-----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, He5XlCyEww5ZK1t6gMRYE4flGOZBxRoder+IqwnP5xQzl6amJxZmfCXOX4TyyRUr OhR0yXwE0olwX9AEV1ajpg== 0000950144-01-003557.txt : 20010316 0000950144-01-003557.hdr.sgml : 20010316 ACCESSION NUMBER: 0000950144-01-003557 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RFS HOTEL INVESTORS INC CENTRAL INDEX KEY: 0000906408 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 621534743 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12011 FILM NUMBER: 1569240 BUSINESS ADDRESS: STREET 1: 850 RIDGE LAKE BLVD STE 220 CITY: MEMPHIS STATE: TN ZIP: 38120 BUSINESS PHONE: 9017677005 MAIL ADDRESS: STREET 1: 850 RIDGE LAKE BLVD STE 220 CITY: MEMPHIS STATE: TN ZIP: 38120 10-K 1 g67578e10-k.txt RFS HOTEL INVESTORS, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM --------------- TO --------------- COMMISSION FILE NUMBER 34-0-22164 RFS HOTEL INVESTORS, INC. (Exact name of Registrant as specified in its Charter) TENNESSEE 62-1534743 (State or other incorporation) (I.R.S. Employer Identification Number)
850 RIDGE LAKE BOULEVARD, SUITE 220 MEMPHIS, TENNESSEE 38120 (901) 767-7005 (Address of principal executive offices, including zip code and telephone number) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK $0.01 PAR VALUE (Title of Class) NEW YORK STOCK EXCHANGE (Name of Market) --------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $361,443,273 based on the last sale price in the New York Stock Exchange for such stock on March 13, 2001. The number of shares of the Registrant's Common Stock outstanding was 24,858,547 as of March 13, 2001. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2000 Annual Meeting of Shareholders are incorporated into Part I and Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS RFS Hotel Investors, Inc. ("RFS" or the "Company") is a hotel real estate investment trust which, at December 31, 2000, owned interests in 60 hotels with 8,689 rooms located in 24 states (collectively the "Hotels"). RFS owns a 90.6% interest in RFS Partnership L.P. (the "Operating Partnership"). RFS, the Operating Partnership, and their subsidiaries are herein referred to, collectively, as the "Company". In 2000, the Company received 44% of its lease revenue from full service hotels, 29% from extended stay hotels and 27% from limited service hotels. The Company received 66% of its lease revenue in five states (California (37%), Florida (9%), Michigan (7%), Texas (7%) and Illinois (6%). The following summarizes additional information for the 60 hotels owned at December 31, 2000:
2000 FRANCHISE AFFILIATION HOTEL PROPERTIES ROOMS/SUITES LEASE REVENUE - --------------------- ---------------- ------------ -------------- (IN THOUSANDS) Full Service hotels: Sheraton................................ 4 864 $ 14,027 Holiday Inn............................. 5 953 9,291 Independent............................. 2 331 8,759 Sheraton Four Points.................... 2 412 5,289 Hilton.................................. 1 234 4,106 Doubletree.............................. 1 222 3,925 -- ----- -------- 15 3,016 45,397 -- ----- -------- Extended Stay hotels: Residence Inn by Marriott............... 14 1,851 26,554 TownePlace Suites by Marriott........... 3 285 2,692 Homewood Suites by Hilton............... 1 83 794 -- ----- -------- 18 2,219 30,040 -- ----- -------- Limited Service hotels: Hampton Inn............................. 18 2,243 17,380 Holiday Inn Express..................... 5 637 6,767 Comfort Inn............................. 3 472 2,696 Courtyard by Marriott................... 1 102 1,289 -- ----- -------- 27 3,454 28,132 -- ----- -------- Total........................... 60 8,689 $103,569 == ===== ========
The following summarizes the number of hotels owned for the periods presented:
2000 1999 1998 ---- ---- ---- Hotels owned at beginning of years.......................... 62 60 60 Acquisitions and developed hotels placed into service..... 2 6 Sales of hotels........................................... (2) (6) -- -- -- Hotels owned at end of years.............................. 60 62 60 -- -- --
At December 31, 2000, the Company leased fifty hotels to wholly-owned subsidiaries of Hilton Hotels Corporation ("Hilton"), six hotels to three other lessees and four hotels were not leased. At December 31, 2000 fifty hotels were managed by wholly-owned subsidiaries of Hilton and ten hotels are managed by five other third-party management companies. 1 3 TERMINATION OF LEASES AND RELATED AGREEMENTS WITH HILTON Under the REIT Modernization Act (the "RMA") that became effective January 1, 2001, the Company is permitted to lease its hotels to wholly-owned taxable REIT subsidiaries of the Company ("TRS Lessees"), provided that the TRS Lessees engage a third-party management company to manage the hotels. Effective January 1, 2001, the Company effectively terminated its operating leases, management contracts and related ancillary agreements with Hilton for approximately $60 million in cash. This payment to Hilton represents the cancellation of executory contracts that extended through 2012 and substantially all of the termination payment was recorded as an expense on January 1, 2001. The cancellation of these agreements entitles the TRS Lessees to retain the operating profits from hotels, which previously accrued to Hilton under these contracts and gives the Company (i) more control over the daily operations of its hotels, (ii) the benefits from any cost efficiencies or ancillary revenues generated at the hotels, and (iii) flexibility, in that, the hotels are not encumbered by long term leases which are difficult to amend and expensive to terminate. All of the hotels continue to operate under the same franchise affiliation as prior to the contract termination. Simultaneous with the termination of the leases and related agreements, the TRS Lessees entered into new management contracts with Flagstone Hospitality Management ("Flagstone"). Flagstone is a newly-formed company jointly owned by Angie Mock, its CEO and formerly Executive Vice President, Asset Management of the Company, and MeriStar Hotels and Resorts, the nation's largest independent hotel management company. Effective January 1, 2001, Flagstone manages 53 of the Company's 60 hotels and the remaining seven hotels are managed by four other third-party management companies. Only five of the Company's hotels were operated under long term leases with third parties on January 1, 2001. In connection with the termination of the leases and related agreements, the Company purchased 973,684 shares of the Company's Series A Preferred Stock owned by Hilton for $13.0 million. The Company included approximately $5 million in net income available to common shareholders on January 1, 2001, representing the difference between the Company's purchase price and approximately $18 million of proceeds from the original sale of the Series A Preferred Stock. The aggregate $73 million of payments to Hilton were financed by the sale of two hotels in 2000 for proceeds of approximately $25 million, proceeds from the sale of a new issue of non-convertible mandatorily redeemable preferred stock (the "Series B Preferred Stock") for $25 million (before fees and expenses) and borrowings under the Company's line of credit of $23 million. At January 1, 2001, the Company has $38.2 million of capacity under its Line of Credit and a debt to trailing twelve month EBITDA ratio of 3.6. GROWTH STRATEGIES The Company's business objectives are to increase funds from operations and enhance shareholder value primarily through (i) aggressive asset management and the strategic investment of capital in its diversified hotel portfolio, (ii) selectively acquiring hotels that have been under performing due to the lack of sufficient capital improvements, poor management or franchise affiliation, and (iii) selectively disposing of hotels that have reached their earnings potential or may in management's judgment, suffer adverse changes in their local market, require inordinately large capital outlays, or are not a core holding suitable for long-term ownership. A part of the Company's asset management program is the licensing of all but two of its Hotels under nationally franchised brands. The Company believes that franchised properties generally have higher levels of occupancy and average daily rate ("ADR") than properties that are not franchised due to access to national reservation systems and advertising and marketing programs provided by franchisors. For the year ended December 31, 2000, the Company derived 89% of its lease revenue from the four largest hotel franchise companies, Marriott International (29%), Hilton (25%), Starwood Hotels and Resorts (19%) and Bass Hotels and Resorts (16%). During 2000, the Company spent $32.6 million on capital improvements to its hotels. The Company expects to spend approximately $25 million on capital improvements to its Hotels in 2001. 2 4 Since year end 1997, the Company has sold eight primarily limited service hotels for proceeds of approximately $50 million. As a result, the Company has lowered its percentage of lease revenue received from limited service hotels from 43% at the end of 1996 to 27% at the end of 2000. The Company did not purchase any hotels in 2000 but is looking for strategic hotel acquisitions and additional ventures in hotel related business in 2001 that will compliment our business objectives to increase funds from operations and enhance shareholder value. The Company realized an unleveraged pro forma funds from operations return on investment for 2000 of 13.4%. Based on the Company's approximate 38% leverage and average borrowing costs of 7.8%, the Company realized a leveraged pro forma return on investment of 16.8%. FINANCING The Company believes that there is a competitive advantage in maintaining a conservative capital structure and limiting the use of leverage. The Company's Board of Directors has adopted a policy of limiting the amount of debt the Company will incur to an amount not in excess of 45% of the Company's investment in hotel properties at cost. The Board of Directors may change the debt policy at any time without shareholder approval. At December 31, 2000, the Company has relatively low leverage as evidenced by the following credit statistics: - Trailing twelve month interest coverage ratio of 3.9x - Total debt to EBITDA of 3.1x - Weighted average maturity of fixed rate debt of 8.4 years - Fixed interest rate debt equal to 96% of total debt - Debt equal to 38% of investment in hotel properties, at cost (before depreciation and after capital expenditures) The Company increased the availability under its Line of Credit from $100 million to $140 million during the year. The increased Line of Credit matures on July 30, 2003. The interest rate remained substantially unchanged ranging from 150 basis points to 225 basis points above LIBOR, depending on the Company's ratio of total debt to its investment in hotel properties (as defined). The interest rate was approximately 8.5% at December 31, 2000. The Line of Credit is collateralized by first priority mortgages on 24 hotels that restrict the transfer, pledge or other hypothecation of the hotels (collectively, the "Collateral Pool"). The Company can obtain a release of the pledge of any hotel in the Collateral Pool if the Company provides an acceptable substitute hotel or reduces the total availability under the Line of Credit. The Line of Credit contains various covenants including the maintenance of a minimum net worth, minimum debt and interest coverage ratios, and total indebtedness and liability limitations. The Company was not aware of any failure to comply with these covenants at December 31, 2000. On August 9, 2000, the Company completed a $52.2 million long-term financing; the financing is collateralized by a lien on eight of the Company's hotel properties, carries a fixed interest rate of 8.0%, has a 25-year amortization and matures in 10 years. The financing allowed the Company to (a) extend its debt maturities over a longer term and (b) increase the percentage of fixed interest rate debt. The proceeds were utilized to reduce borrowings outstanding under the Company's Line of Credit. On November 3, 2000, the Company entered into an interest rate swap agreement for a notional amount of $40.0 million maturing in July 2003. The agreement effectively converts a portion of the Company's floating rate debt to fixed rate in order to reduce the Company's risk to increases in interest rates. Such agreements involve the exchange of fixed and floating interest rate payments over the life of the agreement without the exchange of the underlying principal amounts. Accordingly, the impact of fluctuations in interest rates on these interest rate swap agreements is fully offset by the opposite impact on the related debt. Under the 3 5 interest rate swap agreement, the Company receives payments based on the one-month LIBOR rate of 6.80% at December 31, 2000 and pays a fixed rate of 6.535%. The Company's other borrowings are nonrecourse to the Company and contain provisions allowing, subject to certain conditions, for the substitution of collateral after the respective loans have been outstanding for approximately four years. Most of the mortgage borrowings are repayable and subject to various prepayment penalties, yield maintenance, or defeasance obligations. On January 2, 2001, the Company issued 250 thousand shares of non-convertible mandatorily redeemable Series B Preferred Stock for $25 million before fees and expenses. Holders of the Series B Preferred Stock are entitled to receive quarterly cash dividends commencing March 31, 2001 at an annual rate of 12.5%. Beginning January 1, 2006, the dividend rate increases 2.0% per annum up to a maximum rate of 20.5%. The Company may redeem shares of the Series B Preferred Stock in whole but not in part, on or after December 31, 2003 at the original price of $25 million. If the shares are redeemed before December 31, 2003, the redemption price is at varying amounts in excess of the original share price. The shares are mandatorily redeemable by the holders at varying amounts over the original share price, depending on when the shares are redeemed, upon a change of control, dissolution or winding up of the Company or on the Company's failure to qualify as a REIT. The Company believes that it maintains a conservative dividend policy. Based on 2000 results the Company's dividend payout ratio was 65% (dividends divided by funds from operations) and the dividend coverage ratio was 1.5x (funds from operations divided by dividends). COMPETITION Substantially all of the Hotels are located in developed areas that include other hotel properties. The number of competitive hotel properties in a particular area could have a material adverse effect on occupancy, ADR and RevPar of the Hotels. New, competing hotels may be opened in the Company's markets, which could materially and adversely affect hotel operations. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy during the second and third quarters. This seasonality can be expected to cause fluctuations in the Company's quarterly operating profits. EMPLOYEES At December 31, 2000, the Company had a total of 28 employees. Robert M. Solmson, (age 53), Chairman of the Board and Chief Executive Officer, Randy L. Churchey, (age 40), President and Chief Operating Officer, Kevin M. Luebbers, (age 34), Executive Vice President and Chief Financial Officer, and Craig Hofer (age 41), President of Centrafuse, Inc. each have employment agreements with the Company. Information with respect to these employment agreements is incorporated by reference to the Company's Proxy Statement. TAX STATUS The Company has operated and intends to continue to operate so as to qualify as a REIT under the federal income tax laws. Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicial or administrative interpretations. There are no controlling authorities that deal specifically with many tax issues affecting a REIT that owns hotel properties. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. New regulations, administrative interpretations or court decisions could adversely affect the Company's qualification as a REIT or the federal income tax consequences of such qualification. If RFS were to fail to qualify as a REIT in any taxable year, it would not be allowed a deduction for distributions to shareholders in 4 6 computing our taxable income. It also would be subject to federal income tax (including any applicable alternative minimum tax) on taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, the Company also would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. As a result, the cash available for distribution to shareholders would be reduced for each of the years involved. Although the Company currently intends to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause the Board of Directors, with the consent of a majority of the shareholders, to revoke the REIT election. Under the RMA which became effective January 1, 2001, the Company is permitted to lease its hotels to the TRS Lessees. In addition, a taxable REIT subsidiary ("TRS") is allowed to perform "non-customary" services for hotel guests and is allowed to enter into many new businesses. However, TRS Lessees are not allowed to franchise or manage hotels. The TRS is allowed to enter into management contracts for our hotels, with independent third party management companies. The use of TRS's, however, is subject to restrictions, including the following: - No more than 20% of the REIT's assets may consist of securities of TRSs. - The tax deductibility of interest paid or accrued by a TRS to its affiliated REIT would be limited, and - A 100% excise tax would be imposed on non-arm's length transactions between a TRS and its affiliated REIT or the REIT's tenants. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements containing the words "believes", "anticipates", "expects" and words of similar import. Such forward-looking statements relate to future events, the future financial performance of the Company, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Readers should specifically consider the various factors identified in this report and in any other documents filed by the Company with the Securities and Exchange Commission that could cause actual results to differ. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. HOTEL OPERATING RISKS The Hotels are subject to all operating risks common to the hotel industry. These risks include, among other things: competition from other hotels; recent over-building in the hotel industry which has adversely affected occupancy and room rates; increases in operating costs due to inflation and other factors; significant dependence on business and commercial travelers and tourism; increases in energy costs and other expenses of travel; and adverse effects of general and local economic conditions. These factors could adversely affect the lessees' ability to make lease payments and therefore the Company's ability to make distributions to shareholders. ENVIRONMENTAL RISKS Under various federal, state and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. Furthermore, a person that arranges for the disposal or transports for disposal or treatment a hazardous substance at another property may be liable for the costs of removal or remediation of hazardous substances released into the environment at the property. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to 5 7 promptly remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. Thus, if such liability were to arise in connection with the ownership and operation of the Hotels, the Company, the lessees and the managers, as the case may be, could be potentially liable for such costs. Phase I Environmental Survey Assessments ("ESA's") were obtained on all of the Hotels from independent environmental engineering firms at the time of acquisition (and, for some Hotels, in connection with subsequent financing transactions). The Phase I ESA's were intended to identify potential sources of contamination for which the Hotels may be responsible and to assess the status of environmental regulatory compliance. No assurance can be given that the Phase I ESA's identified all significant environmental problems or that no additional environmental liabilities exist. The Phase I ESA's included historical reviews of the Hotels, reviews of certain public records, preliminary investigations of the sites and surrounding properties, screening for the presence of asbestos, PCBs, wetlands and underground storage tanks, and the preparation and issuance of a written report. The Phase I ESA's did not include invasive procedures, such as soil or ground water sampling and analysis. The Phase I ESA for the Hampton Inn -- Airport in Indianapolis, indicated that the Indianapolis Hotel disposes of approximately 10% of its solid waste at a facility that is a state Superfund site. Such a site may be subject to investigation and remediation under the federal and state Superfund laws, and persons that sent hazardous substances to the site may be jointly and severally liable for the costs of the work. The Phase I ESA report states that solid waste from the Indianapolis Hotel was disposed into a domestic waste cell of the facility. A state official informed the engineering firm conducting the Phase I ESA that this domestic waste cell is segregated by a containment structure and is adjacent to, but not part of, the Superfund site. The Phase I audit did not indicate that the Indianapolis Hotel has arranged for the disposal of any hazardous substances at this facility. If the Indianapolis Hotel in fact arranged for such disposal, however, it could be found liable for at least a part of any response costs. Except as noted specifically above, the Phase I ESA reports have not revealed an environmental liability or compliance concerns that the Company believes would have a material adverse effect on the Company's business, assets or results of operations, nor is the Company aware of such liability or compliance concerns. Nevertheless, it is possible that these reports do not reveal all environmental liabilities or compliance concerns or that there are material environmental liabilities or compliance concerns of which the Company is unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of the Hotels will not be affected by the condition of the properties in the vicinity of the Hotels (such as the presence of leaking underground storage tanks) or by third parties unrelated to the Operating Partnership or the Company. POTENTIAL TAX RISKS Prior to January 1, 2001, in order to qualify as a REIT, each year the Company has been required to pay out to its stockholders at least 95% of its taxable income (other than any net capital gain). Effective January 1, 2001, the Company must pay out at least 90% of its taxable income to maintain its REIT qualification. In addition, the Company would be subject to a 4% nondeductible tax if the actual amount it pays out to its stockholders in a calendar year were less than the minimum amount specified under federal tax laws. The Company has paid out and intends to continue to pay out its income to its stockholders in a manner intended to satisfy the REIT requirements for distributions of taxable income and to avoid the 4% tax. In doing so, the Company may be required to borrow money or sell assets to pay out enough of its taxable income to satisfy the distributions test and to avoid the 4% tax in a particular year. OWNERSHIP LIMITATION In order for the Company to maintain its status as a REIT, no more than 50% in value of its outstanding stock may be owned (actually or constructively under the applicable tax rules) by five or fewer persons during the last half of any taxable year. The Company's Charter prohibits, subject to certain exceptions, any person from owning more than 9.9% (determined in accordance with the Internal Revenue Code and the Securities 6 8 Exchange Act of 1934, as amended) of the number of outstanding shares of any class of its capital stock. The Company's Charter also prohibits any transfer of its capital stock that would result in a violation of the 9.9% ownership limit, reduce the number of stockholders below 100 or otherwise result in the Company failing to qualify as a REIT. Any attempted transfer in violation of the Charter prohibitions will be void and the intended transferee will not acquire any right in the shares resulting in such violation. The Company has the right to take any lawful action that it believes necessary or advisable to ensure compliance with these ownership and transfer restrictions and to preserve its status as a REIT, including refusing to recognize any transfer of capital stock in violation of its Charter. If a person holds or attempts to acquire shares in excess of the Company's ownership and transfer restrictions, these shares will be immediately designated as "shares-in-trust" and transferred automatically and by operation of law, in trust, to a trustee designated by the Company. The trustee will have the right to receive all distributions on, to vote and to sell these shares. The holder of the excess shares will have no right or interest in these shares, except the right (under certain circumstances) to receive the lesser of: (i) the proceeds of any sale of these shares by the trustee to a permitted owner and (ii) the amount paid for these shares (or the market value of these shares, determined in accordance with the Charter, if the shares were received by gift, bequest or otherwise without payment). Accordingly, the record owner of any shares designated as shares-in-trust would suffer a financial loss if the price at which these shares are sold to a permitted owner is less than the price paid for these shares. ITEM 2. PROPERTIES The following sets forth information regarding the Hotels in which the Company had an ownership interest at December 31, 2000:
FOR THE YEAR ENDED DECEMBER 31, 2000 ----------------------------------------------------- DATE NUMBER ROOM LEASE OPENED OF ROOMS REVENUE REVENUE REVPAR ------ -------- -------- -------- ------- (IN THOUSANDS) FULL SERVICE BEVERLY HERITAGE Milpitas, CA(1)....................... 1988 237 $ 9,316 $ 6,073 $108.01 DOUBLETREE San Diego, CA(1)...................... 1990 222 7,532 3,925 93.44 HOLIDAY INN Columbia, SC(1)....................... 1969 175 3,110 1,090 48.55 Crystal Lake, IL(1)................... 1988 196 5,425 2,839 75.63 Flint, MI(1).......................... 1990 171 4,883 2,672 78.03 Lafayette, LA(1)...................... 1983 242 3,992 1,544 45.07 Louisville, KY(1)..................... 1970 169 2,830 1,146 45.75 HOTEL REX San Francisco, CA(3).................. 1912 94 4,834 2,686 140.52 HILTON San Francisco, CA(2).................. 1976 234 9,945 4,106 116.12 SHERATON FOUR POINTS Bakersfield, CA(1).................... 1983 198 3,799 1,338 52.49 Pleasanton, CA(1)..................... 1985 214 6,835 3,951 87.26
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FOR THE YEAR ENDED DECEMBER 31, 2000 ----------------------------------------------------- DATE NUMBER ROOM LEASE OPENED OF ROOMS REVENUE REVENUE REVPAR ------ -------- -------- -------- ------- (IN THOUSANDS) SHERATON Birmingham, AL(3)..................... 1984 205 3,511 942 46.80 Clayton, MO(1)........................ 1965 257 6,428 2,623 68.71 Milpitas, CA(1)....................... 1988 229 10,064 5,724 120.08 Sunnyvale, CA(1)...................... 1980 173 8,412 4,738 132.86 ----- -------- -------- 3,016 90,917 45,397 82.49 ----- -------- -------- EXTENDED STAY HOMEWOOD SUITES BY HILTON Chandler, AZ(3)....................... 1998 83 $ 1,948 $ 794 $ 64.13 RESIDENCE INN BY MARRIOTT Ann Arbor, MI(1)...................... 1985 114 3,270 1,659 78.36 Atlanta, GA(1)........................ 1987 128 3,190 1,446 68.09 Charlotte, NC(1)...................... 1984 116 3,007 1,479 70.84 Fishkill, NY(1)....................... 1988 136 5,227 2,635 105.02 Ft. Worth, TX(1)...................... 1983 120 3,492 1,676 79.52 Jacksonville, FL...................... 1997 120 3,069 1,421 69.87 Kansas City, MO(1).................... 1987 96 2,442 924 69.50 Orlando, FL(1)........................ 1984 176 5,618 2,631 87.21 Sacramento, CA(1)..................... 1987 176 5,425 2,822 84.22 Torrance, CA(1)....................... 1984 247 8,354 4,196 92.41 Tyler, TX(1).......................... 1985 128 2,720 1,023 58.06 Warwick, RI(1)........................ 1989 96 3,700 1,747 105.30 West Palm Beach, FL................... 1998 78 2,259 1,116 79.17 Wilmington, DE(1)..................... 1989 120 3,662 1,779 83.38 TOWNEPLACE SUITES BY MARRIOTT Fort Worth, TX(3)..................... 1998 95 1,324 588 38.07 Miami West, FL........................ 1999 95 2,041 1,198 58.69 Miami Lakes, FL....................... 1999 95 1,625 907 46.73 ----- -------- -------- 2,219 62,372 30,040 76.80 ----- -------- -------- LIMITED SERVICE COMFORT INN Farmington Hills, MI(1)............... 1987 135 $ 2,204 $ 1,131 $ 44.61 Ft. Mill, SC(1)....................... 1987 153 1,613 573 28.54 Marietta, GA(1)....................... 1989 184 2,412 992 35.82 COURTYARD Flint, MI(1).......................... 1996 102 2,500 1,289 66.98 HAMPTON INN Bloomington, MN(1).................... 1994 135 2,895 1,451 58.59 Chandler, AZ(1)....................... 1997 101 1,738 829 47.02 Denver, CO(1)......................... 1985 138 1,738 569 34.41 Ft. Lauderdale, FL(1)................. 1986 122 2,413 979 54.04 Hattiesburg, MS(1).................... 1988 154 2,022 940 35.88 Houston, TX(1)........................ 1996 119 2,074 918 47.61 Indianapolis, IN(1)................... 1994 131 2,694 1,431 56.20
8 10
FOR THE YEAR ENDED DECEMBER 31, 2000 ----------------------------------------------------- DATE NUMBER ROOM LEASE OPENED OF ROOMS REVENUE REVENUE REVPAR ------ -------- -------- -------- ------- (IN THOUSANDS) Jacksonville, FL...................... 1998 118 2,536 1,235 58.73 Lakewood, CO(1)....................... 1987 150 2,087 804 38.01 Laredo, TX(1)......................... 1995 119 2,721 1,333 62.12 Lincoln, NE(1)........................ 1983 111 1,900 897 46.77 Memphis, TN(1)........................ 1992 120 1,713 666 39.01 Minnetonka, MN(1)..................... 1990 127 2,186 1,131 47.03 Oklahoma City, OK(1).................. 1986 134 2,019 808 41.17 Omaha, NE(1).......................... 1985 129 2,058 979 43.58 Plano, TX(1).......................... 1996 131 2,043 909 42.60 Sedona, AZ(1)......................... 1997 56 1,283 571 62.58 Tulsa, OK(1).......................... 1986 148 2,138 928 39.47 HOLIDAY INN EXPRESS Arlington Heights, IL(1).............. 1989 125 2,659 1,461 58.11 Austin, TX(1)......................... 1992 125 2,359 1,117 51.56 Bloomington, MN(1).................... 1987 142 3,369 1,656 64.83 Downers Grove, IL(1).................. 1984 123 2,504 1,303 55.63 Wauwatosa, WI(1)...................... 1984 122 2,340 1,230 52.41 ----- -------- -------- 3,454 60,218 28,132 47.61 ----- -------- -------- ------- Total/Average................. 8,389 $213,507 $103,569 $ 67.16 ===== ======== ======== =======
- --------------- (1) Leased to wholly-owned subsidiaries of Hilton through December 31, 2000. Leased to TRS Lessees effective January 1, 2001. (2) The Ramada Plaza hotel was converted to a Hilton full service hotel in the second quarter of 2000. (3) Lease revenue represents net operating income from this non-leased hotel. These hotels were leased to the TRS Lessees effective January 1, 2001. Through December 31, 2000, fifty-five of the Company's hotels were leased to subsidiaries of Hilton. On January 1, 2001, these leases and related ancillary agreements with Hilton were effectively terminated. Under the RMA that became effective January 1, 2001, the Company is permitted to lease its hotels to the TRS Lessees, provided that the TRS Lessees engage a third-party management company to manage the hotels. Effective January 1, 2001, the Company effectively terminated its operating leases, management contracts and related ancillary agreements with Hilton for approximately $60 million in cash. This payment to Hilton represents the cancellation of executory contracts that extended through 2012 and substantially all of the termination payment was recorded as an expense on January 1, 2001. The cancellation of these agreements entitles the TRS Lessees to retain the operating profits from the hotels, which previously accrued to Hilton under these leases and gives the Company i) more control over the daily operations of its hotels, (ii) the benefits from any cost efficiencies or ancillary revenues generated at the hotels, and (iii) flexibility, in that, the hotels are not encumbered by long term leases which are difficult to amend and expensive to terminate. All of the hotels continue to operate under the same franchise affiliation as prior to the contract termination. Simultaneous with the termination of the leases and related agreements, on January 1, 2001, the TRS Lessees entered into new management contracts with Flagstone. Flagstone is a newly-formed company jointly owned by Angie Mock, its CEO and formerly Executive Vice President, Asset Management, of the Company, and MeriStar Hotels and Resorts, the nation's largest independent hotel management company. Effective January 1, 2001, Flagstone manages 53 of the Company's 60 hotels and the remaining seven hotels are managed by four other third-party management companies. Only five of the Company's hotels were operated under long term leases with third parties on January 1, 2001. 9 11 ITEM 3. LEGAL PROCEEDINGS Except as explained in the following paragraph, the Company currently is not involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened against the Company. On December 26, 2000, Frimco Associates, Inc. ("Frimco") and Inn Alpha, Inc. ("Inn Alpha") filed a lawsuit in the Supreme Court of the State of New York, County of Dutchess, against certain subsidiaries of the Company and RFS, Inc., a former lessee of certain of the Company's hotels. The lawsuit was removed to the United States District Court for the Southern District of New York on January 5, 2001. Prior to January 1, 2001, Frimco and Inn Alpha managed three of the Company's hotels pursuant to management agreements with RFS, Inc., the Company's former lessee. These management agreements were terminated in connection with the termination of the leases for these three hotels effective January 1, 2001. Frimco and Inn Alpha are seeking declaratory and injunctive relief, compensatory damages of not less than $12 million, as well as punitive damages. Pursuant to agreements related to the termination of the leases between the Company's subsidiaries and RFS, Inc., the Company has agreed to indemnify and defend RFS, Inc. against Frimco's and Inn Alpha's claims. The Company believes these claims are without merit and intends to defend these claims vigorously. The Company has filed a Motion to Dismiss the plaintiffs' claims. The Court has scheduled the case for trial in July, 2001. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 10 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS (a) Market Information The Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under the symbol "RFS". The following table sets forth for the indicated periods the high and low sale prices for the Common Stock, as traded on such exchange and the dividends declared per share:
STOCK PRICE ---------------- DIVIDEND DECLARED HIGH LOW PER SHARE ------ ------ ----------------- 2000 First Quarter..................................... $11.94 $10.25 $0.385 Second Quarter.................................... 12.38 9.81 0.385 Third Quarter..................................... 13.63 12.00 0.385 Fourth Quarter.................................... 13.38 11.63 0.385 1999 First Quarter..................................... $13.13 $10.44 $0.385 Second Quarter.................................... 14.50 11.31 0.385 Third Quarter..................................... 12.63 10.88 0.385 Fourth Quarter.................................... 12.19 10.13 0.385
(b) Holders The number of holders of record of shares of Common Stock was 24,858,547 as of March 13, 2001. (c) Distributions The Company has adopted a policy of paying regular quarterly distributions on its Common Stock, and cash distributions have been paid on the Company's Common Stock each quarter since its inception. Earnings and profits, which will determine the taxability of distributions to shareholders, will differ from net income reported for financial reporting purposes primarily due to the differences for federal tax purposes in the estimated lives used to compute depreciation. Distributions made in 2000, 1999 and 1998 were considered 100% ordinary income for federal income tax purposes except for the distribution made on November 15, 2000 which was characterized as 75.4% ordinary income, 1.4% return of capital, 1.1% capital gain, and 22.1% Sec. 1250 Recapture. The Company currently anticipates that it will maintain at least the current dividend rate for the immediate future, unless actual results of operations, economic conditions or other factors differ from its current expectations. 11 13 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected historical financial data for the Company that has been derived from the financial statements of the Company and the notes thereto. Such data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and all of the financial statements and notes thereto. SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996 -------- -------- -------- --------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) OPERATING DATA: Total revenue...................... $107,359 $ 99,662 $ 96,927 $ 83,069 $ 61,986 Net income......................... 30,790 34,990 34,068 34,232 34,587 Net income applicable to common shareholders..................... 29,378 33,578 32,656 32,820 33,392 Diluted earnings per share......... 1.20 1.34 1.31 1.34 1.37 BALANCE SHEET DATA: Total assets....................... 673,467 687,242 683,991 617,128 499,129 Total debt......................... 277,431 282,278 272,799 208,909 133,064 Shareholders' equity............... 348,454.. 361,283 366,937 362,070 357,482 CASH FLOWS DATA: Cash provided by operating activities....................... 64,497 66,837 55,092 58,590 46,448 Cash used by investing activities....................... (10,843) (26,580) (65,932) (140,751) (74,518) Cash provided (used) by financing activities....................... (55,886) (36,358) 8,723 28,357 83,325 OTHER DATA (UNAUDITED): Funds from operations.............. 64,170 63,010 63,030 55,263 45,723 FFO per share...................... 2.37 2.29 2.31 2.05 1.85 EBITDA............................. 90,308 86,116 82,756 70,033 51,280 Ratio of EBITDA to interest expense.......................... 3.9 4.4 4.9 6.1 16.0 Ratio of Debt to EBITDA............ 3.1 3.3 3.4 3.0 2.6 Dividends paid per share........... 1.54 1.54 1.51 1.455 1.39
12 14 QUARTERLY RESULTS OF OPERATIONS
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000:(1) OPERATING DATA: Total revenue(2)...................... $11,398 $14,502 $38,771 $42,685 $107,359 Net income (loss)..................... (5,246) (6,108) 19,088 23,056 30,790 Net income (loss) applicable to common shareholders....................... (5,594) (6,459) 18,733 22,698 29,378 Diluted earnings (loss) per share..... (0.23) (0.26) 0.75 0.94 1.20 OTHER DATA: Funds from operations................. 14,183 17,504 18,999 13,484 64,170 FFO per share......................... 0.52 0.65 0.70 0.50 2.37 Dividends paid per share.............. 0.385 0.385 0.385 0.385 1.54 1999: OPERATING DATA: Total revenue(2)...................... $23,726 $26,238 $27,764 $21,934 $ 99,662 Net income............................ 8,424.. 10,774 10,216 5,576 34,990 Net income applicable to common shareholders....................... 8,076 10,422 9,860 5,220 33,578 Diluted earnings per share............ 0.32 0.41 0.39 0.21 1.34 OTHER DATA: Funds from operations................. 14,782 17,227 18,659 12,342 63,010 FFO per share......................... 0.54 0.62 0.68 0.45 2.29 Dividends paid per share.............. 0.385 0.385 0.385 0.385 1.54 1998: OPERATING DATA: Total revenue......................... $22,109 $25,753 $27,336 $21,729 $ 96,927 Net income............................ 8,825 11,492 9,452 4,299 34,068 Net income applicable to common shareholders....................... 8,477 11,140 9,096 3,943 32,656 Diluted earnings per share............ 0.35 0.44 0.37 0.16 1.31 OTHER DATA: Funds from operations................. 13,808 17,466 18,258 13,498 63,030 FFO per share......................... 0.51 0.64 0.67 0.49 2.31 Dividends paid per share.............. 0.375 0.375 0.375 0.385 1.51
- --------------- (1) Under the RMA, which became effective January 1, 2001, only five of the Company's hotels are operated under long-term leases with third parties. Staff accounting bulletin ("SAB 101") As such, there will be little comparability between the interim financial results for 2001 and 2000. (2) Deferred revenue is recorded in 2000 in accordance with SAB 101 which requires deferral of certain revenue until the third and fourth quarters. The quarterly information for 1999 and 1998 is presented without regard to the application of SAB 101. SAB 101 has no effect on rent payments under the Company's leases or the Company's cash flow. 13 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE COMPANY General At December 31, 2000, the Company owned interests in 60 Hotels with 8,689 rooms located in 24 states and a 90.6% interest in the Operating Partnership. In 2000, the Company received 44% of its lease revenue from full service hotels, 29% from extended stay hotels and 27% from limited service hotels. The Company received 66% of its lease revenue in five states: California (37%), Florida (9%), Michigan (7%), Texas (7%) and Illinois (6%). The following summarizes additional information for the 60 hotels owned at December 31, 2000:
HOTEL 2000 FRANCHISE AFFILIATION PROPERTIES ROOMS/SUITES LEASE REVENUE - --------------------- ---------- ------------ -------------- (IN THOUSANDS) Full Service hotels: Sheraton..................................... 4 864 $ 14,027 Holiday Inn.................................. 5 953 9,291 Independent.................................. 2 331 8,759 Sheraton Four Points......................... 2 412 5,289 Hilton....................................... 1 234 4,106 Doubletree................................... 1 222 3,925 -- ----- -------- 15 3,016 45,397 -- ----- -------- Extended Stay hotels: Residence Inn by Marriott.................... 14 1,851 26,554 TownePlace Suites by Marriott................ 3 285 2,692 Homewood Suites by Hilton.................... 1 83 794 -- ----- -------- 18 2,219 30,040 -- ----- -------- Limited Service hotels: Hampton Inn.................................. 18 2,243 17,380 Holiday Inn Express.......................... 5 637 6,767 Comfort Inn.................................. 3 472 2,696 Courtyard by Marriott........................ 1 102 1,289 -- ----- -------- 27 3,454 28,132 -- ----- -------- Total.......................................... 60 8,689 $103,569 == ===== ========
The following summarizes the number of hotels owned for the periods presented:
2000 1999 1998 ---- ---- ---- Hotels owned at beginning of years.......................... 62 60 60 Acquisitions and developed hotels placed into service....... 2 6 Sales of hotels............................................. (2) (6) -- -- -- Hotels owned at end of years................................ 60 62 60 -- -- --
At December 31, 2000, the Company leased fifty hotels to wholly-owned subsidiaries of Hilton, six hotels to three other lessees and four hotels were not leased but were managed by third parties pursuant to management agreements. At December 31, 2000 fifty hotels were managed by wholly-owned subsidiaries of Hilton and ten hotels are managed by five other third-party management companies. 14 16 TERMINATION OF LEASES AND RELATED AGREEMENTS WITH HILTON Under the RMA that became effective January 1, 2001, the Company is permitted to lease its hotels to the TRS Lessees, provided that the TRS Lessees engage a third-party management company to manage the hotels. Effective January 1, 2001, the Company effectively terminated its operating leases, management contracts and related ancillary agreements with Hilton for approximately $60 million in cash. This payment to Hilton represents the cancellation of executory contracts that extended through 2012 and substantially all of the terminations payment was recorded as an expense on January 1, 2001. The cancellation of these agreements entitles the TRS Lessees to retain the operating profits from the hotels, which previously accrued to Hilton under these leases and gives the Company (i) more control over the daily operations of its hotels, (ii) the benefits from any cost efficiencies or ancillary revenues generated at the hotels, and (iii) flexibility, in that, the hotels are not encumbered by long term leases which are difficult to amend and expensive to terminate. All of the hotels continue to operate under the same franchise affiliation as prior to the contract termination Simultaneous with the termination of the leases and related agreements, on January 1, 2001, the TRS Lessees entered into new management contracts with Flagstone. Flagstone is a newly-formed company jointly owned by Angie Mock, its CEO and formerly Executive Vice President, Asset Management, of the Company, and MeriStar Hotels and Resorts, the nation's largest independent hotel management company. Effective January 1, 2001, Flagstone manages 53 of the Company's 60 hotels and the remaining seven hotels are managed by four other third-party management companies. Only five of the Company's hotels revenue operated under long term leases with third parties on January 1, 2001. In connection with the termination of the leases and related agreements, the Company purchased 973,684 shares of the Company's Series A Preferred Stock owned by Hilton for $13.0 million. The Company included approximately $5 million in net income available to common shareholders on January 1, 2001, representing the difference between the Company's purchase price and approximately $18 million of proceeds from the original sale of the Series A Preferred Stock. The Series A Preferred Stock has been retired. The aggregate $73 million of payments to Hilton were financed by proceeds from the sale of two hotels in 2000 of approximately ($25 million), proceeds from the sale of $25 million non-convertible mandatorily redeemable preferred stock (the "Series B Preferred Stock") for $25 million (prior to fees & expenses) and borrowings under the Company's line of credit of $23 million. At January 1, 2001, the Company has $38.2 million of capacity under its Line of Credit, and a debt to trailing twelve month EBITDA ratio of 3.6. RESULTS OF OPERATIONS Comparison of the Years Ended December 31, 2000 and 1999. Revenues Lease revenue increased 7.7% in 2000 over 1999 due primarily to an increase in revenue per available room ("RevPar") at the 55 comparable hotels of 5.5% and lease revenue associated with a 40-room addition to the Beverly Heritage hotel in Milpitas, California completed in November 1999. At December 31, 2000, the Company owned interests in 60 hotels with 8,689 rooms located in 24 states. The following shows hotel operating statistics for the 55 comparable hotels for the year ended December 31, 2000. Excluded are three hotels opened in 1999, and two hotels that underwent renovations in 15 17 1999 and 2000 (Ramada Plaza in the Fisherman's Wharf district of San Francisco, California converted to a Hilton full service hotel in the second quarter 2000 and the Sheraton Hotel in Birmingham, Alabama): 55 COMPARABLE HOTELS OPERATING STATISTICS
LEASE REVENUE ADR OCCUPANCY REVPAR ------------------------- ------------------ --------------- ----------------- VARIANCE VARIANCE VARIANCE VARIANCE HOTEL TYPE 2000 VS. 1999 2000 VS. 1999 2000 VS. 1999 2000 VS. 1999 - ---------- -------------- -------- ------- -------- ---- -------- ------ -------- (IN THOUSANDS) Full Service................ $40,349 15.1% $110.75 7.3% 74.3% 2.0 pts $82.28 10.3% Extended Stay............... 27,347 4.9% $ 98.49 2.7% 82.3% 1.0 pts $81.07 4.0% Limited Service............. 28,132 0.9% $ 69.55 0.9% 68.4% 0.0 pts $47.61 1.0% ------- Total.............. $95,828 7.6% $ 90.82 4.2% 73.7% 0.9 pts $66.93 5.5% =======
Increases in RevPar for all market segments in 2000 exceeded those of 1999 with the full service hotels leading the way. The full service hotels produced a RevPar increase of 10.3% in 2000 versus 3.8% in 1999. This 10.3% RevPar increase was achieved through a 2.0 point increase in occupancy and a 7.3% increase in ADR. The following four full service hotels, located in Silicon Valley, had RevPar increases averaging 14.8% in 2000:
INCREASE HOTEL LOCATION IN REVPAR - ----- -------------- --------- 173-room Sheraton......................................... Sunnyvale, CA 18.2% 214-room Four Points...................................... Pleasanton, CA 17.5% 229-room Sheraton......................................... Milpitas, CA 14.7% 214-room Beverly Heritage................................. Milpitas, CA 8.8%
The Sunnyvale hotel was renovated and converted from a Sheraton Four Points hotel in December 1998. Since conversion, the hotel has posted strong results with occupancy increasing 6.7 points to 81.7% and ADR increasing 8.5% to $162.64. The Sheraton Four Points hotel in Pleasanton has rebounded from the loss of a major account in 1999 with occupancy increasing 7.2 points to 76.2% and ADR increasing 6.4% to $114.52. The Beverly Heritage hotel's RevPar is attributable to an increase in occupancy of 1.5 points to 76.1% in spite of a 40-room addition in November 1999 combined with an increase in ADR of 6.6% to $141.89 In addition to the Silicon Valley full service hotels, the following two hotels benefited from recent renovations and/or re-brandings: The Hilton San Francisco Fisherman's Wharf, which was converted from a Ramada Plaza hotel in April 2000 after an $11 million dollar renovation, operated at occupancy of 75.4% and ADR of $178.24 in the fourth quarter of 2000. The 255-room Sheraton hotel in Clayton, MO, a suburb of St. Louis, produced a RevPar gain of 16.1% in 2000. The Sheraton Clayton was converted from a Holiday Inn hotel in August 1999. For the year, occupancy increased 6.4 points to 68.5% and ADR increased 5.3% to $100.38. Other full service hotels include the 94-room Hotel Rex in San Francisco Union Square that produced a RevPar increase of 17.4% in 2000 driven by an occupancy increase of 3.7 points to 80.0% and an ADR increase of 11.9% to $175.58. The five Holiday Inn hotels, which have an average of 190 rooms per hotel, produced an increase in RevPar of 1.1% in 2000. The Holiday Inn at Crystal Lake, IL (a suburb of Chicago) had been hit by enormous supply increases over the last 18 months as over 400 primarily limited service rooms have opened in the hotels primary and secondary market area. Group business at this hotel remains strong but transient business has been reduced in that market. In the first quarter 2001, the Company plans to spend approximately $1.6 million renovating the hotel to better compete with this new supply. The rest of the Holiday Inn hotels are primarily located in competitive secondary markets that do not allow us the opportunity to aggressively increase rate or occupancy. 16 18 The extended stay hotels experienced an increase in RevPar of 4.0% in 2000. Fourteen of the eighteen extended stay properties are Residence Inns by Marriott which produced an increase in RevPar of 3.8%, occupancy of 0.7 points to 82.7% and ADR of 2.9% to $98.89. The limited service hotels experienced an increase in RevPar of 1.0% in 2000 versus a decrease of 1.9% in 1999. Nineteen of the twenty-seven limited service hotels are Hampton Inns which produced increased RevPar of 1.7% through an increase in occupancy of 1.3 points. Expenses As a percentage of total revenue, expenses, before the loss on sale of hotel properties and franchise termination fees increased to 67% in 2000 from 63% in 1999. Taxes and insurance expense represented 10% of lease revenues for 2000 and 1999. The decrease in real estate taxes from the sale of two hotels in the fourth quarter was offset by increases in the taxing authorities' reassessments on renovations at some of our properties. Depreciation increased 12.3% due to increases in depreciable assets related to two hotels opened in 1999 and substantial renovations at the Hilton San Francisco Fisherman's Wharf and the Sheraton Birmingham hotel. General and administrative expenses increased $2.6 million in 2000 to 5.9% of lease revenues in 2000 from 3.7% in 1999. Increases in general and administrative expenses are due to increases in compensation from incentive bonuses and additional personnel, other expenses in response to initiatives associated with the REIT Modernization Act, and to Centrafuse (the Company's application service provider of hotel accounting solutions). Interest expense increased $3.4 million in 2000. This increase is due to a weighted average increase in borrowings during the year of approximately $19 million and an increase in borrowing costs due to a general increase in interest rates that impacted our variable rate debt. Borrowings increased primarily due to funding of renovation costs. At December 31, 2000, variable rate debt was 4% of total debt, a reduction from 37% a year ago. From 1998 through 2000, the Company has spent $75 million or approximately 12% of gross hotel revenues renovating, expanding, and re-branding our hotels. The loss on the sale of hotel properties and franchise termination fees of $4.3 million represents a reserve of $4.0 million established against notes receivable from prior years hotel sales and a loss of approximately $1.0 million on the sale of the Hampton Inn in Plano, Texas offset by gains on the sale of two hotels, the Hawthorne Suites in Atlanta, Georgia and the Hampton Inn in Warren, Michigan, aggregating approximately $0.7 million. Comparison of the Years Ended December 31, 1999 and 1998. Revenues Lease revenue increased 2.7% in 1999 over 1998 due primarily to (i) an average increase in RevPar at the 57 comparable hotels of 1.5% which resulted in a 2.6% increase in lease revenues; (ii) one hotel opened in 1998, and two hotels opened in 1999; and, (iii) a 40-room addition to the Beverly Heritage hotel in Milpitas, California. These increases were partially offset by the sale of five hotels during the latter half of 1998 and a decrease in RevPar at two hotels undergoing major renovation in 1999. The following shows hotel operating statistics for the 57 comparable hotels for the year ended December 31, 1999 (62 total owned hotels at December 31, 1999). Excluded are one hotel opened in 1998, two hotels opened in 1999, and two hotels undergoing renovations in 1999 (Ramada Plaza in the Fisherman's 17 19 Wharf district of San Francisco, California converted to a Hilton full service hotel in the second quarter 2000 and the Sheraton hotel in Birmingham, Alabama): 57 COMPARABLE HOTELS OPERATING STATISTICS
LEASE REVENUE ADR OCCUPANCY REVPAR ------------------------- ------------------ ---------------- ----------------- VARIANCE VARIANCE VARIANCE VARIANCE HOTEL TYPE 1999 VS. 1998 1999 VS. 1998 1999 VS. 1998 1999 VS. 1998 - ---------- -------------- -------- ------- -------- ---- --------- ------ -------- (IN THOUSANDS) Full Service............... $35,070 4.5% $103.24 4.8% 72.3% (0.7) pts $74.62 3.8% Extended Stay.............. 29,213 5.8% $ 95.24 3.2% 79.6% (0.8) pts $75.81 2.2% Limited Service............ 28,967 (2.6)% $ 68.86 2.9% 68.4% (3.3) pts $47.10 (1.9)% ------- Total............. $93,250 2.6% $ 86.99 4.0% 72.6% (1.8) pts $63.11 1.5% =======
Expenses As a percentage of total revenue, expenses, before the loss on sale of hotel properties and franchise termination fees, increased from 61% in 1998 to 63% in 1999. Taxes and insurance decreased 1.0% from 1998 to 1999 primarily due to the sale of five hotels during the latter half of 1998 partially offset by an average increase in real estate taxes of approximately 2.5% for the 57 comparable hotels and full year real estate taxes in 1999 for the one hotel opened in 1998, and two hotels opened in 1999. Depreciation increased 15.8% in 1999 over 1998 due to increases in depreciable assets in 1999 relating to the one hotel opened in 1998, and two hotels opened in 1999 and renovation expenditures at certain of the Hotels. As a percentage of total revenue, depreciation increased from 21.6% to 24.3%. This increase is the result of an increase in short-lived assets relative to total fixed assets from the Company's renovation expenditures. General and administrative expenses decreased 12.7% from 1998 to 1999 due to the 1998 write-off of expenses in terminating a proposed new REIT, Lodging Trust USA, and to a decrease in compensation expense of 18.2% attributable to an overall decrease in bonuses under the Company's bonus programs for officers of the Company. Interest expense increased 18.2% in 1999 over 1998 due to an increase in the weighted average debt balance outstanding in 1999 of approximately $30 million and an increase in the weighted average interest rate in 1999 from 7.35% to 7.68%. Borrowings increased due to capital improvements and distributions to shareholders being in excess of cash flow from operations. Interest rates increased due to fixed rate 10-year financing of approximately $95 million obtained in November 1998 which was used to repay lower variable interest rate borrowings under the Line of Credit. FUNDS FROM OPERATIONS AND EBITDA The Company considers Funds From Operations ("FFO") and Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") to be appropriate measures of a REIT's performance which should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance and liquidity. The National Association of Real Estate Investment Trusts (NAREIT), defines FFO as net income (computed in accordance with generally accepted accounting principles or GAAP which includes all operating results of the Company, both recurring and non-recurring), excluding gains (losses) from debt restructuring and sales of depreciable operating property, plus real estate related depreciation and amortization and after comparable adjustments for the Company's portion of these items related to unconsolidated partnerships and joint ventures. The Company computes FFO in accordance with standards established by NAREIT which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the 18 20 current NAREIT definition or that interpret the current NAREIT definition differently than the Company. FFO and EBITDA do not represent cash flows from operations as determined by GAAP and should not be considered as an alternative to net income as an indication of the Company's financial performance or to cash flow from operating activities determined in accordance with GAAP as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. The following details the computation of FFO (in thousands except per share amounts):
2000 1999 1998 ------- ------- ------- Net income............................................ $30,790 $34,990 $34,068 Minority interest in Operating Partnership............ 3,218 3,620 3,655 Depreciation.......................................... 27,198 24,210 20,906 Attempted merger expenses............................. 1,664 Loss on sale of hotel properties and franchise termination fees.................................... 4,376 1,602 4,149 Preferred stock dividends............................. (1,412) (1,412) (1,412) ------- ------- ------- FFO................................................... $64,170 $63,010 $63,030 ======= ======= ======= Weighted average common shares, partnerships units and potential dilutive shares outstanding............... 27,127 27,569 27,343 FFO per share......................................... $ 2.37 $ 2.29 $ 2.31
The following details the computation of EBITDA (in thousands):
2000 1999 1998 ------- ------- ------- FFO................................................... $64,170 $63,010 $63,030 Interest expense...................................... 23,016 19,623 16,604 Amortization.......................................... 1,710 2,071 1,710 Preferred stock dividends............................. 1,412 1,412 1,412 ------- ------- ------- EBITDA................................................ $90,308 $86,116 $82,756 ======= ======= =======
LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including distributions to shareholders and repayments of indebtedness, is its share of the Operating Partnership's cash flow. For the year ended December 31, 2000, cash flow provided by operating activities was $64.5 million The Company believes that its cash provided by operating activities will be adequate to meet some of its liquidity needs. The Company currently expects to fund its strategic objectives and any other liquidity needs by borrowing on its Line of Credit, exchanging equity for hotel properties or possibly accessing the capital markets if market conditions permit. At December 31, 2000, the Company had $3.7 million of cash and cash equivalents and had borrowed $50.3 million under its $140.0 million Line of Credit. 19 21 The following details the Company's debt outstanding at December 31, 2000 (dollar amounts in thousands):
COLLATERAL -------------------------- # OF NET BOOK VALUE AT BALANCE INTEREST RATE MATURITY HOTELS DEC. 31, 2000 -------- ------------- ------------- ------ ----------------- Line of Credit........ $ 50,273 LIBOR + 200bp Fix/Variable July 2003 24 $200,793 Mortgage........ 36,971 6.83% Fixed August 2008 15 144,385 Mortgage........ 25,000 7.30% Fixed November 2011 (a ) (a) Mortgage........ 93,460 7.83% Fixed December 2008 10 130,001 Mortgage........ 18,556 8.22% Fixed November 2007 1 43,907 Mortgage........ 1,125 4.50% Variable January 2001 1 20,991 Mortgage........ 52,046 8.00% Fixed August 2010 8 87,732 -------- -------- $277.431 $627,809 ======== ========
- --------------- (a) This mortgage is also collateralized by the fifteen properties pledged against the previous mortgage in the table. The Company increased the availability under its Line of Credit from $100 million to $140 million during the year. The increased Line of Credit matures on July 30, 2003. The interest rate remained substantially unchanged ranging from 150 basis points to 225 basis points above LIBOR, depending on the Company's ratio of total debt to its investment in hotel properties (as defined). The interest rate was approximately 8.5% at December 31, 2000. The Line of Credit is collateralized by the Collateral Pool. The Company can obtain a release of the pledge of any hotel in the Collateral Pool if the Company provides a substitute hotel or reduces the total availability under the Line of Credit. The Line of Credit contains various covenants including the maintenance of a minimum net worth, minimum debt and interest coverage ratios, and total indebtedness and liability limitations. The Company was in compliance with all covenants at December 31, 2000. On August 9, 2000, the Company completed a $52.2 million long-term financing; the financing is collateralized by a lien on eight of the Company's hotel properties, carries a fixed interest rate of 8.0%, has a 25-year amortization and matures in 10 years. The financing allowed the Company to (a) extend its debt maturities over a longer term and (b) increase the percentage of fixed interest rate debt. The proceeds were utilized to reduce borrowings outstanding under the Company's Line of Credit. On November 3, 2000, the Company entered into an interest rate swap agreement for a notional amount of $40.0 million maturing in July 2003. The agreement effectively converts a portion of the Company's floating rate debt to fixed rate in order to reduce the Company's risk to increases in interest rates. Such agreements involve the exchange of fixed and floating interest rate payments over the life of the agreement without the exchange of the underlying principal amounts. Accordingly, the impact of fluctuations in interest rates on these interest rate swap agreements is fully offset by the opposite impact on the related debt. Under the interest rate swap agreement, the Company receives payments based on the one-month LIBOR rate of 6.80% at December 31, 2000 and pays a fixed rate of 6.535%. The Company's other borrowings are nonrecourse to the Company and contain provisions allowing for the substitution of collateral, upon satisfaction of certain conditions, after the respective loans have been outstanding for approximately four years. Most of the mortgage borrowings are repayable and subject to various prepayment penalties, yield maintenance, or defeasance obligations. On January 2, 2001, the Company issued 250 thousand shares of non-convertible mandatorily redeemable Series B Preferred Stock for $25 million prior to fees and expenses of approximately $1 million. Holders of the Series B Preferred Stock are entitled to receive quarterly cash dividends commencing March 31, 2001 at an annual rate of 12.5%. Beginning January 1, 2006, the dividend rate increases 2.0% per annum up to a maximum rate of 20.5%. The Company may redeem shares of the Series B Preferred Stock in whole but not in part, on or after December 31, 2003 at the original price of $25 million. If the shares are redeemed before December 31, 2003, the redemption price is at varying premiums over the original share price. The shares are mandatorily redeemable by the holders at varying amounts over the original share price, depending on when 20 22 the shares are redeemed, upon a change of control, dissolution or winding up of the Company or on the Company's failure to qualify as a REIT. Future scheduled principal payments of debt obligations at December 31, 2000 are as follows (in thousands):
AMOUNT -------- 2001........................................................ $ 7,240 2002........................................................ 6,547 2003........................................................ 57,344 2004........................................................ 7,547 2005........................................................ 8,152 Thereafter.................................................. 190,601 -------- $277,431 ========
Certain significant credit statistics at December 31, 2000 are as follows: - Trailing twelve month interest coverage ratio of 3.9x - Total debt to EBITDA of 3.1x - Weighted average maturity of fixed rate debt of 8.4 years - Fixed interest rate debt equal to 96% of total debt - Debt equal to 38% of investment in hotel properties, at cost (before depreciation and after capital expenditures) During 2000, the Company spent $32.6 on capital improvements to its hotels. The Company expects to spend approximately $25 million on capital improvements to its hotels in 2001 which the Operating Partnership is expected to fund from cash generated from operations and borrowings under the Line of Credit. The Company in the future may seek to increase further the amount of its credit facilities, negotiate additional credit facilities, or issue corporate debt instruments. Although the Company has no charter restrictions on the amount of indebtedness the Company may incur, the Board of Directors of the Company has adopted a current policy limiting the amount of indebtedness that the Company will incur to an amount not in excess of approximately 45% of the Company's investment in hotel properties, at cost, (as defined). The Board of Directors may change the debt policy at any time without shareholder approval. The Company intends to fund cash distributions to shareholders principally out of cash generated from operations. The Company may incur, or cause the Operating Partnership to incur, indebtedness to meet distribution requirements imposed on a REIT under the Internal Revenue Code including the requirement that a REIT distribute to its shareholders annually at least 95% of its taxable income (90% effective January 1, 2001) to the extent that working capital and cash flow from the Company's investments are insufficient to make such distributions. The Company believes that it maintains a conservative dividend policy. Based on 2000 results the Company's dividend payout ratio was 65% (dividends divided by funds from operations) and the dividend coverage ratio was 1.5x (funds from operations divided by dividends). INFLATION Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit the ability of the lessees and management companies to raise room rates. 21 23 SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy during the second and third quarters. This seasonality can be expected to cause fluctuations in the Company's quarterly operating profits. RECENTLY ISSUED ACCOUNTING STANDARDS In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") which provides guidance on revenue recognition. SAB 101 is effective for fiscal years beginning after December 15, 1999. SAB 101 requires that a lessor not recognize contingent rental income until annual specified hurdles have been achieved by the lessee. During 1999 and prior years, the Company recognized contingent rentals throughout the year since it was considered probable that the lessee would exceed the annual specified hurdles. The Company has reviewed the terms of its Percentage Leases and has determined that the provisions of SAB 101 materially impact the Company's revenue recognition on an interim basis in 2000 effectively deferring the recognition of revenue from its Percentage Leases from the first and second quarters of the calendar year to the third and fourth quarters. SAB 101 will not impact the Company's revenue recognition on an annual basis given that Company has only calendar year leases. SAB 101 will have no impact on the Company's interim or annual cash flow from its lessees, and therefore on its ability to pay dividends. The Company has accounted for SAB 101 as a change in accounting principle effective January 1, 2000. In September 1998, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In September 1999, the FASB issued SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 133 was originally effective for all fiscal quarters of fiscal years beginning after September 15, 1999. SFAS No. 138 deferred the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. Upon adoption on January 1, 2001, the Company will record a liability of approximately $0.8 million representing the estimated value of the swap with a corresponding charge to other comprehensive income. The Company will record subsequent changes in the fair value of the swap through other comprehensive income. These instruments are designated as hedges. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import. Such forward-looking statements relate to future events and the future financial performance of the Company, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from the results or achievements expressed or implied by such forward-looking statements. The Company is not obligated to update any such factors or to reflect the impact of actual future events or developments on such forward-looking statements. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to certain financial market risks, one being fluctuations in interest rates. The Company monitors interest rate fluctuations as an integral part of our overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results. The effect of interest rate fluctuations historically has been small relative to other factors affecting operating results, such as occupancy. 22 24 Our operating results are affected by changes in interest rates primarily as a result of borrowing under our line of credit. If interest rates increased by 25 basis points, our annual interest expense would have increased by approximately $237 thousand, based on balances outstanding during the year ending December 31, 2000. The Company's primary market risk exposure is to changes in interest rate as a result of its Line of Credit and long-term debt. At December 31, 2000, the Company had outstanding total indebtedness of approximately $277.4 million. The Company's interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower its overall borrowing costs. To achieve this objective, the Company manages its exposure to fluctuations in market interest rates for its borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements and derivative financial instruments such as interest rate swaps, to effectively lock the interest rate on a portion of its variable debt. The Company does not enter into derivative or interest rate transactions for speculative purposes. Approximately 96% of the Company's outstanding debt was subject to fixed rates with a weighted average interest rate of 7.8% at December 31, 2000. On November 3, 2000, the Company entered into an interest rate swap agreement for a notional amount of $40.0 million which effectively locked an interest rate (before the spread over LIBOR) of 6.535% through an interest rate swap agreement. The Company regularly reviews interest rate exposure on its outstanding borrowings in an effort to minimize the risk of interest rate fluctuations. The following table provides information about the Company's instruments that are sensitive to changes in interest rates. For debt obligations outstanding at December 31, 2000, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve as of December 31, 2000. For the interest rate swap, the table presents notional amounts and weighted average interest rates by expected contractual maturity dates. The fair value of the Company's fixed rate debt indicates the estimated principal amount of debt having similar debt service requirements, which could have been borrowed by the Company at December 31, 2000. The rate assumed in the fair value calculation of fixed rate debt is equal to 7.05% which consists of the 7-year treasury of 5.05% as December 31, 2000 plus 200 basis points.
EXPECTED PRINCIPAL CASH FLOWS ------------------------------------------------------------------------------------- FAIR VALUE LIABILITIES 2001 2002 2003 2004 2005 THEREAFTER TOTAL TOTAL - ----------- ------ ------ ------- ------ ------ ---------- -------- -------- (IN THOUSANDS) Long-Term Debt: Fixed Rate............ $7,240 $6,547 $47,044 $7,547 $8,152 $190,628 $267,158 $275,326 Average Interest Rate................ 7.79% 7.79% 7.79% 7.66% 7.66% 7.66% Variable Rate........... $1,125 -- $10,273 -- -- -- $ 11,398 $ 11,398 Average Interest Rate................ 8.64% -- 8.81% Interest Rate Derivatives: Variable to Fixed:.... $40,000 $ 40,000 $ (810) Average Receive Rate................ 5.75% 5.56% 5.79% Average Pay Rate...... 6.54% 6.54% 6.54%
The table incorporates only those exposures that exist as of December 31, 2000 and does not consider exposures or positions which could arise after that date. In addition, because firm commitments are not represented in the table above, the information presented therein has limited predictive value. As a result, the Company's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during future periods, prevailing interest rates, and the Company's strategies at that time. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company's financing requirements. 23 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INCLUDED HEREIN BEGINNING AT PAGE F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Information about the Directors and Executive Officers of the Company is incorporated herein by reference to the discussion under "Executive Officers of RFS" in the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION Information about executive compensation is incorporated herein by reference to the discussion under "Executive Compensation Tables" in the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information about the security ownership of certain beneficial owners and management of the Company is incorporated herein by reference to the discussion under "Director and Officer Stock Ownership" and "Principal Stockholders" in the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information about certain relationships and related transactions is incorporated by reference to the discussion under "Certain Relationships and Related Transactions" in the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders. 24 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 10-K (a) Financial Statements The following financial statements are included in this report on Form 10-K: Report of Independent Accountants Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Income for years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity for years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements The following financial statement schedule and report of independent accountants on the financial statement schedule is included in this report on Form 10-K: Report of Independent Accountants on the Financial Statement Schedules Schedule III -- Real Estate and Accumulated Depreciation All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the information is included in the consolidated financial statements and notes thereto. (b) Reports on Form 8-K No filings of Form 8-K were made during the last quarter of 2000. 25 27 (c) Exhibits
EXHIBIT NUMBER EXHIBIT - ------- ------- 3.1 Second Restated Charter of the Registrant (previously filed as Exhibit 3.1 to the Company's Current report on Form 8-K dated March 6, 1996 and incorporated herein by reference). 3.1(a) Articles of Amendment to the Second Amended and Restated Charter of RFS Hotel Investors (previously filed as Exhibit 3.1 to the Company's current report on Form 8-K dated January 16, 2001 and incorporated herein by reference). 3.2 By-Laws of the Registrant (previously filed as Exhibit 3.2 to the Company's Form S-11 Registration Statement, Registration No. 33-63696 and incorporated herein by reference). *3.3 Fifth Amended and Restated Agreement of Limited Partnership of RFS Partnership, L.P. 10.1 Consolidated Lease Amendment (previously filed as Exhibit 10.3 to the Company's current report on Form 8-K, dated February 27, 1996 and incorporated herein by reference). 10.2 Form of Future Percentage Lease (previously filed as Exhibit 10.4 to the Company's Current Report on Form 8-K, dated February 27, 1996 and incorporated herein by reference). 10.2(a) Schedule of terms of Percentage Leases (previously filed as Exhibit 10.2(a) to the Company's Form 10-K for the year ended December 31, 1998 and incorporated herein by reference). 10.2(b) Form of Percentage Lease with TRS Lessees (previously filed as Exhibit 10.1 to the Company's Current report on Form 8-K dated January 16, 2001 and incorporated herein by reference). 10.2(c) Form of Management Agreement with Flagstone (previously filed as Exhibit 10.2 to the Company's current report Form 8-K dated January 16, 2001 and incorporated herein by reference). 10.4 Second Amended and Restated Employment Agreement between RFS Managers, Inc. and Robert M. Solmson (previously filed as Exhibit 10.4 to the Company's Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). *10.4(a) Employment Agreement between RFS Managers, Inc. and Randall L. Churchey dated September 27, 1999. *10.4(b) Employment Agreement between RFS Managers, Inc. and Kevin M. Luebbers dated July 1, 2000. 10.9 Master Agreement, dated February 1, 1996 (previously filed as Exhibit 10.2 to the Company's current Report on Form 8-K dated February 27, 1996 and incorporated herein by reference). 10.9(a) First Amendment to Master agreement dated as of November 21, 1996 (previously filed as Exhibit 10.9(a) to the Company's Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). 10.10 Indenture dated as of November 21, 1996 (previously filed as Exhibit 10.10 to the Company's Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). 10.15 Termination Agreement dated as of January 26, 2000 (previously filed as Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1999 and incorporated herein by reference). *10.16 First Amendment to the Fourth Amended and Restated Revolving Credit Agreement dated March 1, 2000. *10.17 Second Amendment to the Fourth Amended and Restated Revolving Credit Agreement dated August 1, 2000. *10.18 Third Amendment to the Fourth Amended and Restated Revolving Credit Agreement dated August 1, 2000. *10.19 Loan Agreement dated August 9, 2000 by and between Bank of America, N.A. (as lender) and RFS SPE 2000, LLC (as borrower), a wholly-owned subsidiary of RFS Hotel Investors, Inc. *10.20 Loan Agreement dated August 9, 2000 by and between Bank of America, N.A. (as lender) and RFS SPE 2 2000, LLC (as borrower), a wholly-owned subsidiary of RFS Hotel Investors, Inc. *21.1 List of Subsidiaries of the Registrant *23.1 Consent of PricewaterhouseCoopers LLP
- --------------- * Filed herewith 26 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant as duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RFS HOTEL INVESTORS, INC. By: /s/ KEVIN M. LUEBBERS ------------------------------------ Kevin M. Luebbers Executive Vice President and Chief Financial Officer Date: March 14, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURES TITLE DATE ---------- ----- ---- /s/ ROBERT M. SOLMSON Chairman of the Board, Chief March 14, 2001 - ----------------------------------------------------- Executive Officer and Robert M. Solmson President /s/ RANDALL L. CHURCHEY President and Chief Operating March 14, 2001 - ----------------------------------------------------- Officer and Director Randall L. Churchey /s/ KEVIN M. LUEBBERS Executive Vice President And March 14, 2001 - ----------------------------------------------------- Chief Financial Officer Kevin M. Luebbers (principal financial and accounting officer) /s/ H. LANCE FORSDICK, SR. Director March 14, 2001 - ----------------------------------------------------- H. Lance Forsdick, Sr. /s/ BRUCE E. CAMPBELL, JR. Director March 14, 2001 - ----------------------------------------------------- Bruce E. Campbell, Jr. /s/ MICHAEL E. STARNES Director March 14, 2001 - ----------------------------------------------------- Michael E. Starnes /s/ JOHN W. STOKES, JR. Director March 14, 2001 - ----------------------------------------------------- John W. Stokes, Jr. /s/ R. LEE JENKINS Director March 14, 2001 - ----------------------------------------------------- R. Lee Jenkins /s/ RICHARD REISS, JR. Director March 14, 2001 - ----------------------------------------------------- Richard Reiss, Jr.
27 29 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of RFS Hotel Investors, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of RFS Hotel Investors, Inc. (the "Company") at December 31, 2000 and 1999, and the results of its operations and cash flows for each of the three years then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Dallas, Texas January 24, 2001, except for note 9 as to which the date is February 20, 2001 F-1 30 RFS HOTEL INVESTORS, INC. CONSOLIDATED BALANCE SHEETS
2000 1999 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Investment in hotel properties, net......................... $635,997 $651,988 Cash and cash equivalents................................... 3,681 5,913 Restricted cash............................................. 4,929 4,550 Due from Lessees............................................ 13,041 10,801 Notes receivable, net....................................... 626 5,352 Deferred expenses, net...................................... 6,814 4,458 Other assets................................................ 8,379 4,180 -------- -------- Total assets...................................... $673,467 $687,242 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses....................... $ 12,734 $ 8,063 Borrowings on Line of Credit................................ 50,273 98,807 Mortgage notes payable...................................... 227,158 183,471 Minority interest in Operating Partnership, 2,562 and 2,565 units issued and outstanding at December 31, 2000 and December 31, 1999, respectively and other consolidated subsidiaries.............................................. 34,848 35,618 -------- -------- Total liabilities................................. 325,013 325,959 -------- -------- Commitments and contingencies Shareholders' equity: Preferred Stock, $.01 par value, 5,000 shares authorized, 974 shares issued and outstanding...................... 10 10 Common Stock, $.01 par value, 100,000 shares authorized, 25,088 and 25,062 shares issued at December 31, 2000 and December 31, 1999, respectively................................. 251 251 Additional paid-in capital............................. 374,910 374,087 Treasury stock, at cost, 576 and 167 shares at December 31, 2000 and December 31, 1999, respectively........... (8,100) (3,656) Distributions in excess of income......................... (18,617) (9,409) -------- -------- Total shareholders' equity........................ 348,454 361,283 -------- -------- Total liabilities and shareholders' equity........ $673,467 $687,242 ======== ========
The accompanying notes are an integral part of these financial statements. F-2 31 RFS HOTEL INVESTORS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ----------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue: Lease revenue............................................. $106,574 $98,962 $96,371 Other revenue............................................. 785 700 556 -------- ------- ------- Total revenues.................................... 107,359 99,662 96,927 -------- ------- ------- Expenses: Taxes and insurance....................................... 10,747 9,859 9,949 Depreciation.............................................. 27,198 24,210 20,906 General and administrative................................ 6,304 3,687 4,222 Attempted merger expenses................................. 1,664 Loss on sale of hotel properties and franchise termination fees................................................... 4,376 1,602 4,149 Amortization of deferred expenses and unearned compensation........................................... 1,710 2,071 1,710 Interest expense.......................................... 23,016 19,623 16,604 Minority interest in Operating Partnership and subsidiaries........................................... 3,218 3,620 3,655 -------- ------- ------- Total expenses.................................... 76,569 64,672 62,859 -------- ------- ------- Net income.................................................. 30,790 34,990 34,068 Preferred stock dividends................................... (1,412) (1,412) (1,412) -------- ------- ------- Net income applicable to common shareholders................ $ 29,378 $33,578 $32,656 ======== ======= ======= Basic earnings per share.................................... $ 1.20 $ 1.34 $ 1.32 Weighted average common shares outstanding.................. 24,559 25,002 24,775 Diluted earnings per share.................................. $ 1.20 $ 1.34 $ 1.31 Weighted average common shares and equivalents outstanding............................................... 24,580 25,002 24,864
The accompanying notes are an integral part of these consolidated financial statements. F-3 32 RFS HOTEL INVESTORS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
COMMON STOCK ------------------ ADDITIONAL DISTRIBUTIONS PREFERRED NUMBER OF PAID-IN IN EXCESS OF TREASURY STOCK SHARES AMOUNT CAPITAL INCOME STOCK TOTAL --------- --------- ------ ---------- ------------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Balances at December 31, 1997......... $10 24,389 $244 $361,479 $ 337 $362,070 Issuance of common shares, net of offering costs of $75............ 643 6 11,034 11,040 Retirement of common shares......... (140) Purchase of treasury shares......... $(2,012) (2,012) Issuance of restricted common shares to officers and directors........ 129 1 (1) Distributions on common shares, ($1.51 per share)................ (37,431) (37,431) Distributions on preferred shares, ($1.45 per share)................ (1,412) (1,412) Distribution on partnership interest......................... (30) (30) Amortization of unearned compensation..................... 644 644 Net income.......................... 34,068 34,068 --- ------ ---- -------- -------- ------- -------- Balances at December 31, 1998......... 10 25,021 251 373,156 (4,468) (2,012) 366,937 Purchase of treasury shares......... 205 (1,644) (1,439) Issuance of restricted common shares to officers and directors........ 41 Distributions on common shares, ($1.54 per share)................ (38,519) (38,519) Distributions on preferred shares, ($1.45 per share)................ (1,412) (1,412) Amortization of unearned compensation..................... 726 726 Net income.......................... 34,990 34,990 --- ------ ---- -------- -------- ------- -------- Balances at December 31, 1999......... 10 25,062 251 374,087 (9,409) (3,656) 361,283 Purchase of treasury shares......... (4,444) (4,444) Issuance of common shares........... 13 162 162 Issuance of restricted common shares to officers and directors........ 13 Distributions on common shares, ($1.54 per share)................ (38,586) (38,586) Distributions on preferred shares, ($1.45 per share)................ (1,412) (1,412) Amortization of unearned compensation..................... 661 661 Net income.......................... 30,790 30, 790 --- ------ ---- -------- -------- ------- -------- Balances at December 31, 2000......... $10 25,088 $251 $374,910 $(18,617) $(8,100) $348,454 === ====== ==== ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 33 RFS HOTEL INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Cash flows from operating activities: Net income............................................... $ 30,790 $ 34,990 $ 34,068 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 28,908 26,281 22,616 Minority interest in Operating Partnership and subsidiaries........................................ 3,218 3,620 3,655 Loss on sale of hotel properties and franchise termination fees.................................... 4,376 79 1,441 Attempted merger expenses............................. 1,664 Changes in assets and liabilities: Due from Lessees.................................... (2,240) (145) (769) Other assets........................................ (4,199) 2,230 (6,053) Accounts payable and accrued expenses............... 3,644 (218) (1,530) -------- -------- -------- Net cash provided by operating activities........ 64,497 66,837 55,092 -------- -------- -------- Cash flows from investing activities: Investment in hotel properties and hotels under development........................................... (32,551) (34,066) (78,839) Proceeds from sale of hotel properties................... 22,087 808 19,627 Prepayments under purchase agreements.................... (1,425) Restricted cash.......................................... (379) 6,727 (5,295) Cash paid for franchise agreements....................... (49) -------- -------- -------- Net cash used by investing activities............ (10,843) (26,580) (65,932) -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock................... 162 11,040 Purchase of treasury stock............................... (4,444) (1,439) (2,012) Proceeds from borrowings................................. 81,200 16,500 54,264 Payments on debt......................................... (86,047) (7,021) (9,543) Distributions to common and preferred shareholders....... (39,972) (39,931) (38,873) Distributions to limited partners........................ (3,988) (3,954) (3,879) Redemption of shares/units............................... (22) (37) Collections on notes receivable.......................... 726 47 65 Loan fees paid........................................... (3,523) (538) (2,302) -------- -------- -------- Net cash provided (used) by financing activities..................................... (55,886) (36,358) 8,723 -------- -------- -------- Net increase (decrease) in cash and cash equivalents....... (2,232) 3,899 (2,117) Cash and cash equivalents at beginning of years............ 5,913 2,014 4,131 -------- -------- -------- Cash and cash equivalents at end of years.................. $ 3,681 $ 5,913 $ 2,014 ======== ======== ======== Supplemental cash flow information: Cash paid for interest................................... $ 22,970 $ 20,172 $ 16,474
The accompanying notes are an integral part of these consolidated financial statements. F-5 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. NOTE 1. ORGANIZATION RFS Hotel Investors, Inc. ("RFS" or the "Company") is a hotel real estate investment trust which, at December 31, 2000, owned interests in 60 hotels with 8,689 rooms located in 24 states (collectively the "Hotels") and RFS owned a 90.6% interest in RFS Partnership L.P. (the "Operating Partnership"). RFS, the Operating Partnership, and their subsidiaries are herein referred to, collectively, as the "Company". The following summarizes additional information for the 60 hotels owned at December 31, 2000:
HOTEL FRANCHISE AFFILIATION PROPERTIES ROOMS/SUITES LEASE REVENUE - --------------------- ---------- ------------ -------------- (IN THOUSANDS) Full Service hotels: Sheraton..................................... 4 864 $ 14,027 Holiday Inn.................................. 5 953 9,291 Independent.................................. 2 331 8,759 Sheraton Four Points......................... 2 412 5,289 Hilton....................................... 1 234 4,106 Doubletree................................... 1 222 3,925 -- ----- -------- 15 3,016 45,397 -- ----- -------- Extended Stay hotels: Residence Inn by Marriott.................... 14 1,851 26,554 TownePlace Suites by Marriott................ 3 285 2,692 Homewood Suites by Hilton.................... 1 83 794 -- ----- -------- 18 2,219 30,040 -- ----- -------- Limited Service hotels: Hampton Inn.................................. 18 2,243 17,380 Holiday Inn Express.......................... 5 637 6,767 Comfort Inn.................................. 3 472 2,696 Courtyard by Marriott........................ 1 102 1,289 -- ----- -------- 27 3,454 28,132 -- ----- -------- Total.......................................... 60 8,689 $103,569 == ===== ========
The following summarizes the number of hotels owned for the periods presented:
2000 1999 1998 ---- ---- ---- Hotels owned at beginning of years.......................... 62 60 60 Acquisitions and developed hotels placed into service....... 2 6 Sales of hotels............................................. (2) (6) -- -- -- Hotels owned at end of years................................ 60 62 60 -- -- --
At December 31, 2000, the Company leased fifty hotels to wholly-owned subsidiaries of Hilton Hotels Corporation ("Hilton"), six hotels to three other lessees and four hotels were not leased. At December 31, 2000 fifty hotels were managed by wholly-owned subsidiaries of Hilton and ten hotels are managed by five other third-party management companies. Under the RMA that became effective January 1, 2001, the Company is permitted to lease its hotels to TRS Lessees, provided that the TRS Lessees engage a third-party management company to manage the hotels. Effective January 1, 2001, the Company effectively terminated its operating leases, management F-6 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. -- (CONTINUED) contracts and related ancillary agreements with Hilton for approximately $60 million in cash. This payment to Hilton represents the cancellation of executory contracts that extended through 2012 and substantially all of the terminations payment was recorded as an expense on January 1, 2001. The cancellation of these agreements entitles the TRS Lessees to retain the operating profits from the hotels, which previously accrued to Hilton under these leases and gives the Company (i) more control over the daily operations of its hotels, (ii) the benefits from any cost efficiencies or ancillary revenues generated at the hotels, and (iii) flexibility, in that, the hotels are not encumbered by long term leases which are difficult to amend and expensive to terminate. All of the hotels continue to operate under the same franchise affiliation as prior to the contract termination. Simultaneous with the termination of the leases and related agreements, the TRS Lessees entered into new management contracts with Flagstone Hospitality Management ("Flagstone"). Flagstone is a newly-formed company jointly owned by Angie Mock, its CEO and formerly Executive Vice President, Asset Management of the Company, and MeriStar Hotels and Resorts, the nation's largest independent hotel management company. Effective January 1, 2001, Flagstone manages 53 of the Company's 60 hotels and the remaining seven hotels are managed by four other third-party management companies. Only five of the Company's hotels revenue operated under long term leases with third parties on January 1, 2001. In connection with the termination of the leases and related agreements, the Company purchased 973,684 shares of the Company's Series A Preferred Stock owned by Hilton for $13.0 million. The Company included approximately $5 million in net income available to common shareholders on January 1, 2001, representing the difference between the Company's purchase price and approximately $18 million of proceeds from the original sale of the Series A Preferred Stock. The Series A Preferred Stock was retired. The aggregate $73 million of payments to Hilton were financed by the sale of two hotels in 2000 for proceeds of approximately $25 million, proceeds from the sale on January 2, 2001 of a new issue of non-convertible mandatorily redeemable preferred stock (the "Series B Preferred Stock") for $25 million before fees and expenses and borrowings under the Company's line of credit of $23 million. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of RFS, the Operating Partnership and their consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Fair Value of Financial Instruments. The Company's financial instruments include rents receivable, accounts payable, other accrued expenses, mortgage loans payable and an interest rate swap agreement. The fair values of these financial instruments other than the interest rate swap agreement are not materially different from their carrying or contract values. The fair value of the interest rate swap is estimated based on quotes from the market makers of these instruments and represents the estimated amounts the Company would expect to receive or pay to terminate the agreements. Credit and market risk exposures are limited to the net interest differentials. The estimated unrealized net loss on these instruments was approximately $0.8 million at December 31, 2000. The carrying values of the Company's borrowings are estimated to be below fair value by approximately $8.2 million due to changes in comparable interest rates. Investment in Hotel Properties. Hotel properties are recorded at cost and are depreciated using the straight-line method over estimated useful lives of 40 years for buildings and improvements and five to seven years for furniture and equipment. The Company periodically reviews the carrying value of each Hotel to F-7 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. -- (CONTINUED) determine if circumstances exist indicating an impairment in the carrying value of the investment in the hotel or that depreciation periods should be modified. If circumstances support the possibility of impairment, the Company will prepare a projection of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the hotel based on discounted future cash flows. The Company does not believe that there are any facts or circumstances indicating impairment of any of its investment in hotel properties. Cash and Cash Equivalents. All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Restricted Cash. Restricted cash includes amounts the Company must make available for the replacement and refurbishment of furniture and equipment and amounts held in escrow by certain lenders for the payment of taxes and insurance. Notes Receivable. At January 1, 2000, the Company had three notes receivable from prior years' hotel sales that aggregated approximately $5.3 million. During 2000, the Company collected $0.7 million in cash and established a reserve for collection of $4.0 million. At December 31, 2000 the notes receivable balance was $2.5 million offset by a reserve for collection of the notes of approximately $1.9 million. The notes receivable bear interest at 9%, mature in November 2002 and 2005 and one of the notes is collateralized by a first mortgage on the hotel and the other note by guarantees from certain principals of the buyer. Deferred Expenses. Deferred expenses, consisting of initial fees paid to franchisors, loan fees and other costs incurred in issuing debt, are recorded at cost. Amortization of franchise fees is computed using the straight-line method over the lives of the franchise agreements, which range from 10 to 15 years. Amortization of loan fees and other costs incurred in issuing debt are computed using the interest method over the maturity period of the related debt. Accumulated amortization of deferred expenses is $5.0 million and $3.8 million at December 31, 2000 and 1999, respectively. Minority Interest in Operating Partnership. Minority interest in the Operating Partnership represents the limited partners' proportionate share of the equity in the Operating Partnership. Income is allocated to minority interest based on the weighted average percentage ownership throughout the year. Treasury Stock. The Board of Directors approved a stock repurchase program to buy back up to 3 million shares of common stock on the open market subject to certain market conditions and other factors. During 2000, the Company repurchased 409 thousand shares of common stock at an average price per share of $10.88 or $4.4 million, bringing the total number of shares repurchased under the program to 576 thousand. Revenue Recognition. In accordance with SAB 101, which was effective for fiscal years beginning after December 15, 1999, lease revenue is recognized as income after certain specific annual hurdles have been achieved by the lessee in accordance with the provisions of the Percentage Lease agreements. SAB 101 effectively defers the recognition of revenue from its percentage leases for the first and second quarters to the third and fourth quarters. The Company accounted for SAB 101 as a change in accounting principle effective January 1, 2000. The lessees are in compliance with their rental obligations under the Percentage Leases. Income Taxes. The Company has elected to be treated as a REIT under Sections 856 to 860 of the Internal Revenue Code. Accordingly, no provision for federal income taxes has been reflected in the consolidated financial statements. Earnings and profits, which will determine the taxability of distributions to shareholders, will differ from net income reported for financial reporting purposes primarily due to the differences for federal tax purposes in the estimated useful lives used to compute depreciation. Basic and Diluted Earnings Per Share. Basic earnings per share is computed by dividing net income less preferred stock dividends by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and F-8 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. -- (CONTINUED) equivalents outstanding. Common share equivalents represent shares issuable upon exercise of options and unvested directors and officers restricted stock grants. For the years ended December 31, 2000, 1999 and 1998, the Company's Series A Preferred Stock, if converted to common shares, would be antidilutive; accordingly, the Series A Preferred Stock is not assumed to be converted in the computation of diluted earnings per share. Derivatives. Upon adoption of SFAS 133 on January 1, 2001, the Company recorded the fair value of the swap as a liability of approximately $0.8 million with a corresponding charge to other comprehensive income. The Company will record subsequent changes in the fair value of the swap through other comprehensive income. These instruments are designated as hedges. Distributions. The Company pays regular quarterly distributions on its common shares and Units and the current quarterly distribution is $0.385 per share or unit. Distributions made in 2000, 1999 and 1998 were considered 100% ordinary income for federal income tax purposes except for the distribution made on November 15, 2000 which was characterized as 75.4% ordinary income, 1.4% return of capital, 1.1% capital gain, and 22.1% Sec. 1250 Recapture. Additionally, the Company pays regular quarterly dividends on its Series A Preferred Stock in accordance with its dividend requirements and will pay regular quarterly dividends on its Series B Preferred Stock beginning in 2001. The Company's ability to make distributions is dependent upon receipt of its quarterly distributions from the Operating Partnership. NOTE 3. INVESTMENT IN HOTEL PROPERTIES Investment in hotel properties consists of the following at December 31, 2000, and 1999, respectively (in thousands):
2000 1999 --------- -------- Land.................................................. $ 71,886 $ 75,135 Building and improvements............................. 541,847 542,931 Furniture and equipment............................... 106,554 91,445 Capital improvements program expenditures............. 19,245 24,685 --------- -------- 739,532 734,196 Accumulated depreciation.............................. (103,535) (82,208) --------- -------- $635,997.. $651,988 ========= ========
Capitalized interest during 2000, 1999, and 1998 was $0.6 million, $1.1 million and $1.4 million, respectively. F-9 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. -- (CONTINUED) NOTE 4. DEBT The following details the Company's debt outstanding at December 31, 2000 and 1999 (dollar amounts in thousands):
COLLATERAL ------------------------- INTEREST # OF NET BOOK VALUE RATE MATURITY HOTELS AT DEC. 31, 2000 2000 1999 -------- ------------- ------ ---------------- -------- -------- VARIABLE RATE DEBT: Line of Credit....... LIBOR July 2003 24 200,$793..... $ 10,273 $ 98,807 +200bp FIXED RATE DEBT: Line of Credit....... 6.54% July 2003 (a) (a) 40,000 -- Mortgage............. 6.83% August 2008 15 144,385 36,971 40,508 Mortgage............. 7.30% November 2011 (b) (b) 25,000 25,000 Mortgage............. 7.83% December 2008 10 130,001 93,460 94,709 Mortgage............. 8.22% November 2007 1 43,907 18,556 18,815 Mortgage............. 4.50% January 2001 1 20,991 1,125 4,440 Mortgage............. 8.00% August 2010 8 87,732 52,046 -- -------- -------- -------- $627,809 $277,431 $282,279 ======== ======== ========
- --------------- (a) An interest rate swap has fixed the rate of interest on this portion of the Line of Credit and this portion is also collateralized by the twenty-four properties pledged against the variable portion of the Line. (b) This mortgage is also collateralized by the fifteen properties pledged against the previous mortgage in the table. The Company increased the availability under its Line of Credit from $100 million to $140 million during the year. The increased Line of Credit matures on July 30, 2003. The interest rate remained substantially unchanged ranging from 150 basis points to 225 basis points above LIBOR, depending on the Company's ratio of total debt to its investment in hotel properties (as defined). The interest rate was approximately 8.5% at December 31, 2000. The Line of Credit is collateralized by the Collateral Pool. The Company can obtain a release of the pledge of any hotel in the Collateral Pool if the Company provides a substitute hotel or reduces the total availability under the Line of Credit. The Line of Credit contains various covenants including the maintenance of a minimum net worth, minimum debt and interest coverage ratios, and total indebtedness and liability limitations. The Company was not aware of any failure to comply with these covenants at December 31, 2000. On November 3, 2000, the Company entered into an interest rate swap agreement for a notional amount of $40.0 million maturing in July 2003. The agreement effectively converts a portion of the Company's floating rate debt to fixed rate in order to reduce the Company's risk to increases in interest rates. Such agreements involve the exchange of fixed and floating interest rate payments over the life of the agreement without the exchange of the underlying principal amounts. Accordingly, the impact of fluctuations in interest rates on these interest rate swap agreements is fully offset by the opposite impact on the related debt. Under the interest rate swap agreement, the Company receives payments based on the one-month LIBOR rate of 6.80% at December 31, 2000 and pays a fixed rate of 6.535%. The differences to be paid or received by the Company under the terms of the Interest Rate Swap are accrued as interest rates change and recognized as an adjustment to interest expense by the Company pursuant to the terms of the agreements and will have a corresponding effect on its future cash flows. Agreements such as these contain a credit risk that the counterparties may be unable to meet the terms of the F-10 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. -- (CONTINUED) agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, which is limited to major banks and financial institutions, and does not anticipate non-performance by the counterparties. The fair value of the Interest Rate Swap is estimated based on quotes from the market makers of these instruments and represents the estimated amounts the Company would expect to receive or pay to terminate the agreements. Credit and market risk exposures are limited to the net interest differentials. The estimated unrealized net loss on these instruments was approximately $0.8 million at December 31, 2000. The Company's other borrowings are nonrecourse to the Company and contain provisions allowing for the substitution of collateral, upon satisfaction of certain conditions, after the respective loans have been outstanding for approximately four years. Most of the mortgage borrowings are repayable and subject to various prepayment penalties, yield maintenance, or defeasance obligations. Future scheduled principal payments of debt obligations at December 31, 2000 are as follows (in thousands):
AMOUNT -------- 2001........................................................ $ 7,240 2002........................................................ 6,547 2003........................................................ 57,344 2004........................................................ 7,547 2005........................................................ 8,152 Thereafter.................................................. 190,601 -------- $277,431 ========
NOTE 5. CAPITAL STOCK Preferred Stock. The Board of Directors is authorized to provide for the issuance of up to 5 million shares of Preferred Stock in one or more series, to establish the number of shares in each series and to fix the designation, powers, preferences and rights of each such series and the qualifications, limitations or restrictions thereof. The Company issued to one of the lessees 973,684 shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock"). The Company redeemed the Series A Preferred Stock on January 1, 2001 (See Subsequent Event footnote). The Series A Preferred Stock had an initial preference value of $19.00 per share (the "Stated Value"), a par value of $0.01, and is senior to the Company's common shares as to distributions and upon liquidation of the Company. The shares of Series A Preferred Stock were entitled to a $1.45 cumulative annual dividend per share. Each share of Series A Preferred Stock had one vote and was convertible into one share of common stock after February 2002. On January 2, 2001, the Company issued 250 thousand shares of non-convertible mandatorily redeemable Series B Preferred Stock for $25 million prior to fees and expenses of approximately $1 million. Holders of the Series B Preferred Stock are entitled to receive quarterly cash dividends commencing March 31, 2001 at an annual rate of 12.5%. Beginning January 1, 2006, the dividend rate increases 2.0% per annum up to a maximum rate of 20.5%. The Company may redeem shares of the Series B Preferred Stock in whole but not in part, on or after December 31, 2003 at the original price of $25 million. If the shares are redeemed before December 31, 2003, the redemption price is at varying amounts over the original share price. The shares are mandatorily redeemable by the holders at varying amounts over the original share price, depending on when the shares are redeemed, upon a change of control, dissolution or winding up of the Company or on the Company's failure to qualify as a REIT. F-11 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. -- (CONTINUED) Operating Partnership Units. RFS is the sole general partner of the Operating Partnership and is obligated to contribute the net proceeds from any issuance of its equity securities to the Operating Partnership in exchange for units of partnership interest ("Units") corresponding in number and terms to the equity securities issued. Units may also be issued by the Operating Partnership to third parties in exchange for cash or property, and units so issued to third parties are redeemable at the option of RFS for either one common share or the cash equivalent thereof at the then current fair market value of a common share. NOTE 6. COMMITMENTS AND CONTINGENCIES On December 26, 2000, Frimco Associates, Inc. ("Frimco") and Inn Alpha, Inc. ("Inn Alpha") filed a lawsuit in the Supreme Court of the State of New York, County of Dutchess, against certain subsidiaries of the Company and RFS, Inc., a former lessee of certain of the Company's hotels. The lawsuit was removed to the United States District Court for the Southern District of New York on January 5, 2001. Prior to January 1, 2001, Frimco and Inn Alpha managed three of the Company's hotels pursuant to management agreements with RFS, Inc., the Company's former lessee. These management agreements were terminated in connection with the termination of the leases for these three hotels effective January 1, 2001. Frimco and Inn Alpha are seeking declaratory and injunctive relief, compensatory damages of not less than $12 million, as well as punitive damages. Pursuant to agreements related to the termination of the leases between the Company's subsidiaries and RFS, Inc., the Company has agreed to indemnify and defend RFS, Inc. against Frimco's and Inn Alpha's claims. The Company believes these claims are without merit and intends to defend these claims vigorously. The Company has filed a Motion to Dismiss the plaintiffs' claims. The Court has scheduled the case for trial in July, 2001. Effective January 1, 2001, the Company is to receive rental income from five hotels leased to third parties under the Percentage Leases which expire in 2007 (1 hotel), 2008 (2 hotels) and 2009 (2 hotels). Minimum future rental income (base rents) due the Company under these noncancelable operating leases at December 31, 2000, is as follows (in thousands):
YEAR AMOUNT - ---- ------- 2001........................................................ $ 2,442 2002........................................................ 2,442 2003........................................................ 2,442 2004........................................................ 2,442 2005........................................................ 2,442 2006 and thereafter......................................... 6,267 ------- $18,477 =======
Lease revenue is based on a percentage of room revenues, food and beverage revenues and other revenues of the Hotels. Both the base rent and the threshold room revenue in each lease computation are adjusted annually for changes in the Consumer Price Index ("CPI"). The adjustment is calculated at the beginning of each calendar year. The CPI adjustments made in January 2000 and 1999 were 2.7% and 1.6%, respectively. The Company may terminate any lease agreement with respect to a hotel property upon the sale of a hotel property in exchange for a termination payment to the lessee. During 2000, the Company terminated two such leases and incurred fees of $2.1 million that is included in the loss on sale of hotel properties. Under the Percentage Leases, the Operating Partnership is obligated to pay the costs of real estate taxes, property insurance, maintenance of underground utilities and structural elements of the Hotels, and to set aside a portion of the Hotels' revenues to fund capital expenditures for the periodic replacement or refurbishment of furniture, fixtures and equipment required for the retention of the franchise licenses with respect to the Hotels. F-12 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. -- (CONTINUED) NOTE 7. SUPPLEMENTAL CASH FLOW DISCLOSURE In 2000, the Company sold two hotels for cash consideration of $25.2 million and accrued a loss of $1.0 million on the sale of a third hotel that did not close until February 20, 2001 and is a non-cash transaction as at December 31, 2000. In 1998, the Company assumed $19.2 million of debt in connection with the purchase of a hotel and the Company sold two hotels for cash consideration of $5.4 million and a note receivable of $2.7 million. NOTE 8. STOCK-BASED COMPENSATION PLANS The Company's Restricted Stock and Stock Option Plan (the "Plan") provides for the grant of stock options to purchase a specified number of shares of common stock ("Options") and grants of restricted shares of common stock ("Restricted Stock"). Approximately 2.6 million shares of common stock, of which 600 thousand shares may be restricted stock, are available for awards to the officers and key employees of the Company and 400 thousand shares of common stock, of which 50 thousand shares may be restricted stock, are available for awards to Directors of the Company who are not officers or employees. Options issued under the plan have a maximum term of ten years from the date of grant. The exercise price of the options shall be determined on the date of each grant. The Company applies APB Opinion No. 25 and related Interpretations in accounting for the Plan. In 1995, the Financial Accounting Standards Board issued SFAS Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") which, if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of the Plan. Adoption of the cost recognition provisions of SFAS 123 is optional and the Company has decided not to adopt the provisions of SFAS 123. However, pro forma disclosures, as if the Company adopted the cost recognition requirements of SFAS 123, are required by SFAS 123 and are presented below. A summary of the Company's stock options under the Plan as of December 31, 2000, 1999 and 1998, and the changes during the years are presented below (in thousands, except per share data):
2000 1999 1998 --------------------- --------------------- --------------------- NUMBER OF WEIGHTED NUMBER OF WEIGHTED NUMBER OF WEIGHTED SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ---------- -------- ---------- -------- ---------- -------- Outstanding at beginning of years.... 1,484 $13.83 1,091 $14.99 1,188 $15.92 Granted.............................. 50 11.06 600 11.99 210 11.88 Exercised............................ (30) 11.88 (95) 17.00 Forfeited............................ (297) 14.64 (207) 14.64 (212) 16.18 --------- ------ --------- ------ --------- ------ Outstanding at end of years.......... 1,207 $13.43 1,484 $13.83 1,091 $14.99 ========= ====== ========= ====== ========= ====== Exercisable at end of years.......... 700 $14.25 604 $15.34 520 $15.50 ========= ====== ========= ====== ========= ====== Weighted-average fair value.......... $ 0.60 $ 1.75 $ 1.54 ====== ====== ====== Price range of shares under option... $10.50 to $10.50 to $11.87 to $16.87 $16.87 $16.87
The weighted average remaining contractual life of options outstanding as of December 31, 2000 is 6.2 years. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: dividend of $1.54; volatility of 26.25% for 2000 grants, 29% for 1999 grants, and 27% for 1998 grants, risk-free interest rate of 6.2% for 2000, of 5.9% for 1999, and 4.6% for 1998 and expected life of 6 years for 2000, 1999, and 1998. F-13 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. -- (CONTINUED) Had compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS 123, the Company's pro forma net income per common share of 2000, 1999 and 1998 would have decreased by approximately 1%. The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. Restricted Stock. The Company granted 14 thousand, 41 thousand and 129 thousand shares of Restricted Stock in 2000, 1999, and 1998 respectively, subject to vesting. At December 31, 2000, 239 thousand shares were vested and 82 thousand shares remain unvested. The weighted average fair value per share of the Restricted Stock granted in 2000 and 1999 was $11.36 and $11.25, respectively. NOTE 9. SUBSEQUENT EVENTS Under the RMA that became effective January 1, 2001, the Company is permitted to lease its hotels to TRS Lessees, provided that the TRS Lessees engage a third-party management company to manage the hotels. Effective January 1, 2001, the Company effectively terminated its operating leases, management contracts and related ancillary agreements with Hilton for approximately $60 million in cash. This payment to Hilton represents the cancellation of executory contracts that extended through 2012 and substantially all of the terminations payment was recorded as an expense on January 1, 2001. The cancellation of these agreements entitles the TRS Lessees to retain the operating profits from the hotels, which previously accrued to Hilton under these leases and gives the Company i) more control over the daily operations of its hotels, (ii) the benefits from any cost efficiencies or ancillary revenues generated at the hotels, and (iii) flexibility, in that, the hotels are not encumbered by long term leases which are difficult to amend and expensive to terminate. All of the hotels continue to operate under the same franchise affiliation as prior to the contract termination. Simultaneous with the termination of the leases and related agreements, the TRS Lessees entered into new management contracts with Flagstone. Flagstone is a newly-formed company jointly owned by Angie Mock, its CEO and formerly Executive Vice President, Asset Management, of the Company, and MeriStar Hotels and Resorts, the nation's largest independent hotel management company. Effective January 1, 2001, Flagstone manages 53 of the Company's 60 hotels and the remaining seven hotels are managed by four other third-party management companies. Only five of the Company's hotels revenue operated under long term leases with third parties on January 1, 2001. In connection with the termination of the leases and related agreements, the Company purchased 973,684 shares of the Company's Series A Preferred Stock owned by Hilton for $13.0 million. The Company included $5.1 million in net income available to common shareholders on January 1, 2001, representing the difference between the Company's purchase price and $18.1 million of proceeds from the original sale of the Series A Preferred Stock. The Series A Preferred Stock was retired. The aggregate $73 million of payments to Hilton were financed by proceeds from the sale of two hotels in 2000 of approximately (prior to fees and expenses) $25 million, proceeds from the sale Series B Preferred Stock for (prior to fees and expenses) and borrowings under the Company's line of credit of $23 million. At January 1, 2001, the Company has $38.2 million of capacity under its Line of Credit and a debt to trailing twelve month EBITDA ratio of 3.6. On January 2, 2001, the Company issued 250 thousand shares of non-convertible mandatorily redeemable Series B Preferred Stock for $25 million prior to fees and expenses of approximately $1 million. Holders of the Series B Preferred Stock are entitled to receive quarterly cash dividends commencing March 31, 2001 at an annual rate of 12.5%. Beginning January 1, 2006, the dividend rate increases 2.0% per annum up to a maximum rate of 20.5%. The Company may redeem shares of the Series B Preferred Stock in whole but not in part, on or after December 31, 2003 at the original price of $25 million. If the shares are redeemed before December 31, 2003, the redemption price is at varying premiums over the original share price. The shares are mandatorily redeemable by the holders at varying amounts over the original share price, depending on when F-14 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. -- (CONTINUED) the shares are redeemed, upon a change of control, dissolution or winding up of the Company or on the Company's failure to qualify as a REIT. On January 25, 2001, the Company declared a distribution of $0.385 on each share of Common Stock and Unit outstanding payable on February 15, 2001 to shareholders of record on February 5, 2001. On February 20, 2001, the Company completed the sale of the 131-room Hampton Inn in Plano, Texas for $5.525 million and recorded a loss on the sale of approximately $1.0 million in its 2000 income statement as the sale was contracted prior to year-end. The proceeds were used to reduce borrowings outstanding under the line of credit. F-15 44 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders of RFS Hotel Investors, Inc. Our audits of the consolidated financial statements referred to in our report dated January 24, 2001, except for Note 9 as to which the date is February 20, 2001, appearing on page F-1 of the 2000 Form 10-K of RFS Hotel Investors, Inc. also included an audit of the financial statement schedule listed in Item 14(a) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Dallas, Texas January 24, 2001, except for Note 9 as to which the date is February 20, 2001 F-16 45 RFS HOTEL INVESTORS, INC. SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2000
COST CAPITALIZED GROSS AMOUNT AT SUBSEQUENT TO WHICH CARRIED INITIAL COST ACQUISITION AT END OF PERIOD ----------------------- -------------------- ----------------------- BUILDINGS BUILDINGS BUILDINGS AND AND AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL ----------- ------------ ------- ------------- ---- ------------- ------- ------------- -------- (IN THOUSANDS) Sheraton Hotel Clayton, MO............. (1) $ 1,599 $ 4,968 $ 7,245 $ 1,599 $ 12,213 $ 13,812 Holiday Inn Columbia, SC............ (1) 790 3,573 1,111 790 4,684 5,474 Holiday Inn Louisville, KY.......... (1) 1,328 3,808 1,322 1,328 5,130 6,458 Comfort Inn Marietta, GA............ (2) 989 5,509 262 989 5,771 6,760 Holiday Inn Lafayette, LA........... (1) 700 8,858 1,416 700 10,274 10,974 Residence Inn Kansas City, MO......... (2) 392 5,344 452 392 5,796 6,188 Comfort Inn Ft. Mill, SC............ (2) 763 6,612 311 763 6,923 7,686 Hampton Inn Ft. Lauderdale, FL...... (1) 590 4,664 372 590 5,036 5,626 Holiday Inn Express Arlington Heights, IL... (1) 350 4,121 477 350 4,598 4,948 Hampton Inn Denver, CO.............. none 500 8,098 399 500 8,497 8,997 Holiday Inn Express Downers Grove, IL....... (1) 400 5,784 482 400 6,266 6,666 Comfort Inn Farmington Hills, MI.... (2) 525 4,118 338 525 4,456 4,981 Hampton Inn Indianapolis, IN........ (2) 475 8,008 339 475 8,347 8,822 Hampton Inn Lincoln, NE............. (1) 350 4,829 426 350 5,255 5,605 Hampton Inn Bloomington, MN......... (2) 375 8,657 210 375 8,867 9,242 Holiday Inn Express Bloomington, MN......... (1) 780 6,910 $152 918 932 7,828 8,760 Hampton Inn Minnetonka, MN.......... (1) 475 5,066 173 475 5,239 5,714 Hampton Inn Oklahoma City, OK....... (2) 530 6,826 479 530 7,305 7,835 Hampton Inn Omaha, NE............... (2) 450 6,362 494 450 6,856 7,306 LIFE UPON WHICH ACCUMULATED NET BOOK DEPRECIATION IN DEPRECIATION VALUE LATEST INCOME BUILDINGS AND BUILDINGS AND DATE OF STATEMENT IS DESCRIPTION IMPROVEMENTS IMPROVEMENTS ACQUISITION CALCULATED ----------- ------------- ------------- ----------- --------------- (IN THOUSANDS) Sheraton Hotel Clayton, MO............. $ 1,319 $ 10,894 1993 40 Holiday Inn Columbia, SC............ 753 3,931 1993 40 Holiday Inn Louisville, KY.......... 814 4,316 1993 40 Comfort Inn Marietta, GA............ 993 4,778 1993 40 Holiday Inn Lafayette, LA........... 1,707 8,567 1993 40 Residence Inn Kansas City, MO......... 938 4,858 1994 40 Comfort Inn Ft. Mill, SC............ 1,133 5,790 1994 40 Hampton Inn Ft. Lauderdale, FL...... 813 4,223 1994 40 Holiday Inn Express Arlington Heights, IL... 728 3,870 1994 40 Hampton Inn Denver, CO.............. 1,371 7,126 1994 40 Holiday Inn Express Downers Grove, IL....... 988 5,278 1994 40 Comfort Inn Farmington Hills, MI.... 701 3,755 1994 40 Hampton Inn Indianapolis, IN........ 1,351 6,996 1994 40 Hampton Inn Lincoln, NE............. 834 4,421 1994 40 Hampton Inn Bloomington, MN......... 1,441 7,426 1994 40 Holiday Inn Express Bloomington, MN......... 1,182 6,646 1994 40 Hampton Inn Minnetonka, MN.......... 846 4,393 1994 40 Hampton Inn Oklahoma City, OK....... 1,167 6,138 1994 40 Hampton Inn Omaha, NE............... 1,094 5,762 1994 40
F-17 46 RFS HOTEL INVESTORS, INC. SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED) AS OF DECEMBER 31, 2000
COST CAPITALIZED GROSS AMOUNT AT SUBSEQUENT TO WHICH CARRIED INITIAL COST ACQUISITION AT END OF PERIOD ----------------------- -------------------- ----------------------- BUILDINGS BUILDINGS BUILDINGS AND AND AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL ----------- ------------ ------- ------------- ---- ------------- ------- ------------- -------- (IN THOUSANDS) Hampton Inn Tulsa, OK............... (1) 350 5,715 501 350 6,216 6,566 Holiday Inn Express Wauwatosa, WI........... (2) 700 4,926 522 700 5,448 6,148 Residence Inn Fishkill, NY............ (1) 2,280 10,484 246 2,280 10,730 13,010 Residence Inn Providence, RI.......... (2) 1,385 7,742 307 1,385 8,049 9,434 Residence Inn Tyler, TX............... (1) 855 6,212 455 855 6,667 7,522 Hampton Inn Memphis, TN............. (2) 980 6,157 98 980 6,255 7,235 Residence Inn Ft. Worth, TX........... (2) 985 10,726 714 985 11,440 12,425 Residence Inn Wilmington, DE.......... (1) 1,100 8,488 191 1,100 8,679 9,779 Residence Inn Torrance, CA............ (1) 2,600 17,789 816 2,600 18,605 21,205 Residence Inn Ann Arbor, MI........... (2) 525 4,461 227 3,084 752 7,545 8,297 Holiday Inn Flint, MI............... (1) 1,220 11,994 369 1,220 12,363 13,583 Residence Inn Charlotte, NC........... (2) 850 3,844 159 3,126 1,009 6,970 7,979 Holiday Inn Express Austin, TX.............. (2) 500 4,737 160 500 4,897 5,397 Hampton Inn Lakewood, CO............ (2) 957 6,790 245 957 7,035 7,992 Hampton Inn Hattiesburg, MS......... (2) 785 4,653 1,690 785 6,343 7,128 Hampton Inn Laredo, TX.............. (1) 1,037 4,116 23 1,037 4,139 5,176 Residence Inn Atlanta, GA............. (1) 1,306 10,200 362 1,306 10,562 11,868 Holiday Inn Crystal Lake, IL........ (2) 1,665 10,932 445 1,665 11,377 13,042 Residence Inn Orlando, FL............. (2) 1,045 8,880 230 1,045 9,110 10,155 LIFE UPON WHICH ACCUMULATED NET BOOK DEPRECIATION IN DEPRECIATION VALUE LATEST INCOME BUILDINGS AND BUILDINGS AND DATE OF STATEMENT IS DESCRIPTION IMPROVEMENTS IMPROVEMENTS ACQUISITION CALCULATED ----------- ------------- ------------- ----------- --------------- (IN THOUSANDS) Hampton Inn Tulsa, OK............... 988 5,228 1994 40 Holiday Inn Express Wauwatosa, WI........... 857 4,591 1994 40 Residence Inn Fishkill, NY............ 1,698 9,032 1994 40 Residence Inn Providence, RI.......... 1,266 6,783 1994 40 Residence Inn Tyler, TX............... 1,020 5,647 1994 40 Hampton Inn Memphis, TN............. 969 5,286 1994 40 Residence Inn Ft. Worth, TX........... 1,687 9,753 1994 40 Residence Inn Wilmington, DE.......... 1,367 7,312 1994 40 Residence Inn Torrance, CA............ 2,870 15,735 1994 40 Residence Inn Ann Arbor, MI........... 960 6,585 1994 40 Holiday Inn Flint, MI............... 1,880 10,483 1994 40 Residence Inn Charlotte, NC........... 730 6,240 1994 40 Holiday Inn Express Austin, TX.............. 722 4,175 1995 40 Hampton Inn Lakewood, CO............ 999 6,036 1995 40 Hampton Inn Hattiesburg, MS......... 844 5,499 1995 40 Hampton Inn Laredo, TX.............. 557 3,582 1995 40 Residence Inn Atlanta, GA............. 1,360 9,202 1995 40 Holiday Inn Crystal Lake, IL........ 1,448 9,929 1995 40 Residence Inn Orlando, FL............. 1,178 7,932 1995 40
F-18 47 RFS HOTEL INVESTORS, INC. SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED) AS OF DECEMBER 31, 2000
COST CAPITALIZED GROSS AMOUNT AT SUBSEQUENT TO WHICH CARRIED INITIAL COST ACQUISITION AT END OF PERIOD ----------------------- -------------------- ----------------------- BUILDINGS BUILDINGS BUILDINGS AND AND AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL ----------- ------------ ------- ------------- ---- ------------- ------- ------------- -------- (IN THOUSANDS) Residence Inn Sacramento, CA.......... (2) $ 1,000 $ 13,122 $ 163 $ 1,000 $ 13,285 $ 14,285 Doubletree Hotel Del Mar, CA............. (2) 1,500 13,535 295 201 1,795 13,736 15,531 Hampton Inn Plano, TX............... (1) 959 5,178 31 959 5,209 6,168 Courtyard by Marriott Flint, MI............... (1) 600 4,852 183 600 5,035 5,635 Hampton Inn Sedona, AZ.............. (1) 1,464 3,858 88 1,464 3,946 5,410 Hampton Inn Chandler, AZ............ (1) 485 3,950 4 485 3,954 4,439 Hampton Inn Houston, TX............. (1) 606 4,919 3 606 4,922 5,528 Sheraton Hotel Milpitas, CA............ (2) 5,253 23,169 209 5,253 23,378 28,631 Sheraton Hotel Sunnyvale, CA........... (2) 785 22,401 597 785 22,998 23,783 Sheraton Four Points Pleasanton, CA.......... (2) 1,935 19,251 382 1,935 19,633 21,568 Sheraton Four Points Bakersfield, CA......... (2) 1,390 7,554 431 1,390 7,985 9,375 Beverly Heritage Milpitas, CA............ (1) 5,250 25,118 4,532 5,250 29,650 34,900 Sheraton Hotel Birmingham, AL.......... $ 1,125 3,103 13,491 859 3,103 14,350 17,453 Residence Inn Jacksonville, FL........ (1) 1,339 4,990 43 1,339 5,033 6,372 Residence Inn West Palm Beach, FL..... (1) 1,293 4,025 1,293 4,025 5,318 Hampton Inn Jacksonville, FL........ (1) 1,047 4,375 1,047 4,375 5,422 Homewood Suites Chandler, AZ............ (1) 485 4,601 3 485 4,604 5,089 Hotel Rex San Francisco, CA....... (1) 3,000 11,039 60 3,000 11,099 14,099 Hilton San Francisco, CA....... $18,556 3,007 28,308 9,180 3,007 37,488 40,495 LIFE UPON WHICH ACCUMULATED NET BOOK DEPRECIATION IN DEPRECIATION VALUE LATEST INCOME BUILDINGS AND BUILDINGS AND DATE OF STATEMENT IS DESCRIPTION IMPROVEMENTS IMPROVEMENTS ACQUISITION CALCULATED ----------- ------------- ------------- ----------- --------------- (IN THOUSANDS) Residence Inn Sacramento, CA.......... $ 1,651 $ 11,634 1996 40 Doubletree Hotel Del Mar, CA............. 1,584 12,152 1996 40 Hampton Inn Plano, TX............... 584 4,625 1996 40 Courtyard by Marriott Flint, MI............... 511 4,524 1996 40 Hampton Inn Sedona, AZ.............. 332 3,614 1997 40 Hampton Inn Chandler, AZ............ 353 3,601 1997 40 Hampton Inn Houston, TX............. 483 4,439 1997 40 Sheraton Hotel Milpitas, CA............ 2,323 21,055 1997 40 Sheraton Hotel Sunnyvale, CA........... 2,257 20,741 1997 40 Sheraton Four Points Pleasanton, CA.......... 1,936 17,697 1997 40 Sheraton Four Points Bakersfield, CA......... 764 7,221 1997 40 Beverly Heritage Milpitas, CA............ 2,330 27,320 1997 40 Sheraton Hotel Birmingham, AL.......... 1,111 13,239 1997 40 Residence Inn Jacksonville, FL........ 395 4,638 1997 40 Residence Inn West Palm Beach, FL..... 284 3,741 1998 40 Hampton Inn Jacksonville, FL........ 309 4,066 1998 40 Homewood Suites Chandler, AZ............ 314 4,290 1998 40 Hotel Rex San Francisco, CA....... 737 10,362 1998 40 Hilton San Francisco, CA....... 1,819 35,669 1998 40
F-19 48 RFS HOTEL INVESTORS, INC. SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED) AS OF DECEMBER 31, 2000
COST CAPITALIZED GROSS AMOUNT AT SUBSEQUENT TO WHICH CARRIED INITIAL COST ACQUISITION AT END OF PERIOD ----------------------- -------------------- ----------------------- BUILDINGS BUILDINGS BUILDINGS AND AND AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL ----------- ------------ ------- ------------- ---- ------------- ------- ------------- -------- (IN THOUSANDS) TownPlace Suites Ft. Worth, TX........... (1) 753 4,721 80 753 4,801 5,554 TownPlace Suites Miami, FL............... (1) 895 5,187 895 5,190 6,085 TownPlace Suites Miami (West), FL........ (1) 914 5,210 914 5,380 6,294 Unimproved land Crystal Lake, IL........ none 504 504 504 ------- -------- ---- ------- ------- -------- -------- Totals............ $71,053 $493,815 $833 $47,859 $71,886 $541,847 $613,733 ======= ======== ==== ======= ======= ======== ======== LIFE UPON WHICH ACCUMULATED NET BOOK DEPRECIATION IN DEPRECIATION VALUE LATEST INCOME BUILDINGS AND BUILDINGS AND DATE OF STATEMENT IS DESCRIPTION IMPROVEMENTS IMPROVEMENTS ACQUISITION CALCULATED ----------- ------------- ------------- ----------- --------------- (IN THOUSANDS) TownPlace Suites Ft. Worth, TX........... 238 4,563 1998 40 TownPlace Suites Miami, FL............... 204 4,986 1997 40 TownPlace Suites Miami (West), FL........ 155 5,225 1997 40 Unimproved land Crystal Lake, IL........ 0 1995 n/a ------- -------- Totals............ $64,247 $477,600 ======= ========
- --------------- (1) Property is collateral for the Line of Credit. (2) Property is collateral for long-term, fixed rate debt.
