-----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, DMU29KJQF9SYCNafdWESj/cIchADtYll+eEfUPGr0BvyWUp28R+vawusZCKav6C9 IZaeDg+pIulk4IGqh6S/Tg== /in/edgar/work/20000814/0000950134-00-007012/0000950134-00-007012.txt : 20000921 0000950134-00-007012.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950134-00-007012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FELCOR LODGING TRUST INC CENTRAL INDEX KEY: 0000923603 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 752541756 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14236 FILM NUMBER: 698689 BUSINESS ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 9724444900 MAIL ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 FORMER COMPANY: FORMER CONFORMED NAME: FELCOR SUITE HOTELS INC DATE OF NAME CHANGE: 19940523 10-Q 1 e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 OR [ ] 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 1-14236 FELCOR LODGING TRUST INCORPORATED (Exact name of registrant as specified in its charter) MARYLAND 75-2541756 (State or other jurisdiction of (I.R.S. Employer incorporation or Identification No.) organization) 545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062 (Address of principal executive offices) (Zip Code) (972) 444-4900 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares of Common Stock, par value $.01 per share, of FelCor Lodging Trust Incorporated outstanding on August 4, 2000 was 54,787,990. - -------------------------------------------------------------------------------- 2 FELCOR LODGING TRUST INCORPORATED INDEX
PAGE ---- PART I. -- FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS............................................................................... 3 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED BALANCE SHEETS - JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999...................................................................... 3 CONSOLIDATED STATEMENTS OF OPERATIONS -- FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)................................................... 4 CONSOLIDATED STATEMENTS OF CASH FLOWS -- FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)................................................... 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................................................... 6 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS - JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999...................................................................... 14 CONSOLIDATED STATEMENTS OF OPERATIONS -- FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)................................................... 15 CONSOLIDATED STATEMENTS OF CASH FLOWS -- FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)................................................... 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................................................... 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 19 GENERAL/SECOND QUARTER ACTIVITIES............................................................... 19 RESULTS OF OPERATIONS........................................................................... 20 LIQUIDITY AND CAPITAL RESOURCES................................................................. 27 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................... 30 PART II. -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................ 31 ITEM 5. OTHER INFORMATION.................................................................................. 31 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................... 31 SIGNATURE....................................................................................................... 33
2 3 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FELCOR LODGING TRUST INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2000 1999 ------------ ------------ (UNAUDITED) ASSETS Investment in hotels, net of accumulated depreciation of $397,735 at June 30, 2000 and $330,555 at December 31, 1999 ............................... $ 3,796,755 $ 4,035,344 Investment in unconsolidated entities ............................................... 133,038 136,718 Assets held for sale ................................................................ 135,647 Cash and cash equivalents ........................................................... 50,852 36,123 Due from Lessees .................................................................... 28,598 18,394 Note receivable from unconsolidated entity .......................................... 7,728 7,760 Deferred expenses, net of accumulated amortization of $6,874 at June 30, 2000 and $4,491 at December 31, 1999 ................................. 17,093 15,473 Other assets ........................................................................ 7,054 5,939 ------------ ------------ Total assets ............................................................. $ 4,176,765 $ 4,255,751 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Debt, net of discount of $1,288 at June 30, 2000 and $1,401 at December 31, 1999 .................................................. $ 1,882,743 $ 1,833,954 Distributions payable ............................................................... 35,237 39,657 Accrued expenses and other liabilities .............................................. 73,335 65,480 Deferred rent ....................................................................... 