendment" means the Second Amendment to Amended and Restated Credit Agreement dated as of June 8, 2001, and entered into among the Borrower, the Lenders and the Agent. "Subsequent Refinancings" has the meaning set forth in Recital C to the Second Amendment. "Tier I LLC" has the meaning set forth in Recital D to the Second Amendment. "Tier II LLC" has the meaning set forth in Recital D to the Second Amendment. ARTICLE III. APPROVAL OF REFINANCINGS 3.1 MORGAN REFINANCING AND SUBSEQUENT REFINANCINGS Subject to the terms and conditions of this Amendment, the Lenders hereby approve the Morgan Refinancing and the Subsequent Refinancings as described in Recitals C and D of this Amendment. Among other conditions set forth in this Amendment, the approval of the Lenders is conditioned on (a) the funding of the Morgan Refinancing prior to the funding of any of the Subsequent Refinancings and (b) approval by the Agent of the documents evidencing the Morgan Refinancing and each of the Subsequent Refinancings. 4 3.2 TIER I LLCS AND TIER II LLCS Notwithstanding any provisions of this Amendment to the contrary, each of the Tier I LLCs and the Tier II LLCs shall constitute a "Subsidiary" for all purposes under the provisions of the Credit Agreement and the other Loan Documents. 3.3 CONVEYANCE OF PROPERTY AND RELEASE OF COLLATERAL In order to accommodate the Morgan Refinancing and the Subsequent Refinancings and subject to the terms and conditions of this Amendment, the Lenders hereby consent to (a) the reconveyance of the Deeds of Trust that encumber the Refinanced Properties concurrently with the refinancing of each such Refinanced Property and (b) the contribution of the Refinanced Properties by the Borrower to the respective Tier I LLCs and the contribution of the Refinanced Properties by the Tier I LLCs to the respective Tier II LLCs concurrently with or immediately preceding the refinancing of each such Refinanced Property. To the extent of the contributions described in clause (b) of the previous sentence, the Lenders hereby waive the provisions of Section 8.2(a), 8.4 and 8.6 of the Credit Agreement. 3.4 NO MODIFICATION OF REFINANCING DOCUMENTS Without the prior written consent of the Agent, none of the agreements, instruments or other documents arising out of or related to the Morgan Refinancing or the Subsequent Refinancings shall be amended, modified or replaced after the date of the initial funding of such refinancings. 3.5 LOANS AND CONTRIBUTIONS TO THE LLCS (a) Unless there exists a Default or an Event of Default, the Borrower is permitted to make loans or contributions of capital to the Tier II LLCs (either directly or indirectly through the Tier I LLCs) in amounts not to exceed the amounts determined by the Borrower to be reasonably necessary to (i) fund working capital needs not met by the operating cash flow from the respective property and (ii) fund capital expenditures that cannot be funded by the operating cash flow from the respective property. (b) Notwithstanding the provisions of Section 3.5(a) of this Amendment, (i) the Borrower shall not use any proceeds of the Loans to fund loans or capital contributions to the Tier I LLCs or the Tier II LLCs and (ii) no Letters of Credit shall be issued for the benefit of the Tier I LLCs or the Tier II LLCs. 3.6 NO FURTHER LOANS; GUARANTIES (a) With the exception of the Morgan Refinancing, the Subsequent Refinancings and loans from the Borrower permitted pursuant to Section 3.5(a) of this Amendment, none of the Tier I LLCs or the Tier II LLCs shall incur any Indebtedness except Indebtedness incurred by each Tier II LLC in the ordinary course of its business and in an amount not to 5 exceed 4% of the initial amount of the Morgan Refinancing or Subsequent Refinancing (as the case may be) made to such Tier II LLC. (b) The Borrower shall not suffer or permit any of the Tier I LLCs or the Tier II LLCs to, create, incur, assume or suffer to exist any Contingent Obligations. 3.7 REQUIRED DISTRIBUTIONS The Borrower shall cause the Tier I LLCs and the Tier II LLCs to distribute to the Borrower (in the case of the Tier II LLCs, through the Tier I LLCs), not less frequently than quarterly, all cash in excess of that necessary in the reasonable opinion of the Borrower to meet short term working capital needs and short term capital expenditure needs of the Tier II LLCs. ARTICLE IV. MODIFICATION OF THE LOANS 4.1 APPLICATION OF REFINANCING PROCEEDS The Borrower shall cause all proceeds from the Morgan Refinancing and the Subsequent Refinancings (net of ordinary and necessary loan fees and closing costs) to be paid out of the escrow for each such refinancing directly to the Agent for application against the Loans. The minimum amounts of principal reduction payments (whether from net refinancing proceeds or other sources) from such refinancings are (a) $36,000,000 from the Morgan Refinancing, (b) $6,000,000 from the Subsequent Refinancing of the Eligible Real Property located in Helena, Montana, (c) $14,200,000 from the Subsequent Refinancing of the Eligible Real Property located in Spokane, Washington (Inn at the Park), and (d) $6,800,000 from the Subsequent Refinancing of the Eligible Real Property located in Olympia, Washington. 