2000 1999 1998 -------- -------- -------- Cost of land and improvements, buildings and improvements: Balance at beginning of year.............................. $618,066 $573,912 $547,229 Additions................................................. 17,179 44,154 49,852 Disposals................................................. (21,512) (23,169) -------- -------- -------- Balance at end of year.................................... $613,733 $618,066 $573,912 -------- -------- -------- Accumulated depreciation on land improvements, buildings and improvements: Balance at beginning of year.............................. $ 53,124 $ 40,979 $ 29,662 Additions................................................. 16,994 12,145 13,267 Disposals................................................. (5,871) (1,950) -------- -------- -------- Balance at end of year.................................... $ 64,247 $ 53,124 $ 40,979 -------- -------- --------
F-20 EX-3.3 2 g67578ex3-3.txt FIFTH AMENDED AND RESTATED AGREEMENT 1 EXHIBIT 3.3 FIFTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF RFS PARTNERSHIP, L.P. 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINED TERMS 2 ARTICLE II PARTNERSHIP CONTINUATION AND IDENTIFICATION 9 2.01. Continuation........................................................................9 2.02. Name, Office and Registered Agent...................................................9 2.03. Partners............................................................................9 2.04. Term and Dissolution...............................................................10 2.05. Filing of Certificate and Perfection of Limited Partnership........................10 ARTICLE III BUSINESS OF THE PARTNERSHIP 11 ARTICLE IV CAPITAL CONTRIBUTIONS AND ACCOUNTS 11 4.01. Capital Contributions..............................................................11 4.02. Additional Capital Contributions and Issuances of Additional Partnership Interests............................................................11 4.03. General Partner Loans..............................................................15 4.04. Capital Accounts...................................................................15 4.05. Percentage Interests...............................................................15 4.06. No Interest on Contributions.......................................................16 4.07. Return of Capital Contributions....................................................16 4.08. No Third Party Beneficiary.........................................................16 ARTICLE V PROFITS AND LOSSES; DISTRIBUTIONS 16 5.01. Allocation of Profit and Loss......................................................16 5.02. Distribution of Cash...............................................................19 5.03. REIT Distribution Requirements.....................................................21 5.04. No Right to Distributions in Kind..................................................21 5.05. Limitations on Return of Capital Contributions.....................................21 5.06. Distributions Upon Liquidation.....................................................21 5.07. Substantial Economic Effect........................................................22 ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER 22 6.01. Management of the Partnership......................................................22 6.02. Delegation of Authority............................................................24 6.03. Indemnification and Exculpation of Indemnitees.....................................25 6.04. Liability of the General Partner...................................................26 6.05. Expenditures by the Partnership....................................................27 6.06. Outside Activities; Redemption/Tender Offer of REIT Shares.........................27
-i- 3 6.07. Redemption Right With Respect To Preferred Partnership Units.......................28 6.08. Employment or Retention of Affiliates..............................................29 6.09. Loans to the Partnership...........................................................29 6.10. Loans to the General Partner.......................................................29 6.11. General Partner Participation......................................................29 6.12. Authority on Behalf of Limited Partners............................................30 ARTICLE VII CHANGES IN GENERAL PARTNER 30 7.01. Transfer of the General Partner's Partnership Interest.............................30 7.02. Admission of a Substitute or Successor General Partner.............................31 7.03. Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner.......32 7.04. Removal of a General Partner.......................................................32 ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS 34 8.01. Management of the Partnership......................................................34 8.02. Power of Attorney..................................................................34 8.03. Limitation on Liability of Limited Partners........................................34 8.04. Ownership by Limited Partner of Corporate General Partner or Affiliate.............34 8.05. Limited Partner Redemption Right...................................................34 8.06. Registration.......................................................................36 8.07. Other Agreements...................................................................40 8.08. Outside Activities of Class A Limited Partners.....................................40 ARTICLE IX TRANSFERS OF LIMITED PARTNERSHIP INTERESTS 41 9.01. Purchase for Investment............................................................41 9.02. Restrictions on Transfer of Limited Partnership Interests..........................41 9.03. Admission of Substitute Limited Partner............................................42 9.04. Rights of Assignees of Partnership Interests.......................................43 9.05. Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner.....44 9.06. Joint Ownership of Interests.......................................................44 ARTICLE X BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS 44 10.01. Books and Records.................................................................44 10.02. Custody of Partnership Funds; Bank Accounts.......................................45 10.03. Fiscal and Taxable Year...........................................................45 10.04. Annual Tax Information and Report.................................................45 10.05. Tax Matters Partner; Tax Elections; Special Basis Adjustments.....................45 10.06. Reports to Limited Partners.......................................................46 ARTICLE XI AMENDMENT OF AGREEMENT 46
-ii- 4 ARTICLE XII GENERAL PROVISIONS 47 12.01. Notices...........................................................................47 12.02. Survival of Rights................................................................47 12.03. Additional Documents..............................................................47 12.04. Severability......................................................................47 12.05. Entire Agreement..................................................................47 12.06. Pronouns and Plurals..............................................................48 12.07. Headings..........................................................................48 12.08. Counterparts......................................................................48 12.09. Governing Law.....................................................................48 Exhibit A Exhibit B
-iii- 5 FIFTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF RFS PARTNERSHIP, L.P. RECITALS RFS Partnership, L.P. (the "Partnership") was formed as a limited partnership under the laws of the State of Tennessee by a Certificate of Limited Partnership filed with the Secretary of State of the State of Tennessee on August 3, 1993. The Partnership was governed originally by an agreement of limited partnership maintained at the offices of the Partnership (the "Original Agreement"). The parties to the Original Agreement were RFS Hotel Investors, Inc., a Tennessee corporation (the "Company" and in its capacity as the General Partner, the "General Partner"), and RFS, Inc. (in its capacity as the Original Limited Partner, the "Original Limited Partner"). The Original Agreement was amended and restated on August 13, 1993 (the "First Amended and Restated Agreement") to (i) admit Limited Partners to the Partnership and (ii) provide for the withdrawal of the Original Limited Partner. The First Amended and Restated Agreement was amended on November 19, 1993 (the "First Amendment to the First Amended and Restated Agreement") to change the cash distribution provisions. The First Amendment to the First Amended and Restated Agreement was amended and restated on August 24, 1994 (the "Second Amended and Restated Agreement") to admit additional Limited Partners (the "Class B Limited Partners") to the Partnership. The Second Amended and Restated Agreement was amended and restated on February 27, 1996 (the "Third Amended and Restated Agreement") to (i) issue to itself a preferred general partnership interest and (ii) restate the Second Amended and Restated Agreement in its entirety. The Third Amended and Restated Agreement was amended and restated on January 3, 1997 to (i) admit additional Class B Limited Partners to the Partnership, (ii) amend certain provisions relating to allocations of items of income, gain and loss on liquidation of the Partnership and (iii) restate the Third Amended and Restated Agreement in its entirety (the "Fourth Amended and Restated Agreement"). The General Partner now desires to (i) reflect its redemption of its Series A Preferred Shares and issuance of Series B Preferred Shares pursuant to Articles of Amendment, dated January 2, 2001, to the Charter, (ii) reflect the redemption of the Series A Preferred Units held by the General Partner, (iii) issue to itself Series B Preferred Partnership Units, (iv) amend certain provisions relating to the powers of the General Partner, and (v) restate the Fourth Amended and Restated Agreement in its entirety. NOW, THEREFORE, in consideration of the foregoing, of mutual covenants between the parties hereto, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend the Fourth Amended and Restated Agreement to read in its entirety as follows: -1- 6 ARTICLE I DEFINED TERMS The following defined terms used in this Agreement shall have the meanings specified below: "ACT" means the Tennessee Revised Uniform Limited Partnership Act, as it may be amended from time to time. "ADMINISTRATIVE EXPENSES" means (i) all administrative and operating costs and expenses incurred by the Partnership, (ii) all administrative costs and expenses of the General Partner, including any salaries or other payments to directors, officers and/or employees of the General Partner, and any accounting and legal expenses of the General Partner, which expenses, the Partners have agreed, are expenses of the Partnership and not the General Partner, and (iii) to the extent not included in clause (ii) above, REIT Expenses; provided, however, that Administrative Expenses shall not include any administrative expenses incurred by the General Partner that are attributable to Properties owned by the General Partner directly, or to activities of the General Partner not related to the Partnership, the allocation of such administrative expenses between the Partnership and the General Partner shall be determined by the Partnership's independent accounting firm. "AFFILIATE" means, (i) any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (ii) any other Person that owns, beneficially, directly or indirectly, 5% or more of the outstanding capital stock, shares or equity interests of such Person, or (iii) any officer, director, employee, partner or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests. "AGREED VALUE" means the fair market value of a Partner's non-cash Capital Contribution as of the date of its contribution to the Partnership as agreed to by the contributing Partner and the General Partner. For purposes of this Agreement, unless the General Partner in its sole discretion determines otherwise, the Agreed Value of a Partner's non-cash Capital Contribution shall be equal to the number of Partnership Units received by such Partner in exchange for such contribution, multiplied by the "Market Price" on the date of contribution calculated in accordance with the definition of "Value." The names and addresses of the Partners, the number of Partnership Units issued to each Partner, and the Agreed Value of non-cash Capital Contributions is set forth on Exhibit A attached hereto ("Exhibit A"). -2- 7 "AGREEMENT" means this Fifth Amended and Restated Agreement of Limited Partnership of the Partnership. "ARTICLES OF AMENDMENT" means the Articles of Amendment, dated January 2, 2001, to the Charter that govern the Series B Preferred Shares. "CAPITAL ACCOUNT" has the meaning provided in Section 4.04 hereof. "CAPITAL CONTRIBUTION" means the total amount of capital initially contributed or agreed to be contributed, as the context requires, to the Partnership by each Partner pursuant to the terms of the Agreement. Any reference to the Capital Contribution of a Partner shall include the Capital Contribution made by a predecessor holder of the Partnership Interest of such Partner. The paid-in Capital Contribution shall mean the cash amount or the Agreed Value of other assets actually contributed by each Partner to the capital of the Partnership. "CASH AMOUNT" means an amount of cash per Partnership Unit equal to the Value of the REIT Shares Amount on the date of receipt by the General Partner of a Notice of Redemption. "CERTIFICATE" means any instrument or document that is required under the laws of the State of Tennessee, or any other jurisdiction in which the Partnership conducts business, to be signed and sworn to by the Partners of the Partnership (either by themselves or pursuant to the power-of-attorney granted to the General Partner in Section 8.02 hereof) and filed for recording in the appropriate public offices within the State of Tennessee or such other jurisdiction to perfect or maintain the Partnership as a limited partnership, to effect the admission, withdrawal, or substitution of any Partner of the Partnership, or to protect the limited liability of the Limited Partners as limited partners under the laws of the State of Tennessee or such other jurisdiction. "CHARTER" means the Amended and Restated Charter of the General Partner on file with the Secretary of State of the State of Tennessee as of the date hereof, as further amended or restated from time to time. "CLASS A LIMITED PARTNER" means any Person named as a Class A Limited Partner on Exhibit A, and any Person who becomes a Substitute or additional Class A Limited Partner, in such Person's capacity as a Class A Limited Partner in the Partnership. "CLASS B LIMITED PARTNER" means any Person named as a Class B Limited Partner on Exhibit A, and any Person who becomes a Substitute or additional Class B Limited Partner, in such Person's capacity as a Class B Limited Partner in the Partnership. "CODE" means the Internal Revenue Code of 1986, as amended, and as hereafter amended from time to time. Reference to any particular provision of the Code shall mean that provision in the Code as of the date hereof and any successor provision of the Code. "COMMISSION" means the United States Securities and Exchange Commission. "COMPANY" means RFS Hotel Investors, Inc., a Tennessee corporation. -3- 8 "CONVERSION FACTOR" means one (1), provided that in the event that the General Partner (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its outstanding REIT Shares into a smaller number of REIT Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time), and the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend distribution, subdivision or combination and, provided further, that in the event that an entity shall cease to be the General Partner (the "Predecessor Entity") and another entity shall become the General Partner (the "Successor Entity") (including, without limitation, pursuant to any merger, consolidation or combination of the Predecessor Entity with or into the Successor Entity), the Conversion Factor shall be adjusted by multiplying the Conversion Factor by the number (expressed in decimal form) of shares of the Successor Entity into which one REIT Share of the Predecessor Entity is converted pursuant to such merger, consolidation or combination, determined as of the date on which the Successor Entity becomes the General Partner. Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. "EVENT OF BANKRUPTCY" as to any Person means the filing of a petition for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978 or similar provision of law of any jurisdiction (except if such petition is contested by such Person and has been dismissed within 90 days); insolvency or bankruptcy of such Person as finally determined by a court proceeding; filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such Person or a substantial part of his assets; commencement of any proceedings relating to such Person as a debtor under any other reorganization, arrangement, insolvency, adjustment of debt or liquidation law of any jurisdiction, whether now in existence or hereinafter in effect, either by such Person or by another, provided that if such proceeding is commenced by another, such Person indicates his approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within 90 days. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GENERAL PARTNER" means RFS Hotel Investors, Inc. and any Person who becomes a substitute or additional General Partner as provided herein, and any of their successors as General Partner. "GENERAL PARTNERSHIP INTEREST" means a Partnership Interest held by a General Partner that is a general partnership interest. "HOTELS" means hotel properties owned by the Partnership from time to time. -4- 9 "INDEMNITEE" means (i) any Person made a party to a proceeding by reason of his status as the General Partner or a director or officer of the Partnership or the General Partner, and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time, in its sole and absolute discretion. "INDEPENDENT DIRECTOR" means a Director of the Company who is not an officer or employee of the Company or an Affiliate of (i) any advisor to the Company under an advisory agreement, (ii) any lessee of any Property, (iii) any subsidiary of the Company, or (iv) any partnership which is an Affiliate of the Company. "LIMITED PARTNER" means any Person named as a Class A Limited Partner or a Class B Limited Partner on Exhibit A, and any Person who becomes a Substitute or additional Class A Limited Partner or Class B Limited Partner, in such Person's capacity as a Class A Limited Partner or a Class B Limited Partner in the Partnership. "LIMITED PARTNER REDEMPTION RIGHT" has the meaning provided in Section 8.05(a) hereof. "LIMITED PARTNERSHIP INTEREST" means the ownership interest of a Limited Partner in the Partnership at any particular time, including the right of such Limited Partner to any and all benefits to which such Limited Partner may be entitled as provided in this Agreement and in the Act, together with the obligations of such Limited Partner to comply with all the provisions of this Agreement and of such Act. "LOSS" has the meaning provided in Section 5.01(h) hereof. "MINIMUM LIMITED PARTNERSHIP INTEREST" means the lesser of (i) 1% or (ii) if the total Capital Contributions to the Partnership exceed $50 million, 1% divided by the ratio of the total Capital Contributions to the Partnership to $50 million; provided, however, that the Minimum Limited Partnership Interest shall not be less than 0.2% at any time. "NOTICE OF REDEMPTION" means the Notice of Exercise of Redemption Right substantially in the form attached as Exhibit B hereto. "PARTNER" means any General Partner or Limited Partner. "PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5). "PARTNERSHIP INTEREST" means an ownership interest in the Partnership held by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. -5- 10 "PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of Partnership Minimum Gain is determined by first computing, for each Partnership nonrecourse liability, any gain the Partnership would realize if it disposed of the property subject to that liability for no consideration other than full satisfaction of the liability, and then aggregating the separately computed gains. A Partner's share of Partnership Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(g)(1). "PARTNERSHIP RECORD DATE" means the record date established by the General Partner for the distribution of cash pursuant to Section 5.02 hereof, which record date shall be the same as the record date established by the General Partner for a distribution to its shareholders of some or all of its portion of such distribution. "PARTNERSHIP UNIT" means a fractional, undivided share of the Partnership Interests of all Partners issued hereunder. The allocation of Partnership Units among the Partners shall be as set forth on Exhibit A, as may be amended from time to time. "PERCENTAGE INTEREST" means the percentage ownership interest in the Partnership of each Partner, as determined by dividing the Partnership Units owned by such Partner by the total number of Partnership Units then outstanding. The Percentage Interest of each Partner shall be as set forth on Exhibit A, as may be amended from time to time. "PERSON" means any individual, partnership, corporation, limited liability company, joint venture, trust or other entity. "PREDECESSOR ENTITY" has the meaning provided in the definition of "Conversion Factor" contained herein. "PREFERRED PARTNERSHIP INTEREST" means an ownership interest in the Partnership held by the General Partner and includes any and all benefits to which the holder of such a Preferred Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. "PREFERRED PARTNERSHIP UNIT" means a fractional, undivided share of the Preferred Partnership Interests issued hereunder. The allocation of Preferred Partnership Units among the Partners shall be as set forth on Exhibit A, as may be amended from time to time. "PREFERRED SHARE" means a share of preferred stock of the General Partner. "PROFIT" has the meaning provided in Section 5.01(h) hereof. "PROPERTY" means any hotel property or other investment in which the Partnership holds an ownership interest. "REDEEMING LIMITED PARTNER" has the meaning provided in Section 8.05(a) hereof. -6- 11 "REDEMPTION AMOUNT" means either the Cash Amount or the REIT Shares Amount, as selected by the General Partner in its sole discretion pursuant to Section 8.05(b) hereof. "REDEMPTION SHARES" means REIT Shares that may be issued in redemption of Partnership Units under Section 8.05. "REGULATIONS" means the Federal Income Tax Regulations issued under the Code, as amended and as hereafter amended from time to time. Reference to any particular provision of the Regulations shall mean that provision of the Regulations on the date hereof and any successor provision of the Regulations. "REIT" means a real estate investment trust under Sections 856 through 860 of the Code. "REIT EXPENSES" means (i) costs and expenses relating to the formation and continuity of existence of the General Partner and any Subsidiaries thereof (which Subsidiaries shall, for purposes of this definition, be included within the definition of General Partner), including taxes, fees and assessments associated therewith, any and all costs, expenses or fees payable to any director, officer, or employee of the General Partner, (ii) costs and expenses relating to the public offering and registration of securities by the General Partner and all statements, reports, fees and expenses incidental thereto, including underwriting discounts and selling commissions applicable to any such offering of securities, (iii) costs and expenses associated with the preparation and filing of any periodic reports by the General Partner under federal, state or local laws or regulations, including filings with the Commission, (iv) costs and expenses associated with compliance by the General Partner with laws, rules and regulations promulgated by any regulatory body, including the Commission, and (v) all other operating or administrative costs of the General Partner incurred in the ordinary course of its business on behalf of the Partnership. "REIT SHARE" means a share of the common stock of the General Partner (or Successor Entity, as the case may be), par value $.01 per share. "REIT SHARES AMOUNT" shall mean a number of REIT Shares equal to the product of the number of Partnership Units offered for redemption by a Redeeming Limited Partner, multiplied by the Conversion Factor; provided that in the event the General Partner issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the shareholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the "rights"), then the REIT Shares Amount shall also include such rights that a holder of that number of REIT Shares would be entitled to receive. "SERIES B PARTNERSHIP REDEMPTION RIGHT" has the meaning provided in Section 6.07(b) hereof. "SERIES B PREFERENCE VALUE PER UNIT" means, with respect to the Series B Preferred Partnership Units held by the General Partner, the liquidation preference value of $100 per Series B Preferred Partnership Unit. -7- 12 "SERIES B PREFERRED PARTNERSHIP UNIT" means a unit of general partnership interest, Series B, of the Partnership. "SERIES B PREFERRED RETURN" means (i) for the period prior to December 31, 2005, a fixed per annum rate per Series B Preferred Partnership Unit of 12.50% of the Series B Preference Value per Unit and (ii) for the period beginning on January 1, 2006, as follows for each Series B Preferred Partnership Unit: (A) a fixed quarterly rate of 3.625% of the Series B Preference Value per Unit for the quarter ending March 31, 2006, (B) a fixed quarterly rate of 4.125% of the Series B Preference Value per Unit for the quarter ending June 30, 2006, (C) a fixed quarterly rate of 4.625% of the Series B Preference Value per Unit for the quarter ending September 30, 2006, and (D) a fixed quarterly rate of 5.125% of the Series B Preference Value per Unit for the quarter ending December 31, 2006 and thereafter. The Series B Preferred Return will be increased by 0.625% per quarter of the Series B Preference Value per Unit per Series B Preferred Partnership Unit (or 2.50% per annum of the Series B Preference Value per Unit per Series B Preferred Partnership Unit) in the event that and for so long as the Company's Consolidated Total Indebtedness (as defined in the Articles of Amendment) exceed 60% of its Total Asset Value (as defined in the Articles of Amendment). The General Partner's Series B Preferred Return (i) shall be cumulative, (ii) if unpaid, shall accrue interest at an annual rate equal to the distribution rate referred to above in effect from time to time (annualized to the extent that such rate is stated as a quarterly rate), and (iii) shall be prorated for any partial calendar quarter. "SERIES B PREFERRED SHARE" means a share of cumulative preferred stock, Series B, of the General Partner. The Series B Preferred Shares are governed by the Articles of Amendment. "SERVICE" means the Internal Revenue Service. "SPECIFIED REDEMPTION DATE" means the first business day of the month that is at least 5 business days after the receipt by the General Partner of the Notice of Redemption (or any other date agreed to by the General Partner and the Redeeming Limited Partner). "SUBSIDIARY" means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person. "SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership as a Limited Partner pursuant to Section 9.03 hereof. "SUCCESSOR ENTITY" has the meaning provided in the definition of "Conversion Factor" contained herein. "TRANSACTION" has the meaning provided in Section 7.01. "TRANSFER" has the meaning provided in Section 9.02. -8- 13 "VALUE" means, with respect to any security, the average of the daily "Market Price" of such security for the ten (10) consecutive trading days immediately preceding the date of such valuation. The Market Price for each such trading day shall be: (i) if such security is listed or admitted to trading on any securities exchange or The Nasdaq National Market, the closing price, regular way, on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, (ii) if such security is not listed or admitted to trading on any securities exchange or The Nasdaq National Market, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a recognized quotation source designed by the Company, or (iii) if such security is not listed or admitted to trading on any securities exchange or The Nasdaq National Market and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a recognized quotation source designed by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten (10) days prior to the date in question) for which prices have been so reported; provided, that if there are no bid and asked prices reported during the ten (10) days prior to the date in question, the value of such security shall be determined by the Company acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event that any security includes any additional rights, then the Value of such rights shall be determined by the Company acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. ARTICLE II PARTNERSHIP CONTINUATION AND IDENTIFICATION 2.01.00 CONTINUATION. The Partners hereby agree to continue the Partnership pursuant to the Act and upon the terms and conditions set forth in this Agreement. 2.02.00 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership shall be RFS Partnership, L.P. The specified office and place of business of the Partnership shall be 850 Ridge Lake Blvd., Suite 220, Memphis, Shelby County, Tennessee 38120. The General Partner may at any time change the location of such office, provided the General Partner gives notice to the Partners of any such change. The name and address of the Partnership's registered agent is Robert M. Solmson, 850 Ridge Lake Blvd., Suite 220, Memphis, Shelby County, Tennessee 38120. The sole duty of the registered agent as such is to forward to the Partnership any notice that is served on him as registered agent. 2.03.00 PARTNERS. (a) The General Partner of the Partnership is RFS Hotel Investors, Inc. Its principal place of business shall be the same as that of the Partnership. (b) The Limited Partners shall be those Persons identified as Limited Partners on Exhibit A, as amended from time to time. -9- 14 2.04.00 TERM AND DISSOLUTION. (a) The term of the Partnership shall continue in full force and effect until December 31, 2050, except that the Partnership shall be dissolved upon the happening of any of the following events: (i) The occurrence of an Event of Bankruptcy as to a General Partner or the dissolution, death or withdrawal of a General Partner unless the business of the Partnership is continued pursuant to Section 7.03(b) hereof; provided that if a General Partner is on the date of such occurrence a partnership, the dissolution of such General Partner as a result of the dissolution, death, withdrawal, removal or Event of Bankruptcy of a partner in such partnership shall not be an event of dissolution of the Partnership if the business of such General Partner is continued by the remaining partner or partners, either alone or with additional partners, and such General Partner and such partners comply with any other applicable requirements of this Agreement; (ii) The passage of 90 days after the sale or other disposition of all or substantially all the assets of the Partnership (provided that if the Partnership receives an installment obligation as consideration for such sale or other disposition, the Partnership shall continue, unless sooner dissolved under the provisions of this Agreement, until such time as such note or notes are paid in full); (iii) The redemption of all Limited Partnership Interests (other than any of such interests held by the General Partner); or (iv) The election by the General Partner that the Partnership should be dissolved. (b) Upon dissolution of the Partnership (unless the business of the Partnership is continued pursuant to Section 7.03(b) hereof), the General Partner (or its trustee, receiver, successor or legal representative) shall amend or cancel the Certificate and liquidate the Partnership's assets and apply and distribute the proceeds thereof in accordance with Section 5.06 hereof. Notwithstanding the foregoing, the liquidating General Partner may either (i) defer liquidation of, or withhold from distribution for a reasonable time, any assets of the Partnership (including those necessary to satisfy the Partnership's debts and obligations), or (ii) distribute the assets to the Partners in kind according to the order of priority set forth in Section 5.06 hereof. 2.05.00 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The General Partner shall execute, acknowledge, record and file at the expense of the Partnership, the Certificate and any and all amendments thereto and all requisite fictitious name statements and notices in such places and jurisdictions as may be necessary to cause the Partnership to be treated as a limited partnership under, and otherwise to comply with, the laws of each state or other jurisdiction in which the Partnership conducts business. -10- 15 ARTICLE III BUSINESS OF THE PARTNERSHIP The purpose and nature of the business to be conducted by the Partnership is (i) to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act; provided, however, that such business shall be limited and conducted in such a manner as to permit the General Partner at all times to be classified as a REIT, unless the General Partner otherwise ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing and (iii) to do anything necessary or incidental to the foregoing. The Limited Partners acknowledge that the status of the Company as a REIT and the avoidance of federal income and excise taxes on the Company inures to the benefit of all the Partners and not solely the General Partner. Notwithstanding the foregoing, the General Partner shall also be empowered to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a "publicly traded partnership" for purposes of Section 7704 of the Code. ARTICLE IV CAPITAL CONTRIBUTIONS AND ACCOUNTS 4.01.00 CAPITAL CONTRIBUTIONS. The General Partner has contributed to the capital of the Partnership cash in the amounts set forth on Exhibit A. The Class A Limited Partners have contributed the Class A Limited Partners' proportionate ownership interests in certain Hotels to the capital of the Partnership. The Class B Limited Partners have contributed the Class B Limited Partners' proportionate ownership interests in certain Hotels to the capital of the Partnership. The Agreed Values of the Partners' Capital Contributions are as set forth opposite their names on Exhibit A. 4.02.00 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS. Except as provided in this Section 4.02 or in Section 4.03 hereof, the Partners shall have no right or obligation to make any additional Capital Contributions or loans to the Partnership. The General Partner may contribute additional capital to the Partnership, from time to time, and receive additional Partnership Interests in respect thereof, in the manner contemplated in this Section 4.02. (a) Issuances of Additional Partnership Interests. (i) General. The General Partner is hereby authorized to cause the Partnership to issue such additional Partnership Interests in the form of Partnership Units for any Partnership purpose at any time or from time to time, to the Partners (including the General Partner) or to other Persons for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute -11- 16 discretion, all without the approval of any Limited Partners. Any additional Partnership Interests issued thereby may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Limited Partnership Interests, all as shall be determined by the General Partner in its discretion based upon its good faith determination that the Partnership will receive adequate consideration therefor and without the approval of any Limited Partner, subject to Tennessee law, including, without limitation, (i) the allocation of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (ii) the right of each such class or series of Partnership Interests to share in Partnership distributions; and (iii) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; provided, however, that no additional Partnership Interests shall be issued to the General Partner unless either: (1) (A) the additional Partnership Interests are issued in connection with an issuance of shares of or other interests in the General Partner, which shares or interests have designations, preferences and other rights, all such that the economic interests are substantially similar to the designations, preferences and other rights of the additional Partnership Interests issued to the General Partner by the Partnership in accordance with this Section 4.02 and (B) except as provided in Section 4.02(a)(ii) hereof, the General Partner shall make a Capital Contribution to the Partnership in an amount equal to the proceeds raised in connection with the issuance of such shares of or other interests in the General Partner, or (2) the additional Partnership Interests are issued to all Partners in proportion to their respective Percentage Interests. Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interests of the General Partner and the Partnership. (ii) Upon Issuance of New Securities. The General Partner shall not issue any additional REIT Shares (other than REIT Shares issued in connection with a redemption pursuant to Section 8.05 hereof), Preferred Shares, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase REIT Shares (collectively, "New Securities") other than to all holders of REIT Shares or Preferred Shares, respectively, unless (A) the General Partner shall cause the Partnership to issue to the General Partner, Partnership Interests or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights, all such that the economic interests are substantially similar to those of the New Securities, and (B) the General Partner contributes the proceeds from -12- 17 the issuance of such New Securities and from the exercise of rights contained in such New Securities to the Partnership; provided, however, that the General Partner is allowed to issue New Securities in connection with an acquisition of a property to be held directly by the General Partner, but if and only if, such direct acquisition and issuance of New Securities have been approved and determined to be in the best interests of the General Partner and the Partnership by a majority of the Independent Directors. Without limiting the foregoing, the General Partner is expressly authorized to issue New Securities for less than fair market value, and to cause the Partnership to issue to the General Partner corresponding Partnership Interests, so long as (x) the General Partner concludes in good faith that such issuance is in the best interests of each of the General Partner and the Partnership (for example, and not by way of limitation, the issuance of REIT Shares and corresponding Partnership Units pursuant to an employee stock purchase plan providing for employee purchases of REIT Shares at a discount from fair market value or employee stock options that have an exercise price that is less than the fair market value of the REIT Shares, either at the time of issuance or at the time of exercise), and (y) the General Partner contributes all proceeds from such issuance to the Partnership. By way of example, in the event the General Partner issues REIT Shares for a cash purchase price and contributes all of the proceeds of such issuance to the Partnership as required hereunder, the General Partner shall be issued a number of additional Partnership Units equal to the product of (A) the number of such REIT Shares issued by the General Partner the proceeds of which were so contributed, multiplied by (B) a fraction, the numerator of which is one, and the denominator of which is the Conversion Factor in effect on the date of such contribution. (b) Certain Deemed Contributions of Proceeds of Issuance of Shares. In connection with any and all issuances of REIT Shares and Preferred Shares, the General Partner shall make a Capital Contribution to the Partnership of the proceeds raised in connection with such issuance as required above, provided that if the proceeds actually received by the General Partner are less than the gross proceeds of such issuance as a result of any underwriter's discount or other expenses paid or incurred in connection with such issuance, then the General Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount of the gross proceeds of such issuance and the Partnership shall be deemed simultaneously to have paid such underwriting discount and offering expenses in connection with the required issuance of additional Partnership Units to General Partner for such Capital Contribution pursuant to Section 4.02(a) hereof. (c) Reimbursement to General Partner upon Repurchase of REIT Shares. If the General Partner shall repurchase shares of any class of the General Partner's capital stock, the purchase price thereof and all costs incurred in connection with such repurchase shall be reimbursed to the General Partner by the Partnership pursuant to Section 6.05 hereof and the General Partner shall cause the Partnership to cancel a number of Partnership Units of the appropriate class held by the General Partner equal to the quotient of the number of such shares of the General Partner's capital stock divided by the Conversion Factor. -13- 18 (d) Minimum Limited Partnership Interest. In the event that either a redemption pursuant to Section 8.05 hereof or an additional Capital Contribution by the General Partner would result in the Limited Partners, in the aggregate, owning less than the Minimum Limited Partnership Interest, the General Partner and the Limited Partners shall form another partnership and contribute sufficient Limited Partnership Interests together with such other Limited Partners so that such partnership owns at least the Minimum Limited Partnership Interest. (e) 1993 Plan. The General Partner has established the Amended and Restated 1993 Restricted Stock and Stock Option Plan and may from time to time establish other compensation or other incentive plans to provide incentives to directors, executive officers and certain key employees of the General Partner or its subsidiaries. The following examples are illustrative of the operation of the provisions of Section 4.02(a)(ii) with respect to issuances of New Securities to such directors, officers and employees: (i) If the General Partner awards REIT Shares to any such director, officer or other employee (A) the General Partner shall, as soon as practicable, contribute to the Partnership (to be thereafter taken into account for the purposes of calculating any cash distributable to the Partners) an amount equal to the price, if any, paid to the General Partner by such party for such REIT Shares, and (B) the General Partner shall be issued by the Partnership a number of additional Partnership Units equal to the product of (1) the number of such REIT Shares issued by the General Partner, multiplied by (2) a fraction, the numerator of which is one hundred percent (100%), and the denominator of which is the Conversion Factor in effect on the date of such contribution. (ii) If the General Partner awards an option or warrant relating to REIT shares, whether or not qualifying as an incentive stock option under the Code, to any director, officer or other employee, then the Partnership shall grant to the General Partner a corresponding option or warrant to acquire Partnership Units. Upon the exercise of such option or warrant, (A) the General Partner shall, as soon as practicable after such exercise, contribute to the capital of the Partnership (to be thereafter taken into account for the purposes of calculating distributable cash) an amount equal to the exercise price, if any, paid to the General Partner by such exercising party in connection with the exercise of the option or warrant, and (B) the General Partner shall be issued by the Partnership a number of additional Partnership Units equal to the product of (1) the number of REIT Shares issued by the General Partner in satisfaction of such exercised option or warrant, multiplied by (2) a fraction, the numerator of which is one hundred percent (100%), and the denominator of which is the Conversion Factor in effect on the date of such contribution. (iii) If the General Partner grants any director, officer or employee share appreciation rights, performance share awards or other similar rights ("Incentive Rights"), then simultaneously, the Partnership shall grant to the General Partner corresponding and economically equivalent rights. Consequently, upon the cash payment by General Partner to its directors, officers or employees pursuant to such Incentive Rights, the Partnership shall make an equal cash payment to the General Partner. -14- 19 4.03.00 GENERAL PARTNER LOANS. The General Partner may from time to time advance funds to the Partnership for any proper Partnership purpose as a loan ("Funding Loan"), provided that any such funds must first be obtained by the General Partner from a third party lender, and then all of such funds must be loaned by the General Partner to the Partnership on the same terms and conditions, including principal amount, interest rate, repayment schedule and costs and expenses, as shall be applicable with respect to or incurred in connection with such loan from such third party lender. Except for Funding Loans, the General Partner shall not incur any indebtedness for borrowed funds; provided, however, that upon a majority vote of the Independent Directors, any loan proceeds received by the General Partner may be distributed to its shareholders or other equity holders if such loan and distribution have been determined by a majority of the Independent Directors to be necessary to enable the General Partner to maintain its status as a REIT under Sections 856 through 860 of the Code. 4.04.00 CAPITAL ACCOUNTS. A separate capital account (a "Capital Account") shall be established and maintained for each Partner in accordance with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires additional Partnership Units in exchange for more than a de minimis Capital Contribution, (ii) the Partnership distributes to a Partner more than a de minimis amount of Partnership property in redemption or liquidation of Partnership Units, or (iii) the Partnership is liquidated within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue the property of the Partnership to its fair market value (as determined by the General Partner in its sole discretion and taking into account Section 7701(g) of the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When the Partnership's property is revalued by the General Partner, the Capital Accounts of the Partners shall be adjusted in accordance with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property (that has not been reflected in the Capital Accounts previously) would be allocated among the Partners pursuant to Section 5.01 hereof if there were a taxable disposition of such property for its fair market value (as determined by the General Partner in its sole discretion and taking into account Section 7701(g) of the Code) on the date of the revaluation. 4.05.00 PERCENTAGE INTERESTS. If the number of outstanding Partnership Units increases or decreases during a taxable year, each Partner's Percentage Interest shall be adjusted to a percentage equal to the number of Partnership Units held by such Partner divided by the aggregate number of outstanding Partnership Units. If the Partners' Percentage Interests are adjusted pursuant to this Section 4.05, the Profits and Losses for the taxable year in which the adjustment occurs shall be allocated between the part of the year ending on the day when the Partnership's property is revalued by the General Partner and the part of the year beginning on the following day either (i) as if the taxable year had ended on the date of the adjustment or (ii) based on the number of days in each part. The General Partner, in its sole discretion, shall determine which method shall be used to allocate Profits and Losses for the taxable year in which the adjustment occurs. The allocation of Profits and Losses for the earlier part of the year shall be based on the Percentage Interests before adjustment, and the allocation of Profits and Losses for the later part shall be based on the adjusted Percentage Interests. -15- 20 4.06.00 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to interest on its Capital Contribution. 4.07.00 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Partnership, except as specifically provided in this Agreement. Except as otherwise provided herein, there shall be no obligation to return to any Partner or withdrawn Partner any part of such Partner's Capital Contribution for so long as the Partnership continues in existence. 4.08.00 NO THIRD PARTY BENEFICIARY. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. In addition, it is the intent of the parties hereto that no distribution to any Limited Partner shall be deemed a return of money or other property in violation of the Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to return such money or property, such obligation shall be the obligation of such Limited Partner and not of the General Partner. Without limiting the generality of the foregoing, a deficit Capital Account of a Partner shall not be deemed to be a liability of such Partner nor an asset or property of the Partnership. ARTICLE V PROFITS AND LOSSES; DISTRIBUTIONS 5.01.00 ALLOCATION OF PROFIT AND LOSS. (a) Profit. Profit of the Partnership for each fiscal year of the Partnership shall be allocated as follows: (i) First, if the Partners previously have been allocated Loss under Section 5.01(b)(v), to the Partners in accordance with their respective Percentage Interests until the aggregate amount of Profit allocated under this Section 5.01(a)(i) equals the aggregate amount of Loss allocated under Section 5.01(b)(v); (ii) Second, if the General Partner previously has been allocated Loss under Section 5.01(b)(iv), to the General Partner until the aggregate amount of Profit allocated under this Section 5.01(a)(ii) equals the aggregate amount of Loss allocated under Section 5.01(b)(iv); -16- 21 (iii) Third, if the General Partner and the Class B Limited Partners previously have been allocated Loss under Section 5.01(b)(iii), to the General Partner and the Class B Limited Partners in proportion to their Percentage Interests until the aggregate amount of Profit allocated under this Section 5.01(a)(iii) equals the aggregate amount of Loss allocated under Section 5.01(b)(iii); (iv) Fourth, if the Class A Limited Partners previously have been allocated Loss under Section 5.01(b)(ii), to the Class A Limited Partners in proportion to their Percentage Interests until the aggregate amount of Profit allocated under this Section 5.01(a)(iv) equals the aggregate amount of Loss allocated under Section 5.01(b)(ii); (v) Fifth, to the General Partner until the aggregate amount of Profit allocated to the General Partner under this Section 5.01(a)(v) for the current and all prior years equals the aggregate amount of cash distributed to the General Partner under Section 5.02(a)(i) for the current and all prior years; (vi) Sixth, to the General Partner and the Class B Limited Partners in proportion to their Percentage Interests until the aggregate amount of Profit allocated to the General Partner and the Class B Limited Partners under this Section 5.01(a)(vi) for the current and all prior years equals the aggregate amount of cash distributed to the General Partner and the Class B Limited Partners under Section 5.02(a)(ii) for the current and all prior years; (vii) Seventh, to the Class A Limited Partners in proportion to their Percentage Interests until the aggregate amount of Profit allocated to the Class A Limited Partners under this Section 5.01(a)(vii) for the current and all prior years equals the aggregate amount of cash distributed to the Class A Limited Partners under Section 5.02(a)(iii) for the current and all prior years; and (viii) Thereafter, any remaining Profit shall be allocated among the Partners in accordance with their respective Percentage Interests. (b) Loss. Loss of the Partnership for each fiscal year of the Partnership shall be allocated as follows: (i) First, if the Partners previously have been allocated Profit under Section 5.01(a)(viii), Loss shall be allocated among the Partners in accordance with their respective Percentage Interests until the aggregate amount of Loss allocated under this Section 5.01(b)(i) equals the aggregate amount of Profit allocated under Section 5.01(a)(viii); (ii) Second, if the Class A Limited Partners previously have been allocated Profit under Section 5.01(a)(vii), Loss shall be allocated to the Class A Limited Partners in proportion to their Percentage Interests until the aggregate amount of Loss allocated under this Section 5.01(b)(ii) equals the aggregate amount of Profit allocated under Section 5.01(a)(vii); -17- 22 (iii) Third, if the General Partner and the Class B Limited Partners previously have been allocated Profit under Section 5.01(a)(vi), Loss shall be allocated to the General Partner and the Class B Limited Partners in proportion to their Percentage Interests until the aggregate amount of Loss allocated under this Section 5.01(b)(iii) equals the aggregate amount of Profit allocated under Section 5.01(a)(vi); (iv) Fourth, if the General Partner previously has been allocated Profit under Section 5.01(a)(v), Loss shall be allocated to the General Partner until the aggregate amount of Loss allocated under this Section 5.01(b)(iv) equals the aggregate amount of Profit allocated under Section 5.01(a)(v); and (v) Thereafter, any remaining Loss shall be allocated among the Partners in accordance with their respective Percentage Interests. (c) Depreciation and Amortization Deductions. Depreciation and amortization deductions for each fiscal year of the Partnership shall be allocated among the Partners in accordance with their respective Percentage Interests. (d) Minimum Gain Chargeback. Notwithstanding any provision to the contrary, (i) any expense of the Partnership that is a "nonrecourse deduction" within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated among the Partners in accordance with their respective Percentage Interests, (ii) any expense of the Partnership that is a "partner nonrecourse deduction" within the meaning of Regulations Section 1.704-2(i)(2) shall be allocated in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1) for any Partnership taxable year, items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable year, items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j). A Partner's "interest in partnership profits" for purposes of determining its share of the nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be such Partner's Percentage Interest. (e) Qualified Income Offset. If a Limited Partner receives in any taxable year an adjustment, allocation, or distribution described in subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a negative balance in such Partner's Capital Account that exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially for such taxable year (and, if necessary, later taxable years) items of income and gain in an amount and manner sufficient to eliminate such negative Capital Account balance as quickly as possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a Limited Partner in accordance with this Section 5.01(e), to the extent permitted by -18- 23 Regulations Section 1.704-1(b) and Section 5.01(f), items of expense or loss shall be allocated to such Partner in an amount necessary to offset the income or gain previously allocated to such Partner under this Section 5.01(e). (f) Capital Account Deficits. Loss shall not be allocated to a Limited Partner to the extent that such allocation would cause a deficit in such Partner's Capital Account (after reduction to reflect the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated to the General Partner. After the occurrence of an allocation of Loss to the General Partner in accordance with this Section 5.01(f), to the extent permitted by Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an amount necessary to offset the Loss previously allocated to such Partner under this Section 5.01(f). (g) Allocations Between Transferor and Transferee. If a Partner transfers any part or all of its Partnership Interest, the distributive shares of the various items of Profit and Loss allocable among the Partners during such fiscal year of the Partnership shall be allocated between the transferor and the transferee either (i) as if the Partnership's fiscal year had ended on the date of the transfer, or (ii) based on the number of days of such fiscal year that each was a Partner without regard to the results of Partnership activities in the respective portions of such fiscal year in which the transferor and the transferee were Partners. The General Partner, in its sole discretion, shall determine which method shall be used to allocate the distributive shares of the various items of Profit and Loss between the transferor and the transferee. (h) Definition of Profit and Loss. "Profit" and "Loss" and any items of income, gain, expense, or loss referred to in this Agreement shall be determined in accordance with federal income tax accounting principles, as modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss shall not include items of income, gain and expense that are specially allocated pursuant to Section 5.01(c), 5.01(d), 5.01(e), 5.01(f), or 5.06(a)(ii). All allocations of income, Profit, gain, Loss, and expense (and all items contained therein) for federal income tax purposes shall be identical to all allocations of such items set forth in this Section 5.01, except as otherwise required by Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). The General Partner shall have the authority to elect the method to be used by the Partnership for allocating items of income, gain, and expense as required by Section 704(c) of the Code and such election shall be binding on all Partners. 5.02.00 DISTRIBUTION OF CASH. (a) The General Partner shall distribute cash on a quarterly (or, at the election of the General Partner, more frequent) basis, in an amount determined by the General Partner in its sole discretion, to the Partners who are Partners on the Partnership Record Date with respect to such quarter (or other distribution period), as follows: (i) First, to the General Partner until the General Partner has received an amount equal to the excess, if any, of (A) its cumulative Series B Preferred Return for the current -19- 24 and all prior years over (B) the sum of all prior distributions to the General Partner pursuant to this Section 5.02(a)(i); (ii) Second, to the General Partner and the Class B Limited Partners in proportion to their Percentage Interests until the General Partner has received, on a cumulative basis, an amount sufficient to provide the General Partner with Funds From Operations (net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures) each year equal to $1.00 per share of common stock of the General Partner, based on the weighted average number of such shares outstanding during such year; (iii) Third, to the Class A Limited Partners in proportion to their Percentage Interests until the Class A Limited Partners have received, on a cumulative basis, an amount per Partnership Unit equal to the amount per Partnership Unit received by the General Partner and Class B Limited Partners under Section 5.02(a)(ii) hereof; and (iv) Thereafter, to the Partners in accordance with their respective Percentage Interests. (b) In no event may a Partner receive a distribution of cash with respect to a Partnership Unit if such Partner is entitled to receive a dividend with respect to a REIT Share for which all or part of such Partnership Unit has been or will be exchanged. (c) Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines to be necessary or appropriate to cause the Partnership to comply with any withholding requirements established under the Code or any other federal, state or local law including, without limitation, pursuant to Sections 1441, 1442, 1445, and 1446 of the Code. If the Partnership is required to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income to a Partner or its assignee (including by reason of Section 1446 of the Code) and if the amount to be distributed to the Partner (the "Distributable Amount") equals or exceeds the amount required to be withheld by the Partnership (the "Withheld Amount"), the Withheld Amount shall be treated as a distribution of cash to such Partner. If, however, the Distributable Amount is less than the Withheld Amount, no amount shall be distributed to the Partner, the Distributable Amount shall be treated as a distribution of cash to such Partner, and the excess of the Withheld Amount over the Distributable Amount shall be treated as a loan (a "Partnership Loan") from the Partnership to the Partner on the day the Partnership pays over such excess to a taxing authority. A Partnership Loan may be repaid, at the election of the General Partner in its sole discretion, either (i) through withholding by the Partnership with respect to subsequent distributions to the applicable Partner or assignee, or (ii) at any time more than twelve (12) months after a Partnership Loan arises, by cancellation of Partnership Units with a value equal to the unpaid balance of the Partnership Loan (including accrued interest). Any amounts treated as a Partnership Loan pursuant to this Section 5.02(c) shall bear interest at the lesser of (i) the base -20- 25 rate on corporate loans at large United States money center commercial banks, as published from time to time in The Wall Street Journal (or an equivalent successor publication), or (ii) the maximum lawful rate of interest on such obligation, such interest to accrue from the date the Partnership is deemed to extend the loan until such loan is repaid in full. 5.03.00 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use its reasonable efforts to cause the Partnership to distribute amounts sufficient to enable the General Partner (i) to meet its distribution requirement for qualification as a REIT as set forth in Section 857(a)(1) of the Code and (ii) to avoid any federal income or excise tax liability imposed by the Code. 5.04.00 NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be entitled to demand property other than cash in connection with any distributions by the Partnership. 5.05.00 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding any of the provisions of this Article V, no Partner shall have the right to receive and the General Partner shall not have the right to make, a distribution which includes a return of all or part of a Partner's Capital Contributions, unless after giving effect to the return of a Capital Contribution, the sum of all Partnership liabilities, other than the liabilities to a Partner for the return of his Capital Contribution, does not exceed the fair market value of the Partnership's assets. 5.06.00 DISTRIBUTIONS UPON LIQUIDATION. (a) Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the Partnership, including any Partner loans, any remaining assets of the Partnership shall be distributed to all Partners with positive Capital Accounts in accordance with their respective positive Capital Account balances. For purposes of this Section 5.06(a), the Capital Account of each Partner shall be determined (i) after all adjustments made in accordance with Sections 5.01 and 5.02 hereof resulting from Partnership operations and from all sales and dispositions of all or any part of the Partnership's assets and (ii) if the General Partner's cumulative Series B Preferred Return for the current and all prior years exceeds the sum of all prior distributions to the General Partner pursuant to Section 5.02(a)(i) hereof, after the General Partner has been allocated income or gain equal to such excess. Any distributions pursuant to this Section 5.06 shall be made by the end of the Partnership's taxable year in which the liquidation occurs (or, if later, within 90 days after the date of the liquidation). To the extent deemed advisable by the General Partner, appropriate arrangements (including the use of a liquidating trust) may be made to assure that adequate funds are available to pay any contingent debts or obligations of the Partnership. (b) If the General Partner has a negative balance in its Capital Account following a liquidation of the Partnership, as determined after taking into account all Capital Account adjustments in accordance with Sections 5.01 and 5.02 hereof resulting from Partnership operations and from all sales and dispositions of all or any part of the Partnership's assets, the General Partner shall contribute to the Partnership an amount of cash equal to the negative balance in its Capital Account and such cash shall be paid or distributed by the Partnership to creditors, if any, and then to the Limited Partners in accordance with Section 5.06(a). Such -21- 26 contribution by the General Partner shall be made by the end of the Partnership's taxable year in which the liquidation occurs (or, if later, within 90 days after the date of the liquidation). 5.07.00 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners that the allocations of Profit and Loss under the Agreement have substantial economic effect (or be consistent with the Partners' interests in the Partnership in the case of the allocation of losses attributable to nonrecourse debt) within the meaning of Section 704(b) of the Code as interpreted by the Regulations promulgated pursuant thereto. Article V and other relevant provisions of this Agreement shall be interpreted in a manner consistent with such intent. ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER 6.01.00 MANAGEMENT OF THE PARTNERSHIP. (a) Except as otherwise expressly provided in this Agreement, the General Partner shall have full, complete and exclusive discretion to manage and control the business of the Partnership for the purposes herein stated, and shall make all decisions affecting the business and assets of the Partnership. Subject to the restrictions specifically contained in this Agreement, the powers of the General Partner shall include, without limitation, the authority to take the following actions on behalf of the Partnership: (i) to acquire, purchase, own, lease and dispose of any or all real property and any or all other property or assets that the General Partner determines are necessary or appropriate or in the best interests of the business of the Partnership; (ii) to construct buildings and make other improvements on the properties owned or leased by the Partnership; (iii) to authorize, issue, sell, redeem or otherwise purchase any Partnership Interests or any securities (including secured and unsecured debt obligations of the Partnership, debt obligations of the Partnership convertible into any class or series of Partnership Interests, or options, rights, warrants or appreciation rights relating to any Partnership Interests) of the Partnership; (iv) to borrow money for the Partnership, issue evidences of indebtedness in connection therewith, refinance, guarantee, increase the amount of, modify, amend or change the terms of, or extend the time for the payment of, any indebtedness or obligation to the Partnership, and secure such indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership's assets; (v) to pay, either directly or by reimbursement, for all operating costs and general administrative expenses of the General Partner or the Partnership, to third parties or to the General Partner as set forth in this Agreement; -22- 27 (vi) to lease all or any portion of any of the Partnership's assets, whether or not the terms of such leases extend beyond the termination date of the Partnership and whether or not any portion of the Partnership's assets so leased are to be occupied by the lessee, or, in turn, subleased in whole or in part to others, for such consideration and on such terms as the General Partner may determine; (vii) to prosecute, defend, arbitrate, or compromise any and all claims or liabilities in favor of or against the Partnership, on such terms and in such manner as the General Partner may reasonably determine, and similarly to prosecute, settle or defend litigation with respect to the Partners, the Partnership, or the Partnership's assets; provided, however, that the General Partner may not, without the consent of all of the Partners, confess a judgment against the Partnership; (viii) to file applications, communicate, and otherwise deal with any and all governmental agencies having jurisdiction over, or in any way affecting, the Partnership's assets or any other aspect of the Partnership business; (ix) to make or revoke any election permitted or required of the Partnership by any taxing authority; (x) to maintain such insurance coverage for public liability, fire and casualty, and any and all other insurance for the protection of the Partnership, for the conservation of Partnership assets, or for any other purpose convenient or beneficial to the Partnership, in such amounts and such types, as it shall determine from time to time; (xi) to determine whether or not to apply any insurance proceeds for any property to the restoration of such property or to distribute the same; (xii) to retain legal counsel, accountants, consultants, real estate brokers, and such other persons, as the General Partner may deem necessary or appropriate in connection with the Partnership business and to pay therefor such reasonable remuneration as the General Partner may deem reasonable and proper; (xiii) to retain other services of any kind or nature in connection with the Partnership business, and to pay therefor such remuneration as the General Partner may deem reasonable and proper; (xiv) to negotiate and conclude agreements on behalf of the Partnership with respect to any of the rights, powers and authority conferred upon the General Partner; (xv) to maintain accurate accounting records and to file promptly all federal, state and local income tax returns on behalf of the Partnership; (xvi) to distribute Partnership cash or other Partnership assets in accordance with this Agreement; -23- 28 (xvii) to form or acquire an interest in, and contribute property to, any further limited or general partnerships, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, its Subsidiaries and any other Person in which it has an equity interest from time to time); (xviii) to establish Partnership reserves for working capital, capital expenditures, contingent liabilities, or any other valid Partnership purpose; and (xix) to merge, consolidate or combine the Partnership with or into another Person (to the extent permitted by applicable law); (xx) to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a "publicly traded partnership" for purposes of Section 7704 of the Code; and (xxi) to take such other action, execute, acknowledge, swear to or deliver such other documents and instruments, and perform any and all other acts the General Partner deems necessary or appropriate for the formation, continuation and conduct of the business and affairs of the Partnership and to possess and enjoy all of the rights and powers of a general partner as provided by the Act. Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Partnership. (b) In no event shall the General Partner incur or allow to exist as of the end of any month Indebtedness (as defined below) in an amount in excess of thirty percent (30%) of the General Partner's investment in hotel properties, at cost, after giving effect to the General Partner's use of proceeds from any Indebtedness. For purposes of the foregoing restrictions, "Indebtedness" of the General Partner shall mean all obligations of the General Partner, the Partnership or any other subsidiaries or partnerships in which the General Partner serves as general partner, for borrowed money (including all notes payable and drafts accepted representing extensions of credit) and all obligations evidenced by bonds, debentures, notes or other similar instruments on which interest charges are customarily paid, including obligations under capital leases. 6.02.00 DELEGATION OF AUTHORITY. The General Partner may delegate any or all of its powers, rights and obligations hereunder, and may appoint, employ, contract or otherwise deal with any Person for the transaction of the business of the Partnership, which Person may, under supervision of the General Partner, perform any acts or services for the Partnership as the General Partner may approve. -24- 29 6.03.00 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES. (a) The Partnership shall indemnify an Indemnitee from and against any and all losses, claims, damages, liabilities (joint or several), expenses (including reasonable legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership as set forth in this Agreement in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 6.03(a). The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the Indemnitee acted in a manner contrary to that specified in this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be made only out of the assets of the Partnership. (b) The Partnership may reimburse an Indemnitee for reasonable expenses incurred by an Indemnitee who is a party to a proceeding in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 6.03 has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. (c) The indemnification provided by this Section 6.03 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity. (d) The Partnership may purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. (e) For purposes of this Section 6.03, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of this Section 6.03; and actions taken or omitted by the Indemnitee with respect to an -25- 30 employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Partnership. (f) In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement. (g) An Indemnitee shall not be denied indemnification in whole or in part under this Section 6.03 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. (h) The provisions of this Section 6.03 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. 6.04.00 LIABILITY OF THE GENERAL PARTNER. (a) Notwithstanding anything to the contrary set forth in this Agreement, the General Partner shall not be liable for monetary damages to the Partnership or any Partners for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted in good faith. (b) The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership and the General Partner's shareholders collectively, that the General Partner is under no obligation to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners) in deciding whether to cause the Partnership to take (or decline to take) any actions, and that the General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with such decisions, provided that the General Partner has acted in good faith. In any case in which the General Partner determines in good faith that the interests of the Limited Partners and the General Partner's shareholders may conflict, the Limited Partners further acknowledge and agree that the General Partner shall be deemed to have discharged its fiduciary duties to the Limited Partners by discharging such duties to the General Partner's shareholders. (c) Subject to its obligations and duties as General Partner set forth in Section 6.01 hereof, the General Partner may exercise any of the powers granted to it under this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith. (d) Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the General Partner to -26- 31 continue to qualify as a REIT or (ii) to prevent the General Partner from incurring any taxes under Section 857, Section 4981, or any other provision of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners. (e) Any amendment, modification or repeal of this Section 6.04 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner's liability to the Partnership and the Limited Partners under this Section 6.04 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted. 6.05.00 EXPENDITURES BY THE PARTNERSHIP. The General Partner is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Partnership. All of the aforesaid expenditures (including REIT Expenses and Administrative Expenses) shall be made on behalf of the Partnership, and the General Partner shall be entitled to reimbursement by the Partnership for any expenditure (including REIT Expenses and Administrative Expenses) incurred by it on behalf of the Partnership which shall be made other than out of the funds of the Partnership. The Partnership shall also assume, and pay when due, all Administrative Expenses. 6.06.00 OUTSIDE ACTIVITIES; REDEMPTION/TENDER OFFER OF REIT SHARES. (a) Subject to Section 6.11 hereof, the Charter and any agreements entered into by the General Partner or its Affiliates with the Partnership or a Subsidiary, any officer, director, employee, agent, trustee, Affiliate or shareholder of the General Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities substantially similar or identical to those of the Partnership. Neither the Partnership nor any of the Limited Partners shall have any rights by virtue of this Agreement in any such business ventures, interests or activities. None of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any such business ventures, interests or activities, and the General Partner shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures, interests and activities to the Partnership or any Limited Partner, even if such opportunity is of a character which, if presented to the Partnership or any Limited Partner, could be taken by such Person. (b) In the event the General Partner redeems any REIT Shares, then the General Partner shall cause the Partnership to purchase from it a number of Partnership Units as determined based on the application of the Conversion Factor on the same terms that the General Partner redeemed such REIT Shares. Moreover, if the General Partner makes a cash tender offer or other offer to acquire REIT Shares, then the General Partner shall cause the Partnership to make a corresponding offer to the General Partner to acquire an equal number of Partnership Units held by the General Partner. In the event any REIT Shares are redeemed by the General Partner pursuant to such offer, the Partnership shall redeem an equivalent number of the General -27- 32 Partner's Partnership Units for an equivalent purchase price based on the application of the Conversion Factor. 6.07.00 REDEMPTION RIGHT WITH RESPECT TO PREFERRED PARTNERSHIP UNITS. (a) Mandatory Redemption. In the event the General Partner redeems all of the Series B Preferred Shares as a result of the occurrence of a "Redemption Event" under the Articles of Amendment, or in the event the holders of the Series B Preferred Shares are entitled to have such shares repurchased pursuant to the terms of the Series B Cumulative Stock Purchase Agreement under which such shares were originally issued and sold by the General Partner, the Partnership shall redeem all of the Series B Preferred Partnership Units held by the General Partner at the applicable redemption price reflected below plus accrued and unpaid distributions, together with interest thereon (if any), to the date of redemption.
Redemption Price Per Series B Preferred Date of Redemption Partnership Unit ------------------ ---------------- Prior to December 31, 2001 $103.00 January 1, 2002 through December 31, 2002 $102.00 January 1, 2003 through December 31, 2003 $101.00 After January 1, 2004 $100.00
(b) Voluntary Redemption of Series B Preferred Partnership Units. On and after December 31, 2003, the Partnership may, at its option following notice as described below, redeem at any time all of the Series B Preferred Partnership Units held by the General Partner (the "Series B Partnership Redemption Right") at a redemption price per Series B Preferred Partnership Unit, payable in cash, equal to the sum of (i) the Series B Preference Value per Unit and (ii) the excess, if any, of (A) the General Partner's cumulative Series B Preferred Return for the current and all prior years (up to and including the date of redemption) with respect to the Series B Preferred Partnership Unit (including accrued and unpaid interest thereon up to and including the date of redemption) over (B) the sum of all prior distributions to the General Partner with respect to such Series B Preferred Partnership Unit pursuant to Section 5.02(a)(i) hereof. The Partnership shall exercise the Series B Partnership Redemption Right by notifying the General Partner of the redemption not less than 30 nor more than 60 days prior to the redemption date and by specifying in such notice the redemption date and the redemption price. If the General Partner exercises its voluntary redemption right with respect to the Series B Preferred Shares, then the exercise of the Series B Partnership Redemption Right will become mandatory. Similarly, if the Partnership exercises the Series B Partnership Redemption Right, the General Partner agrees to redeem a corresponding portion of the Series B Preferred Shares. (c) On and after the redemption date, the Series B Preferred Return will no longer accrue or accumulate with respect to the Series B Preferred Partnership Units redeemed by the Partnership. In addition, the General Partner shall have no right, with respect to the Series B Preferred Partnership Units so redeemed, to receive any distribution payable after the -28- 33 redemption date unless the General Partner was the holder of record of such Units on the record date of the distribution. 6.08.00 EMPLOYMENT OR RETENTION OF AFFILIATES. (a) Any Affiliate of the General Partner may be employed or retained by the Partnership and may otherwise deal with the Partnership (whether as a buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent, lender or otherwise) and may receive from the Partnership any compensation, price, or other payment therefor which the General Partner determines to be fair and reasonable. (b) The Partnership may lend or contribute to its Subsidiaries or other Persons in which it has an equity investment, and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person. (c) The Partnership may transfer assets to joint ventures, other partnerships, corporations or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions as the General Partner deems are consistent with this Agreement and applicable law. (d) Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, except pursuant to transactions that are on terms that are fair and reasonable to the Partnership. 6.09.00 LOANS TO THE PARTNERSHIP. If additional funds are required by the Partnership for any purpose relating to the business of the Partnership or for any of its obligations, expenses, costs, or expenditures, including operating deficits, the Partnership may borrow such funds as are needed from the General Partner or any Affiliate of the General Partner for such period of time and on such terms as the General Partner or its Affiliate may agree, provided that the terms shall be substantially equivalent to the terms that could be obtained from a third party on an arm's-length basis. 6.10.00 LOANS TO THE GENERAL PARTNER. If additional funds are required by the General Partner for any purpose relating to the business of the General Partner or for any of its obligations, expenses, costs, or expenditures, including operating deficits, the General Partner may borrow such funds as are needed from the Partnership or any Affiliate of the Partnership for such period of time and on such terms as the Partnership or its Affiliate may agree, provided that the terms shall be substantially equivalent to the terms that could be obtained from a third party on an arm's-length basis. 6.11.00 GENERAL PARTNER PARTICIPATION. The General Partner agrees that all business activities of the General Partner, including activities pertaining to the acquisition, development and/or ownership of hotels or other property, shall be conducted through the Partnership; -29- 34 provided, however, that the General Partner is allowed to make a direct acquisition, but if and only if, such acquisition is made in connection with the issuance of New Securities, which direct acquisition and issuance have been approved and determined to be in the best interests of the General Partner and the Partnership by a majority of the Independent Directors. The General Partner also agrees that all borrowings shall constitute Funding Loans, subject to the exception set forth in Section 4.03 hereof. 6.12.00 AUTHORITY ON BEHALF OF LIMITED PARTNERS. Subject to the terms of this Agreement, the General Partner shall have the right, power and authority to negotiate and conclude agreements with any Person (including, without limitation, an Affiliate of the General Partner) on behalf of the Limited Partners in any transaction involving the sale or exchange of all of the Partnership Interests and to sell to or exchange with any Person all of the Partnership Interests for such consideration and on such terms as the General Partner may determine. ARTICLE VII CHANGES IN GENERAL PARTNER 7.01.00 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST. (a) Other than to an Affiliate of the General Partner, the General Partner may not transfer any of its General Partnership Interest or Limited Partnership Interest or withdraw as General Partner except as provided in Section 7.01(c). (b) The General Partner agrees that it will at all times own at least a 10% Partnership Interest. (c) The General Partner shall not engage in any merger, consolidation or other combination with or into another Person or any sale of all or substantially all of its assets (other than in connection with a change in the General Partner's state of incorporation or organizational form) (a "Transaction"), unless one of the following conditions is met: (i) the consent of Limited Partners (other than the General Partner or any wholly-owned Subsidiary) holding more than 50% of the Percentage Interests of the Limited Partners (other than those held by the General Partner or any wholly-owned Subsidiary) is obtained; (ii) the Transaction also includes a merger of the Partnership or sale of substantially all of the assets of the Partnership or other transaction (including, without limitation, a sale or exchange of Partnership Interests pursuant to Section 6.12 hereof) as a result of which all Limited Partners, other than the General Partner or any wholly-owned Subsidiary, will receive for each Partnership Unit an amount of cash, securities, or other property (or a partnership interest or other security readily convertible into such cash, securities or other property) no less than the product of the Conversion Factor and the greatest amount of cash, securities or other property (expressed as an amount per REIT Share) paid in the Transaction in consideration for REIT Shares, provided, that if, in connection with the Transaction, a purchase, tender or exchange offer ("Offer") shall have been made to and accepted by the holders of more than 50 percent of the outstanding REIT Shares would have received had they (A) exercised their Redemption Right and received REIT shares and (B) sold, -30- 35 tendered or exchanged such REIT shares pursuant to the Offer the REIT Shares received upon exercise of the Limited Partner Redemption Right immediately prior to the expiration of the Offer; (iii) the General Partner is the surviving entity in the Transaction and either (A) the holders of REIT Shares do not receive cash, securities or other property in the Transaction or (B) all Limited Partners (other than the General Partner or any wholly-owned Subsidiary) receive an amount of cash, securities, or other property (expressed as an amount per Partnership Unit) that is no less than the product of the Conversion Factor and the greatest amount of cash, securities, or other property (expressed as an amount per REIT Share) received in the Transaction by any holder of REIT Shares; or (iv) the General Partner merges, consolidates or combines with or into another entity and, immediately after such merger or consolidation (A) substantially all of the assets of the successor or surviving entity (the "Surviving General Partner"), other than Partnership Units held by the General Partner and the ownership interests in any wholly-owned Subsidiaries held by the General Partner, are contributed to the Partnership as a Capital Contribution in exchange for Partnership Units with a fair market value equal to the value of the assets so contributed as determined pursuant to Section 7.04(c) of the Code (B) the Surviving General Partner expressly agrees to assume all obligations of the General Partner hereunder, and (C) the Conversion Factor is adjusted appropriately to reflect the ratio at which REIT Shares are converted into shares of the surviving entity. Upon such contribution and assumption, the Surviving General Partner shall have the right and duty to amend this Agreement as set forth in this Section 7.01(c). The Surviving General Partner shall in good faith arrive at a new method for the calculation of the Cash Amount and Conversion Factor for a Partnership Unit after any such merger or consolidation so as to approximate the existing method for such calculation as closely as reasonably possible. Such calculation shall take into account, among other things, the kind and amount of securities, cash and other property that was receivable upon such merger or consolidation by a holder of REIT Shares and/or options, warrants or other rights relating thereto, and to which a holder of Partnership Units could have acquired had such Partnership Units been redeemed immediately prior to such merger or consolidation. Such amendment to this Agreement shall provide for adjustment to such method of calculation which shall be as nearly equivalent as may be practicable to the adjustments provided for with respect to the Conversion Factor. The above provisions of this Section 7.01(c) shall similarly apply to successive mergers or consolidations permitted hereunder. 7.02.00 ADMISSION OF A SUBSTITUTE OR SUCCESSOR GENERAL PARTNER. A Person shall be admitted as a substitute or successor General Partner of the Partnership if the following exclusive terms and conditions are satisfied: (a) the Person to be admitted as a substitute or additional General Partner shall have accepted and agreed to be bound by all the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments as may be required or appropriate in order to effect the admission of such Person as a General Partner, and a certificate evidencing the admission of such Person as a General Partner shall have been filed for recordation and all other actions required by Section 2.05 hereof in connection with such admission shall have been performed; -31- 36 (b) if the Person to be admitted as a substitute or additional General Partner is a corporation or a partnership it shall have provided the Partnership with evidence satisfactory to counsel for the Partnership of such Person's authority to become a General Partner and to be bound by the terms and provisions of this Agreement; and (c) counsel for the Partnership shall have rendered an opinion (relying on such opinions from other counsel and the state or any other jurisdiction as may be necessary) that the admission of the person to be admitted as a substitute or additional General Partner is in conformity with the Act, that none of the actions taken in connection with the admission of such Person as a substitute or additional General Partner will cause (i) the Partnership to be classified other than as a partnership for federal income tax purposes or (ii) the loss of any Limited Partner's limited liability. 7.03.00 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL PARTNER. (a) Upon the occurrence of an Event of Bankruptcy as to a General Partner (and its removal pursuant to Section 7.04(a) hereof) or the withdrawal, removal or dissolution of a General Partner (except that, if a General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such partnership shall be deemed not to be a dissolution of such General Partner if the business of such General Partner is continued by the remaining partner or partners), the Partnership shall be dissolved and terminated unless the Partnership is continued pursuant to Section 7.03(b) hereof. The merger of the General Partner with or into any entity that is admitted as a substitute or successor General Partner pursuant to Section 7.02 hereof shall not be deemed to be the withdrawal, dissolution or removal of the General Partner. (b) Following the occurrence of an Event of Bankruptcy as to a General Partner (and its removal pursuant to Section 7.04(a) hereof) or the withdrawal, removal or dissolution of a General Partner (except that, if a General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such partnership shall be deemed not to be a dissolution of such General Partner if the business of such General Partner is continued by the remaining partner or partners), the Limited Partners, within 90 days after such occurrence, may elect to continue the business of the Partnership for the balance of the term specified in Section 2.04 hereof by selecting, subject to Section 7.02 hereof and any other provisions of this Agreement, a substitute General Partner by consent of the Limited Partners (other than the General Partner or any wholly-owned Subsidiary) holding more than 66 2/3% of the Percentage Interests of the Limited Partners (other than the General Partner or any wholly-owned Subsidiary). If the Limited Partners elect to continue the business of the Partnership and admit a substitute General Partner, the relationship with the Partners and of any Person who has acquired an interest of a Partner in the Partnership shall be governed by this Agreement. -32- 37 7.04.00 REMOVAL OF A GENERAL PARTNER. (a) Upon the occurrence of an Event of Bankruptcy as to, or the dissolution of, a General Partner, such General Partner shall be deemed to be removed automatically; provided, however, that if a General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such partnership shall be deemed not to be a dissolution of the General Partner if the business of such General Partner is continued by the remaining partner or partners. The Limited Partners may not remove the General Partner, with or without cause. (b) If a General Partner has been removed pursuant to this Section 7.04 and the Partnership is continued pursuant to Section 7.03 hereof, such General Partner shall promptly transfer and assign its General Partnership Interest in the Partnership (i) to the substitute General Partner approved by a majority-in-interest of the Limited Partners in accordance with Section 7.03(b) hereof and otherwise admitted to the Partnership in accordance with Section 7.02 hereof. At the time of assignment, the removed General Partner shall be entitled to receive from the substitute General Partner the fair market value of the General Partnership Interest of such removed General Partner as reduced by any damages caused to the Partnership by such General Partner. Such fair market value shall be determined by an appraiser mutually agreed upon by the General Partner and a majority-in-interest of the Limited Partners within 10 days following the removal of the General Partner. In the event that the parties are unable to agree upon an appraiser, the General Partner and a majority-in-interest of the Limited Partners each shall select an appraiser. Each such appraiser shall complete an appraisal of the fair market value of the General Partner's General Partnership Interest within 30 days of the General Partner's removal, and the fair market value of the General Partner's General Partnership Interest shall be the average of the two appraisals; provided, however, that if the higher appraisal exceeds the lower appraisal by more than 20% of the amount of the lower appraisal, the two appraisers, no later than 40 days after the removal of the General Partner, shall select a third appraiser who shall complete an appraisal of the fair market value of the General Partner's General Partnership Interest no later than 60 days after the removal of the General Partner. In such case, the fair market value of the General Partner's General Partnership Interest shall be the average of the two appraisals closest in value. (c) The General Partnership Interest of a removed General Partner, during the time after default until transfer under Section 7.04(b), shall be converted to that of a special Limited Partner; provided, however, such removed General Partner shall not have any rights to participate in the management and affairs of the Partnership, and shall not be entitled to any portion of the income, expense, profit, gain or loss allocations or cash distributions allocable or payable, as the case may be, to the Limited Partners. Instead, such removed General Partner shall receive and be entitled to retain only distributions or allocations of such items which it would have been entitled to receive in its capacity as General Partner, until the transfer is effective pursuant to Section 7.04(b) hereof. (d) All Partners shall have given and hereby do give such consents, shall take such actions and shall execute such documents as shall be legally necessary and sufficient to effect all the foregoing provisions of this Section 7.04. -33- 38 ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS 8.01.00 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not participate in the management or control of Partnership business nor shall they transact any business for the Partnership, nor shall they have the power to sign for or bind the Partnership, such powers being vested solely and exclusively in the General Partner. 8.02.00 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably appoints the General Partner his true and lawful attorney-in-fact, who may act for each Limited Partner and in his name, place and stead, and for his use and benefit, to sign, acknowledge, swear to, deliver, file or record, at the appropriate public offices, any and all documents, certificates, and instruments as may be deemed necessary or desirable by the General Partner to carry out fully the provisions of this Agreement (including specifically, but without limitation, the provisions of Article VI with respect to the making of any amendments hereto and the provisions of Section 6.12 hereof and any related sale or exchange of such Limited Partner's Partnership Interests) and the Act in accordance with their terms, which power of attorney is coupled with an interest and shall survive the death, dissolution or legal incapacity of the Limited Partner, or the transfer by the Limited Partner of any part or all of his Interest in the Partnership. 8.03.00 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of the Partnership. A Limited Partner shall be liable to the Partnership only to make payments of his Capital Contribution, if any, as and when due hereunder. After his Capital Contribution is fully paid, no Limited Partner shall, except as otherwise required by the Act, be required to make any further Capital Contributions or other payments or lend any funds to the Partnership. 8.04.00 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR AFFILIATE. No Limited Partner shall at any time, either directly or indirectly, own any stock or other interest in the General Partner or in any Affiliate thereof, if such ownership by itself or in conjunction with other stock or other interests owned by other Limited Partners would, in the opinion of counsel for the Partnership, jeopardize the classification of the Partnership as a partnership for federal income tax purposes. The General Partner shall be entitled to make such reasonable inquiry of the Limited Partners as is required to establish compliance by the Limited Partners with the provisions of this Section. 8.05.00 LIMITED PARTNER REDEMPTION RIGHT. (a) Subject to Section 8.05(c) and the provisions of any agreements between the Partnership and one or more Limited Partners, each Class A Limited Partner shall have the right to require the Partnership to redeem on a Specified Redemption Date all or a portion of the Partnership Units held by such Class A Limited Partner at a redemption price equal to and in the form of the Redemption Amount. Subject to Section 8.05(c), each Class B Limited Partner shall have the right to require the Partnership to redeem on a Specified Redemption Date all or a -34- 39 portion of such Class B Limited Partner's Partnership Units, at a redemption price equal to and in the form of the Redemption Amount subject to any restriction agreed to in writing between the Redeeming Limited Partner and the General Partner. The redemption right described in this Section 8.05 shall be referred to as the "Limited Partner Redemption Right." The Limited Partner Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the General Partner by the Limited Partner who is exercising the Limited Partner Redemption Right (the "Redeeming Limited Partner"). A Limited Partner may not exercise the Limited Partner Redemption Right for less than three hundred (300) Partnership Units or, if such Limited Partner holds less than three hundred (300) Partnership Units, all of the Partnership Units held by such Partner. The Redeeming Limited Partner shall have no right, with respect to any Partnership Units so redeemed, to receive any distribution paid with respect to Partnership Units if the record date for such distribution is on or after the Specified Redemption Date. (b) Notwithstanding the provisions of Section 8.05(a), the General Partner may, in its sole and absolute discretion, assume directly and satisfy a Limited Partner Redemption Right by paying to the Redeeming Limited Partner the Redemption Amount on the Specified Redemption Date, whereupon the General Partner shall acquire the Partnership Units offered for redemption by the Redeeming Limited Partner and shall be treated for all purposes of this Agreement as the owner of such Partnership Units. In the event the General Partner shall exercise its right to satisfy the Limited Partner Redemption Right in the manner described in the preceding sentence, the Partnership shall have no obligation to pay any amount to the Redeeming Limited Partner with respect to such Redeeming Limited Partner's exercise of the Limited Partner Redemption Right, and each of the Redeeming Limited Partner, the Partnership, and the General Partner shall treat the transaction between the General Partner and the Redeeming Limited Partner as a sale of the Redeeming Limited Partner's Partnership Units to the General Partner for federal income tax purposes. Each Redeeming Limited Partner agrees to execute such documents as the General Partner may reasonably require in connection with the issuance of REIT Shares upon exercise of the Limited Partner Redemption Right. (c) The Partnership or the General Partner, as the case may be, shall pay the Cash Amount to a Redeeming Limited Partner as the Redemption Amount for such Partner if (i) the acquisition of REIT Shares by such Partner on the Specified Redemption Date would (A) result in such Partner or any other person owning, directly or indirectly, REIT Shares in excess of the "Ownership Limit," as defined in the Charter and calculated in accordance therewith, except as provided in the Charter, (B) result in REIT Shares being owned by fewer than 100 persons (determined without reference to any rules of attribution), except as provided in the Charter, (C) result in the General Partner being "closely held" within the meaning of Section 856(h) of the Code, (D) cause the General Partner to own, directly or constructively, 10% or more of the ownership interests in a tenant of the General Partner's or the Partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code, or (E) cause the acquisition of REIT Shares by such Partner to be "integrated" with any other distribution of REIT Shares for purposes of complying with the registration provisions of the Securities Act of 1933, as amended, or (ii) the Partnership or the General Partner, as the case may be, so elects in its sole discretion. Any Cash Amount or REIT shares to be paid to a redeeming Limited Partner pursuant to this Section 8.05 shall be paid within five (5) business days after the initial date of receipt by the General Partner -35- 40 of the Notice of Redemption relating to the Partnership Units to be redeemed; provided, however, that such five (5) day period may be extended for up to an additional one hundred eighty (180) day period to the extent required for the General Partner to cause additional REIT Shares to be issued to provide financing to be used to make such payment of the Cash Amount and provided further, that the Partnership shall pay interest at the Prime Rate as published in The Wall Street Journal, Eastern Edition, from time to time on the Cash Amount from the expiration of the five day period to the date of payment. Notwithstanding the foregoing, the General Partner and the Partnership agree to use their best efforts to cause the closing of the acquisition of redeemed Partnership Units hereunder to occur as quickly as reasonably possible. If a Class B Limited Partner exercises its Limited Partner Redemption Right and the Partnership or the General Partner, as the case may be, elects to pay the REIT Shares Amount rather than the Cash Amount, the REIT Shares received by such Class B Limited Partner shall be properly registered under the Securities Act of 1933, as amended. (d) Each certificate, if any, evidencing REIT Shares that may be issued in redemption of Partnership Units under this Section 8.05 (the "Redemption Shares") shall bear a restrictive legend in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any state securities law. No transfer of the Shares represented by this certificate shall be valid or effective unless (A) such transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), or (B) the holder of the securities proposed to be transferred shall have delivered to the company either a no-action letter from the Securities and Exchange Commission or an opinion of counsel (who may be an employee of such holder) experienced in securities matters to the effect that such proposed transfer is exempt from the registration requirements of the act which opinion shall be reasonably satisfactory to the company." 8.06.00 REGISTRATION. (a) Shelf Registration. Subject to the provisions of agreements between the General Partner and the Limited Partners, at the request of a Class B Limited Partner, the General Partner agrees to file with the Commission a shelf registration statement under Rule 415 of the Securities Act, or any similar rule that may be adopted by the Commission (the "Shelf Registration"), with respect to all of the REIT Shares that may be issued in redemption of Partnership Units under Section 8.05 above (the "Redemption Shares"). The General Partner will use its best efforts to have the Shelf Registration declared effective under the Securities Act to permit the disposition of the Redemption Shares by the holders thereof in accordance with the method or methods of disposition specified by the holders, and to keep the Shelf Registration continuously effective until the earliest of (the "Shelf Registration Period") (i) two years after the effective date thereof, (ii) the date when all of the Redemption Shares are sold thereunder, or -36- 41 (iii) the date on which all of the holders of Redemption Shares, pursuant to Rule 144(k) under the Securities Act, may sell the Redemption Shares without registration under the Securities Act of 1933, as amended (the "Securities Act"). The General Partner further agrees to supplement or make amendments to the Shelf Registration, if required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or rules and regulations thereunder for the Shelf Registration. Notwithstanding the foregoing, if for any reason the effectiveness of the Shelf Registration is delayed or suspended or it ceases to be available for sales of Redemption Shares thereunder, the Shelf Registration Period shall be extended by the aggregate number of days of such delay, suspension or unavailability. (b) Registration and Qualification Procedures. The General Partner will: (i) prepare and file with the Commission a registration statement, including amendments thereof and supplements relating thereto, with respect to the Redemption Shares, in connection with which the General Partner will give each holder of Redemption Shares, their underwriters, if any, and their counsel and accountants a reasonable opportunity to participate in the preparation thereof and will give such persons reasonable access to its books, records, officers and independent public accountants; (ii) use its best efforts to cause the registration statement to be declared effective by the Commission; (iii) keep the registration statement effective and the related prospectus current throughout the Shelf Registration Period; provided, however, that the General Partner shall have no obligation to file any amendment or supplement at its own expense more than ninety (90) days after the effective date of the registration statement; (iv) furnish to each holder of Redemption Shares such numbers of copies of prospectuses, and supplements or amendments thereto, and such other documents as such holder reasonably requests; (v) register or qualify the securities covered by the registration statement under the securities or blue sky laws of such jurisdictions within the United States as any holder of Redemption Shares shall reasonably request, and do such other reasonable acts and things as may be required of it to enable such holders to consummate the sale or other disposition in such jurisdictions of the Redemption Shares; provided, however, that the General Partner shall not be required to (i) qualify as a foreign corporation or consent to a general and unlimited service or process in any jurisdictions in which it would not otherwise be required to be qualified or so consent or (ii) qualify as a dealer in securities; (vi) furnish, at the request of the holders of Redemption Shares, on the date Redemption Shares are delivered to the underwriters for sale pursuant to such registration, or, if such Shares are not being sold through underwriters, on the date the Shelf Registration with respect to such Redemption Shares becomes effective, (A) a securities opinion of counsel representing the General Partner for the purposes of such -37- 42 registration covering such legal matters as are customarily included in such opinions and (B) letters of the firm of independent public accountants that certified the financial statements included in the registration statement, addressed to the underwriters, covering substantially the same matters as are customarily covered in accountant's letters delivered to underwriters in underwritten public offerings of securities and such other financial matters as such holders (or the underwriters, if any) may reasonably request; (vii) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its shareholders as soon as reasonably practicable, but not later than sixteen (16) months after the effective date of the Shelf Registration, an earnings statement covering a period of at least twelve (12) months beginning after the effective date of the Shelf Registration, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; (viii) enter into and perform an underwriting agreement with the managing underwriter, if any, selected as provided herein, containing customary (A) terms of offer and sale of the securities, payment provisions, underwriting discounts and commissions and (B) representations, warranties, covenants, indemnities, terms and conditions; and (ix) keep the holders of Redemption Shares advised as to the initiation and progress of the registration. (c) Allocation of Expenses. The Partnership shall pay all expenses in connection with the Shelf Registration, including without limitation (i) all expenses incident to filing with the National Association of Securities Dealers, Inc., (ii) registration fees, (iii) printing expenses, (iv) accounting and legal fees and expenses, except to the extent holders of Redemption Shares elect to engage accountants or attorneys in addition to the accountants and attorneys engaged by the General Partner, (v) accounting expenses incident to or required by any such registration or qualification and (vi) expenses of complying with the securities or blue sky laws of any jurisdictions in connection with such registration or qualification; provided, however, the Partnership shall not be liable for (A) any discounts or commissions to any underwriter or broker attributable to the sale of Redemption Shares, or (B) any fees or expenses incurred by holders of Redemption Shares in connection with such registration which, according to the written instructions of any regulatory authority, the Partnership is not permitted to pay. (d) Indemnification. (i) In connection with the Shelf Registration, the General Partner and the Partnership agree to indemnify holders of Redemption Shares within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) caused by any untrue, or alleged untrue, statement of a material fact contained in the Shelf Registration, preliminary prospectus or prospectus (as amended or supplemented if the General Partner shall have furnished any amendments or supplements thereto) or caused by any omission, or alleged omission, to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, -38- 43 damages, liabilities or expenses are caused by any untrue statement, alleged untrue statement, omission, or alleged omission based upon information furnished to the General Partner expressly for use therein. The General Partner and each officer, director and controlling person of the General Partner shall be indemnified by each holder of Redemption Shares covered by the Shelf Registration for all such losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) caused by any such untrue, or alleged untrue, statement or any such omission, or alleged omission, based upon information furnished to the General Partner expressly for use therein in a writing signed by the holder. (ii) Promptly upon receipt by a party indemnified under this Section 8.06(d) of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this Section 8.06(d), such indemnified party shall notify the General Partner in writing of the commencement of such action, but the failure to so notify the General Partner shall not relieve it of any liability which it may have to any indemnified party otherwise than under this Section 8.06(d) unless such failure shall materially adversely affect the defense of such action. In case notice of commencement of any such action shall be given to the General Partner as above provided, the General Partner shall be entitled to participate in and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such indemnified party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the indemnified party unless (i) the General Partner or the Partnership agrees to pay the same, (ii) the General Partner fails to assume the defense of such action with counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) have been advised by such counsel that representation of such indemnified party and the General Partner by the same counsel would be inappropriate under applicable standards of professional conduct (in which case the General Partner shall not have the right to assume the defense of such action on behalf of such indemnified party). No indemnifying party shall be liable for any settlement entered into without its consent. (e) Contribution. (i) If for any reason the indemnification provisions contemplated by Section 8.06(d) are either unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities referred to therein, then the party that would otherwise be required to provide indemnification or the indemnifying party (in either case, for purposes of this Section 8.06(e), the "Indemnifying Party") in respect of such losses, claims, damages or liabilities, shall contribute to the amount paid or payable by the party that would otherwise be entitled to indemnification or the indemnified party (in either case, for purposes of this Section 8.06(e), the "Indemnified Party") as a result of such losses, claims, damages, liabilities or expense, in such proportion as is -39- 44 appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact related to information supplied by the Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party. In no event shall any holder of Redemption Shares covered by the Shelf Registration be required to contribute an amount greater than the dollar amount of the proceeds received by such holder from the sale of Redemption Shares pursuant to the registration giving rise to the liability. (ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8.06(e) were determined by pro rata allocation (even if the holders or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person or entity determined to have committed a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (iii) The contribution provided for in this Section 8.06(e) shall survive the termination of this Agreement and shall remain in full force and effect regardless of any investigation made by or on behalf of any Indemnified Party. (f) Listing on Securities Exchange. If the General Partner shall list or maintain the listing of any shares of Common Stock on any securities exchange or national market system, it will at its expense and as necessary to permit the registration and sale of the Redemption Shares hereunder, list thereon, maintain and, when necessary, increase such listing to include such Redemption Shares. 8.07.00 OTHER AGREEMENTS. The Partnership may enter into one or more agreements with its Limited Partners with respect to the matters described in Sections 8.05 and 8.06 hereof, including with respect to the redemption of Units, the registration of REIT Shares issued upon redemption of such Units and certain other matters specific to some but not all Partners. The existence and operation of such agreements shall not modify or terminate the rights, benefits or obligations of any Partner who is not a party to such agreements under this Agreement or applicable law. 8.08.00 OUTSIDE ACTIVITIES OF CLASS A LIMITED PARTNERS. (a) No Class A Limited Partner or director, shareholder or Affiliate of a Class A Limited Partner may (i) invest in any motel or hotel property or (ii) manage or agree to manage a motel -40- 45 or hotel property, except for a Property or any other hotel or motel property in which the General Partner or the Partnership has an ownership interest, that, at the time such management is undertaken or agreement to manage is entered into, is located within a 20-mile radius of a Property or any other motel or hotel property in which the General Partner has an ownership interest. (b) The General Partner, in its sole discretion, may waive the restrictions on Class A Limited Partners set forth in Section 8.08(a) above as to (i) any particular business venture in which a Limited Partner proposes to engage or (ii) any particular Class A Limited Partner. ARTICLE IX TRANSFERS OF LIMITED PARTNERSHIP INTERESTS 9.01.00 PURCHASE FOR INVESTMENT. (a) Each Limited Partner hereby represents and warrants to the General Partner and to the Partnership that the acquisition of his Partnership Interest is made as a principal for his account for investment purposes only and not with a view to the resale or distribution of such Partnership Interest. (b) Each Limited Partner agrees that he will not sell, assign or otherwise transfer his Partnership Interest or any fraction thereof, whether voluntarily or by operation of law or at judicial sale or otherwise, to any Person who does not make the representations and warranties to the General Partner set forth in Section 9.01(a) above and similarly agree not to sell, assign or transfer such Partnership Interest or fraction thereof to any Person who does not similarly represent, warrant and agree. 9.02.00 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS. (a) Except as otherwise provided in Section 9.02(d) hereof, no Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer his Limited Partnership Interest, in whole or in part, whether voluntarily or by operation of law or at judicial sale or otherwise (collectively, a "Transfer") without the written consent of the General Partner, which consent may be withheld in the sole discretion of the General Partner. The General Partner may require, as a condition of any Transfer, that the transferor assume all costs incurred by the Partnership in connection therewith. (b) No Limited Partner may effect a Transfer of his Limited Partnership Interest, in whole or in part, if, in the opinion of legal counsel for the Partnership, such proposed Transfer would require the registration of the Limited Partnership Interest under the Securities Act of 1933, as amended, or would otherwise violate any applicable federal or state securities or "Blue Sky" law (including investment suitability standards). -41- 46 (c) No transfer by a Limited Partner of his Partnership Units, in whole or in part, may be made to any Person if (i) in the opinion of legal counsel for the Partnership, the transfer would result in the Partnership's being treated as an association taxable as a corporation (other than a qualified REIT subsidiary within the meaning of Section 856(i) of the Code), or (ii) such transfer is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704 of the Code. (d) Section 9.02(a) shall not apply to the following transactions, except that the General Partner may require that the transferor assume all costs incurred by the Partnership in connection therewith: (i) any Transfer by a Limited Partner pursuant to the exercise of its Limited Partner Redemption Right under Section 8.05 hereof; (ii) any Transfer by a Limited Partner that is a corporation or other business entity to any of its Affiliates or subsidiaries or to any successor in interest of such Limited Partner; or (iii) any donative Transfer by an individual Limited Partner to his immediate family members or any trust in which the individual or his immediate family members own, collectively, 100% of the beneficial interests. For purposes of this Section 9.02(c)(iii), the term "immediate family member" shall be deemed to include only an individual Limited Partner's spouse, children (including step-children and adopted children) and grandchildren. (e) Any Transfer in contravention of any of the provisions of this Article IX shall be void and ineffectual and shall not be binding upon, or recognized by, the Partnership. 9.03.00 ADMISSION OF SUBSTITUTE LIMITED PARTNER. (a) Subject to the other provisions of this Article IX, an assignee of the Limited Partnership Interest of a Limited Partner (which shall be understood to include any purchaser, transferee, donee, or other recipient of any disposition of such Limited Partnership Interest) shall be deemed admitted as a Limited Partner of the Partnership only upon the satisfactory completion of the following: (i) The assignee shall have accepted and agreed to be bound by the terms and provisions of this Agreement by executing a counterpart or an amendment thereof, including a revised Exhibit A, and such other documents or instruments as the General Partner may require in order to effect the admission of such Person as a Limited Partner. (ii) To the extent required, an amended Certificate evidencing the admission of such Person as a Limited Partner shall have been signed, acknowledged and filed for record in accordance with the Act. -42- 47 (iii) The assignee shall have delivered a letter containing the representation set forth in Section 9.01(a) hereof and the agreement set forth in Section 9.01(b) hereof. (iv) If the assignee is a corporation, partnership or trust, the assignee shall have provided the General Partner with evidence satisfactory to counsel for the Partnership of the assignee's authority to become a Limited Partner under the terms and provisions of this Agreement. (v) The assignee shall have executed a power of attorney containing the terms and provisions set forth in Section 8.02 hereof. (vi) The assignee shall have paid all reasonable legal fees of the Partnership and the General Partner and filing and publication costs in connection with his substitution as a Limited Partner. (vii) The assignee has obtained the prior written consent of General Partner to its admission as a Substitute Limited Partner, which consent may be given or denied in the exercise of General Partner's sole and absolute discretion. (viii) The assignee shall surrender to the General Partner any certificate evidencing the Limited Partnership Interest properly endorsed for transfer. (b) For the purpose of allocating profits and losses and distributing cash received by the Partnership, a Substitute Limited Partner shall be treated as having become, and appearing in the records of the Partnership as, a Partner upon the filing of the Certificate described in Section 9.03(a)(ii) hereof or, if no such filing is required, the later of the date specified in the transfer documents, or the date on which the General Partner has received all necessary instruments of transfer and substitution. (c) The General Partner shall cooperate with the Person seeking to become a Substitute Limited Partner by preparing the documentation required by this Section and making all official filings and publications. The Partnership shall take all such action as promptly as practicable after the satisfaction of the conditions in this Article IX to the admission of such Person as a Limited Partner of the Partnership. 9.04.00 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS. (a) Subject to the provisions of Sections 9.01 and 9.02 hereof, except as required by operation of law, the Partnership shall not be obligated for any purposes whatsoever to recognize the assignment by any Limited Partner of his Partnership Interest until the Partnership has received notice thereof. (b) Any Person who is the assignee of all or any portion of a Limited Partner's Limited Partnership Interest, but does not become a Substitute Limited Partner and desires to make a further assignment of such Limited Partnership Interest, shall be subject to all the provisions of -43- 48 this Article IX to the same extent and in the same manner as any Limited Partner desiring to make an assignment of his Limited Partnership Interest. 9.05.00 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED PARTNER. The occurrence of an Event of Bankruptcy as to a Limited Partner, the death of a Limited Partner or a final adjudication that a Limited Partner is incompetent (which term shall include, but not be limited to, insanity) shall not cause the termination or dissolution of the Partnership, and the business of the Partnership shall continue if an order for relief in a bankruptcy proceeding is entered against a Limited Partner, the trustee or receiver of his estate or, if he dies, his executor, administrator or trustee, or, if he is finally adjudicated incompetent, his committee, guardian or conservator, shall have the rights of such Limited Partner for the purpose of settling or managing his estate property and such power as the bankrupt, deceased or incompetent Limited Partner possessed to assign all or any part of his Partnership Interest and to join with the assignee in satisfying conditions precedent to the admission of the assignee as a Substitute Limited Partner. 9.06.00 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be acquired by two individuals as joint tenants with right of survivorship, provided that such individuals either are married or are related and share the same home as tenants in common. The written consent or vote of both owners of any such jointly held Partnership Interest shall be required to constitute the action of the owners of such Partnership Interest; provided, however, that the written consent of only one joint owner will be required if the Partnership has been provided with evidence satisfactory to the counsel for the Partnership that the actions of a single joint owner can bind both owners under the applicable laws of the state of residence of such joint owners. Upon the death of one owner of a Partnership Interest held in a joint tenancy with a right of survivorship, the Partnership Interest shall become owned solely by the survivor as a Limited Partner and not as an assignee. The Partnership need not recognize the death of one of the owners of a jointly-held Partnership Interest until it shall have received notice of such death. Upon notice to the General Partner from either owner, the General Partner shall cause the Partnership Interest to be divided into two equal Partnership Interests, which shall thereafter be owned separately by each of the former owners. ARTICLE X BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS 10.01.00 BOOKS AND RECORDS. At all times during the continuance of the Partnership, the Partners shall keep or cause to be kept at the Partnership's specified office true and complete books of account in accordance with generally accepted accounting principles, including: (a) a current list of the full name and last known business address of each Partner, (b) a copy of the Certificate of Limited Partnership and all certificates of amendment thereto, (c) copies of the Partnership's federal, state and local income tax returns and reports, (d) copies of the Agreement and any financial statements of the Partnership for the three most recent years and (e) all documents and information required under the Act. Any Partner or his duly authorized -44- 49 representative, upon paying the costs of collection, duplication and mailing, shall be entitled to inspect or copy such records during ordinary business hours. The corporate Secretary of the General Partner shall serve as the transfer agent for the certificates representing the Partnership Units. 10.02.00 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS. (a) All funds of the Partnership not otherwise invested shall be deposited in one or more accounts maintained in such banking or brokerage institutions as the General Partner shall determine, and withdrawals shall be made only on such signature or signatures as the General Partner may, from time to time, determine. (b) All deposits and other funds not needed in the operation of the business of the Partnership may be invested by the General Partner in investment grade instruments (or investment companies whose portfolio consists primarily thereof), government obligations, certificates of deposit, bankers' acceptances and municipal notes and bonds. The funds of the Partnership shall not be commingled with the funds of any other Person except for such commingling as may necessarily result from an investment in those investment companies permitted by this Section 10.02(b). 10.03.00 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the Partnership shall be the calendar year. 10.04.00 ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the end of each fiscal year of the Partnership, the General Partner shall furnish to each person who was a Limited Partner at any time during such year the tax information necessary to file such Limited Partner's individual tax returns as shall be reasonably required by law. 10.05.00 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS. (a) The General Partner shall be the Tax Matters Partner of the Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters Partner, the General Partner shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the Tax Matters Partner. The General Partner shall have the right to retain professional assistance in respect of any audit of the Partnership by the Service and all out-of-pocket expenses and fees incurred by the General Partner on behalf of the Partnership as Tax Matters Partner shall constitute Partnership expenses. In the event the General Partner receives notice of a final Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner shall either (i) file a court petition for judicial review of such final adjustment within the period provided under Section 6226(a) of the Code, a copy of which petition shall be mailed to all Limited Partners on the date such petition is filed, or (ii) mail a written notice to all Limited Partners, within such period, that describes the General Partner's reasons for determining not to file such a petition. (b) All elections required or permitted to be made by the Partnership under the Code shall be made by the General Partner in its sole discretion. -45- 50 (c) In the event of a transfer of all or any part of the Partnership Interest of any Partner, the Partnership, at the option of the General Partner, may elect pursuant to Section 754 of the Code to adjust the basis of the Properties. Notwithstanding anything contained in Article V of this Agreement, any adjustments made pursuant to Section 754 shall affect only the successor in interest to the transferring Partner and in no event shall be taken into account in establishing, maintaining or computing Capital Accounts for the other Partners for any purpose under this Agreement. Each Partner will furnish the Partnership with all information necessary to give effect to such election. 10.06.00 REPORTS TO LIMITED PARTNERS. (a) The books of the Partnership shall be audited annually as of the end of each fiscal year of the Partnership by accountants selected by the General Partner, who shall be the same accountants responsible for the examination of the General Partner's books. The General Partner shall determine and prepare an annual balance sheet, a statement of partners' capital as of the end of such year, as well as statements of cash flow and income, all in accordance with generally accepted accounting principles and accompanied by an independent auditor's report (collectively, the "Financial Statements"), together with all supplementary schedules and information prepared by the accountants related thereto. As a note to such Financial Statements, the General Partner shall prepare a schedule of all loans to the Partnership. Such schedule shall demonstrate that loans have been made, used, carried on the books of the Partnership (and repaid, if applicable) in accordance with the provisions of this Agreement. Within 90 days after the end of each fiscal year, the General Partner shall transmit the Financial Statements to the Limited Partners. The General Partner also shall prepare quarterly unreviewed Financial Statements and shall transmit such statements to the Limited Partners within 45 days of the end of each fiscal quarter of the Partnership. (b) Any Partner shall further have the right to a private audit of the books and records of the Partnership, provided such audit is made for Partnership purposes, at the expense of the Partner desiring it and is made during normal business hours. ARTICLE XI AMENDMENT OF AGREEMENT The General Partner, without the consent of the Limited Partners, may amend this Agreement in any respect; provided, however, that the following amendments shall require the consent of Limited Partners (other than the General Partner or any wholly-owned Subsidiary) holding more than 66 2/3% of the Percentage Interests of the Limited Partners (other than the General Partner or any wholly-owned Subsidiary): (a) any amendment adversely affecting the operation of the Conversion Factor or the Limited Partner Redemption Right; -46- 51 (b) any amendment that would adversely affect the rights of the Limited Partners to receive the distributions payable to them hereunder; (c) any amendment that would materially affect the rights of the Limited Partners to receive allocations of Profit and Loss; or (d) any amendment that would impose on the Limited Partners any obligation to make additional Capital Contributions to the Partnership. The foregoing shall not limit the Partnership's or the General Partner's rights to issue Additional Partnership Interests and New Securities pursuant to Section 4.02. Notwithstanding the foregoing, the General Partner, without the consent of the Limited Partners, may amend this agreement in any respect in connection with a Transaction complying with the provisions of Section 7.01(c) hereof. ARTICLE XII GENERAL PROVISIONS 12.01.00 NOTICES. All communications required or permitted under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or upon deposit in the United States mail, registered, postage prepaid return receipt requested, to the Partners at the addresses set forth in Exhibit A; provided, however, that any Partner may specify a different address by notifying the General Partner in writing of such different address. Notices to the Partnership shall be delivered at or mailed to its specified office. 12.02.00 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting transfers, this Agreement shall be binding upon and inure to the benefit of the Partners and the Partnership and their respective legal representatives, successors, transferees and assigns. 12.03.00 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further acts and execute, swear to, acknowledge and deliver all further documents which may be reasonable, necessary, appropriate or desirable to carry out the provisions of this Agreement or the Act. 12.04.00 SEVERABILITY. If any provision of this Agreement shall be declared illegal, invalid, or unenforceable in any jurisdiction, then such provision shall be deemed to be severable from this Agreement (to the extent permitted by law) and in any event such illegality, invalidity or unenforceability shall not affect the remainder hereof. 12.05.00 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto constitute the entire Agreement of the Partners and supersede all prior written agreements and prior and contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. -47- 52 12.06.00 PRONOUNS AND PLURALS. When the context in which words are used in the Agreement indicates that such is the intent, words in the singular number shall include the plural and the masculine gender shall include the neuter or female gender as the context may require. 12.07.00 HEADINGS. The Article headings or sections in this Agreement are for convenience only and shall not be used in construing the scope of this Agreement or any particular Article. 12.08.00 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding that all parties shall not have signed the same counterpart. 12.09.00 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee. -48- 53 IN WITNESS WHEREOF, the parties hereto have hereunder affixed their signatures to this Fifth Amended and Restated Agreement of Limited Partnership, all as of the 2nd day of January, 2001. GENERAL PARTNER: RFS HOTEL INVESTORS, INC., a Tennessee corporation By: --------------------------------------- Name: -------------------------------------- Title: ------------------------------------- CLASS A LIMITED PARTNERS: * -------------------------------------------- ROBERT M. SOLMSON * -------------------------------------------- H. LANCE FORSDICK * -------------------------------------------- RFS, INC., a Tennessee corporation THE ROBERT M. SOLMSON TRUST By: * --------------------------------------- -49- 54 CLASS B LIMITED PARTNERS: * -------------------------------------------- Michael H. Dubroff * -------------------------------------------- Charles Dubroff Michel Family Partnership By: * --------------------------------------- DubFam, Inc. By: * --------------------------------------- Dubroff Family Partnership By: * --------------------------------------- * -------------------------------------------- Grant Gund * -------------------------------------------- G. Zachary Gund -50- 55 GORDON GUND-GRANT GUND TRUST: By: * --------------------------------------- Gordon Gund, Trustee GORDON GUND-G. ZACHARY GUND TRUST: By: * --------------------------------------- Gordon Gund, Trustee DIONIS TRUST: By: * --------------------------------------- Gordon Gund, Trustee 1988 SCOTT FAMILY TRUST By: * --------------------------------------- Hugh Scott, Trustee * -------------------------------------------- Robert Hecker By: RFS Hotel Investors, Inc., an attorney- in-fact for the named Parties By: --------------------------------------- Name: -------------------------------------- Title: ------------------------------------- -51- 56 EXHIBIT A, dated as of November 30, 2000
============================================================================================ Amount or Agreed Value of Preferred Partner Capital Partnership Partnership Percentage and Address Contributions Units Units Interest - -------------------------------------------------------------------------------------------- General Partner: - -------------------------------------------------------------------------------------------- RFS Hotel Investors, Inc. c/o 889 Ridge Lake Blvd Suite 100 Memphis, TN 38120 $414,528,000 250,000 25,184,479 90.76768% - -------------------------------------------------------------------------------------------- Class A Limited Partners: - -------------------------------------------------------------------------------------------- H. Lance Forsdick, Sr c/o 889 Ridge Lake Blvd Suite 100 Memphis, TN 38120 $ 349,741 -- 20,573 .07415% - -------------------------------------------------------------------------------------------- Robert M. Solmson c/o 889 Ridge Lake Blvd Suite 100 Memphis, TN 38120 $ 95,353 -- 5,609 .02022% - -------------------------------------------------------------------------------------------- The Robert M. Solmson Trust c/o 889 Ridge Lake Blvd Suite 100 Memphis, TN 38120 $ 120,462 -- 7,086 .02554% - -------------------------------------------------------------------------------------------- RFS, Inc. c/o 889 Ridge Lake Blvd Suite 100 Memphis, TN 38120 $ 1,324,351 -- 77,903 .28077% - --------------------------------------------------------------------------------------------
A-1 57 - -------------------------------------------------------------------------------------------- Class B Limited Partners: - -------------------------------------------------------------------------------------------- Dubfam Inc. c/o Residence Inn Route 9, Interstate 84 Fishkill, NY 12524 $ 24,429 -- 1,437 .00518% - -------------------------------------------------------------------------------------------- Michael H. Dubroff c/o Residence Inn Route 9, Interstate 84 Fishkill, NY 12524 $ 637,551 -- 29,503 .10633% - -------------------------------------------------------------------------------------------- The Dubroff Family Partnership c/o Residence Inn Route 9, Interstate 84 Fishkill, NY 12524 $ 806,089 -- 47,417 .17090% - -------------------------------------------------------------------------------------------- The Michel Family Partnership c/o Residence Inn Route 9, Interstate 84 Fishkill, NY 12524 $ 1,534,998 -- 90,294 .32543% - -------------------------------------------------------------------------------------------- Charles M. Dubroff c/o Residence Inn Route 9, Interstate 84 Fishkill, NY 12524 $ 626,501 -- 36,853 .13282% - -------------------------------------------------------------------------------------------- Dionis Trust c/o Gordon Gund, Trustee 14 Nassau Street Princeton, NJ 08542 $ 18,099,203 -- 1,064,659 3.83715% - -------------------------------------------------------------------------------------------- Grant Gund 14 Nassau Street Princeton, NJ 08542 $ 5,114,960 -- 300,880 1.08440% - -------------------------------------------------------------------------------------------- G. Zachary Gund 14 Nassau Street Princeton, NJ 08542 $ 5,114,960 -- 300,880 1.08440% - -------------------------------------------------------------------------------------------- Gordon Gund-Grant Gund Trust c/o Llura Gund, Trustee 14 Nassau Street Princeton, NJ 08542 $ 2,548,980 -- 149,940 .54040% - --------------------------------------------------------------------------------------------
A-2 58 - -------------------------------------------------------------------------------------------- Gordon Gund-G. Zachary Gund Trust c/o Llura Gund, Trustee 14 Nassau Street Princeton, NJ 08542 $ 2,548,980 -- 149,940 .54040% - -------------------------------------------------------------------------------------------- 1988 Scott Family Trust, c/o Hugh C. Scott, Trustee #5 West Shore Road Belvedere, CA 94920 $ 3,422,032 -- 201,296 .72549% - -------------------------------------------------------------------------------------------- Robert M. Hecker 611 Washington Street Suite 2302 San Francisco, CA 94111 $ 1,314,763 -- 77,339 .27874% - -------------------------------------------------------------------------------------------- Total $458,211,353 250,000 27,746,088 100% ============================================================================================