18,604 Minority interest in Operating Partnership, 7,597 and 2,991 units issued and outstanding at June 30, 2000 and December 31, 1999, respectively ................. 221,878 90,078 Minority interest in other partnerships ............................................. 50,710 51,671 ------------ ------------ Total liabilities ........................................................ 2,282,507 2,080,840 ------------ ------------ Commitments and contingencies (Notes 5 and 6) Shareholders' equity: Preferred stock, $.01 par value, 20,000 shares authorized: Series A Cumulative Preferred Stock, 6,031 and 6,050 shares issued and outstanding at June 30, 2000 and December 31, 1999, respectively .............. 150,765 151,250 Series B Redeemable Preferred Stock, 58 shares issued and outstanding ............ 143,750 143,750 Common stock, $.01 par value, 200,000 shares authorized, 69,412 and 69,291 shares issued, including shares in treasury, at June 30, 2000 and December 31, 1999, respectively .............................................. 694 693 Additional paid-in capital .......................................................... 2,078,023 2,138,477 Distributions in excess of earnings ................................................. (206,783) (119,385) ------------ ------------ 2,166,449 2,314,785 Common stock in treasury, at cost, 14,600 shares and 6,976 shares at June 30, 2000 and December 31, 1999, respectively ........................... (272,191) (139,874) ------------ ------------ Total shareholders' equity ............................................... 1,894,258 2,174,911 ------------ ------------ Total liabilities and shareholders' equity ............................... $ 4,176,765 $ 4,255,751 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 4 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues: Percentage lease revenue ................................. $ 133,286 $ 131,891 $ 256,335 $ 256,882 Equity in income from unconsolidated entities ............ 3,769 2,591 5,648 3,837 Other revenue ............................................ 810 705 2,687 1,385 ---------- ---------- ---------- ---------- Total revenues .................................. 137,865 135,187 264,670 262,104 ---------- ---------- ---------- ---------- Expenses: Depreciation ............................................. 41,080 37,737 81,480 74,162 Reserve for assets held for sale ......................... 63,000 63,000 Interest expense ......................................... 39,740 30,750 77,644 59,172 Taxes, insurance, and other .............................. 17,234 15,425 35,877 32,372 Land leases .............................................. 6,151 4,479 11,711 8,485 General and administrative ............................... 2,713 2,509 6,112 4,753 Minority interest in Operating Partnership ............... (3,403) 1,519 (2,399) 2,839 Minority interest in other partnerships .................. 1,125 833 2,093 1,639 ---------- ---------- ---------- ---------- Total expenses .................................. 167,640 93,252 275,518 183,422 ---------- ---------- ---------- ---------- Net income (loss) before nonrecurring items ................ (29,775) 41,935 (10,848) 78,682 Gain on sale of land ....................................... 875 875 Extraordinary charge from write off of deferred financing fees ........................................ (1,113) (1,113) ---------- ---------- ---------- ---------- Net income (loss) .......................................... (28,900) 40,822 (9,973) 77,569 Preferred dividends ........................................ 6,174 6,184 12,358 12,368 ---------- ---------- ---------- ---------- Net income (loss) applicable to common shareholders ........ $ (35,074) $ 34,638 $ (22,331) $ 65,201 ========== ========== ========== ========== Per common share data: Basic: Net income (loss) applicable to common shareholders ...... $ (0.64) $ 0.51 $ (0.39) $ 0.96 ========== ========== ========== ========== Weighted average common shares outstanding ............... 54,714 68,013 56,930 68,011 Diluted: Net income (loss) applicable to common shareholders ...... $ (0.64) $ 0.51 $ (0.39) $ 0.95 ========== ========== ========== ========== Weighted average common shares outstanding ............... 54,945 68,351 57,161 68,347
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 5 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------------------ 2000 1999 ------------ ------------ Cash flows from operating activities: Net income (loss) .............................................................. $ (9,973) $ 77,569 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation ......................................................... 81,480 74,162 Gain on sale of land ................................................. (875) Reserve for assets held for sale ..................................... 63,000 Amortization of deferred financing fees .............................. 2,383 1,303 Accretion of debt .................................................... (446) (494) Amortization of unearned officers' and directors' compensation ....... 472 350 Equity in income from unconsolidated entities ........................ (5,648) (3,837) Extraordinary charge for write off of deferred financing fees ........ 1,113 Minority interest in Operating Partnership ........................... (2,399) 2,839 Minority interest in other partnerships .............................. 