4.2 REDUCTION IN COMMITMENT The Borrower and the Lenders agree that the amount of the Commitment shall be reduced in accordance with modified definition of the term "Commitment" set forth in Section 2.2 of this Amendment. 4.3 REAPPRAISAL The Borrower and the Lenders agree that the Agent shall order updated M.A.I. appraisals of the parcels of Eligible Real Property located in Salt Lake City, Utah, Spokane, Washington (Ridpath) and Hillsboro, Oregon, which updated appraisals shall be in compliance with the Financial Institutions Reform, Recovery and Enforcement Act and shall be subject to approval by the Agent in writing in its reasonable discretion. The Approved Appraised Values for such parcels of Eligible Real Property based of the updated appraisals shall be effective as of December 31, 2001. The Borrower agrees to reimburse the Agent for the cost of the updated appraisals upon demand by the Agent. This provision shall not be 6 construed to preclude any reappraisals of other parcels of Eligible Real Property in accordance with the provisions of the Credit Agreement. 4.4 SALE OF OTHER PROPERTIES Notwithstanding any provisions of the Credit Agreement to the contrary, during the time period from the date of this Amendment through December 30, 2001, the Borrower shall apply or cause to be applied against the Loans all proceeds from the sale or other disposition (net of ordinary and necessary costs of sale) of all real property (including improvements thereon) by the Borrower, WHC and their Subsidiaries. Concurrently with each such sale and during the period from the date of this Amendment through December 30, 2001, the amount of the Borrowing Base shall be reduced by an amount equal to the lesser of (a) 100% of all net proceeds from each such sale or (b) the amount that the advance basis on the Collateral Pool Value exceeds 60%. This reduction in the amount of the Borrowing Base is independent of any reductions in the Commitment that are required by the Credit Agreement in connection with any such sale or disposition. ARTICLE V. MISCELLANEOUS WAIVERS AND AMENDMENTS 5.1 WAIVER OF GUARANTIES AND SECURITY AGREEMENTS Notwithstanding the provisions of Section 7.14(d) of the Credit Agreement, (a) neither the Tier I LLCs nor Tier II LLCs shall be required to guarantee the obligations of the Borrower under the Credit Agreement, (b) neither the Tier I LLCs nor Tier II LLCs shall be required to grant the Lenders a security interest in their assets to secure the obligations of the Borrower under the Credit Agreement, (c) the Borrower shall not be required to pledge the membership interests of the Tier I LLCs to the Lenders, and (d) the Tier I LLCs shall not be required to pledge the membership interests of the Tier II LLCs to the Lenders. 5.2 INTEREST RATE PROTECTION Section 7.16 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: Within 30 days of the date of this Agreement, the Borrower shall enter into and shall maintain during the term of this Agreement one or more agreements to provide the Borrower with protection against fluctuations in interest rates with one or more financial institutions to cover, during each fiscal quarter of the Borrower, an amount equal to not less than 50% of the aggregate amount of the Indebtedness of WHC and its Subsidiaries as of the last day of the preceding fiscal quarter, excluding the Indebtedness of the Tier II LLCs under the Morgan Refinancing and the Subsequent Refinancings. All such agreements shall contain terms and conditions and shall be in such forms that are approved by the Lenders. 7 5.3 LIMITATION ON LIENS Notwithstanding the provisions of Section 8.1(n) of the Credit Agreement, the Lenders consent to the Tier II LLCs encumbering the Refinanced Properties without satisfying the requirement that Net Issuance Proceeds from the Indebtedness incurred in connection with any such encumbrances be applied to the Loans in accordance with Section 2.6 of the Credit Agreement. 5.4 CONTINGENT OBLIGATIONS Notwithstanding the provisions of Section 8.8 of the Credit Agreement, the Lenders consent to the Borrower executing and delivering to Morgan Guaranty Trust Company of New York and the lenders under the Subsequent Refinancings a guaranty of the exceptions to nonrecourse provisions under the Morgan Refinancing and the Subsequent Refinancings. 5.5 RESTRICTED PAYMENTS Section 8.10 of the Credit Agreement is hereby amended to allow the Tier I LLCs to make distributions to the Tier II LLCs and the Tier II LLCs to make distributions to the Borrower. ARTICLE VI. CONDITIONS PRECEDENT The modifications set forth in this Amendment shall not be effective unless and until the following conditions have been fulfilled: (a) The Agent shall have received this Amendment, duly executed and delivered by the respective parties thereto; (b) The Agent shall have received, duly executed and delivered by the respective parties thereto, amendments to each of the Deeds of Trust that are not being reconveyed pursuant to the Morgan Refinancing in forms designated by the Agent, and shall have received commitments for 110.5 endorsements to the title insurance policies