A-3 59 EXHIBIT B NOTICE OF EXERCISE OF REDEMPTION RIGHT The undersigned hereby irrevocably (i) presents for redemption ______ units of limited partnership interest ("Units") in RFS Partnership, L.P. (the "Partnership") in accordance with the terms of the Agreement of Limited Partnership ("Agreement") of the Partnership and the "Limited Partner Redemption Right" defined therein, (ii) surrenders such Units and all right, title and interest therein, (iii) surrenders herewith any certificate or other writing evidencing the Units (and requests that any Units so evidenced that are not redeemed be evidenced by the issuance of a new certificate or writing) and (iv) directs that the "Cash Amount" or "REIT Shares Amount" (as determined by the General Partner), as defined in the Agreement, deliverable upon exercise of the Limited Partner Redemption Rights be delivered to the address specified below, and if REIT Shares are to be delivered, such REIT Shares be registered or placed in the name(s) and at the address(es) specified below. Dated:________________ Name of Limited Partner: ------------------------------ (Signature of Limited Partner) ------------------------------ (Street Address) ------------------------------ (City) (State) (Zip Code) Signature Guaranteed by: ------------------------------ If REIT Shares are to be issued, issue to: - ---------------------------- - ---------------------------- - ---------------------------- Please provide social security or identifying number: - --------------- B-1 60 ACCEPTANCE OF GENERAL PARTNER: RFS Hotel Investors, Inc., as General Partner of the Partnership, hereby accepts the Units described above for redemption in accordance with the Agreement, and by its execution hereof evidences conclusively that the Limited Partner has satisfied all of the requirements under the Agreement for exercise of the Limited Partner Redemption Right, or that some or all of such requirements have been waived, such waiver being in the sole discretion of the General Partner. RFS Hotel Investors, Inc. By: ------------------------------ Name: Its: Dated: ---------------------------- EX-10.4.A 3 g67578ex10-4_a.txt EMPLOYMENT AGREEMENT- RANDALL CHURCHEY 1 EXHIBIT 10.4(a) EMPLOYMENT AGREEMENT AGREEMENT effective September 27, 1999, by and between RFS Managers, Inc., a Tennessee corporation (the "Company"), and Randall L. Churchey (the "Executive"). W I T N E S S E T H: WHEREAS, the Company provides management services to RFS Hotel Investors, Inc. (the "Parent") pursuant to a Management Services Agreement dated December 30, 1994 (the "Management Agreement"); and WHEREAS, the Company desires to employ the Executive to serve as the President and Chief Operating Officer of the Company; and WHEREAS, the parties desire to enter into this Employment Agreement effective as of November 1, 1999 as set forth herein. NOW, THEREFORE, in consideration of the premises and mutual obligations hereinafter set forth the parties agree as follows: 1. EMPLOYMENT. The Company shall employ the Executive, and the Executive agrees to be so employed, in the capacity of President of the Company to serve for the Term hereof, subject to earlier termination as hereinafter provided. 2. TERM. The term of the Executive's employment hereunder shall commence on November 1, 1999 and shall continue until December 31, 2002 and shall be extended automatically, for so long as the Executive remains employed by the Company hereunder, each January 1 beginning January 1, 2001 for an additional twelve-month period (such period, as it may be extended from time to time, being herein referred to as the "Term"), unless terminated earlier in accordance with the terms of this Agreement, to the effect that on each January 1, the remaining term of this Agreement and the Executive's employment hereunder shall be three years. 3. SERVICES. The Executive shall devote such amount of his time and attention to the Company's affairs as are necessary to perform his duties to the Company and to allow the Company to perform its duties specified in the Management Agreement. Pursuant to the Management Agreement, the Executive shall have authority and responsibility with respect to the day to day operations and management of the Parent and RFS Partnership, L.P. (the "Partnership"), for which the Parent currently serves as sole general partner, as well as implementation of the long range growth strategy of the Parent and the Partnership, consistent with direction from the Parent's Board of Directors (the "Board"). 4. COMPENSATION. (a) During the Term, the Company shall pay the Executive for his 1 2 services an annual base salary of $225,000 (the "Base Salary"), to be paid in semi-monthly payments of $9,375, such Base Salary being subject to any increases approved by the Compensation Committee of the Board (the "Compensation Committee"). (b) In addition to the Base Salary described in Section 4(a) above, the Executive shall be entitled to a cash bonus ("Base Salary Bonus") for 1999 payable on or before February 15, 2000 in the amount of $80,000. (c) Effective November 1, 1999, the Executive shall be granted an aggregate of 25,000 shares of common stock of the Parent pursuant to a Restricted Stock Agreement in the form of Exhibit A hereto and shall be granted options to purchase an aggregate of 100,000 shares of common stock of the Company at a price equal to the fair market value of the common stock on November 1, 1999 pursuant to a Stock Option Agreement in the form of Exhibit B hereto. (d) In addition to the Base Salary Bonus, the Executive may be entitled to receive other incentive compensation, including but not limited to, additional grants of stock options or shares of stock of the Parent, which awards shall be made (if at all) in consideration of and as an incentive for services performed solely for the Company, in accordance with rules and criteria established by the Compensation Committee. Such criteria may include, but not be limited to, the growth in the Parent's net income per share, funds from operations per share or other performance goals. 5. BENEFITS. The Company agrees to provide the Executive with the following benefits: (a) Vacation. The Executive shall be entitled each calendar year to a vacation, during which time his compensation shall be paid in full. The time allotted for such vacation shall be three (3) weeks. (b) Employee Benefits. This Agreement shall not be in lieu of any rights, benefits and privileges to which the Executive may be entitled as a management level employee of the Company, including but not limited to any retirement, pension, profit-sharing, insurance, hospital or other plans which may now be in effect or which may hereafter be adopted. The Executive shall have the same rights and privileges to participate in such plans and benefits as any other management level employee during the Term. 6. EXPENSES. The Company recognizes that the Executive will have to incur certain out-of-pocket expenses, including but not limited to travel expenses, related to his services and the Company's and the Parent's business and the Company agrees to reimburse the Executive for all reasonable expenses necessarily incurred by him in the performance of his duties upon presentation of a voucher or documentation indicating the amount and business purposes of any such expenses. 2 3 7. TERMINATION IN CASE OF DEATH OR DISABILITY. In the event of the Executive's death or a complete physical or mental inability, confirmed by a licensed physician, to perform the services described in Section 3 above that continues for a period of one hundred twenty (120) consecutive days) ("Permanent Disability"), the Company may elect to terminate this Agreement, subject to continuation of the payments described in Section 10. 8. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following definitions: (a) "Voluntary Termination" means, subject to the provisions of Section 11 hereof, the Executive's voluntary termination of his employment hereunder, which may be effected by the Executive giving the Board not less than 90 days' prior written notice of the Executive's desire to terminate his employment or the Executive's failure to provide substantially all the services described in Section 3 hereof for a period greater than four consecutive weeks by reason of the Executive's voluntary refusal to perform such services. Notwithstanding the foregoing, if the Executive gives notice of Voluntary Termination and, prior to the expiration of the 90-day notice period, the Executive voluntarily refuses or fails to provide substantially all the services described in Section 3 hereof for a period greater than two consecutive weeks, the Voluntary Termination shall be deemed to be effective as of the date on which the Executive so ceases to carry out his duties. For purposes of this Section 8, voluntary refusal to perform services shall not include taking vacation otherwise permitted in accordance with Section 5(a) hereof, the Executive's failure to perform services on account of his illness or the illness of a member of his immediate family, provided such illness is adequately substantiated at the reasonable request of the Company, or any other absence from service with the written consent of the Board. (b) "Termination Without Cause" means the termination of the Executive's employment by the Company for any reason other than Voluntary Termination or Termination With Cause. (c) "Termination With Cause" means the termination of the Executive's employment by act of the Board for any of the following reasons: (i) the Executive's conviction for a felony; (ii) the Executive's theft, embezzlement, misappropriation of or intentional and malicious infliction of damage to the Company's or the Parent's property or business opportunity; (iii) the Executive's intentional and material breach of the noncompetition covenant in Section 11 hereof; (iv) the Executive's continuous neglect of his duties hereunder or his 3 4 continuous failure or refusal to follow any reasonable, unambiguous duly adopted written direction of the Board or any duly constituted committee thereof that is not inconsistent with the description of the Executive's duties set forth in Section 3 above; and (v) the Executive's abuse of alcohol, drugs or other substances, or his engaging in other deviant personal activities in a manner that, in the reasonable judgment of the Board, adversely affects the reputation, goodwill or business position of the Company. (d) "Involuntary Termination" means conduct on the part of the Company that constitutes continuous and material interference by the Company with the Executive's performance of his duties as set forth in Section 3 hereof or the intentional or material breach by the Company of this Agreement. 9. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. If (i) the Executive shall cease being an employee of the Company on account of a Voluntary Termination or (ii) there shall be a Termination With Cause, the Executive shall not be entitled to any compensation after the effective date of such Voluntary Termination or Termination With Cause (except Base Salary and vacation accrued but unpaid on the effective date of such event). In the event of a Voluntary Termination or Termination With Cause, the Executive shall continue to be subject to the noncompetition covenant contained in Section 11 hereof for the remainder of the Term. 10. DEATH OR DISABILITY; TERMINATION WITHOUT CAUSE; OR INVOLUNTARY TERMINATION. Following (i) the death of the Executive, (ii) Permanent Disability of the Executive, (iii) an Involuntary Termination, or (iv) a Termination Without Cause, the Company shall continue to pay the Executive or his heirs, devisees, executors, legatees or personal representatives, as appropriate, the semi-monthly payments of the Base Salary then in effect for three years from the date of the termination of the Executive's employment. 11. CHANGE OF CONTROL COMPENSATION. (a) Compensation. In the event of the termination of the Executive's employment or the Executive's resignation for Good Reason (as defined below) on or after a Change of Control (as defined below), the Company shall, on the date of such termination or resignation, pay the Executive, in addition to any Base Salary earned but not paid through the date of termination or resignation, a cash amount (the "Termination Payment") equal to three (3) times average annual base salary and cash bonus paid to or earned by the Executive, under this Agreement or otherwise, for the fiscal year in which the Change of Control occurs and the two preceding fiscal years or, if the Executive has been employed by the Company for less than this period of time, then the Termination Payment shall be based on the average annual base salary and cash bonus paid or earned during the term of the Executive's employment (including the fiscal year in which the Change of Control occurs). For purposes of calculating sums hereunder: (i) if the 4 5 salary and cash bonus are paid or earned for any period of employment of less than twelve months (including the fiscal year in which the Change of Control occurs) such sums shall be annualized and in the case of a cash bonus, it shall be assumed that the bonus shall be the same as the preceding year, and (ii) no fiscal year for which no base salary or cash bonus is earned or paid shall be considered. Notwithstanding the first sentence of this Section 11(a), the Termination Payment shall be calculated and paid immediately prior to the closing of the transactions constituting a Change of Control if (i) the Executive receives notice prior to the Change of Control that his employment will be terminated on or after the Change of Control, or (ii) regardless of whether the Executive is terminated or receives notice that his employment will be terminated on or after the Change of Control, the Parent or any of its affiliates enter into an agreement to effect a transaction substantially similar to that described in Section 11(b)(v) below. In addition, the Company or the Parent shall cause the Executive's insurance benefits, as in effect immediately prior to the Change of Control, to remain in effect for at least one year following the date of termination of Executive's employment by the Company or the Executive's resignation for Good Reason. (b) A "Change of Control", for purposes of this Agreement, shall be deemed to have occurred if, at any time during the Term, any of the following events occurs: (i) any "person", as that term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes, is discovered to be, or files a report on Schedule 13D or 14D-1 (or any successor schedule, form or report) disclosing that such person is, a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of the Parent representing 50% or more of the combined voting power of the Parent's then outstanding securities entitled to vote generally in the election of directors; (ii) individuals who, as of the Effective Date, constitute the Board of Directors of the Parent cease for any reason to constitute at least a majority of the Board of Directors of the Parent, unless any such change is approved by the vote of at least 80% of the members of the Board of Directors of the Parent in office immediately prior to such cessation; (iii) the Parent is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of the Parent are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such transaction; (iv) the Parent in any transaction or series of related transactions, sells all 5 6 or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or sales are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such sale; (v) the Parent and its affiliates shall sell or transfer of (in a single transaction or series of related transactions) to a non-affiliate business operations or assets that generated at least two-thirds of the consolidated revenues (determined on the basis of the Parent's four most recently completed fiscal quarters for which reports have been filed under the Exchange Act) of the Parent and its subsidiaries immediately prior thereto; (vi) the Parent files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K (or any successor, form or report or item therein) that a change in control of the Parent has occurred; or (vii) any other transaction or series of related transactions occur that have substantially the effect of the transactions specified in any of the preceding clauses in this sentence. (c) Certain Transactions. Notwithstanding the provisions of Section 11(b)(i) or 11(b)(vi) hereof, unless otherwise determined in a specific case by majority vote of the Board of Directors of the Parent, a Change in Control shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Parent, (ii) an entity in which the Parent directly or indirectly beneficially owns 50% or more of the voting securities or (iii) any Parent-sponsored employee stock ownership plan, or any other employee benefit plan of the Parent, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item thereon) under the Exchange Act, disclosing beneficial ownership by it of shares of stock of the Parent, or because the Parent reports that a Change in Control of the Parent has or any have occurred or will or may occur in the future by reason of such beneficial ownership. (d) Good Reason. "Good Reason," for purposes of this Agreement, shall be deemed to mean any of the following: (i) a change in the Executive's status, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from the Executive's status, position or responsibilities as in effect immediately prior to a Change in Control; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with such status, position or 6 7 responsibilities; or any removal of the Executive from or failure to reappoint or reelect the Executive to any of such positions, except in connection with a Termination with Cause as defined in Section 8(c), as a result of the Executive's death or Permanent Disability, or by Voluntary Termination; (ii) a reduction in the Executive's Base Salary and Base Salary Bonus as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation of the Company's or the Parent's principal executive offices to a location outside a thirty-mile radius of Memphis, Tennessee or the Company's or the Parent's requiring the Executive to be based at any place other than a location within a thirty-mile radius of Memphis, Tennessee, except for reasonably required travel on the Company's or the Parent's business which is not materially greater than such travel requirements prior to the Change in Control; (iv) the failure by the Company or the Parent to continue to provide the Executive with compensation and benefits provided for under this agreement or benefits substantially similar to those provided to the Executive under any of the employee benefit plans in which the Executive is or becomes a participant, or the taking of any action by the Company or the Parent which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control; (v) any material breach by the Company of any provision of this Agreement; and (vi) the failure of the Company to obtain a satisfactory agreement from any successor or assign of the Company to assume and agree to perform this Agreement. (e) Tax Matters. If the excise tax on "excess parachute payments," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), will be imposed on the Executive under Code section 4999 as a result of the Executive's receipt of the Termination Payment or any other payment, benefit or compensation (without regard to the "Additional Amount" described below) which the Executive receives or has the right to receive from the Company or the Parent or any of their affiliates (the "Change of Control Benefits"), the Company shall indemnify the Executive and hold him harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company shall pay to the Executive the "Additional Amount" described in this Section 11(e). The Additional Amount shall be the amount that is sufficient to indemnify and hold the Executive harmless from the application or Code sections 280G and 4999, including the amount of (i) the excise tax that will be imposed on the Executive under section 4999 of the Code with respect to the Change of Control Benefits; (ii) the additional (A) excise tax under section 4999 of the Code, (B) hospital insurance tax under 7 8 section 3111(b) of the Code and (C) federal, state and local income taxes for which the Executive is or will be liable on account of the payment of the amount described in item (i); and (iii) the further excise, hospital insurance and income taxes for which the Executive is or will be liable on account of the payment of the amount described in item (ii) and this item (iii) and any other indemnification payment under this Section 11(e). The Additional Amount shall be calculated and paid to the Executive at the time that the Termination Payment is paid to the Executive. In calculating the Additional Amount, the highest marginal rates of federal and applicable state and local income taxes applicable to individuals and in effect for the year in which the Change of Control occurs shall be used. Nothing in this paragraph shall give the Executive the right to receive indemnification from the Company or the Parent for federal, state or local income taxes or hospital insurance taxes payable solely as a result of the Executive's receipt of (a) the Termination Payment, or (b) any additional payment, benefit or compensation other than additional compensation in the form of the excise tax payment specified in item (i), above. As specified in items (ii) and (iii), above, all income, hospital insurance and additional excise taxes resulting from additional compensation in the form of the excise tax payment specified in item (i), above, shall be paid to the Executive. The provisions of this Section 11(e) are illustrated by the following example: Assume that the Termination Payment and all other Change of Control Benefits result in a total federal, state and local income tax and hospital insurance tax liability of $180,000; and an excise tax liability under Code section 4999 of $70,000. Under such circumstances, the Executive is solely responsible for the $180,000 income and hospital insurance tax liability; and the Company or the Parent must pay to the Executive $70,000, plus an amount necessary to indemnify the Executive for all federal, state and local income taxes, hospital insurance taxes, and excise taxes that will result from the $70,000 payment to the Executive and from all further indemnification to the Executive of taxes attributable to the initial $70,000 payment. 12. NONCOMPETITION. During the Term and for a period of two (2) years thereafter, the Executive shall not, other than through the Parent or affiliates of the Parent, own more than a 10% interest in any hotel property (other than hotels owned by the Parent and the Partnership), as partner, shareholder or otherwise, or directly or indirectly, for his own account or for the account of others, either as an officer, director, shareholder, owner, partner, promoter, employee, consultant, advisor, agent, manager, or in any other capacity engage in the acquisition, development, operation or management of any hotel property located within 20 miles of any hotel property owned by the Parent or the Partnership at the time of termination of employment. The foregoing sentence shall not restrict the Executive from owning up to 10% of the outstanding securities of any entity, including any entity whose securities are traded in public securities markets. The Executive agrees that damages at law for violation of the restrictive covenant contained herein would not be an adequate or proper remedy to the Company, and that should the Executive violate or threaten to violate any of the provisions of such covenant, the Company, its successors or assigns, shall be entitled to obtain a temporary or permanent injunction against the Executive in any 8 9 court having jurisdiction over the person and the subject matter, prohibiting any further violation of any such covenants. The injunctive relief provided herein shall be in addition to any award of damages, compensatory, exemplary or otherwise, payable by reason of such violation. Furthermore, the Executive acknowledges that this Agreement has been negotiated at arms' length by the parties, neither being under any compulsion to enter into this Agreement, and that the foregoing restrictive covenant does not in any respect inhibit his ability to earn a livelihood in his chosen profession without violating the restrictive covenant contained herein. The Company by these presents has attempted to limit the Executive's right to compete only to the extent necessary to protect the Company from unfair competition. The Company recognizes, however, that reasonable people may differ in making such a determination. Consequently, the Company agrees that if the scope or enforceability of the restricted covenant contained herein is in any way disputed at any time, a court or other trier of fact may modify and enforce the covenant to the extent that it believes to be reasonable under the circumstances existing at the time. 13. RELOCATION EXPENSES. The Company shall pay, or shall reimburse the Executive for, the Executive's direct costs of relocating from Dallas, Texas to Memphis, Tennessee, including moving expenses and reimbursement for the real estate commission on the Executive's current home in Dallas, Texas. 14. NOTICES. All notices or deliveries authorized or required pursuant to this Agreement shall be deemed to have been given when in writing and personally delivered or when deposited in the U.S. mail, certified, return receipt requested, postage prepaid, addressed to the parties at the following addresses or to such other addresses as either may designate in writing to the other party: To the Company: RFS Managers, Inc. 850 Ridge Lake Boulevard Suite 220 Memphis, TN 38120 To the Executive: Randall L. Churchey 850 Ridge Lake Boulevard Suite 220 Memphis, TN 38120 15. ENTIRE AGREEMENT. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and shall not be modified in any manner except by instrument in writing signed, by or on behalf of, the parties hereto; provided, however, that any amendment or termination of the covenant of noncompetition in Section 12 must be approved by a majority of the Directors of the Parent other than the Executive, if the Executive is then a director of the Parent. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto. 9 10 16. ARBITRATION. Any claim or controversy arising out of, or relating to, this Agreement or its breach, shall be settled by arbitration in accordance with the governing rules of the American Arbitration Association. Judgment upon the award rendered may be entered in any court of competent jurisdiction. 17. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. 18. ASSIGNMENT. The Executive acknowledges that his services are unique and personal. Accordingly, the Executive may not assign his rights or delegate his duties or obligations under this Agreement, except with respect to certain rights to receive payments as described in Section 10. The Company's rights and obligations under this Agreement shall inure to the benefit of and shall be binding upon the Company's successors and assigns. 19. HEADINGS. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 20. AMENDED AGREEMENT. This Agreement amends and restates the Amended Agreement in its entirety as of the effective date of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. RFS MANAGERS, INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- EXECUTIVE: ----------------------------------- Randall L. Churchey 10 EX-10.4.B 4 g67578ex10-4_b.txt EMPLOYMENT AGREEMENT- KEVIN LUEBBERS 1 EXHIBIT 10.4(b) EMPLOYMENT AGREEMENT AGREEMENT effective July 1, 2000, by and between RFS Managers, Inc., a Tennessee corporation (the "Company"), and Kevin M. Luebbers (the "Executive"). W I T N E S S E T H: WHEREAS, the Company provides management services to RFS Hotel Investors, Inc. (the "Parent") pursuant to a Management Services Agreement dated December 30, 1994 (the "Management Agreement"); and WHEREAS, the Company desires to employ the Executive to serve as the Executive Vice President, Chief Financial Officer, Secretary and Treasurer of the Company; and WHEREAS, the parties desire to enter into this Employment Agreement effective as of July 1, 2000 as set forth herein. NOW, THEREFORE, in consideration of the premises and mutual obligations hereinafter set forth the parties agree as follows: 1. EMPLOYMENT. The Company shall employ the Executive, and the Executive agrees to be so employed, in the capacity of Executive Vice President, Chief Financial Officer, Secretary and Treasurer of the Company to serve for the Term hereof, subject to earlier termination as hereinafter provided. 2. TERM. The term of the Executive's employment hereunder shall commence on July 1, 2000 and shall continue until December 31, 2002 and shall be extended automatically, for so long as the Executive remains employed by the Company hereunder, each January 1 beginning January 1, 2001 for an additional twelve-month period (such period, as it may be extended from time to time, being herein referred to as the "Term"), unless terminated earlier in accordance with the terms of this Agreement, to the effect that on each January 1, the remaining term of this Agreement and the Executive's employment hereunder shall be three years. 3. SERVICES. The Executive shall devote such amount of his time and attention to the Company's affairs as are necessary to perform his duties to the Company and to allow the Company to perform its duties specified in the Management Agreement. Pursuant to the Management Agreement, the Executive shall have authority and responsibility with respect to the day to day operations and management of the Parent and RFS Partnership, L.P. (the "Partnership"), for which the Parent currently serves as sole general partner, as well as implementation of the long range growth strategy of the Parent and the Partnership, consistent with direction from the Parent's Board of Directors (the "Board"). 1 2 4. COMPENSATION. (a) During the Term, the Company shall pay the Executive for his services an initial annual base salary of $190,000 (the "Base Salary"), to be paid in semi-monthly payments of $7,916.67, such Base Salary to increase to $210,000 effective January 1, 2001 and to be subject to any further increases approved by the Compensation Committee of the Board (the "Compensation Committee"). (b) In addition to the Base Salary described in Section 4(a) above, the Executive shall be entitled to a cash bonus ("Base Salary Bonus") payable on the date of commencement of employment in the amount of $50,000. Such cash bonus shall be credited toward any discretionary cash bonus for 2000 which may be authorized by the Compensation Committee. (c) Effective July 1, 2000, the Executive shall be granted an aggregate of 12,000 shares of common stock of the Parent pursuant to a Restricted Stock Agreement in the form of Exhibit A hereto and shall be granted options to purchase an aggregate of 50,000 shares of common stock of the Company at a price equal to the fair market value of the common stock on May 15, 2000, pursuant to a Stock Option Agreement in the form of Exhibit B hereto. (d) In addition to the Base Salary Bonus, the Executive may be entitled to receive other incentive compensation, including but not limited to, additional grants of stock options or shares of stock of the Parent, which awards shall be made (if at all) in consideration of and as an incentive for services performed solely for the Company, in accordance with rules and criteria established by the Compensation Committee. Such criteria may include, but not be limited to, the growth in the Parent's net income per share, funds from operations per share or other performance goals. 5. BENEFITS. The Company agrees to provide the Executive with the following benefits: (a) Vacation. The Executive shall be entitled each calendar year to a vacation, during which time his compensation shall be paid in full. The time allotted for such vacation shall be three (3) weeks. (b) Employee Benefits. This Agreement shall not be in lieu of any rights, benefits and privileges to which the Executive may be entitled as a management level employee of the Company, including but not limited to any retirement, pension, profit-sharing, insurance, hospital or other plans which may now be in effect or which may hereafter be adopted. The Executive shall have the same rights and privileges to participate in such plans and benefits as any other management level employee during the Term. 6. EXPENSES. The Company recognizes that the Executive will have to incur certain out-of-pocket expenses, including but not limited to travel expenses, related to his services and the Company's and the Parent's business and the Company agrees to reimburse the Executive for all reasonable expenses necessarily incurred by him in the performance of his duties upon presentation 2 3 of a voucher or documentation indicating the amount and business purposes of any such expenses. 7. TERMINATION IN CASE OF DEATH OR DISABILITY. In the event of the Executive's death or a complete physical or mental inability, confirmed by a licensed physician, to perform the services described in Section 3 above that continues for a period of one hundred twenty (120) consecutive days) ("Permanent Disability"), the Company may elect to terminate this Agreement, subject to continuation of the payments described in Section 10. 8. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following definitions: (a) "Voluntary Termination" means, subject to the provisions of Section 11 hereof, the Executive's voluntary termination of his employment hereunder, which may be effected by the Executive giving the Board not less than 90 days' prior written notice of the Executive's desire to terminate his employment or the Executive's failure to provide substantially all the services described in Section 3 hereof for a period greater than four consecutive weeks by reason of the Executive's voluntary refusal to perform such services. Notwithstanding the foregoing, if the Executive gives notice of Voluntary Termination and, prior to the expiration of the 90-day notice period, the Executive voluntarily refuses or fails to provide substantially all the services described in Section 3 hereof for a period greater than two consecutive weeks, the Voluntary Termination shall be deemed to be effective as of the date on which the Executive so ceases to carry out his duties. For purposes of this Section 8, voluntary refusal to perform services shall not include taking vacation otherwise permitted in accordance with Section 5(a) hereof, the Executive's failure to perform services on account of his illness or the illness of a member of his immediate family, provided such illness is adequately substantiated at the reasonable request of the Company, or any other absence from service with the written consent of the Board. (b) "Termination Without Cause" means the termination of the Executive's employment by the Company for any reason other than Voluntary Termination or Termination With Cause. (c) "Termination With Cause" means the termination of the Executive's employment by act of the Board for any of the following reasons: (i) the Executive's conviction for a felony; (ii) the Executive's theft, embezzlement, misappropriation of or intentional and malicious infliction of damage to the Company's or the Parent's property or business opportunity; (iii) the Executive's intentional and material breach of the noncompetition covenant in Section 11 hereof; 3 4 (iv) the Executive's continuous neglect of his duties hereunder or his continuous failure or refusal to follow any reasonable, unambiguous duly adopted written direction of the Board or any duly constituted committee thereof that is not inconsistent with the description of the Executive's duties set forth in Section 3 above; and (v) the Executive's abuse of alcohol, drugs or other substances, or his engaging in other deviant personal activities in a manner that, in the reasonable judgment of the Board, adversely affects the reputation, goodwill or business position of the Company. (d) "Involuntary Termination" means conduct on the part of the Company that constitutes continuous and material interference by the Company with the Executive's performance of his duties as set forth in Section 3 hereof or the intentional or material breach by the Company of this Agreement. 9. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. If (i) the Executive shall cease being an employee of the Company on account of a Voluntary Termination or (ii) there shall be a Termination With Cause, the Executive shall not be entitled to any compensation after the effective date of such Voluntary Termination or Termination With Cause (except Base Salary and vacation accrued but unpaid on the effective date of such event). In the event of a Voluntary Termination or Termination With Cause, the Executive shall continue to be subject to the noncompetition covenant contained in Section 11 hereof for the remainder of the Term. 10. DEATH OR DISABILITY; TERMINATION WITHOUT CAUSE; OR INVOLUNTARY TERMINATION. Following (i) the death of the Executive, (ii) Permanent Disability of the Executive, (iii) an Involuntary Termination, or (iv) a Termination Without Cause, the Company shall continue to pay the Executive or his heirs, devisees, executors, legatees or personal representatives, as appropriate, the semi-monthly payments of the Base Salary then in effect for three years from the date of the termination of the Executive's employment. 11. CHANGE OF CONTROL COMPENSATION. (a) Compensation. In the event of the termination of the Executive's employment or the Executive's resignation for Good Reason (as defined below) on or after a Change of Control (as defined below), the Company shall, on the date of such termination or resignation, pay the Executive, in addition to any Base Salary earned but not paid through the date of termination or resignation, a cash amount (the "Termination Payment") equal to three (3) times average annual base salary and cash bonus paid to or earned by the Executive, under this Agreement or otherwise, for the fiscal year in which the Change of Control occurs and the two preceding fiscal years or, if the Executive has been employed by the Company for less than this period of time, then the Termination Payment shall be based on the average annual base salary and cash bonus paid or earned during the term of the Executive's employment (including the fiscal year 4 5 in which the Change of Control occurs). For purposes of calculating sums hereunder: (i) if the salary and cash bonus are paid or earned for any period of employment of less than twelve months (including the fiscal year in which the Change of Control occurs) such sums shall be annualized and in the case of a cash bonus, it shall be assumed that the bonus shall be the same as the preceding year, and (ii) no fiscal year for which no base salary or cash bonus is earned or paid shall be considered. Notwithstanding the first sentence of this Section 11(a), the Termination Payment shall be calculated and paid immediately prior to the closing of the transactions constituting a Change of Control if (i) the Executive receives notice prior to the Change of Control that his employment will be terminated on or after the Change of Control, or (ii) regardless of whether the Executive is terminated or receives notice that his employment will be terminated on or after the Change of Control, the Parent or any of its affiliates enter into an agreement to effect a transaction substantially similar to that described in Section 11(b)(v) below. In addition, the Company or the Parent shall cause the Executive's insurance benefits, as in effect immediately prior to the Change of Control, to remain in effect for at least one year following the date of termination of Executive's employment by the Company or the Executive's resignation for Good Reason. (b) A "Change of Control", for purposes of this Agreement, shall be deemed to have occurred if, at any time during the Term, any of the following events occurs: (i) any "person", as that term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes, is discovered to be, or files a report on Schedule 13D or 14D-1 (or any successor schedule, form or report) disclosing that such person is, a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of the Parent representing 50% or more of the combined voting power of the Parent's then outstanding securities entitled to vote generally in the election of directors; (ii) individuals who, as of the Effective Date, constitute the Board of Directors of the Parent cease for any reason to constitute at least a majority of the Board of Directors of the Parent, unless any such change is approved by the vote of at least 80% of the members of the Board of Directors of the Parent in office immediately prior to such cessation; (iii) the Parent is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of the Parent are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such transaction; 5 6 (iv) the Parent in any transaction or series of related transactions, sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or sales are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such sale; (v) the Parent and its affiliates shall sell or transfer of (in a single transaction or series of related transactions) to a non-affiliate business operations or assets that generated at least two-thirds of the consolidated revenues (determined on the basis of the Parent's four most recently completed fiscal quarters for which reports have been filed under the Exchange Act) of the Parent and its subsidiaries immediately prior thereto; (vi) the Parent files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K (or any successor, form or report or item therein) that a change in control of the Parent has occurred; or (vii) any other transaction or series of related transactions occur that have substantially the effect of the transactions specified in any of the preceding clauses in this sentence. (c) Certain Transactions. Notwithstanding the provisions of Section 11(b)(i) or 11(b)(vi) hereof, unless otherwise determined in a specific case by majority vote of the Board of Directors of the Parent, a Change in Control shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Parent, (ii) an entity in which the Parent directly or indirectly beneficially owns 50% or more of the voting securities or (iii) any Parent-sponsored employee stock ownership plan, or any other employee benefit plan of the Parent, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item thereon) under the Exchange Act, disclosing beneficial ownership by it of shares of stock of the Parent, or because the Parent reports that a Change in Control of the Parent has or any have occurred or will or may occur in the future by reason of such beneficial ownership. (d) Good Reason. "Good Reason," for purposes of this Agreement, shall be deemed to mean any of the following: (i) a change in the Executive's status, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from the Executive's status, position or responsibilities as in effect immediately prior to a Change in Control; the assignment to the Executive of any duties or responsibilities which, in the 6 7 Executive's reasonable judgment, are inconsistent with such status, position or responsibilities; or any removal of the Executive from or failure to reappoint or reelect the Executive to any of such positions, except in connection with a Termination with Cause as defined in Section 8(c), as a result of the Executive's death or Permanent Disability, or by Voluntary Termination; (ii) a reduction in the Executive's Base Salary and Base Salary Bonus as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation of the Company's or the Parent's principal executive offices to a location outside a thirty-mile radius of Memphis, Tennessee or the Company's or the Parent's requiring the Executive to be based at any place other than a location within a thirty-mile radius of Memphis, Tennessee, except for reasonably required travel on the Company's or the Parent's business which is not materially greater than such travel requirements prior to the Change in Control; (iv) the failure by the Company or the Parent to continue to provide the Executive with compensation and benefits provided for under this agreement or benefits substantially similar to those provided to the Executive under any of the employee benefit plans in which the Executive is or becomes a participant, or the taking of any action by the Company or the Parent which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control; (v) any material breach by the Company of any provision of this Agreement; and (vi) the failure of the Company to obtain a satisfactory agreement from any successor or assign of the Company to assume and agree to perform this Agreement. (e) Tax Matters. If the excise tax on "excess parachute payments," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), will be imposed on the Executive under Code section 4999 as a result of the Executive's receipt of the Termination Payment or any other payment, benefit or compensation (without regard to the "Additional Amount" described below) which the Executive receives or has the right to receive from the Company or the Parent or any of their affiliates (the "Change of Control Benefits"), the Company shall indemnify the Executive and hold him harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company shall pay to the Executive the "Additional Amount" described in this Section 11(e). The Additional Amount shall be the amount that is sufficient to indemnify and hold the Executive harmless from the application or Code sections 280G and 4999, including the amount of (i) the excise tax that will be imposed on the Executive under section 4999 of the Code with respect to the Change of Control Benefits; (ii) 7 8 the additional (A) excise tax under section 4999 of the Code, (B) hospital insurance tax under section 3111(b) of the Code and (C) federal, state and local income taxes for which the Executive is or will be liable on account of the payment of the amount described in item (i); and (iii) the further excise, hospital insurance and income taxes for which the Executive is or will be liable on account of the payment of the amount described in item (ii) and this item (iii) and any other indemnification payment under this Section 11(e). The Additional Amount shall be calculated and paid to the Executive at the time that the Termination Payment is paid to the Executive. In calculating the Additional Amount, the highest marginal rates of federal and applicable state and local income taxes applicable to individuals and in effect for the year in which the Change of Control occurs shall be used. Nothing in this paragraph shall give the Executive the right to receive indemnification from the Company or the Parent for federal, state or local income taxes or hospital insurance taxes payable solely as a result of the Executive's receipt of (a) the Termination Payment, or (b) any additional payment, benefit or compensation other than additional compensation in the form of the excise tax payment specified in item (i), above. As specified in items (ii) and (iii), above, all income, hospital insurance and additional excise taxes resulting from additional compensation in the form of the excise tax payment specified in item (i), above, shall be paid to the Executive. The provisions of this Section 11(e) are illustrated by the following example: Assume that the Termination Payment and all other Change of Control Benefits result in a total federal, state and local income tax and hospital insurance tax liability of $180,000; and an excise tax liability under Code section 4999 of $70,000. Under such circumstances, the Executive is solely responsible for the $180,000 income and hospital insurance tax liability; and the Company or the Parent must pay to the Executive $70,000, plus an amount necessary to indemnify the Executive for all federal, state and local income taxes, hospital insurance taxes, and excise taxes that will result from the $70,000 payment to the Executive and from all further indemnification to the Executive of taxes attributable to the initial $70,000 payment. 12. NONCOMPETITION. During the Term and for a period of two (2) years thereafter, the Executive shall not, other than through the Parent or affiliates of the Parent, own more than a 10% interest in any hotel property (other than hotels owned by the Parent and the Partnership), as partner, shareholder or otherwise, or directly or indirectly, for his own account or for the account of others, either as an officer, director, shareholder, owner, partner, promoter, employee, consultant, advisor, agent, manager, or in any other capacity engage in the acquisition, development, operation or management of any hotel property located within 20 miles of any hotel property owned by the Parent or the Partnership at the time of termination of employment. The foregoing sentence shall not restrict the Executive from owning up to 10% of the outstanding securities of any entity, including any entity whose securities are traded in public securities markets. The Executive agrees that damages at law for violation of the restrictive covenant contained herein would not be an adequate or proper remedy to the Company, and that should the Executive violate or threaten to violate any of the provisions of such covenant, the Company, its successors or 8 9 assigns, shall be entitled to obtain a temporary or permanent injunction against the Executive in any court having jurisdiction over the person and the subject matter, prohibiting any further violation of any such covenants. The injunctive relief provided herein shall be in addition to any award of damages, compensatory, exemplary or otherwise, payable by reason of such violation. Furthermore, the Executive acknowledges that this Agreement has been negotiated at arms' length by the parties, neither being under any compulsion to enter into this Agreement, and that the foregoing restrictive covenant does not in any respect inhibit his ability to earn a livelihood in his chosen profession without violating the restrictive covenant contained herein. The Company by these presents has attempted to limit the Executive's right to compete only to the extent necessary to protect the Company from unfair competition. The Company recognizes, however, that reasonable people may differ in making such a determination. Consequently, the Company agrees that if the scope or enforceability of the restricted covenant contained herein is in any way disputed at any time, a court or other trier of fact may modify and enforce the covenant to the extent that it believes to be reasonable under the circumstances existing at the time. 13. RELOCATION EXPENSES. The Company shall pay, or shall reimburse the Executive for, the Executive's direct out-of-pocket costs of relocating from Los Angeles, California to Memphis, Tennessee, including, but not limited to, moving and storage expenses and reimbursement for the real estate commission on the Executive's current home in Los Angeles, California, escrow fees, transfer fees or taxes and customary fees and expenses related to the purchase of a new home in Memphis, Tennessee and reasonable costs incurred for temporary housing in Memphis, Tennessee. It is the intent of the parties that the Company shall pay or reimburse Executive's relocation expenses in a manner consistent with those paid to or on behalf of Randall L. Churchey, the Company's President and Chief Operating Officer. 14. NOTICES. All notices or deliveries authorized or required pursuant to this Agreement shall be deemed to have been given when in writing and personally delivered or when deposited in the U.S. mail, certified, return receipt requested, postage prepaid, addressed to the parties at the following addresses or to such other addresses as either may designate in writing to the other party: To the Company: RFS Managers, Inc. 850 Ridge Lake Boulevard Suite 220 Memphis, TN 38120 To the Executive: Kevin M. Luebbers 850 Ridge Lake Boulevard Suite 220 Memphis, TN 38120 15. ENTIRE AGREEMENT. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and shall not be modified in any manner 9 10 except by instrument in writing signed, by or on behalf of, the parties hereto; provided, however, that any amendment or termination of the covenant of noncompetition in Section 12 must be approved by a majority of the Directors of the Parent other than the Executive, if the Executive is then a director of the Parent. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto. 16. ARBITRATION. Any claim or controversy arising out of, or relating to, this Agreement or its breach, shall be settled by arbitration in accordance with the governing rules of the American Arbitration Association. Judgment upon the award rendered may be entered in any court of competent jurisdiction. 17. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. 18. ASSIGNMENT. The Executive acknowledges that his services are unique and personal. Accordingly, the Executive may not assign his rights or delegate his duties or obligations under this Agreement, except with respect to certain rights to receive payments as described in Section 10. The Company's rights and obligations under this Agreement shall inure to the benefit of and shall be binding upon the Company's successors and assigns. 19. HEADINGS. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 20. AMENDED AGREEMENT. This Agreement amends and restates the Amended Agreement in its entirety as of the effective date of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. RFS MANAGERS, INC. By: ----------------------------- Name: --------------------------- Title: -------------------------- EXECUTIVE: ------------------------------- Kevin M. Luebbers 10 EX-10.16 5 g67578ex10-16.txt 1ST AMENDED & RESTATED REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.16 FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT This FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "First Amendment") made and entered into as of the ____ day of March, 2000, by and among BANK OF AMERICA, N.A., a national banking association (hereinafter referred to individually as "Bank of America" or as the "Agent"), the several banks, financial institutions and other entities identified as the Lenders in the Fourth Restated Loan Agreement (collectively, the "Lenders"), UNION PLANTERS BANK, N.A., a national banking association ("UPB"), RFS HOTEL INVESTORS, INC., a Tennessee corporation ("Investors"), and RFS PARTNERSHIP, L.P., a Tennessee limited partnership (the "Borrower"). RECITALS: A. The Borrower is primarily engaged in the business of purchasing, developing, owning, operating, leasing, managing, financing and selling hotel properties. B. Investors is the sole general partner of the Borrower and Investors is qualified as a real estate investment trust with its common stock listed on the New York Stock Exchange. C. Boatmen's Bank of Tennessee ("BBOT") has heretofore made loans available to Investors formerly as borrower, in the maximum aggregate principal amount of $75,000,000 (hereinafter as modified and/or increased called the "Facility"), as set forth in that certain First Amended Revolving Credit and Term Loan Agreement dated as of February 20, 1996, as modified by that certain First Modification of First Amended Revolving Credit and Term Loan Agreement and of Related Documents dated as of May 19, 1996 (collectively the "BBOT Loan Agreement"). D. BBOT has heretofore transferred undivided participation interests in the Facility (the "Participations") to SouthTrust Bank of Georgia, N.A., First Tennessee Bank National Association, and First National Bank of Commerce, New Orleans (collectively the "Participating Lenders"), pursuant to the terms of that certain First Amended Participation Agreement dated as of May 29, 1996 (the "Participation Agreement"). E. By Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 30, 1997 (the "Restated Loan Agreement"), the Borrower became the borrower and assumed the obligations of Investors, formerly as the borrower, relating to the Facility set forth in the BBOT Loan Agreement, the Participations were converted into a single direct multiple-lender line of credit, and the Facility was increased to the maximum aggregate principal amount of $175,000,000. F. In connection with the Restated Loan Agreement, BBOT assigned all of its right, title and interest in and to the Facility, the BBOT Loan Agreement, the Participation Agreement and the other Loan Documents (as herein defined) to NationsBank, N.A. ("NationsBank") which then, together with the Participating Lenders, terminated the Participation Agreement and assigned to the 2 Participating Lenders an undivided interest in and to the Facility. NationsBank also placed of record in each jurisdiction where a Mortgage was already of record an assignment, modification and assumption agreement, assigning its rights therein to the Agent as agent for the Lenders, modifying such Mortgage to reflect the increase in the Facility and extension of the Facility Termination Date, and reflecting the assumption of the Obligations by the Borrower, and including certain other matters. G. Contemporaneously with the termination of the Participation Agreement, NationsBank and the Participating Lenders assigned to the remaining Lenders such portions of the Commitment existing under the BBOT Loan Agreement as were necessary to properly distribute to all Lenders their proper pro rata shares of the Commitment existing under the BBOT Loan Agreement, followed contemporaneously by an increase in the Facility and Commitment as set forth in the Restated Loan Agreement and the appointment of NationsBank as the Agent for the Lenders pursuant to the terms thereof. NationsBanc Capital Markets, Inc. ("NCMI"), subsequently known as NationsBanc Montgomery Securities LLC ("NMS") and now known as Banc of America Securities LLC, ("BAS"), arranged the increase in the Facility requested by the Borrower and Investors from $75,000,000 to $175,000,000, and NCMI and NationsBank coordinated the closing of such increase. H. By Second Amended and Restated Revolving Credit and Term Loan Agreement, dated as of October 1, 1997, made and entered into by and among the Borrower, Investors, the Lenders party thereto and the Agent (the "Second Restated Loan Agreement"), the parties modified the Restated Loan Agreement to adjust the interest rate options therein, to add certain additional financial covenants and delete or modify certain existing financial covenants, and to include certain other modifications. I. By First Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 4, 1998, made and entered into by and among the Borrower, Investors, the Lenders party thereto and the Agent (the "First Amendment to Second Restated Loan Agreement"), the parties modified the Second Restated Loan Agreement to increase the Facility to the maximum aggregate principal amount of $190,000,000, to modify certain existing financial covenants, and to include certain other modifications, all to be effective from the date thereof through and including December 31, 1998. J. By Second Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 30, 1998, made and entered into by and among the Borrower, Investors, the Lenders party thereto and the Agent (the "Second Amendment to Second Restated Loan Agreement"; the Second Restated Loan Agreement, as modified by the First Amendment to Second Restated Loan Agreement and the Second Amendment to Second Restated Loan Agreement, being hereinafter referred to as the "Amended Second Restated Loan Agreement"), the parties modified and added certain definitions. K. By letter dated November 6, 1998 (the "Waiver Letter"), the Agent, on behalf of the Required Lenders, waived any defaults arising due to breaches of Section 7.18(d) of the Amended Second Restated Loan Agreement through December 31, 1998. 2 3 L. By Third Amended and Restated Revolving Credit Agreement dated as of December 22, 1998, made and entered into by and among the Borrower, Investors, the Lenders party thereto and the Agent (the " Third Restated Loan Agreement"), the parties modified the Amended Second Restated Loan Agreement to decrease the Facility to the maximum aggregate principal amount of $100,000,000 in exchange for the release of certain Collateral Pool Property (as defined therein), to modify certain existing financial covenants, and to include certain other modifications. M. By First Amendment to Third Amended and Restated Revolving Credit Agreement dated as of June 30, 1998, made and entered into by and among the Borrower, Investors, the Lenders party thereto and the Agent (the "First Amendment to Third Restated Loan Agreement"; the Third Restated Loan Agreement, as modified by the First Amendment to Third Restated Loan Agreement, being hereinafter referred to as the "Amended Third Restated Loan Agreement"), the parties modified certain provisions. N. By Fourth Amended and Restated Revolving Credit Agreement dated as of January 7, 2000, made and entered into by and among the Borrower, Investors, the Lenders party thereto and the Agent (the "Fourth Restated Loan Agreement"), the parties amended and restated the Amended Third Restated Loan Agreement to increase the Facility to the aggregate principal amount of $130,000,000.00, to permit the possible future increase in the Facility to $140,000,000 and to modify certain existing financial covenants. O. In connection with the execution of the Fourth Restated Loan Agreement, the Agent also placed a record in each jurisdiction where a Mortgage was already of record a Modification and Extension Agreement modifying such Mortgage to (i) reflect the changes in the Facility and extension of the Facility Termination Date and (ii) to include certain other matters. P. The Borrower has proposed to increase the Aggregate Commitment by $10,000,000.00 as contemplated by the terms of the Fourth Restated Loan Agreement, the funding of which will be supplied by UPB such that UPB shall become an Additional Lender under the Fourth Restated Loan Agreement (as modified by the terms hereof) and, in connection with such increase in the Aggregate Commitment, the Borrower has agreed to cause one of its Affiliates to execute a negative pledge agreement in favor of the Agent with respect to certain property more particularly described herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. INCREASE IN AGGREGATE COMMITMENT. Contemporaneously with its execution hereof and as a result thereof, UPB shall become a party to the Fourth Restated Loan Agreement (as modified by the terms hereof) as an Additional Lender and, in connection therewith, UPB's Commitment shall be $10,000,000.00. 2. PERCENTAGE AND COMMITMENT FOR EACH EXISTING LENDER AND ADDITIONAL LENDER. In connection with the commitment by UPB described herein, the Percentage and Commitment for each Existing Lender has been modified. Accordingly, attached hereto as Exhibit "J" is the instrument which correctly 3 4 sets forth the Percentage and Commitment for each Existing Lender, as well as the Additional Lender, which Exhibit "J" shall be substituted for and shall replace for all purposes the existing Exhibit "J" to the Fourth Restated Loan Agreement. 3. ADDITIONAL LENDER. In connection with the commitment of UPB described herein, UPB shall be considered an "Additional Lender" for all purposes under the Fourth Restated Loan Agreement, as modified by the terms hereof. 4. ADDITION OF PROPERTY TO NEGATIVE COLLATERAL POOL. In connection with the increase in the Facility, Ridge Lake General Partner, Inc. ("Ridge Lake"), a wholly owned subsidiary of Investors, shall execute and deliver to the Agent a Negative Pledge Agreement (in the form attached hereto as EXHIBIT "B" and made a part hereof for all purposes) with respect to the improved real property owned by Ridge Lake and known locally as the "Hotel Rex", which property is more particularly described on EXHIBIT "A" attached hereto and made a part hereof for all purposes (the "Additional Property"). Upon the execution of the Negative Pledge Agreement with respect to the Additional Property, the Additional Property shall be deemed to be a part of the Negative Collateral Pool under the Credit Agreement (as modified by the terms hereof). 5. MODIFICATION OF EXHIBIT "H". In connection with the addition of the Additional Property to the Negative Collateral Pool, the parties hereto hereby acknowledge and agree that EXHIBIT "H" attached hereto and made a part hereof for all purposes shall be substituted for and shall replace for all purposes the existing Exhibit "H" attached to the Fourth Restated Loan Agreement. 6. ENVIRONMENTAL INDEMNITY. In connection with the execution of the Negative Pledge Agreement by Ridge Lake, Ridge Lake shall simultaneously with the execution of this First Amendment execute and deliver to the Agent that certain Environmental Indemnity Agreement with respect to the Additional Property, a copy of which Environmental Indemnity Agreement is attached hereto as EXHIBIT "C" and made a part hereof for all purposes. 7. GUARANTY BY RIDGE LAKE. Simultaneously with the execution of this First Amendment, Ridge Lake shall execute and deliver to the Agent that certain Guaranty Agreement (in the form attached hereto as EXHIBIT "D" and made a part hereof for all purposes) pursuant to the terms of which Ridge Lake shall guaranty all of the obligations of the Borrower under the Credit Agreement (as modified by the terms hereof). In this regard, Ridge Lake hereby acknowledges, represents and warrants that it has derived, or expects to derive, substantial benefit from the extension of credit by the Agent, the Lenders and the Additional Lender pursuant to the terms of the Fourth Restated Loan Agreement. 8. REPRESENTATIONS AND WARRANTIES OF RIDGE LAKE. Ridge Lake, in its capacity as a guarantor and pledgor under the Negative Pledge Agreement with respect to the Additional Property, hereby makes to the Agent, the Additional Lender and the Lenders all of the representations and warranties set forth in Article VI of the Fourth Restated Loan Agreement (as modified by the terms hereof) including, without limitation, all of the representations and warranties set forth in Section 6.24 of the Fourth Restated Loan Agreement (as modified by 4 5 the terms hereof) with respect to the Additional Property and further represents and warrants to all such parties that all such representations and warranties are true, correct and complete as of the date hereof and that all of such representations and warranties will continue to be true, correct and complete at all times prior to the Facility Termination Date. 9. CLARIFICATION OF OWNERSHIP OF ADDITIONAL PROPERTY. Since Ridge Lake (rather than the Borrower) is the record owner of the Additional Property, all of the references, statements and certifications in the Fourth Restated Loan Agreement (as modified by the terms hereof) to the effect that the Borrower is the owner of all of the Collateral Pool Properties shall be amended and modified to reflect the fact that Ridge Lake is the owner of the Additional Property and such fact, in and of itself, shall not cause the Borrower or Investors to be in violation of, or in default under, the Fourth Restated Loan Agreement (as modified by the terms hereof). 10. MODIFICATION OF DEFINITIONS. A. GUARANTOR. The term "Guarantor" as defined in the Fourth Restated Loan Agreement shall be amended and modified to mean and refer to Investors and Ridge Lake (both individually and collectively). B. LENDERS. The term "Lenders" as defined in the Fourth Restated Loan Agreement shall be amended and modified to mean and refer to all of the Lenders named in the Credit Agreement and, in addition, UPB. C. OPINION OF COUNSEL. Contemporaneously with the execution of this First Amendment, the Borrower shall cause to be delivered to the Lenders, the Additional Lender and the Agent an opinion of counsel to the Borrower, Investors, and Ridge Lake containing form and substance satisfactory in all respects to the Agent, the Lenders and the Additional Lender including, without limitation, opinions that this First Amendment is a valid and binding obligation of each of such parties enforceable in accordance with its terms and that the transactions contemplated by the First Amendment, including, without limitation, the execution, delivery and performance of the Guaranty Agreement and the Negative Pledge Agreement, are not usurious. 11. APPLICABLE LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TENNESSEE AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN TENNESSEE. 12. BINDING AGREEMENT. This First Amendment shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and permitted assigns (if any); provided, however, that the foregoing shall not be deemed or construed to confer any right, title, benefit, cause of action or remedy upon any person or entity not a party hereto, which such party would not or did not otherwise possess. 13. SEVERABILITY. This First Amendment is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws and court decisions. If any provision of this First Amendment or the application 5 6 thereof to any person or circumstance shall, for any reason or to any extent, be invalid or unenforceable, neither the remainder of this First Amendment nor the application of such provision to other persons or circumstances or other instruments referred to in this First Amendment shall be affected thereby, but rather the same shall be enforced to the greatest extent permitted by law. 14. MODIFICATION. Neither this First Amendment nor any provision of this First Amendment may be waived, modified or amended except by an instrument in writing signed by the party against which the enforcement of such waiver, modification or amendment is sought, and then only to the extent set forth in such instrument. 15. CONSTRUCTION. The terms, provisions and conditions of this First Amendment represent the results of negotiations between the parties hereto, each of whom has either represented itself or has been represented by counsel of its own choosing, and none of whom has acted under duress or compulsion, whether legal, economic or otherwise. Accordingly, the terms, provisions and conditions of this First Amendment shall be interpreted and construed in accordance with their usual and customary meanings, and each of the parties hereto expressly, knowingly and voluntarily, waives the application, in connection with the interpretation and construction of this First Amendment, of any rule of law or procedure to the effect that ambiguous or conflicting terms, conditions or provisions shall be interpreted or construed against the party whose attorney prepared the executed version or any prior drafts of this First Amendment. 16. ENTIRE AGREEMENT. This First Amendment embodies and constitutes the entire understanding between the parties hereto with respect to the transactions contemplated in this First Amendment, and all prior or contemporaneous agreements, understandings, representations and statements, oral or written, are merged into this First Amendment. 17. HEADINGS. Descriptive headings are used in this First Amendment for convenience only and shall not control, limit, amplify or otherwise modify or affect the terms and provisions of this First Amendment or the meaning or construction of the terms and provisions of this First Amendment. 18. TIME OF ESSENCE. Time is of the essence of this First Amendment and of each covenant and agreement that is to be performed at a particular time or within a particular period of time. However, if the date or the final date of any period which is set out in any provision of this First Amendment falls on a Saturday, Sunday or legal holiday under the laws of the United States or the States of Texas or Tennessee, in such event, the date or the time of such period shall be extended to the next date which is not a Saturday, Sunday or legal holiday. 19. MULTIPLE COUNTERPARTS. This First Amendment may be executed in a number of identical counterparts, each of which for all purposes is deemed an original, and all of which constitute collectively one First Amendment, but in making proof of this First Amendment, it shall not be necessary to produce or account for more than one such counterpart. 6 7 20. DEFINED TERMS. Unless otherwise specifically defined herein, the defined terms used in this First Amendment shall have the same meaning as are ascribed to such terms in the Fourth Restated Loan Agreement. 21. EFFECT OF AMENDMENT. Except as modified by the terms of this First Amendment, the Fourth Restated Loan Agreement shall remain in full force and effect and the parties hereto do hereby ratify, affirm and confirm all of their debts, duties, obligations, covenants, representations and warranties set forth therein (as modified by the terms hereof). IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. The "Borrower" RFS PARTNERSHIP, L.P. By: RFS Hotel Investors, Inc. Its General Partner By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- Notice Address: 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38119 Attention: Mike Pascal Telephone: 901/767-7005 Facsimile: 901/818-5260 7 8 "Investors" RFS HOTEL INVESTORS, INC., a Tennessee corporation By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- Notice Address: 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38119 Attention: Mike Pascal Telephone: 901-767-7005 Facsimile: 901-818-5260 8 9 "Ridge Lake" RIDGE LAKE GENERAL PARTNER, INC., a Tennessee corporation By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 9 10 BANK OF AMERICA, N.A. Individually and as Agent By: ------------------------------------ Name: D. BRYCE LANGEN ---------------------------------- Title: ASSISTANT VICE PRESIDENT --------------------------------- Notice Address: Bank of America, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202 Attention: D. Bryce Langen Telephone: 214-209-1074 Facsimile: 214-209-0085 10 11 SOUTHTRUST BANK, N.A. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Notice Address: 600 W. Peachtree St., 22nd Floor Atlanta, GA 30308 Attention: Robert M. Searson Telephone: 404-853-5754 Facsimile: 404-853-5766 11 12 FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- Notice Address: First Tennessee Bank National Association 165 Madison Avenue, 10th Floor Memphis, Tennessee 38103 Attention: Robert P. Nieman Telephone: 901-523-4259 Facsimile: 901-523-4235 12 13 PNC BANK, NATIONAL ASSOCIATION By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- Notice Address: 249 5th Avenue P1-POPP-19-2 Pittsburgh, PA 15222 Attention: Wayne Robertson Telephone: 412-762-8452 Facsimile: 412-762-6500 13 14 WELLS FARGO BANK By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- Notice Address: 2859 Paces Ferry Rd. Suite 1805 Atlanta, GA 30339 Attention: Mark D. Imig Telephone: 770-435-3800 Facsimile: 770-435-2262 14 15 AMSOUTH BANK By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- Notice Address 1900 5th Ave. North Birmingham, AL 35203 Attention: Lawrence Clark Telephone: 205-581-7493 Facsimile: 205-326-4075 15 16 UNION PLANTERS BANK, N.A., a national banking association By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- 16 17 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of RFS Hotel Investors, Inc., a Tennessee corporation, General Partner of RFS PARTNERSHIP, L.P. a Tennessee limited partnership, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of --------- ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 17 18 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of RFS HOTEL INVESTORS, INC., a Tennessee corporation, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of --------- ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 18 19 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of RIDGE LAKE GENERAL PARTNER, INC., a Tennessee corporation, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of --------- ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 19 20 STATE OF TEXAS SS. SS. COUNTY OF DALLAS SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of BANK OF AMERICA, N.A., a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of Texas ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 20 21 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of SOUTHTRUST BANK, N.A., a _____________________ whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of --------- ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 21 22 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of FIRST TENNESSEE BANK NATIONAL ASSOCIATION whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of --------- ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 22 23 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of PNC BANK, NATIONAL ASSOCIATION, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of --------- ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 23 24 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of WELLS FARGO BANK, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of --------- ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 24 25 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of AMSOUTH BANK, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of --------- ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 25 26 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of UNION PLANTERS BANK, N.A.,a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------------ Notary Public in and for the State of --------- ------------------------------------------------ Notary Public Printed or Typed Name My Commission Expires: 26 27 EXHIBIT "A" LEGAL DESCRIPTION 27 28 EXHIBIT "B" NEGATIVE PLEDGE AGREEMENT 28 29 EXHIBIT "C" ENVIRONMENTAL INDEMNITY AGREEMENT 29 30 EXHIBIT "D" GUARANTY AGREEMENT 30 31 EXHIBIT "E" [INTENTIONALLY OMITTED.] 31 32 EXHIBIT "F" [INTENTIONALLY OMITTED.] 32 33 EXHIBIT "G" [INTENTIONALLY OMITTED.] 33 34 EXHIBIT "H" NEGATIVE COLLATERAL POOL 34 35 EXHIBIT "I" [INTENTIONALLY OMITTED.] 35 36 EXHIBIT "J" PERCENTAGE AND COMMITMENT FOR EACH EXISTING LENDER 36 EX-10.17 6 g67578ex10-17.txt 2ND AMENDED & RESTATED REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.17 SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT This SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "Amendment") made and entered into as of the 1st day of August, 2000, by and among RFS HOTEL INVESTORS, INC., a Tennessee corporation (the "Guarantor"), RFS PARTNERSHIP, L.P., a Tennessee limited partnership (the "Borrower"), RIDGE LAKE GENERAL PARTNER, INC., a Tennessee corporation ("Ridge Lake"), the secured banks, financial institutions and other entities from time to time parties to this Amendment (collectively, the "Lenders"),and BANK OF AMERICA, N.A., a national banking association (hereinafter referred to as "Bank of America" or the "Agent"). RECITALS: A. The Borrower is primarily engaged in the business of purchasing, developing, owning, operating, leasing, managing, financing and selling hotel properties. B. The Guarantor is the sole general partner of the Borrower and the Guarantor is qualified as a real estate investment trust with its common stock listed on the New York Stock Exchange. C. Boatmen's Bank of Tennessee ("BBOT") has heretofore made loans available to the Guarantor, formerly as borrower, in the maximum aggregate principal amount of $75,000,000 (hereinafter as modified and/or increased called the "Facility"), as set forth in that certain First Amended Revolving Credit and Term Loan Agreement dated as of February 20, 1996, as modified by that certain First Modification of First Amended Revolving Credit and Term Loan Agreement and of Related Documents dated as of May 19, 1996 (collectively the "BBOT Loan Agreement"). D. BBOT has heretofore transferred undivided participation interests in the Facility (the "Participations") to SouthTrust Bank of Georgia, N.A., First Tennessee Bank National Association, and First National Bank of Commerce, New Orleans (collectively the "Participating Lenders"), pursuant to the terms of that certain First Amended Participation Agreement dated as of May 29, 1996 (the "Participation Agreement"). E. By Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 30, 1997 (the "Restated Loan Agreement"), the Borrower became the borrower and assumed the obligations of the Guarantor, formerly as the borrower, relating to the Facility set forth in the BBOT Loan Agreement, the Participations were converted into a single direct multiple-lender line of credit, and the Facility was increased to the maximum aggregate principal amount of $175,000,000. F. In connection with the Restated Loan Agreement, BBOT assigned all of its right, title and interest in and to the Facility, the BBOT Loan Agreement, the Participation Agreement and the other Loan Documents (as herein defined) to NationsBank, N.A. ("NationsBank") which then, together with the Participating Lenders, terminated the Participation Agreement and assigned to the 2 Participating Lenders an undivided interest in and to the Facility. NationsBank also placed of record in each jurisdiction where a Mortgage was already of record an assignment, modification and assumption agreement, assigning its rights therein to the Agent as agent for the Lenders, modifying such Mortgage to reflect the increase in the Facility and extension of the Facility Termination Date, and reflecting the assumption of the Obligations by the Borrower, and including certain other matters. G. Contemporaneously with the termination of the Participation Agreement, NationsBank and the Participating Lenders assigned to the remaining Lenders such portions of the Commitment existing under the BBOT Loan Agreement as were necessary to properly distribute to all Lenders their proper pro rata shares of the Commitment existing under the BBOT Loan Agreement, followed contemporaneously by an increase in the Facility and Commitment as set forth in the Restated Loan Agreement and the appointment of NationsBank as the Agent for the Lenders pursuant to the terms thereof. NationsBanc Capital Markets, Inc. ("NCMI"), subsequently known as NationsBanc Montgomery Securities LLC ("NMS") and now known as Banc of America Securities, LLC ("BAS"), arranged the increase in the Facility requested by the Borrower and the Guarantor from $75,000,000 to $175,000,000, and NCMI and NationsBank coordinated the closing of such increase. H. By Second Amended and Restated Revolving Credit and Term Loan Agreement, dated as of October 1, 1997, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "Second Restated Loan Agreement"), the parties modified the Restated Loan Agreement to adjust the interest rate options therein, to add certain additional financial covenants and delete or modify certain existing financial covenants, and to include certain other modifications. I. By First Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 4, 1998, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "First Amendment to Second Restated Loan Agreement"), the parties modified the Second Restated Loan Agreement to increase the Facility to the maximum aggregate principal amount of $190,000,000, to modify certain existing financial covenants, and to include certain other modifications, all to be effective from the date thereof through and including December 31, 1998. J. By Second Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 30, 1998, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "Second Amendment to Second Restated Loan Agreement"; the Second Restated Loan Agreement, as modified by the First Amendment to Second Restated Loan Agreement and the Second Amendment to Second Restated Loan Agreement, being hereinafter referred to as the "Amended Second Restated Loan Agreement"), the parties modified and added certain definitions. 2 3 K. By letter dated November 6, 1998 (the "Waiver Letter"), Agent, on behalf of the Required Lenders, waived any defaults arising due to breaches of Section 7.18(d) of the Amended Second Restated Loan Agreement through December 31, 1998. L. By Third Amended and Restated Revolving Credit Agreement dated as of December 22, 1998, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the " Third Restated Loan Agreement"), the parties modified the Amended Second Restated Loan Agreement to decrease the Facility to the maximum aggregate principal amount of $100,000,000 in exchange for the release of certain Collateral Pool Property (as defined therein), to modify certain existing financial covenants, and to include certain other modifications. M. By First Amendment to Third Amended and Restated Revolving Credit Agreement dated as of June 30, 1998, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "First Amendment to Third Restated Loan Agreement"; the Third Restated Loan Agreement, as modified by the First Amendment to Third Restated Loan Agreement, being hereinafter referred to as the "Amended Third Restated Loan Agreement"), the parties modified certain provisions. N. By that certain Fourth Amended and Restated Revolving Credit Agreement dated as of January 7, 2000, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "Fourth Loan Agreement"), the parties modified the Amended Third Restated Loan Agreement to increase the Facility to the aggregate principal amount of $130,000,000.00, to permit the possible future increase in the Facility to $140,000,000 and to modify certain existing financial covenants. O. In connection with the execution of the Fourth Loan Agreement, the Agent also placed of record in each jurisdiction where a Mortgage was already of record a Modification and Extension Agreement modifying such Mortgage to (i) reflect the changes in the Facility and extension of the Facility Termination Date and (ii) to include certain other matters. P. By that certain First Amendment to Fourth Amended and Restated Revolving Credit Agreement dated as of March 14, 2000, made and entered into by and among the Borrower, the Guarantor, Ridge Lake, the Lenders party thereto and the Agent (the "First Amendment to Fourth Amended and Restated Loan Agreement"; the Fourth Loan Agreement, as modified by the First Amendment to Fourth Amended and Restated Loan Agreement, being hereinafter referred to as the "Fourth Restated Loan Agreement"), the parties modified the Fourth Loan Agreement to increase the Aggregate Commitment by $10,000,000.00 as contemplated by the terms of the Fourth Loan Agreement, the funding of which was supplied by Union Planters Bank, N.A. ("UPB") and to permit UPB to become an Additional Lender under the terms of the Fourth Loan Agreement (as modified by the First Amendment to Fourth Amended and Restated Loan Agreement). Q. The Borrower has asked that the Fourth Restated Loan Agreement be further modified pursuant to the terms hereof to permit the release of certain of the properties in the Secured Collateral Pool, to secure (with mortgages or 3 4 deeds of trust (as the case may be) and such other security documents as the Agent may require) each of the Negative Collateral Pool properties, to modify the Advance Rate and certain other financial covenants and to modify certain other provisions therein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. MODIFICATION OF DEFINED TERMS. The following defined terms set forth in Article 1 of the Fourth Restated Loan Agreement are hereby amended and restated in their entirety to read as follows: a. " `APPLICABLE ADVANCE RATE' means the applicable percentage (as it may change from time to time upon the agreement of the Borrower and the Lenders) of either Cost or Implied Value used to calculate the Borrowing Base which for Hotel Properties in the Secured Collateral Pool is 50%." b. " `BORROWING BASE' means the amount of the Aggregate Commitment available to the Borrower hereunder, which amount is the sum of (a) for each Collateral Pool Property owned or opened for less than four (4) fiscal quarters, the Applicable Advance Rate times the Cost, plus (b) for each Collateral Pool Property owned or opened for four (4) fiscal quarters or more, the Applicable Advance Rate times the Implied Value of the Collateral Pool Property. However, the aggregate Borrowing Base attributable to Completed Development Hotels in the Secured Collateral Pool cannot exceed fifteen percent (15%)." c. " `COLLATERAL' means all property of every type and kind which now or hereafter secures the Obligations, including, without limitation, the Hotel Properties in the Secured Collateral Pool, the Leases and the Consolidated Lease (including all rents, leases, issues and profits resulting therefrom or relating thereto), the Letter of Collateral Account and all real and personal property described in the Security Documents." d. " `COLLATERAL POOL' means all Hotel Properties included in the Secured Collateral Pool." e. "NEGATIVE COLLATERAL POOL" [intentionally deleted] f. "NEGATIVE PLEDGE AGREEMENT" [intentionally deleted] 2. EXECUTION OF MORTGAGES WITH RESPECT TO FORMER NEGATIVE COLLATERAL POOL PROPERTIES. The Borrower and Ridge Lake (as the case may be) hereby covenant and agree that they shall execute and deliver to the Agent a Mortgage with respect to each of the Hotel Properties formerly identified on Exhibit "H" to the Fourth Restated Loan Agreement and referred to as the Negative Collateral Pool properties, which Mortgages shall contain form and substance satisfactory in all respects to the Agent. Subsequent to the execution of such Mortgages, all 4 5 of the Hotel Properties shall be considered to be in the Secured Collateral Pool. Accordingly, all references in the Fourth Restated Loan Agreement to "Negative Collateral Pool", "Negative Pledge Agreement" and similar terms shall be deleted and deemed to be of no further force or effect subsequent to the date hereof. Furthermore, Exhibit "H" to the Fourth Restated Loan Agreement shall be deleted for all purposes. Finally, Exhibit "G" attached hereto shall be substituted for, and shall replace, the Exhibit "G" currently attached to the Fourth Restated Loan Agreement. 3. RELEASE OF HOTEL PROPERTIES IN SECURED COLLATERAL POOL. Pursuant to and in accordance with the provisions of Section 7.13 of the Fourth Restated Loan Agreement, the Agent shall (i) execute releases of the existing Negative Pledge Agreements immediately prior to the recording of the Mortgages with respect to each of such properties and (ii) release the Hotel Properties listed on SCHEDULE 1 attached hereto from the liens of the Mortgages currently encumbering said Hotel Properties in order to allow such properties to be included by Borrower in a securitization offering provided that (A) Borrower, concurrently with the execution of said releases by the Agent, reduces the outstanding principal balance of the Facility in an amount satisfactory to the Lenders and the availability under the Facility is reduced by equivalent sum on a pro rata basis and (B) the Borrower provides evidence satisfactory to the Agent that Borrower has fully and completely complied with all of the other requirements of Section 7.13. 4. OPTION TO INCREASE ADVANCE RATE; INCREASE IN AMOUNT OF MORTGAGEE TITLE POLICIES. a. OPTION TO INCREASE ADVANCE RATE. The Borrower shall have the option, exercisable at any time prior to the date which is twelve (12) months prior to the Facility Termination Date, to increase the Applicable Advance Rate for Hotel Properties in the Secured Collateral Pool to fifty-five percent (55%) provided that (i) at the Borrower's cost and expense, the Agent then obtains appraisals (containing form and substance satisfactory in all respects to the Agent) of all of the Hotel Properties in the Collateral Pool and (ii) the Lenders unanimously approve (which approvals shall not be unreasonably withheld) the valuations of the Hotel Properties set forth in such appraisals described in subparagraph (i). In the event that the Borrower exercises such option to increase the Applicable Advance Rate pursuant to and in accordance with the terms hereof, the determination of the Borrowing Base (as defined in the Fourth Restated Loan Agreement (as modified hereby)) will be based upon such (55%) Applicable Advance Rate multiplied by the fair market value (determined on an "as-is" basis) of each Collateral Pool Property (in the aggregate) as reflected in the appraisals the Agent obtains under subparagraph (i) above. b. INCREASE IN AMOUNT OF MORTGAGEE TITLE POLICIES. The first sentence of Section 5.3(j) of the Fourth Restated Loan Agreement is hereby amended and restated to read in its entirety as follows: "A mortgagee title insurance policy with respect to each such Hotel Property in an amount equal to fifty-five percent (55%) of the Value as of the date the applicable Hotel Property is accepted into the 5 6 Collateral Pool, naming the Agent as the insured party, showing no liens against such Hotel Property except for the Mortgage and reflecting fee simple title to the Hotel Property in the Borrower, subject to no exceptions except for Permitted Exceptions." 5. REPAYMENT OF PREFERRED STOCK. Each of the Lenders hereby acknowledges and agrees that the redemption by Guarantor of 973,684 shares of Series A Convertible Preferred Stock in Guarantor held by RFS, Inc. will not constitute or otherwise be deemed to be a "Distribution"under the terms of the Fourth Restated Loan Agreement. 6. ADDITION TO CONSOLIDATED NET WORTH. For purposes of determining the amount of "Consolidated Net Worth" under the Fourth Restated Loan Agreement, the Consolidated Net Worth sum shall be increased (i) on a cumulative basis (through the date of determination of Consolidated Net Worth) by an amount equal to the periodic amortization of the acquisition cost paid by the Borrower for the purchase of those certain Leases described in SCHEDULE 2 attached hereto and made a part hereof for all purposes (the "Acquired Leases") (to the extent that Borrower is entitled to amortize such cost in accordance with GAAP) or (ii) by the total direct expenses incurred by the Borrower in connection with the purchase of the Acquired Leases (to the extent that Borrower is required to expense such amounts currently in accordance with GAAP); provided, however, Consolidated Net Worth may not be increased under (i) or (ii) above by more than $60,000,000.00. 7. CLARIFICATION OF EBITDA. It is acknowledged and understood that the Guarantor intends to create a taxable REIT subsidiary, RFS Leasing III, Inc., a Tennessee corporation ("RFS Leasing"), pursuant to and in accordance with the requirements of the REIT Modernization Act, effective as of January 1, 2001 (the "REIT Transaction"). Accordingly, EBITDA will be adjusted for the period commencing on March 31, 2001 and continuing through and including September 30, 2001 (assuming that the transaction in which the Acquired Leases are purchased closes on January 1, 2001), to include the trailing twelve-month "leakage" (determined after the deduction of a base management fee approved by the Lenders, which fee is currently 2.5%) from the transaction pursuant to which Borrower and/or Guarantor purchase of the Acquired Leases. For purposes of this Amendment, the term "leakage" shall generally mean the operating income from each hotel property (which is subject to an Acquired Lease) determined after deducting therefrom (i) the lease/rental payment to the lessor under the Acquired Lease and (ii) the base management fee theretofore approved by the Lenders, but only to the extent the items described in subparagraphs (i) and (ii) have not been paid, deducted or expensed by another entity (other than the lessee) or previously expensed or deducted by the lessee in determining the operating income from the hotel property. Also, gains or losses on sales of properties will be excluded from the calculation of EBITDA; similarly, EBITDA will not include the impact of minority interests related to the Borrower. 8. LEVERAGE RATIO. Section 7.18(g) of the Fourth Restated Loan Agreement is hereby amended and restated in its entirety to read as follows: "(g) LEVERAGE RATIO. At no time shall the Leverage Ratio exceed fifty percent (50%). Nothing contained in the definitions of LIBOR Basis or Prime Rate shall be deemed to modify this covenant." 9. PARTICIPATION IN MANAGEMENT. Section 8.16 of the Fourth Restated Loan Agreement is hereby amended and restated in its entirety to read as follows: 6 7 "8.16 Robert Solmson ceases to be a member of the Board of Directors of the Guarantor and a successor of Mr. Solmson approved by the Required Lenders is not appointed within four (4) months of Mr. Solmson's departure, demise or physical or mental incapacitation." 10. GUARANTY BY RFS LEASING. Simultaneously with the execution of this Amendment (or promptly upon its formation as a corporate entity), RFS Leasing shall execute and deliver to the Agent that certain Continuing and Unconditional Guaranty Agreement (in the form attached hereto as EXHIBIT "A" and made a part hereof for all purposes) pursuant to the terms of which RFS Leasing shall guaranty all of the obligations of the Borrower under the Fourth Restated Loan Agreement (as modified by the terms hereof). In this regard, RFS Leasing hereby acknowledges, represents and warrants (or shall, promptly upon its formation, acknowledge, represent and warrant) that it has derived or expects to derive, substantial benefit from the extension of credit by the Agent and the Lenders pursuant to the terms of the Fourth Restated Loan Agreement. 11. AMENDMENT FEE. Concurrently with the execution of this Amendment, the Borrower shall pay to the Agent a fee for amending the Facility on the terms and conditions set forth herein in an amount equal to 0.1% of the Aggregate Commitment. Said fee shall be payable to the Agent in cash in good and sufficient United States funds immediately available in Dallas, Texas. 12. CONFIRMATION OF OUTSTANDING BALANCE. The parties hereto agree that the outstanding principal balance of the Facility, as of July 31, 2000, is $124,807,082.62. 13. CONFIRMATION AND EXTENSION OF RIGHTS AND LIENS BY OBLIGORS. As an additional material inducement to the Agent and the Lenders to enter into this Amendment, the Borrower, the Guarantor and Ridge Lake (collectively, "Obligors") hereby affirm, confirm, ratify and extend the debts, duties, obligations, liabilities, representations, warranties, rights, titles, security interests, liens, powers and privileges existing by virtue of the Fourth Restated Loan Agreement, as amended or modified hereby, this Amendment and all other documents, instruments and written agreements entered into or executed in connection with or relating to this Amendment (hereinafter collectively referred to as the "Modification Loan Documents"), until all of the indebtedness evidenced by the Notes, and evidenced, secured and guaranteed by the Loan Documents (as amended and modified hereby) and the Modification Loan Documents, has been paid in full, and hereby agree that this Amendment shall not in any way or manner release, waive, discharge, affect, change, modify or impair, and Obligors hereby affirm, confirm and ratify the debts, duties, obligations, liabilities, representations, warranties, rights, titles, security interests, liens, powers and privileges existing by virtue of, arising under or out of, in connection with or relating to the Loan Documents (as amended and modified hereby) and the Modification Loan Documents. The purpose of this Amendment is to modify and confirm the Loan Documents and to continue and carry forward all debts, duties, obligations, liabilities, representations, warranties, rights, titles, security interests, liens, powers and privileges existing by virtue of the Loan Documents (as amended and modified hereby) and the Modification Loan Documents. Neither the Agent, the Lenders nor Obligors intend this Amendment to be construed as a novation of the Notes or the other Loan Documents, as amended or modified hereby. 7 8 14. NO WAIVER. Notwithstanding anything contained herein to the contrary, and as an additional material inducement to the Agent and the Lenders to enter into this Amendment, Obligors hereby agree that (i) except as otherwise specifically provided in Paragraph 3 hereof, neither the Agent nor any of the Lenders is hereby releasing, forgiving, discharging, impairing, waiving or relinquishing any rights, titles, interests, liens, security interests, collateral, parties, remedies or any other matter with respect to the Loan Documents, as amended or modified hereby, or otherwise, but rather the Agent and each Lender is expressly retaining and reserving the same to their fullest extent, and (ii) this Amendment shall have no effect on, and also does not waive, any defaults or any rights or remedies resulting therefrom under the terms and provisions of the Loan Documents (as amended and modified hereby) or the Modification Loan Documents, now existing or hereafter arising, or any other events which, with notice or lapse of time or both, would constitute an event of default under the Loan Documents (as amended and modified hereby) or the Modification Loan Documents, now existing or hereafter arising, whether known or unknown by the Agent and/or any of the Lenders. The Agent and each Lender expressly reserve the right to, and may, at their option, declare any events of default or pursue any rights or remedies resulting therefrom under the Loan Documents (as amended and modified hereby) or the Modification Loan Documents. Further, the failure of any Obligor to perform any of the covenants or agreements contained in this Amendment, or the failure of any of the representations or warranties of any Obligor contained in this Amendment to be true, correct and complete on the date hereof, shall constitute an event of default under the Loan Documents and the Modification Loan Documents. 15. RELEASE OF THE AGENT AND THE LENDERS. (a) As an additional material inducement to the Agent and the Lenders to enter into this Amendment, Obligors, on behalf of themselves and their respective successors, assigns and constituents (whether or not a party hereto) (collectively and individually, "OBLIGOR, ET AL."), hereby fully, finally and completely RELEASES and FOREVER DISCHARGES the Agent and each of the Lenders and their respective successors, assigns, affiliates, subsidiaries, parents, officers, shareholders, directors, employees, attorneys and agents, past, present and future, and their respective heirs, successors and assigns (collectively and individually, "LENDER, ET AL.") of and from any and all claims, controversies, disputes, liabilities, obligations, demands, damages, debts, liens, actions and causes of action of any and every nature whatsoever and WAIVES and RELEASES any defense, right of counterclaim, right of set-off or deduction to the payment of the indebtedness evidenced by the Loan Documents, as amended or modified hereby, known or unknown, whether at law, by statute or in equity, in contract or in tort, under state or federal jurisdiction, which Obligor, et al. now have or may claim to have against Lender, et al. arising out of, connected with or relating to any and all acts, omissions or events occurring prior to the execution of this Amendment, and relating to the indebtedness evidenced by the Notes or the other Loan Documents, as amended or modified hereby, or the Hotel Properties. (b) The release and waiver in Paragraph 15(a) above is intended to be, and is, a full, complete and general release and waiver in favor of Lender, et al. with respect to all claims, demands, causes of action, defenses and other matters described above, including, without limitation, any claims, demands, causes of action or defenses based upon allegations of, for or in connection with, but not limited to, breach of fiduciary duty, breach of any alleged duty of fair dealing or good faith, breach of confidence, undue influence, duress, economic coercion, usury, conflict of interest, intentional tort, negligence, gross negligence, bad faith, malpractice, violations of the Racketeer Influenced and Corrupt Organizations Act, intentional or negligent 8 9 infliction of mental distress, tortious interference with contractual relations, tortious interference with corporate governance or prospective business advantage, breach of contract, deceptive trade practices, libel, slander, fraud, misrepresentation, conspiracy or any other theory, cause of action, occurrence, matter or thing which might give rise to liability upon Lender, et al., whether related to or arising out of any and all acts, omissions or events occurring prior to the execution of this Amendment, including, without limitation, the indebtedness evidenced by the Notes or the other Loan Documents (as amended and modified hereby) or any other loan at any time made by Lender, et al. or any of them, to Obligor, et al., or relating to any other matter whatsoever. (c) Each Obligor, jointly and severally, shall indemnify, protect, defend and hold harmless Lender, et al. from and against any and all claims, demands, causes of action, losses, damages, liabilities, suits, costs and expenses, including, without limitation, attorneys' fees and court costs, asserted against or suffered or incurred by Lender, et al. by reason of, arising out of or in connection with (i) a breach or violation of any representation or warranty of any Obligor set forth in this Amendment or in any other document executed by any Obligor in connection with this Amendment, (ii) a misrepresentation or inaccurate statement of fact made by any Obligor in this Amendment or in any other document executed by any Obligor in connection with this Amendment, or (iii) the ownership, operation, management, maintenance, use, occupancy or construction of the Hotel Properties. Obligor et al. shall further indemnify, protect, defend and hold harmless Lender, et al. from and against any and all claims, demands, causes of action, losses, damages, liabilities, suits, costs and expenses, including, without limitation, attorneys' fees and court costs, asserted against or suffered or incurred by Lender, et al. by reason of, arising out of or in connection with a default by Obligor, et al. in the performance of or failure of Obligor, et al. to perform any of its or their obligations or agreements set forth in this Amendment or in any other document executed by Obligor et al. in connection with this Amendment. In the event a claim is made against Lender, et al. (or any thereof) for which Lender, et al. (or any thereof) is/are entitled to indemnity under this Paragraph 15(c), Obligor, et al. shall reimburse Lender, et al. (or any thereof) for its costs, expenses and reasonable attorneys' fees incurred in defending such claim, such costs, expenses and fees to be reimbursed as they are incurred. This indemnification shall survive and be enforceable after the consummation of the transactions contemplated by this Amendment. 16. REPRESENTATIONS AND WARRANTIES BY OBLIGORS. As an additional material inducement to the Agent and the Lenders to enter into this Amendment, each Obligor hereby represents and warrants to the Agent and to each Lender that on the date hereof: (a) upon consummation of this transaction, the Loan Documents (as amended and modified hereby) and the Modification Loan Documents are not in default; (b) the representations and warranties set forth in the Loan Documents and the Modification Loan Documents are true, correct and complete and are hereby reaffirmed as if such representations and warranties had been made on the date hereof and shall continue in full force and effect; 9 10 (c) each Obligor has the full right, power and authority to execute and deliver this Amendment and to carry out its obligations under this Amendment; (d) The recitals set forth in Paragraphs A through Q on pages 1 through 3 of this Amendment are true, correct and complete in all respects; (e) No consent or approval of any regulatory body to any Obligor's execution, delivery or performance of this Amendment is required by law which has not been obtained and a copy thereof submitted to the Agent and the execution and delivery of this Amendment by each Obligor does not contravene any law, order, decree, rule or regulation to which such Obligor is subject; (f) No parties not expressly made a party to this Amendment are required to join in this Amendment on behalf of any Obligor or otherwise in order to make this Amendment valid, binding and enforceable against any Obligor; (g) No Obligor has transferred or assigned any right, claim or cause of action that it may have against the Agent, any of the Lenders or any other person or entity included within the Lender, et al. and entitled to the benefit of the waivers and releases contained in Paragraphs 15(a) and 15(b) of this Amendment, and no person or entity other than Obligors is required to join in this Amendment to make such waivers and releases valid, binding and enforceable against all parties having claims against Lender, et al. which are waived and released by this Amendment. Each Obligor acknowledges and agrees that it has been represented by legal and other counsel in connection with this Amendment, that it fully understands the consequences of entering into this Amendment, including, without limitation, granting the waivers and releases herein contained, and that it is entering into this Amendment of its own free will, without duress or coercion; and (h) No Obligor is a "foreign person" as defined in the Federal Foreign Investment in Real Property Tax Act of 1980 and the 1984 Tax Reform Act or the regulations promulgated thereunder, as amended. The representations and warranties of Obligors contained in this Amendment are made by each Obligor as an inducement to the Agent and the Lenders to modify and amend the Loan Documents and shall survive the consummation of the transactions contemplated by this Amendment. Obligors understand that the Agent and each of the Lenders are relying upon such representations and warranties and that such representations and warranties shall survive any (i) bankruptcy proceedings involving any Obligor or the Hotel Properties, (ii) foreclosure of any Mortgage or (iii) conveyance of title to any Hotel Property in lieu of foreclosure of the applicable Mortgage. 17. LIMITATION ON INTEREST. Notwithstanding anything contained herein or in any of the Loan Documents and the Modification Loan Documents to the contrary, in no event shall the Agent or any of the Lenders be entitled to receive interest on the Notes in amounts which, when added to all of the other interest charged, paid to or received by the Agent or any of the Lenders on the Notes, causes the rate of interest on the Notes to exceed the Highest Lawful 10 11 Rate. The "Highest Lawful Rate" as used in this Amendment means the maximum nonusurious rate of interest per annum permitted by whichever of applicable United States Federal law or Tennessee law permits the higher interest rate, including to the extent permitted by applicable law, any amendments thereof hereafter or any new law hereafter coming into effect to the extent that a higher rate is permitted thereby. The Highest Lawful Rate shall be applied by taking into account all amounts characterized by applicable law as interest on indebtedness evidenced by the Notes, the Loan Documents (as amended and modified hereby) or the Modification Loan Documents, so that the aggregate of all interest does not exceed the maximum nonusurious amount permitted by applicable law. It is the intent of Obligors, the Agent and each of the Lenders to conform to and contract in strict compliance with applicable usury law from time to time in effect. All agreements among Obligors, the Agent and/or any of the Lenders (or any other party liable with respect to any indebtedness under the Loan Documents or the Modification Loan Documents) are hereby limited by the provisions of this Section which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral (however, reference to the term "oral" shall not be construed to modify or negate any provisions hereof or of any other Loan Document or Modification Loan Document regarding the absence or ineffectiveness of oral agreements). In no way, nor in any event or contingency (including but not limited to prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged or received under this Agreement, the Note, any of the other Loan Documents or the Modification Loan Documents, any documents executed in connection with or relating to the indebtedness or otherwise, or any documents evidencing any prior indebtedness renewed, extended or modified by the Loan Documents or the Modification Loan Documents, exceed the Highest Lawful Rate. If, from any possible construction of any document, interest would otherwise be payable in excess of the Highest Lawful Rate, any such construction shall be subject to the provisions of this Section and such document shall be automatically reformed and the interest payable shall be automatically reduced to the Highest Lawful Rate, without the necessity of execution of any amendment or new document. If the Agent or any of the Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Highest Lawful Rate (by reason of the allocation of interest among any prior indebtedness which may have been extended, renewed and/or modified pursuant to the Loan Documents or the Modification Loan Documents or by any reason whatsoever), an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Obligors or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal. The right to accelerate maturity of the Notes or any other indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and neither the Agent nor any of the Lenders intends to charge or receive any unearned interest 11 12 in the event of acceleration. All interest paid or agreed to be paid to the Agent or any of the Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the Highest Lawful Rate. As used in this Section, the term "applicable law" shall mean the laws of the State of Tennessee or the federal laws of the United States, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future. By execution of this Amendment, Obligors acknowledge that they each believe the Notes, the Loan Documents and the Modification Loan Documents to be nonusurious and agree that, if at any time, any Obligor should have reason to believe that the Notes, the Loan Documents or the Modification Loan Documents are in fact usurious, it shall give the Agent written notice of its belief and the reasons why it believes the Note, the Loan Documents or the Modification Loan Documents to be usurious, and each Obligor agrees that the Agent shall have ninety (90) days following its receipt of such written notice to make (or cause to be made) appropriate refund or other adjustment in order to correct such condition if it in fact exists. 18. NO THIRD PARTY RIGHTS OR OBLIGATIONS. No person or entity not a party to or expressly identified by name in this Amendment as a beneficiary under this Amendment shall have any third-party beneficiary or other rights under this Amendment. Without limiting the foregoing, this Agreement shall not affect or impair in any manner whatsoever any rights, claims, actions, demands or causes of action which the Agent may have against either Obligor, the Hotel Properties or any other collateral for the indebtedness evidenced by the Loan Documents (as amended and modified hereby) or the Modification Loan Documents, or otherwise under or with respect to the Loan Documents (as amended and modified hereby) or the Modification Loan Documents. 19. CONTINUING VALIDITY. Except as expressly provided herein, all of the terms, provisions, debts, duties, obligations, liabilities, representations and warranties, rights, titles, security interests, liens, powers and privileges existing by virtue of the Loan Documents (as amended and modified hereby) and the Modification Loan Documents shall be and continue in full force and effect, and are hereby acknowledged by each Obligor to be legal, valid, binding and subsisting. 20. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TENNESSEE AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN TENNESSEE. 21. BINDING AGREEMENT. This Amendment shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns; provided, however, that the foregoing shall not be deemed or construed to confer any right, title, benefit, cause of action or remedy upon any person or entity not a party hereto, which such party would not or did not otherwise possess. 22. SEVERABILITY. This Amendment is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws and court decisions. If any provision of this Amendment or the application thereof to any person or circumstance shall, for any reason or to any extent, be invalid or unenforceable, neither the remainder of this Amendment nor the application of such provision to other persons or circumstances or other instruments referred to in this Amendment shall be affected thereby, but rather the same shall be enforced to the greatest extent permitted by law. 23. MODIFICATION. Neither this Amendment nor any provision of this Amendment may be waived, modified or amended except by an instrument in writing 12 13 signed by the party against which the enforcement of such waiver, modification or amendment is sought, and then only to the extent set forth in such instrument. 24. NO PARTNERSHIP OR FIDUCIARY OBLIGATIONS. The Agent and Obligors each expressly acknowledge and agree that the Agent has not formed, and is not hereby forming, with either Obligor and/or any other party, a partnership, joint venture or any other similar entity, and this Amendment is not intended, and shall not be construed, to create any such entity or relationship. Furthermore, the Agent and Obligors acknowledge and agree that the Agent has no fiduciary obligations, of any type, with respect to either Obligor or any such party. IN NO EVENT SHALL THE AGENT EVER BE LIABLE FOR ANY DEBTS, DUTIES OR OBLIGATIONS OF EITHER OBLIGOR OR WITH RESPECT TO THE HOTEL PROPERTIES (UNLESS EXPRESSLY ASSUMED BY THE AGENT IN WRITING). 25. CONSTRUCTION. The terms, provisions and conditions of this Amendment represent the results of negotiations between the Agent and Obligors, each of whom has either represented itself or has been represented by counsel of its own choosing, and none of whom has acted under duress or compulsion, whether legal, economic or otherwise. Accordingly, the terms, provisions and conditions of this Amendment shall be interpreted and construed in accordance with their usual and customary meanings, and the Agent and Obligors, expressly, knowingly and voluntarily, waive the application, in connection with the interpretation and construction of this Amendment, of any rule of law or procedure to the effect that ambiguous or conflicting terms, conditions or provisions shall be interpreted or construed against the party whose attorney prepared the executed version or any prior drafts of this Amendment. 26. COOPERATION BY OBLIGORS. Upon request from the Agent, from time to time, each Obligor will reasonably cooperate with and assist the Agent in connection with the enforcement by the Agent of its rights and remedies under, and the defense of any claims with respect to, the Loan Documents (as amended and modified hereby) and the Modification Loan Documents. Obligors further agree that, except for bona fide disputes arising after the date of this Amendment based upon the conduct of the parties to this Amendment after the date of this Amendment, they will not at any time challenge, contest or seek to set aside in whole or in part the transactions provided in this Amendment. 27. FURTHER ASSURANCES. In addition to the documents, instruments and acts described in this Amendment and which are to be executed and/or delivered and/or taken pursuant to this Agreement, Obligors agree to execute and deliver from time to time upon request by the Agent such other documents and instruments, and take such other action, as the Agent may reasonably request or require to (i) more fully and completely evidence and carry out the transactions contemplated by this Amendment, (ii) promptly correct any defect, error or omission which may be discovered in this Amendment, the Loan Documents (as amended and modified hereby) and the Modification Loan Documents, and execute any and all additional documents, as may be requested by the Agent to correct such defect, error or omission, (iii) create, perfect, preserve, maintain and protect the liens and security interests created or intended to be created by 13 14 the Loan Documents (as amended and modified hereby) and the Modification Loan Documents, and (iv) provide the rights and remedies to the Agent granted or provided for by the Loan Documents (as amended and modified hereby) the Modification Loan Documents, and this Amendment. 28. ENTIRE AGREEMENT. This Amendment embodies and constitutes the entire understanding between the Agent and Obligors with respect to the transactions contemplated in this Amendment, and all prior or contemporaneous agreements, understandings, representations and statements, oral or written, are merged into this Amendment. 29. HEADINGS. Descriptive headings are used in this Amendment for convenience only and shall not control, limit, amplify or otherwise modify or affect the terms and provisions of this Amendment or the meaning or construction of the terms and provisions of this Amendment. 30. TIME OF ESSENCE. Time is of the essence of this Amendment and of each covenant and agreement that is to be performed at a particular time or within a particular period of time. However, if the date or the final date of any period which is set out in any provision of this Amendment falls on a Saturday, Sunday or legal holiday under the laws of the United States or the State of Texas, in such event, the date or the time of such period shall be extended to the next date which is not a Saturday, Sunday or legal holiday. 31. ATTORNEYS' FEES. If it becomes necessary for the Agent to file suit to enforce this Amendment or any Loan Document (as amended and modified hereby) or any Modification Loan Document, or any provision contained in this Amendment or any Loan Document (as amended and modified hereby) or any Modification Loan Document, or to enforce any of its rights in regard thereto or to otherwise incur legal and/or related expenses concerning this Amendment, on demand from the Agent, and without limitation of any other rights and remedies of the Agent, Obligors agree to immediately reimburse the Agent for the attorneys' fees and other costs incurred by the Agent. 32. MULTIPLE COUNTERPARTS. This Amendment may be executed in a number of identical counterparts, each of which for all purposes is deemed an original, and all of which constitute collectively one Amendment, but in making proof of this Amendment, it shall not be necessary to produce or account for more than one such counterpart. In the event this Amendment is not executed by all of the parties set forth herein, such fact shall not affect the binding effect of this Amendment on those parties who have executed this Amendment, and those parties who have executed this Amendment shall nevertheless be bound by all of the terms and provisions contained herein. 33. SOLE AGREEMENT. THIS WRITTEN AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE AGENT AND OBLIGORS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE AGENT AND OBLIGORS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE AGENT AND OBLIGORS. 34. DEFINED TERMS. The defined terms utilized in this Amendment, unless otherwise specifically defined herein, shall have the same meaning as the meaning ascribed to such terms in the Fourth Restated Loan Agreement. 14 15 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. "Bank of America" and the "Agent" Bank of America, N.A. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 901 Main Street, 51st Floor Dallas, Texas 75202 Attention: D. Bryce Langen Telephone: 214-209-1074 Facsimile: 214-209-0085 15 16 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of BANK OF AMERICA, N.A., a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 16 17 The "Guarantor" RFS Hotel Investors, Inc. By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ Notice Address: 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38119 Attention: Kevin Luebbers Telephone: 901-767-7005 Facsimile: 901-818-5260 17 18 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of RFS HOTEL INVESTORS, INC., a Tennessee corporation, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 18 19 "Ridge Lake" Ridge Lake General Partner, Inc., a Tennessee corporation By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38119 Attention: Kevin Luebbers Telephone: 901-767-7005 Facsimile: 901-818-5260 19 20 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of RIDGE LAKE GENERAL PARTNER, INC., a Tennessee corporation, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 20 21 The "Borrower" RFS Partnership, L.P. By: RFS Hotel Investors, Inc., General Partner By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Notice Address: 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38119 Attention: Kevin Luebbers Telephone: 901-767-7005 Facsimile: 901-818-5260 21 22 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of RFS Hotel Investors, Inc., General Partner of RFS PARTNERSHIP, L.P., a Tennessee limited partnership, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 22 23 "Lenders" SOUTHTRUST BANK By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ Notice Address: 420 N. 20th Street, 11th Floor Birmingham, Alabama 32503 Attention: Ronnie Brantley Telephone: 205-254-4435 Facsimile: 205-254-8270 23 24 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of SOUTHTRUST BANK, a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 24 25 FIRST TENNESSEE BANK, NATIONAL ASSOCIATION By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- Notice Address: 165 Madison Avenue, 10th Floor Memphis, Tennessee 38103 Attention: Robert P. Nieman Telephone: 901-523-4259 Facsimile: 901-523-4235 25 26 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of FIRST TENNESSEE BANK, NATIONAL ASSOCIATION, a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 26 27 PNC BANK, NATIONAL ASSOCIATION By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- Notice Address: 249 5th Avenue P1-POPP-19-2 Pittsburgh, PA 15222 Attention: Wayne Robertson Telephone: 412-762-8452 Facsimile: 412-762-6500 27 28 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of PNC BANK, NATIONAL ASSOCIATION, a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 28 29 WELLS FARGO BANK, N.A. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Notice Address: 2859 Paces Ferry Rd. Suite 1805 Atlanta, Georgia 30339 Telephone: 770-435-3800 Facsimile: 770-435-2262 29 30 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of WELLS FARGO BANK, N.A., a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 30 31 UNION PLANTERS BANK, N.A., a national banking association By: --------------------------------- Name: ------------------------------------ Title: ----------------------------------- Notice Address: 6200 Poplar Avenue HQ04 Memphis, Tennessee 38119 Attention: Christy Cornell Telephone: 901-580-5507 Facsimile: 901-580-5451 31 32 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of UNION PLANTERS BANK, N.A., a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 32 33 AMSOUTH BANK By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Notice Address: 1900 5th Avenue North, AST #9 Birmingham, AL 35203 Attention: Lawrence Clark Telephone: 205-581-7493 Facsimile: 205-326-4075 33 34 STATE OF ___________ SS. SS. COUNTY OF __________ SS. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of AMSOUTH BANK, a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) ------------------------------------------- Notary Public in and for the State of ----- ------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 34 35 EXHIBIT "A" CONTINUING AND UNCONDITIONAL GUARANTY This CONTINUING AND UNCONDITIONAL GUARANTY (this "Guaranty") is executed on this _____ day of _______________ 2000, by RFS LEASING III, INC., a Tennessee corporation ("Guarantor") to and in favor of BANK OF AMERICA, N.A., a national banking association ("Bank of America"), and the other Lenders who are parties to the Loan Agreement (collectively, the "Lender"s; Bank of America and the Lenders are sometimes hereinafter collectively referred to as "Bank") 1. GUARANTY. FOR VALUE RECEIVED, and to induce Bank to make loans or advances or to extend credit or other financial accommodations or benefits, with or without security, to or for the account of RFS Partnership, L.P., a Tennessee limited partnership ("Borrower"), the undersigned "Guarantor", if more than one, then each of them jointly and severally, hereby irrevocably and unconditionally guarantees to Bank the full and prompt payment when due, whether by acceleration or otherwise, of any and all Liabilities (as hereinafter defined) of Borrower to Bank. This Guaranty is continuing and unlimited as to the amount, and is cumulative to and does not supersede any other guaranties. All such capital liabilities, fees, costs and expenses constitute the "Guaranty Obligations." Guarantor further unconditionally guarantees the faithful, prompt and complete compliance by Borrower with all Obligations (as hereinafter defined). The undertakings of Guarantor hereunder are independent of the Liabilities and Obligations of Borrower and a separate action or actions for payment, damages or performance may be brought or prosecuted against Guarantor, whether or not an action is brought against Borrower or to realize upon the security for the Liabilities and/or Obligations, whether or not Borrower is joined in any such action or actions, and whether or not notice is given or demand is made upon Borrower. Bank shall not be required to proceed first against Borrower, or any other person or entity, whether primarily or secondarily liable, or against any collateral held by it, before resorting to Guarantor for payment, and Guarantor shall not be entitled to assert as a defense to the enforceability of the Guaranty any defense of Borrower with respect to any Liabilities or Obligations. 2. PARAGRAPH HEADINGS, GOVERNING LAW AND BINDING EFFECT. Guarantor agrees that the paragraph headings in this Guaranty are for convenience only and that they will not limit any of the provisions of this Guaranty. Guarantor further agrees that this Guaranty shall be governed by, and construed in accordance with, the laws of the State of Tennessee. In any litigation in connection with or to enforce this Guaranty or any other Loan Documents, Guarantor, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Tennessee or the United States courts located within the State of Tennessee. Nothing contained herein shall, however, prevent Bank from bringing 35 36 any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available by applicable law. This Guaranty is binding upon Guarantor, his, their or its executors, administrators, successors or assigns, and shall inure to the benefit of Bank, its successors, indorsees or assigns. Anyone executing this Guaranty shall be bound by the terms hereof without regard to execution by anyone else. 3. DEFINITIONS. A. "Guarantor" shall mean Guarantor or any one or more of them. B. "Liability" or "Liabilities" shall mean without limitation, all liabilities, overdrafts, indebtedness, and obligations of Borrower and/or Guarantor to Bank, whether direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not due, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, now or hereafter existing, or held or to be held by Bank for its own account or as agent for another or others, whether created directly, indirectly, or acquired by assignment or otherwise, including but not limited to all extensions or renewals thereof, and all sums payable under or by virtue thereof, including without limitation, all amounts of principal and interest, all expenses (including reasonable attorney's fees and costs of collection) incurred in the collection thereof or the enforcement of rights thereunder (including without limitation, any liability arising from failure to comply with state or federal laws, rules and regulations concerning the control of hazardous waste or substances at or with respect to any real estate securing any loan guaranteed hereby), whether arising in the ordinary course of business or otherwise. If Borrower is a partnership, corporation or other entity, the term "Liability" or "Liabilities" as used herein shall include all Liabilities to Bank of any successor entity or entities. In addition to the foregoing, the term "Liabilities", as used in this Guaranty, includes the "Obligations" as such terms are now and hereafter defined in the Loan Agreement, and as such "Obligations" may be increased from time to time. C. "Loan Agreement" shall mean that certain Fourth Amended and Restated Revolving Credit Agreement dated as of January 7, 2000, executed by and among Borrower, RFS Hotel Investors, Inc., Bank of America Securities LLC, Bank and the Lenders, as amended by that certain First Amendment to Fourth Amended and Restated Revolving Credit Agreement dated of as of January 7, 2000, executed by and among Borrower, RFS Hotel Investors, Inc., Bank, the Lenders and Union Planters Bank, N.A., and as further amended by that certain Second Amendment to Fourth Amended and Restated Revolving Credit Agreement dated of even date herewith, executed by and among Borrower, RFS Hotel Investors, Inc., Ridge Lake General Partners Inc., Bank and the Lenders, as the same may be amended, modified, renewed, extended, supplemented or restated from time to time. D. "Loan Documents" shall mean all deeds to secure debt, deeds of trust, mortgages, security agreements, pledge agreements and other documents securing payment of the Liabilities and all notes and other agreements, documents and instruments evidencing or relating to the Liabilities and Obligations. In addition to the foregoing, the term "Loan Documents," as used in this Guaranty, includes, without limitation, the "Loan Documents," as such term is defined in the Loan Agreement. E. "Obligation" or "Obligations" shall mean all terms, conditions, covenants, agreements and undertakings of Borrower and/or Guarantor under all notes and other documents evidencing the Liabilities, and under all deeds to 36 37 secure debt, deeds of trust, mortgages, security agreements and other agreements, documents and instruments executed in connection with the Liabilities or related thereto, including, without limitation, the "Notes", as such term is now or hereafter defined in the Loan Agreement. In addition to the foregoing, the term "Obligations," as used in this Guaranty, includes, without limitation, all "Obligations" as such term is now or hereafter defined in the Loan Agreement, and as such "Obligations" may be increased from time to time. 4. WAIVERS BY GUARANTOR. Guarantor waives notice of acceptance of this Guaranty, notice of any Liabilities or Obligations to which it may apply, presentment, demand for payment, protest, notice of dishonor or nonpayment of any Liabilities, notice of intent to accelerate, notice of acceleration, and notice of any suit or the taking of other action by Bank against Borrower, Guarantor or any other person, any applicable statute of limitations and any other notice to any party liable on any Loan Document (including Guarantor). Each Guarantor also hereby waives any claim, right or remedy which such Guarantor may now have or hereafter acquire against Borrower that arises hereunder and/or from the performance by any other Guarantor hereunder including, without limitation, any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification or participation in any claim, right or remedy of Bank against Borrower or against any security which Bank now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise. Guarantor also waives the benefits of any provision of law requiring that Bank exhaust any right or remedy, or take any action, against Borrower, any Guarantor or any other person and/or property. Bank may at any time and from time to time (whether before or after revocation or termination of this Guaranty) without notice to Guarantor (except as required by law), without incurring responsibility to Guarantor, without impairing, releasing or otherwise affecting the Obligations of Guarantor, in whole or in part, and without the indorsement or execution by Guarantor of any additional consent, waiver or guaranty: (a) change the manner, place or terms of payment, or change or extend the time of or renew, or change any interest rate or alter any Liability or Obligation or installment thereof, or any security therefor; (b) loan additional monies or extend additional credit to Borrower, with or without security, thereby creating new Liabilities or Obligations the payment or performance of which shall be guaranteed hereunder, and the Guaranty herein made shall apply to the Liabilities and Obligations as so changed, extended, surrendered, realized upon or otherwise altered; (c) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property at any time pledged or mortgaged to secure the Liabilities or Obligations and any offset there against; (d) exercise or refrain from exercising any rights against Borrower or others (including Guarantor) or act or 37 38 refrain from acting in any other manner; (e) settle or compromise any Liability or Obligation or any security therefor and subordinate the payment of all or any part thereof to the payment of any Liability or Obligation of any other parties primarily or secondarily liable on any of the Liabilities or Obligations; (f) release or compromise any Liability of Guarantor hereunder or any Liability or Obligation of any other parties primarily or secondarily liable on any of the Liabilities or Obligations; or (g) apply any sums from any sources to any Liability without regard to any Liabilities remaining unpaid. 5. SUBORDINATION. Guarantor agrees that it will not demand, take or receive from Borrower, by set-off or in any other manner, payment of any debt, now and at any time or times hereafter owing by Borrower to Guarantor unless and until all the Liabilities and Obligations shall have been fully paid and performed, and any security interest, liens or encumbrances which Guarantor now has and from time to time hereafter may have upon any of the assets of Borrower shall be made subordinate, junior and inferior and postponed in priority, operation and effect to any security interest of Bank in such assets. 6. WAIVERS BY BANK. No delay on the part of Bank in exercising any of its options, powers or rights, and no partial or single exercise thereof, shall constitute a waiver thereof. No waiver of any of its rights hereunder, and no modification or amendment of this Guaranty, shall be deemed to be made by Bank unless the same shall be in writing, duly signed on behalf of Bank; and each such waiver, if any, shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Bank or the obligations of Guarantor to Bank in any other respect at any other time. 7. TERMINATION. This Guaranty shall be binding on each Guarantor until written notice of revocation signed by such Guarantor or written notice of the death of such Guarantor shall have been received by Bank, notwithstanding change in name, location, composition or structure of, or the dissolution, termination or increase, decrease or change in personnel, owners or partners of Borrower, or any one or more of Guarantors. No notice of revocation or termination hereof shall affect in any manner rights arising under this Guaranty with respect to Liabilities or Obligations that shall have been committed, created, contracted, assumed or incurred prior to receipt of such written notice pursuant to any agreement entered into by Bank prior to receipt of such notice. The sole effect of such notice of revocation or termination hereof shall be to exclude from this Guaranty, Liabilities or Obligations thereafter arising that are unconnected with Liabilities or Obligations theretofore arising or transactions entered into theretofore. 8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of any Loan Document as it may apply to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. In the event Bank is required to relinquish or return the payments, the collateral or the proceeds thereof, in whole or in part, which had been previously applied to or retained for application against any Liability, by reason of a proceeding arising under the Bankruptcy Code, or for any other reason, this Guaranty shall automatically continue to be effective notwithstanding any previous cancellation or release effected by Bank. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against Borrower and/or Guarantor for liquidation or reorganization, should Borrower and/or Guarantor become insolvent or make an assignment for the benefit of creditors or should a receiver or 38 39 trustee be appointed for all or any significant part of any of Borrower's and/or Guarantor's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if any time, payment and performance of the Obligations and Liabilities, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations or Liabilities or such part thereof, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof is rescinded, reduced, restored or returned, the Obligations and Liabilities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 9. CHANGE OF STATUS. Guarantor will not become a party to a merger or consolidation with any other company, or change its legal structure without the written consent of Bank, except as may be expressly permitted in the Loan Agreement; provided, however, that all covenants under this Guaranty shall be assumed by the new or surviving entity. Guarantor further agrees that this Guaranty shall be binding, legal and enforceable against Guarantor in the event Borrower changes its name, status or type of entity. 10. FINANCIAL AND OTHER INFORMATION. Guarantor agrees to furnish to Bank any and all financial information and any other information regarding Guarantor and/or collateral requested in writing by Bank within ten (10) days of the date of the request. Guarantor has made an independent investigation of the financial condition and affairs of Borrower prior to entering into this Guaranty, and Guarantor will continue to make such investigation; and in entering into this Guaranty Guarantor has not relied upon any representation of Bank as to the financial condition, operation or creditworthiness of Borrower. Guarantor further agrees that Bank shall have no duty or responsibility now or hereafter to make any investigation or appraisal of Borrower on behalf of Guarantor or to provide Guarantor with any credit or other information which may come to its attention now or hereafter. 11. NOTICES. Notice shall be deemed reasonable if mailed postage prepaid at least five (5) days before the related action to the address of Guarantor or Bank, at their respective addresses indicated below, or to such other address as any party may designate by written notice to the other party. Each notice, request and demand shall be deemed given or made, if sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the U.S. Mail, first class postage prepaid, or if sent by any other means, upon delivery. With respect to Guarantor: RFS Leasing III, Inc. 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 35119 Attention: Kevin Luebbers 39 40 With respect to Bank: Bank of America, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202 Attention: Mr. D. Bryce Langen 12. GUARANTOR DUTIES. Guarantor shall upon notice or demand by Bank promptly and with due diligence pay all Liabilities and perform and satisfy all Obligations for the benefit of Bank in the event of (a) the occurrence of any default under any Loan Documents; (b) the failure of Borrower or any Guarantor to perform any obligation or pay any liability or indebtedness of Borrower or any Guarantor to Bank, or to any affiliate of Bank, whether under any Note, Guaranty, or any other agreement, now or hereafter existing, as and when due (whether upon demand, at maturity or by acceleration); (c) the failure of Borrower or any Guarantor to pay or perform any other liability, obligation or indebtedness of Borrower or any Guarantor to any other party; (d) the death of Borrower or any Guarantor (if an individual); (e) the resignation or withdrawal of any partner or a material owner/shareholder/partner of any Guarantor or Borrower, as determined by Bank in its sole discretion; (f) the commencement of a proceeding against Borrower or any Guarantor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of Borrower or any Guarantor or the merger or consolidation of Borrower or any Guarantor with or into another entity; (g) the insolvency, or the business failure of, or the appointment of a custodian, trustee, liquidator or receiver for or of any of the property of, or the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor's relief law or the filing of a petition for any adjustment of indebtedness, composition or extension by or against Borrower or any Guarantor; (h) the sole determination by Bank that any representation or warranty to Bank in any Loan Document or otherwise to Bank was untrue or materially misleading when made; (i) the failure of any Guarantor or Borrower to timely deliver such financial statements including tax returns and all schedules, or other statements of condition or other information, as Bank shall request from time to time; (j) the entry of a judgment against Borrower or any Guarantor which Bank deems to be of a material nature in the sole discretion of Bank; (k) the seizure or forfeiture of any of Borrower or any Guarantor's property, or the issuance of any writ of possession, garnishment or attachment, or any turnover order; (l) the sole determination by Bank that any Guarantor or Borrower jointly or severally, has suffered a material adverse change in its financial condition; (m) the determination by Bank that for any reason it is insecure; (n) any lien or additional security interest being placed upon any collateral which is security for any Loan Document; (o) the failure of Borrower's business to comply with any law or regulation controlling the operation of Borrower's business; or (p) the occurrence of any "Default", as such term is defined in the Loan Agreement. In addition to the foregoing, any "Default", as such term is defined in the Loan Agreement, shall constitute an even of default under this Guaranty. 13. REMEDIES. Upon the failure of Guarantor to fulfill its duty to pay Liabilities and perform and satisfy all Obligations as required hereunder, Bank shall have all of the remedies of a creditor and, to the extent applicable, of a secured party, under all applicable laws, and without limiting the generality of the foregoing, Bank may, at its option and without notice or demand: (a) declare any Liability due and payable at once; (b) take possession of any collateral pledged by Borrower or Guarantor wherever located, and sell, resell, assign, transfer and deliver all or any part of said collateral of Borrower or Guarantor 40 41 at any public or private sale or otherwise dispose of any or all of the collateral in its then condition, for cash or on credit or for future delivery, and in connection therewith Bank may impose reasonable conditions upon any such sale, and Bank, unless prohibited by law the provisions of which cannot be waived, may purchase all or any part of said collateral to be sold, free from and discharged of all trusts, claims, rights or redemption and equities of Borrower or Guarantor whatsoever; Guarantor acknowledges and agrees that the sale of any collateral through any nationally recognized broker-dealer, investment banker or any other method common in the securities industry shall be deemed a commercially reasonable sale under the Uniform Commercial Code or any other equivalent statute or federal law, and expressly waives notice thereof except as provided herein; and (c) set-off against any or all liabilities of Guarantor all money owed by Bank or any of its agents or affiliates in any capacity to Guarantor whether or not due, and also set-off against all other Liabilities of Guarantor to Bank all money owed by Bank in any capacity to Guarantor, and if exercised by Bank, Bank shall be deemed to have exercised such right of set-off and to have made a charge against any such money immediately upon the occurrence of such default although made or entered on the books subsequent thereto. Bank shall have a properly perfected security interest in all of Guarantor's funds on deposit with Bank to secure the balance of any Liabilities and/or Obligations that Guarantor may now or in the future owe Bank. Bank is granted a contractual right of set-off and will not be liable for dishonoring checks or withdrawals where the exercise of Bank's contractual right of set-off or security interest results in insufficient funds in Guarantor's account. As authorized by law, Guarantor grants to Bank this contractual right of set-off and security interest in all property of Guarantor now or at anytime hereafter in the possession of Bank, including but not limited to any joint account, special account, account by the entireties, tenancy in common, and all dividends and distributions now or hereafter in the possession or control of Bank. 14. ATTORNEY FEES, COST AND EXPENSES. Guarantor shall pay all costs of collection and reasonable attorney's fees, including reasonable attorney's fees in connection with any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred or paid by Bank in (a) defending this Guaranty or (b) enforcing the payment or performance of any Liability or Obligation. 15. COLLATERAL. Bank at all times and from time to time shall have the right to require Guarantor to deliver to Bank collateral satisfactory to Bank to secure Guarantor's undertakings hereunder and/or the Liabilities or Obligations of Guarantor hereunder. 16. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps necessary to preserve any rights in any property pledged as collateral to Bank to secure Borrower and/or Guarantor's Liabilities and Obligations as against prior parties who may be liable in connection therewith, and Borrower and Guarantor hereby agree to take any such steps. Bank, nevertheless, at any time, may (a) take any action it deems appropriate for the care or preservation of such property or of any rights of Borrower and/or Guarantor or Bank therein; (b) 41 42 demand, sue for, collect or receive any money or property at any time due, payable or receivable on account of or in exchange for any property pledged as collateral to Bank to secure Borrower and/or Guarantor's Liabilities to Bank; (c) compromise and settle with any person liable on such property; or (d) extend the time of payment or otherwise change the terms of the Loan Documents as to any party liable on the Loan Documents, all without notice to, without incurring responsibility to, and without affecting any of the Obligations or Liabilities of Guarantor. 17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH 42 43 AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. 18. CONTROLLING DOCUMENT. To the extent that this Guaranty conflicts with the Loan Agreement, the Loan Agreement shall control. 19. NOTICE OF FINAL AGREEMENT. THIS WRITTEN CONTINUING AND UNCONDITIONAL GUARANTY AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN OR AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 20. LIMITATION REGARDING GUARANTEED OBLIGATIONS. Notwithstanding anything to the contrary contained in this Guaranty, the Guaranteed Obligations of Guarantor hereunder shall not exceed an aggregate amount equal to the greatest amount that would not render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to avoidance under Sections 544, 548 or 550 of the Federal Bankruptcy Code or subject to being set aside or annulled under any applicable state law relating to fraud on creditors; PROVIDED, HOWEVER, that, for purposes of the immediately preceding clause, it shall be presumed that the Guaranteed Obligations of Guarantor under this Guaranty do not equal or exceed any aggregate amount which would render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to being so avoided, set aside or annulled, and the burden of proof to the contrary shall be on the party asserting to the contrary. Subject to but without limiting the generality of the foregoing sentence, the provisions of this Guaranty are severable and, in any legally binding action or proceeding involving any state corporate law or any bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights and general principles of equity, if the indebtedness, liabilities or obligations of Guarantor under this Guaranty would otherwise be held or determined to be void, invalid or unenforceable on account of the amount of its indebtedness, liabilities or obligations under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the amount of such indebtedness, liabilities or obligations shall, without any further action by Guarantor, Bank or any other Person, be automatically limited and reduced to the greatest amount which is valid and enforceable as determined in such action or proceeding. 43 44 21. REPRESENTATION BY GUARANTOR. Guarantor represents, acknowledges and agrees as follows: Guarantor, together with Borrower and the other Guarantors referenced and/or defined in the Loan Agreement, are a combined enterprise with a common purpose, each dependent on the other, and the successful operations and viability of any one of them inures to the benefit of each of them. Guarantor has determined that the availability of credit to Borrower, and the ability of Borrower to make proceeds of such credit available for its subsidiaries and affiliates, is of direct and indirect benefit to it, of equivalent value, and that execution and performance of this Guaranty is in its best interest. IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed on this ________ day of _______________, 2000. RFS LEASING III, INC., A TENNESSEE CORPORATION Witnessed By: By: - ----------------------------- -------------------------------------- Name: - ----------------------------- -------------------------------------- Print Name and Title Title: -------------------------------------- 44 45 CORPORATE ACKNOWLEDGMENT State of ______________________ ) ) County of _____________________ ) This instrument was acknowledged before me on __________________________, 2000, by RFS LEASING, III, INC., a Tennessee corporation, on behalf of said corporation. ----------------------------------- (Seal) Notary Public in and for the State of - ----------------------------- ----------------------------------- My Commission Expires Print Name of Notary 45 46 EXHIBIT G SECURED COLLATERAL POOL (As of July 31, 2000)