2,093 1,639 Changes in assets and liabilities: Due from Lessees ..................................................... (10,204) (13,356) Deferred expenses .................................................... (4,003) (5,538) Other assets ......................................................... (1,251) (1,140) Deferred rent ........................................................ 18,604 Accrued expenses and other liabilities ............................... 5,510 15,343 ------------ ------------ Net cash flow provided by operating activities ............. 138,743 149,953 ------------ ------------ Cash flows used in investing activities: Improvements and additions to hotels ........................................... (41,408) (148,519) Acquisition of hotel assets .................................................... (10,802) Proceeds from sale of assets ................................................... 1,071 15,091 Cash distributions from unconsolidated entities ................................ 11,708 13,297 ------------ ------------ Net cash flow used in investing activities ................. (28,629) (130,933) ------------ ------------ Cash flows from financing activities: Proceeds from borrowings ....................................................... 500,892 744,000 Repayment of borrowings ........................................................ (451,847) (630,899) Purchase of treasury stock ..................................................... (56,733) Buyback of assumed stock options ............................................... (1,860) Other distributions ............................................................ (3,054) Distributions paid to limited partners ......................................... (5,654) (4,273) Distributions paid to preferred shareholders ................................... (12,368) (13,619) Distributions paid to common shareholders ...................................... (64,761) (98,352) ------------ ------------ Net cash flow used in financing activities ................. (95,385) (3,143) ------------ ------------ Net change in cash and cash equivalents .................................................. 14,729 15,877 Cash and cash equivalents at beginning of periods ........................................ 36,123 34,692 ------------ ------------ Cash and cash equivalents at end of periods .............................................. $ 50,852 $ 50,569 ============ ============ Supplemental cash flow information-- Interest paid .................................................................. $ 73,259 $ 55,549 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 5 6 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION FelCor Lodging Trust Incorporated ("FelCor") is one of the nation's largest hotel real estate investment trusts ("REIT"). At June 30, 2000, it owned interests in 188 hotels with nearly 50,000 rooms and suites (collectively the "Hotels") through its greater than 88% equity interest in FelCor Lodging Limited Partnership (the "Operating Partnership"). FelCor, the Operating Partnership, and their subsidiaries are herein referred to, collectively, as the "Company". The Company owns 100% of the interest in 163 of the Hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels and 50% interests in separate entities that own 16 hotels. The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels in the world. At June 30, 2000, the Company leased 86 of the Hotels to DJONT Operations, L.L.C., a Delaware limited liability company, or a consolidated subsidiary thereof (collectively "DJONT"), and leased 100 of the Hotels to Bristol Hotels & Resorts, or a consolidated subsidiary thereof ("Bristol" and, together with DJONT, the "Lessees"). Two Hotels were operated without a lease. The following table provides a schedule of the Hotels, by brand, operated by each of the Company's Lessees at June 30, 2000:
NOT OPERATED BRAND DJONT BRISTOL UNDER A LEASE TOTAL ----- ----- ------- ------------- ----- Embassy Suites 60 60 Holiday Inn 43 1 44 Crowne Plaza and Crowne Plaza Suites(R) 18 18 Doubletree and Doubletree Guest Suites(R) 14 14 Holiday Inn Select(R) 10 10 Sheraton(R)and Sheraton Suites(R) 10 10 Hampton Inn(R) 9 9 Holiday Inn Express(R) 5 5 Fairfield Inn(R) 5 5 Harvey Hotel(R) 4 4 Independents 2 1 3 Courtyard by Marriott(R) 2 2 Four Points by Sheraton(R) 1 1 Hilton Suites(R) 1 1 Homewood Suites(R) 1 1 Westin(R) 1 1 --- ------ ---- ----- Total Hotels 86 100 2 188 === ====== ==== =====
The Hotels are located in the United States (35 states) and Canada, with a concentration in Texas (41 hotels), California (20 hotels), Florida (18 hotels) and Georgia (15 hotels). Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT. The remaining 50% nonvoting common equity interest is beneficially owned by the children of Charles N. Mathewson, a director of FelCor and major initial investor in the Company. At June 30, 2000, DJONT had entered into management agreements pursuant to which 72 of the Hotels leased by it were managed by 6 7 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION -- (CONTINUED) subsidiaries of Hilton Hotels Corporation ("Hilton"), 11 were managed by subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") and three were managed by two unrelated management companies. At June 30, 2000, Bristol, which became a subsidiary of Bass plc ("Bass") by virtue of the merger between Bristol and a subsidiary of Bass on March 31, 2000, leased and managed 100 Hotels and managed and operated one hotel, in which the Company owned a 50% interest, without a lease. Bass is one of the largest hotel operating companies in the world. Certain reclassifications have been made to prior period financial information to conform to the current period's presentation with no effect to previously reported net income or shareholder's equity. The financial information for the three and six months ended June 30, 2000 and 1999, is unaudited but includes all adjustments (consisting only of normal recurring accruals) which the Company considers necessary for a fair presentation of the results for the periods. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 1999, included in the Company's Annual Report on Form 10-K ("Form 10-K"). Operating results for the three and six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2000. 2. DEFERRED RENT Effective January 2000, Percentage Leases with regard to 68 of the Company's 188 hotels were changed to provide for the computation of rent on an annual, rather than quarterly basis. This should result in no change in annual Percentage Rent or cash flows. In accordance with Staff Accounting Bulletin No. 101 (SAB 101), this change requires that the Company defer Percentage Lease revenue until annual thresholds are exceeded. This deferred rent is expected to be fully earned and recognized as Percentage Lease Revenue by the end of 2000. 3. ASSETS HELD FOR SALE The Company has identified 25 hotels that it considers non-strategic and has announced its intention to sell such hotels within the next year. Three of the hotels are leased by DJONT and the other 22 are leased and managed by Bristol. The Company expects gross sales proceeds from these hotels to be approximately $150 million and net proceeds to be approximately $136 million. In connection with the decision to sell these hotels, FelCor has recorded, at June 30, 2000, a one-time reserve of $63 million representing the difference between the net book value of these hotels and the estimated net proceeds. The results of operations associated with the assets held for sale, included in the Company's results of operations, for the six months ended June 30, 2000, is $6.1 million. The hotels were depreciated through June 30, 2000. 4. INVESTMENT IN UNCONSOLIDATED ENTITIES The Company owned 50% interests in separate entities owning 16 hotels at June 30, 2000, and 15 hotels at June 30, 1999, a parcel of undeveloped land, and a condominium management company. The Company also owned a 97% nonvoting interest in an entity that owns an annex to a hotel owned by the Company and holds a 50% interest in an entity that is developing condominiums for sale. The Company accounts for its investments in these unconsolidated entities under the equity method. 7 8 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. INVESTMENT IN UNCONSOLIDATED ENTITIES -- (CONTINUED) Summarized unaudited combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
JUNE 30, ------------------------- 2000 1999 ---------- ---------- Balance sheet information: Investment in hotels ........... $ 339,795 $ 269,123 Non-recourse mortgage debt ..... $ 265,874 $ 196,462 Equity ......................... $ 88,096 $ 93,524
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- STATEMENTS OF OPERATIONS INFORMATION: Total revenues ................................... $ 21,245 $ 17,137 $ 39,173 $ 31,297 Net income ....................................... $ 8,715 $ 6,358 $ 13,649 $ 10,078 Net income attributable to the Company ........... $ 4,305 $ 3,127 $ 6,719 $ 4,908 Amortization of cost in excess of book value ..... (536) (536) (1,071) (1,071) ---------- ---------- ---------- ---------- Equity in income from unconsolidated entities .... $ 3,769 $ 2,591 $ 5,648 $ 3,837 ========== ========== ========== ==========
5. DEBT Debt at June 30, 2000, and December 31, 1999, consisted of the following (in thousands):
JUNE 30, DECEMBER 31, COLLATERAL INTEREST RATE MATURITY DATE 2000 1999 ---------------- ------------------- ------------- ------------- ------------- FLOATING RATE DEBT: Line of credit (a) LIBOR + 163bp June 2001 $ 285,000 $ 351,000 Senior term loan (a) LIBOR + 275bp March 2004 249,000 250,000 Mortgage debt 3 hotels LIBOR + 200bp February 2003 62,239 62,553 Other Uncollateralized Up to LIBOR + 200bp Various 11,032 32,282 ------------- ------------- Total floating rate debt 607,271 695,835 ------------- ------------- FIXED RATE DEBT: Line of credit - swapped (a) 7.18% June 2001 125,000 313,000 Publicly-traded term notes (a) 7.38% October 2004 174,441 174,377 Publicly-traded term notes (a) 7.63% October 2007 124,271 124,221 Mortgage debt 15 hotels 7.24% November 2007 141,367 142,542 Senior term loan - swapped (a) 8.56% March 2004 125,000 125,000 Mortgage debt 7 hotels 7.54% April 2009 98,354 99,075 Mortgage debt 6 hotels 7.55% June 2009 73,946 74,483 Mortgage debt 7 hotels 8.73% May 2010 144,865 Mortgage debt 8 hotels 8.70% May 2010 185,762 Other 13 hotels 6.96% - 7.23% 2000 - 2005 82,466 85,421 ------------- ------------- Total fixed rate debt 1,275,472 1,138,119 ------------- ------------- Total debt $ 1,882,743 $ 1,833,954 ============= =============