insuring such Deeds of Trust in forms acceptable to the Agent and shall be provided with the endorsements within 10 days of the date of this Amendment at the Borrower's cost; (c) The Agent shall have received authorizing resolutions of Borrower and WHC in a form acceptable to the Agent; (d) The Agent shall have received an opinion of counsel to the Borrower and WHC and each Subsidiary party to any Loan Document, addressed to the Agent and the Lenders in a form acceptable to the Agent; (e) There shall not exist any Default or Event of Default under the Credit Agreement or any other Loan Document; 8 (f) All representations and warranties of the Borrower contained in the Credit Agreement or otherwise made in writing in connection therewith or herewith shall be true and correct and in all material respects have the same effect as though such representations and warranties had been made on and as of the date of this Amendment; and (g) The Borrower shall have paid to the Agent an amendment fee in accordance with the provisions of a fee letter agreement between the Borrower and the Agent of even date herewith. (h) There shall have been advanced the initial proceeds of the Morgan Refinancing. ARTICLE VII. GENERAL PROVISIONS 7.1 REPRESENTATIONS AND WARRANTIES The Borrower hereby represents and warrants to the Lenders that as of the date of this Amendment, there exists no Default or Event of Default. All representations and warranties of the Borrower contained in the Credit Agreement and the other Loan Documents, or otherwise made in writing in connection therewith, are true and correct as of the date of this Amendment. The Borrower acknowledges and agrees that all of the Borrower's Indebtedness to the Lenders under the Credit Agreement is payable without offset, defense or counterclaim. 7.2 SECURITY All Loan Documents evidencing the Agent's security interest in the Collateral on behalf of the Lenders shall remain in full force and effect, and shall continue to secure, without change in priority, the payment and performance of the Loans and all other secured obligations of the Borrower to the Agent on behalf of the Lenders. 7.3 SURVIVAL OF LOAN DOCUMENTS The terms and conditions of the Credit Agreement and each of the other Loan Documents shall survive until all of the Borrower's obligations under the Credit Agreement have been satisfied in full. 7.4 CONSENT OF GUARANTORS By execution of this Amendment, each of WHC and the Subsidiaries that have executed and delivered to the Agent guaranties, security agreements and other loan documents consents to this Amendment and reaffirms its obligations under its respective guaranty, security agreement and each of the other Loan Documents to which it is a party. 9 7.5 COUNTERPARTS This Amendment may be executed in one or more counterparts, each of which shall constitute an original agreement, but all of which together shall constitute one and the same agreement. 7.6 STATUTORY NOTICE ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. IN WITNESS WHEREOF, the Borrower, the Agent, and the Lenders have caused this Amendment to be duly executed by the respective, duly authorized signatories as of the date first above written. WESTCOAST HOSPITALITY LIMITED PARTNERSHIP By: WestCoast Hospitality Corporation, General Partner By -------------------------------------------- Title ---------------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent By ------------------------------------------------ Title --------------------------------------------- U.S. BANK NATIONAL ASSOCIATION, as a Lender By ------------------------------------------------ Title --------------------------------------------- 10 BANK OF SCOTLAND By ---------------------------------------------- Title --------------------------------------------- BANK LEUMI USA By ---------------------------------------------- Title --------------------------------------------- WELLS FARGO BANK, NATIONAL ASSOCIATION By ---------------------------------------------- Title --------------------------------------------- COLUMBIA STATE BANK By ---------------------------------------------- Title --------------------------------------------- STERLING SAVINGS BANK By ---------------------------------------------- Title --------------------------------------------- COMERICA BANK CALIFORNIA By ---------------------------------------------- Title --------------------------------------------- 11 PACIFIC NORTHWEST BANK By ---------------------------------------------- Title --------------------------------------------- 12 Each of the undersigned acknowledges that it has reviewed and approved this Amendment and reaffirms its obligations under its respective guaranty and the other Loan Documents to which it is a party. WESTCOAST HOSPITALITY CORPORATION By ------------------------------------------------ Title --------------------------------------------- WESTCOAST HOTELS, INC. By ------------------------------------------------ Title --------------------------------------------- TICKETSWEST.COM, INC. By ------------------------------------------------ Title --------------------------------------------- 13 -----END PRIVACY-ENHANCED MESSAGE-----