HOTEL (FRANCHISE) CITY STATE FRANCHISOR COST* - ----------------- ---- ----- ---------- ----- 1. Hampton Ft. Lauderdale FL Hampton $ 6,408,505 2. Hampton Warren MI Hampton $ 4,059,968 3. Hampton Minnetonka MN Hampton $ 6,291,190 4. Hampton Lincoln NE Hampton $ 6,086,330 5. Hampton Tulsa OK Hampton $ 7,189,123 6. Hawthorne Atlanta GA Hawthorne Suites $21,265,179 7. Holiday Inn Louisville KY Holiday $ 7,038,697 8. Holiday Inn Lafayette LA Holiday $12,534,620 9. Holiday Inn Columbia SC Holiday $ 7,697,098 10. Holiday Inn Express Arlington Heights IL Holiday $ 5,411,385 11. Holiday Inn Express Bloomington MN Holiday $ 9,077,513 12. Residence Inn Wilmington DE Residence $10,811,555 13. Courtyard by Marriott Flint MI Marriott $ 6,637,000 14. Hampton Laredo TX Promus $ 6,029,000 15. Hampton Plano TX Promus $ 7,001,000 16. Residence Inn Tyler TX Residence $ 9,106,000 17. Residence Inn Fishkill NY Residence $14,364,000 18. Hampton Inn Chandler AZ Promus $ 5,444,000 19. Beverly Heritage Milpitas CA Independent $39,344,000 20. Homewood Suites Chandler AZ Promus $ 6,731,000 21. Hampton Inn Sedona AZ Promus $ 6,095,000 22. Hotel Rex San Francisco CA Independent $15,346,000 23. Residence Inn West Palm Beach FL Residence $ 6,453,000 24. TownePlace Suites Fort Worth TX Marriott $ 6,720,000 25. TownePlace Suites Miami FL Marriott $ 6,695,000
* as of November 30, 1999 Choice = Choice Hotels International, Inc. Hampton = Hampton Inn Hotel Division, Inc. Promus Hotel Corp. Holiday = Holiday Inn Franchise Division, Inc. Holiday Inn Worldwide Residence = Residence Inn by Marriott Promus = Promus Hotel Corporation ITT = ITT Sheraton Marriott = Marriott International, Inc. 46 47 SCHEDULE 1 PROPERTIES TO BE RELEASED 1. Holiday Inn, Flint, Michigan 2. Sheraton Hotel, Clayton, Missouri 3. Holiday Inn Express, Downers Grove, Illinois 4. Residence Inn, Torrance, California 5. Hampton Inn, Houston, Texas 6. Residence Inn, Atlanta, Georgia 7. Residence Inn, Jacksonville, Florida 8. Hampton Inn, Jacksonville, Florida 47 48 SCHEDULE 2 LEASES TO BE PURCHASED
- ----------------------------------------- -------------------------------------------------------------------------- HOTEL ADDRESS - ----------------------------------------- -------------------------------------------------------------------------- 1. Hampton Inn 7333 W. Detroit St., Chandler, AZ 85226 - ----------------------------------------- -------------------------------------------------------------------------- 2. Hampton Inn 1800 Highway 89 A, Sedona, AZ 86336 - ----------------------------------------- -------------------------------------------------------------------------- 3. Sheraton Four Points 5101 California Avenue, Bakersfield, CA 93309-1623 - ----------------------------------------- -------------------------------------------------------------------------- 4. Sheraton Hotel 1801 Barber Lane, Milpitas, CA 95035 - ----------------------------------------- -------------------------------------------------------------------------- 5. Beverly Heritage 1820 Barber Lane, Milpitas, CA 95035 - ----------------------------------------- -------------------------------------------------------------------------- 6. Sheraton Four Points 5115 Hopyard Road, Pleasanton, CA 94588 - ----------------------------------------- -------------------------------------------------------------------------- 7. Residence Inn 1530 Howe Avenue, Sacramento, CA 95825-3358 - ----------------------------------------- -------------------------------------------------------------------------- 8. Doubletree Hotel 11915 El Camino Real, San Diego, CA 92130 - ----------------------------------------- -------------------------------------------------------------------------- 9. Sheraton Hotel 1100 N. Mathilda Ave., Sunnyvale, CA 94089 - ----------------------------------------- -------------------------------------------------------------------------- 10. Residence Inn 3701 Torrance Blvd., Torrance, CA 90503 - ----------------------------------------- -------------------------------------------------------------------------- 11. Hampton Inn 4685 Quebec, Denver, CO 80216 - ----------------------------------------- -------------------------------------------------------------------------- 12. Hampton Inn 3805 S. Wadsworth Blvd., Lakewood, CO 80235 - ----------------------------------------- -------------------------------------------------------------------------- 13. Residence Inn 240 Chapman Rd., Wilmington, DE 19702 - ----------------------------------------- -------------------------------------------------------------------------- 14. Hampton Inn 720 E. Cypress Creek, Ft. Lauderdale, FL 33334 - ----------------------------------------- -------------------------------------------------------------------------- 15. Residence Inn 7975 Canada Ave., Orlando, FL 32819-8262 - ----------------------------------------- -------------------------------------------------------------------------- 16. Residence Inn 8098 Barfield Rd., Atlanta, GA 30328 - ----------------------------------------- -------------------------------------------------------------------------- 17. Hawthorn Suites Hotel 1500 Parkwood Circle, Atlanta, GA 30339 - ----------------------------------------- -------------------------------------------------------------------------- 18. Comfort Inn 2100 Northwest Parkway, Marietta, GA 30067 - ----------------------------------------- -------------------------------------------------------------------------- 19. Holiday Inn Express 2120 S. Arlington Heights, Arlington Heights, IL 60005 - ----------------------------------------- -------------------------------------------------------------------------- 20. Holiday Inn 800 South Route 31, Crystal Lake, IL 60014 - ----------------------------------------- -------------------------------------------------------------------------- 21. Holiday Inn Express 3031 Finley Road, Downers Grove, IL 60515 - ----------------------------------------- -------------------------------------------------------------------------- 22. Hampton Inn 5601 Fortune Circle West, Indianapolis, IN 46241 - ----------------------------------------- -------------------------------------------------------------------------- 23. Holiday Inn 4110 Dixie Highway, Louisville, KY 40216 - ----------------------------------------- -------------------------------------------------------------------------- 24. Holiday Inn 2032 NE Evangeline Thruway, Lafayette, LA 70509 - ----------------------------------------- -------------------------------------------------------------------------- 25. Residence Inn 800 Victors Way, Ann Arbor, MI 48108 - ----------------------------------------- --------------------------------------------------------------------------
48 49
- ----------------------------------------- -------------------------------------------------------------------------- HOTEL ADDRESS - ----------------------------------------- -------------------------------------------------------------------------- 26. Comfort Inn 30715 West Twelve Mile Rd., Farmington Hills, MI 48334 - ----------------------------------------- -------------------------------------------------------------------------- 27. Courtyard 5205 Gateway Centre, Flint, MI 48507 - ----------------------------------------- -------------------------------------------------------------------------- 28. Holiday Inn 5353 Gateway Center, Flint, MI 48507-8351 - ----------------------------------------- -------------------------------------------------------------------------- 29. Hampton Inn 7447 Convention Rd., Warren, MI 48092 - ----------------------------------------- -------------------------------------------------------------------------- 30. Holiday Inn Express 814 East 79th St., Bloomington, MN 55420 - ----------------------------------------- -------------------------------------------------------------------------- 31. Hampton Inn 4201 West 80th St., Bloomington, MN 55437 - ----------------------------------------- -------------------------------------------------------------------------- 32. Hampton Inn 10420 Wayazta Blvd., Minnetonka, MN 55305 - ----------------------------------------- -------------------------------------------------------------------------- 33. Sheraton Hotel 7730 Bonhomme Ave., Clayton, MO 63105 - ----------------------------------------- -------------------------------------------------------------------------- 34. Residence Inn 2975 Main St. - Union Hill, Kansas City, MO 64108 - ----------------------------------------- -------------------------------------------------------------------------- 35. Hampton Inn 4301 Hardy Street, Hattiesburg, MS 39401 - ----------------------------------------- -------------------------------------------------------------------------- 36. Residence Inn 5800 West Park Dr., Charlotte, NC 28217 - ----------------------------------------- -------------------------------------------------------------------------- 37. Hampton Inn 1301 West Bond Circle, Lincoln, NE 68521-3636 - ----------------------------------------- -------------------------------------------------------------------------- 38. Hampton Inn 9720 West Dodge Rd., Omaha, NE 68114 - ----------------------------------------- -------------------------------------------------------------------------- 39. Residence Inn 2481 Route 9, Fishkill, NY 12524 - ----------------------------------------- -------------------------------------------------------------------------- 40. Hampton Inn 1905 South Meridian Avenue, Oklahoma City, OK 73108 - ----------------------------------------- -------------------------------------------------------------------------- 41. Hampton Inn 3209 South 79th East Ave., Tulsa, OK 74145 - ----------------------------------------- -------------------------------------------------------------------------- 42. Residence Inn 500 Kilvert St., Warwick, RI 02883 - ----------------------------------------- -------------------------------------------------------------------------- 43. Holiday Inn 830 Assembly St., Columbia, SC 29201 - ----------------------------------------- -------------------------------------------------------------------------- 44. Comfort Inn 3725 Avenue of the Carolinas, Ft. Mill, SC 29715 - ----------------------------------------- -------------------------------------------------------------------------- 45. Hampton Inn 33 Humphrey Center Dr., Memphis, TN 38120 - ----------------------------------------- -------------------------------------------------------------------------- 46. Holiday Inn Express 7622 I-35 North, Austin, TX 78752 - ----------------------------------------- -------------------------------------------------------------------------- 47. Residence Inn 1701 S. University Dr., Ft. Worth, TX 76107 - ----------------------------------------- -------------------------------------------------------------------------- 48. Hampton Inn 8620 Airport Blvd., Houston, TX 77061 - ----------------------------------------- -------------------------------------------------------------------------- 49. Hampton Inn 7903 San Dario, Laredo, TX 78041 - ----------------------------------------- -------------------------------------------------------------------------- 50. Hampton Inn 4901 Old Shepard Place, Plano, TX 75093 - ----------------------------------------- -------------------------------------------------------------------------- 51. Residence Inn 3303 Troup Highway, Tyler, TX 75701 - ----------------------------------------- -------------------------------------------------------------------------- 52. Holiday Inn Express 11111 West North Ave., Wauwatosa, WI 53226-2233 - ----------------------------------------- -------------------------------------------------------------------------- 53. Hilton 2620 Jones Street, San Francisco, CA 94133 - ----------------------------------------- --------------------------------------------------------------------------
49 EX-10.18 7 g67578ex10-18.txt 3RD AMENDED & RESTATED REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.18 THIRD AMENDMENT TO FOURTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT This THIRD AMENDMENT TO FOURTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "Amendment") made and entered into as of the 1st day of August, 2000, by and among RFS HOTEL INVESTORS, INC., a Tennessee corporation (the "Guarantor"), RFS PARTNERSHIP, L.P., a Tennessee limited partnership (the "Borrower"), RIDGE LAKE GENERAL PARTNER, INC., a Tennessee corporation ("Ridge Lake"), PLANO INN, L.P., a Texas limited partnership ("Plano Inn"), the secured banks, financial institutions and other entities from time to time parties to this Amendment (collectively, the "Lenders"),and BANK OF AMERICA, N.A., a national banking association (hereinafter referred to as "Bank of America" or the "Agent"). RECITALS: A. The Borrower is primarily engaged in the business of purchasing, developing, owning, operating, leasing, managing, financing and selling hotel properties. B. The Guarantor is the sole general partner of the Borrower and the Guarantor is qualified as a real estate investment trust with its common stock listed on the New York Stock Exchange. C. Boatmen's Bank of Tennessee ("BBOT") has heretofore made loans available to the Guarantor, formerly as borrower, in the maximum aggregate principal amount of $75,000,000 (hereinafter as modified and/or increased called the "Facility"), as set forth in that certain First Amended Revolving Credit and Term Loan Agreement dated as of February 20, 1996, as modified by that certain First Modification of First Amended Revolving Credit and Term Loan Agreement and of Related Documents dated as of May 19, 1996 (collectively the "BBOT Loan Agreement"). D. BBOT has heretofore transferred undivided participation interests in the Facility (the "Participations") to SouthTrust Bank of Georgia, N.A., First Tennessee Bank National Association, and First National Bank of Commerce, New Orleans (collectively the "Participating Lenders"), pursuant to the terms of that certain First Amended Participation Agreement dated as of May 29, 1996 (the "Participation Agreement"). E. By Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 30, 1997 (the "Restated Loan Agreement"), the Borrower became the borrower and assumed the obligations of the Guarantor, formerly as the borrower, relating to the Facility set forth in the BBOT Loan Agreement, the Participations were converted into a single direct multiple-lender line of credit, and the Facility was increased to the maximum aggregate principal amount of $175,000,000. F. In connection with the Restated Loan Agreement, BBOT assigned all of its right, title and interest in and to the Facility, the BBOT Loan Agreement, the Participation Agreement and the 2 other Loan Documents (as herein defined) to NationsBank, N.A. ("NationsBank") which then, together with the Participating Lenders, terminated the Participation Agreement and assigned to the Participating Lenders an undivided interest in and to the Facility. NationsBank also placed of record in each jurisdiction where a Mortgage was already of record an assignment, modification and assumption agreement, assigning its rights therein to the Agent as agent for the Lenders, modifying such Mortgage to reflect the increase in the Facility and extension of the Facility Termination Date, and reflecting the assumption of the Obligations by the Borrower, and including certain other matters. G. Contemporaneously with the termination of the Participation Agreement, NationsBank and the Participating Lenders assigned to the remaining Lenders such portions of the Commitment existing under the BBOT Loan Agreement as were necessary to properly distribute to all Lenders their proper pro rata shares of the Commitment existing under the BBOT Loan Agreement, followed contemporaneously by an increase in the Facility and Commitment as set forth in the Restated Loan Agreement and the appointment of NationsBank as the Agent for the Lenders pursuant to the terms thereof. NationsBanc Capital Markets, Inc. ("NCMI"), subsequently known as NationsBanc Montgomery Securities LLC ("NMS") and now known as Banc of America Securities, LLC ("BAS"), arranged the increase in the Facility requested by the Borrower and the Guarantor from $75,000,000 to $175,000,000, and NCMI and NationsBank coordinated the closing of such increase. H. By Second Amended and Restated Revolving Credit and Term Loan Agreement, dated as of October 1, 1997, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "Second Restated Loan Agreement"), the parties modified the Restated Loan Agreement to adjust the interest rate options therein, to add certain additional financial covenants and delete or modify certain existing financial covenants, and to include certain other modifications. I. By First Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 4, 1998, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "First Amendment to Second Restated Loan Agreement"), the parties modified the Second Restated Loan Agreement to increase the Facility to the maximum aggregate principal amount of $190,000,000, to modify certain existing financial covenants, and to include certain other modifications, all to be effective from the date thereof through and including December 31, 1998. J. By Second Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 30, 1998, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "Second Amendment to Second Restated Loan Agreement"; the Second Restated Loan Agreement, as modified by the First Amendment to Second Restated Loan Agreement and the Second Amendment to Second Restated Loan Agreement, being hereinafter referred to as the "Amended Second Restated Loan Agreement"), the parties modified and added certain definitions. 2 3 K. By letter dated November 6, 1998 (the "Waiver Letter"), Agent, on behalf of the Required Lenders, waived any defaults arising due to breaches of Section 7.18(d) of the Amended Second Restated Loan Agreement through December 31, 1998. L. By Third Amended and Restated Revolving Credit Agreement dated as of December 22, 1998, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the " Third Restated Loan Agreement"), the parties modified the Amended Second Restated Loan Agreement to decrease the Facility to the maximum aggregate principal amount of $100,000,000 in exchange for the release of certain Collateral Pool Property (as defined therein), to modify certain existing financial covenants, and to include certain other modifications. M. By First Amendment to Third Amended and Restated Revolving Credit Agreement dated as of June 30, 1998, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "First Amendment to Third Restated Loan Agreement"; the Third Restated Loan Agreement, as modified by the First Amendment to Third Restated Loan Agreement, being hereinafter referred to as the "Amended Third Restated Loan Agreement"), the parties modified certain provisions. N. By that certain Fourth Amended and Restated Revolving Credit Agreement dated as of January 7, 2000, made and entered into by and among the Borrower, the Guarantor, the Lenders party thereto and the Agent (the "Fourth Loan Agreement"), the parties modified the Amended Third Restated Loan Agreement to increase the Facility to the aggregate principal amount of $130,000,000.00, to permit the possible future increase in the Facility to $140,000,000 and to modify certain existing financial covenants. O. In connection with the execution of the Fourth Loan Agreement, the Agent also placed of record in each jurisdiction where a Mortgage was already of record a Modification and Extension Agreement modifying such Mortgage to (i) reflect the changes in the Facility and extension of the Facility Termination Date and (ii) to include certain other matters. P. By that certain First Amendment to Fourth Amended and Restated Revolving Credit Agreement dated as of March 14, 2000, made and entered into by and among the Borrower, the Guarantor, Ridge Lake, the Lenders party thereto and the Agent (the "First Amendment to Fourth Amended and Restated Loan Agreement"; the Fourth Loan Agreement, as modified by the First Amendment to Fourth Amended and Restated Loan Agreement, being hereinafter referred to as the "Amended Fourth Restated Loan Agreement"), the parties modified the Fourth Loan Agreement to increase the Aggregate Commitment by $10,000,000.00 as contemplated by the terms of the Fourth Loan Agreement, the funding of which was supplied by Union Planters Bank, N.A. ("UPB") and to permit UPB to become an Additional Lender under the terms of the Fourth Loan Agreement (as modified by the First Amendment to Fourth Amended and Restated Loan Agreement). Q. By that certain Second Amendment to Fourth Amended and Restated Revolving Credit Agreement dated as of August 1, 2000, made and entered into by and among the Borrower, the Guarantor, Ridge Lake, the Lenders party thereto and the Agent (the "Second Amendment to 3 4 Fourth Amended and Restated Loan Agreement"; the Amended Fourth Restated Loan Agreement, as modified by the Second Amendment to Fourth Amended and Restated Loan Agreement, being hereinafter referred to as the "Fourth Restated Loan Agreement"), the parties modified the Amended Fourth Restated Loan Agreement to release certain of the properties in the Secured Collateral Pool, to secure (with mortgages or deeds of trust, as the case may be) and such other security documents as were required) each of the Negative Collateral Pool properties, to modify the Applicable Advance Rate and certain other financial covenants and to modify certain other provisions therein. R. The Borrower has asked that the Fourth Restated Loan Agreement be further modified pursuant to the terms hereof to permit one of its Affiliates to execute a deed of trust in favor of the Agent with respect to certain property more particularly described herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. PLEDGE OF PROPERTY BY PLANO INN. In connection with the addition of the various properties to the Secured Collateral Pool, Plano Inn shall (to the extent it has not previously done so) execute and deliver to the Agent a Deed of Trust, Assignment, Security Agreement and Financing Statement (the "Deed of Trust") (in the form attached hereto as Exhibit "B" and made a part hereof for all purposes), with respect to the improved real property owned by Plano Inn, which property is more particularly described on Exhibit "A" attached hereto and made a part hereof for all purposes (the "Additional Property"). Upon the execution of the Deed of Trust with respect to the Additional Property, the Additional Property shall be deemed to be a part of the Secured Collateral Pool under the Fourth Restated Loan Agreement (as modified by the terms hereof). Notwithstanding the foregoing, however, neither the Borrower nor Plano Inn shall be required to comply with the terms of Section 5.3(j) of the Fourth Restated Loan Agreement (as modified by the terms hereof) with respect to the Additional Property unless such Additional Property has not been sold (in a transaction the terms of which have been approved by the Agent and the Lenders) on or before February 1, 2001, in which case the Borrower and Plano Inn shall promptly cause the Additional Property to fully comply with the requirements of such Section 5.3(j). 2. ENVIRONMENTAL INDEMNITY. In connection with the execution of the Deed of Trust by Plano Inn, Plano Inn, among others, shall simultaneously with the execution of this Amendment execute and deliver to the Agent that certain Second Amended and Restated Master Environmental Indemnity Agreement with respect to the Additional Property, a copy of which Second Amended and Restated Master Environmental Indemnity Agreement is attached hereto as Exhibit "C" and made a part hereof for all purposes. 3. GUARANTY BY PLANO INN. Simultaneously with the execution of this Amendment, Plano Inn shall (to the extent it has not previously done so) execute and deliver to the Agent that certain Continuing and Unconditional Guaranty (in the form attached hereto as Exhibit "D" and made a part hereof for all purposes) pursuant to the terms of which Plano Inn shall guaranty all of the obligations of the Borrower under the Fourth Restated Loan Agreement (as modified by the terms hereof). In this regard, Plano Inn hereby acknowledges, represents and warrants that it has derived, or expects to derive, substantial benefit from the extension of credit by the Agent and the 4 5 Lenders pursuant to the terms of the Fourth Restated Loan Agreement (as modified by the terms hereof). 4. REPRESENTATIONS AND WARRANTIES OF PLANO INN. Plano Inn, in its capacity as a guarantor and as grantor under the Deed of Trust with respect to the Additional Property, hereby makes to the Agent and the Lenders all of the representations and warranties set forth in Article VI of the Fourth Restated Loan Agreement (as modified by the terms hereof) including, without limitation, all of the representations and warranties set forth in Section 6.24 of the Fourth Restated Loan Agreement (as modified by the terms hereof) with respect to the Additional Property and further represents and warrants to all such parties that all such representations and warranties are true, correct and complete as of the date hereof and that all of such representations and warranties will continue to be true, correct and complete at all times prior to the Facility Termination Date. 5. CLARIFICATION OF OWNERSHIP OF ADDITIONAL PROPERTY. Since Plano Inn (rather than the Borrower) is the record owner of the Additional Property, all of the references, statements and certifications in the Fourth Restated Loan Agreement (as modified by the terms hereof) to the effect that the Borrower is the owner of all of the Collateral Pool Properties shall be amended and modified to reflect the fact that Plano Inn is the owner of the Additional Property and such fact, in and of itself, shall not cause the Borrower or Guarantor to be in violation of, or in default under, the Fourth Restated Loan Agreement (as modified by the terms hereof). 6. MODIFICATION OF DEFINED TERMS. A. Guarantor. The term "Guarantor" as defined in the Fourth Restated Loan Agreement shall be amended and modified to mean and refer to Guarantor, Ridge Lake and Plano Inn (individually and collectively). B. Adjusted Cash Flow. The term "Adjusted Cash Flow" as defined in the Fourth Restated Loan Agreement is amended and restated in its entirety to read as follows: "'Adjusted Cash Flow' means the lesser of (i) lease payments for the trailing twelve (12) months less real estate taxes for the latest available year, property insurance and the Capital Expenditure Reserve Amount or (ii) Property Operating Income (as defined herein, but before deducting real estate taxes, insurance, any capital expenditures and any management fee) for the trailing twelve (12) months less real estate taxes for the latest available year, property insurance, the Capital Expenditure Reserve Amount and the greater of (a) actual management fees paid over the prior twelve (12) months or (b) two and one-half percent (2 1/2%) of gross room revenue for the trailing twelve (12) months; provided, however, that for purposes of determining Adjusted Cash Flow with respect to each Hotel Property which is leased to a taxable REIT Subsidiary of RFS Hotel Investors, Inc. (created pursuant to and in accordance with the requirements of the REIT Modernization Act, effective as of January 1, 2001), Adjusted Cash Flow with respect to each such property shall be the amount determined under subparagraph (ii) above (and shall not be limited to the lesser of the amounts described in subparagraphs (i) and (ii) above)." 5 6 7. CONFIRMATION AND EXTENSION OF RIGHTS AND LIENS BY OBLIGORS. As an additional material inducement to the Agent and the Lenders to enter into this Amendment, the Borrower, the Guarantor, Ridge Lake and Plano Inn (collectively, "Obligors") hereby affirm, confirm, ratify and extend the debts, duties, obligations, liabilities, representations, warranties, rights, titles, security interests, liens, powers and privileges existing by virtue of the Fourth Restated Loan Agreement, as amended or modified hereby, this Amendment and all other documents, instruments and written agreements entered into or executed in connection with or relating to this Amendment (hereinafter collectively referred to as the "Modification Loan Documents"), until all of the indebtedness evidenced by the Notes, and evidenced, secured and guaranteed by the Loan Documents (as amended and modified hereby) and the Modification Loan Documents, has been paid in full, and hereby agree that this Amendment shall not in any way or manner release, waive, discharge, affect, change, modify or impair, and Obligors hereby affirm, confirm and ratify the debts, duties, obligations, liabilities, representations, warranties, rights, titles, security interests, liens, powers and privileges existing by virtue of, arising under or out of, in connection with or relating to the Loan Documents (as amended and modified hereby) and the Modification Loan Documents. The purpose of this Amendment is to modify and confirm the Loan Documents and to continue and carry forward all debts, duties, obligations, liabilities, representations, warranties, rights, titles, security interests, liens, powers and privileges existing by virtue of the Loan Documents (as amended and modified hereby) and the Modification Loan Documents. Neither the Agent, the Lenders nor Obligors intend this Amendment to be construed as a novation of the Notes or the other Loan Documents, as amended or modified hereby. 8. NO WAIVER. Notwithstanding anything contained herein to the contrary, and as an additional material inducement to the Agent and the Lenders to enter into this Amendment, Obligors hereby agree that (i) neither the Agent nor any of the Lenders is hereby releasing, forgiving, discharging, impairing, waiving or relinquishing any rights, titles, interests, liens, security interests, collateral, parties, remedies or any other matter with respect to the Loan Documents, as amended or modified hereby, or otherwise, but rather the Agent and each Lender is expressly retaining and reserving the same to their fullest extent, and (ii) this Amendment shall have no effect on, and also does not waive, any defaults or any rights or remedies resulting therefrom under the terms and provisions of the Loan Documents (as amended and modified hereby) or the Modification Loan Documents, now existing or hereafter arising, or any other events which, with notice or lapse of time or both, would constitute an event of default under the Loan Documents (as amended and modified hereby) or the Modification Loan Documents, now existing or hereafter arising, whether known or unknown by the Agent and/or any of the Lenders. The Agent and each Lender expressly reserve the right to, and may, at their option, declare any events of default or pursue any rights or remedies resulting therefrom under the Loan Documents (as amended and modified hereby) or the Modification Loan Documents. Further, the failure of any Obligor to perform any of the covenants or agreements contained in this Amendment, or the failure of any of the representations or warranties of any Obligor contained in this Amendment to be true, correct and complete on the date hereof, shall constitute an event of default under the Loan Documents and the Modification Loan Documents. 6 7 9. RELEASE OF THE AGENT AND THE LENDERS. (a) As an additional material inducement to the Agent and the Lenders to enter into this Amendment, Obligors, on behalf of themselves and their respective successors, assigns and constituents (whether or not a party hereto) (collectively and individually, "OBLIGOR, ET AL."), hereby fully, finally and completely RELEASE and FOREVER DISCHARGE the Agent and each of the Lenders and their respective successors, assigns, affiliates, subsidiaries, parents, officers, shareholders, directors, employees, attorneys and agents, past, present and future, and their respective heirs, successors and assigns (collectively and individually, "LENDER, ET AL.") of and from any and all claims, controversies, disputes, liabilities, obligations, demands, damages, debts, liens, actions and causes of action of any and every nature whatsoever and WAIVES and RELEASES any defense, right of counterclaim, right of set-off or deduction to the payment of the indebtedness evidenced by the Loan Documents, as amended or modified hereby, known or unknown, whether at law, by statute or in equity, in contract or in tort, under state or federal jurisdiction, which Obligor, et al. now have or may claim to have against Lender, et al. arising out of, connected with or relating to any and all acts, omissions or events occurring prior to the execution of this Amendment, and relating to the indebtedness evidenced by the Notes or the other Loan Documents, as amended or modified hereby, or the Hotel Properties. (b) The release and waiver in Paragraph 9(a) above is intended to be, and is, a full, complete and general release and waiver in favor of Lender, et al. with respect to all claims, demands, causes of action, defenses and other matters described above, including, without limitation, any claims, demands, causes of action or defenses based upon allegations of, for or in connection with, but not limited to, breach of fiduciary duty, breach of any alleged duty of fair dealing or good faith, breach of confidence, undue influence, duress, economic coercion, usury, conflict of interest, intentional tort, negligence, gross negligence, bad faith, malpractice, violations of the Racketeer Influenced and Corrupt Organizations Act, intentional or negligent infliction of mental distress, tortious interference with contractual relations, tortious interference with corporate governance or prospective business advantage, breach of contract, deceptive trade practices, libel, slander, fraud, misrepresentation, conspiracy or any other theory, cause of action, occurrence, matter or thing which might give rise to liability upon Lender, et al., whether related to or arising out of any and all acts, omissions or events occurring prior to the execution of this Amendment, including, without limitation, the indebtedness evidenced by the Notes or the other Loan Documents (as amended and modified hereby) or any other loan at any time made by Lender, et al. or any of them, to Obligor, et al., or relating to any other matter whatsoever. (c) Each Obligor, jointly and severally, shall indemnify, protect, defend and hold harmless Lender, et al. from and against any and all claims, demands, causes of action, losses, damages, liabilities, suits, costs and expenses, including, without limitation, attorneys' fees and court costs, asserted against or suffered or incurred by Lender, et al. by reason of, arising out of or in connection with (i) a breach or violation of any representation or warranty of any Obligor set forth in this Amendment or in any other document executed by any Obligor in connection with this Amendment, (ii) a misrepresentation or inaccurate statement of fact made by any Obligor in this Amendment or in any other document executed by any Obligor in connection with this Amendment, or (iii) the ownership, operation, management, maintenance, use, occupancy or construction of the Hotel Properties. Obligor et al. shall further indemnify, protect, defend and hold harmless Lender, et al. from and against any and all claims, demands, causes of action, losses, damages, liabilities, 7 8 suits, costs and expenses, including, without limitation, attorneys' fees and court costs, asserted against or suffered or incurred by Lender, et al. by reason of, arising out of or in connection with a default by Obligor, et al. in the performance of or failure of Obligor, et al. to perform any of its or their obligations or agreements set forth in this Amendment or in any other document executed by Obligor et al. in connection with this Amendment. In the event a claim is made against Lender, et al. (or any thereof) for which Lender, et al. (or any thereof) is/are entitled to indemnity under this Paragraph 9(c), Obligor, et al. shall reimburse Lender, et al. (or any thereof) for its costs, expenses and reasonable attorneys' fees incurred in defending such claim, such costs, expenses and fees to be reimbursed as they are incurred. This indemnification shall survive and be enforceable after the consummation of the transactions contemplated by this Amendment. 10. REPRESENTATIONS AND WARRANTIES BY OBLIGORS. As an additional material inducement to the Agent and the Lenders to enter into this Amendment, each Obligor hereby represents and warrants to the Agent and to each Lender that on the date hereof: (a) upon consummation of this transaction, the Loan Documents (as amended and modified hereby) and the Modification Loan Documents are not in default; (b) the representations and warranties set forth in the Loan Documents and the Modification Loan Documents are true, correct and complete and are hereby reaffirmed as if such representations and warranties had been made on the date hereof and shall continue in full force and effect; (c) each Obligor has the full right, power and authority to execute and deliver this Amendment and to carry out its obligations under this Amendment; (d) The recitals set forth in Paragraphs A through R on pages 1 through 4 of this Amendment are true, correct and complete in all respects; (e) No consent or approval of any regulatory body to any Obligor's execution, delivery or performance of this Amendment is required by law which has not been obtained and a copy thereof submitted to the Agent and the execution and delivery of this Amendment by each Obligor does not contravene any law, order, decree, rule or regulation to which such Obligor is subject; (f) No parties not expressly made a party to this Amendment are required to join in this Amendment on behalf of any Obligor or otherwise in order to make this Amendment valid, binding and enforceable against any Obligor; 8 9 (g) No Obligor has transferred or assigned any right, claim or cause of action that it may have against the Agent, any of the Lenders or any other person or entity included within the Lender, et al. and entitled to the benefit of the waivers and releases contained in Paragraphs 9(a) and 9(b) of this Amendment, and no person or entity other than Obligors is required to join in this Amendment to make such waivers and releases valid, binding and enforceable against all parties having claims against Lender, et al. which are waived and released by this Amendment. Each Obligor acknowledges and agrees that it has been represented by legal and other counsel in connection with this Amendment, that it fully understands the consequences of entering into this Amendment, including, without limitation, granting the waivers and releases herein contained, and that it is entering into this Amendment of its own free will, without duress or coercion; and (h) No Obligor is a "foreign person" as defined in the Federal Foreign Investment in Real Property Tax Act of 1980 and the 1984 Tax Reform Act or the regulations promulgated thereunder, as amended. The representations and warranties of Obligors contained in this Amendment are made by each Obligor as an inducement to the Agent and the Lenders to modify and amend the Loan Documents and shall survive the consummation of the transactions contemplated by this Amendment. Obligors understand that the Agent and each of the Lenders are relying upon such representations and warranties and that such representations and warranties shall survive any (i) bankruptcy proceedings involving any Obligor or the Hotel Properties, (ii) foreclosure of any Mortgage (including, without limitation, the Deed of Trust) or (iii) conveyance of title to any Hotel Property (including, without limitation, the Additional Property) in lieu of foreclosure of the applicable Mortgage (or the Deed of Trust). 11. LIMITATION ON INTEREST. Notwithstanding anything contained herein or in any of the Loan Documents and the Modification Loan Documents to the contrary, in no event shall the Agent or any of the Lenders be entitled to receive interest on the Notes in amounts which, when added to all of the other interest charged, paid to or received by the Agent or any of the Lenders on the Notes, causes the rate of interest on the Notes to exceed the Highest Lawful Rate. The "Highest Lawful Rate" as used in this Amendment means the maximum nonusurious rate of interest per annum permitted by whichever of applicable United States Federal law or Tennessee law permits the higher interest rate, including to the extent permitted by applicable law, any amendments thereof hereafter or any new law hereafter coming into effect to the extent that a higher rate is permitted thereby. The Highest Lawful Rate shall be applied by taking into account all amounts characterized by applicable law as interest on indebtedness evidenced by the Notes, the Loan Documents (as amended and modified hereby) or the Modification Loan Documents, so that the aggregate of all interest does not exceed the maximum nonusurious amount permitted by applicable law. It is the intent of Obligors, the Agent and each of the Lenders to conform to and contract in strict compliance with applicable usury law from time to time in effect. All agreements among Obligors, the Agent and/or any of the Lenders (or any other party liable with respect to any indebtedness under the Loan Documents or the Modification Loan Documents) are hereby limited by the provisions of this Section which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral (however, reference to the term "oral" shall not be construed to modify or negate any 9 10 provisions hereof or of any other Loan Document or Modification Loan Document regarding the absence or ineffectiveness of oral agreements). In no way, nor in any event or contingency (including but not limited to prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged or received under this Agreement, the Note, any of the other Loan Documents or the Modification Loan Documents, any documents executed in connection with or relating to the indebtedness or otherwise, or any documents evidencing any prior indebtedness renewed, extended or modified by the Loan Documents or the Modification Loan Documents, exceed the Highest Lawful Rate. If, from any possible construction of any document, interest would otherwise be payable in excess of the Highest Lawful Rate, any such construction shall be subject to the provisions of this Section and such document shall be automatically reformed and the interest payable shall be automatically reduced to the Highest Lawful Rate, without the necessity of execution of any amendment or new document. If the Agent or any of the Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Highest Lawful Rate (by reason of the allocation of interest among any prior indebtedness which may have been extended, renewed and/or modified pursuant to the Loan Documents or the Modification Loan Documents or by any reason whatsoever), an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Obligors or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal. The right to accelerate maturity of the Notes or any other indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and neither the Agent nor any of the Lenders intends to charge or receive any unearned interest in the event of acceleration. All interest paid or agreed to be paid to the Agent or any of the Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the Highest Lawful Rate. As used in this Section, the term "applicable law" shall mean the laws of the State of Tennessee or the federal laws of the United States, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future. By execution of this Amendment, Obligors acknowledge that they each believe the Notes, the Loan Documents and the Modification Loan Documents to be nonusurious and agree that, if at any time, any Obligor should have reason to believe that the Notes, the Loan Documents or the Modification Loan Documents are in fact usurious, it shall give the Agent written notice of its belief and the reasons why it believes the Note, the Loan Documents or the Modification Loan Documents to be usurious, and each Obligor agrees that the Agent shall have ninety (90) days following its receipt of such written notice to make (or cause to be made) appropriate refund or other adjustment in order to correct such condition if it in fact exists. 12. NO THIRD PARTY RIGHTS OR OBLIGATIONS. No person or entity not a party to or expressly identified by name in this Amendment as a beneficiary under this Amendment shall have any third-party beneficiary or other rights under this Amendment. Without limiting the foregoing, this Agreement shall not affect or impair in any manner whatsoever any rights, claims, actions, demands or causes of action which the Agent may have against either Obligor, the Hotel Properties (including, without limitation the Additional Property) or any other collateral for the indebtedness 10 11 evidenced by the Loan Documents (as amended and modified hereby) or the Modification Loan Documents, or otherwise under or with respect to the Loan Documents (as amended and modified hereby) or the Modification Loan Documents. 13. CONTINUING VALIDITY. Except as expressly provided herein, all of the terms, provisions, debts, duties, obligations, liabilities, representations and warranties, rights, titles, security interests, liens, powers and privileges existing by virtue of the Loan Documents (as amended and modified hereby) and the Modification Loan Documents shall be and continue in full force and effect, and are hereby acknowledged by each Obligor to be legal, valid, binding and subsisting. 14. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TENNESSEE AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN TENNESSEE. 15. BINDING AGREEMENT. This Amendment shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns; provided, however, that the foregoing shall not be deemed or construed to confer any right, title, benefit, cause of action or remedy upon any person or entity not a party hereto, which such party would not or did not otherwise possess. 16. SEVERABILITY. This Amendment is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws and court decisions. If any provision of this Amendment or the application thereof to any person or circumstance shall, for any reason or to any extent, be invalid or unenforceable, neither the remainder of this Amendment nor the application of such provision to other persons or circumstances or other instruments referred to in this Amendment shall be affected thereby, but rather the same shall be enforced to the greatest extent permitted by law. 17. MODIFICATION. Neither this Amendment nor any provision of this Amendment may be waived, modified or amended except by an instrument in writing signed by the party against which the enforcement of such waiver, modification or amendment is sought, and then only to the extent set forth in such instrument. 18. NO PARTNERSHIP OR FIDUCIARY OBLIGATIONS. The Agent and Obligors each expressly acknowledge and agree that the Agent has not formed, and is not hereby forming, with any Obligor and/or any other party, a partnership, joint venture or any other similar entity, and this Amendment is not intended, and shall not be construed, to create any such entity or relationship. Furthermore, the Agent and Obligors acknowledge and agree that the Agent has no fiduciary obligations, of any type, with respect to any Obligor or any such party. IN NO EVENT SHALL THE AGENT EVER BE LIABLE FOR ANY DEBTS, DUTIES OR OBLIGATIONS OF ANY OBLIGOR OR WITH RESPECT TO THE HOTEL PROPERTIES (INCLUDING, WITHOUT LIMITATION, THE ADDITIONAL PROPERTY) (UNLESS EXPRESSLY ASSUMED BY THE AGENT IN WRITING). 11 12 19. CONSTRUCTION. The terms, provisions and conditions of this Amendment represent the results of negotiations between the Agent and Obligors, each of whom has either represented itself or has been represented by counsel of its own choosing, and none of whom has acted under duress or compulsion, whether legal, economic or otherwise. Accordingly, the terms, provisions and conditions of this Amendment shall be interpreted and construed in accordance with their usual and customary meanings, and the Agent and Obligors, expressly, knowingly and voluntarily, waive the application, in connection with the interpretation and construction of this Amendment, of any rule of law or procedure to the effect that ambiguous or conflicting terms, conditions or provisions shall be interpreted or construed against the party whose attorney prepared the executed version or any prior drafts of this Amendment. 20. COOPERATION BY OBLIGORS. Upon request from the Agent, from time to time, each Obligor will reasonably cooperate with and assist the Agent in connection with the enforcement by the Agent of its rights and remedies under, and the defense of any claims with respect to, the Loan Documents (as amended and modified hereby) and the Modification Loan Documents. Obligors further agree that, except for bona fide disputes arising after the date of this Amendment based upon the conduct of the parties to this Amendment after the date of this Amendment, they will not at any time challenge, contest or seek to set aside in whole or in part the transactions provided in this Amendment. 21. FURTHER ASSURANCES. In addition to the documents, instruments and acts described in this Amendment and which are to be executed and/or delivered and/or taken pursuant to this Agreement, Obligors agree to execute and deliver from time to time upon request by the Agent such other documents and instruments, and take such other action, as the Agent may reasonably request or require to (i) more fully and completely evidence and carry out the transactions contemplated by this Amendment, (ii) promptly correct any defect, error or omission which may be discovered in this Amendment, the Loan Documents (as amended and modified hereby) and the Modification Loan Documents, and execute any and all additional documents, as may be requested by the Agent to correct such defect, error or omission, (iii) create, perfect, preserve, maintain and protect the liens and security interests created or intended to be created by the Loan Documents (as amended and modified hereby) and the Modification Loan Documents, and (iv) provide the rights and remedies to the Agent granted or provided for by the Loan Documents (as amended and modified hereby) the Modification Loan Documents, and this Amendment. 22. ENTIRE AGREEMENT. This Amendment embodies and constitutes the entire understanding between the Agent and Obligors with respect to the transactions contemplated in this Amendment, and all prior or contemporaneous agreements, understandings, representations and statements, oral or written, are merged into this Amendment. 23. HEADINGS. Descriptive headings are used in this Amendment for convenience only and shall not control, limit, amplify or otherwise modify or affect the terms and provisions of this Amendment or the meaning or construction of the terms and provisions of this Amendment. 24. TIME OF ESSENCE. Time is of the essence of this Amendment and of each covenant and agreement that is to be performed at a particular time or within a particular period of time. However, if the date or the final date of any period which is set out in any provision of this 12 13 Amendment falls on a Saturday, Sunday or legal holiday under the laws of the United States or the State of Texas, in such event, the date or the time of such period shall be extended to the next date which is not a Saturday, Sunday or legal holiday. 25. ATTORNEYS' FEES. If it becomes necessary for the Agent and/or any of the Lenders to file suit to enforce this Amendment or any Loan Document (as amended and modified hereby) or any Modification Loan Document, or any provision contained in this Amendment or any Loan Document (as amended and modified hereby) or any Modification Loan Document, or to enforce any of its or their rights in regard thereto or to otherwise incur legal and/or related expenses concerning this Amendment, on demand from the Agent, and without limitation of any other rights and remedies of the Agent and the Lenders, Obligors agree to immediately reimburse the Agent and the Lenders for the attorneys' fees and other costs incurred by the Agent and the Lenders. 26. MULTIPLE COUNTERPARTS. This Amendment may be executed in a number of identical counterparts, each of which for all purposes is deemed an original, and all of which constitute collectively one Amendment, but in making proof of this Amendment, it shall not be necessary to produce or account for more than one such counterpart. In the event this Amendment is not executed by all of the parties set forth herein, such fact shall not affect the binding effect of this Amendment on those parties who have executed this Amendment, and those parties who have executed this Amendment shall nevertheless be bound by all of the terms and provisions contained herein. 27. SOLE AGREEMENT. THIS WRITTEN AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE AGENT AND OBLIGORS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE AGENT AND OBLIGORS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE AGENT AND OBLIGORS. 28. DEFINED TERMS. The defined terms utilized in this Amendment, unless otherwise specifically defined herein, shall have the same meaning as the meaning ascribed to such terms in the Fourth Restated Loan Agreement. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 13 14 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. "Bank of America" and the "Agent" Bank of America, N.A. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 901 Main Street, 51st Floor Dallas, Texas 75202 Attention: D. Bryce Langen Telephone: 214-209-1074 Facsimile: 214-209-0085 14 15 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of BANK OF AMERICA, N.A., a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of Texas -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 15 16 The "Guarantor" RFS Hotel Investors, Inc. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38119 Attention: Kevin Luebbers Telephone: 901-767-7005 Facsimile: 901-818-5260 16 17 STATE OF TENNESSEE ) ) COUNTY OF SHELBY ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of RFS HOTEL INVESTORS, INC., a Tennessee corporation, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of Tennessee -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 17 18 "Ridge Lake" Ridge Lake General Partner, Inc., a Tennessee corporation By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38119 Attention: Kevin Luebbers Telephone: 901-767-7005 Facsimile: 901-818-5260 18 19 STATE OF TENNESSEE ) ) COUNTY OF SHELBY ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of RIDGE LAKE GENERAL PARTNER, INC., a Tennessee corporation, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of Tennessee -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 19 20 The "Borrower" RFS Partnership, L.P. By: RFS Hotel Investors, Inc., General Partner By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38119 Attention: Kevin Luebbers Telephone: 901-767-7005 Facsimile: 901-818-5260 20 21 STATE OF TENNESSEE ) ) COUNTY OF SHELBY ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of RFS Hotel Investors, Inc., General Partner of RFS PARTNERSHIP, L.P., a Tennessee limited partnership, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of Tennessee -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 21 22 "Plano Inn" PLANO INN, L.P., a Texas limited partnership By: RFS Partnership, L.P., a Tennessee limited partnership, General Partner By: RFS Hotel Investors, Inc., a Tennessee corporation, General Partner By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38119 Telephone: 901-767-7005 Facsimile: 901-818-5260 22 23 STATE OF TENNESSEE ) ) COUNTY OF SHELBY ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of RFS Hotel Investors, Inc., a Tennessee corporation, General Partner of RFS Partnership, L.P. a Tennessee limited partnership, General Partner of PLANO INN, L.P., a Texas limited partnership, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of _________________________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of Tennessee -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 23 24 "Lenders" SOUTHTRUST BANK By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 420 N. 20th Street, 11th Floor Birmingham, Alabama 32503 Attention: Ronnie Brantley Telephone: 205-254-4435 Facsimile: 205-254-8270 24 25 STATE OF ______________ ) ) COUNTY OF _____________ ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of SOUTHTRUST BANK, a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of ______ -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 25 26 FIRST TENNESSEE BANK, NATIONAL ASSOCIATION By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 165 Madison Avenue, 10th Floor Memphis, Tennessee 38103 Attention: Robert P. Nieman Telephone: 901-523-4259 Facsimile: 901-523-4235 26 27 STATE OF ______________ ) ) COUNTY OF _____________ ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of FIRST TENNESSEE BANK, NATIONAL ASSOCIATION, a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of ______ -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 27 28 PNC BANK, NATIONAL ASSOCIATION By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 249 5th Avenue P1-POPP-19-2 Pittsburgh, PA 15222 Attention: Wayne Robertson Telephone: 412-762-8452 Facsimile: 412-762-6500 28 29 STATE OF ______________ ) ) COUNTY OF _____________ ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of PNC BANK, NATIONAL ASSOCIATION, a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of ______ -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 29 30 WELLS FARGO BANK, N.A. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 2859 Paces Ferry Rd. Suite 1805 Atlanta, Georgia 30339 Attention: Mark D. Imig Telephone: 770-435-3800 Facsimile: 770-435-2262 30 31 STATE OF ______________ ) ) COUNTY OF _____________ ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of WELLS FARGO BANK, N.A., a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of ______ -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 31 32 UNION PLANTERS BANK, N.A., a national banking association By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 6200 Poplar Avenue HQ04 Memphis, Tennessee 38119 Attention: Christy Cornell Telephone: 901-580-5507 Facsimile: 901-580-5451 32 33 STATE OF ______________ ) ) COUNTY OF _____________ ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of UNION PLANTERS BANK, N.A., a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of ______ -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 33 34 AMSOUTH BANK By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: 1900 5th Avenue North, AST #9 Birmingham, AL 35203 Attention: Lawrence Clark Telephone: 205-581-7493 Facsimile: 205-326-4075 34 35 STATE OF ______________ ) ) COUNTY OF _____________ ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared _________________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the ______________ of AMSOUTH BANK, a national banking association, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this _____ day of __________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of ______ -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: 35 36 EXHIBIT "A" LEGAL DESCRIPTION BEING Lot 3, Block A of HAMPTON INN AT PRESTON PARK SOUTH, an Addition to the City of Plano, COLLIN County, Texas, according to the Replat thereof recorded in Cabinet J, Slide 591, Map Records, COLLIN County, Texas, being further described as follows: BEGINNING at a 5/8 inch iron found in the South right of way line of Preston Park Boulevard (variable width right of way) for the Northwest corner of THE COURTYARD AT PRESTON PARK, an Addition to the City of Plano, Texas according to the plat thereof recorded in Cabinet F, Slide 153 of the Map Records of COLLIN County, Texas; THENCE with the West line of said The Courtyard at Preston Park, South 00 degrees 16 minutes 40 seconds West, a distance of 471.45 feet to an aluminum disc found in concrete in the North right of way line of Old Shepard Place (87.5 foot right of way) dedicated to the City of Plano, Texas according to the plat thereof recorded in Cabinet C, Slide 731 of the Map Records of COLLIN County, Texas and described in deed to the City of Plano, Texas, recorded in Volume 2542, Page 788 of the Land Records of COLLIN County, Texas for the Southwest corner of said addition; THENCE with the said North right of way line of Old Shepard Place, North 89 degrees 43 minutes 20 seconds West, a distance of 252.99 feet to a cross mark found for corner; THENCE leaving said North right of way line, North 00 degrees 16 minutes 40 seconds East, a distance of 425.49 feet to an aluminum disc found in concrete in the South right of way line of Preston Park Boulevard, for the beginning of a non-tangent curve to the left, having a central angle of 11 degrees 13 minutes 17 seconds, a radius of 1315.00 feet and a chord bearing a distance of North 79 degrees 58 minutes 57 seconds East, 257.13 feet; THENCE Easterly, with said South right of way line and said curve, an arc distance of 257.55 feet to the POINT OF BEGINNING and CONTAINING 2.5799 acres of land, more or less. Exhibit A-1 37 EXHIBIT "B" DEED OF TRUST (SEE ATTACHED) 38 EXHIBIT "C" ENVIRONMENTAL INDEMNITY AGREEMENT (SEE ATTACHED) 39 EXHIBIT "D" CONTINUING AND UNCONDITIONAL GUARANTY This CONTINUING AND UNCONDITIONAL GUARANTY (this "Guaranty") is executed effective as of the 1st day of August, 2000, by PLANO INN, L.P., a Texas limited partnership ("Guarantor"), to and in favor of BANK OF AMERICA, N.A., a national banking association ("Bank of America"), and the other Lenders who are parties to the Loan Agreement (collectively, the "Lender"s; Bank of America and the Lenders are sometimes hereinafter collectively referred to as "Bank") 1. GUARANTY. FOR VALUE RECEIVED, and to induce Bank to make loans or advances or to extend credit or other financial accommodations or benefits, with or without security, to or for the account of RFS Partnership, L.P., a Tennessee limited partnership ("Borrower"), the undersigned "Guarantor", if more than one, then each of them jointly and severally, hereby irrevocably and unconditionally guarantees to Bank the full and prompt payment when due, whether by acceleration or otherwise, of any and all Liabilities (as hereinafter defined) of Borrower to Bank. This Guaranty is continuing and unlimited as to the amount, and is cumulative to and does not supersede any other guaranties. All such capital liabilities, fees, costs and expenses constitute the "Guaranty Obligations." Guarantor further unconditionally guarantees the faithful, prompt and complete compliance by Borrower with all Obligations (as hereinafter defined). The undertakings of Guarantor hereunder are independent of the Liabilities and Obligations of Borrower and a separate action or actions for payment, damages or performance may be brought or prosecuted against Guarantor, whether or not an action is brought against Borrower or to realize upon the security for the Liabilities and/or Obligations, whether or not Borrower is joined in any such action or actions, and whether or not notice is given or demand is made upon Borrower. Bank shall not be required to proceed first against Borrower, or any other person or entity, whether primarily or secondarily liable, or against any collateral held by it, before resorting to Guarantor for payment, and Guarantor shall not be entitled to assert as a defense to the enforceability of the Guaranty any defense of Borrower with respect to any Liabilities or Obligations. 2. PARAGRAPH HEADINGS, GOVERNING LAW AND BINDING EFFECT. Guarantor agrees that the paragraph headings in this Guaranty are for convenience only and that they will not limit any of the provisions of this Guaranty. Guarantor further agrees that this Guaranty shall be governed by, and construed in accordance with, the laws of the State of Tennessee. In any litigation in connection with or to enforce this Guaranty or any other Loan Documents, Guarantor, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Tennessee or the United States courts located within the State of Tennessee. Nothing contained herein shall, however, prevent Bank from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available by applicable law. This Guaranty is binding upon Guarantor, his, their or its executors, 40 administrators, successors or assigns, and shall inure to the benefit of Bank, its successors, indorsees or assigns. Anyone executing this Guaranty shall be bound by the terms hereof without regard to execution by anyone else. 3. DEFINITIONS. A. "Guarantor" shall mean Guarantor or any one or more of them. B. "Liability" or "Liabilities" shall mean without limitation, all liabilities, overdrafts, indebtedness, and obligations of Borrower and/or Guarantor to Bank, whether direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not due, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, now or hereafter existing, or held or to be held by Bank for its own account or as agent for another or others, whether created directly, indirectly, or acquired by assignment or otherwise, including but not limited to all extensions or renewals thereof, and all sums payable under or by virtue thereof, including without limitation, all amounts of principal and interest, all expenses (including reasonable attorney's fees and costs of collection) incurred in the collection thereof or the enforcement of rights thereunder (including without limitation, any liability arising from failure to comply with state or federal laws, rules and regulations concerning the control of hazardous waste or substances at or with respect to any real estate securing any loan guaranteed hereby), whether arising in the ordinary course of business or otherwise. If Borrower is a partnership, corporation or other entity, the term "Liability" or "Liabilities" as used herein shall include all Liabilities to Bank of any successor entity or entities. In addition to the foregoing, the term "Liabilities", as used in this Guaranty, includes the "Obligations" as such terms are now and hereafter defined in the Loan Agreement, and as such "Obligations" may be increased from time to time. C. "Loan Agreement" shall mean that certain Fourth Amended and Restated Revolving Credit Agreement dated as of January 7, 2000, executed by and among Borrower, RFS Hotel Investors, Inc., Bank of America Securities LLC, Bank and the Lenders, as amended by that certain First Amendment to Fourth Amended and Restated Revolving Credit Agreement dated of as of January 7, 2000, executed by and among Borrower, RFS Hotel Investors, Inc., Bank, the Lenders and Union Planters Bank, N.A., and as further amended by that certain Second Amendment to Fourth Amended and Restated Revolving Credit Agreement dated of even date herewith, executed by and among Borrower, RFS Hotel Investors, Inc., Ridge Lake General Partner, Inc., Bank and the Lenders, and as further amended by that certain Third Amendment to Fourth Amended and Restated Revolving Credit Agreement (also) dated of even date herewith, executed by and among Borrower, RFS Hotel Investors, Inc., Ridge Lake General Partner, Inc., Guarantor, Bank and the Lenders, as the same may be amended, modified, renewed, extended, supplemented or restated from time to time. D. "Loan Documents" shall mean all deeds to secure debt, deeds of trust, mortgages, security agreements, pledge agreements and other documents securing payment of the Liabilities and all notes and other agreements, documents and instruments evidencing or relating to the Liabilities and Obligations. In addition to the foregoing, the term "Loan Documents," as used in this Guaranty, includes, without limitation, the "Loan Documents," as such term is defined in the Loan Agreement. 41 E. "Obligation" or "Obligations" shall mean all terms, conditions, covenants, agreements and undertakings of Borrower and/or Guarantor under all notes and other documents evidencing the Liabilities, and under all deeds to secure debt, deeds of trust, mortgages, security agreements and other agreements, documents and instruments executed in connection with the Liabilities or related thereto, including, without limitation, the "Notes", as such term is now or hereafter defined in the Loan Agreement. In addition to the foregoing, the term "Obligations," as used in this Guaranty, includes, without limitation, all "Obligations" as such term is now or hereafter defined in the Loan Agreement, and as such "Obligations" may be increased from time to time. 4. WAIVERS BY GUARANTOR. Guarantor waives notice of acceptance of this Guaranty, notice of any Liabilities or Obligations to which it may apply, presentment, demand for payment, protest, notice of dishonor or nonpayment of any Liabilities, notice of intent to accelerate, notice of acceleration, and notice of any suit or the taking of other action by Bank against Borrower, Guarantor or any other person, any applicable statute of limitations and any other notice to any party liable on any Loan Document (including Guarantor). Each Guarantor also hereby waives any claim, right or remedy which such Guarantor may now have or hereafter acquire against Borrower that arises hereunder and/or from the performance by any other Guarantor hereunder including, without limitation, any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification or participation in any claim, right or remedy of Bank against Borrower or against any security which Bank now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise. Guarantor also waives the benefits of any provision of law requiring that Bank exhaust any right or remedy, or take any action, against Borrower, any Guarantor or any other person and/or property. Bank may at any time and from time to time (whether before or after revocation or termination of this Guaranty) without notice to Guarantor (except as required by law), without incurring responsibility to Guarantor, without impairing, releasing or otherwise affecting the Obligations of Guarantor, in whole or in part, and without the indorsement or execution by Guarantor of any additional consent, waiver or guaranty: (a) change the manner, place or terms of payment, or change or extend the time of or renew, or change any interest rate or alter any Liability or Obligation or installment thereof, or any security therefor; (b) loan additional monies or extend additional credit to Borrower, with or without security, thereby creating new Liabilities or Obligations the payment or performance of which shall be guaranteed hereunder, and the Guaranty herein made shall apply to the Liabilities and Obligations as so changed, extended, surrendered, realized upon or otherwise altered; (c) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property at any time pledged or mortgaged to secure the Liabilities or Obligations and any offset there against; (d) exercise or refrain from exercising any rights against Borrower or others (including Guarantor) or act or refrain from acting in any other manner; (e) settle or compromise any Liability or Obligation or any security therefor and subordinate the payment of all or any part thereof to the payment of any 42 Liability or Obligation of any other parties primarily or secondarily liable on any of the Liabilities or Obligations; (f) release or compromise any Liability of Guarantor hereunder or any Liability or Obligation of any other parties primarily or secondarily liable on any of the Liabilities or Obligations; or (g) apply any sums from any sources to any Liability without regard to any Liabilities remaining unpaid. 5. SUBORDINATION. Guarantor agrees that it will not demand, take or receive from Borrower, by set-off or in any other manner, payment of any debt, now and at any time or times hereafter owing by Borrower to Guarantor unless and until all the Liabilities and Obligations shall have been fully paid and performed, and any security interest, liens or encumbrances which Guarantor now has and from time to time hereafter may have upon any of the assets of Borrower shall be made subordinate, junior and inferior and postponed in priority, operation and effect to any security interest of Bank in such assets. 6. WAIVERS BY BANK. No delay on the part of Bank in exercising any of its options, powers or rights, and no partial or single exercise thereof, shall constitute a waiver thereof. No waiver of any of its rights hereunder, and no modification or amendment of this Guaranty, shall be deemed to be made by Bank unless the same shall be in writing, duly signed on behalf of Bank; and each such waiver, if any, shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Bank or the obligations of Guarantor to Bank in any other respect at any other time. 7. TERMINATION. This Guaranty shall be binding on each Guarantor until written notice of revocation signed by such Guarantor or written notice of the death of such Guarantor shall have been received by Bank, notwithstanding change in name, location, composition or structure of, or the dissolution, termination or increase, decrease or change in personnel, owners or partners of Borrower, or any one or more of Guarantors. No notice of revocation or termination hereof shall affect in any manner rights arising under this Guaranty with respect to Liabilities or Obligations that shall have been committed, created, contracted, assumed or incurred prior to receipt of such written notice pursuant to any agreement entered into by Bank prior to receipt of such notice. The sole effect of such notice of revocation or termination hereof shall be to exclude from this Guaranty, Liabilities or Obligations thereafter arising that are unconnected with Liabilities or Obligations theretofore arising or transactions entered into theretofore. 8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of any Loan Document as it may apply to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. In the event Bank is required to relinquish or return the payments, the collateral or the proceeds thereof, in whole or in part, which had been previously applied to or retained for application against any Liability, by reason of a proceeding arising under the Bankruptcy Code, or for any other reason, this Guaranty shall automatically continue to be effective notwithstanding any previous cancellation or release effected by Bank. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against Borrower and/or 43 Guarantor for liquidation or reorganization, should Borrower and/or Guarantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any of Borrower's and/or Guarantor's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if any time, payment and performance of the Obligations and Liabilities, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations or Liabilities or such part thereof, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof is rescinded, reduced, restored or returned, the Obligations and Liabilities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 9. CHANGE OF STATUS. Guarantor will not become a party to a merger or consolidation with any other company, or change its legal structure without the written consent of Bank, except as may be expressly permitted in the Loan Agreement; provided, however, that all covenants under this Guaranty shall be assumed by the new or surviving entity. Guarantor further agrees that this Guaranty shall be binding, legal and enforceable against Guarantor in the event Borrower changes its name, status or type of entity. 10. FINANCIAL AND OTHER INFORMATION. Guarantor agrees to furnish to Bank any and all financial information and any other information regarding Guarantor and/or collateral requested in writing by Bank within ten (10) days of the date of the request. Guarantor has made an independent investigation of the financial condition and affairs of Borrower prior to entering into this Guaranty, and Guarantor will continue to make such investigation; and in entering into this Guaranty Guarantor has not relied upon any representation of Bank as to the financial condition, operation or creditworthiness of Borrower. Guarantor further agrees that Bank shall have no duty or responsibility now or hereafter to make any investigation or appraisal of Borrower on behalf of Guarantor or to provide Guarantor with any credit or other information which may come to its attention now or hereafter. 11. NOTICES. Notice shall be deemed reasonable if mailed postage prepaid at least five (5) days before the related action to the address of Guarantor or Bank, at their respective addresses indicated below, or to such other address as any party may designate by written notice to the other party. Each notice, request and demand shall be deemed given or made, if sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the U.S. Mail, first class postage prepaid, or if sent by any other means, upon delivery. With respect to Guarantor: Plano Inn, L.P. 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 35119 Attention: Kevin Luebbers 44 With respect to Bank: Bank of America, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202 Attention: Mr. D. Bryce Langen 12. GUARANTOR DUTIES. Guarantor shall upon notice or demand by Bank promptly and with due diligence pay all Liabilities and perform and satisfy all Obligations for the benefit of Bank in the event of (a) the occurrence of any default under any Loan Documents; (b) the failure of Borrower or any Guarantor to perform any obligation or pay any liability or indebtedness of Borrower or any Guarantor to Bank, or to any affiliate of Bank, whether under any Note, Guaranty, or any other agreement, now or hereafter existing, as and when due (whether upon demand, at maturity or by acceleration); (c) the failure of Borrower or any Guarantor to pay or perform any other liability, obligation or indebtedness of Borrower or any Guarantor to any other party; (d) the death of Borrower or any Guarantor (if an individual); (e) the resignation or withdrawal of any partner or a material owner/shareholder/partner of any Guarantor or Borrower, as determined by Bank in its sole discretion; (f) the commencement of a proceeding against Borrower or any Guarantor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of Borrower or any Guarantor or the merger or consolidation of Borrower or any Guarantor with or into another entity; (g) the insolvency, or the business failure of, or the appointment of a custodian, trustee, liquidator or receiver for or of any of the property of, or the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor's relief law or the filing of a petition for any adjustment of indebtedness, composition or extension by or against Borrower or any Guarantor; (h) the sole determination by Bank that any representation or warranty to Bank in any Loan Document or otherwise to Bank was untrue or materially misleading when made; (i) the failure of any Guarantor or Borrower to timely deliver such financial statements including tax returns and all schedules, or other statements of condition or other information, as Bank shall request from time to time; (j) the entry of a judgment against Borrower or any Guarantor which Bank deems to be of a material nature in the sole discretion of Bank; (k) the seizure or forfeiture of any of Borrower or any Guarantor's property, or the issuance of any writ of possession, garnishment or attachment, or any turnover order; (l) the sole determination by Bank that any Guarantor or Borrower jointly or severally, has suffered a material adverse change in its financial condition; (m) the determination by Bank that for any reason it is insecure; (n) any lien or additional security interest being placed upon any collateral which is security for any Loan Document; (o) the failure of Borrower's business to comply with any law or regulation controlling the operation of Borrower's business; or (p) the occurrence of any "Default", as such term is defined in the Loan Agreement. In addition to the foregoing, any "Default", as such term is defined in the Loan Agreement, shall constitute an even of default under this Guaranty. 13. REMEDIES. Upon the failure of Guarantor to fulfill its duty to pay Liabilities and perform and satisfy all Obligations as required hereunder, Bank shall have all of the remedies of a creditor and, to the extent applicable, of a secured party, under all applicable laws, and without limiting the generality of the foregoing, Bank may, at its option and without notice or demand: (a) declare any Liability due and payable at once; (b) take possession of any collateral pledged by 45 Borrower or Guarantor wherever located, and sell, resell, assign, transfer and deliver all or any part of said collateral of Borrower or Guarantor at any public or private sale or otherwise dispose of any or all of the collateral in its then condition, for cash or on credit or for future delivery, and in connection therewith Bank may impose reasonable conditions upon any such sale, and Bank, unless prohibited by law the provisions of which cannot be waived, may purchase all or any part of said collateral to be sold, free from and discharged of all trusts, claims, rights or redemption and equities of Borrower or Guarantor whatsoever; Guarantor acknowledges and agrees that the sale of any collateral through any nationally recognized broker-dealer, investment banker or any other method common in the securities industry shall be deemed a commercially reasonable sale under the Uniform Commercial Code or any other equivalent statute or federal law, and expressly waives notice thereof except as provided herein; and (c) set-off against any or all liabilities of Guarantor all money owed by Bank or any of its agents or affiliates in any capacity to Guarantor whether or not due, and also set-off against all other Liabilities of Guarantor to Bank all money owed by Bank in any capacity to Guarantor, and if exercised by Bank, Bank shall be deemed to have exercised such right of set-off and to have made a charge against any such money immediately upon the occurrence of such default although made or entered on the books subsequent thereto. Bank shall have a properly perfected security interest in all of Guarantor's funds on deposit with Bank to secure the balance of any Liabilities and/or Obligations that Guarantor may now or in the future owe Bank. Bank is granted a contractual right of set-off and will not be liable for dishonoring checks or withdrawals where the exercise of Bank's contractual right of set-off or security interest results in insufficient funds in Guarantor's account. As authorized by law, Guarantor grants to Bank this contractual right of set-off and security interest in all property of Guarantor now or at anytime hereafter in the possession of Bank, including but not limited to any joint account, special account, account by the entireties, tenancy in common, and all dividends and distributions now or hereafter in the possession or control of Bank. 14. ATTORNEY FEES, COST AND EXPENSES. Guarantor shall pay all costs of collection and reasonable attorney's fees, including reasonable attorney's fees in connection with any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred or paid by Bank in (a) defending this Guaranty or (b) enforcing the payment or performance of any Liability or Obligation. 15. COLLATERAL. Bank at all times and from time to time shall have the right to require Guarantor to deliver to Bank collateral satisfactory to Bank to secure Guarantor's undertakings hereunder and/or the Liabilities or Obligations of Guarantor hereunder. 16. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps necessary to preserve any rights in any property pledged as collateral to Bank to secure Borrower and/or Guarantor's Liabilities and Obligations as against prior parties who may be liable in connection therewith, and Borrower and Guarantor hereby agree to take any such steps. Bank, nevertheless, at any time, may (a) take any action it deems appropriate for the care or preservation of such property or of any rights of Borrower and/or Guarantor or Bank therein; (b) demand, sue for, collect or receive any money or property at any time due, payable or receivable on account of or in exchange for any property pledged as collateral to Bank to secure Borrower and/or Guarantor's 46 Liabilities to Bank; (c) compromise and settle with any person liable on such property; or (d) extend the time of payment or otherwise change the terms of the Loan Documents as to any party liable on the Loan Documents, all without notice to, without incurring responsibility to, and without affecting any of the Obligations or Liabilities of Guarantor. 17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT 47 LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. 18. CONTROLLING DOCUMENT. To the extent that this Guaranty conflicts with the Loan Agreement, the Loan Agreement shall control. 19. NOTICE OF FINAL AGREEMENT. THIS WRITTEN CONTINUING AND UNCONDITIONAL GUARANTY AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN OR AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 20. LIMITATION REGARDING GUARANTEED OBLIGATIONS. Notwithstanding anything to the contrary contained in this Guaranty, the Guaranteed Obligations of Guarantor hereunder shall not exceed an aggregate amount equal to the greatest amount that would not render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to avoidance under Sections 544, 548 or 550 of the Federal Bankruptcy Code or subject to being set aside or annulled under any applicable state law relating to fraud on creditors; provided, however, that, for purposes of the immediately preceding clause, it shall be presumed that the Guaranteed Obligations of Guarantor under this Guaranty do not equal or exceed any aggregate amount which would render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to being so avoided, set aside or annulled, and the burden of proof to the contrary shall be on the party asserting to the contrary. Subject to but without limiting the generality of the foregoing sentence, the provisions of this Guaranty are severable and, in any legally binding action or proceeding involving any state corporate law or any bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights and general principles of equity, if the indebtedness, liabilities or obligations of Guarantor under this Guaranty would otherwise be held or determined to be void, invalid or unenforceable on account of the amount of its indebtedness, liabilities or obligations under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the amount of such indebtedness, liabilities or obligations shall, without any further action by Guarantor, Bank or any other Person, be automatically limited and reduced to the greatest amount which is valid and enforceable as determined in such action or proceeding. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 48 21. REPRESENTATION BY GUARANTOR. Guarantor represents, acknowledges and agrees as follows: Guarantor, together with Borrower and the other Guarantors referenced and/or defined in the Loan Agreement, are a combined enterprise with a common purpose, each dependent on the other, and the successful operations and viability of any one of them inures to the benefit of each of them. Guarantor has determined that the availability of credit to Borrower, and the ability of Borrower to make proceeds of such credit available for its subsidiaries and affiliates, is of direct and indirect benefit to it, of equivalent value, and that execution and performance of this Guaranty is in its best interest. IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed on this ________ day of _______________, 2000. PLANO INN, L.P., A TEXAS LIMITED PARTNERSHIP By: RFS Partnership, L.P., a Tennessee limited partnership, General Partner By: RFS Hotel Investors, Inc., a Tennessee corporation, General Partner Witnessed By: By: ----------------------------------------- - -------------------------------- Name: --------------------------------------- Title: - -------------------------------- -------------------------------------- Print Name and Title 49 CORPORATE ACKNOWLEDGMENT STATE OF TENNESSEE ) ) COUNTY OF SHELBY ) BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared __________ known to me (or proved to me on the oath of __________ or through __________ (description of identity card or other document)) to be the __________ of RFS Hotel Investors, Inc., a Tennessee corporation, General Partner of RFS Partnership, L.P. a Tennessee limited partnership, General Partner of PLANO INN, L.P., a Texas limited partnership, whose name is subscribed to the foregoing instrument and acknowledged to me that he executed same for the purposes and consideration therein expressed. Given under my hand and seal of office this day ____________ of _______________________________, 2000. (SEAL) -------------------------------------------- Notary Public in and for the State of Tennessee -------------------------------------------- Notary Public Printed or Typed Name My Commission Expires: EX-10.19 8 g67578ex10-19.txt LOAN AGREEMENT 1 EXHIBIT 10.19 Loan No.: 52933 Servicing No.: 3113206 ================================================================================ BANK OF AMERICA, N.A. as Lender ------------------------------- LOAN AGREEMENT dated as of August 9, 2000 ------------------------------- RFS SPE 2000 LLC, as Borrower ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS Section 1.1 Definitions...................................................................................1 Section 1.2 Other Definitional Provisions................................................................23 Section 1.3 Incorporation by Reference of Commitment.....................................................23 ARTICLE II THE LOAN Section 2.1 Loan Terms...................................................................................23 Section 2.2 Interest.....................................................................................24 Section 2.3 Term.........................................................................................24 Section 2.4 Payments.....................................................................................24 Section 2.5 Release of Properties........................................................................24 Section 2.6 Substitution of Properties...................................................................24 ARTICLE III CONDITIONS PRECEDENT TO LOAN Section 3.1 Loan Documents...............................................................................33 Section 3.2 Brokerage Commissions........................................................................33 Section 3.3 Title Evidence...............................................................................33 Section 3.4 Survey.......................................................................................33 Section 3.5 Insurance....................................................................................33 Section 3.6 Authority Documents..........................................................................33 Section 3.7 Financial Statements and Operating Statements................................................34 Section 3.8 Opinions.....................................................................................34 Section 3.9 Compliance with Laws.........................................................................34 Section 3.10 Agreements...................................................................................34 Section 3.11 Taxes........................................................................................34 Section 3.12 Utilities....................................................................................35 Section 3.13 Reserve Accounts.............................................................................35 Section 3.14 Engineering Report...........................................................................35 Section 3.15 Certificate of Occupancy and Other Permits...................................................35 Section 3.16 Environmental Assessment and O&M Program.....................................................35 Section 3.17 Appraisal....................................................................................35 Section 3.18 Equity.......................................................................................35 Section 3.19 Debt Service.................................................................................35 Section 3.20 Loan to Value Ratio..........................................................................35 Section 3.21 Special Purpose Entity.......................................................................36 Section 3.22 Miscellaneous................................................................................36
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PAGE ---- ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 Existence; Compliance with Law...............................................................36 Section 4.2 Equity Interests.............................................................................36 Section 4.3 Power; Authorization; Enforceable Obligations................................................36 Section 4.4 No Legal Bar.................................................................................37 Section 4.5 No Litigation................................................................................37 Section 4.6 No Default...................................................................................37 Section 4.7 Solvency; Fraudulent Conveyance..............................................................37 Section 4.8 Special Purpose Entity.......................................................................38 Section 4.9 Taxes........................................................................................38 Section 4.10 No Burdensome Restrictions...................................................................38 Section 4.11 Investment Company Act; Other Regulations....................................................38 Section 4.12 Subsidiaries.................................................................................39 Section 4.13 Title to Premises............................................................................39 Section 4.14 Ownership of Personalty......................................................................39 Section 4.15 Financial Statements.........................................................................39 Section 4.16 No Change....................................................................................39 Section 4.17 Management Agreement.........................................................................40 Section 4.18 Accuracy of Information......................................................................40 Section 4.19 Principal Place of Business..................................................................40 Section 4.20 Taxpayer Identification Number...............................................................40 Section 4.21 Insurance....................................................................................40 Section 4.22 Mechanic's Liens, etc........................................................................40 Section 4.23 No Violation.................................................................................41 Section 4.24 ERISA........................................................................................41 Section 4.25 O&M Program..................................................................................41 Section 4.26 No Organizational Document Amendment.........................................................41 Section 4.27 Permitted Encumbrances.......................................................................41 Section 4.28 Insolvency Opinion...........................................................................41 ARTICLE V COVENANTS AND AGREEMENTS Section 5.1 Affirmative Covenants of the Borrower........................................................42 Section 5.2 Negative Covenants of the Borrower...........................................................48 Section 5.3 Environmental Covenants......................................................................52 Section 5.4 Recourse Covenants...........................................................................54 Section 5.5 Insurance....................................................................................55 Section 5.6 Lockbox......................................................................................56 ARTICLE VI RESERVE ACCOUNTS Section 6.1 Establishment of Reserve Accounts............................................................56 Section 6.2 Initial Reserve Deposits.....................................................................57 Section 6.3 Monthly Reserve Deposits.....................................................................57 Section 6.4 Replacement Reserve Account..................................................................57 Section 6.5 Permitted Investments, Earnings, Charges and Annual Accounting...............................57
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PAGE ---- Section 6.6 Assignment to the Lender of Reserve Accounts and Rights and Claims...........................58 Section 6.7 Application of Reserve Accounts Upon an Event of Default.....................................59 Section 6.8 Disbursements from Tax and Insurance Reserve Account.........................................59 Section 6.9 Disbursements from Repair Escrow Account and Replacement Reserve Account.....................60 Section 6.10 Intentionally Deleted........................................................................62 Section 6.11 Indemnification..............................................................................62 ARTICLE VII EVENTS OF DEFAULT; REMEDIES Section 7.1 Events of Default............................................................................63 Section 7.2 Remedies.....................................................................................65 ARTICLE VIII CASUALTY LOSSES; EMINENT DOMAIN Section 8.1 Repairs and Casualty Losses..................................................................65 Section 8.2 Eminent Domain...............................................................................66 Section 8.3 Application of Insurance Proceeds and Condemnation Awards....................................67 ARTICLE IX GENERAL PROVISIONS Section 9.1 Remedies Cumulative; Waivers.................................................................68 Section 9.2 Benefit......................................................................................68 Section 9.3 Assignment and Assumption....................................................................69 Section 9.4 Securitization Cooperation/Indemnification...................................................71 Section 9.5 Information..................................................................................75 Section 9.6 Nonrecourse Loan; Exceptions.................................................................75 Section 9.7 Amendments...................................................................................75 Section 9.8 Governing Law and Jurisdiction...............................................................75 Section 9.9 Savings Clause...............................................................................75 Section 9.10 Execution in Counterparts....................................................................75 Section 9.11 Notices......................................................................................76 Section 9.12 Right of Set-Off.............................................................................76 Section 9.13 Written Agreement............................................................................76 Section 9.14 Waiver of Jury Trial.........................................................................77 Section 9.15 Cross Default, Cross-Collateralization, Waiver of Marshalling of Assets......................77 Section 9.16 Servicer.....................................................................................79 ARTICLE X SPECIAL PROVISIONS Section 10.1 Termination of Manager.......................................................................80 Section 10.2 Substitution of Operating Lessee.............................................................81
-iii- 5 SCHEDULES SCHEDULE 1 Allocated Loan Amounts SCHEDULE 2 Franchise Agreements SCHEDULE 3 Operating Leases SCHEDULE 4 Borrower's Disclosure of Non-Compliance with Requirements of Law EXHIBITS EXHIBIT A Equity Interests EXHIBIT B Immediate Repairs, Replacements and Reserve Amounts EXHIBIT C Addresses for Notice EXHIBIT D Program Rider EXHIBIT E Form of Nondisturbance, Subordination and Attornment Agreement for Operating Leases EXHIBIT F Form of Tenant Estoppel Certificate EXHIBIT G Form of Nondisturbance, Subordination and Attornment Agreement for Property Specific Leases EXHIBIT H Form of Hazardous Material Indemnity Agreement EXHIBIT I Borrower's Non-Consolidation Opinion
-iv- 6 LOAN AGREEMENT LOAN AGREEMENT, dated as of August 9, 2000 (together with all exhibits, schedules, riders and addenda hereto, which are hereby incorporated herein, the "Loan Agreement" or "Agreement"), by and between RFS SPE 2000 LLC, a Virginia limited liability company, (the "Borrower"), with its principal place of business at c/o RFS Hotel Investors, Inc., 850 Ridge Lake Boulevard, Suite 220, Memphis, Tennessee 38120, RFS HOTEL INVESTORS, INC., a Tennessee corporation (the "Borrower Principal", whether one or more); and BANK OF AMERICA, N.A., a national banking association, with its principal offices in Charlotte, North Carolina (together with its successors and assigns, the "Lender"). RECITALS: The Borrower has applied to the Lender for a loan in the original principal amount of $26,716,000 (the "Loan") to be made by the Lender pursuant to the terms hereof. The Loan will be secured by, among other things, a first priority lien on the Land, Improvements, Personalty and Rents and Profits. The Lender is willing to make the Loan based on the terms and conditions set forth in this Loan Agreement and subject to the execution and delivery of each of the Loan Documents. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Borrower Principals and the Lender hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 DEFINITIONS. As used in this Agreement, the other Loan Documents, or any certificate or other document made or delivered pursuant hereto, the capitalized terms used herein shall, unless otherwise defined herein or therein, have the following meanings: ADDITIONAL REPAIR(S) OR REPLACEMENT(S). Any repairs, replacements or improvements (other than Immediate Repairs or Replacements) (i) which are advisable to keep the Premises in good order and repair and in good marketable condition, or to prevent material deterioration of the Premises, or (ii) for an Immediate Repair or Replacement to the extent such Immediate Repair or Replacement exceeds 125% of the estimated cost of such Immediate Repair or Replacement as set forth in EXHIBIT B hereto. ADJUSTED RELEASE AMOUNT. Shall mean, for any Individual Property, 125% of the Allocated Loan Amount for such Individual Property. -1- 7 AFFILIATE(S). As to any specified Person, any other Person controlling or controlled by or under common control with such specified Person, including without limitation (i) any person who has a familial relationship, by blood, marriage or otherwise with any member or employee of Borrower, or any affiliate thereof and (ii) any Person which receives compensation for administrative, legal or accounting services from the Borrower or any affiliate. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" or "controlled" have meanings correlative to the foregoing. Notwithstanding anything to the contrary contained in this Loan Agreement, any two Persons whose shares are both publicly traded shall not be deemed Affiliates regardless of any common shareholders or directors. ALLOCATED LOAN AMOUNT. Shall mean the portion of the Loan Amount allocated, solely for purposes of performing certain calculations hereunder, to each Individual Property, as set forth in Schedule 1 hereto. APPRAISAL. An appraisal of the Premises prepared at the Borrower's expense by a qualified appraiser designated by and satisfactory to the Lender, in accordance with written instructions from the Lender, dated as of a date acceptable to the Lender and otherwise satisfactory in form and substance to the Lender. APPROVED INSURER. An insurer previously approved by the Lender with an Standard and Poor's rating of AA or better, and which is authorized to issue insurance in each state where an Individual Property is located. BANK. Shall have the meaning set forth in the Cash Management Agreement. BANKRUPTCY CODE. Title 11 of the United States Code entitled "Bankruptcy," as amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditor's rights. BANKRUPTCY EVENT. As to any Person, the occurrence of any of the following with respect to such Person: (i) a court or governmental agency having jurisdiction over the Premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency, reorganization, moratorium, sequestration, liquidation, consolidation or other similar law now or hereafter in effect, or appoint a receiver, liquidator, assignee, custodian, conservator, trustee, sequestrator (or similar official) of such Person or for any substantial part of its property or order the winding up or liquidation of its affairs; (ii) an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect is commenced against a Person and such petition remains unstayed and in effect for a period of sixty (60) consecutive days; (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or similar law or make any general assignment for the benefit of -2- 8 creditors; (iv) such Person shall admit in writing its inability to pay its debts generally as they become due (otherwise than on a purely temporary basis), or (v) such Person shall take any action in furtherance of any of the aforesaid purposes. BASIC CARRYING COSTS. Shall mean, with respect to an Individual Property, the sum of the following costs associated with such Individual Property for the relevant calendar year or payment period: (i) taxes and (ii) insurance premiums. BORROWER PARTY. Shall mean the Borrower Principal, any guarantor, any general partner of Borrower if Borrower is a partnership or limited partnership, any general partner in any partnership or limited partnership that is a general partner of Borrower, any managing member of Borrower if Borrower is a limited liability company, and any managing member in any limited liability company that is a managing member of Borrower, any at any level. BUSINESS DAY. Any day other than a Saturday, a Sunday, a legal holiday in Charlotte, North Carolina, or a day on which banking institutions located in Charlotte, North Carolina are authorized by law or other governmental action to close. CASH MANAGEMENT AGREEMENT. The Cash Management Agreement, dated as of even date herewith, executed by the Borrower, the Lender and the Agent. CERTIFICATION. As to any specified report, Financial Statement, Operating Statement, Rent Roll or other document, a written certification by a Responsible Officer of the Person providing such report, Financial Statement, Operating Statement, Rent Roll or other document that such report, Financial Statement, Operating Statement, Rent Roll or other document, as at the date thereof, (i) contains all of the information and statements required to be set forth therein, (ii) that such information and statements are true and correct in all material respects, (iii) that there is no untrue statement of a material fact required to be stated therein, (iv) that there is no failure to state therein any information or fact that is necessary to make the information or statements contained therein, in light of the circumstances under which they are made, not misleading, and (v) that there is no fact known to such Responsible Officer that materially adversely affects any of the information or statements set forth therein. CLOSING DATE. The date set forth in the first paragraph of this Loan Agreement. CODE. Shall have the meaning set forth in the Note. COMMITMENT. The Lender's commitment letter with respect to the Loan as accepted by the Borrower and the Borrower Principals in accordance with the terms thereof. DEBT SERVICE. Shall mean the installments of principal and interest due and payable in accordance with the Note, the Defeased Note or the Undefeased Note, as the case may be during any applicable period. DEBT SERVICE RESERVE ACCOUNT. Shall mean an Eligible Account established and maintained pursuant to the terms of this Loan Agreement. DEBT SERVICE COVERAGE RATIO LEASES. Shall mean the ratio that shall be applied by Lender, calculated as follows: (a) With respect to the Leases for the Premises, the ratio of the (i) Net Operating Income Leases for the Premises for the immediately preceding twelve (12) calendar month period to (ii) the projected Debt Service that would be due on the Loan with respect to the Premises for the twelve (12) calendar month period immediately following such calculation; and (b) With respect to any Leases for an Individual Property, the ratio of (i) Net Operating Income Leases for the subject Individual Property for the immediately preceding twelve (12) month period to (ii) the projected Debt Service that would be due with respect to the Allocated Loan Amount applicable to the subject Individual Property for the twelve (12) month period immediately following such calculation. -3- 9 DEBT SERVICE COVERAGE RATIO PREMISES. Shall mean the ratio that shall be applied by Lender, calculated as follows: (a) With respect to revenues of the Premises, the ratio of (i) Net Operating Income Premises of the Premises for the immediately preceding twelve (12) calendar month period to (ii) the projected Debt Service that would be due on the Loan with respect to the Premises for the twelve (12) month period immediately following such calculation; and (b) with respect to the revenues of an Individual Property, the ratio (i) Net Operating Income Premises for the subject Individual Property for the immediately preceding twelve (12) month period to (ii) the projected Debt Service that would be due with respect to the Allocated Loan Amount applicable to the subject Individual Property for the twelve (12) month period immediately following such calculation. DEFAULT CONDITION. The occurrence or existence of an event or condition which, upon the giving of notice or the passage of time, or both, would constitute an Event of Default. DEFEASED NOTE. Shall have the meaning set forth in Section 4(c) of the Note. ELIGIBLE ACCOUNT. An account that is either (i) maintained with a federal or state-chartered depository institution or trust company whose commercial or finance paper or other similar obligations are rated A-1 or better by Standard & Poor's Rating Group, a division of McGraw Hill, Inc., ("Standard & Poors"), P-1 or better by Moody's, Investors Services, Inc., ("Moody's"), D-1 or better by Duff & Phelps Credit Rating Co. ("Duff") and F-1 + or better by Fitch IBCA, Inc. ("Fitch") (ii) an account or accounts maintained with a depository institution with a minimum long-term unsecured debt rating of AA or better by Standard & Poor's or Fitch and Duff, or Aaa or better by Moody's provided that the deposits in such account or accounts are fully insured by the Federal Deposit Insurance Corporation, (iii) a segregated trust account maintained with the corporate trust department of an institution with capital and surplus of not less than $50,000,000 and with a minimum long-term unsecured debt rating of AA or better by Standard & Poor's or Fitch and Duff, or Aaa or better by Moody's, or (iv) an account otherwise acceptable to the Lender. -4- 10 ENGINEERING REPORT. An engineering report of the Premises from an engineer approved by the Lender and dated as of a date acceptable to the Lender, which report shall, among other things, (a) conform to all requirements of the Lender and (b) certify that the Premises is in material compliance with all applicable requirements of the Americans with Disabilities Act of 1990. ENVIRONMENTAL ASSESSMENT. A report (including all drafts thereof) of an environmental assessment of the Premises of such scope (including but not limited to the taking of soil borings and air and groundwater samples and other above and below ground testing) as the Lender may request, by a consulting firm acceptable to the Lender, which shall, among other things, be dated as of a date acceptable to the Lender and conform to (i) the current minimum standards for the American Society of Testing and Materials, and (ii) the Lender's then current requirements. ENVIRONMENTAL COVENANT(S). Each of the covenants, agreements and/or indemnities set forth in Section 5.3 of this Loan Agreement. EQUITY INTERESTS. Any and all shares, interests, participations and other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person not a corporation (including, without limitation, general and limited partnership interests in a limited partnership), and any and all warrants and options to purchase any of the foregoing. ERISA. The Employee Retirement Income Security Act of 1974. EVENT OF DEFAULT. The occurrence of any event or condition specified in Section 7.1 of this Loan Agreement. FINANCIAL STATEMENT. As to any indicated Person, for any specified period, financial statements of such Person, including, at a minimum, a current balance sheet, a current income and expense statement, a statement showing contingent liabilities and any other supporting schedules or documentation that the Lender may from time to time require, and, in the case of the Borrower, a detailed cash flow statement for each property and/or entity in which the Borrower has an interest, prepared in accordance with Required Accounting Standards. The cash flow statements provided shall include, as applicable, the property and entity name, location, size (including the number of rooms with respect to hotels), and the percentage of ownership therein, its leasing and occupancy status, its Operating Income Premises (including the sources of Operating Income Premises), its Operating Expenses Premises, its Net Operating Income Premises, any loan balance currently outstanding, the amount and beneficiary of any cash distributions by such Person, the amount invested in and/or received from such property or entity; and detailed cash flow projections for the next twelve (12) month period therefor. Each Financial Statement shall include a Certification thereto. All required financial statements shall list only the assets of the indicated Person, and in no event shall the assets of the -5- 11 indicated Person include the assets of any other Person. Each annual financial statement shall be accompanied by (i) a comparison of the budgeted income and expenses and the actual income and expenses for the prior fiscal year, (ii) a certificate executed by the chief financial officer of the Person stating that each such annual financial statement presents fairly the financial condition and the results of the operations of the Person and the Property being reported upon and has been prepared in accordance with Required Accounting Standards, (iii) an unqualified opinion of a "Big Five" accounting firm or other independent certified public accountant reasonably acceptable to Lender, (provided that an audit shall be required only for the Borrower and Borrower Principal and, with respect to an Individual Property, there shall be provided only a supplemental schedule of Operating Lease revenues on an Individual Property by Individual Property basis) and (iv) a schedule audited by such independent certified public accountant reconciling Operating Income Leases to Net Operating Income Leases, which shall itemize all adjustments made to Operating Income Leases to arrive at Net Operating Income Leases deemed material by such independent certified public accountant. FINANCING STATEMENTS. The UCC financing statements filed in order to perfect the Lender's lien on certain personal property and fixtures as more particularly described therein. The Financing Statements shall be on forms approved for filing in the applicable state and local filing offices of the applicable state in which any filings are necessary or, in the Lender's opinion desirable, to be made to perfect the interests of the Lender granted under the Loan Documents, together with the search results for such filing offices, including copies of all reported financing statements. FRANCHISE AGREEMENT. Means, with respect to any Individual Property, that certain franchise agreement more specifically identified on SCHEDULE 2 attached hereto. FUNDAMENTAL TRANSACTION. As defined in Section 5.2(e) hereof. GAAP. Generally accepted accounting principles, as from time-to-time in effect in the United States of America, consistently applied. GOVERNMENTAL ACTION. The issuance or threatened issuance in writing of any claim, citation, notice of any pending or threatened suit, proceeding, order or governmental inquiry or opinion involving the Premises that alleges the violation of any Requirement of Law or Hazardous Materials Law. GOVERNMENTAL AUTHORITIES. Any governmental (including health and environmental) agency, office, officer or official whose consent or approval is required as applicable under the circumstances as a prerequisite to the commencement of the construction, renovation or expansion of the Improvements or to the operation and occupancy of the Improvements or the Premises or to the performance of any act or obligation or the observance of any agreement, provision or condition of whatsoever nature herein contained. GROUND LEASE. Each ground lease, if any, pursuant to which the Borrower acquires an interest as ground lessee of any portion of the Premises. HAZARDOUS MATERIALS. Includes petroleum and petroleum products, flammable explosives, radioactive materials (excluding radioactive materials in smoke detectors), polychlorinated biphenyls, lead, asbestos or asbestos containing materials in any form that is or could become friable, hazardous waste, toxic or hazardous substances or other related materials whether in the form of a chemical, element, compound, solution, mixture or -6- 12 otherwise including, but not limited to, those materials defined as "hazardous substances," "extremely hazardous substances," "hazardous chemicals," "hazardous materials," "toxic substances," "solid waste," "toxic chemicals," "air pollutants," "toxic pollutants," "hazardous wastes," "extremely hazardous waste," or "restricted hazardous waste" by Hazardous Materials Law or regulated by Hazardous Materials Law in any manner whatsoever, and all other "Hazardous Materials", if any, identified in the Program Rider. HAZARDOUS MATERIALS INDEMNITY AGREEMENT. Shall mean a Hazardous Materials Indemnification Agreement substantially in the form attached hereto as EXHIBIT H and to the extent a new agreement is specifically required under this Loan Agreement, as such form may be amended by Lender consistent with prudent underwriting standards. HAZARDOUS MATERIALS LAW. All federal, state, and local laws, ordinances and regulations and standards, rules, policies and other governmental requirements and any court judgments applicable to the Borrower or to the Premises relating to industrial hygiene or to environmental or unsafe conditions or to human health including, but not limited to, those relating to the generation, manufacture, storage, handling, transportation, disposal, release, emission or discharge of Hazardous Materials, those in connection with the construction, fuel supply, power generation and transmission, waste disposal or any other operations or processes relating to the Premises, and those relating to the atmosphere, soil, surface and ground water, wetlands, stream sediments and vegetation on, under, in or about the Premises. "Hazardous Materials Law" also shall include, but not be limited to, the following laws, as amended as set forth herein and as subsequently amended: (1) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USCA 9601 ET SEQ.; (2) the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 USCA 6901 ET SEQ.; (3) the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USCA 1251 ET SEQ.; (4) the Toxic Substances Control Act, 15 USCA 2601 ET SEQ.; (5) the Emergency Planning and Community Right-to-Know Act of 1986, 42 USCA 11001 ET SEQ.; (6) the Clean Air Act, as amended by the Clean Air Act Amendments, 42 USCA 7401 ET SEQ.; (7) the National Environmental Policy Act of 1969, 42 USCA 4321 ET SEQ.; (8) the River and Harbor Act of 1899, 33 USCA 401 ET SEQ.; (9) the Endangered Species Act of 1973, 16 USCA 1531 ET SEQ.; (10) the Occupational Safety and Health Act of 1970, 29 USCA 651 ET SEQ.; (11) the Safe Drinking Water Act, 42 USCA 300(f) ET SEQ.; and (12) the Hazardous Materials Transportation Act, 49 USCA 1801 ET SEQ., and all regulations from time to time adopted in respect to the foregoing laws. IMMEDIATE REPAIR(S). Those repairs, replacements and improvements listed as "Immediate Repairs" on EXHIBIT B hereto. IMPROVEMENTS. As defined in the Security Instrument. INDEBTEDNESS. For any Person, without duplication: (a) all indebtedness of such Person for borrowed money, for amounts drawn under a letter of credit, or for the deferred purchase price of property for which such Person or its assets is liable, (b) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person would be liable, if -7- 13 such amounts were advanced under the credit facility, (c) all amounts required to be paid by such Person as a guaranteed payment to partners or a preferred or special dividend, including any mandatory redemption of shares or interests, (d) all indebtedness guaranteed by such Person, directly or indirectly, (e) all obligations under leases that constitute capital leases for which such Person is liable, and (f) all obligations of such Person under interest rate caps, floors, collars and other interest hedge agreements, in each case whether such Person is liable contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss. INDEMNITOR. Shall mean the Borrower Principal. INDEPENDENT APPRAISER: Shall mean an independent appraiser which is a member of the American Institute of Real Estate Appraisers selected by Borrower and having at least five (5) years of experience in the applicable real estate market where the applicable Individual Property is located in the valuation of properties of the type being appraised. INDIVIDUAL PROPERTY. Shall mean each parcel of real property and the Improvements thereon encumbered by a Security Instrument, together with all rights pertaining to such property and improvements as more particularly described in the granting clauses of the Security Instrument and referred to therein as the Premises. INITIAL RESERVE DEPOSIT(S). Any amount required to be deposited into any Reserve Account on or before the Closing Date in accordance with the terms of this Loan Agreement, including without limitation, any initial deposit to any Reserve Account identified on EXHIBIT B hereto or in the Program Rider. INSURANCE. All of the following insurance coverages: (i) PROPERTY INSURANCE. Insurance with respect to the Improvements against any peril included within the classification "All Risks of Physical Loss" with extended coverage in amounts at all times sufficient to prevent it from becoming a co-insurer within the terms of the applicable policies, but in any event such insurance shall be maintained in an amount equal to the full insurable value of the Premises and with deductibles acceptable to the Lender. The term "full insurable value" as used herein shall mean the actual replacement cost of the Premises (without taking into account any depreciation, and exclusive of excavations, footings and foundations, landscaping and paving, but in no event less than one hundred twenty-five percent (125%) of the applicable Allocated Loan Amount) determined annually by an insurer, a recognized independent insurance broker or an Independent Appraiser selected and paid by Borrower and in no event less than the coverage required pursuant to the terms of any Lease; provided, however, if the terms of the applicable insurance policies expressly provide for insurance to be provided in the amount of the actual replacement cost of the Improvements and the Building Equipment or such policies contain a replacement cost endorsement, no such annual determination will be necessary. -8- 14 (ii) LIABILITY INSURANCE. Comprehensive general liability insurance, including bodily injury, death and property damage liability, dram shop coverage and umbrella liability insurance against any and all claims, including all legal liability to the extent insurable imposed upon the Lender and all court costs and attorneys' fees and expenses, arising out of or connected with the possession, use, leasing, operation, maintenance or condition of the Premises in such amounts as are generally required by institutional lenders for properties comparable to the Premises in market areas comparable to the market areas in which the Premises are located written on a per occurrence limit of not less than $1,000,000.00 and with an aggregate limit of not less than $3,000,000.00 per Individual Property. In the event that any payment of proceeds is made under any umbrella liability insurance policy, the Borrower shall immediately purchase additional liability insurance coverage so that at all times there shall be no less than a $1,000,000.00 minimum of liability insurance coverage per occurrence with a $3,000,000.00 minimum general aggregate limit. (iii) WORKERS' COMPENSATION INSURANCE. Statutory workers' compensation insurance (to the extent the risks to be covered thereby are not already covered by other policies of insurance maintained by it), with respect to any work on, about or regarding the Premises. (iv) BUSINESS INTERRUPTION. Business interruption insurance and/or insurance for loss of income in an amount sufficient to avoid any co-insurance penalty and to provide proceeds which will cover a period of at least eighteen (18) months following the date of casualty or such other period acceptable to the Lender and the Rating Agencies. The amount of such business interruption insurance shall be determined prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from each Individual Property for the succeeding eighteen (18) month period. (v) BOILER AND MACHINERY INSURANCE. Broad form boiler and machinery insurance covering all boilers and other pressure vessels, machinery and equipment located in, on or about the Premises and insurance against loss of occupancy or use arising from any such breakdown in an amount equal to one hundred percent (100%) of the actual replacement cost of such machinery (without taking into account any depreciation) and containing such deductibles as are acceptable to the Lender. (vi) FLOOD INSURANCE. If all or any portion of the Premises is located within a federally designated flood hazard zone, flood insurance as is generally available and in such amounts and with such deductibles as the Lender may reasonably require. (vii) OTHER INSURANCE. Such other insurance (including, without limitation, earthquake insurance, sinkhole insurance, law and ordinance insurance, environmental insurance and malpractice insurance) with respect to the Premises against loss or damage of the kinds from time to time reasonably required by the Lender in connection with loans secured by properties comparable to the Premises. -9- 15 INTANGIBLE PERSONALTY. As defined in the Security Instrument. LAND. As defined in the Security Instrument. LEASES. As defined in the Cash Management Agreement. LESSEE. As defined in the Cash Management Agreement. LIEN. Any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any financing lease having substantially the same economic effect as any of the foregoing). LOAN. Shall have the meaning set forth in the recitals hereto. LOAN AMOUNT. The original principal amount of the Note. LOAN DOCUMENT(S). This Loan Agreement, the Commitment, the Note, the Security Instrument, the Financing Statements, the Cash Management Agreement and all other documents evidencing, securing or relating to the Loan. LOAN TO VALUE RATIO. Shall mean the quotient of the then outstanding principal amount of the Loan divided by the value of the Premises remaining subject to the Lien of the Security Instrument, as determined by Lender in its sole discretion pursuant to its review and approval of a new or updated Appraisal obtained by Lender at Borrower's expense and taking into account only approved Operating Leases in place with respect to the portion of the Premises not being defeased, having remaining terms (not taking into account extension rights or options) of not less than five (5) years from the date of the applicable defeasance. LOCKBOX ACCOUNT. The account specified for deposits of Rents and Profits and other receipts from the Premises. MANAGEMENT AGREEMENT. Shall mean, with respect to any Individual Property, the written management agreement for the Premises, if any, in form and substance satisfactory to the Lender, by and between the Borrower, as owner, and a management company, as manager. MANAGER. Shall mean the manager of the Premises, if any, under the Management Agreement, and its successors and assigns. MATURITY DATE. Shall have the meaning the forth in the Note. MONTHLY PAYMENT AMOUNT. Shall have the meaning set forth in the Note. MONTHLY RESERVE DEPOSITS. Any monthly payment or deposit required in connection with any Reserve Account, including without limitation, any monthly payments or deposits to any Reserve Account identified in EXHIBIT B hereto or in the Program Rider. -10- 16 NET OPERATING INCOME LEASES. With respect to any specified period, (i) Operating Income Leases, minus (ii) (A) Operating Expenses Leases and (B) replacement reserves, including any capital expenditures (to the extent such capital expenditures exceed any amounts held in the Replacement Reserve Account) required in connection with (i) any franchise agreement; (ii) any capital improvements budget with Operating Lessee; or (iii) any deposits to the Replacement Reserve Account, each as calculated for such period. NET OPERATING INCOME PREMISES. With respect to any specified period, (i) Operating Income Premises, minus (ii) (A) Operating Expenses Premises, (B) management fees (assuming a 4% management fee); and (C) replacement reserves, including any capital expenditures (to the extent such capital expenditures exceed any amounts held in the Replacement Reserve Account) required in connection with (i) any franchise agreement; (ii) any capital improvements budget with Operating Lessee; or (iii) any deposits to the Replacement Reserve Account, each as calculated for such period. NEW MANAGER. Shall mean Flagstone Hospitality Management LLC. NON-CONSOLIDATION OPINION. Shall have the meaning set forth in Section 4.28 hereof. NONDISTURBANCE AGREEMENT. Shall mean, for each Individual Property, that certain Nondisturbance, Subordination and Attornment Agreement among Lender, Borrower and Operating Lessee, substantially in the form attached hereto as EXHIBIT E (as such Nondisturbance Agreement may be amended (i) to include any revisions required by Lender in the event a different form of Operating Lease than those currently in existence is entered into by Operating Lessee; or (ii) by Lender consistent with prudent underwriting standards). NOTE. The promissory note or notes of the Borrower in connection with the Loan in favor of the Lender, as acknowledged and agreed to by the Borrower Principals, together with all prior notes amended, modified, renewed, extended, restated, supplemented, replaced or substituted thereby. NOTE PAYMENT AMOUNT. For any Payment Date, the total amount due and owing under the Note on such Payment Date. O&M PROGRAM. An operations and maintenance program (in form and substance satisfactory to the Lender) relating to the use, handling and/or abatement of one or more Hazardous Materials and which is accepted in writing by the Borrower. OBLIGATIONS. As to any stated Person, the unpaid principal of and interest on any promissory note or other indebtedness of such Person (including, without limitation, interest accruing after the maturity of any such promissory note or indebtedness and interest accruing thereon after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to such Person, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) and all other obligations and liabilities of such Person, whether direct or -11- 17 indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all reasonable fees and disbursements of counsel) or otherwise. OFFICER'S CERTIFICATE. Shall mean a certificate delivered to Lender and signed by an officer of the managing member of the Borrower. OPERATING EXPENSES LEASES. Any expense paid or to be paid by the Borrower (or any of its agents or by the Lender on account or on behalf of the Borrower) under the Operating Lease determined on an accrual basis, in accordance with GAAP, including, without limitation, (i) all payments required to be made pursuant to any franchise or other agreement, (ii) undistributed expenses, including without limitation, general and administrative, marketing, utilities, operations and maintenance, (iii) legal, accounting, appraisal and other professional fees, costs and disbursements, including annual fees and other amounts (including indemnity payments) payable annually or otherwise, (iv) taxes, insurance premiums and impositions of any type, (v) any amount paid in connection with any interest rate contract or similar hedge, cap, collar, floor or currency swap, (vi) all items, if any, defined as an Operating Expense herein. Notwithstanding the foregoing, Operating Expenses Leases will not include (a) depreciation or amortization, (a) any expenses that in accordance with GAAP should be capitalized (other than current charges for any such expenses included in the preceding sentence) (C) the principal of and interest on the Note and (D) any item of expense that would otherwise be considered within Operating Expenses Leases pursuant to the provisions above but which is required to be paid directly by the Operating Lessee under the Operating Lease. OPERATING EXPENSES PREMISES. Any expenses in connection with the operation of the Premises, determined (as if there were no Operating Lease) on an accrual basis, in accordance with GAAP, including, without limitation, (i) all payments required to be made pursuant to any management, franchise or other agreement, (ii) undistributed expenses, including without limitation, general and administrative, marketing, utilities, operations and maintenance and other expenses and deposits required to be made to the Reserve Accounts, as appropriate, (iii) legal, accounting, appraisal and other professional fees, costs and disbursements, including annual fees and other amounts (including indemnity payments) payable annually or otherwise, (iv) taxes (real or personal), insurance premiums and impositions of any type, (v) any amount paid in connection with any interest rate contract or similar hedge, cap, collar, floor or currency swap, (vi) all items, if any, defined as an Operating Expense in the Program Rider, and (vii) the cost of goods sold. Notwithstanding the foregoing, Operating Expenses Premises will not include (A) depreciation or amortization, (B) any expenses that in accordance with GAAP should be capitalized (other than current charges for any such expenses included in the preceding sentence), (C) the principal of and interest on the Note and (D) management fees. OPERATING INCOME LEASES. All rents (net of concessions), charges, fees, expense recovery, revenues and other income (including interest income) paid (other than security deposits from tenants or other Persons under valid leases or other agreements and insurance, eminent domain or similar proceeds and rewards paid directly to the Lender pursuant to the provisions of this Loan Agreement and any disbursements to Borrower from any Reserve Accounts) at any time to the Borrower (or to any of its agents other than the Operating -12- 18 Lessee for the account of the Borrower) by any Person under the Operating Lease or otherwise in connection with the operation of the Premises or under the Operating Leases, as applicable, determined on an accrual basis, and all items, if any, defined as Operating Income in the Program Rider. OPERATING INCOME PREMISES. Shall mean, as if there were no Operating Lease, all rents (net of concessions), charges, fees, expense recovery, revenues and other income (including interest income) paid (other than security deposits from tenants or other Persons under valid leases or other agreements and insurance, eminent domain or similar proceeds and rewards paid directly to the Lender pursuant to the provisions of this Loan Agreement and any disbursements to Borrower from any Reserve Accounts) as if there were no Operating Lease at any time to the Borrower (or to any of its agents for the account of the Borrower) by the Person in connection with the operation of the Premises or under the Operating Leases, as applicable, determined on an accrual basis, and all items, if any, defined as Operating Income in the Program Rider. OPERATING LEASE. Shall mean, with respect to any Individual Property, the lease agreement in effect between Borrower and the Operating Lessee for the use and operation of each Individual Property and all amendments, modifications, renewals, substitutions or replacements of such lease. The initial Operating Leases in effect as of the date hereof are identified on SCHEDULE 3 hereto. OPERATING LESSEE. Shall mean (i) RFS, Inc. a Tennessee corporation, (ii) [Landcom], a ____________ with respect to the Individual Properties known as Residence Inn, Jacksonville, Florida and Hampton Inn, Jacksonville, Florida, or (iii) any Qualified Operating Lessee approved by Lender in accordance with the provisions of this Loan Agreement. [OPERATING PARTNERSHIP. Shall mean RFS Partnership, L.P. a Tennessee limited partnership, and any successor thereto.] OPERATING STATEMENT. As to the Premises and for each Individual Property, for any period indicated, a statement of the Borrower, as reflecting, truly and accurately, the items set forth therein as at the date thereof, showing the Operating Income Premises and Operating Expenses Premises for the indicated period and including a statement as to the amounts and sources of rent or other income collected and any other information reasonably required by the Lender. Each Operating Statement shall include a Certification. PARTIAL DEFEASANCE DATE. Shall have the meaning given in Section 4(c) of the Note. PAYMENT DATE. Each date any payment of principal or interest on the Note is due and payable thereunder. PERMITTED ENCUMBRANCES. As defined in the Security Instrument, together with any Liens which have been bonded over (i) within thirty (30) days after the date of filing thereof, (ii) with a bonding company satisfactory to the Lender, (iii) in an amount satisfactory to the Lender, and (iv) otherwise in form and substance satisfactory to the Lender, in each case, in the Lender's reasonable discretion. -13- 19 PERMITTED INVESTMENTS. Shall mean any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by the servicer or the trustee under any Securitization, as hereinafter defined, or any of their respective Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior to the first Monthly Payment Date following the date of acquiring such investment and meeting one of the appropriate standards set forth below: (i) obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of: the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (ii) Federal Housing Administration debentures; (iii) obligations of the following United States government sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Student Loan Marketing Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (iv) federal funds, unsecured certificates of deposit, time deposits, bankers' acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency, as hereinafter defined, (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or -14- 20 withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (v) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers' acceptances issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vi) debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest long-term unsecured rating category; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vii) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, -15- 21 qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest short-term unsecured debt rating; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (viii) units of taxable money market funds or mutual funds, which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have the highest rating available from each Rating Agency for taxable money market funds or mutual funds (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) for money market funds or mutual funds; and (ix) any other security, obligation or investment which has been approved as a Permitted Investment in writing by (a) Lender and (b) each Rating Agency, as evidenced by a written confirmation that the designation of such security, obligation or investment as a Permitted Investment will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency; provided, however, that no obligation or security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments or (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of one hundred twenty percent (120%) of the yield to maturity at par of such underlying investment. PERSON. An individual, a general or limited partnership, a limited liability company, a limited liability partnership, a corporation, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or other entity of whatever nature. PERSONALTY. The Tangible Personalty and the Intangible Personalty. PREMISES. The collective reference to the Land, the Improvements and the Tangible Personalty for each of the five (5) Individual Properties more particularly described in the Security Instrument. PROGRAM RIDER. The Program Rider attached as EXHIBIT D to this Loan Agreement. PROPERTY RELEASE. Shall have the meaning set forth in Section 2.5. -16- 22 PROHIBITED ACTIVITIES OR CONDITIONS. Causing or permitting, whether directly or indirectly, (i) the presence, use, generation, manufacture, production, processing, installation, release, discharge, storage (including storage in above ground and underground storage tanks for petroleum or petroleum products), treatment, handling, or disposal of any Hazardous Materials (excluding the safe and lawful use and storage of quantities of Hazardous Materials or petroleum products, customarily used in the ordinary operations of the Borrower or customarily used in the ordinary operations of any tenant previously approved by the Lender) on or under the Premises, or in any way affecting the Premises or its value or which may form the basis for any present or future claim, demand or action seeking cleanup of the Premises, (ii) the transportation of any Hazardous Materials to or from the Premises (excluding the safe and lawful use and storage of quantities of Hazardous Materials or petroleum products, customarily used in the ordinary operations of the Borrower or customarily used in the ordinary operations of any tenant previously approved by the Lender), or (iii) any occurrence or condition on the Premises (or exacerbation of the same) that is or may be in violation of Hazardous Materials Law. QUALIFIED MANAGER. Means a Manager that is (or is controlled by, controlling or under common control with ) either (a) an entity owned or controlled by the executive management or shareholders of the REIT immediately prior to the applicable Fundamental Transaction, as hereinafter defined, or (b) a professional management company which at the time of its engagement as Manager shall be the property manager for at least ten (10) hotel properties containing at least one thousand three hundred (1,300) rooms exclusive of the Premises. QUALIFIED OPERATING LESSEE. Means a Person that (a) is (or is controlled by, controlling or under common control with) either (i) an entity owned or controlled by the executive management or shareholders of the REIT immediately prior to the applicable Fundamental Transaction, or (ii) a hotel operating company which at the time of its engagement as Operating Lessee shall be operating and controlling, as owner, manager or operating lessee, at least twelve (12) hotel properties consisting of at least one thousand five hundred (1,500) rooms exclusive of the Premises, (b) is a single purpose bankruptcy-remote entity in accordance with the then-current standards of the Rating Agencies, and (c) if the Qualified Operating Lessee is an Affiliate, it must be a taxable REIT subsidiary as set forth in and in accordance with the definition of Fundamental Transaction. QUALIFIED RESULTANT OWNER. Means one or more Persons which, individually or collectively, own at least fifty-one percent (51%) of the beneficial interest in and control of the REIT or the Operating Partnership, as applicable; and (1)(a) is or is controlled by either a pension fund, pension fund advisor, and insurance company, a domestic bank (with total assets of at least One Billion Dollars ($1,000,000,000)) or publicly or privately traded real estate investment trust or other publicly traded or privately held company, (b) has a then current net worth of at lease One Hundred Million Dollars ($100,000,000) and total real estate assets of at least Two Hundred Million Dollars ($200,000,000), in each case exclusive of the Premises (or in the case of a pension fund advisor, controls at least Five Hundred Million ($500,000,000) in real estate assets), and (c) controls (exclusive of the Premises) at least -17- 23 ten (10) hotel properties containing in the aggregate at least one thousand three hundred (1,300) rooms and (2) if the Fundamental Transaction occurs at any time that the Loan is not part of a Securitization, (x) such Person(s) are not and have not been, within the previous ten (10) years, subject to any material, uncured event of default which resulted in litigation or an acceleration of any indebtedness under any agreement with Lender, (y) such Person(s) are not subject to any bankruptcy action and (z) the principals or entities which control such Person(s) have never been convicted of a felony. RATING AGENCIES. Shall mean, as applicable, each of Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., Moody's Investors Services, Inc., Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc., or any other nationally-recognized statistical rating agency which has been approved by Lender which rated the securities in connection with the Securitization (as defined in ss.9.3 below). RECOURSE COVENANT(S). Each of those covenants and/or agreements set forth in Section 5.4 of this Loan Agreement. REIT. Shall mean RFS Hotel Investors, Inc., a Tennessee corporation, and any successor thereto. RELEASE PARCEL. Shall have the meaning set forth in Section 4(c) of the Note. REMIC. Shall have the meaning set forth in the Note. RENT ROLL. As to the Premises, a rent schedule in a form acceptable to the Lender, including a Certification thereof, showing the legal and trade name of each tenant, and for each tenant, the gross and net square feet occupied, the lease expiration date, the rent payable (both base rent and additional rent), right of first refusal, options, rights to move tenants, security deposits and any other information requested by the Lender and, as to any annual Rent Roll, copies of paid tax receipts for the related fiscal year. RENTS AND PROFITS. As defined in the Security Instrument. REPAIR ESCROW ACCOUNT. An Eligible Account established and maintained pursuant to the terms of this Loan Agreement. REPLACEMENT RESERVE ACCOUNT. An Eligible Account established and maintained pursuant to the terms of this Loan Agreement. REPLACEMENTS. Those repairs, replacements or improvements listed as "Replacements" on Exhibit B hereto. REQUIRED ACCOUNTING STANDARDS. GAAP or such alternative accounting standard as may be acceptable to the Lender, consistently applied. REQUIRED DSCR. As defined in Section 7.1(m) of this Agreement. REQUIREMENT(S) OF LAW. As to any Person, the organizational or governing documents of such Person, and any statute, law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority (including, without limitation, all requirements relating to zoning, parking, ingress and egress, building setbacks, or use of the Premises, all -18- 24 Hazardous Materials Laws, the Architectural Barriers Act of 1968, the Rehabilitation Act of 1973, the Americans with Disabilities Act of 1990, erosion control ordinances, storm drainage control laws and doing business and/or licensing laws), in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. RESERVE ACCOUNT(S). The Repair Escrow Account, the Tax and Insurance Reserve Account, the Replacement Reserve Account, the Debt Service Reserve Account, and all other reserve and/or escrow accounts established or required pursuant to the provisions of the Loan Documents, including, without limitation, pursuant to the Program Rider. RESPONSIBLE OFFICER. As to any Person, the general partner (if the general partner is not an individual, then the chief executive officer, the chief financial officer or the president or similar individual of the general partner), the managing member, the chief executive officer, the chief financial officer or the president or similar individual of such Person. SECURITIES. Any certificates, notes or other securities issued in connection with a Securitization of the Loan. SECURITIZATION. Shall have the meaning set forth in Section 9.3 herein. SECURITY INSTRUMENT. The deeds of trust, mortgages, or other instrument, dated as of even date herewith, executed by the Borrower granting to the Lender a first priority lien or title priority on the Premises, the Intangible Personalty and the Rents and Profits to secure the obligations of the Borrower under the Loan Documents, together with all prior instruments amended, modified, renewed, extended, restated, supplemented, replaced or substituted thereby. SPECIAL PURPOSE ENTITY. An entity whose structure and organizational and governing documents are in form and substance acceptable to the Lender and which satisfies all of the following requirements: (i) Its purpose shall be limited solely to, as applicable, (a) entering into this Loan Agreement with the Lender, (b) owning, holding, selling, leasing, transferring, exchanging, operating and managing the Premises and (c) transacting any and all lawful business for which it may be organized under its constitutive law that is incident, necessary and appropriate to accomplish the foregoing. (ii) It does not own and will not own any asset or property other than (a) the Premises, and/or (b) incidental Personalty necessary for and used or to be used in connection with the ownership or operation of the Premises. (iii) It will not engage in any business other than the ownership, management and operation of the Premises. (iv) It will not enter into any contract or agreement with any Affiliate, any constituent party of itself, any of its owners, any guarantors of its obligations, or any Affiliate of any constituent -19- 25 party, owner or guarantor (collectively, the "Related Parties") of itself, except upon terms and conditions that are intrinsically fair, commercially reasonable and substantially similar to those that would be available on an arms-length basis with third parties not so affiliated with itself or such related parties. (v) It has not incurred and will not incur any indebtedness other than, as applicable, (a) the Loan, (b) trade and operational debt incurred in the ordinary course of business with trade creditors in amounts not to exceed One Hundred Thousand Dollars ($100,000.00), provided such debt is not evidenced by a note and is not in excess of sixty (60) days past due. No other indebtedness may be secured (senior, subordinate or PARI PASSU) by the Premises. (vi) It has not made and will not make any loans or advances to any Person and shall not acquire obligations or securities of any Related Party other than the Additional Loan. (vii) It is and will remain solvent and it will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due. (viii) It has done or caused to be done and will do all things necessary to observe organizational formalities and preserve its existence, and it will not, nor will it permit any related party to, amend, modify or otherwise change the partnership certificate, partnership agreement, articles of incorporation and bylaws, operating agreement, trust or other organizational documents of Borrower or such related party without the prior written consent of Lender. (ix) It will maintain all of its books, records, financial statements and bank accounts separate from those of any other Person and its assets will not be listed as assets on the financial statement of any other Person. It will file its own tax returns and will not file a consolidated federal income tax return with any other Person. It shall maintain its books, records, resolutions and agreements as official records. (x) It will be, and at all times will hold itself out to the public as, a legal entity separate and distinct from any other Person (including any Affiliate or other related party), shall correct any known misunderstanding regarding its status as a separate entity, shall conduct business in its own name, shall not identify itself or any of its Affiliates as a division or part of the other and shall maintain and utilize a separate telephone number and separate stationery, invoices and checks. (xi) It will maintain from its own assets (and without contribution by other Persons) adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations. (xii) Neither it nor any related party will seek its own dissolution, winding up, liquidation, consolidation or merger in whole or in part, or the sale of its material assets. -20- 26 (xiii) It will not commingle its assets with those of any other Person and will hold all of its assets in its own name. (xiv) Except as provided in Section 9.15 hereof, it will not guarantee or become obligated for the debts of any other Person and does not and will not hold itself out as being responsible for the debts or obligations of any other Person. (xv) If it is a limited partnership or a limited liability company, at least one general partner or member, or if it is a general partnership at least two general partners (each, an "SPC Party") shall be a corporation whose sole asset is the interest in Special Purpose Entity and each such SPC Party will at all times comply, and will cause it to comply, with each of the representations, warranties, and covenants contained in this definition of Special Purpose Entity as if such representation, warranty or covenant was made directly by such SPC Party. Upon the withdrawal or the disassociation of the SPC Party from the Special Purpose Entity, the Special Purpose Entity shall immediately appoint a new member whose articles of incorporation are substantially similar to those of the SPC Party and deliver a new Insolvency Opinion to the Rating Agency or Rating Agencies, as applicable, with respect to the new SPC Party and its equity owners. (xvi) It shall at all times have (if a corporation) or cause there to be at least two duly appointed members of the board of directors (each an "Independent Director") of each SPC Party (if Borrower is a limited partnership or a limited liability company) reasonably satisfactory to Lender who is not at the time of initial appointment and has not been at any time during the preceding five (5) years: (i) a stockholder, director, officer, employee, partner, attorney or counsel of Borrower or such SPC Party or any Affiliate of either of them; (ii) a customer, supplier or other Person who derives any of its purchases or revenues (other than any payments made in connection with such service as Independent Director) from its activities with Borrower or such SPC Party or any Affiliate of either of them; (iii) a Person controlling or under common control with any such stockholder, partner, customer, supplier or other Person; or (iv) a member of the immediate family of any such stockholder, director, officer, employee, partner, customer, supplier or other Person. (As used herein, 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, whether through ownership of voting securities, by contract or otherwise). (xvii) It shall not cause or permit the board of directors of an SPC Party to take any action which, under the terms of any certificate of incorporation, by-laws or any voting trust agreement with respect to any common stock, requires the vote of any SPC Party unless at the time of such action there shall be at least one member who is an Independent Director. (xviii) It shall allocate fairly and reasonably any overhead expenses that are shared with an Affiliate, including paying for office space and services performed by any employee of an Affiliate or related party. -21- 27 (xix) It shall not pledge its assets for the benefit of any other Person other than with respect to the Loan. (xx) It shall maintain a sufficient number of employees in light of its contemplated business operations and pay the salaries of its own employees from its own funds. (xxi) It shall conduct its business so that the assumptions made with respect to Borrower in the Insolvency Opinion shall be true and correct in all respects. SUBORDINATION AGREEMENT. A subordination, non-disturbance and attornment agreement by and among Lender, Borrower and any Lessee substantially in the form attached hereto as EXHIBIT G and to the extent a new Subordination Agreement is specifically required under the terms of this Loan Agreement, as such form may be amended by Lender consistent with prudent underwriting standards. SUBSTITUTE PROPERTY. Shall have the meaning set forth in Section 2.6. SUBSTITUTE RELEASE AMOUNTS. Shall have the meaning set forth in Section 2.6 (xiv). SUBSTITUTED PROPERTY. Shall have the meaning set forth in Section 2.6. SURVEY. A survey of the Land and Improvements (as-built) made by a civil engineer or surveyor, duly licensed or registered in the State where the applicable property is located, dated as of a date acceptable to the Lender, containing a surveyor's certification acceptable to the Lender for the benefit of the Borrower and the Lender (which certification shall, among other things, indicate whether or not any of the Land or Improvements are located within an area identified as having "special flood hazards" as such term is used in the Flood Disaster Protection Act of 1973), together with its successors and assigns, as their interests may appear, and otherwise in form and substance reasonably acceptable to the Lender. TANGIBLE PERSONALTY. As defined in the Security Instrument. TAX AND INSURANCE RESERVE ACCOUNT. An Eligible Account established and maintained pursuant to the terms of this Loan Agreement. TENANT ESTOPPEL CERTIFICATE. A tenant estoppel certificate substantially in the form attached hereto as EXHIBIT F, as such form may be amended by Lender consistent with prudent underwriting standards. TITLE INSURANCE POLICY. Shall mean, with respect to each Individual Property, a title insurance policy in a form acceptable to Lender in its sole discretion, including all amendments and endorsements thereto. UNDEFEASED NOTE. Shall have the meaning set forth in Section 4(c) of the Note. -22- 28 U.S. OBLIGATIONS. Any direct obligations of the United States Government, including, without limitation, treasury bills, notes and bonds. Section 1.