(a) Collateralized by stock and partnership interests in certain subsidiaries of FelCor. 8 9 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. DEBT -- (CONTINUED) Thirty-day LIBOR at June 30, 2000, was 6.649%. A portion of the Company's Line of Credit and Senior Term Loan is matched with interest rate swap agreements which effectively convert the variable rate on the Line of Credit and Senior Term Loan to a fixed rate. The Line of Credit and the Senior Term Loan contain various affirmative and negative covenants including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At June 30, 2000, the Company was not in default with respect to any such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit and Senior Term Loan. Most of the mortgage debt is non-recourse to the Company (with certain exceptions) and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of the mortgage debt is prepayable; subject, however, to various prepayment penalties, yield maintenance, or defeasance obligations. On April 26, 2000, the Company closed a 10-year, $145 million First Mortgage Term Loan, which is secured by seven Sheraton hotels and carries an 8.73% fixed interest rate. On May 2, 2000, the Company closed $186 million of 10-year, First Mortgage Term Loans which are secured by eight Embassy Suites hotels and carry an 8.70% fixed interest rate. The loans are non-recourse, mature in May 2010, and amortize over 25 years. The proceeds of these loans were used to reduce borrowings under the Company's $850 million Line of Credit. 6. COMMITMENTS AND RELATED PARTY TRANSACTIONS The Company is to receive rental income from the Lessees under the Percentage Leases which expire in 2003 (six hotels), 2004 (11 hotels), 2005 (18 hotels), 2006 (22 hotels), 2007 (27 hotels), 2008 (44 hotels), and thereafter (19 hotels). The rental income under the Percentage Leases between 15 of the unconsolidated entities, of which the Company owns 50%, is payable by the Lessee to the respective entities and is not included in the schedule of future lease commitments to the Company. Minimum future rental income (i.e., base rents) payable to the Company under these noncancelable operating leases at June 30, 2000, excluding the 25 hotels that have been designated as held for sale, is as follows (in thousands):
LESSEES ------------------------- DJONT BRISTOL TOTAL ---------- ---------- ---------- YEAR Remainder of 2000 ......... $ 72,351 $ 84,402 $ 156,753 2001 ...................... 148,009 168,805 316,814 2002 ...................... 148,240 168,816 317,056 2003 ...................... 137,190 166,123 303,313 2004 ...................... 132,584 158,827 291,411 2005 and thereafter ....... 447,848 620,570 1,068,418 ---------- ---------- ---------- $1,086,222 $1,367,543 $2,453,765 ========== ========== ==========
9 10 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) Minimum future rental income (i.e., base rents) payable to the Company under the noncancelable operating leases for the 25 hotels held for sale as of June 30, 2000 is as follows (in thousands):
LESSEES ----------------------------- DJONT BRISTOL TOTAL ------------ ------------ ------------ YEAR Remainder of 2000 ......... $ 1,575 $ 6,338 $ 7,913 2001 ...................... 3,150 12,676 15,826 2002 ...................... 3,150 12,676 15,826 2003 ...................... 3,150 12,578 15,728 2004 ...................... 3,150 12,382 15,532 2005 and thereafter ....... 4,696 34,255 38,951 ------------ ------------ ------------ $ 18,871 $ 90,905 $ 109,776 ============ ============ ============
Certain entities owning interests in DJONT and managers for certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 38 of the Hotels. No such loans were outstanding at June 30, 2000. DJONT engages third-party managers to operate the Hotels leased by it and generally pays such managers a base management fee based on a percentage of room and suite revenue and an incentive management fee based on DJONT's income before overhead expenses for each hotel. In certain instances, the hotel managers have subordinated fees and are committed to make subordinated loans to DJONT, if needed, to meet its rental and other obligations under the Percentage Leases. Bristol serves as both the lessee and manager of 100 Hotels leased to it by the Company at June 30, 2000, and, as such, is compensated for both roles through the profitability of the Hotels, after meeting their operating expenses and rental obligations under the Percentage Leases. Bristol has entered into an absolute and unconditional guarantee of the obligations of the Bristol Lessees under the Percentage Leases, and is required to maintain a minimum liquid net worth. A portion of this liquid net worth is being satisfied through a letter of credit for the benefit of the Company. This letter of credit is subject to periodic reductions upon satisfaction of certain conditions and, at June 30, 2000, totaled $9.1 million. 7. SEGMENT INFORMATION The Company has determined that its reportable segments are those that are consistent with the Company's method of internal reporting, which segments its business by Lessee. The Company's Lessees at June 30, 2000, were DJONT and Bristol. 10 11 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. SEGMENT INFORMATION -- (CONTINUED) The following tables present information for the reportable segments for the three and six months ended June 30, 2000 and 1999 for both DJONT and Bristol (in thousands):