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The word "including" when used in this Agreement is intended to be illustrative and not exclusive. Section, subsection, paragraph, clause, exhibit, schedule, addendum and rider references contained in this Agreement are references to sections, subsections, paragraphs, clauses, exhibits, schedules, addenda and riders in or to this Agreement unless otherwise specified. The captions herein are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Loan Agreement nor the intent of any provision hereof. The terms set forth herein are applicable to the singular as well as the plural forms of such terms and to the masculine as well as the feminine and neuter genders of such terms. (b) All references in this Loan Agreement or any other Loan Document to any Loan Document, agreement, contract, license, document or instrument shall mean such Loan Document, agreement, contract, license, document or instrument as amended, modified, renewed, extended, restated, supplemented, reissued, and/or substituted from time to time. (c) All references or citations in this Loan Agreement or any other Loan Document to any statute, law, treaty, rule, regulation or other Requirement of Law shall mean such statute, law, treaty, rule, regulation or other Requirement of Law as amended, modified, supplemented, replaced or substituted from time to time. Section 1.3 INCORPORATION BY REFERENCE OF COMMITMENT. All of the terms and conditions of the Commitment are hereby incorporated herein by reference, as if such terms and conditions were set forth herein in their entirety, but in the event of any conflict or discrepancy between the terms and/or conditions of this Loan Agreement and those of the Commitment, the terms and conditions of this Loan Agreement shall control. ARTICLE II THE LOAN Section 2.1 LOAN TERMS. Subject to the terms and conditions of this Loan Agreement and the other Loan Documents, the Lender agrees to make the Loan to the Borrower in the principal sum of the Loan Amount, such borrowing to be evidenced by the Note and the other Loan Documents. -23- 29 Section 2.2 INTEREST. The outstanding principal balance of the Loan shall bear interest, and principal and interest shall be repayable, in accordance with the terms of the Note. Section 2.3 TERM. The Loan shall be due and payable in full, unless accelerated sooner pursuant to the terms of this Loan Agreement, on the Maturity Date. Section 2.4 PAYMENTS. All payments by the Borrower under the Loan shall be made in accordance with the terms of the Note. Section 2.5 RELEASE OF PROPERTIES. Except as set forth in this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of the Lien of the Security Instrument on the Premises or any portion thereof. RELEASE ON PAYMENT IN FULL. If Borrower shall pay or cause to be paid, the principal of and interest on the Note in full at maturity or as permitted in accordance with the terms thereof and all other Indebtedness payable to Lender hereunder by Borrower or secured by the Security Instrument or by the other Loan Documents and all of the payment Obligations shall have been performed, then the Security Instrument and all the other Loan Documents shall be discharged and satisfied or assigned (to Borrower or to any other Person at Borrower's direction and without representation or warranty by, or recourse to, Lender), at Borrower's option, without warranty (except that Lender shall be deemed to have represented that such release and termination or reassignment has been duly authorized and that it has not assigned or encumbered the Security Instrument or the other Loan Documents), at the expense of Borrower upon its written request. Concurrently with such release and satisfaction or assignment of any Security Instrument and all the other Loan Documents, Lender will return to Borrower (or in the case of an assignment, the assignee) the Note and all insurance policies relating to the Premises which may be held by Lender, any amounts held in escrow pursuant to the Security Instrument or the Cash Management Agreement, if applicable, or otherwise, and any part of the Premises or other Collateral that may be in its possession and, on the written request and at the expense of Borrower, will execute and deliver such instruments of conveyance, assignment and release (including appropriate UCC-3 termination statements) prepared by Borrower and as may reasonably be requested by Borrower to evidence and to assure the effectiveness of such release and satisfaction, or assignment, and any such instrument, when duly executed by Lender and, if appropriate, duly recorded by Borrower in the places where the Security Instrument and each other Loan Document is recorded, shall conclusively evidence the release and satisfaction or assignment of the Security Instrument and the other Loan Documents. Section 2.6 SUBSTITUTION OF PROPERTIES. Subject to the terms and conditions set forth in this Section 2.6, Borrower may obtain a release of the Lien of a -24- 30 Security Instrument (and the related Loan Documents) encumbering an Individual Property (a "Substituted Property") by substituting therefor its fee interest in one or more hotel properties of like kind and quality acquired by Borrower (individually, a "Substitute Property" and collectively, the "Substitute Properties"), provided that no such substitution may occur after the Maturity Date. In addition, any such substitution shall be subject, in each case, to the satisfaction of the following conditions precedent: (i) The Substitute Property must be a property as to which Borrower will hold indefeasible fee or ground leasehold title free and clear of any lien or other encumbrance except for Permitted Encumbrances, Leases and easements, restrictive covenants and other title exceptions which do not have a material adverse effect on the utility or value of such property for its current use. (ii) Lender and Rating Agencies shall have received (A) a copy of a deed conveying all of Borrower's right, title and interest in and to the Substituted Property (x) to an entity other than Borrower or its general partner or managing member (as applicable) in an arms' length transaction or (y) to the REIT or the Operating Partnership and (B) a letter from Borrower countersigned by a title insurance company acknowledging receipt of such deed and agreeing to record such deed in the real estate records for the county in which the Substituted Property is located. In the event the Substituted Property is to be conveyed to the REIT or the Operating Partnership, Lender shall also have received (a) a copy of a fully executed contract of sale between the REIT or the Operating Partnership, as applicable, and an entity other than Borrower or a Borrower Party for the sale of the Substituted Property in an arms' length transaction, which contract of sale (i) at the time of substitution, is not subject to any contingencies, except for the payment of the purchase price by the purchaser and the delivery of title by the REIT or the Operating Partnership, as applicable and (ii) contains a closing date which is not more than thirty (30) days following the date of the proposed substitution and (b) evidence that any good-faith deposit required under such contract of sale has been deposited into escrow. (iii) Lender and the applicable Rating Agencies shall have received an MAI appraisal of the Substitute Property dated no more than forty-five (45) days prior to the substitution by an appraiser acceptable to such Rating Agencies, indicating an appraised value of the Substitute Property that is at least equal to the greater of the appraised value of the Substituted Property determined by Lender as of the date hereof or determined by an Independent Appraiser as of the date immediately preceding the encumbrance of the Substitute Property by the related Security Instrument. (iv) The Debt Service Coverage Ratio Premises for the Substitute Property shall be a minimum of 2.3x, as determined by Lender in its sole and absolute discretion. (v) The Net Operating Income Premises for the Substitute Property either (A) does not show a successive decrease over the three (3) years immediately prior to the date of substitution, or (B) if the Substitute Property has been substantially renovated within such three -25- 31 (3) year period, the Net Operating Income Premises shall not show a successive decrease for such lesser period of no less than twelve (12) months. (vi) The Net Operating Income Leases for the Substitute Property either (A) does not show a successive decrease over the three (3) years immediately prior to the date of substitution, or (B) if the Substitute Property has been substantially renovated within such three (3) year period, the Net Operating Income Leases shall not show a successive decrease for such lesser period of no less than twelve (12) months (vii) The Net Operating Income Premises for the twelve (12) month period immediately preceding the substitution for the Substitute Property is at least one hundred five percent (105%) the Net Operating Income Premises for the twelve (12) month period immediately preceding the substitution for the Substituted Property. (viii) The Net Operating Income Leases for the twelve (12) month period immediately preceding the substitution for the Substitute Property is at least one hundred five percent (105%) the Net Operating Income Leases for the twelve (12) month period immediately preceding the substitution for the Substituted Property. (ix) The Debt Service Coverage Ratio Premises after any proposed substitution, based on the remaining collateral properties, including the Substitute Property shall be at least equal to the greater of (i) the Debt Service Coverage Ratio Premises on the date hereof; or (ii) the Debt Service Coverage Ratio Premises immediately prior to such substitution. (x) The Debt Service Coverage Ratio Leases after any proposed substitution, based on the remaining collateral properties, including the Substitute property shall be at least equal to the greater of (i) the Debt Service Coverage Ratio Leases on the date hereof; or (ii) the Debt Service Coverage Ratio Leases immediately prior to such substitution. (xi) The Person transferring the Substitute Property is solvent and the Substitute Property was transferred to Borrower in an arm's length transaction. (xii) If the Loan is part of a Securitization, Lender shall have received evidence in writing from the Rating Agencies to the effect that such substitution will not result in a withdrawal, qualification or downgrade of the respective ratings in effect immediately prior to such substitution for the Securities issued in connection with the Securitization that are then outstanding. (xiii) No Event of Default shall have occurred and be continuing. Lender and the Rating Agencies shall have received a certificate from Borrower confirming the foregoing. (xiv) Borrower shall have executed, acknowledged and delivered to Lender (A) a Security Instrument, and two UCC Financing Statements with respect to the Substitute Property, together with a letter from Borrower countersigned by a title insurance company acknowledging receipt of such Security Instrument and UCC-1 Financing Statements and agreeing to record or file, as applicable, such Security Instrument and -26- 32 one of the UCC-1 Financing Statements in the real estate records for the county in which the Substitute Property is located and to file one of the UCC-1 Financing Statement in the office of the Secretary of State of the state in which the Substitute Property is located, so as to effectively create upon such recording and filing valid and enforceable liens upon the Substitute Property, of the requisite priority, in favor of Lender (or such other trustee as may be desired under local law), subject only to the Permitted Encumbrances and such other liens as are permitted pursuant to the Loan Documents, (B) an Hazardous Materials Indemnity Agreement with respect to the Substitute Property, (C) a Nondisturbance Agreement for the Substitute Property and (D) written confirmation from each Indemnitor and all Borrower Principals regarding such substitution. The Security Instrument, UCC-1 Financing Statements and Hazardous Materials Indemnity Agreement shall be the same in form and substance as the counterparts of such documents executed and delivered with respect to the related Substituted Property subject to modifications reflecting the Substitute Property as the Individual Property that is the subject of such documents and such modifications reflecting the laws of the state in which the Substitute Property is located as shall be recommended by the counsel admitted to practice in such state and delivering the opinion as to the enforceability of such documents required pursuant to clause (xiv) below. The Security Instrument encumbering the Substitute Property shall secure all amounts evidenced by the Note, provided that in the event that the jurisdiction in which the Substitute Property is located imposes a mortgage recording, intangibles or similar tax and does not permit the allocation of indebtedness for the purpose of determining the amount of such tax payable, the principal amount secured by such Security Instrument shall be equal to one hundred twenty-five percent (125%) of the amount of the Loan allocated to the Substitute Property. The amount of the Loan allocated to the Substitute Property (such amount being hereinafter referred to as the "Substitute Release Amount") shall equal the Adjusted Release Amount of the related Substituted Property. (xv) Lender shall have received (A) any "tie-in" or similar endorsement to each Title Insurance Policy insuring the lien of an existing Security Instrument as of the date of the substitution available with respect to the Title Insurance Policy insuring the lien of the Security Instrument with respect to the Substitute Property and (B) a Title Insurance Policy (or a marked, signed and redated commitment to issue such Title Insurance Policy) insuring the lien of the Security Instrument encumbering the Substitute Property, issued by the title company that issued the Title Insurance Policies insuring the lien of the existing Security Instrument and dated as of the date of the substitution, with reinsurance and direct access agreements that replace such agreements issued in connection with the Title Insurance Policy insuring the lien of the Security Instrument encumbering the Substituted Property, to the extent such agreements are available in the jurisdiction in which the Substitute Property is located. The Title Insurance Policy issued with respect to the Substitute Property shall (1) provide coverage in the amount of the Allocated Loan Amount if the "tie-in" or similar endorsement described above is available or, if such endorsement is not available, in an amount equal to one hundred twenty-five percent (125%) of the Allocated Loan Amount, (2) insure -27- 33 Lender that the relevant Security Instrument creates a valid first lien on the Substitute Property encumbered thereby, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (3) contain such endorsements and affirmative coverages as are contained in the Title Insurance Policies insuring the liens of the existing Security Instrument, to the extent available in the jurisdiction in which the Substitute Property is located and (4) name Lender as the insured. Lender also shall have received copies of paid receipts showing that all premiums in respect of such endorsements and Title Insurance Policies have been paid. (xvi) Lender shall have received a current title survey for each Substitute Property, certified to the title company and Lender and their successors and assigns, in the same form and having the same content as the certification of the Survey of the Substituted Property prepared by a professional land surveyor licensed in the state in which the Substitute Property is located and acceptable to the Rating Agencies in accordance with the 1997 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys, including items 1, (if readily available) 2, 3, 4, 6, 7 (a) (b) (c) , 8, 9, 10, 11 and 13 from Table A. Such survey shall reflect the same legal description contained in the Title Insurance Policy relating to such Substitute Property and shall include, among other things, a metes and bounds description of the real property comprising part of such Substitute Property. The surveyor's seal shall be affixed to each survey and each survey shall certify that the surveyed property is not located in a "one-hundred-year flood hazard area." (xvii) Lender shall have received valid certificates of insurance indicating that the requirements for the policies of insurance required for an Individual Property hereunder have been satisfied with respect to the Substitute Property and evidence of the payment of all premiums payable for the existing policy period. (xviii) Lender shall have received a Phase I environmental report and, if recommended under the Phase I environmental report, a Phase II environmental report from a nationally recognized environmental consultant approved by the Rating Agencies (if applicable), not less than forty-five (45) days prior to such release and substitution, which conclude that the Substitute Property does not contain any Hazardous Materials (except for cleaning and other products used in connection with the routine maintenance or repair of the Substitute Property or the operation thereof as a hotel, in full compliance with Hazardous Materials Laws) and is not subject to any risk of contamination from any off-site Hazardous Materials. If any such report discloses the presence of any Hazardous Materials (except for cleaning and other products used in connection with the routine maintenance or repair of the Substitute Property or the operation thereof as a hotel, in full compliance with Hazardous Materials Laws) or the risk of contamination from any off-site Hazardous Materials, -28- 34 such report shall include an estimate of the cost of any related remediation and Borrower shall deposit with Lender an amount equal to one hundred twenty-five percent (125%) of such estimated cost, which deposit shall constitute additional security for the Loan and shall be released to Borrower upon the delivery to Lender of (A) an update to such report indicating that there is no longer any Hazardous Materials (except for cleaning and other products used in connection with the routine maintenance or repair of the Substitute Property or the operation thereof as a hotel, in full compliance with Hazardous Materials Laws) on the Substitute Property or any danger of contamination from any off-site Hazardous Materials that has not been fully remediated in accordance with all applicable laws and (B) paid receipts indicating that the costs of all such remediation work have been paid. Such report shall also state the amount of time that will be necessary to complete such remediation, as may be required by law. Borrower covenants to undertake any repairs, cleanup or remediation indicated. (xix) Borrower shall deliver or cause to be delivered to Lender (A) updates certified by Borrower of all organizational documentation related to Borrower and/or the formation, structure, existence, good standing and/or qualification to do business delivered to Lender in connection with the Closing Date; (B) good standing certificates, certificates of qualification to do business in the jurisdiction in which the Substitute Property is located (if required in such jurisdiction) and (C) resolutions of the managing member of Borrower authorizing the substitution and any actions taken in connection with such substitution. (xx) Lender shall have received the following opinions of Borrower's counsel (which opinions, with respect to the opinions set forth in clauses (A), (B) and (C) below, shall be in form similar to the corresponding opinions delivered in connection with the closing of the Loan): (A) an opinion or opinions of counsel admitted to practice under the laws of the state in which the Substitute Property is located stating that the Loan Documents delivered with respect to the Substitute Property pursuant to clause (viii) above are valid and enforceable in accordance with their terms, subject to the laws applicable to creditors' rights and equitable principles, and that Borrower is qualified to do business and in good standing under the laws of the jurisdiction where the Substitute Property is located or that Borrower is not required by applicable law to qualify to do business in such jurisdiction; (B) an opinion of counsel stating that the Loan Documents delivered with respect to the Substitute Property pursuant to clause (viii) above were duly authorized, executed and delivered by Borrower and that, to the best of Borrower's counsel's knowledge, the execution and delivery of such Loan Documents and the performance by Borrower of its obligations thereunder will not cause a breach of, or a default under, any agreement, document or instrument to which Borrower is a party or to which it or its properties are bound; (C) an opinion of counsel stating that subjecting the Substitute Property to the lien of the related Security Instrument and the execution and delivery of the related Loan Documents does not and will not affect or impair the ability of Lender to enforce its remedies under all of the Loan Documents or to realize the benefits of the cross-collateralization provided for thereunder; (D) an update of the Non-Consolidation Opinion indicating that the substitution does not affect the opinions set forth therein; (E) an opinion of counsel -29- 35 acceptable to the applicable Rating Agencies stating that the substitution and the related transactions do not constitute a fraudulent conveyance under applicable bankruptcy and insolvency laws and (F) an opinion of counsel acceptable to the applicable Rating Agencies that the substitution does not constitute a "significant modification" of the Loan under Section 1001 of the Code or otherwise cause a tax to be imposed on a "prohibited transaction" by any REMIC. (xxi) Borrower shall have paid or caused to be paid all Basic Carrying Costs relating to each of the Individual Properties and the Substitute Property, including, without limitation, (i) accrued but unpaid insurance premiums relating to each of the Individual Properties and the Substitute Property, (ii) currently due taxes (including any in arrears) relating to each of the Individual Properties and the Substitute Property and (iii) any other charges relating to each of the Individual Properties and Substitute Property which are currently due. (xxii) Borrower shall have paid or reimbursed Lender for all third party out-of-pocket costs and expenses incurred by Lender (including, without limitation, reasonable attorneys fees and disbursements) in connection with the substitution and Borrower shall have paid all recording charges, filing fees, taxes or other expenses (including, without limitation, mortgage and intangibles taxes and documentary stamp taxes) payable in connection with the substitution. Borrower shall have paid all costs and expenses of the Rating Agencies incurred in connection with the substitution. (xxiii) Lender shall have received annual operating statements and occupancy statements for the Substitute Property for the three (3) most recently completed fiscal years and a current operating statement for the Substituted Property or, if information is not available for a three (3) year period or if the Substituted Property has been substantially renovated within such three (3) year period, such lesser period as is available, but in no event less than twelve (12) months. Each of the statements required under this clause (xvii) shall be certified to Lender as being true and correct and a certificate from Borrower certifying that there has been no adverse change in the financial condition of the Substitute Property since the date of such operating statements. (xxiv) Borrower shall have delivered to Lender estoppel certificates from any Operating Lessees and other tenants of the Substitute Property. All such estoppel certificates shall be in the form attached hereto as EXHIBIT F and shall indicate, among other things, that (1) the subject lease is a valid and binding obligation of the tenant thereunder, (2) there are no defaults under such lease on the part of the landlord or tenant thereunder, (3) the tenant thereunder has no defense or offset to the payment of rent under such leases, (4) no rent under such lease has been paid more than one (1) month in advance, (5) the tenant thereunder has no option or right of first refusal under such lease to purchase all or any portion of the Substitute Property and (6) all tenant improvement work required under such lease has been completed and the tenant under such lease is in actual occupancy of its leased premises. If an estoppel certificate indicates that all tenant improvement work required under the subject lease has not yet been completed, Borrower shall, if required by the Rating Agencies, deliver to Lender financial statements indicating that Borrower has adequate funds to pay all costs related to such tenant improvement work as required under such lease. -30- 36 (xxv) Lender shall have received copies of all tenant leases affecting the Substitute Property certified by Borrower as being true and correct. Lender shall have received a current Rent Roll of the Substitute Property certified by Borrower as being true and correct. (xxvi) Lender shall have received a Nondisturbance Agreement with respect to all Operating Leases and Subordination Agreements with respect to any other leases which are not subordinate by their terms to the Security Instrument with respect to the Substitute Property. (xxvii) Lender shall have received (A) an endorsement to the Title Insurance Policy insuring the lien of the Security Instrument encumbering the Substitute Property insuring that the Substitute Property constitutes a separate tax lot or, if such an endorsement is not available in the state in which the Substitute Property is located, a letter from the title insurance company issuing such Title Insurance Policy stating that the Substitute Property constitutes a separate tax lot or (B) a letter from the appropriate taxing authority stating that the Substitute Property constitutes a separate tax lot. (xxviii) Lender shall have received a physical conditions report with respect to the Substitute Property from a nationally recognized structural consultant approved by the Rating Agencies (if applicable) in a form recognized and approved by such Rating Agencies not less than forty-five (45) days prior to such release and substitution stating that the Substitute Property and its use comply in all material respects with all applicable Requirements of Law (including, without limitation, zoning, subdivision and building laws) and that the Substitute Property is in good condition and repair and free of damage or waste. If compliance with any Requirements of Law are not addressed by the physical conditions report, such compliance shall be confirmed by delivery to Lender of a certificate of an architect licensed in the state in which the Substitute Property is located, a letter from the municipality in which such Substitute Property is located, a certificate of a surveyor that is licensed in the state in which the Substitute Property is located (with respect to zoning and subdivision laws), an ALTA 3.1 zoning endorsement to the Title Insurance Policy delivered pursuant to clause (xii) above (with respect to zoning laws) or a subdivision endorsement to the Title Insurance Policy delivered pursuant to clause (xii) above (with respect to subdivision laws) to the extent such endorsements are available in the jurisdiction in which the Substitute Property is located. If the physical conditions report recommends that any repairs be made with respect to the Substitute Property, such physical conditions report shall either (A) include an estimate of the cost of such recommended repairs (in which case Borrower shall deposit into the Repair Escrow Account an amount equal to one hundred twenty-five percent (125%) of such estimated cost), or (B) state the specific amounts that need to be reserved over time in order to meet the requirements of such replacements, but in no event less than five percent (5%) of gross revenues (in which case Borrower shall deposit such reserves into the Replacement Reserve Account on a monthly basis). Any such deposits shall constitute additional security for the Loan pursuant to Section -31- 37 6.6 and shall be released to Borrower pursuant to Section 6.9. Borrower covenants to undertake any repairs, cleanup or remediation indicated in the physical conditions report before the earlier of (i) the time required by applicable law or (ii) the time recommended in the physical conditions report. (xxix) Lender shall have received and approved each Operating Lease, Franchise Agreement and Management Agreement, if any, relating to the Substitute Property, and Borrower shall have demonstrated that such agreements are substantially similar to the agreements then in place at the Substituted Property. (xxx) Lender shall have received such other and further approvals, opinions, documents and information in connection with the substitution as the Rating Agencies may have requested. (xxxi) Lender shall have received copies of all contracts and agreements relating to the leasing and operation of the Substitute Property together with a certification of Borrower attached to each such contract or agreement certifying that the attached copy is a true and correct copy of such contract or agreement and all amendments thereto. (xxxii) Borrower shall submit to Lender, not less than thirty (30) days prior to the date of such substitution, a release of lien (and related Loan Documents) for the Substituted Property for execution by Lender. Such release shall be in a form appropriate for the jurisdiction in which the Substituted Property is located. Borrower shall deliver an Officer's Certificate certifying that the requirements set forth in this Section 2.6 have been satisfied. (xxxiii) The total Allocated Loan Amount, in the aggregate, for all prior Substituted Properties (including the current Substituted Property) is less than twenty percent (20%) of the Original Principal Amount of the Loan. (xxxiv) The Substitute Property shall be subject to the lien of the related Security Instrument and subject to the cross-collateralization and cross-default provisions of this Loan Agreement and the Security Instrument. (xxxv) With respect to the Substitute Property, Borrower shall deliver to Lender (i) copies of all franchisor inspection reports and performance improvement programs with respect to the Substitute Property for the two (2) year period prior to the substitution or if such information is not available for such two (2) year period, such lesser period as is available and (ii) an Officer's Certificate certifying that the items delivered in (i) above indicate that Borrower is in compliance with the franchisor's requirements. Upon the satisfaction of the foregoing conditions precedent, Lender will release its lien from the Substituted Property to be released and the Substitute Property shall be deemed to be an Individual Property for purposes of this Loan Agreement and the Substitute Release Amount with respect to such Substitute Property shall be deemed to be the Allocated Loan Amount with respect to such Substitute Property for all purposes hereunder. -32- 38 ARTICLE III CONDITIONS PRECEDENT TO LOAN The obligation of the Lender to make the Loan is subject to the Lender's waiver or satisfaction, by proper evidence, execution and/or delivery to the Lender of each of the following items, each in form and substance satisfactory to the Lender and the Lender's counsel: Section 3.1 LOAN DOCUMENTS. Each of the Loan Documents. Section 3.2 BROKERAGE COMMISSIONS. All brokerage commissions, finder's fees or similar compensation in connection with the purchase of the Premises (if all or any portion of the Premises is being purchased with Loan proceeds), the making of the Loan, or the transactions contemplated by the Loan Documents have been paid in full. Section 3.3 TITLE EVIDENCE. An original signed title commitment in form and substance satisfactory to the Lender, for a standard ALTA mortgagee policy as to the Premises from a company or from companies approved by the Lender (including any reinsurance agreements and endorsements required by the Lender), providing coverage for the full principal amount of the Loan, containing such coverages and endorsements as may be required by the Lender, together with copies of all recorded documents creating exceptions to such policy. Section 3.4 SURVEY. Two (2) originals of the Survey. Section 3.5 INSURANCE. Each policy of insurance required by this Loan Agreement is in full force and effect on the Closing Date. Section 3.6 AUTHORITY DOCUMENTS. (a) ORGANIZATIONAL DOCUMENTS. As applicable, a certified copy of each limited partnership agreement, limited partnership certificate, partnership agreement, articles of incorporation, bylaws, shareholder agreements, articles of organization and operating agreement of the Borrower and each Borrower Principal (when not an individual), and each general partner, member or shareholder of the Borrower, with all amendments, modifications, supplements and restatements thereto. (b) ASSUMED NAME CERTIFICATE. A certified copy of each assumed name certificate, if any, of the Borrower and each Borrower Principal (when not an individual). -33- 39 (c) GOOD STANDING CERTIFICATES. Good standing certificates, or their equivalent, issued by the Secretary of State and all other appropriate offices of the state of organization of the Borrower and each Borrower Principal (when not an individual) and evidence satisfactory to the Lender of the Borrower's and each such Borrower Principal's authorization to do business in each state where an Individual Property is located if the state of the Borrower's and each such Borrower Principal's organization is other than the state where such Individual Property is located. (d) RESOLUTIONS AND CONSENTS. Certified resolutions and/or consents authorizing the Borrower and each Borrower Principal (when not an individual) to enter into the Loan Documents. Section 3.7 FINANCIAL STATEMENTS AND OPERATING STATEMENTS. Financial Statements of the Borrower and each Borrower Principal as of the end of the most recent fiscal year, together with Operating Statements for the period from the beginning of the current fiscal year and ending on a date not more than sixty (60) days prior to the Closing Date. Section 3.8 OPINIONS. Opinions of independent counsel to the Borrower in form and substance acceptable to the Lender, dated as of the Closing Date including, without limitation, an opinion with respect to the due execution and enforceability of the Loan Documents and an opinion that in the event of a bankruptcy proceeding involving an Affiliate of Borrower the assets of Borrower including the Premises shall not be substantively consolidated with the assets of the Affiliate. Section 3.9 COMPLIANCE WITH LAWS. The Premises and the Intangible Personalty, and the intended uses thereof, comply in all material respect with all Requirements of Law. Section 3.10 AGREEMENTS. Copies of all operating agreements, service contracts, labor contracts, license agreements and equipment leases, if any, relating to the Borrower's ownership and operation of the Premises executed by or binding against Borrower. Copies, of any and all franchise agreements, purchase contracts, comfort letters, Subordination Agreements and Nondisturbance Agreements, relating to the Premises. Section 3.11 TAXES. The Land and the Improvements are separately assessed for tax purposes, together with tax parcel identification numbers, tax rates, estimated tax values and the identities of the taxing authorities. -34- 40 Section 3.12 UTILITIES. The availability and suitability of the water, storm water, electric, oil, natural gas, sewer and telephone utilities needed to properly service the Premises in its intended use. Section 3.13 RESERVE ACCOUNTS. The establishment of each Reserve Account with balances equal to any Initial Reserve Deposit thereto required by this Loan Agreement (including the Program Rider) or any of the other Loan Documents. Section 3.14 ENGINEERING REPORT. An Engineering Report. Section 3.15 CERTIFICATE OF OCCUPANCY AND OTHER PERMITS. Such certificates of occupancy, permits and licenses as the Lender may require to evidence that the Premises is suitable for occupancy and use. Section 3.16 ENVIRONMENTAL ASSESSMENT AND O&M PROGRAM. An Environmental Assessment of the Premises. The Borrower shall furnish and adopt an O&M Program, to the extent recommended by an Environmental Assessment with respect to all Hazardous Materials, if any, identified in such Environmental Assessment or as otherwise reasonably required by the Lender. Section 3.17 APPRAISAL. An Appraisal. Section 3.18 EQUITY. The Borrower's equity as of the Closing Date is acceptable to the Lender. Section 3.19 DEBT SERVICE. As of the Closing Date, the Borrower's: (a) Debt Service Coverage Ratio Premises shall be a minimum of 2.30x and; (b) Debt Service Coverage Ratio Leases shall be a minimum of 2.05x. Section 3.20 LOAN TO VALUE RATIO. The loan to value ratio as calculated for the Premises by Lender in its sole discretion is less than 50%. -35- 41 Section 3.21 SPECIAL PURPOSE ENTITY. The Borrower is a Special Purpose Entity. Section 3.22 MISCELLANEOUS. All other documents or items set forth in the Commitment (including all supplement and special conditions included in the Commitment) or otherwise required by the Lender. ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce the Lender to enter into this Agreement and to make the Loan, the Borrower hereby represents and warrants and, where specifically indicated, each Borrower Principal hereby represents and warrants (but only for purposes of each Borrower Principal's obligations under the recourse provisions of Section 8 of the Note), to the Lender (for itself, but not otherwise) on the Closing Date as follows: Section 4.1 EXISTENCE; COMPLIANCE WITH LAW. The Borrower and each Borrower Principal (when not an individual) (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessor and to conduct the business in which it is currently engaged, (c) is duly qualified to do business in and is in good standing under the laws of each jurisdiction where an Individual Property is located and where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law. Section 4.2 EQUITY INTERESTS. The owners (beneficial and otherwise) of all of the Equity Interests in the Borrower are as set forth in EXHIBIT A and have been duly authorized, are validly issued and outstanding, fully paid and non-assessable. There are no outstanding options or other rights pertaining to the Equity Interests in the Borrower, and no voting trust or similar agreement affecting either ownership of or the right to vote such Equity Interests (except for those items detailed in the Borrower's operating agreement or certificate of incorporation). Section 4.3 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Borrower and each Borrower Principal (when not an individual) has all requisite legal power and authority, and the legal right, to make, deliver and perform each Loan Document to which it is, or is to be, a party and to borrow hereunder, and has taken all necessary corporate, partnership or company action (as the case may be) to authorize the execution, delivery and performance of each Loan Document to which it is, or is to be, a party and to authorize the borrowings on the terms and conditions of this Agreement and the Note. No consent or authorization of, filing with, notice to -36- 42 or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of any Loan Document, except to the extent specified in any such Loan Document. Each Loan Document has been (or will be) duly executed by, and delivered on behalf of the Borrower and the Borrower Principals, as the case may be. Each Loan Document constitutes (or when executed and delivered will constitute) the legal, valid and binding obligation, enforceable against the Borrower and the Borrower Principals, as the case may be, in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, sequestration, liquidation, consolidation or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). Section 4.4 NO LEGAL BAR. The execution, delivery and performance of the Loan Documents will not violate any Requirement of Law applicable to the Borrower and the Borrower Principals or any contractual obligation, security, agreement, instrument, license or other undertaking by which the Borrower or the Borrower Principal is bound and will not result in, or require, the creation or imposition of any Lien (other than under the Loan Documents) on any of their properties or revenues pursuant to any such Requirement of Law or contractual obligation, security, agreement, instrument, license or other undertaking. Section 4.5 NO LITIGATION. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower and the Borrower Principals, threatened against any of them or any of their properties or revenues, or with respect to any Loan Document or any of the transactions contemplated thereby, which would have a material adverse effect on Borrower or Borrower Principal, and the Borrower is not a surety on any bond through which a Lien might be created superior to the Security Instrument. Section 4.6 NO DEFAULT. The Borrower is not in default under, or with respect to, any contractual obligation, security, agreement, instrument, license or other undertaking by which the Borrower is bound which is in excess of $100,000.00. The Borrower Principal is not in default under, or with respect to, any contractual obligation, security, agreement, instrument, license or undertaking by which the Borrower Principal is bound which would materially affect the Borrower Principal's obligations under the Note. No Default Condition or Event of Default has occurred and is continuing. Section 4.7 SOLVENCY; FRAUDULENT CONVEYANCE. The Borrower and each Borrower Principal is solvent and will not be rendered insolvent by the transactions contemplated hereby and, after giving effect to such transactions, will not be left with an unreasonably small -37- 43 amount of capital with which to engage in its business. Neither the Borrower nor the Borrower Principal intends to incur, or believes that it has incurred, debts beyond its ability to pay such debts as they mature. Neither the Borrower nor the Borrower Principal has commenced or filed nor contemplates the commencement or filing of any bankruptcy, insolvency, reorganization, moratorium, sequestration, liquidation, consolidation or similar proceedings or the appointment of a receiver, liquidator, assignee, conservator, trustee, sequestrator or similar official in respect of it or any of its assets. The amount of the Loan constitutes reasonably equivalent value and fair consideration for the transfer to the Lender of the interest in the Premises represented by the Security Instrument. Neither the Borrower nor the Borrower Principal is transferring any interest in the Premises with any intent to hinder, delay or defraud any of its creditors. Section 4.8 SPECIAL PURPOSE ENTITY. The Borrower is a Special Purpose Entity. Section 4.9 TAXES. The Borrower and each Borrower Principal, respectively, has filed or caused to be filed all tax returns which are required to be filed and has paid all taxes shown to be due and payable on said returns and on any assessments made against it and any of its property and, to its knowledge, all other taxes, fees and other charges imposed on it and any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with Required Accounting Standards have been provided on its books). No tax Lien has been filed with respect to any such tax, fee or other charge. To its knowledge, no claim is being asserted with respect to any such tax, fee or other charge which, in either case, could reasonably be expected to have a material adverse change with respect to the Borrower or the Premises. Section 4.10 NO BURDENSOME RESTRICTIONS. Neither the Borrower nor the Borrower Principal is a party to or subject to any contractual obligation, security, agreement, instrument, license or other undertaking by which the Borrower or such Borrower Principal is bound (other than the Loan Documents) which has had or could reasonably be expected to have a material adverse effect on the business, properties, assets, operations or condition, financial or otherwise, of it, or on the ability of it to carry out its obligations hereunder or under the other Loan Documents. Notwithstanding anything contained herein to the contrary, Lender has consented to that certain Revolving Line of Credit entered into by Borrower Principal under which Lender serves as Agent. Section 4.11 INVESTMENT COMPANY ACT; OTHER REGULATIONS. Neither the Borrower nor the Borrower Principal is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. Neither -38- 44 the Borrower nor the Borrower Principal is subject to regulation under any Requirement of Law which limits its ability to incur Obligations, other than as set forth herein or in the other Loan Documents. Section 4.12 SUBSIDIARIES. The Borrower has no Subsidiaries. Section 4.13 TITLE TO PREMISES. The Borrower is seized of the Land and Improvements (and any fixtures) in fee, or is the owner of a leasehold interest in the Land and Improvements (and any fixtures) pursuant to a Ground Lease, and has marketable title to any appurtenant easements and has the right to convey the same, that title to such property is free and clear of all encumbrances except for the Permitted Encumbrances, and that it will warrant and defend the title to such property (except for the Permitted Encumbrances) against the claims of all Persons. As to the balance of the Premises, the Rents and Profits and the Intangible Personalty, the Borrower represents and warrants that it has marketable title to such property, that it has the right to convey such property and that it will warrant and defend such property against the claims of all persons or parties. Section 4.14 OWNERSHIP OF PERSONALTY. The Borrower owns, subject to no Lien other than the Lien of the Security Instrument and the other Loan Documents, as appropriate, all of the Personalty. Section 4.15 FINANCIAL STATEMENTS. As of the date of the most recent Financial Statement furnished to the Lender, neither the Borrower nor the Borrower Principal had any material (a) indebtedness for borrowed money or for the deferred purchase price of property or services, as evidenced by bonds, notes or other similar instruments or agreements, (b) obligations as a lessee under leases which shall have been or should be, in accordance with Required Accounting Standards, recorded as capital leases, (c) obligations under direct or indirect guaranties in respect of, or any obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or any obligations of another of the kind referred to in clause (a) or (b) above, (d) contingent liability or liability for taxes, or (e) long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not, to the extent required by Required Accounting Standards, reflected in the foregoing statements or in the notes thereto. No sale, transfer or other disposition by the Borrower or the Borrower Principal of any material part of its business or property has occurred since the date of such party's most recent Financial Statement furnished to the Lender. Section 4.16 NO CHANGE. There has been no development or event which has had or could reasonably be expected to have a material adverse change (a) with respect to the Borrower or the Borrower Principal since the date of such party's most recent -39- 45 Financial Statement furnished to the Lender, or (b) with respect to the Premises or any portion of the Intangible Personalty since the date of the most recent Operating Statements furnished to the Lender. Section 4.17 MANAGEMENT AGREEMENT. As of the date hereof, there are no Management Agreements, other than the Operating Lease, in place on any Individual Property. Section 4.18 ACCURACY OF INFORMATION. (a) Each exhibit, Financial Statement, Operating Statement, Rent Roll, document, book, record, report and other item of written information furnished by the Borrower or the Borrower Principals, as the case may be, to the Lender in connection with the Loan Documents is accurate as of its date and as of the date so furnished and (b) all financial projections contained therein are based on reasonable and stated assumptions, and no such document contains any material misstatement of fact or omits to state a material fact. Section 4.19 PRINCIPAL PLACE OF BUSINESS. The Borrower's principal place of business and chief executive office is at the location set forth in the first paragraph of this Loan Agreement and it has not operated under any name other than its own name at any time from the date of its formation. Section 4.20 TAXPAYER IDENTIFICATION NUMBER. The Borrower's taxpayer identification number is as set forth in the Note. Section 4.21 INSURANCE. The Borrower does not know of and has not received any written notice of any violation of any insurance policy term that remains uncured and, to its best knowledge, it and the Premises and the use thereof materially comply with all insurance policy terms. Section 4.22 MECHANIC'S LIENS, ETC. Except as have been paid for in full by the Borrower on or before the Closing Date or as shall be paid prior to delinquency in the ordinary course of the Borrower's business, no improvements or repairs have been made to the Premises during the one hundred twenty (120) days preceding the date hereof; there are no contracts not fully performed, and no outstanding bills incurred, for labor or materials used in making improvements or repairs on the Premises, or for services of architects, surveyors or engineers incurred in connection therewith. The Borrower has made no contract or arrangement of any kind whatsoever, the performance of which by the other party thereto could give rise to a Lien on the Premises superior to that of the Security Instrument. -40- 46 Section 4.23 NO VIOLATION. Except as disclosed to Lender, the Borrower has not received any notice of, and, to the best of its knowledge is not in violation of any Requirement of Law, any Hazardous Materials Law or any Governmental Action. To the best of Borrower's knowledge, the Premises are in material compliance with all Requirements of Law. Section 4.24 ERISA. (a) The Borrower is not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, (b) the assets of the Borrower do not constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. ss.2510.3-101, (c) neither the Borrower nor any of its general partners, members or shareholders, as the case may be, have any trust or custodial relationship with the Lender or any affiliate of the Lender with respect to any ERISA plan, and (d) neither the Borrower nor any general partner, member or shareholder of the Borrower is a participant in any governmental plan that has a trust or custodial relationship with the Lender or any affiliate of the Lender. The Borrower (i) is not a "governmental plan" within the meaning of Section 3(32) of ERISA and (ii) transactions by or with the Borrower are not subject to Requirements of Law regulating investments of and fiduciary obligations with respect to government plans. Section 4.25 O&M PROGRAM. The Borrower has adopted an O&M Program with respect to all Hazardous Materials, if any, identified in the Environmental Assessment furnished to the Lender prior to the Closing Date or as otherwise required by the Lender. Section 4.26 NO ORGANIZATIONAL DOCUMENT AMENDMENT. At no time after the date hereof while the Loan is outstanding shall the Borrower, nor any member or general partner of the Borrower, amend or modify their respective organizational documents without the prior written consent of Lender. Section 4.27 PERMITTED ENCUMBRANCES. The Permitted Encumbrances as set forth in the Security Instrument do not materially or adversely affect the Lender's lien on the Premises created by the Security Instrument, and do not materially or adversely affect the use, operation or value of the Premises. Section 4.28 INSOLVENCY OPINION. All of the assumptions made in that certain substantive non-consolidation opinion letter dated the date hereof, delivered by Borrower's counsel in connection with the Loan and any subsequent non-consolidation opinion delivered in accordance with the terms and conditions of this Agreement (the "Non-consolidation Opinion"), including, but not limited to, any exhibits attached thereto, are true and correct in all respects. -41- 47 ARTICLE V COVENANTS AND AGREEMENTS Section 5.1 AFFIRMATIVE COVENANTS OF THE BORROWER. During any period in which the Loan is outstanding, the Borrower agrees that it will: (a) USE OF LOAN FUNDS. Cause all Loan proceeds to be used for the purposes set forth in a loan closing statement approved by the Lender and use all excess Loan proceeds disbursed to the Borrower only for lawful business purposes permitted under the Borrower's organizational documents. No part of the proceeds of the Loan will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of such Board of Governors. If requested by the Lender, the Borrower will furnish to the Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. No part of the proceeds of the Loan has been used in any manner that could result in a violation of Regulations G, T, V or X of the Board of Governors of the Federal Reserve System. (b) PAYMENT. Pay when due all sums owing to the Lender and others in accordance with the terms of the Loan Documents. (c) FEES, COSTS AND EXPENSES. Pay when due all fees, costs and expenses required to be paid by the Borrower pursuant to the terms of the Commitment or any of the other Loan Documents, including without limitation, reasonable attorneys fees and other fees, costs and expenses of the Lender in connection with the enforcement of the Lender's rights under the Loan Documents. Any such amounts payable by or reimbursable to the Lender shall be due and payable within ten (10) days after written demand. (d) CONDITION OF PREMISES. Keep and maintain the Premises in good order, condition and repair and shall make, as and when the same shall become necessary, all repairs and maintenance necessary or appropriate in order to keep the Premises from deteriorating. (e) COMPLIANCE. Comply in all material respect with all (i) building, zoning, fire, health, environmental, disability and use laws (including, but not limited, to all state and local handicapped access laws, the Architectural Barriers Act of 1968, the Fair Housing Amendments Act of 1988, the Rehabilitation Act of 1973, the Americans with Disabilities Act of 1990 and similar laws and ordinances), codes, ordinances, rules and regulations, to the extent required by applicable Governmental Authorities, (ii) covenants and restrictions of record and (iii) easements which are in any way applicable to the Premises or any part thereof and the use or enjoyment thereof. (f) INSPECTION. Subject to the rights of any tenants of the Premises under their leases, permit the Lender and/or its authorized agents to enter upon the Premises during normal working hours and as often as the Lender desires, for the purpose of inspecting the Improvements specifically and the condition and operation of the Premises generally. In connection therewith, the Borrower shall permit the Lender and the Lender's representatives (including an independent Person such as an engineer, architect, or inspector) or third -42- 48 parties making Immediate Repairs, Replacements or Additional Repairs or Replacements to enter onto the Premises during normal business hours (subject to the rights of any tenants of the Premises under their leases) to inspect the progress of any Immediate Repairs, Replacements or Additional Repairs or Replacements and all materials being used in connection therewith, to examine all plans, specifications and shop drawings relating to such Immediate Repairs, Replacements or Additional Repairs or Replacements which are or may be kept at the Premises, and to complete any Immediate Repairs, Replacements or Additional Repairs or Replacements. The Borrower agrees to cause all contractors, subcontractors, agents, architects and inspectors reasonably to cooperate with the Lender and the Lender's representatives or such other Persons described above in connection with inspections or the completion of Immediate Repairs, Replacements or Additional Repairs or Replacements. (g) REIMBURSEMENT. The Borrower agrees that if it shall fail to pay when due any tax, assessment or charge levied or assessed against the Premises (other than the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with Required Accounting Standards have been provided on its books) or any utility charge, whether public or private, or any insurance premium or if it shall fail to procure the Insurance required hereunder and cause the delivery of the insurance certificates as required herein, or if it shall fail to pay any other charge or fee described herein, then the Lender, at its option, may pay, procure or cause the delivery of the same. The Borrower will reimburse the Lender upon demand for any sums of money paid by the Lender pursuant to this Section, together with interest on each such payment at the default rate set forth in the Note and all such sums and interest thereon shall be secured hereby. (h) ENVIRONMENTAL ASSESSMENT. Provide to the Lender from time-to-time, at the Borrower's sole fee, cost and expense, if the Lender shall ever have reason to believe that any Hazardous Material adversely affects the Premises, or if any Governmental Action is made or threatened, or if an Event of Default shall have occurred, an Environmental Assessment, which Environmental Assessment shall have been ordered by the Borrower within ten (10) days after the Lender's request and which shall be delivered to the Lender promptly after the date of the Lender's request. At all other times, the Lender may request an Environmental Assessment to be provided by the Borrower at the Lender's expense. The Borrower will cooperate with each consulting firm making any Environmental Assessment and will promptly supply to the consulting firm, from time to time upon request, all information available to the Borrower to facilitate the completion of the Environmental Assessment. If the Borrower fails to furnish the Lender within ten (10) days after the Lender's request with a copy of an agreement with an acceptable environmental consulting firm to provide such Environmental Assessment, or if the Borrower fails to order such Environmental Assessment within ten (10) days after the Lender's request, the Lender may cause any such Environmental Assessment to be made at the Borrower's fee, cost, expense and risk. The Lender may disclose to interested parties any information the Lender ever has about the environmental condition or compliance of the Premises, but shall be under no duty to disclose any such information except as may be required by law. The Lender shall be under no duty to make any -43- 49 Environmental Assessment of the Premises, and in no event shall any such Environmental Assessment by the Lender be or give rise to a representation that any Hazardous Material is or is not present on the Premises, or that there has been or shall be compliance with any Hazardous Materials Law, nor shall the Borrower or any other Person be entitled to rely on any Environmental Assessment made by the Lender or at the Lender's request. The Lender owes no duty of care to protect the Borrower or any other Person against, or to inform them of, any Hazardous Material or other adverse condition affecting the Premises. (i) APPRAISAL. At all times during the term of the Loan, cooperate with the Lender and use its best efforts to assist the Lender in obtaining an Appraisal of the Premises, and will promptly supply to the Lender, from time to time upon request, all information available to the Borrower to facilitate the completion of the Appraisal. If any Event of Default occurs, or if a casualty loss or governmental taking occurs and results in insurance or eminent domain proceeds in excess of $50,000.00 for an Individual Property, the Lender may, in its reasonable discretion, choose the appraiser, but the Borrower shall be responsible for reasonable fees payable to said appraiser in connection with an Appraisal of the Premises. Under all other circumstances, the appraiser performing any such Appraisal shall be engaged by the Lender, and the Lender shall be responsible for any fees payable to said appraiser in connection with an Appraisal of the Premises. (j) SURVEYS. Following any material, structural change in the exterior configuration of the Premises or any rezoning affecting the Premises, provide the Lender with such additional Surveys as reasonably requested by the Lender. (k) OTHER TESTS. Promptly submit to the Lender copies of reports of all physical tests at any time made on the Land, the Improvements or the materials to be incorporated into the Improvements and shall, at the Borrower's expense, cause to be made such additional tests from time to time as the Lender may reasonably require after any change in the Premises or receipt by the Lender of any such report. (l) TAXES AND FEES. Except as otherwise provided herein, pay or cause to be paid as they become due all taxes, general and special assessments (other than the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with Required Accounting Standards have been provided on its books), permit fees, inspection fees, license fees, water and sewer charges, franchise fees and equipment rents against it or the Premises, and the Borrower, upon request of the Lender, will submit to the Lender receipts evidencing said payments. (m) FINANCIAL STATEMENTS AND OPERATING STATEMENTS. Furnish, or cause to be furnished to the Lender, annual Financial Statements for Borrower and Borrower Principal. Monthly Operating Statements for the Premises shall be submitted to the Lender when requested by the Lender and for any period during which any Event of Default is continuing. Operating Statements for the Premises shall be delivered to the Lender within forty-five (45) days of the end of each of the Borrower's fiscal quarters, and an annual Financial Statements shall be submitted to the Lender within ninety (90) days (or one hundred twenty (120) days if such annual Financial Statements are audited) of the Borrower's fiscal year end in lieu of an Operating Statement for the Borrower's fourth fiscal quarter. Borrower Principal shall furnish Lender, on a quarterly basis, such -44- 50 financial information as Borrower Principal is required to file under any Requirements of Law. Without limiting any other rights available to the Lender under this Loan Agreement or any of the other Loan Documents, in the event the Borrower shall fail to timely furnish the Lender any Financial Statement in accordance with this subsection, the Borrower shall promptly pay to the Lender a penalty in the amount of $1,000.00 for each such failure. Notwithstanding anything to the contrary contained herein, Borrower shall cause to be provided to Lender copies of all financial information required to be provided to Borrower by the Operating Lessee pursuant to the Operating Lease. (n) BOOKS AND RECORDS. Keep and maintain or cause to be kept and maintained at all times at the Premises, at the Borrower's address set forth herein, or at such other place as the Lender may approve in writing, complete and accurate books of accounts and records adequate to reflect correctly the results of the operation of the Premises and copies of all written contracts, leases and other instruments which affect the Premises (including, but not limited to, all bills, invoices and contracts for utilities, waste management service, telephone service and management services, rent registrations and all materials filed with any Governmental Authority where applicable). Such books, records, contracts, leases and other instruments shall be subject to examination and inspection at any time by the Lender upon reasonable prior notice. (o) FURTHER ASSURANCES. The Borrower shall furnish or cause to be furnished such further documentation or information (including without limitation, amendments, replacements, corrections, deletions or additions to the Loan Documents or any other materials furnished to the Lender in connection with the Loan) which is (i) reasonably required to enable the Lender to sell the Loan, or (ii) reasonably deemed necessary or appropriate by the Lender in the exercise of its rights under any of the Loan Documents or to perfect, protect, maintain, preserve, continue and/or extend any Lien granted to the Lender under the Security Instrument or any other Loan Document, provided, however, that the Borrower shall not be required to do anything that (A) has the effect of (I) changing the essential economic terms of the Loan set forth in the Loan Documents or (II) imposing greater liability under the Loan Documents, or (B) results in any substantial fee, cost or expense to the Borrower. In addition, the Borrower shall furnish or cause to be furnished such further documentation and information (including without limitation, amendments, replacements, corrections, deletions and additions to the Loan Documents and other materials furnished to the Lender in connection with the Loan) reasonably deemed necessary or appropriate by the Lender to correct patent mistakes in the Loan Documents, materials relating to title insurance policies and other insurance required hereunder, and the funding of the Loan, provided that any such further documentation or information shall be at the sole fee, cost and expense of the Lender. (p) PAYMENT OF OPERATING EXPENSES PREMISES AND OPERATING EXPENSES LEASES. Pay all Operating Expenses Premises and Operating Expenses Leases, except to the extent that: (i) the Lender is obligated to pay any Operating Expense on behalf of the Borrower from the Tax and Insurance Reserve Account, the Replacement Reserve Account, the Repair Escrow Account or other Reserve Accounts established pursuant to the Loan Documents or (ii) the Operating Lessee is obligated to pay any Operating Expense under the Operating Lease. -45- 51 (q) PAYMENT OF RECURRING CAPITAL EXPENDITURES. Pay all expenditures with respect to the Premises, to the extent so required under the Operating Lease, Franchise Agreements or otherwise, related to capital repairs, replacements and improvements (other than Replacements) performed from time to time, except to the extent that Lender is required to pay such expenditures from any Reserve Account. (r) ERISA. Deliver to the Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by the Lender in its reasonable discretion, that (i) the Borrower is not an "employee benefit plan," a "governmental plan" and/or subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (ii) one or more of the following circumstances is true: (A) Less than twenty-five percent (25%) of all Equity Interests in the Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. ss.2510.3-101(f)(2); and/or (B) The 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). (s) ACTIONS AND PROCEEDINGS. Promptly notify the Lender in writing of any action or proceeding relating to any condemnation or other taking, whether direct or indirect, of the Premises or any portion thereof, or purporting to affect the Premises, any Loan Document or any right of the Lender hereunder or thereunder. In each such action or proceeding, the Borrower shall, unless otherwise directed by the Lender in writing, appear in and prosecute or defend any such action or proceeding. The Borrower hereby further authorizes the Lender to participate and appear in (at the Borrower's expense, including without limitation, the Lender's reasonable attorney's fees) any action or proceeding relating to any condemnation or other taking of the Premises, whether direct or indirect, and, following an Event of Default, to settle or compromise any claim in connection with such condemnation or other taking. (t) Completion of Immediate Repairs, Replacements and Additional Repairs or Replacements. (i) The Borrower shall commence the Immediate Repairs immediately following the execution of this Agreement (or as soon thereafter as weather reasonably shall permit) and shall at all times thereafter diligently pursue the completion of all Immediate Repairs. The Borrower shall complete all Immediate Repairs no later than twelve (12) months after the date of this Agreement. The Borrower covenants and agrees that each of the Immediate Repairs, Replacements and Additional Repairs or Replacements and all materials, equipment, fixtures, and any other item comprising a part of any Immediate Repair, Replacement or Additional Repair or Replacement shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialman's or other liens (except for those liens existing on the date of this Agreement which have been approved in writing by the Lender). -46- 52 (ii) If the Lender determines, in its reasonable discretion, that Additional Repairs or Replacements are advisable in order to keep the Premises in good order and repair, the Lender may send the Borrower written notice of the need for making such Additional Repairs or Replacements. The Borrower shall promptly commence making such Additional Repairs or Replacements. If the Borrower fails to commence such Additional Repairs or Replacements within thirty (30) days after such notice and diligently pursue completion of such Additional Repairs or Replacements, such failure shall be an Event of Default under this Loan Agreement, and, in addition to all other rights the Lender may have under the Loan Documents upon an Event of Default, the Lender may contract with third parties to make such Additional Repairs or Replacements and may in its sole discretion (A) apply the funds in the Repair Escrow Account and/or Replacement Reserve Account toward the labor and materials necessary to complete such Additional Repairs or Replacements, and/or (B) demand payment for such Additional Repairs or Replacements from the Borrower. (iii) In the event the Lender determines in its reasonable discretion that any Immediate Repair, Replacement or Additional Repair or Replacement has not been completed in a workmanlike and timely manner, the Lender shall have the option to withhold disbursement from the Reserve Accounts for such unsatisfactory Immediate Repair, Replacement or Additional Repair or Replacement and to proceed under existing contracts or to contract with third parties to complete such Immediate Repair, Replacement or Additional Repair or Replacement and to apply the Repair Escrow Account or the Replacement Reserve Account toward the labor and materials necessary to complete such Immediate Repair, Replacement or Additional Repair or Replacement to the reasonable satisfaction of the Lender, without providing any prior notice to the Borrower. (iv) In order to facilitate the Lender's completion or making of the Immediate Repairs, Replacements or Additional Repairs or Replacements, the Lender is granted the irrevocable right to enter onto the Premises and perform any and all work and labor necessary to complete or make the Immediate Repairs, Replacements or Additional Repairs or Replacements and employ watchmen to protect the Premises from damage, loss and/or theft. All sums so expended by the Lender shall be deemed to have been advanced to the Borrower and secured by the Security Instrument and the other Loan Documents. (v) All Immediate Repairs, Replacements and Additional Repairs or Replacements shall comply with all Requirements of Law and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (u) ASSUMPTIONS IN NON-CONSOLIDATION OPINION. Borrower has complied and will comply with all of the assumptions made with respect to it in the Non-consolidation Opinion including, without limitation those set forth in that certain Non-consolidation Opinion, dated the date hereof, given by Hunton & Williams, attached as EXHIBIT I hereto and made a part hereof. -47- 53 Each entity other than the Borrower with respect to which an assumption is made in the Non-consolidation Opinion has complied and will comply with all of the assumptions made with respect to it in the Non-consolidation Opinion, including without limitation those set forth in that certain Non-consolidation Opinion, dated the date hereof, given by Hunton & Williams, attached as EXHIBIT I hereto and made a part hereof. (v) PROGRAM RIDER. Comply with all covenants and agreements set forth in the Program Rider. (w) OPERATING LEASE. Comply with all covenants, obligations and agreements contained in the Operating Lease. Borrower will exercise any and all cure rights under the Operating Lease in order to cure any breach by Borrower or any Affiliate of Borrower as Lessor thereunder. (x) FRANCHISE AGREEMENTS. Borrower shall, at all times during the term of the Loan maintain or cause to be maintained Franchise Agreements for each of the Individual Properties. (y) REIT STATUS. Borrower Principal shall, at all times during the term of the Loan maintain its status as a Real Estate Investment Trust, unless otherwise consented to by Lender. Section 5.2 NEGATIVE COVENANTS OF THE BORROWER. During any period in which the Loan is outstanding, the Borrower agrees that it will not: (a) SALE OR ENCUMBRANCE OF PERSONALTY. Sell, encumber or otherwise dispose of any of the Personalty except (i) to incorporate Tangible Personalty into the Improvements or replace Tangible Personalty with goods of quality and value at least equal to that replaced, or (ii) for the sale, disposal or use of inventory, if any, in the ordinary course of the Borrower's business at the Premises; provided, however, in the event the Borrower sells or otherwise disposes of any of the Personalty, the Lender's security interest in the proceeds of the Personalty shall continue pursuant to the Security Instrument and the other Loan Documents, as appropriate. (b) CONSTRUCTION. Construct or permit the construction of any material, structural improvements on the Premises other than Immediate Repairs or Replacements or as otherwise required hereunder or previously consented to in writing by the Lender, which consent shall not be unreasonably withheld, conditioned or delayed. (c) CHANGE IN OWNERSHIP; IDENTITY OF THE BORROWER. Subject to Section 5.2(d) hereof, permit any sale, transfer, assignment or other disposition of, or grant or create any Lien on (each a "Transfer"), any of the following interests in the Borrower except that: (1) Holders of membership/partnership interests in Borrower and beneficiaries of holders of interests of Borrower as of the date of this Agreement (the "Interest Holders") shall have the right to -48- 54 Transfer their interest in Borrower (or any entity directly or indirectly holding a membership interest in Borrower) without Lender's consent; PROVIDED, HOWEVER, that (i) after taking into account any prior Transfers pursuant to this section, whether to the proposed transferee or otherwise, no such Transfer (or series of Transfers) shall result in (x) the proposed transferee, or any affiliates thereof, owning in the aggregate (directly, indirectly or beneficially) forty nine percent (49%) or more of the interests in Borrower (or any entity directly or indirectly holding a membership interest in Borrower), or (y) a Transfer in the aggregate of forty nine percent (49%) or more of the interests in Borrower as of the date hereof, (ii) no such Transfer of interest shall result in a change of control of Borrower or the day to day operations of the secured Premises, (iii) Borrower shall give Lender notice of such Transfer together with copies of all instruments effecting such Transfer not less than fifteen (15) business days prior to the date of such Transfer; (iv) no Event of Default has occurred and remains uncured; and (v) the legal and financial structure of Borrower after such Transfer and its shareholders, partners or members, as applicable, and the Special Purpose Entity nature of Borrower satisfies Lender's and the Rating Agency's then current applicable underwriting criteria and requirements including, without limitation, the requirement at the request of Lender, to deliver evidence reasonably satisfactory to Lender that the Special Purpose Entity nature of Borrower following such Transfer is in accordance with the standards of the Rating Agencies or, if a Securitization has occurred, the Rating Agencies rating the Securities in the Securitization (including, in such event written confirmations from such Rating Agencies that such Transfer or series of Transfers will not result in a requalification, reduction or withdrawal of the ratings then applicable to such Securities), and Opinions of Counsel (including a Non-consolidation Opinion) as may be reasonably requested by Lender and the Rating Agencies. Notwithstanding anything to the contrary contained herein, the managing member of Borrower shall not have the right to Transfer any interest in Borrower without Lender's consent. (2) Transfers by any of the Interest Holders of their direct or indirect interests in Borrower (or any entity that directly or indirectly holds a membership interest in Borrower) which result in (x) the proposed transferee, or any affiliates thereof, owning in the aggregate (directly, indirectly or beneficially) forty nine percent (49%) or more of the interests in Borrower (or any entity directly or indirectly holding a membership interest in Borrower), or (y) a Transfer in the aggregate of forty nine percent (49%) or more of the interests in Borrower as of the date hereof, or (z) which are Transfers by the managing member of Borrower shall be permitted only with the Lender's prior written consent, which shall not be unreasonably -49- 55 withheld; provided that such Transfer must comply with the provisions of clauses (iii), (iv) and (v) of subparagraph (1) above, and clauses (A) through (D) below: (A) The Interest Holder shall pay to the Lender all reasonable and customary expenses incurred by the Lender in connection with any such Transfer and a processing fee in an amount equal to the 1% of the outstanding principal amount of the Loan as of the date the Borrower requests the Lender to consent to such Transfer. (B) With respect to any Transfer requested or occurring prior to the sale of the Loan by the Lender in the secondary market, the consideration paid or to be paid by the assignee or purchaser in connection with the Transfer shall not be less than the appraised value of the Premises used by the Lender in underwriting the Loan, as determined by the Lender in its reasonable judgment, multiplied by the percentage of interests (direct or indirect) being transferred in the Borrower. The Borrower shall furnish the Lender at the Borrower's sole cost and expense such information as the Lender shall request in connection with any Transfer, including without limitation, an Appraisal or other evidence satisfactory to the Lender in its reasonable discretion of the value of the Premises as of the date of the Transfer. (C) The assignee or purchaser must meet Lender's reasonable underwriting standards concerning, including without limitation, its net worth and operating history, as determined by Lender in its sole reasonable discretion. (D) No Transfer shall relieve the Borrower of its Obligations under this Loan Agreement or any of the other Loan Documents. (d) Notwithstanding anything to the contrary contained in this Loan Agreement, the Security Instrument or any other Loan Documents, Lender's consent shall not be required for any of the following sales, transfers, assignments, pledges, conveyances or encumbrances, provided that Lender has received payment in full of all its actual expenses incurred in connection therewith: (i) with respect to the REIT and any holders of interests therein, directly or indirectly, (A) Transfer of all or any portion of any shares of beneficial interests of the REIT for so long as the shares of the REIT continue to be publicly traded on a national stock exchange and (B) the issuance of additional shares of the REIT; (ii) with respect to the Operating Partnership and any holders of interests therein, (A) any Transfer (direct or indirect) of limited partnership interests in the Operating Partnership and (B) the issuance of additional limited partnership units or other securities, even if such issuance results in a reduction of the partnership interest of the REIT in the Operating Partnership, provided that, after giving effect -50- 56 to such transfer or series of transfers described in (A) or (B), the REIT owns more than fifty-one percent (51%) of the partnership interests of the Operating Partnership or continues to be the sole general partner of the Operating Partnership; or (iii) a Fundamental Transaction relating to the REIT or the Operating Partnership. (e) As used herein, the term "Fundamental Transaction" shall mean any acquisition by, merger with or consolidation with or into, or sale of substantially all of its assets to, an entity (the "Successor") in which the following conditions have been satisfied as of the consummation of the transaction: (i) the Successor owns, directly or indirectly, substantially all the assets which the Operating Partnership owned immediately prior to the effective date of such merger, consolidation or sale; (ii) the Successor agrees in writing to assume all obligations of the Operating Partnership under the Loan Documents to which the Operating Partnership is a party; (iii) upon the consummation of such transaction, Successor shall either be owned by a Qualified Resultant Owner or the Successor shall be owned by the executive management of the REIT immediately prior to such transfer; (iv) Lender shall have confirmations in writing from the Rating Agencies to the effect that such transfer will not result in a re-qualification, reduction or withdrawal of any rating then assigned to any Securities in a Securitization; (v) with respect to any Individual Property that is the subject of a Management Agreement, the Manager shall be either the Manager immediately prior to such transfer or a Qualified Manager, and any new Management Agreement shall be reasonably satisfactory to Lender; (vi) with respect to any Individual Property that is the subject of an Operating Lease, the Operating Lessee shall be either the Operating Lessee immediately prior to such transfer or a Qualified Operating Lessee, and any new Operating Lease shall be reasonably satisfactory to Lender; (vii) the Premises will be owned by one or more special purpose bankruptcy remote entities and a non-consolidation opinion acceptable to Lender and the Rating Agencies has been delivered with respect to any Successor; and (viii) Lender has received no less than forty-five (45) days' prior written notice of such transfer. The Borrower hereby acknowledges to the Lender that (i) the identity of the Borrower and the expertise available to the Borrower were and continue to be material circumstances upon which the Lender has relied in connection with, and -51- 57 which constitute valuable consideration to the Lender for, the extending to the Borrower of the indebtedness evidenced by the Note and (ii) any change in such identity or expertise could materially impair or jeopardize the security for the payment of the Note granted to the Lender by the Security Instrument and the other Loan Documents, as appropriate. (f) PREPAYMENT OF RENT. Accept any prepayment of rent or installments of rent for more than two (2) months in advance without the prior written consent of the Lender. (g) NO OTHER NAME. Change its name or operate under any name other than its name as set forth herein. (h) NO RESTRICTED PAYMENTS. Without Lender's prior written consent, make any payment or take any other action constituting (i) any direct or indirect purchase or other acquisition by the Borrower of Equity Interests of any other Person, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and expenditures in the ordinary course of business) or capital contribution by the Borrower to any other Person, including all debt and any Obligation of any sort, and/or (ii) a payment or prepayment on account of, or the setting apart of assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of subordinated debt, either directly or indirectly, whether in cash or in property or in obligations of any Person. (i) NO WASTE OR ABANDONMENT. Suffer, permit or commit affirmative waste, permit impairment or deterioration of, or abandon, the Premises or any portion thereof. The Borrower will not itself, or permit any tenant or other Person to, remove, demolish or alter any improvement now existing or hereafter erected on the Premises or any fixture, equipment or machinery in or on the Premises except in connection with any Repair or Replacement. (j) USE OF PREMISES. Except as required by applicable law, or as otherwise permitted in writing by the Lender, allow any change in the business use of all or any portion of Premises from the use thereof as of the Closing Date. (k) FRANCHISE AGREEMENTS. Borrower shall not amend or terminate any Franchise Agreement or permit Operating Lessee to terminate any Franchise Agreement. Section 5.3 ENVIRONMENTAL COVENANTS. The Borrower hereby consents to: (a) Not cause, permit or exacerbate any Prohibited Activities or Conditions. The Borrower represents and warrants that it has not at any time caused or permitted any Prohibited Activities or Conditions except as set forth in the Environmental Assessment and that to its knowledge, no Prohibited Activities or Conditions exist or have existed on or under the Premises. The Borrower shall take all appropriate steps to prevent its employees, agents, and contractors, and any tenants from causing, permitting, or exacerbating any Prohibited Activities or Conditions. The Borrower shall not lease or allow the sublease or use of all or any portion of the Premises to any tenant, subtenant or user that, in the ordinary course of its business, would cause, permit, or exacerbate any Prohibited Activities or Conditions, and all leases, subleases -52- 58 and use agreements relating to the Premises shall contain provisions sufficient to ensure that tenants, subtenants and users shall not cause, permit or exacerbate any Prohibited Activities or Conditions. (b) Comply in a timely manner with, and cause all employees, agents, and contractors of the Borrower and any other persons present on the Premises to so comply with, (i) any O&M Program now or hereafter in effect during the term of the Loan, and (ii) Hazardous Materials Law, so as to minimize any economic loss to the Premises and the Loan. The Borrower shall adopt an O&M Program with respect to any Hazardous Materials as required in any Environmental Assessment or any Governmental Action relating to the Premises, or as otherwise reasonably required by the Lender with respect to the Premises. Any O&M Program shall be performed by qualified contractors under the supervision of a consulting engineer hired by the Borrower with the prior written approval of the Lender which approval shall not be unreasonably withheld, conditioned or delayed. All costs and expenses of any O&M Program shall be paid by the Borrower, including without limitation the charges of such contractors and consulting engineer and the Lender's reasonable fees, costs and expenses incurred in connection with the monitoring and review of the O&M Program and the Borrower's performance thereunder. (c) Promptly notify the Lender in writing of: (i) any Governmental Action it becomes aware of, (ii) any claim made or known by Borrower to be threatened by any third party against the Borrower, the Lender, or the Premises relating to loss or injury resulting from any occurrence or condition on the Premises or any other real property that could require the removal from the Premises of any Hazardous Materials or cause any restrictions on the ownership, occupancy, transferability or use of the Premises under Hazardous Materials Law, or (iii) the occurrence of any Prohibited Activities or Conditions. The Borrower shall cooperate with any governmental inquiry, and shall comply with any governmental or judicial order, request or directive which arises from any alleged Prohibited Activities or Conditions; provided that with respect to governmental requests or directives only, the Borrower may contest or object to a good faith dispute regarding said request or directive if the Borrower notifies the Lender in advance of said contest or objection and as long as said contest or objection does not result in a violation of law or fines assessed against the Premises unless such fines are bonded by Borrower in a manner acceptable to Lender in its sole discretion. (d) Pay promptly all reasonable costs and expenses incurred by the Lender in connection with any Governmental Action, including but not limited to costs of any environmental audits, studies, investigations or remedial activities including but not limited to the removal of any Hazardous Materials from the Premises. The Borrower also shall pay promptly the costs of any environmental audits, studies, investigations or the removal of any Hazardous Materials from the Premises required by the Lender as a condition of its consent to any sale or transfer of all or any part of the Premises or any interest therein or required by the Lender following a reasonable determination by the Lender that there may be Prohibited Activities or Conditions on or under the -53- 59 Premises. Any such reasonable costs or expenses incurred by the Lender (including but not limited to reasonable fees and expenses of attorneys and consultants, whether incurred in connection with any judicial or administrative process or otherwise) which the Borrower fails to pay promptly shall become additional indebtedness secured by the Security Instrument. (e) EXCEPT TO THE EXTENT ANY OF THE FOLLOWING IS THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LENDER, HOLD HARMLESS, DEFEND AND INDEMNIFY THE LENDER AND ITS OFFICERS, DIRECTORS, TRUSTEES, EMPLOYEES, AGENTS, AFFILIATES (INCLUDING ANY PARENT CORPORATION), SUCCESSORS AND ASSIGNS, FROM AND AGAINST ALL PROCEEDINGS, CLAIMS, DAMAGES, PENALTIES, FEES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE FEES AND EXPENSES OF ATTORNEYS AND EXPERT WITNESSES, INVESTIGATORY FEES, AND CLEANUP AND REMEDIATION EXPENSES, WHETHER INCURRED IN CONNECTION WITH ANY JUDICIAL OR ADMINISTRATIVE PROCESS OR OTHERWISE), ARISING DIRECTLY OR INDIRECTLY FROM (i) ANY BREACH OF ANY REPRESENTATION, WARRANTY, OR OBLIGATION OF THE BORROWER CONTAINED IN THIS SECTION 5.3 OR (ii) THE PRESENCE OF HAZARDOUS MATERIALS ON OR UNDER THE PREMISES OR ANY PROPERTY PROXIMATE TO THE PREMISES OR ANY GOVERNMENTAL ACTION ALLEGING ANY SUCH PRESENCE, EXCEPT TO THE EXTENT THAT THE BORROWER CAN CONCLUSIVELY PROVE BOTH THAT SUCH PRESENCE OR GOVERNMENTAL ACTION ALLEGING SUCH PRESENCE WAS CAUSED SOLELY BY ACTIONS, CONDITIONS, OR EVENTS THAT OCCURRED AFTER THE DATE THAT THE LENDER (OR ANY PURCHASER AT A FORECLOSURE SALE) ACTUALLY ACQUIRED TITLE OR TOOK POSSESSION TO THE PREMISES AND THAT SUCH PRESENCE OR GOVERNMENTAL ACTION ALLEGING SUCH PRESENCE WAS NOT CAUSED BY THE DIRECT OR INDIRECT ACTIONS OF THE BORROWER OR THE BORROWER PRINCIPAL, OR ANY PARTNER, MEMBER, PRINCIPAL, OFFICER, DIRECTOR, TRUSTEE OR MANAGER OF THE BORROWER OR ANY EMPLOYEE, AGENT, CONTRACTOR OR AFFILIATE OF THE BORROWER OR THE BORROWER PRINCIPAL. THE OBLIGATIONS AND LIABILITIES OF THE BORROWER UNDER THIS SECTION 5.3(e) SHALL SURVIVE ANY TERMINATION, SATISFACTION, ASSIGNMENT, ENTRY OF A JUDGMENT OF FORECLOSURE OR DELIVERY OF A DEED IN LIEU OF FORECLOSURE OF THE SECURITY INSTRUMENT. Section 5.4 RECOURSE COVENANTS. Except as otherwise expressly permitted by the Loan Documents, during any period in which the Loan is outstanding, the Borrower agrees that it will not, without the prior written consent of the Lender: (a) SALE, TRANSFER, CONVEYANCE OR DISPOSAL. Permit any sale, transfer, conveyance or other disposal of the Premises, the Rents and Profits or the Intangible Personalty. (b) OTHER FINANCING AND LIENS. Engage in any other financing with respect to the Borrower (except payables incurred with trade creditors in amounts not to exceed $100,000.00, provided such debt is not evidenced by a note and is not in excess of sixty days past due in the ordinary course of business and paid prior to delinquency), the Premises, the Rents and Profits or the Intangible Personalty or grant any consensual Liens against the Premises, the Rents and Profits or the Intangible Personalty. Nor shall Borrower or any member -54- 60 or partner of Borrower pledge any interest in Borrower without the prior written consent of Lender and without written confirmation from applicable Rating Agencies that such pledge will not result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency. (c) SPECIAL PURPOSE ENTITY. Fail to be a Special Purpose Entity. Section 5.5 INSURANCE. (a) MAINTENANCE OF INSURANCE. The Borrower shall, or shall cause, at no cost or expense to Lender, keep in full force and effect all Insurance. If the Borrower fails to maintain, or cause to be maintained, any Insurance required by this Agreement, the Lender may, at its option, procure such Insurance, and the Borrower shall reimburse the Lender for the amount of all premiums paid by the Lender thereon promptly upon demand by the Lender, with interest thereon at the rate then provided by the Note from the date paid by the Lender to the date of repayment, and such sum shall be a part of the indebtedness secured by the Security Instrument. The Lender shall not by the fact of approving, disapproving, accepting, preventing, obtaining or failing to obtain any Insurance, incur any liability for or with respect to the amount of Insurance carried, the form or legal sufficiency of insurance contracts, solvency of insurance companies, or payment or defense of lawsuits, and the Borrower, for itself, hereby expressly assumes full responsibility therefor and all liability, if any, with respect thereto. (b) INSURANCE WITH RESPECT TO IMMEDIATE REPAIRS, REPLACEMENTS AND ADDITIONAL REPAIRS OR REPLACEMENTS. In addition to and to the extent not covered by any Insurance required under the Loan Documents, the Borrower shall provide or cause to be provided worker's compensation insurance, builder's risk, and public liability insurance and other insurance to the extent required under applicable law in connection with a particular Immediate Repair, Replacement or Additional Repair or Replacement reasonably required by the Lender. (c) APPROVED INSURERS. Each of the Borrower's insurers shall be an Approved Insurer. If any of the Borrower's insurers shall at any time cease to be an Approved Insurer, then within thirty (30) days after notice from the Lender to the Borrower, the Borrower will obtain replacement Insurance or additional Insurance issued by one or more other Approved Insurers. (d) FORM OF INSURANCE POLICIES; ENDORSEMENTS. All policies for Insurance shall be in such form and with such endorsements as are comparable to the forms of and endorsements to the Borrower's, or if applicable, its tenant's, insurance policies in effect on the date hereof or otherwise in accordance with commercially reasonable standards applied by prudent owners of similar businesses in the general vicinity of the Premises and generally acceptable to institutional lenders for comparable properties and risks. All such policies shall name the Lender, and its successors and assigns, as additional insureds, mortgagees and/or loss payees, as deemed appropriate by the Lender, and shall provide that all proceeds are payable to the Lender (except for any -55- 61 "non-property" insurance policies maintained by the Operating Lessee) and shall contain: (i) a standard "non-contributory mortgagee" endorsement or its equivalent relating, INTER ALIA, to recovery by the Lender notwithstanding the negligent or willful acts or omissions of the named Borrower; (ii) to the extent available at commercially reasonable rates, a waiver of subrogation endorsement as to the Lender; (iii) an endorsement providing that no policy shall be impaired or invalidated by virtue of any act, failure to act, negligence of, or violation of declarations, warranties or conditions contained in such policy by the Borrower, any tenant at the Premises, the Lender or any other named insured, additional insured, mortgagee or loss payee, except for the willful misconduct of the Lender knowingly in violation of the conditions of such policy; (iv) an endorsement providing for a deductible per loss of an amount not more than that which is customarily maintained by prudent owners of similar businesses in the general vicinity of the Premises; (v) a provision that such policies shall not be canceled or amended, including, without limitation, any amendment reducing the scope or limits of coverage, without at least thirty (30) days prior written notice to the Lender in each instance, and (vi) effective waivers by the insurer of all claims for insurance premiums against any loss payees, additional insureds, mortgagees and named insureds (other than the Borrower). Any insurance coverage relating to the Premises that is carried by the Borrower or, if applicable, its tenant's, in excess of the Insurance required hereunder shall name the Lender, and its successors and assigns, as additional insureds, mortgagees and/or loss payees, as appropriate, as provided herein. A certificate executed by the Borrower's insurance consultant and other evidence of Insurance required by the Lender shall be delivered to the Lender not less than ten (10) days prior to the expiration date of any of the policies for Insurance required to be maintained hereunder which certificate and other evidence shall certify payment of applicable premiums for renewal and replacement policies. The Borrower may effect any Insurance required hereunder through blanket insurance policies. The Borrower shall deliver to the Lender certified copies of all policies for Insurance which shall be taken out upon the Premises while any part of the Loan shall remain unpaid. (e) COMPLIANCE WITH INSURANCE POLICY TERMS. The Borrower shall comply with all terms of policies for Insurance and shall not bring or keep or permit to be brought or kept any article upon the Premises or cause or permit any condition to exist thereon which would be prohibited by or could invalidate any Insurance required hereunder. Section 5.6 LOCKBOX. The Borrower has established as of the date hereof the Lockbox Account, which Lockbox Account shall, in all respects, be governed by the Cash Management Agreement. ARTICLE VI RESERVE ACCOUNTS Section 6.1 ESTABLISHMENT OF RESERVE ACCOUNTS. On or before the Closing Date, the Lender shall establish each Reserve Account. Each Reserve Account shall be under the sole dominion and control of the Lender. -56- 62 Section 6.2 INITIAL RESERVE DEPOSITS. On the Closing Date, the Borrower shall pay to the Lender for deposit into each Reserve Account any Initial Reserve Deposit applicable to such Reserve Account. Section 6.3 MONTHLY RESERVE DEPOSITS. On each Payment Date, the Borrower shall pay to the Lender for deposit into each Reserve Account any Monthly Reserve Deposit applicable to such Reserve Account. The Lender may, upon written request from the Borrower, waive any requirement for the payment of a Monthly Reserve Deposit, provided however, that any such waiver by the Lender of a requirement that the Borrower pay such Monthly Reserve Deposit may be revoked by the Lender, in the Lender's sole discretion, at any time upon notice in writing to the Borrower. Section 6.4 REPLACEMENT RESERVE ACCOUNT. The Lender may, in the Lender's reasonable discretion, adjust the Monthly Reserve Deposit to the Replacement Reserve Account from time to time to an amount sufficient, in the Lender's reasonable judgment, to maintain adequate balances necessary for Replacements, including, without limitation, Additional Repairs or Replacements made pursuant to the terms of the Loan Agreement and consistent with the requirements of the applicable Franchise Agreement and Operating Lease. Notwithstanding the foregoing, in the event the Lender shall at any time increase the Monthly Reserve Deposit to the Replacement Reserve Account over the Monthly Reserve Deposit to the Replacement Reserve Account then required pursuant to EXHIBIT B hereto, the Borrower, may at its election, request that the Lender obtain, at the sole cost, fee and expense of the Borrower, an engineering report from an engineer to be selected by the Lender in its reasonable discretion, in which case the Monthly Reserve Deposit to the Replacement Reserve Account shall be adjusted by the Lender based on such engineering report, provided that in no event shall the Monthly Reserve Deposit to the Replacement Reserve Account be decreased below the applicable amount set forth on EXHIBIT B hereto. Following any defeasance of any permitted portion of the Premises, or substitution of properties pursuant to Section 2.6 hereof, and upon written request from Borrower, Lender will, at Borrower's expense, commission an updated engineering report (from an engineer selected by Lender) of the remaining portion of the Premises and, subject to Lender's review and approval, the amount of the Monthly Deposit to the Replacement Reserve Account shall be adjusted to reflect that the defeased portion of the Premises no longer serves as collateral for the Loan. Section 6.5 PERMITTED INVESTMENTS, EARNINGS, CHARGES AND ANNUAL ACCOUNTING. (a) PERMITTED INVESTMENTS. The Lender may invest and reinvest, or cause to be invested or reinvested, all or any portion of any funds on deposit in any Reserve Account in Permitted Investments. The maturities of the Permitted Investments on deposit in any Reserve Account shall be selected and coordinated to become due not later than the day before any disbursements from any Reserve Account must be made. All such Permitted Investments shall be held in the name and be under the sole dominion and control of the Lender, to the extent permitted by applicable laws, and no Permitted Investment shall be made unless the Lender shall perfect its first priority Lien in such Permitted Investment and, to the extent permitted by applicable laws, the Lender shall have sole possession and control over each such Permitted Investment and the income thereon, and any certificate or other instrument or document evidencing any such investment shall be delivered directly to the Lender, together with any document of transfer necessary to transfer title to such investment to the -57- 63 Lender. The Lender shall not have any liability (other than for the Lender's gross negligence or willful misconduct) for any loss in investments of funds in any Reserve Account that are invested in Permitted Investments and no such loss shall affect the Borrower's obligation to (i) make any payment hereunder, under the Security Instrument, the Note or any other Loan Document, or (ii) fund, or have liability for funding, any Reserve Account. The Borrower agrees that it shall include all interest, earnings or profits on Permitted Investments of funds on deposit in any Reserve Account as its income (and, if the Borrower is a partnership or other pass-through entity, the partners, members or beneficiaries of the Borrower, as the case may be), and shall be the owner of such accounts for federal and applicable state and local tax purposes, except to the extent the Lender retains such interest, earnings or profits for its own account in accordance with the provisions of Section 6.5(b) of this Loan Agreement. The Borrower shall have no right whatsoever to direct the investment of the proceeds in any Reserve Account. (b) EARNINGS. All interest, earnings or profits on the Permitted Investments of funds in any of the Reserve Accounts shall be deposited into the applicable Reserve Account, provided that the Lender may, at its election, retain for its own account any such interest, earnings or profits (i) on the Tax and Insurance Reserve Account, and (ii) on any or all of the Reserve Accounts during the occurrence and continuance of an Event of Default. (c) CHARGES. Except as prohibited by applicable laws, the Lender may charge the Borrower for holding, maintaining and applying funds in any of the Reserve Accounts to the extent funds on deposit in such Reserve Account are invested or reinvested in Permitted Investments and the Lender does not retain for its own account any interest, earnings or profits on such Reserve Account in accordance with the provisions of Section 6.5(b) of this Loan Agreement. (d) ANNUAL ACCOUNTING. The Lender shall furnish or cause to be furnished to the Borrower, without charge, an annual accounting of each Reserve Account in the normal format of the Lender or its agent, showing credits and debits to such Reserve Account and the purpose for which each debit to such Reserve Account was made. Section 6.6 ASSIGNMENT TO THE LENDER OF RESERVE ACCOUNTS AND RIGHTS AND CLAIMS. (a) The Borrower hereby assigns to the Lender the Reserve Accounts as additional security for all of the Borrower's Obligations to the Lender, under the Note and under the other Loan Documents; PROVIDED, however, the Lender shall make disbursements from the Reserve Accounts in accordance with the terms of this Agreement, including without limitation, the Program Rider. -58- 64 (b) The Borrower assigns to the Lender all rights and claims the Borrower may have against (i) all persons or entities claiming amounts due for taxes, utilities, rent or insurance, or (ii) all persons or entities supplying labor or materials in connection with the Immediate Repairs, Replacements or Additional Repairs or Replacements; provided, however, that the Lender may not pursue any such right or claim unless an Event of Default exists under this Agreement or the Loan Documents. Section 6.7 APPLICATION OF RESERVE ACCOUNTS UPON AN EVENT OF DEFAULT. If any Event of Default occurs, then the Borrower shall immediately lose all of its rights to receive disbursements from the Reserve Accounts unless and until the earlier to occur of or concurrently with (a) the date on which such Event of Default is fully cured, and (b) the date on which all amounts secured by the Security Instrument and the other Loan Documents have been paid in full and the lien of the Security Instrument and the other Loan Documents, as appropriate, have been released by the Lender. Upon any Event of Default, the Lender may in its sole discretion, use the Reserve Accounts (or any portion thereof) for any purpose, including but not limited to (i) repayment of any indebtedness secured by the Security Instrument and the other Loan Documents, including but not limited to principal prepayments and the prepayment premium applicable to such full or partial prepayment (as applicable); provided, however, that such application of funds shall not cure or be deemed to cure any Event of Default, (ii) reimbursement of the Lender for all losses, fees, costs and expenses (including, without limitation, reasonable legal fees) suffered or incurred by the Lender as a result of such Event of Default, (iii) payment of any amount expended in exercising all rights and remedies available to the Lender at law or in equity or under this Agreement or under any of the other Loan Documents, or (iv) to the payment of any item for which payment is required or permitted from any of the Reserve Accounts pursuant to the terms of this Loan Agreement. Nothing in this Loan Agreement shall obligate the Lender to apply all or any portion of the Reserve Accounts on account of any Event of Default by the Borrower or to pay the indebtedness secured by the Security Instrument or any of the other Loan Documents or in any specific order of priority. Section 6.8 DISBURSEMENTS FROM TAX AND INSURANCE RESERVE ACCOUNT. (a) The Lender shall disburse, to the extent of amounts on deposit in the Tax and Insurance Reserve Account, directly to each Person owed any portion of the water and sewer assessments and frontage charges, taxes, assessments and insurance premiums, the total sum owed to such Person. Such disbursements shall be made by the Lender (i) so as to coincide in frequency with the regular billing cycle of such Person, and (ii) on or before the date that each such payment is due. (b) The Lender may require the Borrower to pay to the Lender in advance, additional amounts for taxes, charges, premiums, assessments, and impositions in connection with the Borrower or the Premises which the Lender shall reasonably deem necessary. Unless otherwise provided by applicable law, the Lender may require payments for such other amounts to be paid by the Borrower in a lump sum or periodic installments, at the Lender's option. -59- 65 (c) If the amount held in the Tax and Insurance Reserve Account at the time of the annual accounting thereof shall exceed the amount deemed necessary by the Lender to provide for the payment of water and sewer assessments and frontage charges, taxes, assessments, impositions and insurance premiums, as they fall due, such excess shall be credited against future Monthly Reserve Deposits to the Tax and Insurance Reserve Account. If at any time the amount held in the Tax and Insurance Reserve Account shall be less than the amount deemed necessary by the Lender to pay water and sewer assessments and frontage charges, taxes, assessments, impositions and insurance premiums, the Borrower shall pay to the Lender any amount necessary to make up the deficiency within thirty (30) days after notice from the Lender to the Borrower requesting payment thereof. (d) Upon payment in full of all amounts owed by the Borrower under or otherwise secured by any of the Loan Documents, all remaining amounts on deposit, if any, in the Tax and Insurance Reserve Account shall be distributed to the Borrower. Section 6.9 DISBURSEMENTS FROM REPAIR ESCROW ACCOUNT AND REPLACEMENT RESERVE ACCOUNT. (a) Upon written request from the Borrower and satisfaction of the requirements set forth in this Loan Agreement, the Lender shall disburse to the Borrower amounts from the Repair Escrow Account necessary to reimburse the Borrower for the actual costs of Immediate Repairs and shall disburse amounts from the Replacement Reserve Account necessary to reimburse the Borrower for the actual costs of Replacements (but, as to any Immediate Repair or Replacement, such amount shall not exceed one hundred twenty-five percent (125%) of the original estimated cost of such Immediate Repair and/or Replacement set forth on EXHIBIT B to this Loan Agreement, unless the Lender agrees to such reimbursement). (b) Upon written request from the Borrower, the Lender may, in its discretion, disburse amounts from the Repair Escrow Account and/or Replacement Reserve Account to reimburse the Borrower for the actual cost of labor and materials associated with an Additional Repair or Replacement. Each such request from the Borrower shall include a statement regarding why such disbursement should be made. If the Lender determines that (i) such Additional Repair or Replacement is of the type intended to be covered by this Agreement, (ii) the costs for such Additional Repair or Replacement are reasonable, (iii) the amount of funds in the Repair Escrow Account and/or the Replacement Reserve Account, as applicable, is sufficient to pay the Additional Repair or Replacement and one hundred twenty-five percent (125%) of the then current estimated cost of completing all remaining Immediate Repairs and Replacements, as applicable, and (iv) all other conditions for disbursement under this Loan Agreement have been met, then the Lender shall disburse funds from the Repair Escrow Account and/or the Replacement Reserve Account, as applicable, for such Additional Repair or Replacement in accordance with the requirements of this Loan Agreement for Immediate Repairs and/or Replacements. (c) Each request for disbursement from the Repair Escrow Account or Replacement Reserve Account shall be in a form specified or approved by the Lender and shall set forth (i) the specific Immediate Repairs, Replacements or Additional Repair or Replacement, as the case may be, for which -60- 66 the disbursement is requested, (ii) the quantity and price of each item purchased, if the Immediate Repair, Replacement or Additional Repair or Replacement, as the case may be, includes the purchase or replacement of specific items, (iii) the price of all materials (grouped by type or category) used in any Immediate Repair, Replacement or Additional Repair or Replacement, as the case may be, other than the purchase or replacement of specific items, and (iv) the cost of all contracted labor or other services applicable to each Immediate Repair, Replacement or Additional Repair or Replacement, as the case may be, for which such request for disbursement is made. With each request the Borrower shall certify that all Immediate Repairs, Replacements or Additional Repairs or Replacements, as the case may be, have been made in accordance with the requirements of this Loan Agreement and all Requirements of Laws. Each request for disbursement shall include (A) copies of invoices for all items or materials purchased and all contracted labor or services provided, and (B) for disbursements in excess of $25,000, such acknowledgments of payment, lien waivers and/or releases with respect to the Immediate Repairs, Replacements and Additional Repairs or Replacements for which disbursement is requested as the Lender may require. In connection with each disbursement from the Repair Escrow Account or the Replacement Reserve Account, as the case may be, the Lender may require the Borrower to provide the Lender with an endorsement to the Lender's title insurance policy showing that no Liens have been placed against the Premises since the date of recordation of the Security Instrument (other than Permitted Encumbrances and any other Liens previously approved in writing by the Lender, if any). (d) Except as provided in the following sentence, each request for disbursement from the Repair Escrow Account or the Replacement Reserve Account shall be made only after completion (as reasonably determined by the Lender) of the Immediate Repair, Replacement or Additional Repair or Replacement for which disbursement is requested. If (i) the cost of the Immediate Repair, Replacement or Additional Repair or Replacement exceeds the lesser of (A) one percent (1%) of the original Loan Amount, or (B) $50,000.00 per Individual Property, (ii) the written contract with respect to such Immediate Repair, Replacement or Additional Repair or Replacement requires periodic payment for such work pursuant to the terms thereof, and (iii) the Lender has approved in writing in advance such periodic payments, then a request for reimbursement from the Repair Escrow Account and/or Replacement Reserve Account may be made after completion of a portion of the work under such contract, provided (1) the materials for which the request is made are on site at the Premises and are properly secured or have been installed in the Premises, (2) all other conditions in this Loan Agreement for disbursement have been satisfied, and (3) funds remaining in the Repair Escrow Account or the Replacement Reserve Account, as the case may be, are, in the Lender's reasonable judgment, sufficient to complete such Immediate Repair, Replacement or Additional Repair or Replacement and all the other Immediate Repairs and/or Replacements when required. The Lender, at its option, may issue joint checks, payable to the Borrower and the supplier, materialman, mechanic, contractor, subcontractor or other party to whom payment is due in connection with any such periodic payment for an Immediate Repair, Replacement or Additional Repair or Replacement to be paid from the Repair Escrow Account or Replacement Reserve Account, as the case may be. -61- 67 (e) The Lender shall have no obligation to make any disbursement from the Repair Escrow Account or the Replacement Reserve Account more frequently than once in any month and (except in connection with the final disbursement) in any amount less than the lesser of (i) one percent (1%) of the original Loan Amount, or (ii) $5,000.00. (f) Prior to any disbursement from the Repair Escrow Account or the Replacement Reserve Account, the Lender may, at the Borrower's expense, require an inspection by an appropriate independent qualified professional reasonably selected by the Lender and a copy of a certificate of completion by an independent qualified professional reasonably acceptable to the Lender prior to the disbursement of any amounts from the Repair Escrow Account or the Replacement Reserve Account exceeding $25,000.00. The Borrower shall pay the Lender a reasonable inspection fee not exceeding $1,000.00 for each such inspection. (g) The Lender shall not be obligated to make disbursements from the Repair Escrow Account or the Replacement Reserve Account to reimburse the Borrower for the costs of routine maintenance to the Premises, tenant improvements or leasing commissions. (h) Upon the earlier to occur of (i) the timely completion of all Immediate Repairs in accordance with the requirements of this Loan Agreement, as verified by the Lender in its reasonable discretion, or (ii) the payment in full of all amounts owed by the Borrower under or otherwise secured by any of the Loan Documents, all amounts remaining on deposit, if any, in the Repair Escrow Account shall be distributed to the Borrower. (i) Upon payment in full of all amounts owed by the Borrower under or otherwise secured by any of the Loan Documents, all amounts remaining on deposit, if any, in the Replacement Reserve Account shall be distributed to the Borrower. Section 6.10 INTENTIONALLY DELETED. Section 6.11 INDEMNIFICATION. The Borrower agrees to indemnify the Lender and to hold the Lender harmless from and against any and all actions, suits, claims, demands, counterclaims, cross-claims, liabilities, losses, damages, obligations, fees and costs and expenses (including litigation costs, reasonable attorneys' fees and expenses) arising from or in any way connected with (a) the performance of the Immediate Repairs, Replacements or Additional Repairs or Replacements, (b) unpaid taxes, utility bills, rent or insurance premiums owed by the Borrower, and/or (c) the holding or investment of the Reserve Accounts, except to the extent any of the foregoing is the direct result of the gross negligence or willful misconduct of the Lender. -62- 68 ARTICLE VII EVENTS OF DEFAULT; REMEDIES Section 7.1 EVENTS OF DEFAULT. An Event of Default shall occur if any of the following has occurred and is continuing beyond any applicable cure or grace period: (a) PAYMENTS. The Borrower fails to make any payment hereunder, under the Note or under any other Loan Document, when due and payable, and such payment is not received prior to the tenth (10th) day after the same is due (or such greater period, if any, required by applicable law). (b) BANKRUPTCY, ETC. The occurrence of any Bankruptcy Event with respect to the Borrower Principal, Borrower or any general partner or managing member of Borrower. (c) JUDGMENTS. One or more judgments or decrees exceeding, in the aggregate, $100,000.00 per Individual Property shall be entered against the Borrower (not paid or fully covered by insurance provided by a carrier who has acknowledged coverage) and any such judgments or decrees shall not have been paid, vacated, discharged, stayed or bonded (through appeal or otherwise) within thirty (30) calendar days from the entry thereof. (d) RECOURSE COVENANTS. The Borrower violates any of the Recourse Covenants. (e) COMPLIANCE WITH SECTIONS 5.1(O) AND (P). The Borrower fails to comply with any or all of the provisions of either Section 5.1(o), or 5.1(p) and such failure continues for a period of thirty (30) calendar days following (i) in the case of Section 5.1(o), the date demand by the Lender is made upon the Borrower for the execution of any agreement or document in accordance with the provisions of Section 5.1(o), or (ii) in the case of Section 5.1(p), the date on which any Operating Expense becomes due and payable in accordance with the terms thereof, without regard to any extension, modification or waiver relating thereto; provided that if any Operating Expense is the subject of a bona fide dispute and is less than one percent (1%) of the outstanding balance of the Loan as of the date on which the particular Operating Expense in dispute became due and payable, then the Borrower shall have ninety (90) days from the date the same becomes due and payable to pay such Operating Expense or to furnish the Lender a bond or other collateral acceptable to the Lender in the Lender's reasonable discretion. (f) REPRESENTATIONS AND WARRANTIES. Any representation, warranty, acknowledgment or statement made by the Borrower or the Borrower Principal herein, in any other Loan Document or in any written statement or certificate delivered or required to be delivered pursuant hereto shall prove untrue in any material respect on the date as of which it was deemed to have been made or any representation, warranty acknowledgment or statement submitted to the Lender concerning the financial condition or credit standing of the Borrower, any general partner or member thereof or the Borrower Principal proves to be false or misleading in any material respect. -63- 69 (g) COMPLIANCE WITH COVENANTS AND AGREEMENTS. The Borrower shall fail to comply with, observe or perform any covenant or agreement made by it herein, in the Program Rider, or in any other Loan Document, which failure continues for thirty (30) days following written notice thereof to the Borrower; provided that if such failure is of a type which can not feasibly be cured within such thirty (30) day period and the Borrower is diligently and in good faith pursuing such cure, then the Borrower shall have a reasonable period of time (but in no event more than ninety (90) days following such written notice) to cure such failure without the same becoming an Event of Default hereunder. Borrower shall have no right to cure a default under Section 7.1(l) hereof. Nothing in this Section 7.1(g) shall be deemed or construed to entitle the Borrower to any notice and opportunity to cure with respect to any failure to comply with, observe or perform any covenant or agreement which constitutes an Event of Default under any other subsection of this Section 7.1 or to extend any notice and/or opportunity to cure otherwise provided for in any other subsection of this Section 7.1. (h) NO ENCUMBRANCES. The Borrower fails to keep the Premises free and clear of all encumbrances, liens, deeds of trust, security interests and subordinate financing, except for Permitted Encumbrances and as may be permitted by the Loan Documents or otherwise approved in writing by the Lender in its sole discretion. (i) NO TRANSFER. Except as permitted in Section 5.2 hereof, the Borrower permits any sale, transfer, conveyance or other disposition of engages in any subordinate financing with respect to, or grants any consensual liens against, the Premises, the Rents and Profits or the Intangible Personalty without the consent of Lender. (j) SPECIAL PURPOSE ENTITY. The Borrower fails to be a Special Purpose Entity at any time while the Loan is outstanding. (k) EVENTS OF DEFAULT UNDER THE PROGRAM RIDER OR OTHER LOAN DOCUMENTS. The occurrence of any Event of Default or similar event under any of the Program Rider or the other Loan Documents, after giving effect to any period of time provided for the cure of any such event or occurrence in the Program Rider or any such Loan Document. (l) NON-CONSOLIDATION ASSUMPTIONS. If any of the assumptions contained in the Non-consolidation Opinion, or in any other "non-consolidation" opinion delivered to Lender in connection with the Loan, or in any other "non-consolidation" opinion delivered subsequent to the Loan, is or shall become untrue in any material respect. Any cure period or right to cure granted to Borrower in this Loan Agreement or the other Loan Documents shall not apply to this Section 7.1(l). (m) INTENTIONALLY DELETED. (n) OPERATING LEASE. If Borrower, Operating Partnership or any Affiliate thereof fails to comply with, observe or perform any covenant or agreement made by Borrower, Operating Partnership or any Affiliate thereof under the Operating Lease, and such failure continues (i) beyond any applicable grace or cure period provided under the Operating Lease and (ii) for thirty (30) days following written notice thereof to the Borrower. -64- 70 (o) FRANCHISE AGREEMENT. If any Franchise Agreement is amended, modified or terminated without Lender's prior written consent. Section 7.2 REMEDIES. Upon the occurrence of an Event of Default, the Lender may, at its option: (a) ACCELERATION. Accelerate the entire unpaid principal balance of the Loan and all accrued interest thereon without advance notice to the Borrower, the same becoming immediately due and payable. In addition, upon acceleration, any and all other Obligations of the Borrower to the Lender shall be immediately due and payable. (b) REPLACEMENT OF PROPERTY MANAGER. Upon written notice to the Borrower, require the replacement of any property manager or managing agent for the Premises, if any, with a property manager or managing agent acceptable to the Lender. (c) OTHER REMEDIES. Invoke any other remedies set forth herein or in any of the other Loan Documents, including without limitation, foreclosure of the Lien granted in the Security Instrument and enforcement of the assignment to the Lender of the Rents and Profits in accordance with the terms of the Security Instrument. ARTICLE VIII CASUALTY LOSSES; EMINENT DOMAIN Section 8.1 REPAIRS AND CASUALTY LOSSES. (a) RESTORATION OF PREMISES. Except as otherwise provided in this Section 8.1, the Borrower shall, at its expense, promptly repair, restore, replace or rebuild any part of the Premises which is damaged or destroyed by any casualty or as the result of any taking under the power of eminent domain, provided the Lender has made available insurance proceeds or eminent domain proceeds or awards available to the Borrower for such repair, restoration, replacement or rebuilding. The Borrower shall (i) substitute a Substitute Property (pursuant to the terms of Section 2.6 hereof) for each damaged or destroyed Individual Property; or (ii) cause all repairs, rebuilding, replacements or restorations to be (in the reasonable opinion of the Lender) of substantially equivalent quality to the Premises as of the date hereof, ordinary wear and tear excepted. (b) PROOF OF LOSS; CLAIMS SETTLEMENT. In the event of loss, the Borrower shall give prompt written notice thereof to the insurance carrier and the Lender, and the Lender may make proof of loss if not made promptly by the Borrower. During the existence of any Event of Default, the Lender is hereby authorized, in its reasonable discretion, to adjust, compromise and collect the proceeds of any insurance claims. (c) APPLICATION OF INSURANCE PROCEEDS. The Borrower hereby assigns the proceeds of any such insurance policies to the Lender and hereby directs and authorizes each insurance company to make payment for such loss -65- 71 directly to the Lender. The proceeds of any insurance or any part thereof shall be applied by the Lender in accordance with the provisions of Section 8.3 of this Loan Agreement. Section 8.2 EMINENT DOMAIN. (a) PARTICIPATION IN PROCEEDINGS. The Borrower shall promptly notify the Lender of any actual or threatened initiation of any eminent domain proceeding or other taking for public use as to the whole or any part of the Premises and/or any rights incident or appurtenant thereto and shall deliver to the Lender copies of any and all papers served or received in connection with such proceedings, and the Lender shall have the right, at its option, to participate in such proceedings at the expense of the Borrower (including, without limitation, the Lender's reasonable attorneys' fees) and the Borrower will execute such documents and take such other steps as required to permit such participation. (b) RIGHT TO SETTLE CLAIMS. During the existence of any Event of Default, the Lender is hereby authorized to adjust, compromise and collect the proceeds of any eminent domain or similar award or settle a claim for damages and to apply the same (or any part thereof) to the then outstanding balance of the Loan. (c) USE OF PROCEEDS. The Borrower assigns to the Lender any proceeds or awards which may become due by reason of any condemnation or other taking for public use of the whole or any part of the Premises and any rights incident or appurtenant thereto. The proceeds of any such condemnation award or proceeds of any part thereof shall be applied by the Lender in accordance with the provisions of Section 8.3 of this Loan Agreement. (d) FURTHER ASSIGNMENTS; ACCELERATION. The Borrower agrees to execute such further assignments and agreements as may be reasonably required by the Lender to assure the effectiveness of this Section 8.2. In the event any governmental agency or authority shall require or commence any proceedings for the seizing or demolishing of any part of the Premises, or shall commence any proceedings to condemn or otherwise take pursuant to the power of eminent domain (or other power) a material portion of the Premises and such portion of the Premises has not been substituted pursuant to the terms of Section 2.6 hereof, the Lender may, at its option, declare the Loan to be immediately due and payable in full and apply all or any portion of the eminent domain (or similar) awards or proceeds to the then outstanding balance of the Loan. -66- 72 Section 8.3 APPLICATION OF INSURANCE PROCEEDS AND CONDEMNATION AWARDS. (a) Unless a Substitute Property has been substituted pursuant to the terms of Section 2.6 hereof for each Individual Property affected, all proceeds of insurance assigned to the Lender pursuant to Section 8.1 of this Loan Agreement, and all proceeds or awards which may become due by reason of any condemnation or other taking for public use of the whole or any part of the Premises or any rights incident or appurtenant thereto and that have been assigned to the Lender pursuant to Section 8.2 of this Loan Agreement shall be eligible to be applied by the Lender in its sole discretion to the repayment of the Loan; PROVIDED, HOWEVER, that subject to the provisions of this Section 8.3, such proceeds shall be held in an Eligible Account and applied to the repair or restoration of the Premises if all of the following conditions are met: (i) there exists no Default Condition or Event of Default; (ii) the Borrower presents sufficient evidence to the Lender that (A) with respect to any casualty loss, there are sufficient funds from the insurance proceeds and from equity funds, if needed, to completely restore or repair the damaged Premises, or (B) with respect to any condemnation award, there are sufficient funds from the condemnation award or proceeds and from equity funds, if needed, to completely restore the Premises to an architectural whole and to pay Operating Expenses Premises or Operating Expenses Leases, as applicable, and (C) the insurance proceeds or condemnation award is less than twenty percent (20%) of the original Loan Amount; (iii) the Operating Lessee agrees in a manner reasonably satisfactory to the Lender that it will continue or extend its interests and arrangements for the contract terms then in effect following the repair, restoration, replacement or rebuilding; (iv) all parties having material operating, management and/or franchise interests in, and arrangements concerning, the Premises agree that they will continue their interests and arrangements for the contract terms then in effect following the repair, restoration, replacement or rebuilding; (v) the Borrower presents sufficient evidence to the Lender that the Premises will be repaired or restored to an architectural whole prior to the expiration of the insurance coverage referenced in clause (iv) of the definition of Insurance set forth above and, in any event, two (2) years prior to the Maturity Date; (vi) the Lender will not incur any liability to any other Person as a result of such use or release of proceeds; and (vii) (a) as to any casualty loss, the insurance proceeds shall be held by the Lender and disbursed as repair, restoration, replacement or rebuilding progresses substantially in accordance with the procedures set forth in this Loan Agreement for disbursement from -67- 73 the Replacement Reserve Account; provided, however that insurance proceeds of $150,000 for any Individual Property or less will be disbursed directly to the Borrower for repair, restoration, replacement or rebuilding and (B) as to any condemnation award, the condemnation award or proceeds shall be held by the Lender and disbursed as repair, restoration, replacement or rebuilding progresses substantially in accordance with the procedures set forth in this Loan Agreement for disbursement from the Replacement Reserve Account. (b) If the above-stated conditions are not satisfied within ninety (90) days of loss, then the Lender may, at its option, apply any proceeds in repayment of the amount then outstanding under the Note. (c) Upon the completion of any repair, restoration, replacement or rebuilding any remaining proceeds shall be paid to the Lender in repayment of the amount then outstanding under the Note in accordance with the provisions of the Note. ARTICLE IX GENERAL PROVISIONS Section 9.1 REMEDIES CUMULATIVE; WAIVERS. All remedies of the Lender provided for herein and/or in the other Loan Documents are cumulative and shall be in addition to any and all other rights and remedies provided for or available under the other Loan Documents, at law and/or in equity. The exercise of any right or remedy by the Lender hereunder shall not in any way constitute a cure or waiver of any Default Condition or Event of Default hereunder or under any other Loan Document, or invalidate any act done pursuant to any notice of the occurrence of any Default Condition or Event of Default, or prejudice the Lender in the exercise of any of its rights hereunder or under or any other Loan Document, unless, in the exercise of said rights, the Lender realizes all amounts owed to it under the Loan Documents. No waiver of any Default Condition or Event of Default hereunder shall be implied from any delay or omission by the Lender to take action on account of such Default Condition or Event of Default, and no express waiver shall affect any Default Condition or Event of Default other than the Default Condition or Event of Default specified in the waiver and it shall be operative only for the time and to the extent therein stated. Waivers of any covenants, terms or conditions contained herein must be in writing and shall not be construed as a waiver of any subsequent failure to observe or comply with the same covenant, term or condition. The consent or approval by the Lender to or of any act by the Borrower requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent or similar act. Section 9.2 BENEFIT. This Loan Agreement is made and entered into for the sole protection and benefit of the Lender and the Borrower, their successors and permitted assigns, and no other Person or Persons shall have any right to action hereon or rights to the Loan proceeds at any time, nor shall the Lender owe any duty whatsoever to any claimant for labor performed or material furnished in connection with the construction of the Improvements, or to apply any undisbursed portion of the Loan to the payment of any such claim, or to exercise any right or power of the Lender hereunder or arising from any Default Condition or Event of Default by the Borrower. -68- 74 Section 9.3 ASSIGNMENT AND ASSUMPTION. (a) The terms hereof shall be binding upon and inure to the benefit of the heirs, successors, assigns, and personal representatives of the parties hereto. (b) Subject to the provisions of Sections 2.5, 2.6, 5.2 and 10.1(c) hereof, neither Borrower nor any other Person having beneficial or ownership interest in Borrower shall assign or permit any assumption of this Loan Agreement, any of the other Loan Documents, the Loan or any of its rights, interests, duties or obligations hereunder or thereunder or any Loan proceeds or other sums to be advanced hereunder in whole or in part without the prior written consent of the Lender. Lender shall consent, no more than once, to such assignment and/or assumption to a qualified borrower acceptable to Lender at its sole discretion upon the payment to the Lender of all reasonable and customary expenses incurred by the Lender in connection with any such assignment and/or assumption and of a processing fee in an amount equal to one percent (1%) of the outstanding principal amount of the Loan as of the date the Borrower requests the Lender to consent to such assignment or assumption. Any assignment or assumption (whether voluntary or by operation of law) without said consent shall be void. Without in any way limiting the foregoing, in no event shall the Lender consent to any assignment or assumption requested or occurring prior to the sale of the Loan by the Lender in the secondary market if the consideration paid or to be paid by the assignee or purchaser of the Premises in connection therewith, as determined by the Lender in its reasonable judgment, is less than the appraised value of the Premises used by the Lender in underwriting the Loan. The Borrower shall furnish the Lender at the Borrower's sole cost and expense such information as the Lender shall request in connection with any assignment or assumption, including without limitation: (i) an Appraisal or other evidence satisfactory to the Lender in its reasonable discretion of the value of the Premises as of the date of the assignment and/or assumption; (ii) confirmation from the Rating Agencies that the credit ratings of Securities immediately prior to assignment and/or assumption will not be qualified, downgraded or withdrawn as a result of such assignment and/or assumption, which affirmation may be granted or withheld in the Rating Agencies sole and absolute discretion; (iii) evidence that the assignee is a Special Purpose Entity satisfying Lender's and Rating Agency's then current applicable underwriting criteria and requirements; and (iv) delivery of a "non-consolidation" opinion in form and substance satisfactory to Lender that, in the event of a bankruptcy proceeding involving any Affiliate of Borrower, the assets of the Borrower, including the Premises, shall not be substantively consolidated with the assets of the Affiliate. Lender further reserves the right to condition the consent to any assignment or assumption upon (i) payment of all of Lender's reasonable expenses incurred in connection with such transfer; (ii) the confirmation in writing by the applicable Rating Agencies that the proposed transfer will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current respective ratings in effect immediately prior to such assignment or assumption for the Securities issued in connection with a securitization; (iii) the delivery of a non-consolidation opinion reflecting the proposed transfer satisfactory in form and substance satisfactory to Lender that, in the event of a bankruptcy proceeding involving any Affiliate of Borrower, the assets of the Borrower, including the Premises, shall not be substantively consolidated with the assets of the Affiliate to Lender in its -69- 75 sole discretion; and (iv) the delivery to Lender of such additional documents, certificates and legal opinions as it may reasonably request. In addition, the assignee or purchaser of the Premises shall be required to assume the Borrower's duties and obligations under this Loan Agreement and shall be required to execute and deliver to the Lender such documents, opinions, certificates and information as the Lender reasonably requires to effectuate such assumption of duties and obligations. No sale, assignment or assumption shall relieve the Borrower of its Obligations under this Loan Agreement or any of the other Loan Documents, unless the Borrower has obtained the prior written consent of the Lender, which consent shall not be unreasonably withheld or delayed. (c) Lender shall have the right to sell, assign or otherwise transfer the Loan or any portion thereof or interest therein held by Lender without the consent of Borrower or Owner or the satisfaction of any other requirement with respect to Borrower or Owner. At the request of the holder of the Note and, to the extent not already required to be provided by Borrower or Owner under this agreement or the Security Instrument, Borrower and Owner shall use reasonable efforts to satisfy the market standards to which the holder of the Note customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies of the Note or participation therein or the first successful public or private securitization (such sale and/or securitization, the "Securitization") of rated single or multi-class Securities secured by or evidencing ownership interests in the Note and the Security Instrument, including, without limitation, to: 1. (i) provide such financial and other information with respect to the Premises, the Borrower and the Owner, (ii) provide budgets relating to the Premises and (iii) to permit to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I reports and, if appropriate, Phase II reports), engineering reports and other due diligence investigations of the Premises, as may be reasonably requested by the holder of the Note or the Rating Agencies or as may be reasonably necessary or appropriate in connection with the Securitization (the "Provided Information"), together, if customary, with appropriate verification of and/or consents to the use of the Provided Information through letters of auditors or opinions of counsel of independent attorneys reasonably acceptable to the Lender and acceptable to the Rating Agencies; provided, however, that Phase II reports and other invasive testing may not be performed at the Premises until Borrower has received reasonably appropriate and evidence of insurance from any Person preparing such report or performing such testing; 2. cause counsel to render opinions as to non-consolidation, fraudulent conveyance, and true sale or any other opinion customary in securitization transactions with respect to the Premises, the Borrower, the Owner and their Affiliates, which counsel and opinions shall be reasonably satisfactory to the holder of the Note and the Rating Agencies; 3. make such representations and warranties as of the closing date of the Securitization with respect to the Premises, the Borrower, the Owner and the Loan Documents as are customarily provided in securitization transactions and as may be reasonably requested by the holder of the Note or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the -70- 76 date thereof to the extent such representations and warranties are true as of the closing date of the Securitization, including the representations and warranties made in the Loan Documents to the extent such representations and warranties are true as of the closing date of the Securitization; and 4. execute such agreements and amendments to the Loan Documents and organizational documents and enter into a lockbox or similar arrangement with respect to the rents from the Premises as may be reasonably requested by the holder of the Note or as may be requested by the Rating Agencies or as may be otherwise necessary to effect the Securitization; provided, however, that the Borrower shall not be required to modify or amend any Loan Document if such modification or amendment would (i) change the interest rate, the stated maturity or the amortization of principal set forth in the Note, or (ii) modify or amend any other material economic term of the Loan or materially increase Borrower's or Owner's obligations or liabilities under the Loan Documents. All third party costs and expenses incurred by Lender in connection with the Securitization or other sale or transfer of the Loan and all reasonable third party costs and expenses incurred by Borrower or Owner in connection with the Securitization or other sale or transfer of the Loan shall be paid by Lender. Section 9.4 SECURITIZATION COOPERATION/INDEMNIFICATION. (a) Borrower understands that certain of the Provided Information and the books and records delivered to Lender pursuant to Section 5.1(n) hereof, (the "Required Records") may be included in disclosure documents in connection with the Securitization, including, without limitation, a prospectus or private placement memorandum (each, a "Disclosure Document") and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, the Borrower will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects. (b) Borrower agrees to provide in connection with each of (i) a preliminary and a private placement memorandum or (ii) a preliminary and final prospectus, as applicable, an indemnification certificate (A) certifying that Borrower has carefully examined such memorandum or prospectus, as applicable but only as such memorandum or prospectus, relates to the Premises, the Borrower, the Borrower Principal or their Affiliates, including without limitation, the sections entitled "Special Considerations," "Description of the Security Instruments," "Description of the Loans and Properties," "The Manager," "The Borrower" and "Certain Legal Aspects of the Loan," and such sections (and any -71- 77 other sections reasonably requested) do not, and with respect to any portions of such sections prepared in reliance upon the reports of third parties, to Borrower's knowledge do not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, (B) indemnifying Lender, subject to Section 9.5 (and for purposes of this Section 9.4, Lender hereunder shall include its officers, directors and employees), the Affiliate of such Lender entity (the "Lender Entity") that has filed the registration statement relating to the securitization (the "Registration Statement"), each of its directors, each of its officers who have signed the Registration Statement and each person or entity who controls the Affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the "Lender Group"), and Lender Entity, each of its directors and each person who controls Lender Entity within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act (collectively, the "Underwriter Group") for any losses, claims, damages or liabilities (the "Liabilities") to which Lender, the Lender Group or the Underwriter Group may become subject insofar as the Liabilities arise out of any untrue statement or alleged untrue statement of any material fact contained in such sections (other than any such statement made in reliance upon the reports of third parties that do not, to Borrower's knowledge, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading) or arise out of the omission or alleged omission to state therein a material fact known to Borrower and required to be stated in such sections or necessary in order to make the statements in such sections or in light of the circumstances under which they were made, not misleading and (C) agreeing to reimburse Lender, the Lender Group and the Underwriter Group for any legal or other expenses reasonably incurred by Lender and Lender Group in connection with investigating or defending the Liabilities; provided, however, that Borrower will be liable in any such case under clauses (B) or (C) above only to the extent that any such loss claim, damage, liability or expense arises out of any such untrue statement or omission made therein in reliance upon and in conformity with written information furnished to Lender by or on behalf of Borrower expressly for use in the Disclosure Document; and provided further, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Borrower by Lender, any member of the Lender Group or any member of the Underwriter Group expressly for use in the Disclosure Document. The foregoing indemnity with respect to any untrue statement contained in or omission from a preliminary private placement memorandum or preliminary prospectus shall not inure to the benefit of any member of the Underwriting Group (or any person controlling such member of the Underwriting Group) from whom the Person asserting any such loss, liability, claim, damage or expense purchased any of the Securities which are the subject thereof if the Borrower shall sustain the burden of proving that any such loss, liability, claim, damage or expense resulted from the fact that such Person was not sent or given a copy of the final private placement memorandum or final prospectus at or prior to the written confirmation of the sale of such Security to such Person and the loss, liability, claim, damage or expense resulted from an untrue statement contained in or omission from such preliminary private placement memorandum or preliminary prospectus that was corrected in the final private placement memorandum or final prospectus. (c) In connection with filings under the Exchange Act, Borrower agrees to indemnify (i) Lender, the Lender Group and the Underwriter Group for Liabilities to which Lender, the Lender Group or the Underwriter Group may become subject insofar as the Liabilities arise out of or are based upon the omission or alleged omission to state in the Provided Information or Required Records a material fact required to be stated in the Provided Information or Required Records in order to make the statements in the Provided Information or -72- 78 Required Records, in light of the circumstances under which they were made not misleading and (ii) reimburse Lender, the Lender Group or the Underwriter Group for any legal or other expenses reasonably incurred by Lender, the Lender Group or the Underwriter Group in connection with defending or investigating the Liabilities provided, however, that Borrower will be liable in any such case under clauses (i) or (ii) above only to the extent that any such loss claim, damage, liability or expense arises out of any such untrue statement or omission made therein in reliance upon and in conformity with written information furnished to Lender by or on behalf of Borrower expressly for use in the Disclosure Document; and provided further, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Borrower by Lender, any member of the Lender Group or any member of the Underwriter Group expressly for use in the Disclosure Document. (d) Lender Entity agrees to indemnify and hold harmless Borrower, each of its directors and each person who controls Borrower within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (the "Borrower Group") against any and all losses, claims, damages or liabilities, joint or several, to which such group may become subject, under the Securities Act or otherwise, and will reimburse such group for any legal or other expenses reasonably incurred by such group in connection with investigating or defending any such loss, claim, damage, liability or action, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in a Disclosure Document or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission relates to information that does not accurately reflect Provided Information. (e) Promptly after receipt by an indemnified party under this Section 9.4 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9.4, notify the indemnifying party in writing of the commencement thereof, but the omission to so notify the indemnifying party will not relieve the indemnifying party from any liability which the indemnifying party may have to any indemnified party hereunder except to the extent that failure to notify causes prejudice to the indemnifying party. In the event that any action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled, jointly with any other indemnifying party, to participate therein and, to the extent that it (or they) may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party, provided that no compromise or settlement shall be entered without the consent of such indemnified party, which consent shall not be unreasonably withheld. After notice from the indemnifying party to such indemnified party under the immediately preceding sentence of this Section 9.4 and except as otherwise explicitly provided herein, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by such -73- 79 indemnified party in connection with the defense thereof; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there are any legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. The indemnifying party shall not be liable for the expenses of more than one separate counsel unless an indemnified party shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to another indemnified party. In no event shall an indemnifying party be liable to an indemnified party under this Section 9.4 for any losses, claims, damages or liabilities to which such indemnified party may become subject to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of such indemnified party. (f) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section 9.4 is for any reason held to be unenforceable by an indemnified party in respect of any losses, claims, damages or liabilities (or action in respect thereof) referred to therein which would otherwise be indemnifiable under Section 9.4, the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages or liabilities (or action in respect thereof); provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation; and provided further, that Borrower will be liable under this Section 9.4 only to the extent that any such loss, claim, damage or liability (or action in respect thereof) arises out of any untrue statement or omission made therein in reliance upon and in conformity with written information furnished to Lender by Borrower expressly for use in the Disclosure Document or any failure to state any material fact known to Borrower and required to be stated in such written information in order to make such written information in light of the circumstances under which they were made not misleading. In determining the amount of contribution to which the respective parties are entitled, the following factors shall be considered: (i) Lender Entity and Borrower's relative knowledge and access to information concerning the matter with respect to which claim was asserted; (ii) the opportunity to correct and prevent any statement or omission; and (iii) any other equitable considerations appropriate in the circumstances. Lender Entity and Borrower hereby agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation. (g) The liabilities and obligations of both Borrower and Lender under this Section 9.4 shall survive the termination of the Security Instrument and the satisfaction and discharge of the Indebtedness for such period of time under any applicable statute of limitations that (i) any third party may bring any claim against Lender or Borrower, or (ii) Lender or Borrower may bring may bring any claim against each other, whether based on indemnification for a third party claim or otherwise. -74- 80 Section 9.5 INFORMATION. The Borrower hereby gives permission to the Lender to release publicity articles concerning the existence, structure and the terms of the Loan and the Borrower and principals involved in the financing of the Premises. It is also expressly recognized and agreed that the Lender may share any information pertaining to the Loan Documents, the transactions contemplated thereby and the records maintained by the Lender in connection therewith with Bank of America Corporation or Bank of America, including its bank subsidiaries and Banc of America Securities LLC and any of the other Affiliates of the foregoing and any other Persons which require such information in connection with the sale of the Loan in the secondary mortgage market. Section 9.6 NONRECOURSE LOAN; EXCEPTIONS. The Note provides that the Loan is nonrecourse to the Borrower and each Borrower Principal, except for (a) the lien of the Security Instrument and the other Loan Documents and (b) the exceptions provided for in the Note. Section 9.7 AMENDMENTS. This Loan Agreement shall not be amended except by a written instrument signed by all parties hereto. Section 9.8 GOVERNING LAW AND JURISDICTION. This Loan Agreement and the other Loan Documents and all matters relating thereto shall be governed by and construed and interpreted in accordance with the laws of the State of North Carolina except that the Security Instruments shall be governed by and construed and interpreted in accordance with the laws of the state in which the applicable Individual Property is located. The Borrower and all of its general partners/members and each Borrower Principal hereby submit to the jurisdiction of the state and federal courts located in the State of North Carolina and agree that the Lender may, at its option, enforce its rights under the Loan Documents in such courts. Section 9.9 SAVINGS CLAUSE. Invalidation of any one or more of the provisions of this Loan Agreement shall in no way affect any of the other provisions hereof, which shall remain in full force and effect. Section 9.10 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument, and in making proof of this Loan Agreement, it shall not be necessary to produce or account for more than one such counterpart. -75- 81 Section 9.11 NOTICES. All notices and other communications shall have been duly given and shall be effective (a) when delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set forth in EXHIBIT C hereto, (c) the day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective party at the address set forth in EXHIBIT C hereto, or at such other address as such party may specify by written notice to the other party hereto. No notice of change of address shall be effective except upon actual receipt. This Section 9.10 shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any Person in any situation or for any reason. In addition to the foregoing, the Lender and Borrower may, from time to time, specify to the other party additional notice parties by providing to the other party written notice of the name, address, telephone number and telecopy number of any such additional notice party. Each such additional notice party shall be entitled to receive and/or give any notice required or permitted to be given under this Loan Agreement or any other Loan Document. Section 9.12 RIGHT OF SET-OFF. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of and during the continuance of any Event of Default, the Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set-off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held by or owing to the Lender (including, without limitation branches, agencies or Affiliates of the Lender wherever located) to or for the credit or the account of the Borrower against the obligations and liabilities of the Borrower to the Lender hereunder, under the Note or otherwise, irrespective of whether the Lender shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of the Lender subsequent thereto. The Lender agrees to notify the Borrower subsequent to any such set-off or application. Section 9.13 WRITTEN AGREEMENT. (a) THE RIGHTS AND OBLIGATIONS OF THE BORROWER, EACH BORROWER PRINCIPAL AND THE LENDER, AS APPROPRIATE, SHALL BE DETERMINED SOLELY FROM THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND ANY PRIOR OR CONTEMPORANEOUS ORAL OR WRITTEN AGREEMENTS BETWEEN THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL CONCERNING THE SUBJECT MATTER HEREOF AND OF THE OTHER LOAN DOCUMENTS ARE SUPERSEDED BY AND MERGED INTO THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS. -76- 82 (b) THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY NOT BE VARIED BY ANY ORAL AGREEMENTS OR DISCUSSIONS THAT OCCUR BEFORE, CONTEMPORANEOUSLY WITH, OR SUBSEQUENT TO THE EXECUTION OF THIS LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS. (c) THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 9.14 WAIVER OF JURY TRIAL. THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS LOAN AGREEMENT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL, AND THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL ACKNOWLEDGE THAT NO PERSON ACTING ON BEHALF OF ANOTHER PARTY TO THIS LOAN AGREEMENT HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LOAN AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. Section 9.15 CROSS DEFAULT, CROSS-COLLATERALIZATION, WAIVER OF MARSHALLING OF ASSETS. (a) Borrower acknowledges that Lender has made the Loan to Borrower upon the security of its collective interest in the Individual Properties and in reliance upon the aggregate of the Individual Properties taken together being of greater value as collateral security than the sum of the Individual Properties taken separately. Borrower agrees that the Security Instruments are and will be cross-collateralized and cross-defaulted with each other so that (i) an Event of Default under any of the Security Instrument shall constitute an Event of Default under each of the other Security Instrument which secure the Note; (ii) an Event of Default under the Note or this Loan Agreement shall constitute an Event of Default under each Security Instrument; and (iii) each Security Instrument shall constitute security for the Note as if a single blanket lien were placed on all of the Individual Properties as security for the Note. (b) In addition to the Loan, the Security Instrument shall also secure the following described additional loan (the "Additional Loan"), including without limitation, the indebtedness evidenced by such Promissory Notes (the "Additional Note") described below, and the payment and performance of all other indebtedness and obligations (including any additional advances) -77- 83 under the Additional Note and all agreements, instruments and other documents evidencing, securing or relating to the Additional Loan (each an "Additional Loan Document" and, collectively, the "Additional Loan Documents"), including without limitation, the loan agreement relating to the Additional Loan (the "Additional Loan Agreement", together with any and all amendments, renewals, replacements, extensions or other modifications to any of the foregoing: Loan in the principal amount of $25,484,000 evidenced by a Promissory Note executed by RFS SPE2 2000 LLC and payable to the Lender dated of even date herewith, in such principal amount, secured by the following properties: Holiday Inn, Flint, Michigan; Sheraton, Clayton, Missouri; Residence Inn, Atlanta, Georgia; and Holiday Inn Express, Downers Grove, Illinois. The holder of any such Additional Note shall be entitled to the benefits of the Security Instrument to the same extent as the holder of the Note. Accordingly, all references in the Security Instrument to the Loan, the Note, the Loan Agreement or the Loan Documents shall be construed to include, respectively, the Additional Loan, the Additional Note, the Additional Loan Agreement and the Additional Loan Documents. Notwithstanding anything to the contrary in the Loan Documents, the fact that the Security Instrument shall also secure the Additional Loan and the fact that the Borrower will enter into the Contribution Agreement shall not result in a default under any of the Loan Documents. (c) Any default or event of default under any Additional Loan Documents shall constitute an Event of Default under this Loan Agreement, the Security Instrument and the other Loan Documents, including without limitation, the Note. Any Event of Default hereunder or under any of the other Loan Documents shall constitute a default or event of default under the Additional Loan Documents, including without limitation, the Additional Note. (d) The Lender may, from time to time, at its election, release the Loan and/or the Additional Loan from the cross-collateralization and cross-default provisions set forth above. In the event the Loan is paid in full or the Loan is assumed in accordance with the provisions of this Agreement, the Lender may, in its sole and absolute discretion, at the request of the Borrower or any such assuming party, release the cross-collateralization and cross-default provisions set forth above, upon (i) Lender's approval, in its sole and absolute discretion, of the new Special Purpose Entity borrower, (ii) the affirmation of the Rating Agencies that such release will not result in a downgrade, qualification, or withdrawal in the ratings for any Securities, (iii) Borrower's providing of additional collateral in the form of Permitted Investments in an amount equal to twenty-five percent (25%) of the Allocated Loan Amount being released, (iv) the Debt Service Coverage Ratio Leases and Debt Service Coverage Ratio Premises on the remaining Individual Properties remaining equal to the greater of (A) such ratios at the Closing Date or (B) such ratios immediately prior to such release, and (iv) payment to the Lender of an amount equal to twenty-five percent (25%) of the outstanding principal balance of the -78- 84 Loan immediately preceding such payment of the Loan in full or on the date of such assumption (to be applied on a pro-rata basis against the Additional Loan in such manner as the Lender may elect in its sole and absolute discretion) and satisfaction of all other requirements of the Lender for such release. Any release of such cross-collateralization and cross-default provisions may be made by instruments executed solely by the Lender, without any need for joinder by the Borrower or any other Person. Upon the execution of any such release by the Lender, all other Loan Documents and Additional Loan Documents shall be deemed amended thereby so as to conform to such release. In no event shall any such release of the cross-collateralization and cross-default provisions be deemed or construed so as to release, satisfy or otherwise amend the Note, the Security Instrument or any of the other Loan Documents. (e) To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower's partners and others with interests in Borrower, and of the Individual Properties, or to a sale in inverse order of alienation in the event of foreclosure of all or any of the Security Instrument, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Individual Properties for the collection of the Loan without any prior or different resort for collection or of the right of Lender to the payment of the Loan out of the net proceeds of the Individual Properties in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Security Instrument, any equitable right otherwise available to Borrower which would require the separate sale of the Individual Properties or require Lender to exhaust its remedies against any Individual Property or any combination of the Individual Properties before proceeding against any other Individual Property or combination of Individual Properties; and further in the event of such foreclosure Borrower does hereby expressly consents to and authorizes, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Individual Properties. Section 9.16 SERVICER. At the option of Lender, the Loan may be serviced by a servicer (the "Servicer") selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "Servicing Agreement") between Lender and Servicer. Until Lender may elect otherwise, the Servicer shall be Bank of America. -79- 85 ARTICLE X SPECIAL PROVISIONS Section 10.1 TERMINATION OF MANAGER. (a) To the extent Borrower enters into any Management Agreement, such Management Agreement shall include provisions that if any of the following conditions occur during the term of the Loan: (a) at any time, the Debt Service Coverage Ratio Premises for the immediately preceding twelve (12) month period is less than 1.3x or (b) the amounts evidenced by the Note have been accelerated; or (c) the Manager shall become insolvent, the Borrower shall, at the request of Lender, terminate the Management Agreement and replace the Manager with a manager approved by Lender on terms and conditions satisfactory to Lender, it being understood and agreed that the management fee for such replacement manager shall not exceed then prevailing market rates. Notwithstanding the foregoing, if the reason for termination of the Manager is subsection (a) above, the Borrower may elect from time to time to provide additional collateral for a portion of the Loan such that, if the outstanding principal balance of the Loan were equal to such principal balance less the lower of (as determined by Lender) the face amount or fair market value of the additional collateral, the Debt Service Coverage Ratio Premises (after adjusting the Debt Service accordingly to reflect same) would equal or exceed 1.3x, in which case no termination would be effective. Any such additional collateral would not be released until Borrower has demonstrated a Debt Service Coverage Ratio Premises in excess of 1.3x without taking into account the additional collateral. All additional collateral must be U.S. Obligations and must be accompanied by such additional security agreements, financing statements and other documents or instruments, including opinions of Borrower's counsel, which in the reasonable opinion of Lender and its counsel would be necessary or advisable to create in Lender a first perfected security interest in the additional collateral. In addition and as a condition to the posting of such additional collateral, Lender shall have received written affirmation from the Rating Agencies that the credit ratings of the Securities immediately prior to such posting will not be qualified, downgraded or withdrawn as a result of such posting, which affirmation may be granted or withheld in the Rating Agencies' sole and absolute discretion. (b) If at any time during the term of the Loan, any Manager under any Management Agreement is an Affiliate of Borrower, Borrower shall have delivered a Non-Consolidation opinion, as acceptable to Lender in its sole discretion with respect to Manager and its equity owners. -80- 86 Section 10.2 SUBSTITUTION OF OPERATING LESSEE. Notwithstanding anything to the contrary contained herein, Lender may consent to the termination of the Operating Lease and substitution of a new operating lease or if applicable a management agreement entered into pursuant to the formation of the taxable REIT subsidiary (the "New Operating Lease") in its sole discretion. Such consent shall not be required, provided that Lender has received payment in full of any and all actual expenses incurred in connection therewith and the following conditions have been satisfied as of the consummation of the transaction: (i) the operating lessee under the New Operating Lease (x) is a Qualified Operating Lessee; or (y) is a public company whose shares were initially distributed to the shareholders and unitholders of the REIT and Operating Partnership at the time the new Operating lease is executed; (ii) the terms of the New Operating Lease, including without limitation, economic provisions, are substantially similar or more preferential to Lender than the Operating Lease; (iii) the New Operating Lease contains a provision that if, at any time, the Debt Service Coverage Ratio Leases for the immediately preceding twelve (12) month period is less than 1.30x, the Borrower shall, at the request of Lender, terminate the New Operating Lease and replace the Operating Lessee or if applicable the New Manager with a new operating lessee or a new manager approved by Lender, on terms and conditions satisfactory to Lender; (iv) Lender has received no less than forty-five (45) days' prior written notice of such transfer; (v) if Qualified Operating Lessee is an Affiliate of Borrower: (x) Qualified Operating Lessee has fully subordinated all of its rights under the New Operating Lease to the Lien of the Security Instrument including but not limited to all provisions regarding insurance, condemnation and any purchase option exercisable by Qualified Operating Lessee; and (y) Borrower shall have delivered a Non-Consolidation Opinion, as acceptable to Lender in its sole discretion with respect to Qualified Operating Lessee and its equity owners; (vi) Lender shall have confirmations from any franchisors under any Franchise Agreements that such Franchise Agreements shall remain in full force and effect after the consummation of such New Operating Lease; and (vii) Lender shall have confirmations in writing from any applicable Rating Agencies to the effect that such new Operating Lease will not result in a re-qualification, reduction or withdrawal of any rating then assigned to any securities in a securitization. [Signature Page Follows] -81- 87 IN WITNESS WHEREOF, the Borrower, each Borrower Principal and the Lender have executed this Loan Agreement under Seal as of the above-written date. BORROWER: RFS SPE 2000 LLC, a Virginia limited liability company By: RFS MM 2000 CORPORATION, a Virginia corporation, its managing member By: (SEAL) ------------------------ Name: Kevin Luebbers Title: Secretary BORROWER PRINCIPALS: RFS HOTEL INVESTORS, INC., a Tennessee corporation By: (SEAL) ------------------------ Name: Kevin Luebbers Title: Executive Vice President LENDER: BANK OF AMERICA, N.A., a national banking association By: (SEAL) ------------------------ Name: ------------------------ Title: ------------------------ -82- 88 SCHEDULE 1 Allocated Loan Amount Residence Inn, Torrance, California $14,192,000.00 Hampton Inn, Jacksonville, Florida $ 4,087,000.0 Residence Inn, Jacksonville, Florida $ 5,403,000.00 Hampton Inn, Houston, Texas $ 3,792,500.00 -83- 89 SCHEDULE 2 Franchise Agreements Residence Inn, Torrance California - By and Between Marriott International, Inc. as Franchisor and RFS, Inc. as Franchisee, dated July 15, 1996. Hampton Inn, Jacksonville, Florida - By and Between Promus Hotel, Inc. as Licensor and American Premier Lodging, Ltd., as Licensee, dated February 28, 1998. Residence Inn, Jacksonville, Florida -By and Between Marriott International, Inc. as Franchisor and Landcome Hospitality Management, Inc. as Franchisee, dated October 11, 1996. Hampton Inn, Houston, Texas - By and Between Promus Hotel, Inc. as Licensor and RFS, Inc., as Licensee, dated February 13, 1996 -84- 90 SCHEDULE 3 Operating Leases 1. Residence Inn, Torrance, California and Hampton Inn, Houston, Texas - By and between RFS, Inc. and RFS Partnership, L.P. as amended and consolidated on November 21, 1996. 2. Residence Inn, Jacksonville, Florida - By and between Landcom Hospitality Management, Inc. and RFS Partnership, L.P. as dated October 14, 1996. 3. Hampton Inn, Jacksonville, Florida - By and between American Premier Lodging, Ltd., and RFS Partnership, L.P. as dated March 1, 1998. -85- 91 EXHIBIT A EQUITY INTERESTS BORROWER: RFS MM 2000 Corporation 1% RFS Partnership, L.P. 99% EACH BORROWER PRINCIPAL WHICH IS NOT AN INDIVIDUAL: N/A -86- 92 EXHIBIT B IMMEDIATE REPAIRS, REPLACEMENTS, INITIAL RESERVE DEPOSITS AND MONTHLY RESERVE DEPOSITS IMMEDIATE REPAIRS DETAIL IMMEDIATE REPAIRS ESCROW Torrance, CA Pavement: paving, sealing, stripping $10,000.00 Exterior paint: stucco, wood repair $ 2,900.00 Swimming pool $ 1,850.00 ROOMS: BATH FIXTURES, COUNTERS $ 5,200.00 ------------------------------- ---------- TOTAL: $19,950.00 REPLACEMENTS ESTIMATED COST All items required to be capitalized under GAAP, including, but not limited to, all furniture, furnishings, fixtures, hotel equipment, hotel systems, wall coverings, floor coverings and soft goods of Borrower. INITIAL RESERVE DEPOSITS Initial Reserve Deposit to the Repair Escrow Account (125% of the aggregate estimated cost of Immediate Repairs, as calculated above): $24,937.50 Initial Reserve Deposit to the Replacement Reserve Account: $0.00 Initial Reserve Deposit to the Tax and Insurance Reserve Account: $482,162.95 Initial Reserve Deposit to the Debt Service Reserve Account: $0.00 Initial Deposit to the COR Account: $0.00 MONTHLY RESERVE DEPOSITS In the first year of the Loan, Monthly Reserve Deposits to the Replacement Reserve Account shall be in an amount equal to $61,534.62. Beginning at the end of the first year of the Loan Term, Borrower shall -87- 93 make monthly deposits in an amount equal to the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $63,073.00 per month, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $64,649.83 per month beginning at the end of the second year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $66,266.08 per month beginning at the end of the third year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $67,922.75 per month beginning at the end of the fourth year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $69,620.75 per month beginning at the end of the fifth year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $71,361.33 per month beginning at the end of the sixth year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $73,145.33 per month beginning at the end of the seventh year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $74,974.00 per month beginning at the end of the eighth year of the Loan Term, and the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $76,848.33 per month beginning at the end of the ninth year of the Loan Term (the "Monthly Deposit to the Replacement Reserve Account"). The Lender may, in its reasonable discretion, adjust such monthly amount from time to time to an amount sufficient, in the Lender's reasonable judgment, to maintain adequate balances necessary for repair and/or replacement costs as they may arise. Notwithstanding the foregoing, in the event the Lender shall at any time increase the Monthly Deposit to the Replacement Reserve Account over the monthly amount then required, the Borrower may, at its election, request that the Lender obtain, at the sole cost, fee and expense of the Borrower, an engineer's report from an engineer to be selected by the Lender in its reasonable discretion, in which case the Monthly Deposit to the Replacement Reserve Account shall be adjusted by the Lender based on such engineer's report, provided that in no event shall the Monthly Deposit to the Replacement Reserve Account be decreased below the amount then required. Monthly Reserve Deposits to the Tax and Insurance Reserve Account shall be in an amount equal to (a) the sum of (i) the aggregate anticipated annual premiums for all insurance policies required to be maintained pursuant to this Loan Agreement due in the coming year, (ii) the sum of the anticipated annual real property taxes, personal property taxes, intangibles taxes and assessment for the Premises due in the coming year, (iii) the sum of anticipated annual water and sewer assessments and frontage charges for the Premises due in the coming year, and (iv) the sum of all other anticipated assessments and charges against the Premises due in the coming year, DIVIDED BY (b) twelve (12). -88- 94 EXHIBIT C ADDRESSES FOR NOTICE if to the Borrower: RFS SPE 2000 LLC c/o RFS Hotel Investors Inc. 850 Ridge Lake Blvd, Suite 220 Memphis, Tennessee 38120 Attn: Kevin Luebbers Telephone: (901) 767-7005 Telecopy: (901) 819-5260 with a copy to: Hunton & Williams 1900 K Street, N.W., Suite 1200 Washington, DC 20006 Attn: Thomas F. Kaufman, Esq. Telephone: (202) 955-1604 Telecopy: (202) 778-2201 if to the Lender: Bank of America, N.A. c/o Capital Markets Servicing Group 333 South Beaudry, 26th Floor CA9-703-26-10 Los Angeles, CA 90017 Telephone: (800) 462-0505 Telecopy: (213) 345-6587 with a copy to: Cadwalader, Wickersham & Taft 227 West Trade Street, Suite 2400 Charlotte, North Carolina 28202 Attn: James P. Carroll, Esq. Telephone: (704) 348-5100 Telecopy: (704) 348-5200 -89- 95 EXHIBIT D PROGRAM RIDER (Hotel) 1. DEFINITIONS. The capitalized terms used in this Program Rider and not defined below shall have the meanings set forth in the Loan Agreement. OPERATING EXPENSE. Shall mean any operating expense relating to the Premises, whether it be an Operating Expense Premises or an Operating Expense Leases. OPERATING INCOME. Shall mean any operating income relating to the Premises, whether it be from Operating Income Premises or Operating Income Leases. 2. CONDITIONS PRECEDENT. The obligation of the Lender to make the Loan provided for in this Loan Agreement is subject to the satisfaction, by proper evidence, execution and/or delivery to the Lender of each of the following items, each in form and substance satisfactory to the Lender and the Lender's counsel: (a) LEASES. Copies (including a Certification) of all leases, assignments of lease, subleases and any lease amendments and other agreements (hereinafter "Leases") affecting any part of the Premises. The leases shall be subordinate to the Security Instrument. (b) TENANT ESTOPPEL CERTIFICATES. Current Tenant Estoppel Certificates from all tenants and other users (hereinafter "Tenants") of any portion of the Premises. (c) SUBORDINATION AGREEMENTS. Subordination Agreements with any Lessee. (d) NONDISTURBANCE AGREEMENT. Nondisturbance Agreement with Operating Lessee. (e) FRANCHISE AGREEMENT. A copy of the Franchise Agreement. (f) COMFORT LETTER FROM FRANCHISOR. A comfort letter or other agreement from the franchisor under the Franchise Agreement, which letter shall, at the election of the Lender, (i) be addressed to the Lender, (ii) verify that the Franchise Agreement is in full force and effect, (iii) verify that there are no defaults, breaches or violations under the Franchise Agreement and that no conditions exist which with the passage of time or the giving of notice or both could constitute a default, breach or violation thereunder, (iv) provide that notice of any default, breach or violation under the Franchise Agreement and right to cure same be given to the Lender, (v) provide that the Lender shall have the right to assign the letter or other agreement, (vi) permit the Lender to preserve the Franchise Agreement and operate the franchise in accordance with the terms thereof in the -90- 96 event the Borrower suffers a Bankruptcy Event or in the event the Lender or any Affiliate of the Lender acquires the Premises at any foreclosure sale or by deed in lieu of foreclosure, which right to preserve and operate shall continue until dismissal of such Bankruptcy Event or any subsequent sale of the Premises to a party which is not the Lender or any Affiliate of the Lender, as applicable, and (vii) consent to the Loan and the assignment of and grant of a security interest in the Franchise Agreement in favor of the Lender as security for the Loan and the obligations evidenced and secured by the Loan Documents. (g) FRANCHISE INSPECTION REPORTS. Copies of such franchise inspection reports relating to the Premises as the Lender may request. (h) LICENSES. Copies (including a Certification) of all material licenses, permits, certificates and/or privileges necessary or desirable for the ownership or operation of the Premises as currently constructed and operated. 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. To induce the Lender to enter into this Loan Agreement and to make the Loan, the Borrower hereby represents and warrants to the Lender on the Closing Date as follows: (a) FRANCHISE AGREEMENT. The Franchise Agreement is in full force and effect and has not been terminated, rescinded, withdrawn or cancelled, or (except as disclosed in writing by the Borrower prior to the Closing Date) altered, amended or modified. To the best of Borrower's knowledge, there is no default under or breach or violation of the terms of the Franchise Agreement by any party thereto. (b) THE PREMISES. All guest rooms, facilities and amenities relating to the operation of the hotel as presently constructed and operated are located on the Premises. (c) LICENSES. To the best of Borrower's knowledge, all licenses, permits, certificates and/or privileges necessary or desirable for the ownership or operation of the Premises as presently constructed and operated have been obtained and are in good standing. (d) OPERATING LEASE. The Operating Lease is in full force and effect and has not been terminated, rescinded, withdrawn or canceled, or (except as disclosed in writing by the Borrower prior to the Closing Date) altered, amended or modified. There is no default under or between or violation of the terms of the Operating Lease by any party thereto. 4. AFFIRMATIVE COVENANTS OF THE BORROWER. During any period in which the Loan is outstanding, the Borrower agrees that it will: (a) FRANCHISE INSPECTION REPORTS. Furnish the Lender with a copy of each franchise inspection report relating to the Premises within fifteen (15) days after the Borrower's receipt thereof. -91- 97 (b) LESSEE INFORMATION. Submit to the Lender when requested by the Lender, all information on all tenant leases otherwise required to be included in a Rent Roll, which information shall include a Certification thereof. (c) RENT ROLLS. Furnish, or cause to be furnished, Rent Rolls to the Lender when requested by the Lender. (d) TENANT ESTOPPEL CERTIFICATES. Furnish to the Lender when requested by the Lender, Tenant Estoppel Certificates from such tenants of any portion of the Premises as the Lender may require. (e) SUBORDINATION AGREEMENTS. Furnish to the Lender when requested by the Lender, Subordination Agreements with such tenants of any portion of the Premises as the Lender may require. (f) LICENSES. Maintain in full force and effect all material licenses, permits, certificates and/or privileges necessary or desirable for the ownership or operation of the Premises as currently or hereafter constructed and operated. 5. NEGATIVE COVENANTS OF THE BORROWER. During any period in which the Loan is outstanding, the Borrower agrees that it will not: (a) FRANCHISE AGREEMENT AND OTHER AGREEMENTS, LICENSES AND PERMITS. Consent to any default under or a breach, withdrawal, cancellation, revocation, rescission, termination, alteration, amendment, extension or modification of the Franchise Agreement, or any lease, including without limitation property specific leases, rental agreement, sales contract, management contract, construction contract, technical service agreement or other contract or agreement, or any license, permit, certificate or privilege affecting the ownership or operation of the Premises. (b) LEASES. The Borrower shall not enter into, default under, breach, withdraw, cancel, rescind, terminate, alter or modify any lease of, or other agreement regarding, any portion of the Premises without the Lender's prior written approval, unless such lease or other agreement (i) is on a form previously approved by the Lender, (ii) provides for terms in conformity with local conditions, (iii) together with the tenant's proposed use of the space leased, conforms with applicable laws and all recorded restrictive covenants affecting the Premises, if any, and with the covenants and agreements set forth in the Loan Documents, including but not limited to those relating to Hazardous Materials and specifically references such covenants relating to Hazardous Materials, and (iv) does not provide for any purchase option, right of first offer or refusal or similar right relating to all or any portion of the Premises. 6. ADJUSTMENTS TO MONTHLY RESERVE DEPOSIT TO THE REPLACEMENT RESERVE ACCOUNT. The Monthly Reserve Deposit to the Replacement Reserve Account shall be adjusted pursuant to the provisions of EXHIBIT B hereof. -92- 98 7. DEBT SERVICE RESERVE. Borrower shall establish on the date hereof a debt service reserve account (the "Debt Service Reserve Account") which shall be under the sole dominion and control of Lender. On a quarterly basis, based on trailing twelve (12) months certified operating statements, Lender will determine the aggregate Debt Service Coverage Ratio Premises for the Premises (the "Aggregate DSCR"). In the event the Aggregate DCSR is below 1.70x, funds sufficient to pay three (3) months debt service for the Loan shall be deposited directly into the Debt Service Reserve Account. The Debt Service Reserve shall be interest bearing for the benefit of the Borrower and will remain in place for the remainder of the Loan. If at any time after the Debt Service Reserve Account is established, the balance of such account is less than an amount sufficient to pay three (3) months debt service, Borrower shall, within ten (10) days, replenish the Debt Service Reserve Account with additional funds necessary to maintain such amount. 8. EVENT OF DEFAULT. In addition to any Events of Default set forth in the Loan Agreement or any of the other Loan Documents, any default under, breach of or failure by the Borrower to perform its obligations under the Franchise Agreement or any withdrawal, cancellation, revocation, rescission, termination, alteration, amendment or modification of the Franchise Agreement (except as set forth on SCHEDULE 4 hereto or to the extent consented to in writing by the Lender) shall be an Event of Default under the Loan Agreement and the other Loan Documents. -93- 99 EXHIBIT E Form of Nondisturbance, Subordination and Attornment Agreement for Operating Leases This instrument was prepared by and after recording return to: Cadwalader, Wickersham & Taft 227 West Trade Street, Suite 2400 Charlotte, North Carolina 28202 Attention: James P. Carroll, Esq. NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT AGREEMENT THIS AGREEMENT, made as of this ____ day of ______________, 2000 between ___________________________, and _________________________, each a ________________________, (collectively, the "Borrower"), RFS, Inc., a Tennessee corporation (the "Lessee") and BANK OF AMERICA, N.A., a national banking association (the "Lender"). RECITALS 1. The Lender has extended [two loans] to the Borrower in the aggregate amount of up to $___________________ (collectively, the "Loan") pursuant to certain loan agreements dated the date hereof between the Borrower and the Lender (collectively, the "Loan Agreement") and evidenced by promissory notes executed by the Borrower and payable to the Lender (such notes, together with any extensions, renewals, and amendments thereto, and hereinafter referred to as the "Note") and secured by deeds of trust, and mortgages, (individually, a "Security Instrument" collectively, the "Security Instruments") on certain parcels of land and improvements thereon (individually, a "Property", collectively, the "Properties") owned by Borrower as set forth in SCHEDULE 1 attached hereto and incorporated herein by reference. The Note, the Loan Agreement, the Security Instruments and any and all other loan documents now or hereafter either securing or evidencing the Loan evidenced by the Loan Agreement and the Note and all modifications, extensions, consolidations, replacements and renewals of such loan documents are referred to collectively as the "Loan Documents." 2. The Lessee is the tenant under the lease agreements for the Properties between [RFS Partnership, L.P., a Tennessee limited partnership, ("RFS, L.P.")], and the Lessee, being more particularly described in SCHEDULE 2 attached hereto and incorporated herein by reference (hereinafter, together with any amendments or modifications consented to by the Lender, are referred to as the "Leases"). The Leases have been amended by an Amendment to Third Consolidated Lease Amendment and Lease Agreements dated as of the date hereof (the "Amendment"), whereby RFS, L.P. and Lessee have set forth their agreements regarding certain matters that have been addressed in this Agreement. The interests of RFS, L.P. under the Leases, as amended, have been assigned to Borrower pursuant to two Assignment of Leases Agreements, each dated as of the date hereof (collectively the "Assignment of Leases") and the Properties subject to the Leases have been conveyed to Borrower. -94- 100 3. In connection with the credit being extended pursuant to the terms of the Loan Agreement, the Lender has requested the Lessee and the Borrower to execute this Agreement, and in order to induce the Lender to make the Loan, the Lessee and the Borrower have agreed to the terms set out herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: FIRST: Each Lease shall be subject and subordinate to the Security Instruments and to all renewals, modifications or extensions thereof. SECOND: With respect to each Lease, so long as Lessee is not in default (beyond any period in such Lease given Lessee to cure such default) in the payment of rent (specifically including but not limited to percentage rent and base rent of every kind and character) or additional rent or in the performance of any of the terms, covenants or conditions of the Lease on Lessee's part to be performed, and except as expressly set forth herein, Lessee's possession of the premises described in the Lease and Lessee's rights and privileges under the Lease, or any extensions or renewals thereof which may be effected in accordance with any option therefor in the Lease, shall not be disturbed, diminished or interfered with by any suit, action or proceeding upon any Security Instrument or the obligations secured thereby, or the foreclosure of the Security Instruments or the enforcement of any rights thereunder or under any other Loan Document or otherwise by Lender. THIRD: If the interests of Borrower shall be transferred to and owned by Lender by reason of foreclosure, deed in lieu of foreclosure, or other proceedings brought by it or by any other manner, and Lender succeeds to the interest of the Borrower under any Lease, Lessee shall be bound to Lender under all of the terms, covenants and conditions of such Lease for the balance of the term thereof remaining and any extensions or renewals thereof which may be effected in accordance with any option thereof in such Lease, with the same force and effect as if Lender were the lessor under the Lease, and Lessee does hereby attorn to Lender as its lessor, said attornment to be effective and self-operative without the execution of any further instruments on the part of either of the parties hereto immediately upon Lender succeeding to the interest of the lessor under such Lease. The respective rights and obligations of Lessee and Lender upon said attornment, to the extent of the then remaining balance of the term of such Lease and any such extensions and renewals, shall be and are the same as now set forth therein, subject to the terms and provisions of this Agreement; it being the intention of the parties hereto for this purpose to incorporate the Leases in this Agreement by reference with the same force and effect as if set forth at length herein, subject to the terms and provisions of this Agreement. FOURTH: Lessee certifies that: (a) each Lease is presently in full force and effect; (b) no rent under any Lease has been paid more than thirty (30) days in advance of its due date, other than any overpayments of percentage rent that may be adjusted as provided in such Lease; (c) Lessee has not filed -95- 101 any claim of offset and, to the best knowledge of Lessee, Lessee, as of this date, has no charge, lien or claim of offset under any Lease, or otherwise, against the rents or other amounts due or to become due thereunder; (d) the Lessee is owner of the "Tenant's" or "Lessee's" interest in the Lease and has not transferred or assigned any Lease or sublet the premises demised thereby; and (e) to the best knowledge of the Lessee, neither the Lessee nor the Lessor is in any way in default under any Lease and Lessee, to the best of its knowledge, knows of no event which but for the passage of time or the giving of notice or both would constitute an event of default or breach by Lessee or Borrower under any Lease. Lessee shall up to twice a calendar year (and at such additional times as Lender shall reasonably request), within ten (10) days after request by Lender, execute, acknowledge and deliver a statement by Lessee certifying the items listed in subsections (a)-(e) above with such exceptions as shall be necessary to cause such statement to be factually correct. FIFTH: If Lender shall succeed to the interest of Borrower under any Lease, Lender shall be bound to Lessee under all terms, covenants and conditions of such Lease, and Lessee shall, from and after Lender's succession to the interest of Borrower under such Lease, have the same remedies against Lender for the breach of an agreement contained in the Lease that Lessee might have had under such Lease against Borrower if Lender had not succeeded to the interest of Borrower; provided further, however, that Lender shall not be: (a) liable for any act or omission of any prior landlord (including the Borrower) except that Lender shall be liable for such act or omission only from and after the date on which Lender so succeeds to the interest of Borrower under such Lease if such act or omission constitutes a default of Borrower under such Lease and continues to exist after such date; or (b) subject to any offsets or defenses which the Lessee might have against any prior landlord (including the Borrower) except for offsets expressly provided for in such Lease arising from Lessor defaults under such Lease with respect to which Lessee has notified Lender pursuant to clause SEVENTH hereof (such notice to set forth a quantification of the potential offset amount to the extent possible); or (c) liable for the return of any security deposits not delivered to Lender; or (d) bound by any rent or additional rent which Lessee might have paid for more than thirty (30) days in advance of its due date to any prior landlord (including Borrower), other than any overpayments of percentage rent that may be adjusted as provided in the Lease; or (e) bound by any amendment or modification of the Lease including, but not limited to, any reduction in rent, made without Lender's consent; or (f) obligated to construct or finish the construction or to renovate or finish the renovation of the premises described in any Lease, except as required under such Lease. SIXTH: Each Lease now is, and shall at all times continue to be, subject and subordinate in each and every respect, to the Security Instruments and to any and all renewals, modifications and extensions thereof, but any and all such renewals, modifications and extensions shall nevertheless be subject -96- 102 to and entitled to the benefits of the terms of this Agreement. Lessee acknowledges and agrees that in the event of any conflict between the provisions of any Lease and the provisions of this Agreement, this Agreement shall control. SEVENTH: Lessee will notify Lender or its successors or assigns, by reputable overnight courier delivery, of any default of Borrower which would entitle Lessee to cancel any Lease or abate the rent payable thereunder, and agrees that notwithstanding any provision of such Lease, no notice of cancellation thereof, nor any abatement shall be effective unless Lender has received the notice aforesaid and has failed within thirty (30) days of the date thereof to cure such default or, if the default cannot be cured within thirty (30) days, has failed to commence and to diligently prosecute the cure of Borrower's default which gave rise to such right of cancellation or abatement. The address of the Lender for notice is Bank of America, N.A., CMLS #1777, P.O. Box 3609, Los Angeles, California 90051, Attn: Servicing Manager. Lender will notify Lessee or its successors or assigns in writing of any default of Borrower under the Loan Documents that would entitle Lender to enforce its rights or remedies thereunder, and agrees that it will not enforce its rights or remedies thereunder unless Lessee has received a written notice for a time period equivalent to the time period afforded to Borrower under the Loan Documents and Lessee has failed to cure such default within such time-period. The address of the Lessee for notice is RFS, Inc., c/o Promus Hotel Corporation, 755 Crossover Lane, Memphis, Tennessee 38117-4900, Attn: Peter Kesser. EIGHTH: No Lease may be assigned or sublet by the Lessee without the Lender's prior written consent, except as the Lessee may be permitted to do so without the consent of the Borrower under the terms of such Lease. A franchisor of any hotel owned by the Borrower on the premises demised under any Lease may not be replaced by the Lessee without the Lender's prior written consent. Lessee hereby consents and agrees to the lien of the Security Instruments and the other Loan Documents for each of the Properties, including any subsequent transfers or assignments thereof made by the Lender and the financing of a direct purchaser from Lender, provided that such financing is substantially similar to the Loan in all material respects including, but not limited to, its financial terms, loan to value ratio and its effect on Lessee. NINTH: Lessee acknowledges that all of the interest of Borrower in and to the Leases has been assigned to Lender pursuant to the Security Instruments and that pursuant to the terms of that certain Cash Management Agreement of even date herewith between Lender and Borrower (the "Cash Management Agreement"), all rent and other payments due under the Lease shall be deposited in an account (the "Account") established in accordance with the provisions contained in the Cash Management Agreement. Lessee hereby agrees, without further notice, to so pay all such rent and other payments under the Lease directly to the Account as and when same are due and payable under the Lease. Lessee further acknowledges and agrees that this Agreement shall serve as notice required pursuant to Section 3.1 of the Lease. Borrower hereby authorizes Lessee to pay all rent and other payments to Lender and acknowledges that all rent and other payments so paid to Lender shall be deemed paid under the Lease. TENTH: This Agreement may not be modified except by an agreement in writing signed by the parties hereto. -97- 103 ELEVENTH: Lessee hereby agrees not to exercise its rights under Section 34.3 of any Lease with respect to any Property against Borrower, Lender or any direct successor of Lender prior to the earlier of (i) the payment in full, prepayment or defeasance of the Loan as to the Property, or (ii) transfer of the Property to Lender or a third-party through foreclosure, deed-in-lieu of foreclosure or otherwise. TWELFTH: In no event shall Lender or any direct successor or assignee of Lender (collectively, the "Subsequent Landlord") have any personal liability for the obligations of Borrower under any Lease and should the Subsequent Landlord succeed to the interests of the Borrower under such Lease, Lessee shall look only to the estate and property of any such Subsequent Landlord in the related Property for the satisfaction of Lessee's remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by any Subsequent Landlord as landlord under the Lease, and no other property or assets of any Subsequent Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Lessee's remedies under or with respect to the Lease; provided, however, that the Lessee may exercise any other right or remedy provided thereby or by law in the event of any failure by Subsequent Landlord to perform any such obligation. THIRTEENTH: [Sections 15.3, 15.4 and 15.5 of each of the Leases shall be amended so that any Award with respect to the Property shall be subject and subordinate to the Lender's prior claim to one hundred twenty-five percent (125%) of the amount set forth on SCHEDULE 3 for such Property, as reduced by any amortization, prepayment or defeasance amount on the Loan applicable to such Property. Lessee acknowledges that Lessee has no claim to any insurance proceeds payable to Lender or Lessor with respect to any Property in the event of any loss or damage to the Property, or any portion thereof, insured under the policies of insurance required by Article XIII of the Leases.] FOURTEENTH: As to each Lease, the law of the state in which the applicable Property subject to such Lease is located shall govern the interpretation of this Agreement. FIFTEENTH Borrower represents and warrants that the Assignment of Leases was duly executed by Borrower and all consents, resolutions or other approvals required for Borrower to execute the Assignment of Leases were obtained. Lessee represents and warrants that the Leases were duly executed by Lessee and all consents, resolutions or other approvals required for Lessee to execute the Leases were obtained. SIXTEENTH: Lessee represents and warrants that it has made no assignment of Lessee's rights or interest pursuant to any portion of the Lease including without limitation Section 4(b) of the Master Agreement dated as of _______________________. SEVENTEENTH: Lender hereby consents to the amendment of the Lease terms as set forth in the Amendment. Lessee hereby consents to the assignment of the interest of RFS, L.P. under the Lease to Borrower pursuant to the Assignment of Leases. -98- 104 EIGHTEENTH: This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute and be construed as one and the same instrument. NINETEENTH: All remedies which Lender may have against Borrower provided herein, if any, are cumulative and shall be in addition to any and all other rights and remedies provided by law and by other agreements between Lender and Borrower or others. If any party consists of multiple individuals or entities, each of same shall be jointly and severally liable for the obligations of such party hereunder. TWENTIETH: This Agreement is binding upon, and inures to the benefit of the parties hereto and any successors and assigns to the parties hereto. There are no other agreements, either written or oral, with respect to the matters described herein. TWENTY-FIRST: This Agreement shall apply to all properties substituted for any Property under the terms of the Loan Documents, and such substituted properties shall be thereafter known as a Property. Any Property, and the Lease therefor, for which there has been a substitution under the terms of the Loan Documents shall thereafter be released from the terms of this Agreement. TWENTY-SECOND: The terms of this Agreement shall expire and be of no further effect, except to the extent of any then existing unsatisfied obligations arising under this Agreement as to a Lease for a property upon the earlier of: (i) a release by Lender of the property as security for the Loan, or (ii) a foreclosure or conveyance by deed-in-lieu of foreclosure of such property. [SIGNATURE PAGE FOLLOWS] -99- 105 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under Seal in manner and form sufficient to bind them, as of the day and year first above written. BORROWER: __________________, a __________________ By: ______________ CORPORATION, a _____________ corporation, its _________________ By: _____________________ (SEAL) Kevin Luebbers Secretary ______________________, a ______________ By: ___________________ CORPORATION, a _________ corporation, its ______________________ By: _____________________ (SEAL) Kevin Luebbers Secretary LESSEE: RFS, Inc., a Tennessee corporation By: ____________________________ (SEAL) Peter Kesser Vice President LENDER: BANK OF AMERICA, N.A. By: ____________________________ (SEAL) Name: ______________________ Title: _______________________ -100- 106 Schedule I -101- 107 Schedule II -102- 108 EXHIBIT F Form of Tenant Estoppel Certificate TO: BANK OF AMERICA, N.A. Bank of America Corporate Center, 11th Floor Charlotte, North Carolina 28255 Attention: Conduit Program Manager RE: ____________________________ The undersigned, as tenant under that certain lease (the "Lease") dated ____________________, 20___, made with __________________________, (the "Landlord"), covering approximately _____ square feet of space at Landlord's property generally described as _____________________________________ in _____________ County, _______________________, hereby certifies as follows: (1) That the tenant has entered into occupancy of the premises described in the Lease. (2) That the Lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way, except as follows: ______________________________________________________________________________ ______________________________________________________________________________ (3) That the Lease, as amended as indicated in paragraph 2 hereof, represents the entire agreement between the parties as to said leasing. (4) That the commencement date of the term of the Lease is _________________. (5) That the expiration date of the term of the Lease is _______________________. The tenant has no rights to renew or extend the term of the Lease except as follows: ______________________________________________________________________________ ______________________________________________________________________________ (6) That all conditions of the Lease to be performed by the landlord and necessary to the enforceability of the Lease have been satisfied. (7) That there are no defaults by either the tenant or the landlord thereunder, and no event has occurred or situation exists which would, with the passage of time, constitute a default under the Lease. All improvements or work required under the Lease to be made by the landlord to date, if any, have been completed to the satisfaction of the tenant. Charges for all labor and materials used or furnished in connection with improvements and/or alterations made for the account of the tenant at the premises and common areas have been paid in full. -103- 109 (8) That monthly rent in the amount of $_________________ is payable on the _____ day of each month during the Lease term. That no rents have been prepaid more than two (2) months in advance and full rental, including basic minimum rent, if any, has commenced to accrue. (9) That on this date there are no existing defenses, offsets, claims or credits which the tenant has against the enforcement of the Lease by the landlord except for prepaid rent through __________________ (not to exceed two months). (10) The tenant has paid to the landlord a security deposit in the amount of $________________. (11) The tenant has all governmental permits, licenses and consents required for the activities and operations being conducted or to be conducted by it in or around the premises. (12) That as of the date hereof, there are no actions, whether voluntary or otherwise, pending against the tenant under the bankruptcy or insolvency laws of the United States or any state thereof. (13) That it understands that Bank of America, N.A., (the "Lender") will make a mortgage loan to ___________________ (or its successor and/or assign) as holder of fee simple title in the premises encumbered by the Lease) in reliance upon, among other things, this certificate. (14) That tenant will pay to Lender all payments due under the Lease from and after the date Lender sends written notice to the tenant requesting such payments to be made directly to Lender. EXECUTED this _____ day of ____________________, 20__. TENANT: By: (SEAL) ------------------------ Name: ---------------------------------- Title: ---------------------------------- ATTEST/WITNESS: - --------------------------- -104- 110 EXHIBIT G BANK OF AMERICA, N.A. (Lender) - and - -------------------------- (Tenant) ------------------------------------------------- SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ------------------------------------------------- Dated: Location: Section: Block: Lot: County: PREPARED BY AND UPON RECORDATION RETURN TO: Cadwalader, Wickersham & Taft 227 West Trade Street, Suite 2400 Charlotte, North Carolina 28202 Attention: Anderson D. Caperton, Esq. File No.: Title No.: -105- 111 SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement") is made as of the ___ day of _____________, 2000 by and between BANK OF AMERICA, N.A., a national banking association, having an address at 100 North Tryon Street, Charlotte, North Carolina 28255 successors and assigns ("Lender") and ___________________________________________________ having an address at ____________________________________________________________________("Tenant"). RECITALS: A. Lender is the present owner and holder of a certain deed of trust and security agreement (the "Security Instrument") dated ___________, 2000, given by Landlord (defined below) to Lender which encumbers the fee estate of Landlord in certain premises described in EXHIBIT A attached hereto known as the _____________________ (the "Property") and which secures the payment of certain indebtedness owed by Landlord to Lender evidenced by a certain promissory note dated ____________, 2000, given by Landlord to Lender (the "Note); B. Tenant is the holder of a leasehold estate in a portion of the Property under and pursuant to the provisions of a certain lease dated ________________, ____ between ______________, as landlord ("Landlord") and Tenant, as tenant (the "Lease"); and C. Tenant has agreed to subordinate the Lease to the Security Instrument and the lien thereof and Lender has agreed to grant non-disturbance to Tenant under the Lease on the terms and conditions hereinafter set forth. AGREEMENT: For good and valuable consideration, Tenant and Lender agree as follows: 1. SUBORDINATION. The Lease and all of the terms, covenants and provisions thereof and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the terms, covenants and provisions of the Security Instrument and to the lien thereof, including without limitation, all renewals, increases, modifications, spreaders, consolidations, replacements and extensions thereof and to all sums secured thereby and advances made thereunder with the same force and effect as if the Security Instrument had been executed, delivered and recorded prior to the execution and the delivery of the Lease. 2. NON-DISTURBANCE. If any action or proceeding is commenced by Lender for the foreclosure of the Security Instrument or the sale of the Property, Tenant shall not be named as a party therein unless such joinder shall be required by law, provided, however, such joinder shall not result in the termination of the Lease or disturb the Tenant's possession or use of the premises thereunder, and the sale of the Property in any such action or proceeding and the exercise by Lender of any of its other rights under the Note or the Security Instrument shall be made subject to all rights of Tenant under -106- 112 the Lease, provided that at the time of the commencement of any such action or proceeding or at the time of any such sale or exercise of any such other rights, Tenant shall not be in default beyond any applicable cure period under any of the terms, covenants or conditions of the Lease or of this Agreement on Tenant's part to be observed or performed. 3. ATTORNMENT. If Lender or any other subsequent purchaser of the Property shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument (Lender or such other purchaser being hereinafter referred as "Purchaser"), and the conditions set forth in Section 2 above have been met at the time Purchaser becomes owner of the Property, the Lease shall not be terminated or affected thereby but shall continue in full force and effect as a direct Lease between Purchaser and Tenant upon all of the terms, covenants and conditions set forth in the Lease and in that event, Tenant agrees to attorn to Purchaser and Purchaser by virtue of such acquisition of the Property shall be deemed to have agreed to accept such attornment, provided, however, that Purchaser shall not be (a) liable for the failure of any prior landlord (any such prior landlord, including Landlord and any successor landlord, being hereinafter referred to as a "Prior Landlord") to perform any of its obligations under the Lease except that Lender shall be liable for such failure only from and after the date on which Lender so succeeds to the interest of such Prior Landlord, provided that the foregoing shall not limit Purchaser's obligations under the Lease to correct any conditions that (i) existed as of the date Purchaser shall become the owner of the Property and (ii) violate Purchaser's obligations as landlord under the Lease; provided further however, that Purchaser shall have received written notice of such omissions, conditions or violations and has had a reasonable opportunity to cure the same, all pursuant to the terms and conditions of the Lease, (b) subject to any offsets, defenses, abatements or counterclaims which shall have accrued in favor of Tenant against any Prior Landlord prior to the date upon which Purchaser shall become the owner of the Property except for offsets expressly provided for in the Lease arising from Landlord defaults under the Lease with respect to which Tenant has notified Purchaser (such notice to set forth a quantification of the potential offset amount to the extent possible), (c) liable for the return of rental security deposits, if any, paid by Tenant to any Prior Landlord in accordance with the Lease unless such sums are actually received by Purchaser, or (d) bound by any payment of rents, additional rents or other sums which Tenant may have paid more than one (1) month in advance to any Prior Landlord unless (i) such sums are actually received by Purchaser or (ii) such prepayment shall have been expressly approved of by Purchaser. In the event that any liability of Purchaser does arise pursuant to this Agreement, such liability shall be limited and restricted to Purchaser's interest in the Property and shall in no event exceed such interest. 4. NOTICE TO TENANT. After notice is given to Tenant by Lender that the Landlord is in default under the Note and the Security Instrument and that the rentals under the Lease should be paid to Lender pursuant to the terms of the assignment of leases and rents executed and delivered by Landlord to Lender in connection therewith, Tenant shall thereafter pay to Lender or as directed by the Lender, all rentals and all other monies due or to become due to Landlord under the Lease and Landlord hereby expressly authorizes Tenant to make such payments to Lender and hereby releases and discharges Tenant from any liability to Landlord on account of any such payments. -107- 113 5. NOTICE TO LENDER AND RIGHT TO CURE. Tenant shall notify Lender of any default by Landlord under the Lease and agrees that, notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof or of an abatement shall be effective unless Lender shall have received notice of default giving rise to such cancellation or abatement and shall have failed within sixty (60) days, or within thirty (30) days if such default materially interferes with the operation of the Premises as a restaurant, (or such longer period for cure as specified in the Lease) after receipt of such notice to cure such default, or if such default cannot be cured within sixty (60) days (or such longer period for cure as specified in the Lease), shall have failed within sixty (60) days (or such longer period for cure as specified in the Lease) after receipt of such notice to commence and thereafter diligently pursue any action necessary to cure such default. Notwithstanding the foregoing, Lender shall have no obligation to cure any such default. 6. 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 by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (hereinafter defined) 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, return receipt required, addressed as follows: If to Tenant: _____________________________ _____________________________ _____________________________ Attention: __________________ Facsimile No.________________ If to Lender: Bank of America, N.A. Bank of America Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Attention: ____________________ Facsimile No._________________ or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 6, the term "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in the state where the Property is located. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. 7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of Lender, Tenant and Purchaser and their respective successors and assigns. -108- 114 8. GOVERNING LAW. This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State where the Property is located and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State where the Property is located. 9. MISCELLANEOUS. This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto. If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement 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 Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. 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. [NO FURTHER TEXT ON THIS PAGE] -109- 115 IN WITNESS WHEREOF, Lender and Tenant have duly executed this Agreement as of the date first above written. LENDER: BANK OF AMERICA, N.A., a national banking association By: -------------------------------------------------- Name: Title: TENANT: -------------------------------------------------------- a ------------------------------------------------------ By: -------------------------------------------------- Name: Title: The undersigned accepts and agrees to the provisions of Section 4 hereof: LANDLORD: - -------------------------------, a ----------------------------- By: ----------------------------- Name: ---------------------- Title: ---------------------- -110- 116 ACKNOWLEDGMENTS (To be attached) -111- 117 EXHIBIT A (Description of Property) -112- 118 EXHIBIT H Form of Hazardous Material Indemnity Agreement Loan No.: _______ Servicing No.: ________ HAZARDOUS MATERIALS INDEMNIFICATION AGREEMENT THIS HAZARDOUS MATERIALS INDEMNIFICATION AGREEMENT ("Agreement") is made as of the ______ day of _____________, 2000, by _____________________ a ____________________________, having an office at c/o RFS Hotel Investors Inc., 850 Ridge Lake Blvd., Suite 220, Memphis, Tennessee 38120 (the "Borrower"); rfs hotel investors, inc. (the "Principal"), the Borrower and the Principal are hereinafter referred to, individually and collectively, as the context requires as the Indemnitor (the "Indemnitor"), to and for the benefit of BANK OF AMERICA, N.A., a national banking association, having an office in Charlotte, North Carolina (the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower is the owner and holder of certain fee and other interests, in respect of that certain real property located in the Counties and States of: _________________________________________________________________ and more particularly described in EXHIBIT A attached hereto and the improvements located thereon, as more particularly described in the Security Instrument (as hereinafter defined) (such real property, together with all improvements now or hereafter located thereon, are collectively, the "Premises"); WHEREAS, the Borrower has applied to the Lender for a loan (the "Loan") of up to the maximum principal amount of $___________________________, pursuant to and in accordance with that certain Loan Agreement, dated as of the date hereof by and between the Borrower and the Lender (as the same may hereafter be modified, supplemented, extended or renewed and in effect from time to time, the "Loan Agreement"), and which Loan shall be evidenced by a Promissory Note of even date herewith given by the Borrower to, and in favor of, the Lender (the "Note") and shall be secured by, among other things, a [Deed of Trust/Mortgage], Assignment of Leases and Rents, and Security Agreement dated the date hereof given by the Borrower to, and in favor of, the Lender (the "Security Instrument"); WHEREAS, as a condition to making the Loan, the Lender requires the Borrower to make certain covenants, representations, warranties and agreements with respect to the Premises; and WHEREAS, as an inducement to the Lender to make the Loan to the Borrower, the Indemnitor has agreed to enter into this Agreement. Borrower has delivered to Lender certain environmental assessment reports for cash -113- 119 Individual Property dated November 13, 1998, prepared by EMG entitled Environmental Site Assessment (the "Environmental Report"). NOW THEREFORE, in consideration of the Premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Indemnitor hereby agrees to and for the benefit of the Lender as follows: ARTICLE I REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNITIES SECTION 1.1. The Indemnitor hereby represents and warrants to the Lender that, except as noted in the Environmental Report, to the best of the Indemnitor's knowledge, after due inquiry and investigation: (i) the Premises is not in direct or indirect violation of any federal, state, or local laws, ordinances, regulations, standards, rules, policies or other governmental requirements or any court judgments applicable to the Indemnitor or to the Premises relating to industrial hygiene or to environmental or unsafe conditions or to human health including, but not limited to, those relating to the generation, manufacture, storage, handling, transportation, disposal, release, emission or discharge of Hazardous Materials (as defined below), those in connection with the construction, fuel supply, power generation and transmission, waste disposal or any other operations or processes relating to the Premises, and those relating to the atmosphere, soil, surface and ground water, wetlands, stream sediments and vegetation on, under, in or about the Premises, including but not limited to, the following laws, as amended as set forth herein and as subsequently amended: (1) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USCA 9601 ET SEQ.; (2) the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 USCA 6901 ET SEQ.; (3) the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USCA 1251 ET SEQ.; (4) the Toxic Substances Control Act, 15 USCA 2601 ET SEQ.; (5) the Emergency Planning and Community Right-to-Know Act of 1986, 42 USCA 11001 ET SEQ.; (6) the Clean Air Act, as amended by the Clean Air Act Amendments, 42 USCA 7401 ET SEQ.; (7) the National Environmental Policy Act of 1969, 42 USCA 4321 ET SEQ.; (8) the River and Harbor Act of 1899, 33 USCA 401 ET SEQ.; (9) the Endangered Species Act of 1973, 16 USCA 1531 ET SEQ.; (10) the Occupational Safety and Health Act of 1970, 29 USCA 651 ET SEQ.; (11) the Safe Drinking Water Act, 42 USCA 300(f) ET SEQ.; and (12) the Hazardous Materials Transportation Act, 49 USCA 1801 ET SEQ., and all regulations from time to time adopted in respect to the foregoing laws (collectively, "Hazardous Materials Laws"); (ii) the Premises are not subject to any private or governmental lien or judicial or administrative notice or action relating to petroleum and petroleum products, flammable explosives, radioactive materials (excluding radioactive materials in smoke detectors), polychlorinated biphenyls, lead, asbestos or asbestos containing materials in any form that is or could become friable, hazardous waste, toxic or hazardous substances or other related materials whether in the form of a chemical, element, compound, solution, mixture or otherwise including, but not limited to, those materials defined as "hazardous substances," "extremely -114- 120 hazardous substances," "hazardous chemicals," "hazardous materials," "toxic substances," "solid waste," "toxic chemicals," "air pollutants," "toxic pollutants," "hazardous wastes," "extremely hazardous waste," or "restricted hazardous waste" by Hazardous Materials Law or regulated by Hazardous Materials Law in any manner whatsoever (collectively, "Hazardous Materials"); (iii) no Hazardous Materials are or have been, prior to the Indemnitor's acquisition of the Premises, discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from the Premises otherwise than in compliance with all Hazardous Material Laws; (iv) no property adjoining the Premises are being used or has ever been used at any previous time, for the disposal, storage, treatment, processing or other handling of Hazardous Materials; (v) no underground storage tanks exist on any of the Premises except as those disclosed in writing to the Lender and which comply with applicable Hazardous Material Laws; and (vi) it has not received any notice or has any knowledge of any claim with respect to Hazardous Materials on the Premises or any completed, pending or threatened investigation or inquiry concerning the presence or release of any Hazardous Materials on the Premises or any adjacent property or concerning whether any condition, use or activity on the Premises or any adjacent property is in violation of any Hazardous Material Laws. SECTION 1.2. So long as the Indemnitor owns or is in possession of the Premises, the Indemnitor shall: (a) Not cause, permit or exacerbate any Prohibited Activities or Conditions (as defined below). The Indemnitor represents and warrants that it has not at any time caused or permitted any Prohibited Activities or Conditions except as set forth in the Environmental Assessment (as defined below) and that, except as noted in the Environmental Report, no Prohibited Activities or Conditions exist or have existed on or under the Premises. The Indemnitor shall take all appropriate steps to prevent its employees, agents, and contractors, and any tenants from causing, permitting, or exacerbating any Prohibited Activities or Conditions. The Indemnitor shall not lease or allow the sublease or use of all or any portion of the Premises to any tenant, subtenant or user that, in the ordinary course of its business, would cause, permit, or exacerbate any Prohibited Activities or Conditions, and all leases, subleases and use agreements relating to the Premises shall contain provisions sufficient to ensure that tenants, subtenants and users shall not cause, permit or exacerbate any Prohibited Activities or Conditions. (b) Comply in a timely manner with, and cause all employees, agents, and contractors or the Indemnitor and any other persons present on the Premises to so comply with, (i) any O&M Program (as defined below) now or hereafter in effect during the term of the Loan, and (ii) Hazardous Materials Law, so as to minimize any economic loss to the Premises and the Loan. The Indemnitor shall adopt an O&M Program with respect to any Hazardous Materials identified in any Environmental Assessment or any Governmental Action (as defined below) relating to the Premises, or as otherwise required by the Lender with respect to the Premises. Any O&M Program shall be performed by qualified contractors under the supervision of a consulting engineer hired by the Indemnitor with the prior written approval of the Lender which approval shall not be unreasonably withheld, conditioned or delayed. All costs and expenses of -115- 121 any O&M Program shall be paid by the Indemnitor, including without limitation the charges of such contractors and consulting engineer and the Lender's fees, costs and expenses incurred in connection with the monitoring and review of the O&M Program and the Indemnitor's performance thereunder. (c) Promptly notify the Lender in writing of: (i) any Governmental Action it becomes aware of (ii) any claim made or threatened by any third party against the Indemnitor, the Lender, or the Premises relating to loss or injury resulting from any occurrence or condition on the Premises or any other real property that could require the removal from the Premises of any Hazardous Materials or cause any restrictions on the ownership, occupancy, transferability or use of the Premises under Hazardous Materials Law or (iii) the occurrence of any Prohibited Activities or Conditions. The Indemnitor shall cooperate with any governmental inquiry, and shall comply with any governmental or judicial order, request or directive which arises from any alleged Prohibited Activities or Conditions; provided that with respect to governmental requests or directives only, the Indemnitor may contest or object to a good faith dispute regarding said request or directive if the Indemnitor notifies the Lender in advance of said contest or objection and as long as said contest or objection does not result in a violation of law or fines assessed against the Premises. (d) Pay promptly or cause to be paid all costs and expenses incurred by the Lender in connection with any Governmental Action, including but not limited to costs of any environmental audits, studies, investigations or remedial activities including but not limited to the removal of any Hazardous Materials from the Premises. The Borrower also shall pay promptly or cause to be paid the costs of any environmental audits, studies, investigations or the removal of any Hazardous Materials from the Premises required by the Lender as a condition of its consent to any sale or transfer of all or any part of the Premises or any interest therein or required by the Lender following a reasonable determination by the Lender that there may be Prohibited Activities or Conditions on or under the Premises. Any such costs or expenses incurred by the Lender (including but not limited to reasonable fees and expenses of attorneys and consultants, whether incurred in connection with any judicial or administrative process or otherwise) which the Borrower fails to pay promptly shall become additional indebtedness secured by the Security Instrument. SECTION 1.3. Upon the Lender's reasonable request, at any time after a prohibited activity occurs and from time to time while the Security Instrument is in effect, the Indemnitor shall provide at the Indemnitor's sole expense, an inspection or audit of the Premises prepared by a licensed hydrogeologist or licensed environmental engineer approved by the Lender indicating the presence or absence of Hazardous Materials on the Premises. If the Indemnitor fails to provide such inspection or audit within thirty (30) days after such request the Lender may order same, and the Indemnitor hereby grants to the Lender and their employees and agents access to the Premises and a license to undertake such inspection or audit. The cost of such inspection or audit shall be added to the principal balance of the sums due under the Note (as defined in the Security Instrument) and the Security Instrument and shall bear interest thereafter until paid at the default rate thereunder. SECTION 1.4. The Indemnitor represents and warrants that, except as noted in the Environmental Report to the best of the Indemnitor's knowledge, after due inquiry and investigation, no asbestos or any substance containing asbestos ("Asbestos") is located on the Premises except as may have been disclosed in an environmental report delivered to the Lender prior to the -116- 122 date of this Agreement. The Indemnitor shall not install in the Premises, nor permit to be installed in the Premises, Asbestos and shall remove or cause to be removed any Asbestos promptly upon discovery to the satisfaction of the Lender, or take all action necessary to ensure that such Asbestos is abated or managed in a manner which complies with all applicable federal, state and local laws, ordinances, rules and regulations with respect to Asbestos. The Indemnitor shall in all instances comply with, and ensure compliance by all occupants of the Premises with, all applicable federal, state and local laws, ordinances, rules and regulations with respect to Asbestos, and shall keep the Premises free and clear of any liens imposed pursuant to such laws, ordinances, rules or regulations. In the event that the Indemnitor receives any notice or advice from any governmental agency or any source whatsoever with respect to Asbestos on, affecting or installed on the Premises, the Indemnitor shall immediately notify the Lender. Upon the Lender's reasonable request, at any time and from time to time while the Security Instrument is in effect, the Indemnitor shall provide, at the Indemnitor's sole expense, an inspection or audit of the Premises prepared by an engineering or consulting firm approved by the Lender, indicating the presence or absence of Asbestos on the Premises. If the Indemnitor fails to provide such inspection or audit within thirty (30) days after such request, the Lender may order same, and the Indemnitor hereby grants to the Lender and its employees and agents access to the Premises and a license to undertake such inspection or audit. The cost of such inspection or audit shall be added to the principal balance of the sums due under the Note and the Security Instrument and shall bear interest thereafter until paid at the default rate thereunder. SECTION 1.5. In the event that any investigation, site monitoring, containment cleanup, removal, restoration or other work of any kind is reasonably necessary or desirable under an applicable Hazardous Material Law (the "Remedial Work"), the Indemnitor shall commence or cause to be commenced and thereafter diligently prosecute to completion all such Remedial Work within thirty (30) days after written demand by the Lender for performance thereof (or such shorter period of time as may be required under applicable law). All Remedial Work shall be performed by contractors approved in advance by the Lender, and under the supervision of a consulting engineer approved by the Lender. All costs and expenses of such Remedial Work shall be paid by the Indemnitor including, without limitation, the Lender's reasonable attorneys' fees and disbursements incurred in connection with monitoring or review of such Remedial Work. In the event the Indemnitor shall fail to timely commence, or cause to be commenced, or fail to diligently prosecute to completion, or pay for, such Remedial Work, the Lender may, but shall not be required to, cause such Remedial Work to be performed or paid for, and all costs and expenses thereof, or incurred in connection therewith, may be added to the sums due under the Note and the Security Instrument and shall bear interest thereafter until paid at the default rate thereunder. SECTION 1.6. THE INDEMNITOR SHALL HOLD HARMLESS, DEFEND AND INDEMNIFY THE LENDER AND ITS OFFICERS, DIRECTORS, TRUSTEES, EMPLOYEES, AGENTS, AFFILIATES (INCLUDING ANY PARENT CORPORATION), SUCCESSORS AND ASSIGNS, FROM AND AGAINST ALL PROCEEDINGS, CLAIMS, DAMAGES, PENALTIES, FEES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE FEES AND EXPENSES OF ATTORNEYS AND EXPERT WITNESSES, INVESTIGATORY FEES, AND CLEANUP AND REMEDIATION EXPENSES, WHETHER INCURRED IN CONNECTION WITH ANY JUDICIAL OR ADMINISTRATIVE PROCESS OR OTHERWISE), ARISING DIRECTLY OR INDIRECTLY FROM (i) ANY BREACH OF ANY REPRESENTATION, WARRANTY, OR OBLIGATION OF THE BORROWER CONTAINED IN THIS -117- 123 AGREEMENT OR (ii) THE PRESENCE OF HAZARDOUS MATERIALS ON OR UNDER THE PREMISES OR ANY PROPERTY PROXIMATE TO THE PREMISES OR ANY GOVERNMENTAL ACTION ALLEGING ANY SUCH PRESENCE, EXCEPT TO THE EXTENT THAT THE BORROWER CAN CONCLUSIVELY PROVE BOTH THAT SUCH PRESENCE OR GOVERNMENTAL ACTION ALLEGING SUCH PRESENCE WAS CAUSED SOLELY BY ACTIONS, CONDITIONS, OR EVENTS THAT OCCURRED AFTER THE DATE THAT THE LENDER (OR ANY PURCHASER AT A FORECLOSURE SALE) ACTUALLY ACQUIRED TITLE TO THE PREMISES AND THAT SUCH PRESENCE OR GOVERNMENTAL ACTION ALLEGING SUCH PRESENCE WAS NOT CAUSED BY THE DIRECT OR INDIRECT ACTIONS OF THE BORROWER OR THE BORROWER PRINCIPAL, OR ANY PARTNER, MEMBER, PRINCIPAL, OFFICER, DIRECTOR, TRUSTEE OR MANAGER OF THE BORROWER OR ANY EMPLOYEE, AGENT, CONTRACTOR OR AFFILIATE OF THE BORROWER OR THE BORROWER PRINCIPAL. THE OBLIGATIONS AND LIABILITIES OF THE BORROWER UNDER THIS AGREEMENT SHALL SURVIVE ANY TERMINATION, SATISFACTION, ASSIGNMENT, ENTRY OF A JUDGMENT OF FORECLOSURE OR DELIVERY OF A DEED IN LIEU OF FORECLOSURE OF THE SECURITY INSTRUMENT. THE INDEMNITY SET FORTH HEREIN IS AN ABSOLUTE, UNCONDITIONAL, PRESENT INDEMNITY AND IS IN NO WAY CONDITIONED OR CONTINGENT UPON ANY ATTEMPT TO ENFORCE THE LENDER'S RIGHTS AGAINST THE INDEMNITOR UNDER THE SECURITY INSTRUMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS (AS DEFINED IN THE LOAN AGREEMENT) OR AGAINST ANY OTHER PARTY OR TO COLLECT FROM THE INDEMNITOR UNDER THE SECURITY INSTRUMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS OR FROM ANY OTHER PARTY OR UPON ANY OTHER CONDITION OR CONTINGENCY; ACCORDINGLY, THE LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST THE UNDERSIGNED IMMEDIATELY UPON ANY DEFAULT HEREUNDER WITHOUT TAKING ANY PRIOR ACTION TO ENFORCE THE OBLIGATIONS OF THE INDEMNITOR UNDER THE SECURITY INSTRUMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS. SECTION 1.7. To the best of Indemnitor's knowledge, no representation or warranty by the Indemnitor contained herein, nor any schedule, certificate, or other document furnished by the Indemnitor to the Lender in connection with this Agreement contains any misstatement of fact or omits to state any fact necessary to make the statements contained therein not misleading. SECTION 1.8. The obligations and liabilities of the Indemnitor to the Lender under this Article I shall survive any termination, satisfaction, or assignment of the Security Instrument, including, without limitation, any sale of the Loan and the exercise by the Lender of any of its rights or remedies hereunder, including but not limited to, the acquisition of the Premises by foreclosure or a conveyance in lieu of foreclosure. This -118- 124 Agreement is not intended to be, nor shall it be, secured by the Security Instrument and it is not intended to secure payment of the Note. SECTION 1.9. As used in this Agreement: (a) "Environmental Assessment" shall mean a report (including all drafts thereof) of an environmental assessment of the Premises of such scope (including but not limited to the taking of soil borings and air and groundwater samples and other above and below ground testing) as the Lender may request, by a consulting firm acceptable to the Lender, which shall, among other things, be dated as of a date acceptable to the Lender and conform to (i) the current minimum standards for the American Society of Testing and Materials, and (ii) the Lender's then current requirements. (b) "Governmental Action" shall mean the issuance or threatened issuance of any claim, citation, notice of any pending or threatened suit, proceeding, order or governmental inquiry or opinion involving the Premises that alleges the violation of any Hazardous Materials Law. (c) "O&M Program" shall mean an operations and maintenance program (in form and substance satisfactory to the Lender) relating to the use, handling and/or abatement of one or more Hazardous Materials and which is accepted in writing by the Indemnitor. (d) "Prohibited Activities or Conditions" shall mean causing or permitting, whether directly or indirectly, (i) the presence, use, generation, manufacture, production, processing, installation, release, discharge, storage (including storage in above ground and underground storage tanks for petroleum or petroleum products), treatment, handling, or disposal of any Hazardous Materials (excluding the safe and lawful use and storage of quantities of Hazardous Materials or petroleum products, customarily used in the ordinary operations of the Indemnitor or customarily used in the ordinary operations of any tenant previously approved by the Lender) on or under the Premises, or in any way affecting the Premises or its value or which may form the basis for any present or future claim, demand or action seeking cleanup of the Premises, (ii) the transportation of any Hazardous Materials to or from the Premises (excluding the safe and lawful use and storage of quantities of Hazardous Materials or petroleum products, customarily used in the ordinary operations of the Indemnitor or customarily used in the ordinary operations of any tenant previously approved by the Lender), or (iii) any occurrence or condition on the Premises (or exacerbation of the same) that is or may be in violation of Hazardous Materials Law. ARTICLE II MISCELLANEOUS SECTION 2.1. The Indemnitor's liability hereunder shall not be affected (a) by (i) any amendment or modification of the Loan Documents; (ii) any extensions of time for performance under the Loan Documents whether prior to or after maturity; or (iii) the release of any collateral for the Loan or the release of the Indemnitor from performance or observance of any of the -119- 125 agreements, covenants, terms or conditions contained in any of the Loan Documents by operation of law or otherwise (whether such amendments, modifications, extensions or releases are made with or without notice to the undersigned); (b) by the fact that the Indemnitor may or may not be personally liable, in whole or in part, under the terms of the Loan Documents; (c) by the failure to give the Indemnitor any notices of default under the Loan Documents or otherwise; (d) by any other indemnity or guaranty now or hereafter executed in connection with the Loan; (e) by any rights, powers or privileges the Lender may now or hereafter have against any person, entity or collateral or (f) by reason of any bankruptcy or similar proceeding instituted by or against the Indemnitor. The Indemnitor will not take or fail to take action of any kind the taking of which or the failure to take which might be the basis for a claim that the Indemnitor has any defense to the Indemnitor's obligations hereunder. The Indemnitor waives any right or claim of right to cause a marshaling of the Indemnitor's assets or to cause the Lender to proceed against the Indemnitor under the Security Instrument or under any other Loan Document, and/or any collateral held by the Lender at any time or in any particular order and the Indemnitor agrees that any payments required to be made by the Indemnitor hereunder shall become due on demand in accordance with the terms hereof and the Indemnitor expressly waives and relinquishes all rights and remedies accorded by applicable law to the Indemnitors, including, without limitation, any extension of time conferred by any law now or hereafter in effect and any requirement of notice to which the Indemnitor may now or hereafter be entitled. The Indemnitor waives (i) notice of acceptance of this Agreement by the Lender and any and all notices and demands of every kind which may be required to be given by any statute, rule or law, (ii) any defense, right of set-off or other claim which the Indemnitor may have against the Lender or the holder of the Security Instrument, (iii) any failure by the Lender to inform the Indemnitor of any facts the Lender may now or hereafter know about the Indemnitor, the Premises, the Loan or the transactions contemplated by the Loan Documents, it being understood and agreed that the Lender has no duty so to inform, and (iv) all rights of redemption, homestead, dower, and other rights or exemptions of every kind, whether under common law or by statute. SECTION 2.2. No delay on the Lender's part in exercising any right, power or privilege under any of the Loan Documents, this Agreement or any other document executed by the Indemnitor in connection with the Loan shall operate as a waiver of any such right, power or privilege. SECTION 2.3. The Lender shall have the right to join the Indemnitor in any action or proceeding commenced by the Lender pursuant to the rights, powers and privileges the Lender now or hereafter may possess under this Agreement or, at the Lender's option, the Lender may commence any action or proceeding based upon this Agreement directly against the Indemnitor without making the Indemnitor under the Security Instrument or under any other Loan Document or anyone else a party defendant in such action or proceeding. In the event any action or proceeding arising on, under, out of or by reason of or relating in any way to this Agreement or the interpretation, breach or enforcement thereof is brought against the Indemnitor, service of process may be made on the Indemnitor by certified mail, return receipt requested, at the address set forth below or such other address as the Lender is notified of by notice sent in accordance herewith. -120- 126 SECTION 2.4. If: (i) this Agreement is placed in the hands of an attorney for collection of any payment due hereunder or is collected through any legal proceeding; (ii) an attorney is retained to represent the Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors' rights and involving a claim under this Agreement; or (iii) an attorney is retained to represent the Lender in any other proceedings whatsoever in connection with this Agreement or to provide advice or other representation with respect to this Agreement, then the Indemnitor shall pay expenses, including, without limitation, court costs, filing fees, recording costs, and all other costs and expenses reasonably incurred in connection therewith, in addition to all other amounts due hereunder, regardless of whether all or a portion of such enforcement costs are in a single proceeding brought to enforce this Agreement as well as the other Loan Documents. SECTION 2.5. This Agreement contains the sole and entire understanding and agreement of the Lender and the Indemnitor with respect to its entire subject matter, and all prior negotiations, discussions, representations, agreements and understandings heretofore had between the Lender and the Indemnitor with respect thereto are merged herein. SECTION 2.6. THE INDEMNITOR HEREBY WAIVES TRIAL BY JURY AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING ON, UNDER, OUT OF, BY REASON OF OR RELATING IN ANY WAY TO THIS AGREEMENT, OR THE INTERPRETATION, BREACH OR ENFORCEMENT THEREOF. SECTION 2.7. All stipulations, obligations, liabilities and undertakings hereunder shall be binding upon the Indemnitor and the successors and permitted assigns of the Indemnitor and shall inure to the Lender's benefit and to the benefit of the Lender's successors and assigns and to the benefit of each and every holder of any of the Loan Documents and to the benefit of anyone claiming title to the collateral sold by the Lender pursuant to the Lender's rights, powers and privileges under the Loan Documents. SECTION 2.8. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. THE INDEMNITOR HEREBY SUBMITS TO PERSONAL JURISDICTION IN SAID STATE AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA (AND ANY APPELLATE COURTS TAKING APPEALS THEREFROM) LOCATED IN SAID STATE FOR THE ENFORCEMENT OF THE INDEMNITOR'S OBLIGATIONS HEREUNDER AND WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN SUCH STATE FOR THE PURPOSES OF ANY ACTION, SUIT, PROCEEDING OR LITIGATION TO ENFORCE SUCH OBLIGATIONS OF THE INDEMNITOR. THE INDEMNITOR HEREBY WAIVES AND AGREES NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT, PROCEEDING OR LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT, (A) THAT -121- 127 IT IS NOT SUBJECT TO SUCH JURISDICTION OR THAT SUCH ACTION, SUIT, PROCEEDING OR LITIGATION MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN THOSE COURTS OR THAT THIS AGREEMENT MAY NOT BE ENFORCED IN OR BY THOSE COURTS OR THAT THE INDEMNITOR IS EXEMPT OR IMMUNE FROM EXECUTION, (B) THAT THE ACTION, SUIT, PROCEEDING OR LITIGATION IS BROUGHT IN AN INCONVENIENT FORUM, OR (C) THAT THE VENUE OF THE ACTION, SUIT, PROCEEDING OR LITIGATION IS IMPROPER. SECTION 2.9. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. SECTION 2.10. Any and all notices, elections, demands, request and responses thereto permitted or required to be given under this Agreement shall be in writing, signed by or on behalf of the party giving the same, and shall be deemed to have been properly given or served and shall be effective upon being personally delivered to three (3) Business Days (as defined in the Loan Agreement) after being deposited in the United States mail, postage prepaid, certified with return receipt requested, or one day after delivery to a nationally recognized overnight courier, to the other party at the address of such other party set forth below or at such other address as such other party may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that no notice of change of address shall be effective until the date of receipt thereof. Personal delivery to a party or to an officer, partner, agent or employee of such party at said address shall constitute receipt. Rejection or other refusal to accept or inability to deliver because of change of address of which no notice has been received shall also constitute receipt. Any such notice, election, demand, request or response given to the parties herein shall be addressed as follows: if to the Indemnitor/Borrower: __________________________ c/o RFS Hotel Investors Inc. 850 Ridge Lake Blvd, Suite 220 Memphis, Tennessee 38120 Attn: Kevin Luebbers Telephone: (901) 767-7005 Telecopy: (901) 819-5260 if to the Indemnitor/Principal: RFS Hotel Investors Inc. 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38120 Attn: Kevin Luebbers Telephone: (901) 767-7005 Telecopy: (901) 819-5260 with a copy to: Hunton & Williams 1900 K Street, N.W., Suite 1200 Washington, DC 20006 Attn: Thomas F. Kaufman, Esq. Telephone: (202) 955-1604 Telecopy: (202) 778-2201 -122- 128 if to the Lender: Bank of America, N.A. CMLS #1777 P.O. Box 3609 Los Angeles, California 90051 Attn: Servicing Manager Telephone: (800) 574-0169 Telecopy: (213) 345-6587 with copies to: Cadwalader, Wickersham & Taft 227 West Trade Street, Suite 2400 Charlotte, North Carolina 28202 Attn: James P. Carroll Telephone: (704) 348-5100 Telecopy: (704) 348-5200 SECTION 2.11. The execution, delivery, and performance by the Indemnitor of this Agreement do not and will not contravene or conflict with (i) organizational documents of the Indemnitor, (ii) any law, order, rule, regulation, writ, injunction, or decree now in effect of any government, governmental instrumentality or court having jurisdiction over the Indemnitor, or (iii) any contractual restriction binding on or affecting the Indemnitor or any of the Indemnitor's property or assets which may adversely affect any of the Indemnitor's ability to fulfill the Indemnitor's obligations under this Agreement. SECTION 2.12. No termination, modification or waiver of any provisions of this Agreement shall be binding upon the Lender except as expressly set forth in a writing duly signed and delivered by the Lender. SECTION 2.13. If the Indemnitor consists of more than one person or entity, the obligations and liabilities of each such person hereunder are joint and several. [signature page immediately follows] -123- 129 INDEMNITOR/BORROWER: ___________________________, a _______________________ By: ___________________Corporation, a ____________ corporation, its ______________________ By: ____________________________ Kevin Luebbers Secretary INDEMNITOR/BORROWER PRINCIPAL: RFS HOTEL INVESTORS, INC., a Tennessee corporation By:____________________________________ Kevin Luebbers Executive Vice President -124- 130 EXHIBIT A Legal Description -125- EX-10.20 9 g67578ex10-20.txt LOAN AGREEMENT 1 Exhibit 10.20 Loan No.: 52920 Servicing No.: 3113776 =============================================================================== BANK OF AMERICA, N.A. as Lender ------------------------------- LOAN AGREEMENT dated as of August 9, 2000 ------------------------------- RFS SPE2 2000 LLC, as Borrower =============================================================================== 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions.....................................................................1 Section 1.2 Other Definitional Provisions..................................................23 Section 1.3 Incorporation by Reference of Commitment.......................................23 ARTICLE II THE LOAN Section 2.1 Loan Terms.....................................................................23 Section 2.2 Interest.......................................................................24 Section 2.3 Term...........................................................................24 Section 2.4 Payments.......................................................................24 Section 2.5 Release of Properties..........................................................24 Section 2.6 Substitution of Properties.....................................................24 ARTICLE III CONDITIONS PRECEDENT TO LOAN Section 3.1 Loan Documents.................................................................33 Section 3.2 Brokerage Commissions..........................................................33 Section 3.3 Title Evidence.................................................................33 Section 3.4 Survey.........................................................................33 Section 3.5 Insurance......................................................................33 Section 3.6 Authority Documents............................................................33 Section 3.7 Financial Statements and Operating Statements..................................34 Section 3.8 Opinions.......................................................................34 Section 3.9 Compliance with Laws...........................................................34 Section 3.10 Agreements.....................................................................34 Section 3.11 Taxes..........................................................................34 Section 3.12 Utilities......................................................................35 Section 3.13 Reserve Accounts...............................................................35 Section 3.14 Engineering Report.............................................................35 Section 3.15 Certificate of Occupancy and Other Permits.....................................35 Section 3.16 Environmental Assessment and O&M Program.......................................35 Section 3.17 Appraisal......................................................................35 Section 3.18 Equity.........................................................................35 Section 3.19 Debt Service...................................................................35 Section 3.20 Loan to Value Ratio............................................................35 Section 3.21 Special Purpose Entity.........................................................36 Section 3.22 Miscellaneous..................................................................36
-i- 3 ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 Existence; Compliance with Law.................................................36 Section 4.2 Equity Interests...............................................................36 Section 4.3 Power; Authorization; Enforceable Obligations..................................36 Section 4.4 No Legal Bar...................................................................37 Section 4.5 No Litigation..................................................................37 Section 4.6 No Default.....................................................................37 Section 4.7 Solvency; Fraudulent Conveyance................................................37 Section 4.8 Special Purpose Entity.........................................................38 Section 4.9 Taxes..........................................................................38 Section 4.10 No Burdensome Restrictions.....................................................38 Section 4.11 Investment Company Act; Other Regulations......................................38 Section 4.12 Subsidiaries...................................................................39 Section 4.13 Title to Premises..............................................................39 Section 4.14 Ownership of Personalty........................................................39 Section 4.15 Financial Statements...........................................................39 Section 4.16 No Change......................................................................39 Section 4.17 Management Agreement...........................................................40 Section 4.18 Accuracy of Information........................................................40 Section 4.19 Principal Place of Business....................................................40 Section 4.20 Taxpayer Identification Number.................................................40 Section 4.21 Insurance......................................................................40 Section 4.22 Mechanic's Liens, etc..........................................................40 Section 4.23 No Violation...................................................................41 Section 4.24 ERISA..........................................................................41 Section 4.25 O&M Program....................................................................41 Section 4.26 No Organizational Document Amendment...........................................41 Section 4.27 Permitted Encumbrances.........................................................41 Section 4.28 Insolvency Opinion.............................................................41 ARTICLE V COVENANTS AND AGREEMENTS Section 5.1 Affirmative Covenants of the Borrower..........................................42 Section 5.2 Negative Covenants of the Borrower.............................................48 Section 5.3 Environmental Covenants........................................................52 Section 5.4 Recourse Covenants.............................................................54 Section 5.5 Insurance......................................................................55 Section 5.6 Lockbox........................................................................56 ARTICLE VI RESERVE ACCOUNTS Section 6.1 Establishment of Reserve Accounts..............................................56 Section 6.2 Initial Reserve Deposits.......................................................57 Section 6.3 Monthly Reserve Deposits.......................................................57 Section 6.4 Replacement Reserve Account....................................................57 Section 6.5 Permitted Investments, Earnings, Charges and Annual Accounting.................57
-ii- 4 Section 6.6 Assignment to the Lender of Reserve Accounts and Rights and Claims.............58 Section 6.7 Application of Reserve Accounts Upon an Event of Default.......................59 Section 6.8 Disbursements from Tax and Insurance Reserve Account...........................59 Section 6.9 Disbursements from Repair Escrow Account and Replacement Reserve Account.......60 Section 6.10 Intentionally Deleted..........................................................62 Section 6.11 Indemnification................................................................62 ARTICLE VII EVENTS OF DEFAULT; REMEDIES Section 7.1 Events of Default..............................................................63 Section 7.2 Remedies.......................................................................65 ARTICLE VIII CASUALTY LOSSES; EMINENT DOMAIN Section 8.1 Repairs and Casualty Losses....................................................65 Section 8.2 Eminent Domain.................................................................66 Section 8.3 Application of Insurance Proceeds and Condemnation Awards......................67 ARTICLE IX GENERAL PROVISIONS Section 9.1 Remedies Cumulative; Waivers...................................................68 Section 9.2 Benefit........................................................................68 Section 9.3 Assignment and Assumption......................................................69 Section 9.4 Securitization Cooperation/Indemnification.....................................71 Section 9.5 Information....................................................................75 Section 9.6 Nonrecourse Loan; Exceptions...................................................75 Section 9.7 Amendments.....................................................................75 Section 9.8 Governing Law and Jurisdiction.................................................75 Section 9.9 Savings Clause.................................................................75 Section 9.10 Execution in Counterparts......................................................75 Section 9.11 Notices........................................................................76 Section 9.12 Right of Set-Off...............................................................76 Section 9.13 Written Agreement..............................................................76 Section 9.14 Waiver of Jury Trial...........................................................77 Section 9.15 Cross Default, Cross-Collateralization, Waiver of Marshalling of Assets........77 Section 9.16 Servicer.......................................................................79 ARTICLE X SPECIAL PROVISIONS Section 10.1 Termination of Manager.........................................................80 Section 10.2 Substitution of Operating Lessee...............................................81
-iii- 5 SCHEDULES - --------- SCHEDULE 1 Allocated Loan Amounts SCHEDULE 2 Franchise Agreements SCHEDULE 3 Operating Leases SCHEDULE 4 Borrower's Disclosure of Non-Compliance with Requirements of Law EXHIBITS - -------- EXHIBIT A Equity Interests EXHIBIT B Immediate Repairs, Replacements and Reserve Amounts EXHIBIT C Addresses for Notice EXHIBIT D Program Rider EXHIBIT E Form of Nondisturbance, Subordination and Attornment Agreement for Operating Leases EXHIBIT F Form of Tenant Estoppel Certificate EXHIBIT G Form of Nondisturbance, Subordination and Attornment Agreement for Property Specific Leases EXHIBIT H Form of Hazardous Material Indemnity Agreement EXHIBIT I Borrower's Non-Consolidation Opinion