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED THREE MONTHS ENDED JUNE 30, 2000 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL - ---------------------------------------- ------------ ------------ ------------ ------------ ------------ Total revenues ......................... $ 74,338 $ 62,717 $ 137,055 $ 810 $ 137,865 Net income (loss) ...................... $ 33,193 $ (23,785) $ 9,408 $ (38,308) $ (28,900) Funds from operations .................. $ 68,567 $ 57,197 $ 125,764 $ (44,879) $ 80,885 Weighted average common shares and units outstanding(1) ................ 67,232
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED THREE MONTHS ENDED JUNE 30, 1999 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL - ---------------------------------------- ------------ ------------ ------------ ------------ ------------ Total revenues ......................... $ 72,845 $ 62,114 $ 134,959 $ 228 $ 135,187 Net income (loss) ...................... $ 43,252 $ 33,233 $ 76,485 $ (35,663) $ 40,822 Funds from operations .................. $ 65,385 $ 51,264 $ 116,649 $ (36,266) $ 80,383 Weighted average common shares and units outstanding(1) ................ 76,029
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED SIX MONTHS ENDED JUNE 30, 2000 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL - ---------------------------------------- ------------ ------------ ------------ ------------ ------------ Total revenues ......................... $ 142,746 $ 119,237 $ 261,983 $ 2,687 $ 264,670 Net income (loss) ...................... $ 69,892 $ (1,059) $ 68,833 $ (78,806) $ (9,973) Funds from operations .................. $ 132,459 $ 104,459 $ 236,918 $ (87,538) $ 149,380 Weighted average common shares and units outstanding(1) ............... 67,987
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED SIX MONTHS ENDED JUNE 30, 1999 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL - ---------------------------------------- ------------ ------------ ------------ ------------ ------------ Total revenues ......................... $ 146,901 $ 114,752 $ 261,653 $ 451 $ 262,104 Net income (loss) ...................... $ 87,200 $ 57,795 $ 144,995 $ (67,426) $ 77,569 Funds from operations .................. $ 131,827 $ 92,348 $ 224,175 $ (69,943) $ 154,232 Weighted average common shares and units outstanding(1) ................ 76,008
(1) Weighted average common shares and units outstanding are computed including dilutive options, unvested stock grants, and assuming conversion of Series A Preferred Stock to Common Stock. 8. TREASURY STOCK REPURCHASE PROGRAM On January 4, 2000, FelCor announced that its Board of Directors had approved a stock repurchase program, authorizing the Company to purchase up to an aggregate of $200 million of its outstanding common shares. During the six months ended June 30, 2000, FelCor had repurchased approximately 3.1 million shares of FelCor common stock for approximately $56.7 million. 11 12 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. BASS STOCK CONTRIBUTION In connection with the efforts of Bass to acquire Bristol, a Bass subsidiary (Bass America, Inc.) contributed 4,713,185 outstanding FelCor common shares held by it to the Operating Partnership in exchange for a like number of units of limited partnership interest on February 28, 2000. This exchange did not affect the Company's FFO or earnings per share, although it resulted in reducing FelCor's percentage ownership in the Operating Partnership from approximately 95% to approximately 88%. The shares were recorded in treasury at $17 per share which represented fair market value on date of exchange ($80.1 million) and increased minority interest in the Operating Partnership for a like amount. 10. BUYBACK OF ASSUMED STOCK OPTIONS In the second quarter of 2000 the Company purchased options covering an aggregate of 349,443 shares of FelCor's Common Stock for approximately $1.9 million. The options were held by employees of Bristol Hotels & Resorts and were issued in substitution for stock options previously granted by Bristol Hotel Company that were outstanding at the time of its merger with FelCor in 1998. The options so purchased and retired had exercise prices ranging from $10.33 to $16.95 per share and the majority of these options were scheduled to vest in the third quarter of 2000. 11. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2000 and 1999 (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE JUNE ---------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Numerator: Net income (loss) applicable to common shareholders ........ $(35,074) $ 34,638 $(22,331) $ 65,201 Denominator: Denominator for basic earnings per share - weighted average shares ............................... 54,714 68,013 56,930 68,011 Effect of diluted securities: Stock options ....................................... 273 271 Restricted shares ................................... 231 65 231 65 -------- -------- -------- -------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions ..... 54,945 68,351 57,161 68,347 ======== ======== ======== ======== Earnings (loss) per share data: Basic ...................................................... $ (0.64) $ 0.51 $ (0.39) $ 0.96 Diluted .................................................... $ (0.64) $ 0.51 $ (0.39) $ 0.95