-iv- 6 LOAN AGREEMENT LOAN AGREEMENT, dated as of August 9, 2000 (together with all exhibits, schedules, riders and addenda hereto, which are hereby incorporated herein, the "Loan Agreement" or "Agreement"), by and between RFS SPE2 2000 LLC, a Virginia limited liability company, (the "Borrower"), with its principal place of business at c/o RFS Hotel Investors, Inc., 850 Ridge Lake Boulevard, Suite 220, Memphis, Tennessee 38120, RFS HOTEL INVESTORS, INC., a Tennessee corporation (the "Borrower Principal", whether one or more); and BANK OF AMERICA, N.A., a national banking association, with its principal offices in Charlotte, North Carolina (together with its successors and assigns, the "Lender"). RECITALS: The Borrower has applied to the Lender for a loan in the original principal amount of $25,484,000 (the "Loan") to be made by the Lender pursuant to the terms hereof. The Loan will be secured by, among other things, a first priority lien on the Land, Improvements, Personalty and Rents and Profits. The Lender is willing to make the Loan based on the terms and conditions set forth in this Loan Agreement and subject to the execution and delivery of each of the Loan Documents. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Borrower Principals and the Lender hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. As used in this Agreement, the other Loan Documents, or any certificate or other document made or delivered pursuant hereto, the capitalized terms used herein shall, unless otherwise defined herein or therein, have the following meanings: Additional Repair(s) or Replacement(s). Any repairs, replacements or improvements (other than Immediate Repairs or Replacements) (i) which are advisable to keep the Premises in good order and repair and in good marketable condition, or to prevent material deterioration of the Premises, or (ii) for an Immediate Repair or Replacement to the extent such Immediate Repair or Replacement exceeds 125% of the estimated cost of such Immediate Repair or Replacement as set forth in Exhibit B hereto. Adjusted Release Amount. Shall mean, for any Individual Property, 125% of the Allocated Loan Amount for such Individual Property. -1- 7 Affiliate(s). As to any specified Person, any other Person controlling or controlled by or under common control with such specified Person, including without limitation (i) any person who has a familial relationship, by blood, marriage or otherwise with any member or employee of Borrower, or any affiliate thereof and (ii) any Person which receives compensation for administrative, legal or accounting services from the Borrower or any affiliate. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" or "controlled" have meanings correlative to the foregoing. Notwithstanding anything to the contrary contained in this Loan Agreement, any two Persons whose shares are both publicly traded shall not be deemed Affiliates regardless of any common shareholders or directors. Allocated Loan Amount. Shall mean the portion of the Loan Amount allocated, solely for purposes of performing certain calculations hereunder, to each Individual Property, as set forth in Schedule 1 hereto. Appraisal. An appraisal of the Premises prepared at the Borrower's expense by a qualified appraiser designated by and satisfactory to the Lender, in accordance with written instructions from the Lender, dated as of a date acceptable to the Lender and otherwise satisfactory in form and substance to the Lender. Approved Insurer. An insurer previously approved by the Lender with an Standard and Poor's rating of AA or better, and which is authorized to issue insurance in each state where an Individual Property is located. Bank. Shall have the meaning set forth in the Cash Management Agreement. Bankruptcy Code. Title 11 of the United States Code entitled "Bankruptcy," as amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditor's rights. Bankruptcy Event. As to any Person, the occurrence of any of the following with respect to such Person: (i) a court or governmental agency having jurisdiction over the Premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency, reorganization, moratorium, sequestration, liquidation, consolidation or other similar law now or hereafter in effect, or appoint a receiver, liquidator, assignee, custodian, conservator, trustee, sequestrator (or similar official) of such Person or for any substantial part of its property or order the winding up or liquidation of its affairs; (ii) an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect is commenced against a Person and such petition remains unstayed and in effect for a period of sixty (60) consecutive days; (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or similar law or make any general assignment for the benefit of creditors; (iv) such Person shall admit in writing its inability to pay its debts -2- 8 generally as they become due (otherwise than on a purely temporary basis), or (v) such Person shall take any action in furtherance of any of the aforesaid purposes. Basic Carrying Costs. Shall mean, with respect to an Individual Property, the sum of the following costs associated with such Individual Property for the relevant calendar year or payment period: (i) taxes and (ii) insurance premiums. Borrower Party. Shall mean the Borrower Principal, any guarantor, any general partner of Borrower if Borrower is a partnership or limited partnership, any general partner in any partnership or limited partnership that is a general partner of Borrower, any managing member of Borrower if Borrower is a limited liability company, and any managing member in any limited liability company that is a managing member of Borrower, any at any level. Business Day. Any day other than a Saturday, a Sunday, a legal holiday in Charlotte, North Carolina, or a day on which banking institutions located in Charlotte, North Carolina are authorized by law or other governmental action to close. Cash Management Agreement. The Cash Management Agreement, dated as of even date herewith, executed by the Borrower, the Lender and the Agent. Certification. As to any specified report, Financial Statement, Operating Statement, Rent Roll or other document, a written certification by a Responsible Officer of the Person providing such report, Financial Statement, Operating Statement, Rent Roll or other document that such report, Financial Statement, Operating Statement, Rent Roll or other document, as at the date thereof, (i) contains all of the information and statements required to be set forth therein, (ii) that such information and statements are true and correct in all material respects, (iii) that there is no untrue statement of a material fact required to be stated therein, (iv) that there is no failure to state therein any information or fact that is necessary to make the information or statements contained therein, in light of the circumstances under which they are made, not misleading, and (v) that there is no fact known to such Responsible Officer that materially adversely affects any of the information or statements set forth therein. Closing Date. The date set forth in the first paragraph of this Loan Agreement. Code. Shall have the meaning set forth in the Note. Commitment. The Lender's commitment letter with respect to the Loan as accepted by the Borrower and the Borrower Principals in accordance with the terms thereof. Debt Service. Shall mean the installments of principal and interest due and payable in accordance with the Note, the Defeased Note or the Undefeased Note, as the case may be during any applicable period. Debt Service Reserve Account. Shall mean an Eligible Account established and maintained pursuant to the terms of this Loan Agreement. -3- 9 Debt Service Coverage Ratio Leases. Shall mean the ratio that shall be applied by Lender, calculated as follows: (a) With respect to the Leases for the Premises, the ratio of the (i) Net Operating Income Leases for the Premises for the immediately preceding twelve (12) calendar month period to (ii) the projected Debt Service that would be due on the Loan with respect to the Premises for the twelve (12) calendar month period immediately following such calculation; and (b) With respect to any Leases for an Individual Property, the ratio of (i) Net Operating Income Leases for the subject Individual Property for the immediately preceding twelve (12) month period to (ii) the projected Debt Service that would be due with respect to the Allocated Loan Amount applicable to the subject Individual Property for the twelve (12) month period immediately following such calculation. Debt Service Coverage Ratio Premises. Shall mean the ratio that shall be applied by Lender, calculated as follows: (a) With respect to revenues of the Premises, the ratio of (i) Net Operating Income Premises of the Premises for the immediately preceding twelve (12) calendar month period to (ii) the projected Debt Service that would be due on the Loan with respect to the Premises for the twelve (12) month period immediately following such calculation; and (b) with respect to the revenues of an Individual Property, the ratio (i) Net Operating Income Premises for the subject Individual Property for the immediately preceding twelve (12) month period to (ii) the projected Debt Service that would be due with respect to the Allocated Loan Amount applicable to the subject Individual Property for the twelve (12) month period immediately following such calculation. Default Condition. The occurrence or existence of an event or condition which, upon the giving of notice or the passage of time, or both, would constitute an Event of Default. Defeased Note. Shall have the meaning set forth in Section 4(c) of the Note. Eligible Account. An account that is either (i) maintained with a federal or state-chartered depository institution or trust company whose commercial or finance paper or other similar obligations are rated A-1 or better by Standard & Poor's Rating Group, a division of McGraw Hill, Inc., ("Standard & Poors"), P-1 or better by Moody's, Investors Services, Inc., ("Moody's"), D-1 or better by Duff & Phelps Credit Rating Co. ("Duff") and F-1 + or better by Fitch IBCA, Inc. ("Fitch") (ii) an account or accounts maintained with a depository institution with a minimum long-term unsecured debt rating of AA or better by Standard & Poor's or Fitch and Duff, or Aaa or better by Moody's provided that the deposits in such account or accounts are fully insured by the Federal Deposit Insurance Corporation, (iii) a segregated trust account maintained with the corporate trust department of an institution with capital and surplus of not less than $50,000,000 and with a minimum long-term unsecured debt rating of AA or better by Standard & Poor's or Fitch and Duff, or Aaa or better by Moody's, or (iv) an account otherwise acceptable to the Lender. -4- 10 Engineering Report. An engineering report of the Premises from an engineer approved by the Lender and dated as of a date acceptable to the Lender, which report shall, among other things, (a) conform to all requirements of the Lender and (b) certify that the Premises is in material compliance with all applicable requirements of the Americans with Disabilities Act of 1990. Environmental Assessment. A report (including all drafts thereof) of an environmental assessment of the Premises of such scope (including but not limited to the taking of soil borings and air and groundwater samples and other above and below ground testing) as the Lender may request, by a consulting firm acceptable to the Lender, which shall, among other things, be dated as of a date acceptable to the Lender and conform to (i) the current minimum standards for the American Society of Testing and Materials, and (ii) the Lender's then current requirements. Environmental Covenant(s). Each of the covenants, agreements and/or indemnities set forth in Section 5.3 of this Loan Agreement. Equity Interests. Any and all shares, interests, participations and other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person not a corporation (including, without limitation, general and limited partnership interests in a limited partnership), and any and all warrants and options to purchase any of the foregoing. ERISA. The Employee Retirement Income Security Act of 1974. Event of Default. The occurrence of any event or condition specified in Section 7.1 of this Loan Agreement. Financial Statement. As to any indicated Person, for any specified period, financial statements of such Person, including, at a minimum, a current balance sheet, a current income and expense statement, a statement showing contingent liabilities and any other supporting schedules or documentation that the Lender may from time to time require, and, in the case of the Borrower, a detailed cash flow statement for each property and/or entity in which the Borrower has an interest, prepared in accordance with Required Accounting Standards. The cash flow statements provided shall include, as applicable, the property and entity name, location, size (including the number of rooms with respect to hotels), and the percentage of ownership therein, its leasing and occupancy status, its Operating Income Premises (including the sources of Operating Income Premises), its Operating Expenses Premises, its Net Operating Income Premises, any loan balance currently outstanding, the amount and beneficiary of any cash distributions by such Person, the amount invested in and/or received from such property or entity; and detailed cash flow projections for the next twelve (12) month period therefor. Each Financial Statement shall include a Certification thereto. All required financial statements shall list only the assets of the indicated Person, and in no event shall the assets of the indicated Person include the assets of any other Person. Each annual financial statement shall be accompanied by (i) a comparison of the budgeted income and expenses and the actual income and expenses for the prior fiscal year, (ii) a certificate executed by the chief financial officer of -5- 11 the Person stating that each such annual financial statement presents fairly the financial condition and the results of the operations of the Person and the Property being reported upon and has been prepared in accordance with Required Accounting Standards, (iii) an unqualified opinion of a "Big Five" accounting firm or other independent certified public accountant reasonably acceptable to Lender, (provided that an audit shall be required only for the Borrower and Borrower Principal and, with respect to an Individual Property, there shall be provided only a supplemental schedule of Operating Lease revenues on an Individual Property by Individual Property basis) and (iv) a schedule audited by such independent certified public accountant reconciling Operating Income Leases to Net Operating Income Leases, which shall itemize all adjustments made to Operating Income Leases to arrive at Net Operating Income Leases deemed material by such independent certified public accountant. Financing Statements. The UCC financing statements filed in order to perfect the Lender's lien on certain personal property and fixtures as more particularly described therein. The Financing Statements shall be on forms approved for filing in the applicable state and local filing offices of the applicable state in which any filings are necessary or, in the Lender's opinion desirable, to be made to perfect the interests of the Lender granted under the Loan Documents, together with the search results for such filing offices, including copies of all reported financing statements. Franchise Agreement. Means, with respect to any Individual Property, that certain franchise agreement more specifically identified on Schedule 2 attached hereto. Fundamental Transaction. As defined in Section 5.2(e) hereof. GAAP. Generally accepted accounting principles, as from time-to-time in effect in the United States of America, consistently applied. Governmental Action. The issuance or threatened issuance in writing of any claim, citation, notice of any pending or threatened suit, proceeding, order or governmental inquiry or opinion involving the Premises that alleges the violation of any Requirement of Law or Hazardous Materials Law. Governmental Authorities. Any governmental (including health and environmental) agency, office, officer or official whose consent or approval is required as applicable under the circumstances as a prerequisite to the commencement of the construction, renovation or expansion of the Improvements or to the operation and occupancy of the Improvements or the Premises or to the performance of any act or obligation or the observance of any agreement, provision or condition of whatsoever nature herein contained. Ground Lease. Each ground lease, if any, pursuant to which the Borrower acquires an interest as ground lessee of any portion of the Premises. Hazardous Materials. Includes petroleum and petroleum products, flammable explosives, radioactive materials (excluding radioactive materials in smoke detectors), polychlorinated biphenyls, lead, asbestos or asbestos containing materials in any form that is or could become friable, hazardous waste, toxic or hazardous substances or other related materials -6- 12 whether in the form of a chemical, element, compound, solution, mixture or otherwise including, but not limited to, those materials defined as "hazardous substances," "extremely hazardous substances," "hazardous chemicals," "hazardous materials," "toxic substances," "solid waste," "toxic chemicals," "air pollutants," "toxic pollutants," "hazardous wastes," "extremely hazardous waste," or "restricted hazardous waste" by Hazardous Materials Law or regulated by Hazardous Materials Law in any manner whatsoever, and all other "Hazardous Materials", if any, identified in the Program Rider. Hazardous Materials Indemnity Agreement. Shall mean a Hazardous Materials Indemnification Agreement substantially in the form attached hereto as Exhibit H and to the extent a new agreement is specifically required under this Loan Agreement, as such form may be amended by Lender consistent with prudent underwriting standards. Hazardous Materials Law. All federal, state, and local laws, ordinances and regulations and standards, rules, policies and other governmental requirements and any court judgments applicable to the Borrower or to the Premises relating to industrial hygiene or to environmental or unsafe conditions or to human health including, but not limited to, those relating to the generation, manufacture, storage, handling, transportation, disposal, release, emission or discharge of Hazardous Materials, those in connection with the construction, fuel supply, power generation and transmission, waste disposal or any other operations or processes relating to the Premises, and those relating to the atmosphere, soil, surface and ground water, wetlands, stream sediments and vegetation on, under, in or about the Premises. "Hazardous Materials Law" also shall include, but not be limited to, the following laws, as amended as set forth herein and as subsequently amended: (1) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USCA 9601 et seq.; (2) the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 USCA 6901 et seq.; (3) the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USCA 1251 et seq.; (4) the Toxic Substances Control Act, 15 USCA 2601 et seq.; (5) the Emergency Planning and Community Right-to-Know Act of 1986, 42 USCA 11001 et seq.; (6) the Clean Air Act, as amended by the Clean Air Act Amendments, 42 USCA 7401 et seq.; (7) the National Environmental Policy Act of 1969, 42 USCA 4321 et seq.; (8) the River and Harbor Act of 1899, 33 USCA 401 et seq.; (9) the Endangered Species Act of 1973, 16 USCA 1531 et seq.; (10) the Occupational Safety and Health Act of 1970, 29 USCA 651 et seq.; (11) the Safe Drinking Water Act, 42 USCA 300(f) et seq.; and (12) the Hazardous Materials Transportation Act, 49 USCA 1801 et seq., and all regulations from time to time adopted in respect to the foregoing laws. Immediate Repair(s). Those repairs, replacements and improvements listed as "Immediate Repairs" on Exhibit B hereto. Improvements. As defined in the Security Instrument. Indebtedness. For any Person, without duplication: (a) all indebtedness of such Person for borrowed money, for amounts drawn under a letter of credit, or for the deferred -7- 13 purchase price of property for which such Person or its assets is liable, (b) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person would be liable, if such amounts were advanced under the credit facility, (c) all amounts required to be paid by such Person as a guaranteed payment to partners or a preferred or special dividend, including any mandatory redemption of shares or interests, (d) all indebtedness guaranteed by such Person, directly or indirectly, (e) all obligations under leases that constitute capital leases for which such Person is liable, and (f) all obligations of such Person under interest rate caps, floors, collars and other interest hedge agreements, in each case whether such Person is liable contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss. Indemnitor. Shall mean the Borrower Principal. Independent Appraiser: Shall mean an independent appraiser which is a member of the American Institute of Real Estate Appraisers selected by Borrower and having at least five (5) years of experience in the applicable real estate market where the applicable Individual Property is located in the valuation of properties of the type being appraised. Individual Property. Shall mean each parcel of real property and the Improvements thereon encumbered by a Security Instrument, together with all rights pertaining to such property and improvements as more particularly described in the granting clauses of the Security Instrument and referred to therein as the Premises. Initial Reserve Deposit(s). Any amount required to be deposited into any Reserve Account on or before the Closing Date in accordance with the terms of this Loan Agreement, including without limitation, any initial deposit to any Reserve Account identified on Exhibit B hereto or in the Program Rider. Insurance. All of the following insurance coverages: (i) Property Insurance. Insurance with respect to the Improvements against any peril included within the classification "All Risks of Physical Loss" with extended coverage in amounts at all times sufficient to prevent it from becoming a co-insurer within the terms of the applicable policies, but in any event such insurance shall be maintained in an amount equal to the full insurable value of the Premises and with deductibles acceptable to the Lender. The term "full insurable value" as used herein shall mean the actual replacement cost of the Premises (without taking into account any depreciation, and exclusive of excavations, footings and foundations, landscaping and paving, but in no event less than one hundred twenty-five percent (125%) of the applicable Allocated Loan Amount) determined annually by an insurer, a recognized independent insurance broker or an Independent Appraiser selected and paid by Borrower and in no event less than the coverage required pursuant to the terms of any Lease; provided, however, if the terms of the applicable insurance policies expressly provide for insurance to be provided in the amount of the actual replacement cost of the Improvements and the Building Equipment or such policies contain a replacement cost endorsement, no such annual determination will be necessary. -8- 14 (ii) Liability Insurance. Comprehensive general liability insurance, including bodily injury, death and property damage liability, dram shop coverage and umbrella liability insurance against any and all claims, including all legal liability to the extent insurable imposed upon the Lender and all court costs and attorneys' fees and expenses, arising out of or connected with the possession, use, leasing, operation, maintenance or condition of the Premises in such amounts as are generally required by institutional lenders for properties comparable to the Premises in market areas comparable to the market areas in which the Premises are located written on a per occurrence limit of not less than $1,000,000.00 and with an aggregate limit of not less than $3,000,000.00 per Individual Property. In the event that any payment of proceeds is made under any umbrella liability insurance policy, the Borrower shall immediately purchase additional liability insurance coverage so that at all times there shall be no less than a $1,000,000.00 minimum of liability insurance coverage per occurrence with a $3,000,000.00 minimum general aggregate limit. (iii) Workers' Compensation Insurance. Statutory workers' compensation insurance (to the extent the risks to be covered thereby are not already covered by other policies of insurance maintained by it), with respect to any work on, about or regarding the Premises. (iv) Business Interruption. Business interruption insurance and/or insurance for loss of income in an amount sufficient to avoid any co-insurance penalty and to provide proceeds which will cover a period of at least eighteen (18) months following the date of casualty or such other period acceptable to the Lender and the Rating Agencies. The amount of such business interruption insurance shall be determined prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from each Individual Property for the succeeding eighteen (18) month period. (v) Boiler and Machinery Insurance. Broad form boiler and machinery insurance covering all boilers and other pressure vessels, machinery and equipment located in, on or about the Premises and insurance against loss of occupancy or use arising from any such breakdown in an amount equal to one hundred percent (100%) of the actual replacement cost of such machinery (without taking into account any depreciation) and containing such deductibles as are acceptable to the Lender. (vi) Flood Insurance. If all or any portion of the Premises is located within a federally designated flood hazard zone, flood insurance as is generally available and in such amounts and with such deductibles as the Lender may reasonably require. (vii) Other Insurance. Such other insurance (including, without limitation, earthquake insurance, sinkhole insurance, law and ordinance insurance, environmental insurance and malpractice insurance) with respect to the Premises against loss or damage of the kinds from time to time reasonably required by the Lender in connection with loans secured by properties comparable to the Premises. -9- 15 Intangible Personalty. As defined in the Security Instrument. Land. As defined in the Security Instrument. Leases. As defined in the Cash Management Agreement. Lessee. As defined in the Cash Management Agreement. Lien. Any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any financing lease having substantially the same economic effect as any of the foregoing). Loan. Shall have the meaning set forth in the recitals hereto. Loan Amount. The original principal amount of the Note. Loan Document(s). This Loan Agreement, the Commitment, the Note, the Security Instrument, the Financing Statements, the Cash Management Agreement and all other documents evidencing, securing or relating to the Loan. Loan to Value Ratio. Shall mean the quotient of the then outstanding principal amount of the Loan divided by the value of the Premises remaining subject to the Lien of the Security Instrument, as determined by Lender in its sole discretion pursuant to its review and approval of a new or updated Appraisal obtained by Lender at Borrower's expense and taking into account only approved Operating Leases in place with respect to the portion of the Premises not being defeased, having remaining terms (not taking into account extension rights or options) of not less than five (5) years from the date of the applicable defeasance. Lockbox Account. The account specified for deposits of Rents and Profits and other receipts from the Premises. Management Agreement. Shall mean, with respect to any Individual Property, the written management agreement for the Premises, if any, in form and substance satisfactory to the Lender, by and between the Borrower, as owner, and a management company, as manager. Manager. Shall mean the manager of the Premises, if any, under the Management Agreement, and its successors and assigns. Maturity Date. Shall have the meaning the forth in the Note. Monthly Payment Amount. Shall have the meaning set forth in the Note. Monthly Reserve Deposits. Any monthly payment or deposit required in connection with any Reserve Account, including without limitation, any monthly payments or deposits to any Reserve Account identified in Exhibit B hereto or in the Program Rider. -10- 16 Net Operating Income Leases. With respect to any specified period, (i) Operating Income Leases, minus (ii) (A) Operating Expenses Leases and (B) replacement reserves, including any capital expenditures (to the extent such capital expenditures exceed any amounts held in the Replacement Reserve Account) required in connection with (i) any franchise agreement; (ii) any capital improvements budget with Operating Lessee; or (iii) any deposits to the Replacement Reserve Account, each as calculated for such period. Net Operating Income Premises. With respect to any specified period, (i) Operating Income Premises, minus (ii) (A) Operating Expenses Premises, (B) management fees (assuming a 4% management fee); and (C) replacement reserves, including any capital expenditures (to the extent such capital expenditures exceed any amounts held in the Replacement Reserve Account) required in connection with (i) any franchise agreement; (ii) any capital improvements budget with Operating Lessee; or (iii) any deposits to the Replacement Reserve Account, each as calculated for such period. New Manager. Shall mean Flagstone Hospitality Management LLC. Non-Consolidation Opinion. Shall have the meaning set forth in Section 4.28 hereof. Nondisturbance Agreement. Shall mean, for each Individual Property, that certain Nondisturbance, Subordination and Attornment Agreement among Lender, Borrower and Operating Lessee, substantially in the form attached hereto as Exhibit E (as such Nondisturbance Agreement may be amended (i) to include any revisions required by Lender in the event a different form of Operating Lease than those currently in existence is entered into by Operating Lessee; or (ii) by Lender consistent with prudent underwriting standards). Note. The promissory note or notes of the Borrower in connection with the Loan in favor of the Lender, as acknowledged and agreed to by the Borrower Principals, together with all prior notes amended, modified, renewed, extended, restated, supplemented, replaced or substituted thereby. Note Payment Amount. For any Payment Date, the total amount due and owing under the Note on such Payment Date. O&M Program. An operations and maintenance program (in form and substance satisfactory to the Lender) relating to the use, handling and/or abatement of one or more Hazardous Materials and which is accepted in writing by the Borrower. Obligations. As to any stated Person, the unpaid principal of and interest on any promissory note or other indebtedness of such Person (including, without limitation, interest accruing after the maturity of any such promissory note or indebtedness and interest accruing thereon after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to such Person, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) and all other obligations and liabilities of such Person, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, whether on account of principal, interest, reimbursement -11- 17 obligations, fees, indemnities, costs, expenses (including, without limitation, all reasonable fees and disbursements of counsel) or otherwise. Officer's Certificate. Shall mean a certificate delivered to Lender and signed by an officer of the managing member of the Borrower. Operating Expenses Leases. Any expense paid or to be paid by the Borrower (or any of its agents or by the Lender on account or on behalf of the Borrower) under the Operating Lease determined on an accrual basis, in accordance with GAAP, including, without limitation, (i) all payments required to be made pursuant to any franchise or other agreement, (ii) undistributed expenses, including without limitation, general and administrative, marketing, utilities, operations and maintenance, (iii) legal, accounting, appraisal and other professional fees, costs and disbursements, including annual fees and other amounts (including indemnity payments) payable annually or otherwise, (iv) taxes, insurance premiums and impositions of any type, (v) any amount paid in connection with any interest rate contract or similar hedge, cap, collar, floor or currency swap, (vi) all items, if any, defined as an Operating Expense herein. Notwithstanding the foregoing, Operating Expenses Leases will not include (a) depreciation or amortization, (a) any expenses that in accordance with GAAP should be capitalized (other than current charges for any such expenses included in the preceding sentence) (C) the principal of and interest on the Note and (D) any item of expense that would otherwise be considered within Operating Expenses Leases pursuant to the provisions above but which is required to be paid directly by the Operating Lessee under the Operating Lease. Operating Expenses Premises. Any expenses in connection with the operation of the Premises, determined (as if there were no Operating Lease) on an accrual basis, in accordance with GAAP, including, without limitation, (i) all payments required to be made pursuant to any management, franchise or other agreement, (ii) undistributed expenses, including without limitation, general and administrative, marketing, utilities, operations and maintenance and other expenses and deposits required to be made to the Reserve Accounts, as appropriate, (iii) legal, accounting, appraisal and other professional fees, costs and disbursements, including annual fees and other amounts (including indemnity payments) payable annually or otherwise, (iv) taxes (real or personal), insurance premiums and impositions of any type, (v) any amount paid in connection with any interest rate contract or similar hedge, cap, collar, floor or currency swap, (vi) all items, if any, defined as an Operating Expense in the Program Rider, and (vii) the cost of goods sold. Notwithstanding the foregoing, Operating Expenses Premises will not include (A) depreciation or amortization, (B) any expenses that in accordance with GAAP should be capitalized (other than current charges for any such expenses included in the preceding sentence), (C) the principal of and interest on the Note and (D) management fees. Operating Income Leases. All rents (net of concessions), charges, fees, expense recovery, revenues and other income (including interest income) paid (other than security deposits from tenants or other Persons under valid leases or other agreements and insurance, eminent domain or similar proceeds and rewards paid directly to the Lender pursuant to the provisions of this Loan Agreement and any disbursements to Borrower from any Reserve Accounts) at any time to the Borrower (or to any of its agents other than the Operating Lessee for the account of the Borrower) by any Person under the Operating Lease or otherwise in -12- 18 connection with the operation of the Premises or under the Operating Leases, as applicable, determined on an accrual basis, and all items, if any, defined as Operating Income in the Program Rider. Operating Income Premises. Shall mean, as if there were no Operating Lease, all rents (net of concessions), charges, fees, expense recovery, revenues and other income (including interest income) paid (other than security deposits from tenants or other Persons under valid leases or other agreements and insurance, eminent domain or similar proceeds and rewards paid directly to the Lender pursuant to the provisions of this Loan Agreement and any disbursements to Borrower from any Reserve Accounts) as if there were no Operating Lease at any time to the Borrower (or to any of its agents for the account of the Borrower) by the Person in connection with the operation of the Premises or under the Operating Leases, as applicable, determined on an accrual basis, and all items, if any, defined as Operating Income in the Program Rider. Operating Lease. Shall mean, with respect to any Individual Property, the lease agreement in effect between Borrower and the Operating Lessee for the use and operation of each Individual Property and all amendments, modifications, renewals, substitutions or replacements of such lease. The initial Operating Leases in effect as of the date hereof are identified on Schedule 3 hereto. Operating Lessee. Shall mean (i) RFS, Inc. a Tennessee corporation, or (ii) any Qualified Operating Lessee approved by Lender in accordance with the provisions of this Loan Agreement. [Operating Partnership. Shall mean RFS Partnership, L.P. a Tennessee limited partnership, and any successor thereto.] Operating Statement. As to the Premises and for each Individual Property, for any period indicated, a statement of the Borrower, as reflecting, truly and accurately, the items set forth therein as at the date thereof, showing the Operating Income Premises and Operating Expenses Premises for the indicated period and including a statement as to the amounts and sources of rent or other income collected and any other information reasonably required by the Lender. Each Operating Statement shall include a Certification. Partial Defeasance Date. Shall have the meaning given in Section 4(c) of the Note. Payment Date. Each date any payment of principal or interest on the Note is due and payable thereunder. Permitted Encumbrances. As defined in the Security Instrument, together with any Liens which have been bonded over (i) within thirty (30) days after the date of filing thereof, (ii) with a bonding company satisfactory to the Lender, (iii) in an amount satisfactory to the Lender, and (iv) otherwise in form and substance satisfactory to the Lender, in each case, in the Lender's reasonable discretion. -13- 19 Permitted Investments. Shall mean any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by the servicer or the trustee under any Securitization, as hereinafter defined, or any of their respective Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior to the first Monthly Payment Date following the date of acquiring such investment and meeting one of the appropriate standards set forth below: (i) obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of: the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (ii) Federal Housing Administration debentures; (iii) obligations of the following United States government sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Student Loan Marketing Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (iv) federal funds, unsecured certificates of deposit, time deposits, bankers' acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency, as hereinafter defined, (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or -14- 20 withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (v) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers' acceptances issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vi) debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest long-term unsecured rating category; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vii) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest short-term unsecured debt rating; -15- 21 provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by Standard and Poor's, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (viii) units of taxable money market funds or mutual funds, which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have the highest rating available from each Rating Agency for taxable money market funds or mutual funds (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) for money market funds or mutual funds; and (ix) any other security, obligation or investment which has been approved as a Permitted Investment in writing by (a) Lender and (b) each Rating Agency, as evidenced by a written confirmation that the designation of such security, obligation or investment as a Permitted Investment will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency; provided, however, that no obligation or security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments or (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of one hundred twenty percent (120%) of the yield to maturity at par of such underlying investment. Person. An individual, a general or limited partnership, a limited liability company, a limited liability partnership, a corporation, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or other entity of whatever nature. Personalty. The Tangible Personalty and the Intangible Personalty. Premises. The collective reference to the Land, the Improvements and the Tangible Personalty for each of the five (5) Individual Properties more particularly described in the Security Instrument. Program Rider. The Program Rider attached as Exhibit D to this Loan Agreement. Property Release. Shall have the meaning set forth in Section 2.5. -16- 22 Prohibited Activities or Conditions. Causing or permitting, whether directly or indirectly, (i) the presence, use, generation, manufacture, production, processing, installation, release, discharge, storage (including storage in above ground and underground storage tanks for petroleum or petroleum products), treatment, handling, or disposal of any Hazardous Materials (excluding the safe and lawful use and storage of quantities of Hazardous Materials or petroleum products, customarily used in the ordinary operations of the Borrower or customarily used in the ordinary operations of any tenant previously approved by the Lender) on or under the Premises, or in any way affecting the Premises or its value or which may form the basis for any present or future claim, demand or action seeking cleanup of the Premises, (ii) the transportation of any Hazardous Materials to or from the Premises (excluding the safe and lawful use and storage of quantities of Hazardous Materials or petroleum products, customarily used in the ordinary operations of the Borrower or customarily used in the ordinary operations of any tenant previously approved by the Lender), or (iii) any occurrence or condition on the Premises (or exacerbation of the same) that is or may be in violation of Hazardous Materials Law. Qualified Manager. Means a Manager that is (or is controlled by, controlling or under common control with ) either (a) an entity owned or controlled by the executive management or shareholders of the REIT immediately prior to the applicable Fundamental Transaction, as hereinafter defined, or (b) a professional management company which at the time of its engagement as Manager shall be the property manager for at least ten (10) hotel properties containing at least one thousand three hundred (1,300) rooms exclusive of the Premises. Qualified Operating Lessee. Means a Person that (a) is (or is controlled by, controlling or under common control with) either (i) an entity owned or controlled by the executive management or shareholders of the REIT immediately prior to the applicable Fundamental Transaction, or (ii) a hotel operating company which at the time of its engagement as Operating Lessee shall be operating and controlling, as owner, manager or operating lessee, at least twelve (12) hotel properties consisting of at least one thousand five hundred (1,500) rooms exclusive of the Premises, (b) is a single purpose bankruptcy-remote entity in accordance with the then-current standards of the Rating Agencies, and (c) if the Qualified Operating Lessee is an Affiliate, it must be a taxable REIT subsidiary as set forth in and in accordance with the definition of Fundamental Transaction. Qualified Resultant Owner. Means one or more Persons which, individually or collectively, own at least fifty-one percent (51%) of the beneficial interest in and control of the REIT or the Operating Partnership, as applicable; and (1)(a) is or is controlled by either a pension fund, pension fund advisor, and insurance company, a domestic bank (with total assets of at least One Billion Dollars ($1,000,000,000)) or publicly or privately traded real estate investment trust or other publicly traded or privately held company, (b) has a then current net worth of at lease One Hundred Million Dollars ($100,000,000) and total real estate assets of at least Two Hundred Million Dollars ($200,000,000), in each case exclusive of the Premises (or in the case of a pension fund advisor, controls at least Five Hundred Million ($500,000,000) in real estate assets), and (c) controls (exclusive of the Premises) at least ten (10) hotel properties containing in the aggregate at least one thousand three hundred (1,300) rooms and (2) if the Fundamental Transaction occurs at any time that the Loan is not part of a Securitization, (x) such -17- 23 Person(s) are not and have not been, within the previous ten (10) years, subject to any material, uncured event of default which resulted in litigation or an acceleration of any indebtedness under any agreement with Lender, (y) such Person(s) are not subject to any bankruptcy action and (z) the principals or entities which control such Person(s) have never been convicted of a felony. Rating Agencies. Shall mean, as applicable, each of Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., Moody's Investors Services, Inc., Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc., or any other nationally-recognized statistical rating agency which has been approved by Lender which rated the securities in connection with the Securitization (as defined in ss.9.3 below). Recourse Covenant(s). Each of those covenants and/or agreements set forth in Section 5.4 of this Loan Agreement. REIT. Shall mean RFS Hotel Investors, Inc., a Tennessee corporation, and any successor thereto. Release Parcel. Shall have the meaning set forth in Section 4(c) of the Note. REMIC. Shall have the meaning set forth in the Note. Rent Roll. As to the Premises, a rent schedule in a form acceptable to the Lender, including a Certification thereof, showing the legal and trade name of each tenant, and for each tenant, the gross and net square feet occupied, the lease expiration date, the rent payable (both base rent and additional rent), right of first refusal, options, rights to move tenants, security deposits and any other information requested by the Lender and, as to any annual Rent Roll, copies of paid tax receipts for the related fiscal year. Rents and Profits. As defined in the Security Instrument. Repair Escrow Account. An Eligible Account established and maintained pursuant to the terms of this Loan Agreement. Replacement Reserve Account. An Eligible Account established and maintained pursuant to the terms of this Loan Agreement. Replacements. Those repairs, replacements or improvements listed as "Replacements" on Exhibit B hereto. Required Accounting Standards. GAAP or such alternative accounting standard as may be acceptable to the Lender, consistently applied. Required DSCR. As defined in Section 7.1(m) of this Agreement. Requirement(s) of Law. As to any Person, the organizational or governing documents of such Person, and any statute, law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority (including, without limitation, all -18- 24 requirements relating to zoning, parking, ingress and egress, building setbacks, or use of the Premises, all Hazardous Materials Laws, the Architectural Barriers Act of 1968, the Rehabilitation Act of 1973, the Americans with Disabilities Act of 1990, erosion control ordinances, storm drainage control laws and doing business and/or licensing laws), in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. Reserve Account(s). The Repair Escrow Account, the Tax and Insurance Reserve Account, the Replacement Reserve Account, the Debt Service Reserve Account, and all other reserve and/or escrow accounts established or required pursuant to the provisions of the Loan Documents, including, without limitation, pursuant to the Program Rider. Responsible Officer. As to any Person, the general partner (if the general partner is not an individual, then the chief executive officer, the chief financial officer or the president or similar individual of the general partner), the managing member, the chief executive officer, the chief financial officer or the president or similar individual of such Person. Securities. Any certificates, notes or other securities issued in connection with a Securitization of the Loan. Securitization. Shall have the meaning set forth in Section 9.3 herein. Security Instrument. The deeds of trust, mortgages, or other instrument, dated as of even date herewith, executed by the Borrower granting to the Lender a first priority lien or title priority on the Premises, the Intangible Personalty and the Rents and Profits to secure the obligations of the Borrower under the Loan Documents, together with all prior instruments amended, modified, renewed, extended, restated, supplemented, replaced or substituted thereby. Special Purpose Entity. An entity whose structure and organizational and governing documents are in form and substance acceptable to the Lender and which satisfies all of the following requirements: (i) Its purpose shall be limited solely to, as applicable, (a) entering into this Loan Agreement with the Lender, (b) owning, holding, selling, leasing, transferring, exchanging, operating and managing the Premises and (c) transacting any and all lawful business for which it may be organized under its constitutive law that is incident, necessary and appropriate to accomplish the foregoing. (ii) It does not own and will not own any asset or property other than (a) the Premises, and/or (b) incidental Personalty necessary for and used or to be used in connection with the ownership or operation of the Premises. (iii) It will not engage in any business other than the ownership, management and operation of the Premises. (iv) It will not enter into any contract or agreement with any Affiliate, any constituent party of itself, any of its owners, any guarantors of its obligations, or any -19- 25 Affiliate of any constituent party, owner or guarantor (collectively, the "Related Parties") of itself, except upon terms and conditions that are intrinsically fair, commercially reasonable and substantially similar to those that would be available on an arms-length basis with third parties not so affiliated with itself or such related parties. (v) It has not incurred and will not incur any indebtedness other than, as applicable, (a) the Loan, (b) trade and operational debt incurred in the ordinary course of business with trade creditors in amounts not to exceed One Hundred Thousand Dollars ($100,000.00), provided such debt is not evidenced by a note and is not in excess of sixty (60) days past due. No other indebtedness may be secured (senior, subordinate or pari passu) by the Premises. (vi) It has not made and will not make any loans or advances to any Person and shall not acquire obligations or securities of any Related Party other than the Additional Loan. (vii) It is and will remain solvent and it will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due. (viii) It has done or caused to be done and will do all things necessary to observe organizational formalities and preserve its existence, and it will not, nor will it permit any related party to, amend, modify or otherwise change the partnership certificate, partnership agreement, articles of incorporation and bylaws, operating agreement, trust or other organizational documents of Borrower or such related party without the prior written consent of Lender. (ix) It will maintain all of its books, records, financial statements and bank accounts separate from those of any other Person and its assets will not be listed as assets on the financial statement of any other Person. It will file its own tax returns and will not file a consolidated federal income tax return with any other Person. It shall maintain its books, records, resolutions and agreements as official records. (x) It will be, and at all times will hold itself out to the public as, a legal entity separate and distinct from any other Person (including any Affiliate or other related party), shall correct any known misunderstanding regarding its status as a separate entity, shall conduct business in its own name, shall not identify itself or any of its Affiliates as a division or part of the other and shall maintain and utilize a separate telephone number and separate stationery, invoices and checks. (xi) It will maintain from its own assets (and without contribution by other Persons) adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations. (xii) Neither it nor any related party will seek its own dissolution, winding up, liquidation, consolidation or merger in whole or in part, or the sale of its material assets. -20- 26 (xiii) It will not commingle its assets with those of any other Person and will hold all of its assets in its own name. (xiv) Except as provided in Section 9.15 hereof, it will not guarantee or become obligated for the debts of any other Person and does not and will not hold itself out as being responsible for the debts or obligations of any other Person. (xv) If it is a limited partnership or a limited liability company, at least one general partner or member, or if it is a general partnership at least two general partners (each, an "SPC Party") shall be a corporation whose sole asset is the interest in Special Purpose Entity and each such SPC Party will at all times comply, and will cause it to comply, with each of the representations, warranties, and covenants contained in this definition of Special Purpose Entity as if such representation, warranty or covenant was made directly by such SPC Party. Upon the withdrawal or the disassociation of the SPC Party from the Special Purpose Entity, the Special Purpose Entity shall immediately appoint a new member whose articles of incorporation are substantially similar to those of the SPC Party and deliver a new Insolvency Opinion to the Rating Agency or Rating Agencies, as applicable, with respect to the new SPC Party and its equity owners. (xvi) It shall at all times have (if a corporation) or cause there to be at least two duly appointed members of the board of directors (each an "Independent Director") of each SPC Party (if Borrower is a limited partnership or a limited liability company) reasonably satisfactory to Lender who is not at the time of initial appointment and has not been at any time during the preceding five (5) years: (i) a stockholder, director, officer, employee, partner, attorney or counsel of Borrower or such SPC Party or any Affiliate of either of them; (ii) a customer, supplier or other Person who derives any of its purchases or revenues (other than any payments made in connection with such service as Independent Director) from its activities with Borrower or such SPC Party or any Affiliate of either of them; (iii) a Person controlling or under common control with any such stockholder, partner, customer, supplier or other Person; or (iv) a member of the immediate family of any such stockholder, director, officer, employee, partner, customer, supplier or other Person. (As used herein, 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, whether through ownership of voting securities, by contract or otherwise). (xvii) It shall not cause or permit the board of directors of an SPC Party to take any action which, under the terms of any certificate of incorporation, by-laws or any voting trust agreement with respect to any common stock, requires the vote of any SPC Party unless at the time of such action there shall be at least one member who is an Independent Director. (xviii) It shall allocate fairly and reasonably any overhead expenses that are shared with an Affiliate, including paying for office space and services performed by any employee of an Affiliate or related party. -21- 27 (xix) It shall not pledge its assets for the benefit of any other Person other than with respect to the Loan. (xx) It shall maintain a sufficient number of employees in light of its contemplated business operations and pay the salaries of its own employees from its own funds. (xxi) It shall conduct its business so that the assumptions made with respect to Borrower in the Insolvency Opinion shall be true and correct in all respects. Subordination Agreement. A subordination, non-disturbance and attornment agreement by and among Lender, Borrower and any Lessee substantially in the form attached hereto as Exhibit G and to the extent a new Subordination Agreement is specifically required under the terms of this Loan Agreement, as such form may be amended by Lender consistent with prudent underwriting standards. Substitute Property. Shall have the meaning set forth in Section 2.6. Substitute Release Amounts. Shall have the meaning set forth in Section 2.6 (xiv). Substituted Property. Shall have the meaning set forth in Section 2.6. Survey. A survey of the Land and Improvements (as-built) made by a civil engineer or surveyor, duly licensed or registered in the State where the applicable property is located, dated as of a date acceptable to the Lender, containing a surveyor's certification acceptable to the Lender for the benefit of the Borrower and the Lender (which certification shall, among other things, indicate whether or not any of the Land or Improvements are located within an area identified as having "special flood hazards" as such term is used in the Flood Disaster Protection Act of 1973), together with its successors and assigns, as their interests may appear, and otherwise in form and substance reasonably acceptable to the Lender. Tangible Personalty. As defined in the Security Instrument. Tax and Insurance Reserve Account. An Eligible Account established and maintained pursuant to the terms of this Loan Agreement. Tenant Estoppel Certificate. A tenant estoppel certificate substantially in the form attached hereto as Exhibit F, as such form may be amended by Lender consistent with prudent underwriting standards. Title Insurance Policy. Shall mean, with respect to each Individual Property, a title insurance policy in a form acceptable to Lender in its sole discretion, including all amendments and endorsements thereto. Undefeased Note. Shall have the meaning set forth in Section 4(c) of the Note. -22- 28 U.S. Obligations. Any direct obligations of the United States Government, including, without limitation, treasury bills, notes and bonds. Section 1.2 Other Definitional Provisions. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The word "including" when used in this Agreement is intended to be illustrative and not exclusive. Section, subsection, paragraph, clause, exhibit, schedule, addendum and rider references contained in this Agreement are references to sections, subsections, paragraphs, clauses, exhibits, schedules, addenda and riders in or to this Agreement unless otherwise specified. The captions herein are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Loan Agreement nor the intent of any provision hereof. The terms set forth herein are applicable to the singular as well as the plural forms of such terms and to the masculine as well as the feminine and neuter genders of such terms. (b) All references in this Loan Agreement or any other Loan Document to any Loan Document, agreement, contract, license, document or instrument shall mean such Loan Document, agreement, contract, license, document or instrument as amended, modified, renewed, extended, restated, supplemented, reissued, and/or substituted from time to time. (c) All references or citations in this Loan Agreement or any other Loan Document to any statute, law, treaty, rule, regulation or other Requirement of Law shall mean such statute, law, treaty, rule, regulation or other Requirement of Law as amended, modified, supplemented, replaced or substituted from time to time. Section 1.3 Incorporation by Reference of Commitment. All of the terms and conditions of the Commitment are hereby incorporated herein by reference, as if such terms and conditions were set forth herein in their entirety, but in the event of any conflict or discrepancy between the terms and/or conditions of this Loan Agreement and those of the Commitment, the terms and conditions of this Loan Agreement shall control. ARTICLE II THE LOAN Section 2.1 Loan Terms. Subject to the terms and conditions of this Loan Agreement and the other Loan Documents, the Lender agrees to make the Loan to the Borrower in the principal sum of the Loan Amount, such borrowing to be evidenced by the Note and the other Loan Documents. -23- 29 Section 2.2 Interest. The outstanding principal balance of the Loan shall bear interest, and principal and interest shall be repayable, in accordance with the terms of the Note. Section 2.3 Term. The Loan shall be due and payable in full, unless accelerated sooner pursuant to the terms of this Loan Agreement, on the Maturity Date. Section 2.4 Payments. All payments by the Borrower under the Loan shall be made in accordance with the terms of the Note. Section 2.5 Release of Properties. Except as set forth in this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of the Lien of the Security Instrument on the Premises or any portion thereof. Release on Payment in Full. If Borrower shall pay or cause to be paid, the principal of and interest on the Note in full at maturity or as permitted in accordance with the terms thereof and all other Indebtedness payable to Lender hereunder by Borrower or secured by the Security Instrument or by the other Loan Documents and all of the payment Obligations shall have been performed, then the Security Instrument and all the other Loan Documents shall be discharged and satisfied or assigned (to Borrower or to any other Person at Borrower's direction and without representation or warranty by, or recourse to, Lender), at Borrower's option, without warranty (except that Lender shall be deemed to have represented that such release and termination or reassignment has been duly authorized and that it has not assigned or encumbered the Security Instrument or the other Loan Documents), at the expense of Borrower upon its written request. Concurrently with such release and satisfaction or assignment of any Security Instrument and all the other Loan Documents, Lender will return to Borrower (or in the case of an assignment, the assignee) the Note and all insurance policies relating to the Premises which may be held by Lender, any amounts held in escrow pursuant to the Security Instrument or the Cash Management Agreement, if applicable, or otherwise, and any part of the Premises or other Collateral that may be in its possession and, on the written request and at the expense of Borrower, will execute and deliver such instruments of conveyance, assignment and release (including appropriate UCC-3 termination statements) prepared by Borrower and as may reasonably be requested by Borrower to evidence and to assure the effectiveness of such release and satisfaction, or assignment, and any such instrument, when duly executed by Lender and, if appropriate, duly recorded by Borrower in the places where the Security Instrument and each other Loan Document is recorded, shall conclusively evidence the release and satisfaction or assignment of the Security Instrument and the other Loan Documents. Section 2.6 Substitution of Properties. Subject to the terms and conditions set forth in this Section 2.6, Borrower may obtain a release of the Lien of a Security Instrument (and -24- 30 the related Loan Documents) encumbering an Individual Property (a "Substituted Property") by substituting therefor its fee interest in one or more hotel properties of like kind and quality acquired by Borrower (individually, a "Substitute Property" and collectively, the "Substitute Properties"), provided that no such substitution may occur after the Maturity Date. In addition, any such substitution shall be subject, in each case, to the satisfaction of the following conditions precedent: (i) The Substitute Property must be a property as to which Borrower will hold indefeasible fee or ground leasehold title free and clear of any lien or other encumbrance except for Permitted Encumbrances, Leases and easements, restrictive covenants and other title exceptions which do not have a material adverse effect on the utility or value of such property for its current use. (ii) Lender and Rating Agencies shall have received (A) a copy of a deed conveying all of Borrower's right, title and interest in and to the Substituted Property (x) to an entity other than Borrower or its general partner or managing member (as applicable) in an arms' length transaction or (y) to the REIT or the Operating Partnership and (B) a letter from Borrower countersigned by a title insurance company acknowledging receipt of such deed and agreeing to record such deed in the real estate records for the county in which the Substituted Property is located. In the event the Substituted Property is to be conveyed to the REIT or the Operating Partnership, Lender shall also have received (a) a copy of a fully executed contract of sale between the REIT or the Operating Partnership, as applicable, and an entity other than Borrower or a Borrower Party for the sale of the Substituted Property in an arms' length transaction, which contract of sale (i) at the time of substitution, is not subject to any contingencies, except for the payment of the purchase price by the purchaser and the delivery of title by the REIT or the Operating Partnership, as applicable and (ii) contains a closing date which is not more than thirty (30) days following the date of the proposed substitution and (b) evidence that any good-faith deposit required under such contract of sale has been deposited into escrow. (iii) Lender and the applicable Rating Agencies shall have received an MAI appraisal of the Substitute Property dated no more than forty-five (45) days prior to the substitution by an appraiser acceptable to such Rating Agencies, indicating an appraised value of the Substitute Property that is at least equal to the greater of the appraised value of the Substituted Property determined by Lender as of the date hereof or determined by an Independent Appraiser as of the date immediately preceding the encumbrance of the Substitute Property by the related Security Instrument. (iv) The Debt Service Coverage Ratio Premises for the Substitute Property shall be a minimum of 2.3x, as determined by Lender in its sole and absolute discretion. (v) The Net Operating Income Premises for the Substitute Property either (A) does not show a successive decrease over the three (3) years immediately prior to the date of substitution, or (B) if the Substitute Property has been substantially renovated -25- 31 within such three (3) year period, the Net Operating Income Premises shall not show a successive decrease for such lesser period of no less than twelve (12) months. (vi) The Net Operating Income Leases for the Substitute Property either (A) does not show a successive decrease over the three (3) years immediately prior to the date of substitution, or (B) if the Substitute Property has been substantially renovated within such three (3) year period, the Net Operating Income Leases shall not show a successive decrease for such lesser period of no less than twelve (12) months (vii) The Net Operating Income Premises for the twelve (12) month period immediately preceding the substitution for the Substitute Property is at least one hundred five percent (105%) the Net Operating Income Premises for the twelve (12) month period immediately preceding the substitution for the Substituted Property. (viii) The Net Operating Income Leases for the twelve (12) month period immediately preceding the substitution for the Substitute Property is at least one hundred five percent (105%) the Net Operating Income Leases for the twelve (12) month period immediately preceding the substitution for the Substituted Property. (ix) The Debt Service Coverage Ratio Premises after any proposed substitution, based on the remaining collateral properties, including the Substitute Property shall be at least equal to the greater of (i) the Debt Service Coverage Ratio Premises on the date hereof; or (ii) the Debt Service Coverage Ratio Premises immediately prior to such substitution. (x) The Debt Service Coverage Ratio Leases after any proposed substitution, based on the remaining collateral properties, including the Substitute property shall be at least equal to the greater of (i) the Debt Service Coverage Ratio Leases on the date hereof; or (ii) the Debt Service Coverage Ratio Leases immediately prior to such substitution. (xi) The Person transferring the Substitute Property is solvent and the Substitute Property was transferred to Borrower in an arm's length transaction. (xii) If the Loan is part of a Securitization, Lender shall have received evidence in writing from the Rating Agencies to the effect that such substitution will not result in a withdrawal, qualification or downgrade of the respective ratings in effect immediately prior to such substitution for the Securities issued in connection with the Securitization that are then outstanding. (xiii) No Event of Default shall have occurred and be continuing. Lender and the Rating Agencies shall have received a certificate from Borrower confirming the foregoing. (xiv) Borrower shall have executed, acknowledged and delivered to Lender (A) a Security Instrument, and two UCC Financing Statements with respect to the Substitute Property, together with a letter from Borrower countersigned by a title -26- 32 insurance company acknowledging receipt of such Security Instrument and UCC-1 Financing Statements and agreeing to record or file, as applicable, such Security Instrument and one of the UCC-1 Financing Statements in the real estate records for the county in which the Substitute Property is located and to file one of the UCC-1 Financing Statement in the office of the Secretary of State of the state in which the Substitute Property is located, so as to effectively create upon such recording and filing valid and enforceable liens upon the Substitute Property, of the requisite priority, in favor of Lender (or such other trustee as may be desired under local law), subject only to the Permitted Encumbrances and such other liens as are permitted pursuant to the Loan Documents, (B) an Hazardous Materials Indemnity Agreement with respect to the Substitute Property, (C) a Nondisturbance Agreement for the Substitute Property and (D) written confirmation from each Indemnitor and all Borrower Principals regarding such substitution. The Security Instrument, UCC-1 Financing Statements and Hazardous Materials Indemnity Agreement shall be the same in form and substance as the counterparts of such documents executed and delivered with respect to the related Substituted Property subject to modifications reflecting the Substitute Property as the Individual Property that is the subject of such documents and such modifications reflecting the laws of the state in which the Substitute Property is located as shall be recommended by the counsel admitted to practice in such state and delivering the opinion as to the enforceability of such documents required pursuant to clause (xiv) below. The Security Instrument encumbering the Substitute Property shall secure all amounts evidenced by the Note, provided that in the event that the jurisdiction in which the Substitute Property is located imposes a mortgage recording, intangibles or similar tax and does not permit the allocation of indebtedness for the purpose of determining the amount of such tax payable, the principal amount secured by such Security Instrument shall be equal to one hundred twenty-five percent (125%) of the amount of the Loan allocated to the Substitute Property. The amount of the Loan allocated to the Substitute Property (such amount being hereinafter referred to as the "Substitute Release Amount") shall equal the Adjusted Release Amount of the related Substituted Property. (xv) Lender shall have received (A) any "tie-in" or similar endorsement to each Title Insurance Policy insuring the lien of an existing Security Instrument as of the date of the substitution available with respect to the Title Insurance Policy insuring the lien of the Security Instrument with respect to the Substitute Property and (B) a Title Insurance Policy (or a marked, signed and redated commitment to issue such Title Insurance Policy) insuring the lien of the Security Instrument encumbering the Substitute Property, issued by the title company that issued the Title Insurance Policies insuring the lien of the existing Security Instrument and dated as of the date of the substitution, with reinsurance and direct access agreements that replace such agreements issued in connection with the Title Insurance Policy insuring the lien of the Security Instrument encumbering the Substituted Property, to the extent such agreements are available in the jurisdiction in which the Substitute Property is located. The Title Insurance Policy issued with respect to the Substitute Property shall (1) provide coverage in the amount of the Allocated Loan Amount if the "tie-in" or similar endorsement described above is available or, if such endorsement is not available, in an amount equal to one hundred twenty-five percent (125%) of the Allocated Loan Amount, (2) insure Lender that the relevant -27- 33 Security Instrument creates a valid first lien on the Substitute Property encumbered thereby, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (3) contain such endorsements and affirmative coverages as are contained in the Title Insurance Policies insuring the liens of the existing Security Instrument, to the extent available in the jurisdiction in which the Substitute Property is located and (4) name Lender as the insured. Lender also shall have received copies of paid receipts showing that all premiums in respect of such endorsements and Title Insurance Policies have been paid. (xvi) Lender shall have received a current title survey for each Substitute Property, certified to the title company and Lender and their successors and assigns, in the same form and having the same content as the certification of the Survey of the Substituted Property prepared by a professional land surveyor licensed in the state in which the Substitute Property is located and acceptable to the Rating Agencies in accordance with the 1997 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys, including items 1, (if readily available) 2, 3, 4, 6, 7 (a) (b) (c) , 8, 9, 10, 11 and 13 from Table A. Such survey shall reflect the same legal description contained in the Title Insurance Policy relating to such Substitute Property and shall include, among other things, a metes and bounds description of the real property comprising part of such Substitute Property. The surveyor's seal shall be affixed to each survey and each survey shall certify that the surveyed property is not located in a "one-hundred-year flood hazard area." (xvii) Lender shall have received valid certificates of insurance indicating that the requirements for the policies of insurance required for an Individual Property hereunder have been satisfied with respect to the Substitute Property and evidence of the payment of all premiums payable for the existing policy period. (xviii) Lender shall have received a Phase I environmental report and, if recommended under the Phase I environmental report, a Phase II environmental report from a nationally recognized environmental consultant approved by the Rating Agencies (if applicable), not less than forty-five (45) days prior to such release and substitution, which conclude that the Substitute Property does not contain any Hazardous Materials (except for cleaning and other products used in connection with the routine maintenance or repair of the Substitute Property or the operation thereof as a hotel, in full compliance with Hazardous Materials Laws) and is not subject to any risk of contamination from any off-site Hazardous Materials. If any such report discloses the presence of any Hazardous Materials (except for cleaning and other products used in connection with the routine maintenance or repair of the Substitute Property or the operation thereof as a hotel, in full compliance with Hazardous Materials Laws) or the risk of contamination from any off-site Hazardous Materials, such report shall include an estimate of the cost of any related remediation and Borrower shall deposit with Lender an amount equal to one hundred twenty-five percent (125%) of such estimated cost, which deposit shall constitute additional security for the Loan and shall be released to Borrower upon the delivery to Lender of (A) an update to such report indicating that there is no longer any -28- 34 Hazardous Materials (except for cleaning and other products used in connection with the routine maintenance or repair of the Substitute Property or the operation thereof as a hotel, in full compliance with Hazardous Materials Laws) on the Substitute Property or any danger of contamination from any off-site Hazardous Materials that has not been fully remediated in accordance with all applicable laws and (B) paid receipts indicating that the costs of all such remediation work have been paid. Such report shall also state the amount of time that will be necessary to complete such remediation, as may be required by law. Borrower covenants to undertake any repairs, cleanup or remediation indicated. (xix) Borrower shall deliver or cause to be delivered to Lender (A) updates certified by Borrower of all organizational documentation related to Borrower and/or the formation, structure, existence, good standing and/or qualification to do business delivered to Lender in connection with the Closing Date; (B) good standing certificates, certificates of qualification to do business in the jurisdiction in which the Substitute Property is located (if required in such jurisdiction) and (C) resolutions of the managing member of Borrower authorizing the substitution and any actions taken in connection with such substitution. (xx) Lender shall have received the following opinions of Borrower's counsel (which opinions, with respect to the opinions set forth in clauses (A), (B) and (C) below, shall be in form similar to the corresponding opinions delivered in connection with the closing of the Loan): (A) an opinion or opinions of counsel admitted to practice under the laws of the state in which the Substitute Property is located stating that the Loan Documents delivered with respect to the Substitute Property pursuant to clause (viii) above are valid and enforceable in accordance with their terms, subject to the laws applicable to creditors' rights and equitable principles, and that Borrower is qualified to do business and in good standing under the laws of the jurisdiction where the Substitute Property is located or that Borrower is not required by applicable law to qualify to do business in such jurisdiction; (B) an opinion of counsel stating that the Loan Documents delivered with respect to the Substitute Property pursuant to clause (viii) above were duly authorized, executed and delivered by Borrower and that, to the best of Borrower's counsel's knowledge, the execution and delivery of such Loan Documents and the performance by Borrower of its obligations thereunder will not cause a breach of, or a default under, any agreement, document or instrument to which Borrower is a party or to which it or its properties are bound; (C) an opinion of counsel stating that subjecting the Substitute Property to the lien of the related Security Instrument and the execution and delivery of the related Loan Documents does not and will not affect or impair the ability of Lender to enforce its remedies under all of the Loan Documents or to realize the benefits of the cross-collateralization provided for thereunder; (D) an update of the Non-Consolidation Opinion indicating that the substitution does not affect the opinions set forth therein; (E) an opinion of counsel acceptable to the applicable Rating Agencies stating that the substitution and the related transactions do not constitute a fraudulent conveyance under applicable bankruptcy and insolvency laws and (F) an opinion of counsel acceptable to the applicable Rating Agencies that the substitution does not constitute a "significant modification" of the Loan -29- 35 under Section 1001 of the Code or otherwise cause a tax to be imposed on a "prohibited transaction" by any REMIC. (xxi) Borrower shall have paid or caused to be paid all Basic Carrying Costs relating to each of the Individual Properties and the Substitute Property, including, without limitation, (i) accrued but unpaid insurance premiums relating to each of the Individual Properties and the Substitute Property, (ii) currently due taxes (including any in arrears) relating to each of the Individual Properties and the Substitute Property and (iii) any other charges relating to each of the Individual Properties and Substitute Property which are currently due. (xxii) Borrower shall have paid or reimbursed Lender for all third party out-of-pocket costs and expenses incurred by Lender (including, without limitation, reasonable attorneys fees and disbursements) in connection with the substitution and Borrower shall have paid all recording charges, filing fees, taxes or other expenses (including, without limitation, mortgage and intangibles taxes and documentary stamp taxes) payable in connection with the substitution. Borrower shall have paid all costs and expenses of the Rating Agencies incurred in connection with the substitution. (xxiii) Lender shall have received annual operating statements and occupancy statements for the Substitute Property for the three (3) most recently completed fiscal years and a current operating statement for the Substituted Property or, if information is not available for a three (3) year period or if the Substituted Property has been substantially renovated within such three (3) year period, such lesser period as is available, but in no event less than twelve (12) months. Each of the statements required under this clause (xvii) shall be certified to Lender as being true and correct and a certificate from Borrower certifying that there has been no adverse change in the financial condition of the Substitute Property since the date of such operating statements. (xxiv) Borrower shall have delivered to Lender estoppel certificates from any Operating Lessees and other tenants of the Substitute Property. All such estoppel certificates shall be in the form attached hereto as Exhibit F and shall indicate, among other things, that (1) the subject lease is a valid and binding --------- obligation of the tenant thereunder, (2) there are no defaults under such lease on the part of the landlord or tenant thereunder, (3) the tenant thereunder has no defense or offset to the payment of rent under such leases, (4) no rent under such lease has been paid more than one (1) month in advance, (5) the tenant thereunder has no option or right of first refusal under such lease to purchase all or any portion of the Substitute Property and (6) all tenant improvement work required under such lease has been completed and the tenant under such lease is in actual occupancy of its leased premises. If an estoppel certificate indicates that all tenant improvement work required under the subject lease has not yet been completed, Borrower shall, if required by the Rating Agencies, deliver to Lender financial statements indicating that Borrower has adequate funds to pay all costs related to such tenant improvement work as required under such lease. -30- 36 (xxv) Lender shall have received copies of all tenant leases affecting the Substitute Property certified by Borrower as being true and correct. Lender shall have received a current Rent Roll of the Substitute Property certified by Borrower as being true and correct. (xxvi) Lender shall have received a Nondisturbance Agreement with respect to all Operating Leases and Subordination Agreements with respect to any other leases which are not subordinate by their terms to the Security Instrument with respect to the Substitute Property. (xxvii) Lender shall have received (A) an endorsement to the Title Insurance Policy insuring the lien of the Security Instrument encumbering the Substitute Property insuring that the Substitute Property constitutes a separate tax lot or, if such an endorsement is not available in the state in which the Substitute Property is located, a letter from the title insurance company issuing such Title Insurance Policy stating that the Substitute Property constitutes a separate tax lot or (B) a letter from the appropriate taxing authority stating that the Substitute Property constitutes a separate tax lot. (xxviii) Lender shall have received a physical conditions report with respect to the Substitute Property from a nationally recognized structural consultant approved by the Rating Agencies (if applicable) in a form recognized and approved by such Rating Agencies not less than forty-five (45) days prior to such release and substitution stating that the Substitute Property and its use comply in all material respects with all applicable Requirements of Law (including, without limitation, zoning, subdivision and building laws) and that the Substitute Property is in good condition and repair and free of damage or waste. If compliance with any Requirements of Law are not addressed by the physical conditions report, such compliance shall be confirmed by delivery to Lender of a certificate of an architect licensed in the state in which the Substitute Property is located, a letter from the municipality in which such Substitute Property is located, a certificate of a surveyor that is licensed in the state in which the Substitute Property is located (with respect to zoning and subdivision laws), an ALTA 3.1 zoning endorsement to the Title Insurance Policy delivered pursuant to clause (xii) above (with respect to zoning laws) or a subdivision endorsement to the Title Insurance Policy delivered pursuant to clause (xii) above (with respect to subdivision laws) to the extent such endorsements are available in the jurisdiction in which the Substitute Property is located. If the physical conditions report recommends that any repairs be made with respect to the Substitute Property, such physical conditions report shall either (A) include an estimate of the cost of such recommended repairs (in which case Borrower shall deposit into the Repair Escrow Account an amount equal to one hundred twenty-five percent (125%) of such estimated cost), or (B) state the specific amounts that need to be reserved over time in order to meet the requirements of such replacements, but in no event less than five percent (5%) of gross revenues (in which case Borrower shall deposit such reserves into the Replacement Reserve Account on a monthly basis). Any such deposits shall constitute additional security for the Loan pursuant to Section 6.6 and shall be released to Borrower pursuant to Section 6.9. Borrower covenants to undertake any repairs, cleanup -31- 37 or remediation indicated in the physical conditions report before the earlier of (i) the time required by applicable law or (ii) the time recommended in the physical conditions report. (xxix) Lender shall have received and approved each Operating Lease, Franchise Agreement and Management Agreement, if any, relating to the Substitute Property, and Borrower shall have demonstrated that such agreements are substantially similar to the agreements then in place at the Substituted Property. (xxx) Lender shall have received such other and further approvals, opinions, documents and information in connection with the substitution as the Rating Agencies may have requested. (xxxi) Lender shall have received copies of all contracts and agreements relating to the leasing and operation of the Substitute Property together with a certification of Borrower attached to each such contract or agreement certifying that the attached copy is a true and correct copy of such contract or agreement and all amendments thereto. (xxxii) Borrower shall submit to Lender, not less than thirty (30) days prior to the date of such substitution, a release of lien (and related Loan Documents) for the Substituted Property for execution by Lender. Such release shall be in a form appropriate for the jurisdiction in which the Substituted Property is located. Borrower shall deliver an Officer's Certificate certifying that the requirements set forth in this Section 2.6 have been satisfied. (xxxiii) The total Allocated Loan Amount, in the aggregate, for all prior Substituted Properties (including the current Substituted Property) is less than twenty percent (20%) of the Original Principal Amount of the Loan. (xxxiv) The Substitute Property shall be subject to the lien of the related Security Instrument and subject to the cross-collateralization and cross-default provisions of this Loan Agreement and the Security Instrument. (xxxv) With respect to the Substitute Property, Borrower shall deliver to Lender (i) copies of all franchisor inspection reports and performance improvement programs with respect to the Substitute Property for the two (2) year period prior to the substitution or if such information is not available for such two (2) year period, such lesser period as is available and (ii) an Officer's Certificate certifying that the items delivered in (i) above indicate that Borrower is in compliance with the franchisor's requirements. Upon the satisfaction of the foregoing conditions precedent, Lender will release its lien from the Substituted Property to be released and the Substitute Property shall be deemed to be an Individual Property for purposes of this Loan Agreement and the Substitute Release Amount with respect to such Substitute Property shall be deemed to be the Allocated Loan Amount with respect to such Substitute Property for all purposes hereunder. -32- 38 ARTICLE III CONDITIONS PRECEDENT TO LOAN The obligation of the Lender to make the Loan is subject to the Lender's waiver or satisfaction, by proper evidence, execution and/or delivery to the Lender of each of the following items, each in form and substance satisfactory to the Lender and the Lender's counsel: Section 3.1 Loan Documents. Each of the Loan Documents. Section 3.2 Brokerage Commissions. All brokerage commissions, finder's fees or similar compensation in connection with the purchase of the Premises (if all or any portion of the Premises is being purchased with Loan proceeds), the making of the Loan, or the transactions contemplated by the Loan Documents have been paid in full. Section 3.3 Title Evidence. An original signed title commitment in form and substance satisfactory to the Lender, for a standard ALTA mortgagee policy as to the Premises from a company or from companies approved by the Lender (including any reinsurance agreements and endorsements required by the Lender), providing coverage for the full principal amount of the Loan, containing such coverages and endorsements as may be required by the Lender, together with copies of all recorded documents creating exceptions to such policy. Section 3.4 Survey. Two (2) originals of the Survey. Section 3.5 Insurance. Each policy of insurance required by this Loan Agreement is in full force and effect on the Closing Date. Section 3.6 Authority Documents. (a) Organizational Documents. As applicable, a certified copy of each limited partnership agreement, limited partnership certificate, partnership agreement, articles of incorporation, bylaws, shareholder agreements, articles of organization and operating agreement of the Borrower and each Borrower Principal (when not an individual), and each general partner, member or shareholder of the Borrower, with all amendments, modifications, supplements and restatements thereto. (b) Assumed Name Certificate. A certified copy of each assumed name certificate, if any, of the Borrower and each Borrower Principal (when not an individual). -33- 39 (c) Good Standing Certificates. Good standing certificates, or their equivalent, issued by the Secretary of State and all other appropriate offices of the state of organization of the Borrower and each Borrower Principal (when not an individual) and evidence satisfactory to the Lender of the Borrower's and each such Borrower Principal's authorization to do business in each state where an Individual Property is located if the state of the Borrower's and each such Borrower Principal's organization is other than the state where such Individual Property is located. (d) Resolutions and Consents. Certified resolutions and/or consents authorizing the Borrower and each Borrower Principal (when not an individual) to enter into the Loan Documents. Section 3.7 Financial Statements and Operating Statements. Financial Statements of the Borrower and each Borrower Principal as of the end of the most recent fiscal year, together with Operating Statements for the period from the beginning of the current fiscal year and ending on a date not more than sixty (60) days prior to the Closing Date. Section 3.8 Opinions. Opinions of independent counsel to the Borrower in form and substance acceptable to the Lender, dated as of the Closing Date including, without limitation, an opinion with respect to the due execution and enforceability of the Loan Documents and an opinion that in the event of a bankruptcy proceeding involving an Affiliate of Borrower the assets of Borrower including the Premises shall not be substantively consolidated with the assets of the Affiliate. Section 3.9 Compliance with Laws. The Premises and the Intangible Personalty, and the intended uses thereof, comply in all material respect with all Requirements of Law. Section 3.10 Agreements. Copies of all operating agreements, service contracts, labor contracts, license agreements and equipment leases, if any, relating to the Borrower's ownership and operation of the Premises executed by or binding against Borrower. Copies, of any and all franchise agreements, purchase contracts, comfort letters, Subordination Agreements and Nondisturbance Agreements, relating to the Premises. Section 3.11 Taxes. The Land and the Improvements are separately assessed for tax purposes, together with tax parcel identification numbers, tax rates, estimated tax values and the identities of the taxing authorities. -34- 40 Section 3.12 Utilities. The availability and suitability of the water, storm water, electric, oil, natural gas, sewer and telephone utilities needed to properly service the Premises in its intended use. Section 3.13 Reserve Accounts. The establishment of each Reserve Account with balances equal to any Initial Reserve Deposit thereto required by this Loan Agreement (including the Program Rider) or any of the other Loan Documents. Section 3.14 Engineering Report. An Engineering Report. Section 3.15 Certificate of Occupancy and Other Permits. Such certificates of occupancy, permits and licenses as the Lender may require to evidence that the Premises is suitable for occupancy and use. Section 3.16 Environmental Assessment and O&M Program. An Environmental Assessment of the Premises. The Borrower shall furnish and adopt an O&M Program, to the extent recommended by an Environmental Assessment with respect to all Hazardous Materials, if any, identified in such Environmental Assessment or as otherwise reasonably required by the Lender. Section 3.17 Appraisal. An Appraisal. Section 3.18 Equity. The Borrower's equity as of the Closing Date is acceptable to the Lender. Section 3.19 Debt Service. As of the Closing Date, the Borrower's: (a) Debt Service Coverage Ratio Premises shall be a minimum of 2.30x and; (b) Debt Service Coverage Ratio Leases shall be a minimum of 2.05x. Section 3.20 Loan to Value Ratio. The loan to value ratio as calculated for the Premises by Lender in its sole discretion is less than 50%. -35- 41 Section 3.21 Special Purpose Entity. The Borrower is a Special Purpose Entity. Section 3.22 Miscellaneous. All other documents or items set forth in the Commitment (including all supplement and special conditions included in the Commitment) or otherwise required by the Lender. ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce the Lender to enter into this Agreement and to make the Loan, the Borrower hereby represents and warrants and, where specifically indicated, each Borrower Principal hereby represents and warrants (but only for purposes of each Borrower Principal's obligations under the recourse provisions of Section 8 of the Note), to the Lender (for itself, but not otherwise) on the Closing Date as follows: Section 4.1 Existence; Compliance with Law. The Borrower and each Borrower Principal (when not an individual) (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessor and to conduct the business in which it is currently engaged, (c) is duly qualified to do business in and is in good standing under the laws of each jurisdiction where an Individual Property is located and where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law. Section 4.2 Equity Interests. The owners (beneficial and otherwise) of all of the Equity Interests in the Borrower are as set forth in Exhibit A and have been duly authorized, are validly issued and outstanding, fully paid and non-assessable. There are no outstanding options or other rights pertaining to the Equity Interests in the Borrower, and no voting trust or similar agreement affecting either ownership of or the right to vote such Equity Interests (except for those items detailed in the Borrower's operating agreement or certificate of incorporation). Section 4.3 Power; Authorization; Enforceable Obligations. The Borrower and each Borrower Principal (when not an individual) has all requisite legal power and authority, and the legal right, to make, deliver and perform each Loan Document to which it is, or is to be, a party and to borrow hereunder, and has taken all necessary corporate, partnership or company action (as the case may be) to authorize the execution, delivery and performance of each Loan Document to which it is, or is to be, a party and to -36- 42 authorize the borrowings on the terms and conditions of this Agreement and the Note. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of any Loan Document, except to the extent specified in any such Loan Document. Each Loan Document has been (or will be) duly executed by, and delivered on behalf of the Borrower and the Borrower Principals, as the case may be. Each Loan Document constitutes (or when executed and delivered will constitute) the legal, valid and binding obligation, enforceable against the Borrower and the Borrower Principals, as the case may be, in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, sequestration, liquidation, consolidation or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). Section 4.4 No Legal Bar. The execution, delivery and performance of the Loan Documents will not violate any Requirement of Law applicable to the Borrower and the Borrower Principals or any contractual obligation, security, agreement, instrument, license or other undertaking by which the Borrower or the Borrower Principal is bound and will not result in, or require, the creation or imposition of any Lien (other than under the Loan Documents) on any of their properties or revenues pursuant to any such Requirement of Law or contractual obligation, security, agreement, instrument, license or other undertaking. Section 4.5 No Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower and the Borrower Principals, threatened against any of them or any of their properties or revenues, or with respect to any Loan Document or any of the transactions contemplated thereby, which would have a material adverse effect on Borrower or Borrower Principal, and the Borrower is not a surety on any bond through which a Lien might be created superior to the Security Instrument. Section 4.6 No Default. The Borrower is not in default under, or with respect to, any contractual obligation, security, agreement, instrument, license or other undertaking by which the Borrower is bound which is in excess of $100,000.00. The Borrower Principal is not in default under, or with respect to, any contractual obligation, security, agreement, instrument, license or undertaking by which the Borrower Principal is bound which would materially affect the Borrower Principal's obligations under the Note. No Default Condition or Event of Default has occurred and is continuing. Section 4.7 Solvency; Fraudulent Conveyance. The Borrower and each Borrower Principal is solvent and will not be rendered insolvent by the transactions contemplated hereby and, after giving effect to such transactions, -37- 43 will not be left with an unreasonably small amount of capital with which to engage in its business. Neither the Borrower nor the Borrower Principal intends to incur, or believes that it has incurred, debts beyond its ability to pay such debts as they mature. Neither the Borrower nor the Borrower Principal has commenced or filed nor contemplates the commencement or filing of any bankruptcy, insolvency, reorganization, moratorium, sequestration, liquidation, consolidation or similar proceedings or the appointment of a receiver, liquidator, assignee, conservator, trustee, sequestrator or similar official in respect of it or any of its assets. The amount of the Loan constitutes reasonably equivalent value and fair consideration for the transfer to the Lender of the interest in the Premises represented by the Security Instrument. Neither the Borrower nor the Borrower Principal is transferring any interest in the Premises with any intent to hinder, delay or defraud any of its creditors. Section 4.8 Special Purpose Entity. The Borrower is a Special Purpose Entity. Section 4.9 Taxes. The Borrower and each Borrower Principal, respectively, has filed or caused to be filed all tax returns which are required to be filed and has paid all taxes shown to be due and payable on said returns and on any assessments made against it and any of its property and, to its knowledge, all other taxes, fees and other charges imposed on it and any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with Required Accounting Standards have been provided on its books). No tax Lien has been filed with respect to any such tax, fee or other charge. To its knowledge, no claim is being asserted with respect to any such tax, fee or other charge which, in either case, could reasonably be expected to have a material adverse change with respect to the Borrower or the Premises. Section 4.10 No Burdensome Restrictions. Neither the Borrower nor the Borrower Principal is a party to or subject to any contractual obligation, security, agreement, instrument, license or other undertaking by which the Borrower or such Borrower Principal is bound (other than the Loan Documents) which has had or could reasonably be expected to have a material adverse effect on the business, properties, assets, operations or condition, financial or otherwise, of it, or on the ability of it to carry out its obligations hereunder or under the other Loan Documents. Notwithstanding anything contained herein to the contrary, Lender has consented to that certain Revolving Line of Credit entered into by Borrower Principal under which Lender serves as Agent. Section 4.11 Investment Company Act; Other Regulations. Neither the Borrower nor the Borrower Principal is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. Neither the Borrower nor the Borrower Principal is subject -38- 44 to regulation under any Requirement of Law which limits its ability to incur Obligations, other than as set forth herein or in the other Loan Documents. Section 4.12 Subsidiaries. The Borrower has no Subsidiaries. Section 4.13 Title to Premises. The Borrower is seized of the Land and Improvements (and any fixtures) in fee, or is the owner of a leasehold interest in the Land and Improvements (and any fixtures) pursuant to a Ground Lease, and has marketable title to any appurtenant easements and has the right to convey the same, that title to such property is free and clear of all encumbrances except for the Permitted Encumbrances, and that it will warrant and defend the title to such property (except for the Permitted Encumbrances) against the claims of all Persons. As to the balance of the Premises, the Rents and Profits and the Intangible Personalty, the Borrower represents and warrants that it has marketable title to such property, that it has the right to convey such property and that it will warrant and defend such property against the claims of all persons or parties. Section 4.14 Ownership of Personalty. The Borrower owns, subject to no Lien other than the Lien of the Security Instrument and the other Loan Documents, as appropriate, all of the Personalty. Section 4.15 Financial Statements. As of the date of the most recent Financial Statement furnished to the Lender, neither the Borrower nor the Borrower Principal had any material (a) indebtedness for borrowed money or for the deferred purchase price of property or services, as evidenced by bonds, notes or other similar instruments or agreements, (b) obligations as a lessee under leases which shall have been or should be, in accordance with Required Accounting Standards, recorded as capital leases, (c) obligations under direct or indirect guaranties in respect of, or any obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or any obligations of another of the kind referred to in clause (a) or (b) above, (d) contingent liability or liability for taxes, or (e) long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not, to the extent required by Required Accounting Standards, reflected in the foregoing statements or in the notes thereto. No sale, transfer or other disposition by the Borrower or the Borrower Principal of any material part of its business or property has occurred since the date of such party's most recent Financial Statement furnished to the Lender. Section 4.16 No Change. There has been no development or event which has had or could reasonably be expected to have a material adverse change (a) with respect to the Borrower or the Borrower Principal since the date of such party's most recent Financial Statement furnished to the Lender, -39- 45 or (b) with respect to the Premises or any portion of the Intangible Personalty since the date of the most recent Operating Statements furnished to the Lender. Section 4.17 Management Agreement. As of the date hereof, there are no Management Agreements, other than the Operating Lease, in place on any Individual Property. Section 4.18 Accuracy of Information. (a) Each exhibit, Financial Statement, Operating Statement, Rent Roll, document, book, record, report and other item of written information furnished by the Borrower or the Borrower Principals, as the case may be, to the Lender in connection with the Loan Documents is accurate as of its date and as of the date so furnished and (b) all financial projections contained therein are based on reasonable and stated assumptions, and no such document contains any material misstatement of fact or omits to state a material fact. Section 4.19 Principal Place of Business. The Borrower's principal place of business and chief executive office is at the location set forth in the first paragraph of this Loan Agreement and it has not operated under any name other than its own name at any time from the date of its formation. Section 4.20 Taxpayer Identification Number. The Borrower's taxpayer identification number is as set forth in the Note. Section 4.21 Insurance. The Borrower does not know of and has not received any written notice of any violation of any insurance policy term that remains uncured and, to its best knowledge, it and the Premises and the use thereof materially comply with all insurance policy terms. Section 4.22 Mechanic's Liens, etc. Except as have been paid for in full by the Borrower on or before the Closing Date or as shall be paid prior to delinquency in the ordinary course of the Borrower's business, no improvements or repairs have been made to the Premises during the one hundred twenty (120) days preceding the date hereof; there are no contracts not fully performed, and no outstanding bills incurred, for labor or materials used in making improvements or repairs on the Premises, or for services of architects, surveyors or engineers incurred in connection therewith. The Borrower has made no contract or arrangement of any kind whatsoever, the performance of which by the other party thereto could give rise to a Lien on the Premises superior to that of the Security Instrument. -40- 46 Section 4.23 No Violation. Except as disclosed to Lender, the Borrower has not received any notice of, and, to the best of its knowledge is not in violation of any Requirement of Law, any Hazardous Materials Law or any Governmental Action. To the best of Borrower's knowledge, the Premises are in material compliance with all Requirements of Law. Section 4.24 ERISA. (a) The Borrower is not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, (b) the assets of the Borrower do not constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. ss.2510.3-101, (c) neither the Borrower nor any of its general partners, members or shareholders, as the case may be, have any trust or custodial relationship with the Lender or any affiliate of the Lender with respect to any ERISA plan, and (d) neither the Borrower nor any general partner, member or shareholder of the Borrower is a participant in any governmental plan that has a trust or custodial relationship with the Lender or any affiliate of the Lender. The Borrower (i) is not a "governmental plan" within the meaning of Section 3(32) of ERISA and (ii) transactions by or with the Borrower are not subject to Requirements of Law regulating investments of and fiduciary obligations with respect to government plans. Section 4.25 O&M Program. The Borrower has adopted an O&M Program with respect to all Hazardous Materials, if any, identified in the Environmental Assessment furnished to the Lender prior to the Closing Date or as otherwise required by the Lender. Section 4.26 No Organizational Document Amendment. At no time after the date hereof while the Loan is outstanding shall the Borrower, nor any member or general partner of the Borrower, amend or modify their respective organizational documents without the prior written consent of Lender. Section 4.27 Permitted Encumbrances. The Permitted Encumbrances as set forth in the Security Instrument do not materially or adversely affect the Lender's lien on the Premises created by the Security Instrument, and do not materially or adversely affect the use, operation or value of the Premises. Section 4.28 Insolvency Opinion. All of the assumptions made in that certain substantive non-consolidation opinion letter dated the date hereof, delivered by Borrower's counsel in connection with the Loan and any subsequent non-consolidation opinion delivered in accordance with the terms and conditions of this Agreement (the "Non-consolidation Opinion"), including, but not limited to, any exhibits attached thereto, are true and correct in all respects. -41- 47 ARTICLE V COVENANTS AND AGREEMENTS Section 5.1 Affirmative Covenants of the Borrower. During any period in which the Loan is outstanding, the Borrower agrees that it will: (a) Use of Loan Funds. Cause all Loan proceeds to be used for the purposes set forth in a loan closing statement approved by the Lender and use all excess Loan proceeds disbursed to the Borrower only for lawful business purposes permitted under the Borrower's organizational documents. No part of the proceeds of the Loan will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of such Board of Governors. If requested by the Lender, the Borrower will furnish to the Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. No part of the proceeds of the Loan has been used in any manner that could result in a violation of Regulations G, T, V or X of the Board of Governors of the Federal Reserve System. (b) Payment. Pay when due all sums owing to the Lender and others in accordance with the terms of the Loan Documents. (c) Fees, Costs and Expenses. Pay when due all fees, costs and expenses required to be paid by the Borrower pursuant to the terms of the Commitment or any of the other Loan Documents, including without limitation, reasonable attorneys fees and other fees, costs and expenses of the Lender in connection with the enforcement of the Lender's rights under the Loan Documents. Any such amounts payable by or reimbursable to the Lender shall be due and payable within ten (10) days after written demand. (d) Condition of Premises. Keep and maintain the Premises in good order, condition and repair and shall make, as and when the same shall become necessary, all repairs and maintenance necessary or appropriate in order to keep the Premises from deteriorating. (e) Compliance. Comply in all material respect with all (i) building, zoning, fire, health, environmental, disability and use laws (including, but not limited, to all state and local handicapped access laws, the Architectural Barriers Act of 1968, the Fair Housing Amendments Act of 1988, the Rehabilitation Act of 1973, the Americans with Disabilities Act of 1990 and similar laws and ordinances), codes, ordinances, rules and regulations, to the extent required by applicable Governmental Authorities, (ii) covenants and restrictions of record and (iii) easements which are in any way applicable to the Premises or any part thereof and the use or enjoyment thereof. (f) Inspection. Subject to the rights of any tenants of the Premises under their leases, permit the Lender and/or its authorized agents to enter upon the Premises during normal working hours and as often as the Lender desires, for the purpose of inspecting the -42- 48 Improvements specifically and the condition and operation of the Premises generally. In connection therewith, the Borrower shall permit the Lender and the Lender's representatives (including an independent Person such as an engineer, architect, or inspector) or third parties making Immediate Repairs, Replacements or Additional Repairs or Replacements to enter onto the Premises during normal business hours (subject to the rights of any tenants of the Premises under their leases) to inspect the progress of any Immediate Repairs, Replacements or Additional Repairs or Replacements and all materials being used in connection therewith, to examine all plans, specifications and shop drawings relating to such Immediate Repairs, Replacements or Additional Repairs or Replacements which are or may be kept at the Premises, and to complete any Immediate Repairs, Replacements or Additional Repairs or Replacements. The Borrower agrees to cause all contractors, subcontractors, agents, architects and inspectors reasonably to cooperate with the Lender and the Lender's representatives or such other Persons described above in connection with inspections or the completion of Immediate Repairs, Replacements or Additional Repairs or Replacements. (g) Reimbursement. The Borrower agrees that if it shall fail to pay when due any tax, assessment or charge levied or assessed against the Premises (other than the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with Required Accounting Standards have been provided on its books) or any utility charge, whether public or private, or any insurance premium or if it shall fail to procure the Insurance required hereunder and cause the delivery of the insurance certificates as required herein, or if it shall fail to pay any other charge or fee described herein, then the Lender, at its option, may pay, procure or cause the delivery of the same. The Borrower will reimburse the Lender upon demand for any sums of money paid by the Lender pursuant to this Section, together with interest on each such payment at the default rate set forth in the Note and all such sums and interest thereon shall be secured hereby. (h) Environmental Assessment. Provide to the Lender from time-to-time, at the Borrower's sole fee, cost and expense, if the Lender shall ever have reason to believe that any Hazardous Material adversely affects the Premises, or if any Governmental Action is made or threatened, or if an Event of Default shall have occurred, an Environmental Assessment, which Environmental Assessment shall have been ordered by the Borrower within ten (10) days after the Lender's request and which shall be delivered to the Lender promptly after the date of the Lender's request. At all other times, the Lender may request an Environmental Assessment to be provided by the Borrower at the Lender's expense. The Borrower will cooperate with each consulting firm making any Environmental Assessment and will promptly supply to the consulting firm, from time to time upon request, all information available to the Borrower to facilitate the completion of the Environmental Assessment. If the Borrower fails to furnish the Lender within ten (10) days after the Lender's request with a copy of an agreement with an acceptable environmental consulting firm to provide such Environmental Assessment, or if the Borrower fails to order such Environmental Assessment within ten (10) days after the Lender's request, the Lender may cause any such Environmental Assessment to be made at the Borrower's fee, cost, expense and risk. The Lender may disclose to interested parties any information the Lender ever has about the environmental condition or compliance of the Premises, but shall be under no duty to disclose any such information except as may be required by law. The Lender shall be under no duty to make any Environmental Assessment of the Premises, and in no event -43- 49 shall any such Environmental Assessment by the Lender be or give rise to a representation that any Hazardous Material is or is not present on the Premises, or that there has been or shall be compliance with any Hazardous Materials Law, nor shall the Borrower or any other Person be entitled to rely on any Environmental Assessment made by the Lender or at the Lender's request. The Lender owes no duty of care to protect the Borrower or any other Person against, or to inform them of, any Hazardous Material or other adverse condition affecting the Premises. (i) Appraisal. At all times during the term of the Loan, cooperate with the Lender and use its best efforts to assist the Lender in obtaining an Appraisal of the Premises, and will promptly supply to the Lender, from time to time upon request, all information available to the Borrower to facilitate the completion of the Appraisal. If any Event of Default occurs, or if a casualty loss or governmental taking occurs and results in insurance or eminent domain proceeds in excess of $50,000.00 for an Individual Property, the Lender may, in its reasonable discretion, choose the appraiser, but the Borrower shall be responsible for reasonable fees payable to said appraiser in connection with an Appraisal of the Premises. Under all other circumstances, the appraiser performing any such Appraisal shall be engaged by the Lender, and the Lender shall be responsible for any fees payable to said appraiser in connection with an Appraisal of the Premises. (j) Surveys. Following any material, structural change in the exterior configuration of the Premises or any rezoning affecting the Premises, provide the Lender with such additional Surveys as reasonably requested by the Lender. (k) Other Tests. Promptly submit to the Lender copies of reports of all physical tests at any time made on the Land, the Improvements or the materials to be incorporated into the Improvements and shall, at the Borrower's expense, cause to be made such additional tests from time to time as the Lender may reasonably require after any change in the Premises or receipt by the Lender of any such report. (l) Taxes and Fees. Except as otherwise provided herein, pay or cause to be paid as they become due all taxes, general and special assessments (other than the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with Required Accounting Standards have been provided on its books), permit fees, inspection fees, license fees, water and sewer charges, franchise fees and equipment rents against it or the Premises, and the Borrower, upon request of the Lender, will submit to the Lender receipts evidencing said payments. (m) Financial Statements and Operating Statements. Furnish, or cause to be furnished to the Lender, annual Financial Statements for Borrower and Borrower Principal. Monthly Operating Statements for the Premises shall be submitted to the Lender when requested by the Lender and for any period during which any Event of Default is continuing. Operating Statements for the Premises shall be delivered to the Lender within forty-five (45) days of the end of each of the Borrower's fiscal quarters, and an annual Financial Statements shall be submitted to the Lender within ninety (90) days (or one hundred twenty (120) days if such annual Financial Statements are audited) of the Borrower's fiscal year end in lieu of an Operating Statement for the Borrower's fourth fiscal quarter. Borrower Principal shall furnish -44- 50 Lender, on a quarterly basis, such financial information as Borrower Principal is required to file under any Requirements of Law. Without limiting any other rights available to the Lender under this Loan Agreement or any of the other Loan Documents, in the event the Borrower shall fail to timely furnish the Lender any Financial Statement in accordance with this subsection, the Borrower shall promptly pay to the Lender a penalty in the amount of $1,000.00 for each such failure. Notwithstanding anything to the contrary contained herein, Borrower shall cause to be provided to Lender copies of all financial information required to be provided to Borrower by the Operating Lessee pursuant to the Operating Lease. (n) Books and Records. Keep and maintain or cause to be kept and maintained at all times at the Premises, at the Borrower's address set forth herein, or at such other place as the Lender may approve in writing, complete and accurate books of accounts and records adequate to reflect correctly the results of the operation of the Premises and copies of all written contracts, leases and other instruments which affect the Premises (including, but not limited to, all bills, invoices and contracts for utilities, waste management service, telephone service and management services, rent registrations and all materials filed with any Governmental Authority where applicable). Such books, records, contracts, leases and other instruments shall be subject to examination and inspection at any time by the Lender upon reasonable prior notice. (o) Further Assurances. The Borrower shall furnish or cause to be furnished such further documentation or information (including without limitation, amendments, replacements, corrections, deletions or additions to the Loan Documents or any other materials furnished to the Lender in connection with the Loan) which is (i) reasonably required to enable the Lender to sell the Loan, or (ii) reasonably deemed necessary or appropriate by the Lender in the exercise of its rights under any of the Loan Documents or to perfect, protect, maintain, preserve, continue and/or extend any Lien granted to the Lender under the Security Instrument or any other Loan Document, provided, however, that the Borrower shall not be required to do anything that (A) has the effect of (I) changing the essential economic terms of the Loan set forth in the Loan Documents or (II) imposing greater liability under the Loan Documents, or (B) results in any substantial fee, cost or expense to the Borrower. In addition, the Borrower shall furnish or cause to be furnished such further documentation and information (including without limitation, amendments, replacements, corrections, deletions and additions to the Loan Documents and other materials furnished to the Lender in connection with the Loan) reasonably deemed necessary or appropriate by the Lender to correct patent mistakes in the Loan Documents, materials relating to title insurance policies and other insurance required hereunder, and the funding of the Loan, provided that any such further documentation or information shall be at the sole fee, cost and expense of the Lender. (p) Payment of Operating Expenses Premises and Operating Expenses Leases. Pay all Operating Expenses Premises and Operating Expenses Leases, except to the extent that: (i) the Lender is obligated to pay any Operating Expense on behalf of the Borrower from the Tax and Insurance Reserve Account, the Replacement Reserve Account, the Repair Escrow Account or other Reserve Accounts established pursuant to the Loan Documents or (ii) the Operating Lessee is obligated to pay any Operating Expense under the Operating Lease. -45- 51 (q) Payment of Recurring Capital Expenditures. Pay all expenditures with respect to the Premises, to the extent so required under the Operating Lease, Franchise Agreements or otherwise, related to capital repairs, replacements and improvements (other than Replacements) performed from time to time, except to the extent that Lender is required to pay such expenditures from any Reserve Account. (r) ERISA. Deliver to the Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by the Lender in its reasonable discretion, that (i) the Borrower is not an "employee benefit plan," a "governmental plan" and/or subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (ii) one or more of the following circumstances is true: (A) Less than twenty-five percent (25%) of all Equity Interests in the Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. ss.2510.3-101(f)(2); and/or (B) The 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). (s) Actions and Proceedings. Promptly notify the Lender in writing of any action or proceeding relating to any condemnation or other taking, whether direct or indirect, of the Premises or any portion thereof, or purporting to affect the Premises, any Loan Document or any right of the Lender hereunder or thereunder. In each such action or proceeding, the Borrower shall, unless otherwise directed by the Lender in writing, appear in and prosecute or defend any such action or proceeding. The Borrower hereby further authorizes the Lender to participate and appear in (at the Borrower's expense, including without limitation, the Lender's reasonable attorney's fees) any action or proceeding relating to any condemnation or other taking of the Premises, whether direct or indirect, and, following an Event of Default, to settle or compromise any claim in connection with such condemnation or other taking. (t) Completion of Immediate Repairs, Replacements and Additional Repairs or Replacements. (i) The Borrower shall commence the Immediate Repairs immediately following the execution of this Agreement (or as soon thereafter as weather reasonably shall permit) and shall at all times thereafter diligently pursue the completion of all Immediate Repairs. The Borrower shall complete all Immediate Repairs no later than twelve (12) months after the date of this Agreement. The Borrower covenants and agrees that each of the Immediate Repairs, Replacements and Additional Repairs or Replacements and all materials, equipment, fixtures, and any other item comprising a part of any Immediate Repair, Replacement or Additional Repair or Replacement shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialman's or other liens (except for those liens existing on the date of this Agreement which have been approved in writing by the Lender). -46- 52 (ii) If the Lender determines, in its reasonable discretion, that Additional Repairs or Replacements are advisable in order to keep the Premises in good order and repair, the Lender may send the Borrower written notice of the need for making such Additional Repairs or Replacements. The Borrower shall promptly commence making such Additional Repairs or Replacements. If the Borrower fails to commence such Additional Repairs or Replacements within thirty (30) days after such notice and diligently pursue completion of such Additional Repairs or Replacements, such failure shall be an Event of Default under this Loan Agreement, and, in addition to all other rights the Lender may have under the Loan Documents upon an Event of Default, the Lender may contract with third parties to make such Additional Repairs or Replacements and may in its sole discretion (A) apply the funds in the Repair Escrow Account and/or Replacement Reserve Account toward the labor and materials necessary to complete such Additional Repairs or Replacements, and/or (B) demand payment for such Additional Repairs or Replacements from the Borrower. (iii) In the event the Lender determines in its reasonable discretion that any Immediate Repair, Replacement or Additional Repair or Replacement has not been completed in a workmanlike and timely manner, the Lender shall have the option to withhold disbursement from the Reserve Accounts for such unsatisfactory Immediate Repair, Replacement or Additional Repair or Replacement and to proceed under existing contracts or to contract with third parties to complete such Immediate Repair, Replacement or Additional Repair or Replacement and to apply the Repair Escrow Account or the Replacement Reserve Account toward the labor and materials necessary to complete such Immediate Repair, Replacement or Additional Repair or Replacement to the reasonable satisfaction of the Lender, without providing any prior notice to the Borrower. (iv) In order to facilitate the Lender's completion or making of the Immediate Repairs, Replacements or Additional Repairs or Replacements, the Lender is granted the irrevocable right to enter onto the Premises and perform any and all work and labor necessary to complete or make the Immediate Repairs, Replacements or Additional Repairs or Replacements and employ watchmen to protect the Premises from damage, loss and/or theft. All sums so expended by the Lender shall be deemed to have been advanced to the Borrower and secured by the Security Instrument and the other Loan Documents. (v) All Immediate Repairs, Replacements and Additional Repairs or Replacements shall comply with all Requirements of Law and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (u) Assumptions in Non-consolidation Opinion. Borrower has complied and will comply with all of the assumptions made with respect to it in the Non-consolidation Opinion including, without limitation those set forth in that certain Non-consolidation Opinion, dated the date hereof, given by Hunton & Williams, attached as Exhibit I hereto and made a part hereof. -47- 53 Each entity other than the Borrower with respect to which an assumption is made in the Non-consolidation Opinion has complied and will comply with all of the assumptions made with respect to it in the Non-consolidation Opinion, including without limitation those set forth in that certain Non-consolidation Opinion, dated the date hereof, given by Hunton & Williams, attached as Exhibit I hereto and made a part hereof. (v) Program Rider. Comply with all covenants and agreements set forth in the Program Rider. (w) Operating Lease. Comply with all covenants, obligations and agreements contained in the Operating Lease. Borrower will exercise any and all cure rights under the Operating Lease in order to cure any breach by Borrower or any Affiliate of Borrower as Lessor thereunder. (x) Franchise Agreements. Borrower shall, at all times during the term of the Loan maintain or cause to be maintained Franchise Agreements for each of the Individual Properties. (y) REIT Status. Borrower Principal shall, at all times during the term of the Loan maintain its status as a Real Estate Investment Trust, unless otherwise consented to by Lender. Section 5.2 Negative Covenants of the Borrower. During any period in which the Loan is outstanding, the Borrower agrees that it will not: (a) Sale or Encumbrance of Personalty. Sell, encumber or otherwise dispose of any of the Personalty except (i) to incorporate Tangible Personalty into the Improvements or replace Tangible Personalty with goods of quality and value at least equal to that replaced, or (ii) for the sale, disposal or use of inventory, if any, in the ordinary course of the Borrower's business at the Premises; provided, however, in the event the Borrower sells or otherwise disposes of any of the Personalty, the Lender's security interest in the proceeds of the Personalty shall continue pursuant to the Security Instrument and the other Loan Documents, as appropriate. (b) Construction. Construct or permit the construction of any material, structural improvements on the Premises other than Immediate Repairs or Replacements or as otherwise required hereunder or previously consented to in writing by the Lender, which consent shall not be unreasonably withheld, conditioned or delayed. (c) Change in Ownership; Identity of the Borrower. Subject to Section 5.2(d) hereof, permit any sale, transfer, assignment or other disposition of, or grant or create any Lien on (each a "Transfer"), any of the following interests in the Borrower except that: (1) Holders of membership/partnership interests in Borrower and beneficiaries of holders of interests of Borrower as of the date of this -48- 54 Agreement (the "Interest Holders") shall have the right to Transfer their interest in Borrower (or any entity directly or indirectly holding a membership interest in Borrower) without Lender's consent; provided, however, that (i) after taking into account any prior Transfers pursuant to this section, whether to the proposed transferee or otherwise, no such Transfer (or series of Transfers) shall result in (x) the proposed transferee, or any affiliates thereof, owning in the aggregate (directly, indirectly or beneficially) forty nine percent (49%) or more of the interests in Borrower (or any entity directly or indirectly holding a membership interest in Borrower), or (y) a Transfer in the aggregate of forty nine percent (49%) or more of the interests in Borrower as of the date hereof, (ii) no such Transfer of interest shall result in a change of control of Borrower or the day to day operations of the secured Premises, (iii) Borrower shall give Lender notice of such Transfer together with copies of all instruments effecting such Transfer not less than fifteen (15) business days prior to the date of such Transfer; (iv) no Event of Default has occurred and remains uncured; and (v) the legal and financial structure of Borrower after such Transfer and its shareholders, partners or members, as applicable, and the Special Purpose Entity nature of Borrower satisfies Lender's and the Rating Agency's then current applicable underwriting criteria and requirements including, without limitation, the requirement at the request of Lender, to deliver evidence reasonably satisfactory to Lender that the Special Purpose Entity nature of Borrower following such Transfer is in accordance with the standards of the Rating Agencies or, if a Securitization has occurred, the Rating Agencies rating the Securities in the Securitization (including, in such event written confirmations from such Rating Agencies that such Transfer or series of Transfers will not result in a requalification, reduction or withdrawal of the ratings then applicable to such Securities), and Opinions of Counsel (including a Non-consolidation Opinion) as may be reasonably requested by Lender and the Rating Agencies. Notwithstanding anything to the contrary contained herein, the managing member of Borrower shall not have the right to Transfer any interest in Borrower without Lender's consent. (2) Transfers by any of the Interest Holders of their direct or indirect interests in Borrower (or any entity that directly or indirectly holds a membership interest in Borrower) which result in (x) the proposed transferee, or any affiliates thereof, owning in the aggregate (directly, indirectly or beneficially) forty nine percent (49%) or more of the interests in Borrower (or any entity directly or indirectly holding a membership interest in Borrower), or (y) a Transfer in the aggregate of forty nine percent (49%) or more of the interests in Borrower as of the date hereof, or (z) which are Transfers by the managing member of Borrower shall be permitted only with the Lender's prior written consent, which shall not be unreasonably withheld; provided that such Transfer must comply with the -49- 55 provisions of clauses (iii), (iv) and (v) of subparagraph (1) above, and clauses (A) through (D) below: (A) The Interest Holder shall pay to the Lender all reasonable and customary expenses incurred by the Lender in connection with any such Transfer and a processing fee in an amount equal to the 1% of the outstanding principal amount of the Loan as of the date the Borrower requests the Lender to consent to such Transfer. (B) With respect to any Transfer requested or occurring prior to the sale of the Loan by the Lender in the secondary market, the consideration paid or to be paid by the assignee or purchaser in connection with the Transfer shall not be less than the appraised value of the Premises used by the Lender in underwriting the Loan, as determined by the Lender in its reasonable judgment, multiplied by the percentage of interests (direct or indirect) being transferred in the Borrower. The Borrower shall furnish the Lender at the Borrower's sole cost and expense such information as the Lender shall request in connection with any Transfer, including without limitation, an Appraisal or other evidence satisfactory to the Lender in its reasonable discretion of the value of the Premises as of the date of the Transfer. (C) The assignee or purchaser must meet Lender's reasonable underwriting standards concerning, including without limitation, its net worth and operating history, as determined by Lender in its sole reasonable discretion. (D) No Transfer shall relieve the Borrower of its Obligations under this Loan Agreement or any of the other Loan Documents. (d) Notwithstanding anything to the contrary contained in this Loan Agreement, the Security Instrument or any other Loan Documents, Lender's consent shall not be required for any of the following sales, transfers, assignments, pledges, conveyances or encumbrances, provided that Lender has received payment in full of all its actual expenses incurred in connection therewith: (i) with respect to the REIT and any holders of interests therein, directly or indirectly, (A) Transfer of all or any portion of any shares of beneficial interests of the REIT for so long as the shares of the REIT continue to be publicly traded on a national stock exchange and (B) the issuance of additional shares of the REIT; (ii) with respect to the Operating Partnership and any holders of interests therein, (A) any Transfer (direct or indirect) of limited partnership interests in the Operating Partnership and (B) the issuance of additional limited partnership units or other securities, even if such issuance results in a reduction of the partnership interest of the REIT in the Operating Partnership, provided that, after giving effect to such transfer or -50- 56 series of transfers described in (A) or (B), the REIT owns more than fifty-one percent (51%) of the partnership interests of the Operating Partnership or continues to be the sole general partner of the Operating Partnership; or (iii) a Fundamental Transaction relating to the REIT or the Operating Partnership. (e) As used herein , the term "Fundamental Transaction" shall mean any acquisition by, merger with or consolidation with or into, or sale of substantially all of its assets to, an entity (the "Successor") in which the following conditions have been satisfied as of the consummation of the transaction: (i) the Successor owns, directly or indirectly, substantially all the assets which the Operating Partnership owned immediately prior to the effective date of such merger, consolidation or sale; (ii) the Successor agrees in writing to assume all obligations of the Operating Partnership under the Loan Documents to which the Operating Partnership is a party; (iii) upon the consummation of such transaction, Successor shall either be owned by a Qualified Resultant Owner or the Successor shall be owned by the executive management of the REIT immediately prior to such transfer; (iv) Lender shall have confirmations in writing from the Rating Agencies to the effect that such transfer will not result in a re-qualification, reduction or withdrawal of any rating then assigned to any Securities in a Securitization; (v) with respect to any Individual Property that is the subject of a Management Agreement, the Manager shall be either the Manager immediately prior to such transfer or a Qualified Manager, and any new Management Agreement shall be reasonably satisfactory to Lender; (vi) with respect to any Individual Property that is the subject of an Operating Lease, the Operating Lessee shall be either the Operating Lessee immediately prior to such transfer or a Qualified Operating Lessee, and any new Operating Lease shall be reasonably satisfactory to Lender; (vii) the Premises will be owned by one or more special purpose bankruptcy remote entities and a non-consolidation opinion acceptable to Lender and the Rating Agencies has been delivered with respect to any Successor; and (viii) Lender has received no less than forty-five (45) days' prior written notice of such transfer. The Borrower hereby acknowledges to the Lender that (i) the identity of the Borrower and the expertise available to the Borrower were and continue to be material circumstances upon which the Lender has relied in connection with, and which constitute valuable consideration to the -51- 57 Lender for, the extending to the Borrower of the indebtedness evidenced by the Note and (ii) any change in such identity or expertise could materially impair or jeopardize the security for the payment of the Note granted to the Lender by the Security Instrument and the other Loan Documents, as appropriate. (f) Prepayment of Rent. Accept any prepayment of rent or installments of rent for more than two (2) months in advance without the prior written consent of the Lender. (g) No Other Name. Change its name or operate under any name other than its name as set forth herein. (h) No Restricted Payments. Without Lender's prior written consent, make any payment or take any other action constituting (i) any direct or indirect purchase or other acquisition by the Borrower of Equity Interests of any other Person, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and expenditures in the ordinary course of business) or capital contribution by the Borrower to any other Person, including all debt and any Obligation of any sort, and/or (ii) a payment or prepayment on account of, or the setting apart of assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of subordinated debt, either directly or indirectly, whether in cash or in property or in obligations of any Person. (i) No Waste or Abandonment. Suffer, permit or commit affirmative waste, permit impairment or deterioration of, or abandon, the Premises or any portion thereof. The Borrower will not itself, or permit any tenant or other Person to, remove, demolish or alter any improvement now existing or hereafter erected on the Premises or any fixture, equipment or machinery in or on the Premises except in connection with any Repair or Replacement. (j) Use of Premises. Except as required by applicable law, or as otherwise permitted in writing by the Lender, allow any change in the business use of all or any portion of Premises from the use thereof as of the Closing Date. (k) Franchise Agreements. Borrower shall not amend or terminate any Franchise Agreement or permit Operating Lessee to terminate any Franchise Agreement. Section 5.3 Environmental Covenants. The Borrower hereby consents to: (a) Not cause, permit or exacerbate any Prohibited Activities or Conditions. The Borrower represents and warrants that it has not at any time caused or permitted any Prohibited Activities or Conditions except as set forth in the Environmental Assessment and that to its knowledge, no Prohibited Activities or Conditions exist or have existed on or under the Premises. The Borrower shall take all appropriate steps to prevent its employees, agents, and contractors, and any tenants from causing, permitting, or exacerbating any Prohibited Activities or Conditions. The Borrower shall not lease or allow the sublease or use of all or any portion of the Premises to any tenant, subtenant or user that, in the ordinary course of its business, would -52- 58 cause, permit, or exacerbate any Prohibited Activities or Conditions, and all leases, subleases and use agreements relating to the Premises shall contain provisions sufficient to ensure that tenants, subtenants and users shall not cause, permit or exacerbate any Prohibited Activities or Conditions. (b) Comply in a timely manner with, and cause all employees, agents, and contractors of the Borrower and any other persons present on the Premises to so comply with, (i) any O&M Program now or hereafter in effect during the term of the Loan, and (ii) Hazardous Materials Law, so as to minimize any economic loss to the Premises and the Loan. The Borrower shall adopt an O&M Program with respect to any Hazardous Materials as required in any Environmental Assessment or any Governmental Action relating to the Premises, or as otherwise reasonably required by the Lender with respect to the Premises. Any O&M Program shall be performed by qualified contractors under the supervision of a consulting engineer hired by the Borrower with the prior written approval of the Lender which approval shall not be unreasonably withheld, conditioned or delayed. All costs and expenses of any O&M Program shall be paid by the Borrower, including without limitation the charges of such contractors and consulting engineer and the Lender's reasonable fees, costs and expenses incurred in connection with the monitoring and review of the O&M Program and the Borrower's performance thereunder. (c) Promptly notify the Lender in writing of: (i) any Governmental Action it becomes aware of, (ii) any claim made or known by Borrower to be threatened by any third party against the Borrower, the Lender, or the Premises relating to loss or injury resulting from any occurrence or condition on the Premises or any other real property that could require the removal from the Premises of any Hazardous Materials or cause any restrictions on the ownership, occupancy, transferability or use of the Premises under Hazardous Materials Law, or (iii) the occurrence of any Prohibited Activities or Conditions. The Borrower shall cooperate with any governmental inquiry, and shall comply with any governmental or judicial order, request or directive which arises from any alleged Prohibited Activities or Conditions; provided that with respect to governmental requests or directives only, the Borrower may contest or object to a good faith dispute regarding said request or directive if the Borrower notifies the Lender in advance of said contest or objection and as long as said contest or objection does not result in a violation of law or fines assessed against the Premises unless such fines are bonded by Borrower in a manner acceptable to Lender in its sole discretion. (d) Pay promptly all reasonable costs and expenses incurred by the Lender in connection with any Governmental Action, including but not limited to costs of any environmental audits, studies, investigations or remedial activities including but not limited to the removal of any Hazardous Materials from the Premises. The Borrower also shall pay promptly the costs of any environmental audits, studies, investigations or the removal of any Hazardous Materials from the Premises required by the Lender as a condition of its consent to any sale or transfer of all or any part of the Premises or any interest therein or required by the Lender following a reasonable determination by the Lender that there may be Prohibited Activities or Conditions on or under the Premises. Any such reasonable costs or expenses incurred by the Lender (including but not limited to reasonable fees and expenses of attorneys and consultants, whether incurred in connection with any judicial or administrative process or -53- 59 otherwise) which the Borrower fails to pay promptly shall become additional indebtedness secured by the Security Instrument. (e) EXCEPT TO THE EXTENT ANY OF THE FOLLOWING IS THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LENDER, HOLD HARMLESS, DEFEND AND INDEMNIFY THE LENDER AND ITS OFFICERS, DIRECTORS, TRUSTEES, EMPLOYEES, AGENTS, AFFILIATES (INCLUDING ANY PARENT CORPORATION), SUCCESSORS AND ASSIGNS, FROM AND AGAINST ALL PROCEEDINGS, CLAIMS, DAMAGES, PENALTIES, FEES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE FEES AND EXPENSES OF ATTORNEYS AND EXPERT WITNESSES, INVESTIGATORY FEES, AND CLEANUP AND REMEDIATION EXPENSES, WHETHER INCURRED IN CONNECTION WITH ANY JUDICIAL OR ADMINISTRATIVE PROCESS OR OTHERWISE), ARISING DIRECTLY OR INDIRECTLY FROM (i) ANY BREACH OF ANY REPRESENTATION, WARRANTY, OR OBLIGATION OF THE BORROWER CONTAINED IN THIS SECTION 5.3 OR (ii) THE PRESENCE OF HAZARDOUS MATERIALS ON OR UNDER THE PREMISES OR ANY PROPERTY PROXIMATE TO THE PREMISES OR ANY GOVERNMENTAL ACTION ALLEGING ANY SUCH PRESENCE, EXCEPT TO THE EXTENT THAT THE BORROWER CAN CONCLUSIVELY PROVE BOTH THAT SUCH PRESENCE OR GOVERNMENTAL ACTION ALLEGING SUCH PRESENCE WAS CAUSED SOLELY BY ACTIONS, CONDITIONS, OR EVENTS THAT OCCURRED AFTER THE DATE THAT THE LENDER (OR ANY PURCHASER AT A FORECLOSURE SALE) ACTUALLY ACQUIRED TITLE OR TOOK POSSESSION TO THE PREMISES AND THAT SUCH PRESENCE OR GOVERNMENTAL ACTION ALLEGING SUCH PRESENCE WAS NOT CAUSED BY THE DIRECT OR INDIRECT ACTIONS OF THE BORROWER OR THE BORROWER PRINCIPAL, OR ANY PARTNER, MEMBER, PRINCIPAL, OFFICER, DIRECTOR, TRUSTEE OR MANAGER OF THE BORROWER OR ANY EMPLOYEE, AGENT, CONTRACTOR OR AFFILIATE OF THE BORROWER OR THE BORROWER PRINCIPAL. THE OBLIGATIONS AND LIABILITIES OF THE BORROWER UNDER THIS SECTION 5.3(e) SHALL SURVIVE ANY TERMINATION, SATISFACTION, ASSIGNMENT, ENTRY OF A JUDGMENT OF FORECLOSURE OR DELIVERY OF A DEED IN LIEU OF FORECLOSURE OF THE SECURITY INSTRUMENT. Section 5.4 Recourse Covenants. Except as otherwise expressly permitted by the Loan Documents, during any period in which the Loan is outstanding, the Borrower agrees that it will not, without the prior written consent of the Lender: (a) Sale, Transfer, Conveyance or Disposal. Permit any sale, transfer, conveyance or other disposal of the Premises, the Rents and Profits or the Intangible Personalty. (b) Other Financing and Liens. Engage in any other financing with respect to the Borrower (except payables incurred with trade creditors in amounts not to exceed $100,000.00, provided such debt is not evidenced by a note and is not in excess of sixty days past due in the ordinary course of business and paid prior to delinquency), the Premises, the -54- 60 Rents and Profits or the Intangible Personalty or grant any consensual Liens against the Premises, the Rents and Profits or the Intangible Personalty. Nor shall Borrower or any member or partner of Borrower pledge any interest in Borrower without the prior written consent of Lender and without written confirmation from applicable Rating Agencies that such pledge will not result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency. (c) Special Purpose Entity. Fail to be a Special Purpose Entity. Section 5.5 Insurance. (a) Maintenance of Insurance. The Borrower shall, or shall cause, at no cost or expense to Lender, keep in full force and effect all Insurance. If the Borrower fails to maintain, or cause to be maintained, any Insurance required by this Agreement, the Lender may, at its option, procure such Insurance, and the Borrower shall reimburse the Lender for the amount of all premiums paid by the Lender thereon promptly upon demand by the Lender, with interest thereon at the rate then provided by the Note from the date paid by the Lender to the date of repayment, and such sum shall be a part of the indebtedness secured by the Security Instrument. The Lender shall not by the fact of approving, disapproving, accepting, preventing, obtaining or failing to obtain any Insurance, incur any liability for or with respect to the amount of Insurance carried, the form or legal sufficiency of insurance contracts, solvency of insurance companies, or payment or defense of lawsuits, and the Borrower, for itself, hereby expressly assumes full responsibility therefor and all liability, if any, with respect thereto. (b) Insurance with Respect to Immediate Repairs, Replacements and Additional Repairs or Replacements. In addition to and to the extent not covered by any Insurance required under the Loan Documents, the Borrower shall provide or cause to be provided worker's compensation insurance, builder's risk, and public liability insurance and other insurance to the extent required under applicable law in connection with a particular Immediate Repair, Replacement or Additional Repair or Replacement reasonably required by the Lender. (c) Approved Insurers. Each of the Borrower's insurers shall be an Approved Insurer. If any of the Borrower's insurers shall at any time cease to be an Approved Insurer, then within thirty (30) days after notice from the Lender to the Borrower, the Borrower will obtain replacement Insurance or additional Insurance issued by one or more other Approved Insurers. (d) Form of Insurance Policies; Endorsements. All policies for Insurance shall be in such form and with such endorsements as are comparable to the forms of and endorsements to the Borrower's, or if applicable, its tenant's, insurance policies in effect on the date hereof or otherwise in accordance with commercially reasonable standards applied by prudent owners of similar businesses in the general vicinity of the Premises and generally acceptable to institutional lenders for comparable properties and risks. All such policies shall name the Lender, and its successors and assigns, as additional insureds, mortgagees and/or loss payees, as deemed appropriate by the Lender, and shall provide that all proceeds are payable to the Lender (except for any "non-property" insurance policies maintained by the Operating -55- 61 Lessee) and shall contain: (i) a standard "non-contributory mortgagee" endorsement or its equivalent relating, inter alia, to recovery by the Lender notwithstanding the negligent or willful acts or omissions of the named Borrower; (ii) to the extent available at commercially reasonable rates, a waiver of subrogation endorsement as to the Lender; (iii) an endorsement providing that no policy shall be impaired or invalidated by virtue of any act, failure to act, negligence of, or violation of declarations, warranties or conditions contained in such policy by the Borrower, any tenant at the Premises, the Lender or any other named insured, additional insured, mortgagee or loss payee, except for the willful misconduct of the Lender knowingly in violation of the conditions of such policy; (iv) an endorsement providing for a deductible per loss of an amount not more than that which is customarily maintained by prudent owners of similar businesses in the general vicinity of the Premises; (v) a provision that such policies shall not be canceled or amended, including, without limitation, any amendment reducing the scope or limits of coverage, without at least thirty (30) days prior written notice to the Lender in each instance, and (vi) effective waivers by the insurer of all claims for insurance premiums against any loss payees, additional insureds, mortgagees and named insureds (other than the Borrower). Any insurance coverage relating to the Premises that is carried by the Borrower or, if applicable, its tenant's, in excess of the Insurance required hereunder shall name the Lender, and its successors and assigns, as additional insureds, mortgagees and/or loss payees, as appropriate, as provided herein. A certificate executed by the Borrower's insurance consultant and other evidence of Insurance required by the Lender shall be delivered to the Lender not less than ten (10) days prior to the expiration date of any of the policies for Insurance required to be maintained hereunder which certificate and other evidence shall certify payment of applicable premiums for renewal and replacement policies. The Borrower may effect any Insurance required hereunder through blanket insurance policies. The Borrower shall deliver to the Lender certified copies of all policies for Insurance which shall be taken out upon the Premises while any part of the Loan shall remain unpaid. (e) Compliance with Insurance Policy Terms. The Borrower shall comply with all terms of policies for Insurance and shall not bring or keep or permit to be brought or kept any article upon the Premises or cause or permit any condition to exist thereon which would be prohibited by or could invalidate any Insurance required hereunder. Section 5.6 Lockbox. The Borrower has established as of the date hereof the Lockbox Account, which Lockbox Account shall, in all respects, be governed by the Cash Management Agreement. ARTICLE VI RESERVE ACCOUNTS Section 6.1 Establishment of Reserve Accounts. On or before the Closing Date, the Lender shall establish each Reserve Account. Each Reserve Account shall be under the sole dominion and control of the Lender. -56- 62 Section 6.2 Initial Reserve Deposits. On the Closing Date, the Borrower shall pay to the Lender for deposit into each Reserve Account any Initial Reserve Deposit applicable to such Reserve Account. Section 6.3 Monthly Reserve Deposits. On each Payment Date, the Borrower shall pay to the Lender for deposit into each Reserve Account any Monthly Reserve Deposit applicable to such Reserve Account. The Lender may, upon written request from the Borrower, waive any requirement for the payment of a Monthly Reserve Deposit, provided however, that any such waiver by the Lender of a requirement that the Borrower pay such Monthly Reserve Deposit may be revoked by the Lender, in the Lender's sole discretion, at any time upon notice in writing to the Borrower. Section 6.4 Replacement Reserve Account. The Lender may, in the Lender's reasonable discretion, adjust the Monthly Reserve Deposit to the Replacement Reserve Account from time to time to an amount sufficient, in the Lender's reasonable judgment, to maintain adequate balances necessary for Replacements, including, without limitation, Additional Repairs or Replacements made pursuant to the terms of the Loan Agreement and consistent with the requirements of the applicable Franchise Agreement and Operating Lease. Notwithstanding the foregoing, in the event the Lender shall at any time increase the Monthly Reserve Deposit to the Replacement Reserve Account over the Monthly Reserve Deposit to the Replacement Reserve Account then required pursuant to Exhibit B hereto, the Borrower, may at its election, request that the Lender obtain, at the sole cost, fee and expense of the Borrower, an engineering report from an engineer to be selected by the Lender in its reasonable discretion, in which case the Monthly Reserve Deposit to the Replacement Reserve Account shall be adjusted by the Lender based on such engineering report, provided that in no event shall the Monthly Reserve Deposit to the Replacement Reserve Account be decreased below the applicable amount set forth on Exhibit B hereto. Following any defeasance of any permitted portion of the Premises, or substitution of properties pursuant to Section 2.6 hereof, and upon written request from Borrower, Lender will, at Borrower's expense, commission an updated engineering report (from an engineer selected by Lender) of the remaining portion of the Premises and, subject to Lender's review and approval, the amount of the Monthly Deposit to the Replacement Reserve Account shall be adjusted to reflect that the defeased portion of the Premises no longer serves as collateral for the Loan. Section 6.5 Permitted Investments, Earnings, Charges and Annual Accounting. (a) Permitted Investments. The Lender may invest and reinvest, or cause to be invested or reinvested, all or any portion of any funds on deposit in any Reserve Account in Permitted Investments. The maturities of the Permitted Investments on deposit in any Reserve Account shall be selected and coordinated to become due not later than the day before any disbursements from any Reserve Account must be made. All such Permitted Investments shall be held in the name and be under the sole dominion and control of the Lender, to the extent permitted by applicable laws, and no Permitted Investment shall be made unless the Lender shall -57- 63 perfect its first priority Lien in such Permitted Investment and, to the extent permitted by applicable laws, the Lender shall have sole possession and control over each such Permitted Investment and the income thereon, and any certificate or other instrument or document evidencing any such investment shall be delivered directly to the Lender, together with any document of transfer necessary to transfer title to such investment to the Lender. The Lender shall not have any liability (other than for the Lender's gross negligence or willful misconduct) for any loss in investments of funds in any Reserve Account that are invested in Permitted Investments and no such loss shall affect the Borrower's obligation to (i) make any payment hereunder, under the Security Instrument, the Note or any other Loan Document, or (ii) fund, or have liability for funding, any Reserve Account. The Borrower agrees that it shall include all interest, earnings or profits on Permitted Investments of funds on deposit in any Reserve Account as its income (and, if the Borrower is a partnership or other pass-through entity, the partners, members or beneficiaries of the Borrower, as the case may be), and shall be the owner of such accounts for federal and applicable state and local tax purposes, except to the extent the Lender retains such interest, earnings or profits for its own account in accordance with the provisions of Section 6.5(b) of this Loan Agreement. The Borrower shall have no right whatsoever to direct the investment of the proceeds in any Reserve Account. (b) Earnings. All interest, earnings or profits on the Permitted Investments of funds in any of the Reserve Accounts shall be deposited into the applicable Reserve Account, provided that the Lender may, at its election, retain for its own account any such interest, earnings or profits (i) on the Tax and Insurance Reserve Account, and (ii) on any or all of the Reserve Accounts during the occurrence and continuance of an Event of Default. (c) Charges. Except as prohibited by applicable laws, the Lender may charge the Borrower for holding, maintaining and applying funds in any of the Reserve Accounts to the extent funds on deposit in such Reserve Account are invested or reinvested in Permitted Investments and the Lender does not retain for its own account any interest, earnings or profits on such Reserve Account in accordance with the provisions of Section 6.5(b) of this Loan Agreement. (d) Annual Accounting. The Lender shall furnish or cause to be furnished to the Borrower, without charge, an annual accounting of each Reserve Account in the normal format of the Lender or its agent, showing credits and debits to such Reserve Account and the purpose for which each debit to such Reserve Account was made. Section 6.6 Assignment to the Lender of Reserve Accounts and Rights and Claims. (a) The Borrower hereby assigns to the Lender the Reserve Accounts as additional security for all of the Borrower's Obligations to the Lender, under the Note and under the other Loan Documents; provided, however, the Lender shall make disbursements from the Reserve Accounts in accordance with the terms of this Agreement, including without limitation, the Program Rider. -58- 64 (b) The Borrower assigns to the Lender all rights and claims the Borrower may have against (i) all persons or entities claiming amounts due for taxes, utilities, rent or insurance, or (ii) all persons or entities supplying labor or materials in connection with the Immediate Repairs, Replacements or Additional Repairs or Replacements; provided, however, that the Lender may not pursue any such right or claim unless an Event of Default exists under this Agreement or the Loan Documents. Section 6.7 Application of Reserve Accounts Upon an Event of Default. If any Event of Default occurs, then the Borrower shall immediately lose all of its rights to receive disbursements from the Reserve Accounts unless and until the earlier to occur of or concurrently with (a) the date on which such Event of Default is fully cured, and (b) the date on which all amounts secured by the Security Instrument and the other Loan Documents have been paid in full and the lien of the Security Instrument and the other Loan Documents, as appropriate, have been released by the Lender. Upon any Event of Default, the Lender may in its sole discretion, use the Reserve Accounts (or any portion thereof) for any purpose, including but not limited