The Series A Preferred Shares and most of the options granted are anti-dilutive and not included in the calculation of diluted earnings per share. 12 13 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. SUBSEQUENT EVENTS On July 14, FelCor entered into a binding sale contract to sell its Embassy Suites hotel, Los Angeles International Airport-North, California (215 suites) for a gross price of approximately $24 million. The Company expects the sale will close by the end of August 2000, and FelCor will record a gain on sale of approximately $3 million, in the third quarter of 2000. This hotel is not included in the 25 hotels held for sale. On August 1, 2000, FelCor renewed its Line of Credit. The Line of Credit was reduced from $850 million to $600 million and the maturity was extended from July 2001 to August 2003. The effective interest rate ranges from 87.5 basis points to 250 basis points above LIBOR depending on the Company's leverage and corporate rating. On July 21, 2000, FelCor's Independent Directors approved the acquisition of 100% of DJONT effective January 1, 2001. The purchase price is approximately 417,000 units of the Operating Partnership. 13 14 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2000 1999 ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents .............................................. $ 28,494 $ 20,127 Accounts receivable, net ............................................... 38,200 28,601 Inventories ............................................................ 4,319 4,260 Prepaid expenses ....................................................... 1,193 1,444 Other assets ........................................................... 4,737 5,791 Investment in real estate, net of accumulated depreciation of $771 in 2000 and $530 in 1999 ............................................ 11,195 11,436 ------------ ------------ Total assets ................................................. $ 88,138 $ 71,659 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT Accounts payable, trade ................................................ $ 21,356 $ 12,742 Due to FelCor Lodging Trust Incorporated ............................... 25,655 22,064 Accrued expenses and other liabilities ................................. 41,570 37,121 Minority interest ...................................................... 4,867 5,113 Debt ................................................................... 7,728 7,761 ------------ ------------ Total liabilities ............................................ 101,176 84,801 ------------ ------------ Commitments and contingencies (Note 3) Shareholders' deficit: Capital ................................................................ 1 1 Accumulated deficit .................................................... (13,039) (13,143) ------------ ------------ Total shareholders' deficit .................................. (13,038) (13,142) ------------ ------------ Total liabilities and shareholders' deficit .................. $ 88,138 $ 71,659 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 14 15 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenue: Room and suite revenue ............... $ 186,395 $ 167,109 $ 364,687 $ 334,840 Food and beverage revenue ............ 29,396 22,280 56,340 43,467 Food and beverage rent ............... 1,390 1,349 2,714 2,614 Other revenue ........................ 12,467 14,618 24,921 28,630 ---------- ---------- ---------- ---------- Total revenues .................. 229,648 205,356 448,662 409,551 ---------- ---------- ---------- ---------- Expenses: Property operating costs ............. 50,481 49,110 97,799 95,338 General and administrative ........... 16,699 15,784 32,952 30,730 Advertising and promotion ............ 17,532 13,823 33,626 27,730 Repair and maintenance ............... 10,296 9,548 20,454 19,106 Utilities ............................ 7,575 6,969 14,764 14,122 Management and incentive fees ........ 6,769 5,573 12,691 11,966 Franchise fees ....................... 5,414 4,929 10,603 9,847 Food and beverage expenses ........... 21,550 16,600 41,868 32,125 Percentage lease expenses ............ 90,828 83,714 178,177 169,558 Lessee overhead expenses ............. 269 301 426 567 Liability insurance .................. 812 589 1,608 1,154 Interest expense ..................... 248 156 310 372 Depreciation ......................... 121 289 241 289 Minority interest in partnership ..... (216) 157 (247) 157 Other ................................ 1,678 1,310 3,286 2,752 ---------- ---------- ---------- ---------- Total expenses .................. 230,056 208,852 448,558 415,813 ---------- ---------- ---------- ---------- Net income (loss) ......................... $ (408) $ (3,496) $ 104 $ (6,262) ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 15 16 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 2000 1999 ------------ ------------ Cash flows from operating activities: Net income (loss) ............................................... $ 104 $ (6,262) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization .............................. 241 289 Minority interest in partnership income .................... (247) 157 Changes in assets and liabilities: Accounts receivable ........................................ (9,599) (5,686) Inventories ................................................ (59) 224 Prepaid expenses ........................................... 251 (2,750) Other assets ............................................... 1,054 (1,903) Due to FelCor Lodging Trust Incorporated ................... 3,591 17,989 Accounts payable, accrued expenses and other liabilities ... 13,064 5,104 ------------ ------------ Net cash flow provided by operating activities ........ 8,400 7,162 ------------ ------------ Cash flows from financing activities: Repayment of borrowings ......................................... (33) ------------ Net cash flow used in financing activities ................. (33) ------------ Net change in cash and cash equivalents .............................. 8,367 7,162 Cash and cash equivalents at beginning of periods .................... 20,127 28,538 ------------ ------------ Cash and cash equivalents at end of periods .......................... $ 28,494 $ 35,700 ============ ============