to (i) repayment of any indebtedness secured by the Security Instrument and the other Loan Documents, including but not limited to principal prepayments and the prepayment premium applicable to such full or partial prepayment (as applicable); provided, however, that such application of funds shall not cure or be deemed to cure any Event of Default, (ii) reimbursement of the Lender for all losses, fees, costs and expenses (including, without limitation, reasonable legal fees) suffered or incurred by the Lender as a result of such Event of Default, (iii) payment of any amount expended in exercising all rights and remedies available to the Lender at law or in equity or under this Agreement or under any of the other Loan Documents, or (iv) to the payment of any item for which payment is required or permitted from any of the Reserve Accounts pursuant to the terms of this Loan Agreement. Nothing in this Loan Agreement shall obligate the Lender to apply all or any portion of the Reserve Accounts on account of any Event of Default by the Borrower or to pay the indebtedness secured by the Security Instrument or any of the other Loan Documents or in any specific order of priority. Section 6.8 Disbursements from Tax and Insurance Reserve Account. (a) The Lender shall disburse, to the extent of amounts on deposit in the Tax and Insurance Reserve Account, directly to each Person owed any portion of the water and sewer assessments and frontage charges, taxes, assessments and insurance premiums, the total sum owed to such Person. Such disbursements shall be made by the Lender (i) so as to coincide in frequency with the regular billing cycle of such Person, and (ii) on or before the date that each such payment is due. (b) The Lender may require the Borrower to pay to the Lender in advance, additional amounts for taxes, charges, premiums, assessments, and impositions in connection with the Borrower or the Premises which the Lender shall reasonably deem necessary. Unless otherwise provided by applicable law, the Lender may require payments for such other amounts to be paid by the Borrower in a lump sum or periodic installments, at the Lender's option. -59- 65 (c) If the amount held in the Tax and Insurance Reserve Account at the time of the annual accounting thereof shall exceed the amount deemed necessary by the Lender to provide for the payment of water and sewer assessments and frontage charges, taxes, assessments, impositions and insurance premiums, as they fall due, such excess shall be credited against future Monthly Reserve Deposits to the Tax and Insurance Reserve Account. If at any time the amount held in the Tax and Insurance Reserve Account shall be less than the amount deemed necessary by the Lender to pay water and sewer assessments and frontage charges, taxes, assessments, impositions and insurance premiums, the Borrower shall pay to the Lender any amount necessary to make up the deficiency within thirty (30) days after notice from the Lender to the Borrower requesting payment thereof. (d) Upon payment in full of all amounts owed by the Borrower under or otherwise secured by any of the Loan Documents, all remaining amounts on deposit, if any, in the Tax and Insurance Reserve Account shall be distributed to the Borrower. Section 6.9 Disbursements from Repair Escrow Account and Replacement Reserve Account. (a) Upon written request from the Borrower and satisfaction of the requirements set forth in this Loan Agreement, the Lender shall disburse to the Borrower amounts from the Repair Escrow Account necessary to reimburse the Borrower for the actual costs of Immediate Repairs and shall disburse amounts from the Replacement Reserve Account necessary to reimburse the Borrower for the actual costs of Replacements (but, as to any Immediate Repair or Replacement, such amount shall not exceed one hundred twenty-five percent (125%) of the original estimated cost of such Immediate Repair and/or Replacement set forth on Exhibit B to this Loan Agreement, unless the Lender agrees to such reimbursement). (b) Upon written request from the Borrower, the Lender may, in its discretion, disburse amounts from the Repair Escrow Account and/or Replacement Reserve Account to reimburse the Borrower for the actual cost of labor and materials associated with an Additional Repair or Replacement. Each such request from the Borrower shall include a statement regarding why such disbursement should be made. If the Lender determines that (i) such Additional Repair or Replacement is of the type intended to be covered by this Agreement, (ii) the costs for such Additional Repair or Replacement are reasonable, (iii) the amount of funds in the Repair Escrow Account and/or the Replacement Reserve Account, as applicable, is sufficient to pay the Additional Repair or Replacement and one hundred twenty-five percent (125%) of the then current estimated cost of completing all remaining Immediate Repairs and Replacements, as applicable, and (iv) all other conditions for disbursement under this Loan Agreement have been met, then the Lender shall disburse funds from the Repair Escrow Account and/or the Replacement Reserve Account, as applicable, for such Additional Repair or Replacement in accordance with the requirements of this Loan Agreement for Immediate Repairs and/or Replacements. (c) Each request for disbursement from the Repair Escrow Account or Replacement Reserve Account shall be in a form specified or approved by the Lender and shall set forth (i) the specific Immediate Repairs, Replacements or Additional Repair or Replacement, -60- 66 as the case may be, for which the disbursement is requested, (ii) the quantity and price of each item purchased, if the Immediate Repair, Replacement or Additional Repair or Replacement, as the case may be, includes the purchase or replacement of specific items, (iii) the price of all materials (grouped by type or category) used in any Immediate Repair, Replacement or Additional Repair or Replacement, as the case may be, other than the purchase or replacement of specific items, and (iv) the cost of all contracted labor or other services applicable to each Immediate Repair, Replacement or Additional Repair or Replacement, as the case may be, for which such request for disbursement is made. With each request the Borrower shall certify that all Immediate Repairs, Replacements or Additional Repairs or Replacements, as the case may be, have been made in accordance with the requirements of this Loan Agreement and all Requirements of Laws. Each request for disbursement shall include (A) copies of invoices for all items or materials purchased and all contracted labor or services provided, and (B) for disbursements in excess of $25,000, such acknowledgments of payment, lien waivers and/or releases with respect to the Immediate Repairs, Replacements and Additional Repairs or Replacements for which disbursement is requested as the Lender may require. In connection with each disbursement from the Repair Escrow Account or the Replacement Reserve Account, as the case may be, the Lender may require the Borrower to provide the Lender with an endorsement to the Lender's title insurance policy showing that no Liens have been placed against the Premises since the date of recordation of the Security Instrument (other than Permitted Encumbrances and any other Liens previously approved in writing by the Lender, if any). (d) Except as provided in the following sentence, each request for disbursement from the Repair Escrow Account or the Replacement Reserve Account shall be made only after completion (as reasonably determined by the Lender) of the Immediate Repair, Replacement or Additional Repair or Replacement for which disbursement is requested. If (i) the cost of the Immediate Repair, Replacement or Additional Repair or Replacement exceeds the lesser of (A) one percent (1%) of the original Loan Amount, or (B) $50,000.00 per Individual Property, (ii) the written contract with respect to such Immediate Repair, Replacement or Additional Repair or Replacement requires periodic payment for such work pursuant to the terms thereof, and (iii) the Lender has approved in writing in advance such periodic payments, then a request for reimbursement from the Repair Escrow Account and/or Replacement Reserve Account may be made after completion of a portion of the work under such contract, provided (1) the materials for which the request is made are on site at the Premises and are properly secured or have been installed in the Premises, (2) all other conditions in this Loan Agreement for disbursement have been satisfied, and (3) funds remaining in the Repair Escrow Account or the Replacement Reserve Account, as the case may be, are, in the Lender's reasonable judgment, sufficient to complete such Immediate Repair, Replacement or Additional Repair or Replacement and all the other Immediate Repairs and/or Replacements when required. The Lender, at its option, may issue joint checks, payable to the Borrower and the supplier, materialman, mechanic, contractor, subcontractor or other party to whom payment is due in connection with any such periodic payment for an Immediate Repair, Replacement or Additional Repair or Replacement to be paid from the Repair Escrow Account or Replacement Reserve Account, as the case may be. -61- 67 (e) The Lender shall have no obligation to make any disbursement from the Repair Escrow Account or the Replacement Reserve Account more frequently than once in any month and (except in connection with the final disbursement) in any amount less than the lesser of (i) one percent (1%) of the original Loan Amount, or (ii) $5,000.00. (f) Prior to any disbursement from the Repair Escrow Account or the Replacement Reserve Account, the Lender may, at the Borrower's expense, require an inspection by an appropriate independent qualified professional reasonably selected by the Lender and a copy of a certificate of completion by an independent qualified professional reasonably acceptable to the Lender prior to the disbursement of any amounts from the Repair Escrow Account or the Replacement Reserve Account exceeding $25,000.00. The Borrower shall pay the Lender a reasonable inspection fee not exceeding $1,000.00 for each such inspection. (g) The Lender shall not be obligated to make disbursements from the Repair Escrow Account or the Replacement Reserve Account to reimburse the Borrower for the costs of routine maintenance to the Premises, tenant improvements or leasing commissions. (h) Upon the earlier to occur of (i) the timely completion of all Immediate Repairs in accordance with the requirements of this Loan Agreement, as verified by the Lender in its reasonable discretion, or (ii) the payment in full of all amounts owed by the Borrower under or otherwise secured by any of the Loan Documents, all amounts remaining on deposit, if any, in the Repair Escrow Account shall be distributed to the Borrower. (i) Upon payment in full of all amounts owed by the Borrower under or otherwise secured by any of the Loan Documents, all amounts remaining on deposit, if any, in the Replacement Reserve Account shall be distributed to the Borrower. Section 6.10 Intentionally Deleted. Section 6.11 Indemnification. The Borrower agrees to indemnify the Lender and to hold the Lender harmless from and against any and all actions, suits, claims, demands, counterclaims, cross-claims, liabilities, losses, damages, obligations, fees and costs and expenses (including litigation costs, reasonable attorneys' fees and expenses) arising from or in any way connected with (a) the performance of the Immediate Repairs, Replacements or Additional Repairs or Replacements, (b) unpaid taxes, utility bills, rent or insurance premiums owed by the Borrower, and/or (c) the holding or investment of the Reserve Accounts, except to the extent any of the foregoing is the direct result of the gross negligence or willful misconduct of the Lender. -62- 68 ARTICLE VII EVENTS OF DEFAULT; REMEDIES Section 7.1 Events of Default. An Event of Default shall occur if any of the following has occurred and is continuing beyond any applicable cure or grace period: (a) Payments. The Borrower fails to make any payment hereunder, under the Note or under any other Loan Document, when due and payable, and such payment is not received prior to the tenth (10th) day after the same is due (or such greater period, if any, required by applicable law). (b) Bankruptcy, etc. The occurrence of any Bankruptcy Event with respect to the Borrower Principal, Borrower or any general partner or managing member of Borrower. (c) Judgments. One or more judgments or decrees exceeding, in the aggregate, $100,000.00 per Individual Property shall be entered against the Borrower (not paid or fully covered by insurance provided by a carrier who has acknowledged coverage) and any such judgments or decrees shall not have been paid, vacated, discharged, stayed or bonded (through appeal or otherwise) within thirty (30) calendar days from the entry thereof. (d) Recourse Covenants. The Borrower violates any of the Recourse Covenants. (e) Compliance with Sections 5.1(o) and (p). The Borrower fails to comply with any or all of the provisions of either Section 5.1(o), or 5.1(p) and such failure continues for a period of thirty (30) calendar days following (i) in the case of Section 5.1(o), the date demand by the Lender is made upon the Borrower for the execution of any agreement or document in accordance with the provisions of Section 5.1(o), or (ii) in the case of Section 5.1(p), the date on which any Operating Expense becomes due and payable in accordance with the terms thereof, without regard to any extension, modification or waiver relating thereto; provided that if any Operating Expense is the subject of a bona fide dispute and is less than one percent (1%) of the outstanding balance of the Loan as of the date on which the particular Operating Expense in dispute became due and payable, then the Borrower shall have ninety (90) days from the date the same becomes due and payable to pay such Operating Expense or to furnish the Lender a bond or other collateral acceptable to the Lender in the Lender's reasonable discretion. (f) Representations and Warranties. Any representation, warranty, acknowledgment or statement made by the Borrower or the Borrower Principal herein, in any other Loan Document or in any written statement or certificate delivered or required to be delivered pursuant hereto shall prove untrue in any material respect on the date as of which it was deemed to have been made or any representation, warranty acknowledgment or statement submitted to the Lender concerning the financial condition or credit standing of the Borrower, any general partner or member thereof or the Borrower Principal proves to be false or misleading in any material respect. -63- 69 (g) Compliance with Covenants and Agreements. The Borrower shall fail to comply with, observe or perform any covenant or agreement made by it herein, in the Program Rider, or in any other Loan Document, which failure continues for thirty (30) days following written notice thereof to the Borrower; provided that if such failure is of a type which can not feasibly be cured within such thirty (30) day period and the Borrower is diligently and in good faith pursuing such cure, then the Borrower shall have a reasonable period of time (but in no event more than ninety (90) days following such written notice) to cure such failure without the same becoming an Event of Default hereunder. Borrower shall have no right to cure a default under Section 7.1(l) hereof. Nothing in this Section 7.1(g) shall be deemed or construed to entitle the Borrower to any notice and opportunity to cure with respect to any failure to comply with, observe or perform any covenant or agreement which constitutes an Event of Default under any other subsection of this Section 7.1 or to extend any notice and/or opportunity to cure otherwise provided for in any other subsection of this Section 7.1. (h) No Encumbrances. The Borrower fails to keep the Premises free and clear of all encumbrances, liens, deeds of trust, security interests and subordinate financing, except for Permitted Encumbrances and as may be permitted by the Loan Documents or otherwise approved in writing by the Lender in its sole discretion. (i) No Transfer. Except as permitted in Section 5.2 hereof, the Borrower permits any sale, transfer, conveyance or other disposition of engages in any subordinate financing with respect to, or grants any consensual liens against, the Premises, the Rents and Profits or the Intangible Personalty without the consent of Lender. (j) Special Purpose Entity. The Borrower fails to be a Special Purpose Entity at any time while the Loan is outstanding. (k) Events of Default under the Program Rider or other Loan Documents. The occurrence of any Event of Default or similar event under any of the Program Rider or the other Loan Documents, after giving effect to any period of time provided for the cure of any such event or occurrence in the Program Rider or any such Loan Document. (l) Non-Consolidation Assumptions. If any of the assumptions contained in the Non-consolidation Opinion, or in any other "non-consolidation" opinion delivered to Lender in connection with the Loan, or in any other "non-consolidation" opinion delivered subsequent to the Loan, is or shall become untrue in any material respect. Any cure period or right to cure granted to Borrower in this Loan Agreement or the other Loan Documents shall not apply to this Section 7.1(l). (m) Intentionally deleted. (n) Operating Lease. If Borrower, Operating Partnership or any Affiliate thereof fails to comply with, observe or perform any covenant or agreement made by Borrower, Operating Partnership or any Affiliate thereof under the Operating Lease, and such failure continues (i) beyond any applicable grace or cure period provided under the Operating Lease and (ii) for thirty (30) days following written notice thereof to the Borrower. -64- 70 (o) Franchise Agreement. If any Franchise Agreement is amended, modified or terminated without Lender's prior written consent. Section 7.2 Remedies. Upon the occurrence of an Event of Default, the Lender may, at its option: (a) Acceleration. Accelerate the entire unpaid principal balance of the Loan and all accrued interest thereon without advance notice to the Borrower, the same becoming immediately due and payable. In addition, upon acceleration, any and all other Obligations of the Borrower to the Lender shall be immediately due and payable. (b) Replacement of Property Manager. Upon written notice to the Borrower, require the replacement of any property manager or managing agent for the Premises, if any, with a property manager or managing agent acceptable to the Lender. (c) Other Remedies. Invoke any other remedies set forth herein or in any of the other Loan Documents, including without limitation, foreclosure of the Lien granted in the Security Instrument and enforcement of the assignment to the Lender of the Rents and Profits in accordance with the terms of the Security Instrument. ARTICLE VIII CASUALTY LOSSES; EMINENT DOMAIN Section 8.1 Repairs and Casualty Losses. (a) Restoration of Premises. Except as otherwise provided in this Section 8.1, the Borrower shall, at its expense, promptly repair, restore, replace or rebuild any part of the Premises which is damaged or destroyed by any casualty or as the result of any taking under the power of eminent domain, provided the Lender has made available insurance proceeds or eminent domain proceeds or awards available to the Borrower for such repair, restoration, replacement or rebuilding. The Borrower shall (i) substitute a Substitute Property (pursuant to the terms of Section 2.6 hereof) for each damaged or destroyed Individual Property; or (ii) cause all repairs, rebuilding, replacements or restorations to be (in the reasonable opinion of the Lender) of substantially equivalent quality to the Premises as of the date hereof, ordinary wear and tear excepted. (b) Proof of Loss; Claims Settlement. In the event of loss, the Borrower shall give prompt written notice thereof to the insurance carrier and the Lender, and the Lender may make proof of loss if not made promptly by the Borrower. During the existence of any Event of Default, the Lender is hereby authorized, in its reasonable discretion, to adjust, compromise and collect the proceeds of any insurance claims. (c) Application of Insurance Proceeds. The Borrower hereby assigns the proceeds of any such insurance policies to the Lender and hereby directs and authorizes each insurance company to make payment for such loss directly to the Lender. The proceeds of any -65- 71 insurance or any part thereof shall be applied by the Lender in accordance with the provisions of Section 8.3 of this Loan Agreement. Section 8.2 Eminent Domain. (a) Participation in Proceedings. The Borrower shall promptly notify the Lender of any actual or threatened initiation of any eminent domain proceeding or other taking for public use as to the whole or any part of the Premises and/or any rights incident or appurtenant thereto and shall deliver to the Lender copies of any and all papers served or received in connection with such proceedings, and the Lender shall have the right, at its option, to participate in such proceedings at the expense of the Borrower (including, without limitation, the Lender's reasonable attorneys' fees) and the Borrower will execute such documents and take such other steps as required to permit such participation. (b) Right to Settle Claims. During the existence of any Event of Default, the Lender is hereby authorized to adjust, compromise and collect the proceeds of any eminent domain or similar award or settle a claim for damages and to apply the same (or any part thereof) to the then outstanding balance of the Loan. (c) Use of Proceeds. The Borrower assigns to the Lender any proceeds or awards which may become due by reason of any condemnation or other taking for public use of the whole or any part of the Premises and any rights incident or appurtenant thereto. The proceeds of any such condemnation award or proceeds of any part thereof shall be applied by the Lender in accordance with the provisions of Section 8.3 of this Loan Agreement. (d) Further Assignments; Acceleration. The Borrower agrees to execute such further assignments and agreements as may be reasonably required by the Lender to assure the effectiveness of this Section 8.2. In the event any governmental agency or authority shall require or commence any proceedings for the seizing or demolishing of any part of the Premises, or shall commence any proceedings to condemn or otherwise take pursuant to the power of eminent domain (or other power) a material portion of the Premises and such portion of the Premises has not been substituted pursuant to the terms of Section 2.6 hereof, the Lender may, at its option, declare the Loan to be immediately due and payable in full and apply all or any portion of the eminent domain (or similar) awards or proceeds to the then outstanding balance of the Loan. -66- 72 Section 8.3 Application of Insurance Proceeds and Condemnation Awards. (a) Unless a Substitute Property has been substituted pursuant to the terms of Section 2.6 hereof for each Individual Property affected, all proceeds of insurance assigned to the Lender pursuant to Section 8.1 of this Loan Agreement, and all proceeds or awards which may become due by reason of any condemnation or other taking for public use of the whole or any part of the Premises or any rights incident or appurtenant thereto and that have been assigned to the Lender pursuant to Section 8.2 of this Loan Agreement shall be eligible to be applied by the Lender in its sole discretion to the repayment of the Loan; provided, however, that subject to the provisions of this Section 8.3, such proceeds shall be held in an Eligible Account and applied to the repair or restoration of the Premises if all of the following conditions are met: (i) there exists no Default Condition or Event of Default; (ii) the Borrower presents sufficient evidence to the Lender that (A) with respect to any casualty loss, there are sufficient funds from the insurance proceeds and from equity funds, if needed, to completely restore or repair the damaged Premises, or (B) with respect to any condemnation award, there are sufficient funds from the condemnation award or proceeds and from equity funds, if needed, to completely restore the Premises to an architectural whole and to pay Operating Expenses Premises or Operating Expenses Leases, as applicable, and (C) the insurance proceeds or condemnation award is less than twenty percent (20%) of the original Loan Amount; (iii) the Operating Lessee agrees in a manner reasonably satisfactory to the Lender that it will continue or extend its interests and arrangements for the contract terms then in effect following the repair, restoration, replacement or rebuilding; (iv) all parties having material operating, management and/or franchise interests in, and arrangements concerning, the Premises agree that they will continue their interests and arrangements for the contract terms then in effect following the repair, restoration, replacement or rebuilding; (v) the Borrower presents sufficient evidence to the Lender that the Premises will be repaired or restored to an architectural whole prior to the expiration of the insurance coverage referenced in clause (iv) of the definition of Insurance set forth above and, in any event, two (2) years prior to the Maturity Date; (vi) the Lender will not incur any liability to any other Person as a result of such use or release of proceeds; and (vii) (a) as to any casualty loss, the insurance proceeds shall be held by the Lender and disbursed as repair, restoration, replacement or rebuilding progresses substantially in accordance with the procedures set forth in this Loan Agreement for disbursement from the Replacement Reserve Account; provided, however that insurance proceeds of $150,000 for any Individual Property or less will be disbursed directly to the Borrower for repair, restoration, replacement or rebuilding and (B) as to any condemnation award, the condemnation award or proceeds shall be held by the Lender -67- 73 and disbursed as repair, restoration, replacement or rebuilding progresses substantially in accordance with the procedures set forth in this Loan Agreement for disbursement from the Replacement Reserve Account. (b) If the above-stated conditions are not satisfied within ninety (90) days of loss, then the Lender may, at its option, apply any proceeds in repayment of the amount then outstanding under the Note. (c) Upon the completion of any repair, restoration, replacement or rebuilding any remaining proceeds shall be paid to the Lender in repayment of the amount then outstanding under the Note in accordance with the provisions of the Note. ARTICLE IX GENERAL PROVISIONS Section 9.1 Remedies Cumulative; Waivers. All remedies of the Lender provided for herein and/or in the other Loan Documents are cumulative and shall be in addition to any and all other rights and remedies provided for or available under the other Loan Documents, at law and/or in equity. The exercise of any right or remedy by the Lender hereunder shall not in any way constitute a cure or waiver of any Default Condition or Event of Default hereunder or under any other Loan Document, or invalidate any act done pursuant to any notice of the occurrence of any Default Condition or Event of Default, or prejudice the Lender in the exercise of any of its rights hereunder or under or any other Loan Document, unless, in the exercise of said rights, the Lender realizes all amounts owed to it under the Loan Documents. No waiver of any Default Condition or Event of Default hereunder shall be implied from any delay or omission by the Lender to take action on account of such Default Condition or Event of Default, and no express waiver shall affect any Default Condition or Event of Default other than the Default Condition or Event of Default specified in the waiver and it shall be operative only for the time and to the extent therein stated. Waivers of any covenants, terms or conditions contained herein must be in writing and shall not be construed as a waiver of any subsequent failure to observe or comply with the same covenant, term or condition. The consent or approval by the Lender to or of any act by the Borrower requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent or similar act. Section 9.2 Benefit. This Loan Agreement is made and entered into for the sole protection and benefit of the Lender and the Borrower, their successors and permitted assigns, and no other Person or Persons shall have any right to action hereon or rights to the Loan proceeds at any time, nor shall the Lender owe any duty whatsoever to any claimant for labor performed or material furnished in connection with the construction of the Improvements, or to apply any undisbursed portion of the Loan to the payment of any such claim, or to exercise any right or power of the Lender hereunder or arising from any Default Condition or Event of Default by the Borrower. -68- 74 Section 9.3 Assignment and Assumption. (a) The terms hereof shall be binding upon and inure to the benefit of the heirs, successors, assigns, and personal representatives of the parties hereto. (b) Subject to the provisions of Sections 2.5, 2.6, 5.2 and 10.1(c) hereof, neither Borrower nor any other Person having beneficial or ownership interest in Borrower shall assign or permit any assumption of this Loan Agreement, any of the other Loan Documents, the Loan or any of its rights, interests, duties or obligations hereunder or thereunder or any Loan proceeds or other sums to be advanced hereunder in whole or in part without the prior written consent of the Lender. Lender shall consent, no more than once, to such assignment and/or assumption to a qualified borrower acceptable to Lender at its sole discretion upon the payment to the Lender of all reasonable and customary expenses incurred by the Lender in connection with any such assignment and/or assumption and of a processing fee in an amount equal to one percent (1%) of the outstanding principal amount of the Loan as of the date the Borrower requests the Lender to consent to such assignment or assumption. Any assignment or assumption (whether voluntary or by operation of law) without said consent shall be void. Without in any way limiting the foregoing, in no event shall the Lender consent to any assignment or assumption requested or occurring prior to the sale of the Loan by the Lender in the secondary market if the consideration paid or to be paid by the assignee or purchaser of the Premises in connection therewith, as determined by the Lender in its reasonable judgment, is less than the appraised value of the Premises used by the Lender in underwriting the Loan. The Borrower shall furnish the Lender at the Borrower's sole cost and expense such information as the Lender shall request in connection with any assignment or assumption, including without limitation: (i) an Appraisal or other evidence satisfactory to the Lender in its reasonable discretion of the value of the Premises as of the date of the assignment and/or assumption; (ii) confirmation from the Rating Agencies that the credit ratings of Securities immediately prior to assignment and/or assumption will not be qualified, downgraded or withdrawn as a result of such assignment and/or assumption, which affirmation may be granted or withheld in the Rating Agencies sole and absolute discretion; (iii) evidence that the assignee is a Special Purpose Entity satisfying Lender's and Rating Agency's then current applicable underwriting criteria and requirements; and (iv) delivery of a "non-consolidation" opinion in form and substance satisfactory to Lender that, in the event of a bankruptcy proceeding involving any Affiliate of Borrower, the assets of the Borrower, including the Premises, shall not be substantively consolidated with the assets of the Affiliate. Lender further reserves the right to condition the consent to any assignment or assumption upon (i) payment of all of Lender's reasonable expenses incurred in connection with such transfer; (ii) the confirmation in writing by the applicable Rating Agencies that the proposed transfer will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current respective ratings in effect immediately prior to such assignment or assumption for the Securities issued in connection with a securitization; (iii) the delivery of a non-consolidation opinion reflecting the proposed transfer satisfactory in form and substance satisfactory to Lender that, in the event of a bankruptcy proceeding involving any Affiliate of Borrower, the assets of the Borrower, including the Premises, shall not be substantively consolidated with the assets of the Affiliate to Lender in its sole discretion; and (iv) the delivery to Lender of such additional documents, certificates and legal opinions as it may reasonably request. In addition, the assignee or purchaser of the -69- 75 Premises shall be required to assume the Borrower's duties and obligations under this Loan Agreement and shall be required to execute and deliver to the Lender such documents, opinions, certificates and information as the Lender reasonably requires to effectuate such assumption of duties and obligations. No sale, assignment or assumption shall relieve the Borrower of its Obligations under this Loan Agreement or any of the other Loan Documents, unless the Borrower has obtained the prior written consent of the Lender, which consent shall not be unreasonably withheld or delayed. (c) Lender shall have the right to sell, assign or otherwise transfer the Loan or any portion thereof or interest therein held by Lender without the consent of Borrower or Owner or the satisfaction of any other requirement with respect to Borrower or Owner. At the request of the holder of the Note and, to the extent not already required to be provided by Borrower or Owner under this agreement or the Security Instrument, Borrower and Owner shall use reasonable efforts to satisfy the market standards to which the holder of the Note customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies of the Note or participation therein or the first successful public or private securitization (such sale and/or securitization, the "Securitization") of rated single or multi-class Securities secured by or evidencing ownership interests in the Note and the Security Instrument, including, without limitation, to: 1. (i) provide such financial and other information with respect to the Premises, the Borrower and the Owner, (ii) provide budgets relating to the Premises and (iii) to permit to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I reports and, if appropriate, Phase II reports), engineering reports and other due diligence investigations of the Premises, as may be reasonably requested by the holder of the Note or the Rating Agencies or as may be reasonably necessary or appropriate in connection with the Securitization (the "Provided Information"), together, if customary, with appropriate verification of and/or consents to the use of the Provided Information through letters of auditors or opinions of counsel of independent attorneys reasonably acceptable to the Lender and acceptable to the Rating Agencies; provided, however, that Phase II reports and other invasive testing may not be performed at the Premises until Borrower has received reasonably appropriate and evidence of insurance from any Person preparing such report or performing such testing; 2. cause counsel to render opinions as to non-consolidation, fraudulent conveyance, and true sale or any other opinion customary in securitization transactions with respect to the Premises, the Borrower, the Owner and their Affiliates, which counsel and opinions shall be reasonably satisfactory to the holder of the Note and the Rating Agencies; 3. make such representations and warranties as of the closing date of the Securitization with respect to the Premises, the Borrower, the Owner and the Loan Documents as are customarily provided in securitization transactions and as may be reasonably requested by the holder of the Note or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date -70- 76 thereof to the extent such representations and warranties are true as of the closing date of the Securitization, including the representations and warranties made in the Loan Documents to the extent such representations and warranties are true as of the closing date of the Securitization; and 4. execute such agreements and amendments to the Loan Documents and organizational documents and enter into a lockbox or similar arrangement with respect to the rents from the Premises as may be reasonably requested by the holder of the Note or as may be requested by the Rating Agencies or as may be otherwise necessary to effect the Securitization; provided, however, that the Borrower shall not be required to modify or amend any Loan Document if such modification or amendment would (i) change the interest rate, the stated maturity or the amortization of principal set forth in the Note, or (ii) modify or amend any other material economic term of the Loan or materially increase Borrower's or Owner's obligations or liabilities under the Loan Documents. All third party costs and expenses incurred by Lender in connection with the Securitization or other sale or transfer of the Loan and all reasonable third party costs and expenses incurred by Borrower or Owner in connection with the Securitization or other sale or transfer of the Loan shall be paid by Lender. Section 9.4 Securitization Cooperation/Indemnification. (a) Borrower understands that certain of the Provided Information and the books and records delivered to Lender pursuant to Section 5.1(n) hereof, (the "Required Records") may be included in disclosure documents in connection with the Securitization, including, without limitation, a prospectus or private placement memorandum (each, a "Disclosure Document") and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, the Borrower will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects. (b) Borrower agrees to provide in connection with each of (i) a preliminary and a private placement memorandum or (ii) a preliminary and final prospectus, as applicable, an indemnification certificate (A) certifying that Borrower has carefully examined such memorandum or prospectus, as applicable but only as such memorandum or prospectus, relates to the Premises, the Borrower, the Borrower Principal or their Affiliates, including without limitation, the sections entitled "Special Considerations," "Description of the Security Instruments," "Description of the Loans and Properties," "The Manager," "The Borrower" and "Certain Legal Aspects of the Loan," and such sections (and any other sections reasonably requested) do not, and with respect to any portions of such sections prepared in reliance upon the reports of third parties, to Borrower's knowledge do not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in -71- 77 the light of the circumstances under which they were made, not misleading, (B) indemnifying Lender, subject to Section 9.5 (and for purposes of this Section 9.4, Lender hereunder shall include its officers, directors and employees), the Affiliate of such Lender entity (the "Lender Entity") that has filed the registration statement relating to the securitization (the "Registration Statement"), each of its directors, each of its officers who have signed the Registration Statement and each person or entity who controls the Affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the "Lender Group"), and Lender Entity, each of its directors and each person who controls Lender Entity within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act (collectively, the "Underwriter Group") for any losses, claims, damages or liabilities (the "Liabilities") to which Lender, the Lender Group or the Underwriter Group may become subject insofar as the Liabilities arise out of any untrue statement or alleged untrue statement of any material fact contained in such sections (other than any such statement made in reliance upon the reports of third parties that do not, to Borrower's knowledge, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading) or arise out of the omission or alleged omission to state therein a material fact known to Borrower and required to be stated in such sections or necessary in order to make the statements in such sections or in light of the circumstances under which they were made, not misleading and (C) agreeing to reimburse Lender, the Lender Group and the Underwriter Group for any legal or other expenses reasonably incurred by Lender and Lender Group in connection with investigating or defending the Liabilities; provided, however, that Borrower will be liable in any such case under clauses (B) or (C) above only to the extent that any such loss claim, damage, liability or expense arises out of any such untrue statement or omission made therein in reliance upon and in conformity with written information furnished to Lender by or on behalf of Borrower expressly for use in the Disclosure Document; and provided further, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Borrower by Lender, any member of the Lender Group or any member of the Underwriter Group expressly for use in the Disclosure Document. The foregoing indemnity with respect to any untrue statement contained in or omission from a preliminary private placement memorandum or preliminary prospectus shall not inure to the benefit of any member of the Underwriting Group (or any person controlling such member of the Underwriting Group) from whom the Person asserting any such loss, liability, claim, damage or expense purchased any of the Securities which are the subject thereof if the Borrower shall sustain the burden of proving that any such loss, liability, claim, damage or expense resulted from the fact that such Person was not sent or given a copy of the final private placement memorandum or final prospectus at or prior to the written confirmation of the sale of such Security to such Person and the loss, liability, claim, damage or expense resulted from an untrue statement contained in or omission from such preliminary private placement memorandum or preliminary prospectus that was corrected in the final private placement memorandum or final prospectus. (c) In connection with filings under the Exchange Act, Borrower agrees to indemnify (i) Lender, the Lender Group and the Underwriter Group for Liabilities to which Lender, the Lender Group or the Underwriter Group may become subject insofar as the -72- 78 Liabilities arise out of or are based upon the omission or alleged omission to state in the Provided Information or Required Records a material fact required to be stated in the Provided Information or Required Records in order to make the statements in the Provided Information or Required Records, in light of the circumstances under which they were made not misleading and (ii) reimburse Lender, the Lender Group or the Underwriter Group for any legal or other expenses reasonably incurred by Lender, the Lender Group or the Underwriter Group in connection with defending or investigating the Liabilities provided, however, that Borrower will be liable in any such case under clauses (i) or (ii) above only to the extent that any such loss claim, damage, liability or expense arises out of any such untrue statement or omission made therein in reliance upon and in conformity with written information furnished to Lender by or on behalf of Borrower expressly for use in the Disclosure Document; and provided further, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Borrower by Lender, any member of the Lender Group or any member of the Underwriter Group expressly for use in the Disclosure Document. (d) Lender Entity agrees to indemnify and hold harmless Borrower, each of its directors and each person who controls Borrower within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (the "Borrower Group") against any and all losses, claims, damages or liabilities, joint or several, to which such group may become subject, under the Securities Act or otherwise, and will reimburse such group for any legal or other expenses reasonably incurred by such group in connection with investigating or defending any such loss, claim, damage, liability or action, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in a Disclosure Document or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission relates to information that does not accurately reflect Provided Information. (e) Promptly after receipt by an indemnified party under this Section 9.4 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9.4, notify the indemnifying party in writing of the commencement thereof, but the omission to so notify the indemnifying party will not relieve the indemnifying party from any liability which the indemnifying party may have to any indemnified party hereunder except to the extent that failure to notify causes prejudice to the indemnifying party. In the event that any action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled, jointly with any other indemnifying party, to participate therein and, to the extent that it (or they) may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party, provided that no compromise or settlement shall be entered without the consent of such indemnified party, which consent shall not be unreasonably withheld. After notice from the indemnifying party to such -73- 79 indemnified party under the immediately preceding sentence of this Section 9.4 and except as otherwise explicitly provided herein, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there are any legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. The indemnifying party shall not be liable for the expenses of more than one separate counsel unless an indemnified party shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to another indemnified party. In no event shall an indemnifying party be liable to an indemnified party under this Section 9.4 for any losses, claims, damages or liabilities to which such indemnified party may become subject to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of such indemnified party. (f) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section 9.4 is for any reason held to be unenforceable by an indemnified party in respect of any losses, claims, damages or liabilities (or action in respect thereof) referred to therein which would otherwise be indemnifiable under Section 9.4, the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages or liabilities (or action in respect thereof); provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation; and provided further, that Borrower will be liable under this Section 9.4 only to the extent that any such loss, claim, damage or liability (or action in respect thereof) arises out of any untrue statement or omission made therein in reliance upon and in conformity with written information furnished to Lender by Borrower expressly for use in the Disclosure Document or any failure to state any material fact known to Borrower and required to be stated in such written information in order to make such written information in light of the circumstances under which they were made not misleading. In determining the amount of contribution to which the respective parties are entitled, the following factors shall be considered: (i) Lender Entity and Borrower's relative knowledge and access to information concerning the matter with respect to which claim was asserted; (ii) the opportunity to correct and prevent any statement or omission; and (iii) any other equitable considerations appropriate in the circumstances. Lender Entity and Borrower hereby agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation. (g) The liabilities and obligations of both Borrower and Lender under this Section 9.4 shall survive the termination of the Security Instrument and the satisfaction and discharge of the Indebtedness for such period of time under any applicable statute of limitations that (i) any third party may bring any claim against Lender or Borrower, or (ii) Lender or Borrower may bring may bring any claim against each other, whether based on indemnification for a third party claim or otherwise. -74- 80 Section 9.5 Information. The Borrower hereby gives permission to the Lender to release publicity articles concerning the existence, structure and the terms of the Loan and the Borrower and principals involved in the financing of the Premises. It is also expressly recognized and agreed that the Lender may share any information pertaining to the Loan Documents, the transactions contemplated thereby and the records maintained by the Lender in connection therewith with Bank of America Corporation or Bank of America, including its bank subsidiaries and Banc of America Securities LLC and any of the other Affiliates of the foregoing and any other Persons which require such information in connection with the sale of the Loan in the secondary mortgage market. Section 9.6 Nonrecourse Loan; Exceptions. The Note provides that the Loan is nonrecourse to the Borrower and each Borrower Principal, except for (a) the lien of the Security Instrument and the other Loan Documents and (b) the exceptions provided for in the Note. Section 9.7 Amendments. This Loan Agreement shall not be amended except by a written instrument signed by all parties hereto. Section 9.8 Governing Law and Jurisdiction. This Loan Agreement and the other Loan Documents and all matters relating thereto shall be governed by and construed and interpreted in accordance with the laws of the State of North Carolina except that the Security Instruments shall be governed by and construed and interpreted in accordance with the laws of the state in which the applicable Individual Property is located. The Borrower and all of its general partners/members and each Borrower Principal hereby submit to the jurisdiction of the state and federal courts located in the State of North Carolina and agree that the Lender may, at its option, enforce its rights under the Loan Documents in such courts. Section 9.9 Savings Clause. Invalidation of any one or more of the provisions of this Loan Agreement shall in no way affect any of the other provisions hereof, which shall remain in full force and effect. Section 9.10 Execution in Counterparts. This Loan Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument, and in making proof of this Loan Agreement, it shall not be necessary to produce or account for more than one such counterpart. -75- 81 Section 9.11 Notices. All notices and other communications shall have been duly given and shall be effective (a) when delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set forth in Exhibit C hereto, (c) the day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective party at the address set forth in Exhibit C hereto, or at such other address as such party may specify by written notice to the other party hereto. No notice of change of address shall be effective except upon actual receipt. This Section 9.10 shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any Person in any situation or for any reason. In addition to the foregoing, the Lender and Borrower may, from time to time, specify to the other party additional notice parties by providing to the other party written notice of the name, address, telephone number and telecopy number of any such additional notice party. Each such additional notice party shall be entitled to receive and/or give any notice required or permitted to be given under this Loan Agreement or any other Loan Document. Section 9.12 Right of Set-Off. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of and during the continuance of any Event of Default, the Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set-off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held by or owing to the Lender (including, without limitation branches, agencies or Affiliates of the Lender wherever located) to or for the credit or the account of the Borrower against the obligations and liabilities of the Borrower to the Lender hereunder, under the Note or otherwise, irrespective of whether the Lender shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of the Lender subsequent thereto. The Lender agrees to notify the Borrower subsequent to any such set-off or application. Section 9.13 Written Agreement. (a) THE RIGHTS AND OBLIGATIONS OF THE BORROWER, EACH BORROWER PRINCIPAL AND THE LENDER, AS APPROPRIATE, SHALL BE DETERMINED SOLELY FROM THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND ANY PRIOR OR CONTEMPORANEOUS ORAL OR WRITTEN AGREEMENTS BETWEEN THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL CONCERNING THE SUBJECT MATTER HEREOF AND OF THE OTHER LOAN DOCUMENTS ARE SUPERSEDED BY AND MERGED INTO THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS. -76- 82 (b) THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY NOT BE VARIED BY ANY ORAL AGREEMENTS OR DISCUSSIONS THAT OCCUR BEFORE, CONTEMPORANEOUSLY WITH, OR SUBSEQUENT TO THE EXECUTION OF THIS LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS. (c) THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 9.14 Waiver of Jury Trial. THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS LOAN AGREEMENT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL, AND THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL ACKNOWLEDGE THAT NO PERSON ACTING ON BEHALF OF ANOTHER PARTY TO THIS LOAN AGREEMENT HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE LENDER, THE BORROWER AND EACH BORROWER PRINCIPAL FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LOAN AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. Section 9.15 Cross Default, Cross-Collateralization, Waiver of Marshalling of Assets. (a) Borrower acknowledges that Lender has made the Loan to Borrower upon the security of its collective interest in the Individual Properties and in reliance upon the aggregate of the Individual Properties taken together being of greater value as collateral security than the sum of the Individual Properties taken separately. Borrower agrees that the Security Instruments are and will be cross-collateralized and cross-defaulted with each other so that (i) an Event of Default under any of the Security Instrument shall constitute an Event of Default under each of the other Security Instrument which secure the Note; (ii) an Event of Default under the Note or this Loan Agreement shall constitute an Event of Default under each Security Instrument; and (iii) each Security Instrument shall constitute security for the Note as if a single blanket lien were placed on all of the Individual Properties as security for the Note. (b) In addition to the Loan, the Security Instrument shall also secure the following described additional loan (the "Additional Loan"), including without limitation, the indebtedness -77- 83 evidenced by such Promissory Notes (the "Additional Note") described below, and the payment and performance of all other indebtedness and obligations (including any additional advances) under the Additional Note and all agreements, instruments and other documents evidencing, securing or relating to the Additional Loan (each an "Additional Loan Document" and, collectively, the "Additional Loan Documents"), including without limitation, the loan agreement relating to the Additional Loan (the "Additional Loan Agreement", together with any and all amendments, renewals, replacements, extensions or other modifications to any of the foregoing: Loan in the principal amount of $26,716,000 evidenced by a Promissory Note executed by RFS SPE 2000 LLC and payable to the Lender dated of even date herewith, in such principal amount, secured by the following properties: Residence Inn, Jacksonville, Florida; Residence Inn, Torrance, California; Hampton Inn, Houston, Texas; and Hampton Inn, Jacksonville, Florida. The holder of any such Additional Note shall be entitled to the benefits of the Security Instrument to the same extent as the holder of the Note. Accordingly, all references in the Security Instrument to the Loan, the Note, the Loan Agreement or the Loan Documents shall be construed to include, respectively, the Additional Loan, the Additional Note, the Additional Loan Agreement and the Additional Loan Documents. Notwithstanding anything to the contrary in the Loan Documents, the fact that the Security Instrument shall also secure the Additional Loan and the fact that the Borrower will enter into the Contribution Agreement shall not result in a default under any of the Loan Documents. (c) Any default or event of default under any Additional Loan Documents shall constitute an Event of Default under this Loan Agreement, the Security Instrument and the other Loan Documents, including without limitation, the Note. Any Event of Default hereunder or under any of the other Loan Documents shall constitute a default or event of default under the Additional Loan Documents, including without limitation, the Additional Note. (d) The Lender may, from time to time, at its election, release the Loan and/or the Additional Loan from the cross-collateralization and cross-default provisions set forth above. In the event the Loan is paid in full or the Loan is assumed in accordance with the provisions of this Agreement, the Lender may, in its sole and absolute discretion, at the request of the Borrower or any such assuming party, release the cross-collateralization and cross-default provisions set forth above, upon (i) Lender's approval, in its sole and absolute discretion, of the new Special Purpose Entity borrower, (ii) the affirmation of the Rating Agencies that such release will not result in a downgrade, qualification, or withdrawal in the ratings for any Securities, (iii) Borrower's providing of additional collateral in the form of Permitted Investments in an amount equal to twenty-five percent (25%) of the Allocated Loan Amount being released, (iv) the Debt Service Coverage Ratio Leases and Debt Service Coverage Ratio Premises on the remaining Individual Properties remaining equal to the greater of (A) such ratios at the Closing Date or (B) such ratios -78- 84 immediately prior to such release, and (iv) payment to the Lender of an amount equal to twenty-five percent (25%) of the outstanding principal balance of the Loan immediately preceding such payment of the Loan in full or on the date of such assumption (to be applied on a pro-rata basis against the Additional Loan in such manner as the Lender may elect in its sole and absolute discretion) and satisfaction of all other requirements of the Lender for such release. Any release of such cross-collateralization and cross-default provisions may be made by instruments executed solely by the Lender, without any need for joinder by the Borrower or any other Person. Upon the execution of any such release by the Lender, all other Loan Documents and Additional Loan Documents shall be deemed amended thereby so as to conform to such release. In no event shall any such release of the cross-collateralization and cross-default provisions be deemed or construed so as to release, satisfy or otherwise amend the Note, the Security Instrument or any of the other Loan Documents. (e) To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower's partners and others with interests in Borrower, and of the Individual Properties, or to a sale in inverse order of alienation in the event of foreclosure of all or any of the Security Instrument, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Individual Properties for the collection of the Loan without any prior or different resort for collection or of the right of Lender to the payment of the Loan out of the net proceeds of the Individual Properties in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Security Instrument, any equitable right otherwise available to Borrower which would require the separate sale of the Individual Properties or require Lender to exhaust its remedies against any Individual Property or any combination of the Individual Properties before proceeding against any other Individual Property or combination of Individual Properties; and further in the event of such foreclosure Borrower does hereby expressly consents to and authorizes, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Individual Properties. Section 9.16 Servicer. At the option of Lender, the Loan may be serviced by a servicer (the "Servicer") selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "Servicing Agreement") between Lender and Servicer. Until Lender may elect otherwise, the Servicer shall be Bank of America. -79- 85 ARTICLE X SPECIAL PROVISIONS Section 10.1 Termination of Manager. (a) To the extent Borrower enters into any Management Agreement, such Management Agreement shall include provisions that if any of the following conditions occur during the term of the Loan: (a) at any time, the Debt Service Coverage Ratio Premises for the immediately preceding twelve (12) month period is less than 1.3x or (b) the amounts evidenced by the Note have been accelerated; or (c) the Manager shall become insolvent, the Borrower shall, at the request of Lender, terminate the Management Agreement and replace the Manager with a manager approved by Lender on terms and conditions satisfactory to Lender, it being understood and agreed that the management fee for such replacement manager shall not exceed then prevailing market rates. Notwithstanding the foregoing, if the reason for termination of the Manager is subsection (a) above, the Borrower may elect from time to time to provide additional collateral for a portion of the Loan such that, if the outstanding principal balance of the Loan were equal to such principal balance less the lower of (as determined by Lender) the face amount or fair market value of the additional collateral, the Debt Service Coverage Ratio Premises (after adjusting the Debt Service accordingly to reflect same) would equal or exceed 1.3x, in which case no termination would be effective. Any such additional collateral would not be released until Borrower has demonstrated a Debt Service Coverage Ratio Premises in excess of 1.3x without taking into account the additional collateral. All additional collateral must be U.S. Obligations and must be accompanied by such additional security agreements, financing statements and other documents or instruments, including opinions of Borrower's counsel, which in the reasonable opinion of Lender and its counsel would be necessary or advisable to create in Lender a first perfected security interest in the additional collateral. In addition and as a condition to the posting of such additional collateral, Lender shall have received written affirmation from the Rating Agencies that the credit ratings of the Securities immediately prior to such posting will not be qualified, downgraded or withdrawn as a result of such posting, which affirmation may be granted or withheld in the Rating Agencies' sole and absolute discretion. (b) If at any time during the term of the Loan, any Manager under any Management Agreement is an Affiliate of Borrower, Borrower shall have delivered a Non-Consolidation opinion, as acceptable to Lender in its sole discretion with respect to Manager and its equity owners. -80- 86 Section 10.2 Substitution of Operating Lessee. Notwithstanding anything to the contrary contained herein, Lender may consent to the termination of the Operating Lease and substitution of a new operating lease or if applicable a management agreement entered into pursuant to the formation of the taxable REIT subsidiary (the "New Operating Lease") in its sole discretion. Such consent shall not be required, provided that Lender has received payment in full of any and all actual expenses incurred in connection therewith and the following conditions have been satisfied as of the consummation of the transaction: (i) the operating lessee under the New Operating Lease (x) is a Qualified Operating Lessee; or (y) is a public company whose shares were initially distributed to the shareholders and unitholders of the REIT and Operating Partnership at the time the new Operating lease is executed; (ii) the terms of the New Operating Lease, including without limitation, economic provisions, are substantially similar or more preferential to Lender than the Operating Lease; (iii) the New Operating Lease contains a provision that if, at any time, the Debt Service Coverage Ratio Leases for the immediately preceding twelve (12) month period is less than 1.30x, the Borrower shall, at the request of Lender, terminate the New Operating Lease and replace the Operating Lessee or if applicable the New Manager with a new operating lessee or a new manager approved by Lender, on terms and conditions satisfactory to Lender; (iv) Lender has received no less than forty-five (45) days' prior written notice of such transfer; (v) if Qualified Operating Lessee is an Affiliate of Borrower: (x) Qualified Operating Lessee has fully subordinated all of its rights under the New Operating Lease to the Lien of the Security Instrument including but not limited to all provisions regarding insurance, condemnation and any purchase option exercisable by Qualified Operating Lessee; and (y) Borrower shall have delivered a Non-Consolidation Opinion, as acceptable to Lender in its sole discretion with respect to Qualified Operating Lessee and its equity owners; (vi) Lender shall have confirmations from any franchisors under any Franchise Agreements that such Franchise Agreements shall remain in full force and effect after the consummation of such New Operating Lease; and (vii) Lender shall have confirmations in writing from any applicable Rating Agencies to the effect that such new Operating Lease will not result in a re-qualification, reduction or withdrawal of any rating then assigned to any securities in a securitization. [Signature Page Follows] -81- 87 IN WITNESS WHEREOF, the Borrower, each Borrower Principal and the Lender have executed this Loan Agreement under Seal as of the above-written date. BORROWER: RFS SPE2 2000 LLC, a Virginia limited liability company By: RFS MM2 2000 CORPORATION, a Virginia corporation, its managing member By: (SEAL) ---------------------------- Name: Kevin Luebbers Title: Secretary BORROWER PRINCIPALS: RFS HOTEL INVESTORS, INC., a Tennessee corporation By: (SEAL) ---------------------------- Name: Kevin Luebbers Title: Executive Vice President LENDER: BANK OF AMERICA, N.A., a national banking association By: (SEAL) ---------------------------- Name: ---------------------------- Title: ---------------------------- 88 SCHEDULE 1 Allocated Loan Amount Residence Inn, Atlanta, Georgia $ 4,189,000.00 Holiday Inn Express, Downers Grove, Illinois $ 4,938,000.00 Holiday Inn, Flint, Michigan $ 9,999,000.00 Sheraton, Clayton, Missouri $ 6,358,000.00 89 SCHEDULE 2 Franchise Agreements Residence Inn, Atlanta, Georgia- By and Between Marriott International, Inc. as Franchisor and RFS, Inc. as Franchisee, dated October 2, 1995. Holiday Inn, Downers Grove, Illinois - By and Between Holiday Inns Franchising, Inc., as Licensor and RFS, Inc. as Licensee, dated February 27, 1996. Holiday Inn, Flint, Michigan- By and Between Holiday Inns Franchising, Inc., as Licensor and RFS, Inc. as Licensee, dated February 27, 1996. Sheraton, Clayton, Missouri- By and Between ITT Sheraton, as Licensor and RFS, Inc. as Licensee, dated June 18, 1999. 90 SCHEDULE 3 Operating Leases Residence Inn, Atlanta, Georgia, Holiday Inn Express, Downers Grove, Illinois, Holiday Inn, Flint, Michigan and Sheraton, Clayton, Missouri - By and between RFS, Inc. and RFS Partnership, L.P. as amended and consolidated on November 21, 1996. 91 EXHIBIT A --------- EQUITY INTERESTS Borrower: - -------- RFS MM2 2000 Corporation 1% RFS Hotel Investors, Inc. 99% Each Borrower Principal which is not an Individual: - --------------------------------------------------- N/A 92 EXHIBIT B --------- IMMEDIATE REPAIRS, REPLACEMENTS, INITIAL RESERVE DEPOSITS AND MONTHLY RESERVE DEPOSITS IMMEDIATE IMMEDIATE REPAIRS DETAIL REPAIRS ESCROW Clayton, MO HVAC Units $116,000.00 Food Service equipment $ 18,800.00 Swimming pool $ 4,900.00 Hallways: carpet and wallcover $ 71,000.00 Other/Miscellaneous $ 3,900.00 ------------------- ----------- TOTAL: $214,600.00 Replacements Estimated Cost - ------------ -------------- All items required to be capitalized under GAAP, including, but not limited to, all furniture, furnishings, fixtures, hotel equipment, hotel systems, wall coverings, floor coverings and soft goods of Borrower. Initial Reserve Deposits - ------------------------ Initial Reserve Deposit to the Repair Escrow Account (125% of the aggregate estimated cost of Immediate Repairs, as calculated above): $268,250.00 Initial Reserve Deposit to the Replacement Reserve Account: $0.00 Initial Reserve Deposit to the Tax and Insurance Reserve Account: $509,136.74 Initial Reserve Deposit to the Debt Service Reserve Account: $0.00 Initial Deposit to the COR Account: $0.00
93 Monthly Reserve Deposits - ------------------------ In the first year of the Loan, Monthly Reserve Deposits to the Replacement Reserve Account shall be in an amount equal to $89,890.92. Beginning at the end of the first year of the Loan Term, Borrower shall make monthly deposits in an amount equal to the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $92,138.17 per month, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $94,441.67 per month beginning at the end of the second year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $96,802.67 per month beginning at the end of the third year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $99,222.75 per month beginning at the end of the fourth year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $101,703.33 per month beginning at the end of the fifth year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $104,245.91 per month beginning at the end of the sixth year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $106,852.08 per month beginning at the end of the seventh year of the Loan Term, the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $109,523.33 per month beginning at the end of the eighth year of the Loan Term, and the greater of (i) 5% of Operating Income based on the Operating Statements provided by the Borrower, or (ii) $112,261.41 per month beginning at the end of the ninth year of the Loan Term (the "Monthly Deposit to the Replacement Reserve Account"). The Lender may, in its reasonable discretion, adjust such monthly amount from time to time to an amount sufficient, in the Lender's reasonable judgment, to maintain adequate balances necessary for repair and/or replacement costs as they may arise. Notwithstanding the foregoing, in the event the Lender shall at any time increase the Monthly Deposit to the Replacement Reserve Account over the monthly amount then required, the Borrower may, at its election, request that the Lender obtain, at the sole cost, fee and expense of the Borrower, an engineer's report from an engineer to be selected by the Lender in its reasonable discretion, in which case the Monthly Deposit to the Replacement Reserve Account shall be adjusted by the Lender based on such engineer's report, provided that in no event shall the Monthly Deposit to the Replacement Reserve Account be decreased below the amount then required. Monthly Reserve Deposits to the Tax and Insurance Reserve Account shall be in an amount equal to (a) the sum of (i) the aggregate anticipated annual premiums for all insurance policies required to be maintained pursuant to this Loan Agreement due in the coming year, (ii) the sum of the anticipated annual real property taxes, personal property taxes, intangibles taxes and assessment for the Premises due in the coming year, (iii) the sum of anticipated annual water and sewer assessments and frontage charges for the Premises due in the coming year, and (iv) the sum of all other anticipated assessments and charges against the Premises due in the coming year, divided by (b) twelve (12). 94 EXHIBIT C --------- ADDRESSES FOR NOTICE if to the Borrower: RFS SPE2 2000 LLC c/o RFS Hotel Investors Inc. 850 Ridge Lake Blvd, Suite 220 Memphis, Tennessee 38120 Attn: Kevin Luebbers Telephone: (901) 767-7005 Telecopy: (901) 819-5260 with a copy to: Hunton & Williams 1900 K Street, N.W., Suite 1200 Washington, DC 20006 Attn: Thomas F. Kaufman, Esq. Telephone: (202) 955-1604 Telecopy: (202) 778-2201 if to the Lender: Bank of America, N.A. c/o Capital Markets Servicing Group 333 South Beaudry, 26th Floor CA9-703-26-10 Los Angeles, CA 90017 Telephone: (800) 462-0505 Telecopy: (213) 345-6587 with a copy to: Cadwalader, Wickersham & Taft 227 West Trade Street, Suite 2400 Charlotte, North Carolina 28202 Attn: James P. Carroll, Esq. Telephone: (704) 348-5100 Telecopy: (704) 348-5200 95 EXHIBIT D --------- PROGRAM RIDER (Hotel) 1. Definitions. The capitalized terms used in this Program Rider and not defined below shall have the meanings set forth in the Loan Agreement. Operating Expense. Shall mean any operating expense relating to the Premises, whether it be an Operating Expense Premises or an Operating Expense Leases. Operating Income. Shall mean any operating income relating to the Premises, whether it be from Operating Income Premises or Operating Income Leases. 2. Conditions Precedent. The obligation of the Lender to make the Loan provided for in this Loan Agreement is subject to the satisfaction, by proper evidence, execution and/or delivery to the Lender of each of the following items, each in form and substance satisfactory to the Lender and the Lender's counsel: (a) Leases. Copies (including a Certification) of all leases, assignments of lease, subleases and any lease amendments and other agreements (hereinafter "Leases") affecting any part of the Premises. The leases shall be subordinate to the Security Instrument. (b) Tenant Estoppel Certificates. Current Tenant Estoppel Certificates from all tenants and other users (hereinafter "Tenants") of any portion of the Premises. (c) Subordination Agreements. Subordination Agreements with any Lessee. (d) Nondisturbance Agreement. Nondisturbance Agreement with Operating Lessee. (e) Franchise Agreement. A copy of the Franchise Agreement. (f) Comfort Letter from Franchisor. A comfort letter or other agreement from the franchisor under the Franchise Agreement, which letter shall, at the election of the Lender, (i) be addressed to the Lender, (ii) verify that the Franchise Agreement is in full force and effect, (iii) verify that there are no defaults, breaches or violations under the Franchise Agreement and that no conditions exist which with the passage of time or the giving of notice or both could constitute a default, breach or violation thereunder, (iv) provide that notice of any default, breach or violation under the Franchise Agreement and right to cure same be given to the Lender, (v) provide that the Lender shall have the right to assign the letter or other agreement, (vi) permit the Lender to preserve the Franchise Agreement and operate the franchise in accordance with the terms thereof in 96 the event the Borrower suffers a Bankruptcy Event or in the event the Lender or any Affiliate of the Lender acquires the Premises at any foreclosure sale or by deed in lieu of foreclosure, which right to preserve and operate shall continue until dismissal of such Bankruptcy Event or any subsequent sale of the Premises to a party which is not the Lender or any Affiliate of the Lender, as applicable, and (vii) consent to the Loan and the assignment of and grant of a security interest in the Franchise Agreement in favor of the Lender as security for the Loan and the obligations evidenced and secured by the Loan Documents. (g) Franchise Inspection Reports. Copies of such franchise inspection reports relating to the Premises as the Lender may request. (h) Licenses. Copies (including a Certification) of all material licenses, permits, certificates and/or privileges necessary or desirable for the ownership or operation of the Premises as currently constructed and operated. 3. Representations and Warranties of the Borrower. To induce the Lender to enter into this Loan Agreement and to make the Loan, the Borrower hereby represents and warrants to the Lender on the Closing Date as follows: (a) Franchise Agreement. The Franchise Agreement is in full force and effect and has not been terminated, rescinded, withdrawn or cancelled, or (except as disclosed in writing by the Borrower prior to the Closing Date) altered, amended or modified. To the best of Borrower's knowledge, there is no default under or breach or violation of the terms of the Franchise Agreement by any party thereto. (b) The Premises. All guest rooms, facilities and amenities relating to the operation of the hotel as presently constructed and operated are located on the Premises. (c) Licenses. To the best of Borrower's knowledge, all licenses, permits, certificates and/or privileges necessary or desirable for the ownership or operation of the Premises as presently constructed and operated have been obtained and are in good standing. (d) Operating Lease. The Operating Lease is in full force and effect and has not been terminated, rescinded, withdrawn or canceled, or (except as disclosed in writing by the Borrower prior to the Closing Date) altered, amended or modified. There is no default under or between or violation of the terms of the Operating Lease by any party thereto. 4. Affirmative Covenants of the Borrower. During any period in which the Loan is outstanding, the Borrower agrees that it will: (a) Franchise Inspection Reports. Furnish the Lender with a copy of each franchise inspection report relating to the Premises within fifteen (15) days after the Borrower's receipt thereof. 2 97 (b) Lessee Information. Submit to the Lender when requested by the Lender, all information on all tenant leases otherwise required to be included in a Rent Roll, which information shall include a Certification thereof. (c) Rent Rolls. Furnish, or cause to be furnished, Rent Rolls to the Lender when requested by the Lender. (d) Tenant Estoppel Certificates. Furnish to the Lender when requested by the Lender, Tenant Estoppel Certificates from such tenants of any portion of the Premises as the Lender may require. (e) Subordination Agreements. Furnish to the Lender when requested by the Lender, Subordination Agreements with such tenants of any portion of the Premises as the Lender may require. (f) Licenses. Maintain in full force and effect all material licenses, permits, certificates and/or privileges necessary or desirable for the ownership or operation of the Premises as currently or hereafter constructed and operated. 5. Negative Covenants of the Borrower. During any period in which the Loan is outstanding, the Borrower agrees that it will not: (a) Franchise Agreement and Other Agreements, Licenses and Permits. Consent to any default under or a breach, withdrawal, cancellation, revocation, rescission, termination, alteration, amendment, extension or modification of the Franchise Agreement, or any lease, including without limitation property specific leases, rental agreement, sales contract, management contract, construction contract, technical service agreement or other contract or agreement, or any license, permit, certificate or privilege affecting the ownership or operation of the Premises. (b) Leases. The Borrower shall not enter into, default under, breach, withdraw, cancel, rescind, terminate, alter or modify any lease of, or other agreement regarding, any portion of the Premises without the Lender's prior written approval, unless such lease or other agreement (i) is on a form previously approved by the Lender, (ii) provides for terms in conformity with local conditions, (iii) together with the tenant's proposed use of the space leased, conforms with applicable laws and all recorded restrictive covenants affecting the Premises, if any, and with the covenants and agreements set forth in the Loan Documents, including but not limited to those relating to Hazardous Materials and specifically references such covenants relating to Hazardous Materials, and (iv) does not provide for any purchase option, right of first offer or refusal or similar right relating to all or any portion of the Premises. 6. Adjustments to Monthly Reserve Deposit to the Replacement Reserve Account. The Monthly Reserve Deposit to the Replacement Reserve Account shall be adjusted pursuant to the provisions of Exhibit B hereof. 3 98 7. Debt Service Reserve. Borrower shall establish on the date hereof a debt service reserve account (the "Debt Service Reserve Account") which shall be under the sole dominion and control of Lender. On a quarterly basis, based on trailing twelve (12) months certified operating statements, Lender will determine the aggregate Debt Service Coverage Ratio Premises for the Premises (the "Aggregate DSCR"). In the event the Aggregate DCSR is below 1.70x, funds sufficient to pay three (3) months debt service for the Loan shall be deposited directly into the Debt Service Reserve Account. The Debt Service Reserve shall be interest bearing for the benefit of the Borrower and will remain in place for the remainder of the Loan. If at any time after the Debt Service Reserve Account is established, the balance of such account is less than an amount sufficient to pay three (3) months debt service, Borrower shall, within ten (10) days, replenish the Debt Service Reserve Account with additional funds necessary to maintain such amount. 8. Event of Default. In addition to any Events of Default set forth in the Loan Agreement or any of the other Loan Documents, any default under, breach of or failure by the Borrower to perform its obligations under the Franchise Agreement or any withdrawal, cancellation, revocation, rescission, termination, alteration, amendment or modification of the Franchise Agreement (except as set forth on Schedule 4 hereto or to the extent consented to in writing by the Lender) shall be an Event of Default under the Loan Agreement and the other Loan Documents. 4 99 EXHIBIT E --------- Form of Nondisturbance, Subordination and Attornment Agreement for Operating Leases This instrument was prepared Cadwalader, Wickersham & Taft by and after recording return to: 227 West Trade Street, Suite 2400 Charlotte, North Carolina 28202 Attention: James P. Carroll, Esq. NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT AGREEMENT THIS AGREEMENT, made as of this ____ day of ______________, 2000 between ___________________________, and _________________________, each a ________________________, (collectively, the "Borrower"), RFS, Inc., a Tennessee corporation (the "Lessee") and BANK OF AMERICA, N.A., a national banking association (the "Lender"). RECITALS 1. The Lender has extended [two loans] to the Borrower in the aggregate amount of up to $___________________ (collectively, the "Loan") pursuant to certain loan agreements dated the date hereof between the Borrower and the Lender (collectively, the "Loan Agreement") and evidenced by promissory notes executed by the Borrower and payable to the Lender (such notes, together with any extensions, renewals, and amendments thereto, and hereinafter referred to as the "Note") and secured by deeds of trust, and mortgages, (individually, a "Security Instrument" collectively, the "Security Instruments") on certain parcels of land and improvements thereon (individually, a "Property", collectively, the "Properties") owned by Borrower as set forth in Schedule 1 attached hereto and incorporated herein by reference. The Note, the Loan Agreement, the Security Instruments and any and all other loan documents now or hereafter either securing or evidencing the Loan evidenced by the Loan Agreement and the Note and all modifications, extensions, consolidations, replacements and renewals of such loan documents are referred to collectively as the "Loan Documents." 2. The Lessee is the tenant under the lease agreements for the Properties between [RFS Partnership, L.P., a Tennessee limited partnership, ("RFS, L.P.")], and the Lessee, being more particularly described in Schedule 2 attached hereto and incorporated herein by reference (hereinafter, together with any amendments or modifications consented to by the Lender, are referred to as the "Leases"). The Leases have been amended by an Amendment to Third Consolidated Lease Amendment and Lease Agreements dated as of the date hereof (the "Amendment"), whereby RFS, L.P. and Lessee have set forth their agreements regarding certain matters that have been addressed in this Agreement. The interests of RFS, L.P. under the Leases, as amended, have been assigned to Borrower pursuant to two Assignment of Leases Agreements, each dated as of the date hereof (collectively the "Assignment of Leases") and the Properties subject to the Leases have been conveyed to Borrower. 1 100 3. In connection with the credit being extended pursuant to the terms of the Loan Agreement, the Lender has requested the Lessee and the Borrower to execute this Agreement, and in order to induce the Lender to make the Loan, the Lessee and the Borrower have agreed to the terms set out herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: FIRST: Each Lease shall be subject and subordinate to the Security Instruments and to all renewals, modifications or extensions thereof. SECOND: With respect to each Lease, so long as Lessee is not in default (beyond any period in such Lease given Lessee to cure such default) in the payment of rent (specifically including but not limited to percentage rent and base rent of every kind and character) or additional rent or in the performance of any of the terms, covenants or conditions of the Lease on Lessee's part to be performed, and except as expressly set forth herein, Lessee's possession of the premises described in the Lease and Lessee's rights and privileges under the Lease, or any extensions or renewals thereof which may be effected in accordance with any option therefor in the Lease, shall not be disturbed, diminished or interfered with by any suit, action or proceeding upon any Security Instrument or the obligations secured thereby, or the foreclosure of the Security Instruments or the enforcement of any rights thereunder or under any other Loan Document or otherwise by Lender. THIRD: If the interests of Borrower shall be transferred to and owned by Lender by reason of foreclosure, deed in lieu of foreclosure, or other proceedings brought by it or by any other manner, and Lender succeeds to the interest of the Borrower under any Lease, Lessee shall be bound to Lender under all of the terms, covenants and conditions of such Lease for the balance of the term thereof remaining and any extensions or renewals thereof which may be effected in accordance with any option thereof in such Lease, with the same force and effect as if Lender were the lessor under the Lease, and Lessee does hereby attorn to Lender as its lessor, said attornment to be effective and self-operative without the execution of any further instruments on the part of either of the parties hereto immediately upon Lender succeeding to the interest of the lessor under such Lease. The respective rights and obligations of Lessee and Lender upon said attornment, to the extent of the then remaining balance of the term of such Lease and any such extensions and renewals, shall be and are the same as now set forth therein, subject to the terms and provisions of this Agreement; it being the intention of the parties hereto for this purpose to incorporate the Leases in this Agreement by reference with the same force and effect as if set forth at length herein, subject to the terms and provisions of this Agreement. FOURTH: Lessee certifies that: (a) each Lease is presently in full force and effect; (b) no rent under any Lease has been paid more than thirty (30) days in advance of its due date, other than any overpayments of percentage rent that may be adjusted as provided in such Lease; (c) Lessee has not filed any claim of offset and, to the best knowledge of Lessee, Lessee, 2 101 as of this date, has no charge, lien or claim of offset under any Lease, or otherwise, against the rents or other amounts due or to become due thereunder; (d) the Lessee is owner of the "Tenant's" or "Lessee's" interest in the Lease and has not transferred or assigned any Lease or sublet the premises demised thereby; and (e) to the best knowledge of the Lessee, neither the Lessee nor the Lessor is in any way in default under any Lease and Lessee, to the best of its knowledge, knows of no event which but for the passage of time or the giving of notice or both would constitute an event of default or breach by Lessee or Borrower under any Lease. Lessee shall up to twice a calendar year (and at such additional times as Lender shall reasonably request), within ten (10) days after request by Lender, execute, acknowledge and deliver a statement by Lessee certifying the items listed in subsections (a)-(e) above with such exceptions as shall be necessary to cause such statement to be factually correct. FIFTH: If Lender shall succeed to the interest of Borrower under any Lease, Lender shall be bound to Lessee under all terms, covenants and conditions of such Lease, and Lessee shall, from and after Lender's succession to the interest of Borrower under such Lease, have the same remedies against Lender for the breach of an agreement contained in the Lease that Lessee might have had under such Lease against Borrower if Lender had not succeeded to the interest of Borrower; provided further, however, that Lender shall not be: (a) liable for any act or omission of any prior landlord (including the Borrower) except that Lender shall be liable for such act or omission only from and after the date on which Lender so succeeds to the interest of Borrower under such Lease if such act or omission constitutes a default of Borrower under such Lease and continues to exist after such date; or (b) subject to any offsets or defenses which the Lessee might have against any prior landlord (including the Borrower) except for offsets expressly provided for in such Lease arising from Lessor defaults under such Lease with respect to which Lessee has notified Lender pursuant to clause SEVENTH hereof (such notice to set forth a quantification of the potential offset amount to the extent possible); or (c) liable for the return of any security deposits not delivered to Lender; or (d) bound by any rent or additional rent which Lessee might have paid for more than thirty (30) days in advance of its due date to any prior landlord (including Borrower), other than any overpayments of percentage rent that may be adjusted as provided in the Lease; or (e) bound by any amendment or modification of the Lease including, but not limited to, any reduction in rent, made without Lender's consent; or (f) obligated to construct or finish the construction or to renovate or finish the renovation of the premises described in any Lease, except as required under such Lease. SIXTH: Each Lease now is, and shall at all times continue to be, subject and subordinate in each and every respect, to the Security Instruments and to any and all renewals, modifications and extensions thereof, but any and all such renewals, modifications and extensions shall nevertheless be subject to and entitled to the benefits of the terms of this 3 102 Agreement. Lessee acknowledges and agrees that in the event of any conflict between the provisions of any Lease and the provisions of this Agreement, this Agreement shall control. SEVENTH: Lessee will notify Lender or its successors or assigns, by reputable overnight courier delivery, of any default of Borrower which would entitle Lessee to cancel any Lease or abate the rent payable thereunder, and agrees that notwithstanding any provision of such Lease, no notice of cancellation thereof, nor any abatement shall be effective unless Lender has received the notice aforesaid and has failed within thirty (30) days of the date thereof to cure such default or, if the default cannot be cured within thirty (30) days, has failed to commence and to diligently prosecute the cure of Borrower's default which gave rise to such right of cancellation or abatement. The address of the Lender for notice is Bank of America, N.A., CMLS #1777, P.O. Box 3609, Los Angeles, California 90051, Attn: Servicing Manager. Lender will notify Lessee or its successors or assigns in writing of any default of Borrower under the Loan Documents that would entitle Lender to enforce its rights or remedies thereunder, and agrees that it will not enforce its rights or remedies thereunder unless Lessee has received a written notice for a time period equivalent to the time period afforded to Borrower under the Loan Documents and Lessee has failed to cure such default within such time-period. The address of the Lessee for notice is RFS, Inc., c/o Promus Hotel Corporation, 755 Crossover Lane, Memphis, Tennessee 38117-4900, Attn: Peter Kesser. EIGHTH: No Lease may be assigned or sublet by the Lessee without the Lender's prior written consent, except as the Lessee may be permitted to do so without the consent of the Borrower under the terms of such Lease. A franchisor of any hotel owned by the Borrower on the premises demised under any Lease may not be replaced by the Lessee without the Lender's prior written consent. Lessee hereby consents and agrees to the lien of the Security Instruments and the other Loan Documents for each of the Properties, including any subsequent transfers or assignments thereof made by the Lender and the financing of a direct purchaser from Lender, provided that such financing is substantially similar to the Loan in all material respects including, but not limited to, its financial terms, loan to value ratio and its effect on Lessee. NINTH: Lessee acknowledges that all of the interest of Borrower in and to the Leases has been assigned to Lender pursuant to the Security Instruments and that pursuant to the terms of that certain Cash Management Agreement of even date herewith between Lender and Borrower (the "Cash Management Agreement"), all rent and other payments due under the Lease shall be deposited in an account (the "Account") established in accordance with the provisions contained in the Cash Management Agreement. Lessee hereby agrees, without further notice, to so pay all such rent and other payments under the Lease directly to the Account as and when same are due and payable under the Lease. Lessee further acknowledges and agrees that this Agreement shall serve as notice required pursuant to Section 3.1 of the Lease. Borrower hereby authorizes Lessee to pay all rent and other payments to Lender and acknowledges that all rent and other payments so paid to Lender shall be deemed paid under the Lease. TENTH: This Agreement may not be modified except by an agreement in writing signed by the parties hereto. 4 103 ELEVENTH: Lessee hereby agrees not to exercise its rights under Section 34.3 of any Lease with respect to any Property against Borrower, Lender or any direct successor of Lender prior to the earlier of (i) the payment in full, prepayment or defeasance of the Loan as to the Property, or (ii) transfer of the Property to Lender or a third-party through foreclosure, deed-in-lieu of foreclosure or otherwise. TWELFTH: In no event shall Lender or any direct successor or assignee of Lender (collectively, the "Subsequent Landlord") have any personal liability for the obligations of Borrower under any Lease and should the Subsequent Landlord succeed to the interests of the Borrower under such Lease, Lessee shall look only to the estate and property of any such Subsequent Landlord in the related Property for the satisfaction of Lessee's remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by any Subsequent Landlord as landlord under the Lease, and no other property or assets of any Subsequent Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Lessee's remedies under or with respect to the Lease; provided, however, that the Lessee may exercise any other right or remedy provided thereby or by law in the event of any failure by Subsequent Landlord to perform any such obligation. THIRTEENTH: [Sections 15.3, 15.4 and 15.5 of each of the Leases shall be amended so that any Award with respect to the Property shall be subject and subordinate to the Lender's prior claim to one hundred twenty-five percent (125%) of the amount set forth on Schedule 3 for such Property, as reduced by any amortization, prepayment or defeasance amount on the Loan applicable to such Property. Lessee acknowledges that Lessee has no claim to any insurance proceeds payable to Lender or Lessor with respect to any Property in the event of any loss or damage to the Property, or any portion thereof, insured under the policies of insurance required by Article XIII of the Leases.] FOURTEENTH: As to each Lease, the law of the state in which the applicable Property subject to such Lease is located shall govern the interpretation of this Agreement. FIFTEENTH Borrower represents and warrants that the Assignment of Leases was duly executed by Borrower and all consents, resolutions or other approvals required for Borrower to execute the Assignment of Leases were obtained. Lessee represents and warrants that the Leases were duly executed by Lessee and all consents, resolutions or other approvals required for Lessee to execute the Leases were obtained. SIXTEENTH: Lessee represents and warrants that it has made no assignment of Lessee's rights or interest pursuant to any portion of the Lease including without limitation Section 4(b) of the Master Agreement dated as of _______________________. SEVENTEENTH: Lender hereby consents to the amendment of the Lease terms as set forth in the Amendment. Lessee hereby consents to the assignment of the interest of RFS, L.P. under the Lease to Borrower pursuant to the Assignment of Leases. 5 104 EIGHTEENTH: This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute and be construed as one and the same instrument. NINETEENTH: All remedies which Lender may have against Borrower provided herein, if any, are cumulative and shall be in addition to any and all other rights and remedies provided by law and by other agreements between Lender and Borrower or others. If any party consists of multiple individuals or entities, each of same shall be jointly and severally liable for the obligations of such party hereunder. TWENTIETH: This Agreement is binding upon, and inures to the benefit of the parties hereto and any successors and assigns to the parties hereto. There are no other agreements, either written or oral, with respect to the matters described herein. TWENTY-FIRST: This Agreement shall apply to all properties substituted for any Property under the terms of the Loan Documents, and such substituted properties shall be thereafter known as a Property. Any Property, and the Lease therefor, for which there has been a substitution under the terms of the Loan Documents shall thereafter be released from the terms of this Agreement. TWENTY-SECOND: The terms of this Agreement shall expire and be of no further effect, except to the extent of any then existing unsatisfied obligations arising under this Agreement as to a Lease for a property upon the earlier of: (i) a release by Lender of the property as security for the Loan, or (ii) a foreclosure or conveyance by deed-in-lieu of foreclosure of such property. [SIGNATURE PAGE FOLLOWS] 6 105 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under Seal in manner and form sufficient to bind them, as of the day and year first above written. BORROWER: __________________, a __________________ By: ________________ CORPORATION, a _____________ corporation, its _________________ By: (SEAL) --------------------------- Kevin Luebbers Secretary ______________________, a ______________ By: ________________ CORPORATION, a _____________ corporation, its _________________ By: (SEAL) --------------------------- Kevin Luebbers Secretary LESSEE: RFS, Inc., a Tennessee corporation By: (SEAL) ------------------------------- Peter Kesser Vice President LENDER: BANK OF AMERICA, N.A. By: (SEAL) ------------------------------- Name: ------------------------------ Title: ------------------------------ 106 Schedule I 107 Schedule II 108 EXHIBIT F --------- Form of Tenant Estoppel Certificate TO: BANK OF AMERICA, N.A. Bank of America Corporate Center, 11th Floor Charlotte, North Carolina 28255 Attention: Conduit Program Manager RE: ____________________________ The undersigned, as tenant under that certain lease (the "Lease") dated ____________________, 20___, made with ________________________, (the "Landlord"), covering approximately _________ square feet of space at Landlord's property generally described as ____________________________________ in _____________ County, _______________, hereby certifies as follows: (1) That the tenant has entered into occupancy of the premises described in the Lease. (2) That the Lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way, except as follows: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (3) That the Lease, as amended as indicated in paragraph 2 hereof, represents the entire agreement between the parties as to said leasing. (4) That the commencement date of the term of the Lease is _________________. (5) That the expiration date of the term of the Lease is _______________________. The tenant has no rights to renew or extend the term of the Lease except as follows: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (6) That all conditions of the Lease to be performed by the landlord and necessary to the enforceability of the Lease have been satisfied. (7) That there are no defaults by either the tenant or the landlord thereunder, and no event has occurred or situation exists which would, with the passage of time, constitute a default under the Lease. All improvements or work required under the Lease to be made by the landlord to date, if any, have been completed to the satisfaction of the tenant. Charges for all labor and materials used or furnished in connection with improvements and/or alterations made for the account of the tenant at the premises and common areas have been paid in full. 1 109 (8) That monthly rent in the amount of $_________________ is payable on the _____ day of each month during the Lease term. That no rents have been prepaid more than two (2) months in advance and full rental, including basic minimum rent, if any, has commenced to accrue. (9) That on this date there are no existing defenses, offsets, claims or credits which the tenant has against the enforcement of the Lease by the landlord except for prepaid rent through __________________ (not to exceed two months). (10) The tenant has paid to the landlord a security deposit in the amount of $________________. (11) The tenant has all governmental permits, licenses and consents required for the activities and operations being conducted or to be conducted by it in or around the premises. (12) That as of the date hereof, there are no actions, whether voluntary or otherwise, pending against the tenant under the bankruptcy or insolvency laws of the United States or any state thereof. (13) That it understands that Bank of America, N.A., (the "Lender") will make a mortgage loan to ___________________ (or its successor and/or assign) as holder of fee simple title in the premises encumbered by the Lease) in reliance upon, among other things, this certificate. (14) That tenant will pay to Lender all payments due under the Lease from and after the date Lender sends written notice to the tenant requesting such payments to be made directly to Lender. EXECUTED this _____ day of ____________________, 20__. TENANT: By: (SEAL) ---------------------------- Name: --------------------------- Title: --------------------------- ATTEST/WITNESS: - ----------------------------------- 2 110 EXHIBIT G BANK OF AMERICA, N.A. (Lender) - and - -------------------------- (Tenant) ------------------------------------------------- SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ------------------------------------------------- Dated: Location: Section: Block: Lot: County: PREPARED BY AND UPON RECORDATION RETURN TO: Cadwalader, Wickersham & Taft 227 West Trade Street, Suite 2400 Charlotte, North Carolina 28202 Attention: Anderson D. Caperton, Esq. File No.: Title No.: 111 SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement") is made as of the ___ day of _____________, 2000 by and between BANK OF AMERICA, N.A., a national banking association, having an address at 100 North Tryon Street, Charlotte, North Carolina 28255 successors and assigns ("Lender") and ___________________________________________________ having an address at ____________________________________________________________________("Tenant"). RECITALS: A. Lender is the present owner and holder of a certain deed of trust and security agreement (the "Security Instrument") dated ___________, 2000, given by Landlord (defined below) to Lender which encumbers the fee estate of Landlord in certain premises described in Exhibit A attached hereto known as the _____________________ (the "Property") and which secures the payment of certain indebtedness owed by Landlord to Lender evidenced by a certain promissory note dated ____________, 2000, given by Landlord to Lender (the "Note); B. Tenant is the holder of a leasehold estate in a portion of the Property under and pursuant to the provisions of a certain lease dated ________________, ____ between ______________, as landlord ("Landlord") and Tenant, as tenant (the "Lease"); and C. Tenant has agreed to subordinate the Lease to the Security Instrument and the lien thereof and Lender has agreed to grant non-disturbance to Tenant under the Lease on the terms and conditions hereinafter set forth. AGREEMENT: For good and valuable consideration, Tenant and Lender agree as follows: 1. Subordination. The Lease and all of the terms, covenants and provisions thereof and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the terms, covenants and provisions of the Security Instrument and to the lien thereof, including without limitation, all renewals, increases, modifications, spreaders, consolidations, replacements and extensions thereof and to all sums secured thereby and advances made thereunder with the same force and effect as if the Security Instrument had been executed, delivered and recorded prior to the execution and the delivery of the Lease. 2. Non-Disturbance. If any action or proceeding is commenced by Lender for the foreclosure of the Security Instrument or the sale of the Property, Tenant shall not be named as a party therein unless such joinder shall be required by law, provided, however, such joinder shall not result in the termination of the Lease or disturb the Tenant's possession or use of the premises thereunder, and the sale of the Property in any such action or proceeding and the exercise by Lender of any of its other rights under the Note or the Security Instrument shall be made subject to all rights of Tenant under the Lease, provided that at the time of the 1 112 commencement of any such action or proceeding or at the time of any such sale or exercise of any such other rights, Tenant shall not be in default beyond any applicable cure period under any of the terms, covenants or conditions of the Lease or of this Agreement on Tenant's part to be observed or performed. 3. Attornment. If Lender or any other subsequent purchaser of the Property shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument (Lender or such other purchaser being hereinafter referred as "Purchaser"), and the conditions set forth in Section 2 above have been met at the time Purchaser becomes owner of the Property, the Lease shall not be terminated or affected thereby but shall continue in full force and effect as a direct Lease between Purchaser and Tenant upon all of the terms, covenants and conditions set forth in the Lease and in that event, Tenant agrees to attorn to Purchaser and Purchaser by virtue of such acquisition of the Property shall be deemed to have agreed to accept such attornment, provided, however, that Purchaser shall not be (a) liable for the failure of any prior landlord (any such prior landlord, including Landlord and any successor landlord, being hereinafter referred to as a "Prior Landlord") to perform any of its obligations under the Lease except that Lender shall be liable for such failure only from and after the date on which Lender so succeeds to the interest of such Prior Landlord, provided that the foregoing shall not limit Purchaser's obligations under the Lease to correct any conditions that (i) existed as of the date Purchaser shall become the owner of the Property and (ii) violate Purchaser's obligations as landlord under the Lease; provided further however, that Purchaser shall have received written notice of such omissions, conditions or violations and has had a reasonable opportunity to cure the same, all pursuant to the terms and conditions of the Lease, (b) subject to any offsets, defenses, abatements or counterclaims which shall have accrued in favor of Tenant against any Prior Landlord prior to the date upon which Purchaser shall become the owner of the Property except for offsets expressly provided for in the Lease arising from Landlord defaults under the Lease with respect to which Tenant has notified Purchaser (such notice to set forth a quantification of the potential offset amount to the extent possible), (c) liable for the return of rental security deposits, if any, paid by Tenant to any Prior Landlord in accordance with the Lease unless such sums are actually received by Purchaser, or (d) bound by any payment of rents, additional rents or other sums which Tenant may have paid more than one (1) month in advance to any Prior Landlord unless (i) such sums are actually received by Purchaser or (ii) such prepayment shall have been expressly approved of by Purchaser. In the event that any liability of Purchaser does arise pursuant to this Agreement, such liability shall be limited and restricted to Purchaser's interest in the Property and shall in no event exceed such interest. 4. Notice to Tenant. After notice is given to Tenant by Lender that the Landlord is in default under the Note and the Security Instrument and that the rentals under the Lease should be paid to Lender pursuant to the terms of the assignment of leases and rents executed and delivered by Landlord to Lender in connection therewith, Tenant shall thereafter pay to Lender or as directed by the Lender, all rentals and all other monies due or to become due to Landlord under the Lease and Landlord hereby expressly authorizes Tenant to make such payments to Lender and hereby releases and discharges Tenant from any liability to Landlord on account of any such payments. 2 113 5. Notice to Lender and Right to Cure. Tenant shall notify Lender of any default by Landlord under the Lease and agrees that, notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof or of an abatement shall be effective unless Lender shall have received notice of default giving rise to such cancellation or abatement and shall have failed within sixty (60) days, or within thirty (30) days if such default materially interferes with the operation of the Premises as a restaurant, (or such longer period for cure as specified in the Lease) after receipt of such notice to cure such default, or if such default cannot be cured within sixty (60) days (or such longer period for cure as specified in the Lease), shall have failed within sixty (60) days (or such longer period for cure as specified in the Lease) after receipt of such notice to commence and thereafter diligently pursue any action necessary to cure such default. Notwithstanding the foregoing, Lender shall have no obligation to cure any such default. 6. 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 by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (hereinafter defined) 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, return receipt required, addressed as follows: If to Tenant: ----------------------------- ----------------------------- ----------------------------- Attention: ------------------- Facsimile No. ---------------- If to Lender: Bank of America, N.A. Bank of America Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Attention: ------------------- Facsimile No. ---------------- or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 6, the term "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in the state where the Property is located. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. 7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lender, Tenant and Purchaser and their respective successors and assigns. 3 114 8. Governing Law. This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State where the Property is located and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State where the Property is located. 9. Miscellaneous. This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto. If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement 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 Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. 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. [NO FURTHER TEXT ON THIS PAGE] 4 115 IN WITNESS WHEREOF, Lender and Tenant have duly executed this Agreement as of the date first above written. LENDER: BANK OF AMERICA, N.A., a national banking association By: ----------------------------------- Name: Title: TENANT: --------------------------------------, a ------------------------------------ By: ----------------------------------- Name: Title: The undersigned accepts and agrees to the provisions of Section 4 hereof: LANDLORD: - ----------------------------------, a -------------------------------- By: ------------------------------- Name: -------------------------- Title: ------------------------- 5 116 ACKNOWLEDGMENTS (To be attached) 117 EXHIBIT A (Description of Property) 118 EXHIBIT H Form of Hazardous Material Indemnity Agreement Loan No.: ________ Servicing No.: ________ HAZARDOUS MATERIALS INDEMNIFICATION AGREEMENT THIS HAZARDOUS MATERIALS INDEMNIFICATION AGREEMENT ("Agreement") is made as of the ______ day of _____________, 2000, by _____________________ a ____________________________, having an office at c/o RFS Hotel Investors Inc., 850 Ridge Lake Blvd., Suite 220, Memphis, Tennessee 38120 (the "Borrower"); rfs hotel investors, inc. (the "Principal"), the Borrower and the Principal are hereinafter referred to, individually and collectively, as the context requires as the Indemnitor (the "Indemnitor"), to and for the benefit of BANK OF AMERICA, N.A., a national banking association, having an office in Charlotte, North Carolina (the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower is the owner and holder of certain fee and other interests, in respect of that certain real property located in the Counties and States of: _________________________________________________________________ and more particularly described in Exhibit A attached hereto and the improvements located thereon, as more particularly described in the Security Instrument (as hereinafter defined) (such real property, together with all improvements now or hereafter located thereon, are collectively, the "Premises"); WHEREAS, the Borrower has applied to the Lender for a loan (the "Loan") of up to the maximum principal amount of $___________________________, pursuant to and in accordance with that certain Loan Agreement, dated as of the date hereof by and between the Borrower and the Lender (as the same may hereafter be modified, supplemented, extended or renewed and in effect from time to time, the "Loan Agreement"), and which Loan shall be evidenced by a Promissory Note of even date herewith given by the Borrower to, and in favor of, the Lender (the "Note") and shall be secured by, among other things, a [Deed of Trust/Mortgage], Assignment of Leases and Rents, and Security Agreement dated the date hereof given by the Borrower to, and in favor of, the Lender (the "Security Instrument"); WHEREAS, as a condition to making the Loan, the Lender requires the Borrower to make certain covenants, representations, warranties and agreements with respect to the Premises; and WHEREAS, as an inducement to the Lender to make the Loan to the Borrower, the Indemnitor has agreed to enter into this Agreement. Borrower has delivered to Lender 1 119 certain environmental assessment reports for cash Individual Property dated November 13, 1998, prepared by EMG entitled Environmental Site Assessment (the "Environmental Report"). NOW THEREFORE, in consideration of the Premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Indemnitor hereby agrees to and for the benefit of the Lender as follows: ARTICLE I REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNITIES Section 1.1. The Indemnitor hereby represents and warrants to the Lender that, except as noted in the Environmental Report, to the best of the Indemnitor's knowledge, after due inquiry and investigation: (i) the Premises is not in direct or indirect violation of any federal, state, or local laws, ordinances, regulations, standards, rules, policies or other governmental requirements or any court judgments applicable to the Indemnitor or to the Premises relating to industrial hygiene or to environmental or unsafe conditions or to human health including, but not limited to, those relating to the generation, manufacture, storage, handling, transportation, disposal, release, emission or discharge of Hazardous Materials (as defined below), those in connection with the construction, fuel supply, power generation and transmission, waste disposal or any other operations or processes relating to the Premises, and those relating to the atmosphere, soil, surface and ground water, wetlands, stream sediments and vegetation on, under, in or about the Premises, including but not limited to, the following laws, as amended as set forth herein and as subsequently amended: (1) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USCA 9601 et seq.; (2) the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 USCA 6901 et seq.; (3) the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USCA 1251 et seq.; (4) the Toxic Substances Control Act, 15 USCA 2601 et seq.; (5) the Emergency Planning and Community Right-to-Know Act of 1986, 42 USCA 11001 et seq.; (6) the Clean Air Act, as amended by the Clean Air Act Amendments, 42 USCA 7401 et seq.; (7) the National Environmental Policy Act of 1969, 42 USCA 4321 et seq.; (8) the River and Harbor Act of 1899, 33 USCA 401 et seq.; (9) the Endangered Species Act of 1973, 16 USCA 1531 et seq.; (10) the Occupational Safety and Health Act of 1970, 29 USCA 651 et seq.; (11) the Safe Drinking Water Act, 42 USCA 300(f) et seq.; and (12) the Hazardous Materials Transportation Act, 49 USCA 1801 et seq., and all regulations from time to time adopted in respect to the foregoing laws (collectively, "Hazardous Materials Laws"); (ii) the Premises are not subject to any private or governmental lien or judicial or administrative notice or action relating to petroleum and petroleum products, flammable explosives, radioactive materials (excluding radioactive materials in smoke detectors), polychlorinated biphenyls, lead, asbestos or asbestos containing materials in any form that is or could become friable, hazardous waste, toxic or hazardous substances or other related materials whether in the form of a chemical, element, compound, solution, mixture or otherwise including, but not limited to, those materials defined as "hazardous substances," "extremely hazardous substances," "hazardous chemicals," "hazardous materials," "toxic 2 120 substances," "solid waste," "toxic chemicals," "air pollutants," "toxic pollutants," "hazardous wastes," "extremely hazardous waste," or "restricted hazardous waste" by Hazardous Materials Law or regulated by Hazardous Materials Law in any manner whatsoever (collectively, "Hazardous Materials"); (iii) no Hazardous Materials are or have been, prior to the Indemnitor's acquisition of the Premises, discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from the Premises otherwise than in compliance with all Hazardous Material Laws; (iv) no property adjoining the Premises are being used or has ever been used at any previous time, for the disposal, storage, treatment, processing or other handling of Hazardous Materials; (v) no underground storage tanks exist on any of the Premises except as those disclosed in writing to the Lender and which comply with applicable Hazardous Material Laws; and (vi) it has not received any notice or has any knowledge of any claim with respect to Hazardous Materials on the Premises or any completed, pending or threatened investigation or inquiry concerning the presence or release of any Hazardous Materials on the Premises or any adjacent property or concerning whether any condition, use or activity on the Premises or any adjacent property is in violation of any Hazardous Material Laws. Section 1.2. So long as the Indemnitor owns or is in possession of the Premises, the Indemnitor shall: (a) Not cause, permit or exacerbate any Prohibited Activities or Conditions (as defined below). The Indemnitor represents and warrants that it has not at any time caused or permitted any Prohibited Activities or Conditions except as set forth in the Environmental Assessment (as defined below) and that, except as noted in the Environmental Report, no Prohibited Activities or Conditions exist or have existed on or under the Premises. The Indemnitor shall take all appropriate steps to prevent its employees, agents, and contractors, and any tenants from causing, permitting, or exacerbating any Prohibited Activities or Conditions. The Indemnitor shall not lease or allow the sublease or use of all or any portion of the Premises to any tenant, subtenant or user that, in the ordinary course of its business, would cause, permit, or exacerbate any Prohibited Activities or Conditions, and all leases, subleases and use agreements relating to the Premises shall contain provisions sufficient to ensure that tenants, subtenants and users shall not cause, permit or exacerbate any Prohibited Activities or Conditions. (b) Comply in a timely manner with, and cause all employees, agents, and contractors or the Indemnitor and any other persons present on the Premises to so comply with, (i) any O&M Program (as defined below) now or hereafter in effect during the term of the Loan, and (ii) Hazardous Materials Law, so as to minimize any economic loss to the Premises and the Loan. The Indemnitor shall adopt an O&M Program with respect to any Hazardous Materials identified in any Environmental Assessment or any Governmental Action (as defined below) relating to the Premises, or as otherwise required by the Lender with respect to the Premises. Any O&M Program shall be performed by qualified contractors under the supervision of a consulting engineer hired by the Indemnitor with the prior written approval of the Lender which approval shall not be unreasonably withheld, conditioned or delayed. All costs and expenses of any O&M Program shall be paid by the Indemnitor, including without limitation the charges of such contractors and consulting engineer and the Lender's fees, costs and expenses incurred in 3 121 connection with the monitoring and review of the O&M Program and the Indemnitor's performance thereunder. (c) Promptly notify the Lender in writing of: (i) any Governmental Action it becomes aware of (ii) any claim made or threatened by any third party against the Indemnitor, the Lender, or the Premises relating to loss or injury resulting from any occurrence or condition on the Premises or any other real property that could require the removal from the Premises of any Hazardous Materials or cause any restrictions on the ownership, occupancy, transferability or use of the Premises under Hazardous Materials Law or (iii) the occurrence of any Prohibited Activities or Conditions. The Indemnitor shall cooperate with any governmental inquiry, and shall comply with any governmental or judicial order, request or directive which arises from any alleged Prohibited Activities or Conditions; provided that with respect to governmental requests or directives only, the Indemnitor may contest or object to a good faith dispute regarding said request or directive if the Indemnitor notifies the Lender in advance of said contest or objection and as long as said contest or objection does not result in a violation of law or fines assessed against the Premises. (d) Pay promptly or cause to be paid all costs and expenses incurred by the Lender in connection with any Governmental Action, including but not limited to costs of any environmental audits, studies, investigations or remedial activities including but not limited to the removal of any Hazardous Materials from the Premises. The Borrower also shall pay promptly or cause to be paid the costs of any environmental audits, studies, investigations or the removal of any Hazardous Materials from the Premises required by the Lender as a condition of its consent to any sale or transfer of all or any part of the Premises or any interest therein or required by the Lender following a reasonable determination by the Lender that there may be Prohibited Activities or Conditions on or under the Premises. Any such costs or expenses incurred by the Lender (including but not limited to reasonable fees and expenses of attorneys and consultants, whether incurred in connection with any judicial or administrative process or otherwise) which the Borrower fails to pay promptly shall become additional indebtedness secured by the Security Instrument. Section 1.3. Upon the Lender's reasonable request, at any time after a prohibited activity occurs and from time to time while the Security Instrument is in effect, the Indemnitor shall provide at the Indemnitor's sole expense, an inspection or audit of the Premises prepared by a licensed hydrogeologist or licensed environmental engineer approved by the Lender indicating the presence or absence of Hazardous Materials on the Premises. If the Indemnitor fails to provide such inspection or audit within thirty (30) days after such request the Lender may order same, and the Indemnitor hereby grants to the Lender and their employees and agents access to the Premises and a license to undertake such inspection or audit. The cost of such inspection or audit shall be added to the principal balance of the sums due under the Note (as defined in the Security Instrument) and the Security Instrument and shall bear interest thereafter until paid at the default rate thereunder. Section 1.4. The Indemnitor represents and warrants that, except as noted in the Environmental Report to the best of the Indemnitor's knowledge, after due inquiry and investigation, no asbestos or any substance containing asbestos ("Asbestos") is located on the 4 122 Premises except as may have been disclosed in an environmental report delivered to the Lender prior to the date of this Agreement. The Indemnitor shall not install in the Premises, nor permit to be installed in the Premises, Asbestos and shall remove or cause to be removed any Asbestos promptly upon discovery to the satisfaction of the Lender, or take all action necessary to ensure that such Asbestos is abated or managed in a manner which complies with all applicable federal, state and local laws, ordinances, rules and regulations with respect to Asbestos. The Indemnitor shall in all instances comply with, and ensure compliance by all occupants of the Premises with, all applicable federal, state and local laws, ordinances, rules and regulations with respect to Asbestos, and shall keep the Premises free and clear of any liens imposed pursuant to such laws, ordinances, rules or regulations. In the event that the Indemnitor receives any notice or advice from any governmental agency or any source whatsoever with respect to Asbestos on, affecting or installed on the Premises, the Indemnitor shall immediately notify the Lender. Upon the Lender's reasonable request, at any time and from time to time while the Security Instrument is in effect, the Indemnitor shall provide, at the Indemnitor's sole expense, an inspection or audit of the Premises prepared by an engineering or consulting firm approved by the Lender, indicating the presence or absence of Asbestos on the Premises. If the Indemnitor fails to provide such inspection or audit within thirty (30) days after such request, the Lender may order same, and the Indemnitor hereby grants to the Lender and its employees and agents access to the Premises and a license to undertake such inspection or audit. The cost of such inspection or audit shall be added to the principal balance of the sums due under the Note and the Security Instrument and shall bear interest thereafter until paid at the default rate thereunder. Section 1.5. In the event that any investigation, site monitoring, containment cleanup, removal, restoration or other work of any kind is reasonably necessary or desirable under an applicable Hazardous Material Law (the "Remedial Work"), the Indemnitor shall commence or cause to be commenced and thereafter diligently prosecute to completion all such Remedial Work within thirty (30) days after written demand by the Lender for performance thereof (or such shorter period of time as may be required under applicable law). All Remedial Work shall be performed by contractors approved in advance by the Lender, and under the supervision of a consulting engineer approved by the Lender. All costs and expenses of such Remedial Work shall be paid by the Indemnitor including, without limitation, the Lender's reasonable attorneys' fees and disbursements incurred in connection with monitoring or review of such Remedial Work. In the event the Indemnitor shall fail to timely commence, or cause to be commenced, or fail to diligently prosecute to completion, or pay for, such Remedial Work, the Lender may, but shall not be required to, cause such Remedial Work to be performed or paid for, and all costs and expenses thereof, or incurred in connection therewith, may be added to the sums due under the Note and the Security Instrument and shall bear interest thereafter until paid at the default rate thereunder. Section 1.6. THE INDEMNITOR SHALL HOLD HARMLESS, DEFEND AND INDEMNIFY THE LENDER AND ITS OFFICERS, DIRECTORS, TRUSTEES, EMPLOYEES, AGENTS, AFFILIATES (INCLUDING ANY PARENT CORPORATION), SUCCESSORS AND ASSIGNS, FROM AND AGAINST ALL PROCEEDINGS, CLAIMS, DAMAGES, PENALTIES, FEES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE FEES AND EXPENSES OF ATTORNEYS AND EXPERT WITNESSES, INVESTIGATORY FEES, AND CLEANUP AND REMEDIATION 5 123 EXPENSES, WHETHER INCURRED IN CONNECTION WITH ANY JUDICIAL OR ADMINISTRATIVE PROCESS OR OTHERWISE), ARISING DIRECTLY OR INDIRECTLY FROM (i) ANY BREACH OF ANY REPRESENTATION, WARRANTY, OR OBLIGATION OF THE BORROWER CONTAINED IN THIS AGREEMENT OR (ii) THE PRESENCE OF HAZARDOUS MATERIALS ON OR UNDER THE PREMISES OR ANY PROPERTY PROXIMATE TO THE PREMISES OR ANY GOVERNMENTAL ACTION ALLEGING ANY SUCH PRESENCE, EXCEPT TO THE EXTENT THAT THE BORROWER CAN CONCLUSIVELY PROVE BOTH THAT SUCH PRESENCE OR GOVERNMENTAL ACTION ALLEGING SUCH PRESENCE WAS CAUSED SOLELY BY ACTIONS, CONDITIONS, OR EVENTS THAT OCCURRED AFTER THE DATE THAT THE LENDER (OR ANY PURCHASER AT A FORECLOSURE SALE) ACTUALLY ACQUIRED TITLE TO THE PREMISES AND THAT SUCH PRESENCE OR GOVERNMENTAL ACTION ALLEGING SUCH PRESENCE WAS NOT CAUSED BY THE DIRECT OR INDIRECT ACTIONS OF THE BORROWER OR THE BORROWER PRINCIPAL, OR ANY PARTNER, MEMBER, PRINCIPAL, OFFICER, DIRECTOR, TRUSTEE OR MANAGER OF THE BORROWER OR ANY EMPLOYEE, AGENT, CONTRACTOR OR AFFILIATE OF THE BORROWER OR THE BORROWER PRINCIPAL. THE OBLIGATIONS AND LIABILITIES OF THE BORROWER UNDER THIS AGREEMENT SHALL SURVIVE ANY TERMINATION, SATISFACTION, ASSIGNMENT, ENTRY OF A JUDGMENT OF FORECLOSURE OR DELIVERY OF A DEED IN LIEU OF FORECLOSURE OF THE SECURITY INSTRUMENT. THE INDEMNITY SET FORTH HEREIN IS AN ABSOLUTE, UNCONDITIONAL, PRESENT INDEMNITY AND IS IN NO WAY CONDITIONED OR CONTINGENT UPON ANY ATTEMPT TO ENFORCE THE LENDER'S RIGHTS AGAINST THE INDEMNITOR UNDER THE SECURITY INSTRUMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS (AS DEFINED IN THE LOAN AGREEMENT) OR AGAINST ANY OTHER PARTY OR TO COLLECT FROM THE INDEMNITOR UNDER THE SECURITY INSTRUMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS OR FROM ANY OTHER PARTY OR UPON ANY OTHER CONDITION OR CONTINGENCY; ACCORDINGLY, THE LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST THE UNDERSIGNED IMMEDIATELY UPON ANY DEFAULT HEREUNDER WITHOUT TAKING ANY PRIOR ACTION TO ENFORCE THE OBLIGATIONS OF THE INDEMNITOR UNDER THE SECURITY INSTRUMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS. Section 1.7. To the best of Indemnitor's knowledge, no representation or warranty by the Indemnitor contained herein, nor any schedule, certificate, or other document furnished by the Indemnitor to the Lender in connection with this Agreement contains any misstatement of fact or omits to state any fact necessary to make the statements contained therein not misleading. Section 1.8. The obligations and liabilities of the Indemnitor to the Lender under this Article I shall survive any termination, satisfaction, or assignment of the Security Instrument, including, without limitation, any sale of the Loan and the exercise by the Lender of any of its rights or remedies hereunder, including but not limited to, the acquisition of the Premises by foreclosure or a conveyance in lieu of foreclosure. This Agreement is not intended 6 124 to be, nor shall it be, secured by the Security Instrument and it is not intended to secure payment of the Note. Section 1.9. As used in this Agreement: (a) "Environmental Assessment" shall mean a report (including all drafts thereof) of an environmental assessment of the Premises of such scope (including but not limited to the taking of soil borings and air and groundwater samples and other above and below ground testing) as the Lender may request, by a consulting firm acceptable to the Lender, which shall, among other things, be dated as of a date acceptable to the Lender and conform to (i) the current minimum standards for the American Society of Testing and Materials, and (ii) the Lender's then current requirements. (b) "Governmental Action" shall mean the issuance or threatened issuance of any claim, citation, notice of any pending or threatened suit, proceeding, order or governmental inquiry or opinion involving the Premises that alleges the violation of any Hazardous Materials Law. (c) "O&M Program" shall mean an operations and maintenance program (in form and substance satisfactory to the Lender) relating to the use, handling and/or abatement of one or more Hazardous Materials and which is accepted in writing by the Indemnitor. (d) "Prohibited Activities or Conditions" shall mean causing or permitting, whether directly or indirectly, (i) the presence, use, generation, manufacture, production, processing, installation, release, discharge, storage (including storage in above ground and underground storage tanks for petroleum or petroleum products), treatment, handling, or disposal of any Hazardous Materials (excluding the safe and lawful use and storage of quantities of Hazardous Materials or petroleum products, customarily used in the ordinary operations of the Indemnitor or customarily used in the ordinary operations of any tenant previously approved by the Lender) on or under the Premises, or in any way affecting the Premises or its value or which may form the basis for any present or future claim, demand or action seeking cleanup of the Premises, (ii) the transportation of any Hazardous Materials to or from the Premises (excluding the safe and lawful use and storage of quantities of Hazardous Materials or petroleum products, customarily used in the ordinary operations of the Indemnitor or customarily used in the ordinary operations of any tenant previously approved by the Lender), or (iii) any occurrence or condition on the Premises (or exacerbation of the same) that is or may be in violation of Hazardous Materials Law. ARTICLE II MISCELLANEOUS Section 2.1. The Indemnitor's liability hereunder shall not be affected (a) by (i) any amendment or modification of the Loan Documents; (ii) any extensions of time for performance under the Loan Documents whether prior to or after maturity; or (iii) the release of any collateral for the Loan or the release of the Indemnitor from performance or observance of 7 125 any of the agreements, covenants, terms or conditions contained in any of the Loan Documents by operation of law or otherwise (whether such amendments, modifications, extensions or releases are made with or without notice to the undersigned); (b) by the fact that the Indemnitor may or may not be personally liable, in whole or in part, under the terms of the Loan Documents; (c) by the failure to give the Indemnitor any notices of default under the Loan Documents or otherwise; (d) by any other indemnity or guaranty now or hereafter executed in connection with the Loan; (e) by any rights, powers or privileges the Lender may now or hereafter have against any person, entity or collateral or (f) by reason of any bankruptcy or similar proceeding instituted by or against the Indemnitor. The Indemnitor will not take or fail to take action of any kind the taking of which or the failure to take which might be the basis for a claim that the Indemnitor has any defense to the Indemnitor's obligations hereunder. The Indemnitor waives any right or claim of right to cause a marshaling of the Indemnitor's assets or to cause the Lender to proceed against the Indemnitor under the Security Instrument or under any other Loan Document, and/or any collateral held by the Lender at any time or in any particular order and the Indemnitor agrees that any payments required to be made by the Indemnitor hereunder shall become due on demand in accordance with the terms hereof and the Indemnitor expressly waives and relinquishes all rights and remedies accorded by applicable law to the Indemnitors, including, without limitation, any extension of time conferred by any law now or hereafter in effect and any requirement of notice to which the Indemnitor may now or hereafter be entitled. The Indemnitor waives (i) notice of acceptance of this Agreement by the Lender and any and all notices and demands of every kind which may be required to be given by any statute, rule or law, (ii) any defense, right of set-off or other claim which the Indemnitor may have against the Lender or the holder of the Security Instrument, (iii) any failure by the Lender to inform the Indemnitor of any facts the Lender may now or hereafter know about the Indemnitor, the Premises, the Loan or the transactions contemplated by the Loan Documents, it being understood and agreed that the Lender has no duty so to inform, and (iv) all rights of redemption, homestead, dower, and other rights or exemptions of every kind, whether under common law or by statute. Section 2.2. No delay on the Lender's part in exercising any right, power or privilege under any of the Loan Documents, this Agreement or any other document executed by the Indemnitor in connection with the Loan shall operate as a waiver of any such right, power or privilege. Section 2.3. The Lender shall have the right to join the Indemnitor in any action or proceeding commenced by the Lender pursuant to the rights, powers and privileges the Lender now or hereafter may possess under this Agreement or, at the Lender's option, the Lender may commence any action or proceeding based upon this Agreement directly against the Indemnitor without making the Indemnitor under the Security Instrument or under any other Loan Document or anyone else a party defendant in such action or proceeding. In the event any action or proceeding arising on, under, out of or by reason of or relating in any way to this Agreement or the interpretation, breach or enforcement thereof is brought against the Indemnitor, service of process may be made on the Indemnitor by certified mail, return receipt requested, at the address set forth below or such other address as the Lender is notified of by notice sent in accordance herewith. 8 126 Section 2.4. If: (i) this Agreement is placed in the hands of an attorney for collection of any payment due hereunder or is collected through any legal proceeding; (ii) an attorney is retained to represent the Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors' rights and involving a claim under this Agreement; or (iii) an attorney is retained to represent the Lender in any other proceedings whatsoever in connection with this Agreement or to provide advice or other representation with respect to this Agreement, then the Indemnitor shall pay expenses, including, without limitation, court costs, filing fees, recording costs, and all other costs and expenses reasonably incurred in connection therewith, in addition to all other amounts due hereunder, regardless of whether all or a portion of such enforcement costs are in a single proceeding brought to enforce this Agreement as well as the other Loan Documents. Section 2.5. This Agreement contains the sole and entire understanding and agreement of the Lender and the Indemnitor with respect to its entire subject matter, and all prior negotiations, discussions, representations, agreements and understandings heretofore had between the Lender and the Indemnitor with respect thereto are merged herein. Section 2.6. THE INDEMNITOR HEREBY WAIVES TRIAL BY JURY AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING ON, UNDER, OUT OF, BY REASON OF OR RELATING IN ANY WAY TO THIS AGREEMENT, OR THE INTERPRETATION, BREACH OR ENFORCEMENT THEREOF. Section 2.7. All stipulations, obligations, liabilities and undertakings hereunder shall be binding upon the Indemnitor and the successors and permitted assigns of the Indemnitor and shall inure to the Lender's benefit and to the benefit of the Lender's successors and assigns and to the benefit of each and every holder of any of the Loan Documents and to the benefit of anyone claiming title to the collateral sold by the Lender pursuant to the Lender's rights, powers and privileges under the Loan Documents. Section 2.8. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. THE INDEMNITOR HEREBY SUBMITS TO PERSONAL JURISDICTION IN SAID STATE AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA (AND ANY APPELLATE COURTS TAKING APPEALS THEREFROM) LOCATED IN SAID STATE FOR THE ENFORCEMENT OF THE INDEMNITOR'S OBLIGATIONS HEREUNDER AND WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN SUCH STATE FOR THE PURPOSES OF ANY ACTION, SUIT, PROCEEDING OR LITIGATION TO ENFORCE SUCH OBLIGATIONS OF THE INDEMNITOR. THE INDEMNITOR HEREBY WAIVES AND AGREES NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT, PROCEEDING OR LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT, (A) THAT IT IS NOT SUBJECT TO SUCH JURISDICTION OR THAT SUCH ACTION, SUIT, PROCEEDING OR LITIGATION MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN THOSE COURTS OR THAT THIS AGREEMENT MAY NOT BE ENFORCED IN OR BY THOSE COURTS OR THAT THE INDEMNITOR IS EXEMPT OR IMMUNE FROM 9 127 EXECUTION, (B) THAT THE ACTION, SUIT, PROCEEDING OR LITIGATION IS BROUGHT IN AN INCONVENIENT FORUM, OR (C) THAT THE VENUE OF THE ACTION, SUIT, PROCEEDING OR LITIGATION IS IMPROPER. Section 2.9. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. Section 2.10. Any and all notices, elections, demands, request and responses thereto permitted or required to be given under this Agreement shall be in writing, signed by or on behalf of the party giving the same, and shall be deemed to have been properly given or served and shall be effective upon being personally delivered to three (3) Business Days (as defined in the Loan Agreement) after being deposited in the United States mail, postage prepaid, certified with return receipt requested, or one day after delivery to a nationally recognized overnight courier, to the other party at the address of such other party set forth below or at such other address as such other party may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that no notice of change of address shall be effective until the date of receipt thereof. Personal delivery to a party or to an officer, partner, agent or employee of such party at said address shall constitute receipt. Rejection or other refusal to accept or inability to deliver because of change of address of which no notice has been received shall also constitute receipt. Any such notice, election, demand, request or response given to the parties herein shall be addressed as follows: if to the Indemnitor/Borrower: RFS SPE2 2000, LLC c/o RFS Hotel Investors Inc. 850 Ridge Lake Blvd, Suite 220 Memphis, Tennessee 38120 Attn: Kevin Luebbers Telephone: (901) 767-7005 Telecopy: (901) 819-5260 if to the Indemnitor/Principal: RFS Hotel Investors Inc. 850 Ridge Lake Blvd., Suite 220 Memphis, Tennessee 38120 Attn: Kevin Luebbers Telephone: (901) 767-7005 Telecopy: (901) 819-5260 with a copy to: Hunton & Williams 1900 K Street, N.W., Suite 1200 Washington, DC 20006 Attn: Thomas F. Kaufman, Esq. Telephone: (202) 955-1604 Telecopy: (202) 778-2201 10 128 if to the Lender: Bank of America, N.A. CMLS #1777 P.O. Box 3609 Los Angeles, California 90051 Attn: Servicing Manager Telephone: (800) 574-0169 Telecopy: (213) 345-6587 with copies to: Cadwalader, Wickersham & Taft 227 West Trade Street, Suite 2400 Charlotte, North Carolina 28202 Attn: James P. Carroll Telephone: (704) 348-5100 Telecopy: (704) 348-5200 Section 2.11. The execution, delivery, and performance by the Indemnitor of this Agreement do not and will not contravene or conflict with (i) organizational documents of the Indemnitor, (ii) any law, order, rule, regulation, writ, injunction, or decree now in effect of any government, governmental instrumentality or court having jurisdiction over the Indemnitor, or (iii) any contractual restriction binding on or affecting the Indemnitor or any of the Indemnitor's property or assets which may adversely affect any of the Indemnitor's ability to fulfill the Indemnitor's obligations under this Agreement. Section 2.12. No termination, modification or waiver of any provisions of this Agreement shall be binding upon the Lender except as expressly set forth in a writing duly signed and delivered by the Lender. Section 2.13. If the Indemnitor consists of more than one person or entity, the obligations and liabilities of each such person hereunder are joint and several. [signature page immediately follows] 11 129 INDEMNITOR/BORROWER: _____________________________________, a ___________________________________ By: _____________________ Corporation, a ____________________ corporation, its ______________________________ By: --------------------------------- Kevin Luebbers Secretary INDEMNITOR/BORROWER PRINCIPAL: RFS HOTEL INVESTORS, INC., a Tennessee corporation By: --------------------------------- Kevin Luebbers Executive Vice President 130 EXHIBIT A Legal Description EX-21.1 10 g67578ex21-1.txt LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 RFS HOTEL INVESTORS, INC. SUBSIDIARIES OF THE REGISTRANT
STATE OF NAME INCORPORATION ---- ------------- RFS Partnership, L.P. Tennessee RFS Managers, Inc. Tennessee RFS Financing Corporation Tennessee RFS Financing Partnership, L.P. Tennessee Ridge Lake General Partner, Inc. Tennessee RFS Financing II, L.P. Tennessee RFS TRS Holdings, Inc. Tennessee RFS Leasing II, Inc. Tennessee RFS Leasing III, Inc. Tennessee RFS Leasing IV, Inc. Tennessee RFS Leasing V, Inc. Tennessee RFS Leasing VI, Inc. Tennessee RFS Leasing VII, Inc. Tennessee RFS Leasing VIII, Inc. Tennessee RFS MM 1 1998 Corporation Virginia RFS MM 2 1998 Corporation Virginia RFS SPE 1 1998 LLC Virginia RFS SPE 2 1998 LLC Virginia RFS MM 2000 Corporation Virginia RFS MM 2 2000 Corporation Virginia RFS SPE 2000 LLC Virginia RFS SPE 2 2000 LLC Virginia Wharf Enterprises California
EX-23.1 11 g67578ex23-1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 333-03307 and File No. 333-28849) and Form S-8 (File No. 333-194211) of RFS Hotel Investors, Inc. of our report dated January 24, 2001, except for Note 9 as to which the date is February 20, 2001, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Dallas, Texas MARCH 13, 2001 -----END PRIVACY-ENHANCED MESSAGE-----