The accompany notes are an integral part of these consolidated financial statements. 16 17 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Thomas J. Corcoran, Jr., the President, Chief Executive Officer and a Director of FelCor Lodging Trust Incorporated ("FelCor") and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT Operations LLC, a Delaware limited liability company. The remaining 50% non-voting common equity interest is beneficially owned by the children of Charles N. Mathewson, a Director and major initial investor in FelCor. Eighty-six of the hotels in which FelCor Lodging Limited Partnership (the "Operating Partnership") had an ownership interest at June 30, 2000 (the "Hotels"), were leased to DJONT Operations LLC or a consolidated subsidiary thereof ("DJONT") pursuant to percentage leases ("Percentage Leases"). Certain entities owning interests in DJONT and the managers of certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 38 of the Hotels. No loans were outstanding under such agreements at June 30, 2000. At June 30, 2000, 60 of the Hotels were operated as Embassy Suites(R) hotels, 14 were operated as Doubletree(R) or Doubletree Guest Suites(R) hotels, ten were operated as Sheraton(R) or Sheraton Suites(R) hotels, one was operated as a Westin(R) hotel and one was operated as a Hilton Suites(R) hotel. Seventy-two of the Hotels were managed by subsidiaries of Hilton Hotels Corporation ("Hilton"). Hilton is the largest operator of all-suite, full-service hotels in the United States. Of the remaining Hotels, 11 were managed by subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") and three were managed by two unrelated management companies. 2. ASSETS HELD FOR SALE FelCor has identified three hotels leased by DJONT, which it considers non-strategic and has announced its intention to sell such hotels within the next year. The results of operations associated with the hotels held for sale, included in DJONT's results of operations for the six months ended June 30, 2000, was an operating loss of $245,000. 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS DJONT has future lease commitments under the Percentage Leases which expire in 2003 (4 hotels), 2004 (6 hotels), 2005 (13 hotels), 2006 (17 hotels), 2007 (23 hotels), 2008 (11 hotels), and thereafter (12 hotels). Minimum future rental payments are computed based on the base rent as defined under the noncancelable operating leases, excluding the three hotels that have been designated as held for sale, and are as follows (in thousands):
YEAR AMOUNT ---- ------------ Remainder of 2000............................................. $ 72,351 2001.......................................................... 148,009 2002.......................................................... 148,240 2003.......................................................... 137,190 2004.......................................................... 132,584 2005 and thereafter........................................... 447,848 ------------ $ 1,086,222 ============
17 18 3. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) Minimum future rental payments (i.e., base rents) under the noncancelable operating leases for the three DJONT hotels held for sale are as follows (in thousands):
YEAR AMOUNT ---- --------- Remainder of 2000.................................................. $ 1,575 2001............................................................... 3,150 2002............................................................... 3,150 2003............................................................... 3,150 2004............................................................... 3,150 2005 and thereafter................................................ 4,696 --------- $ 18,871 =========
DJONT has agreed that during the term of the Percentage Leases it will maintain a ratio of total debt to consolidated net worth (as defined in the Percentage Leases) of less than or equal to 50%, exclusive of capital leases. All of the debt recorded in DJONT's balance sheet at June 30, 2000, is held in the 3% owned consolidated subsidiary and is not considered for this test. In addition, the Lessee has agreed that it will not pay fees to any affiliate of the Lessee. DJONT shares the executive offices and certain employees with FelCor and FelCor, Inc., and each company bears its share of the costs thereof, including an allocated portion of the rent, compensation of certain personnel, office supplies, telephones and depreciation of office furniture, fixtures and equipment. Such allocation of shared expenses is approved by a majority of FelCor's Independent Directors. 4. SUBSEQUENT EVENTS On July 21, 2000, FelCor's Independent Directors approved the acquisition of 100% of DJONT effective January 1, 2001. The purchase price is approximately 417,000 units of the Operating Partnership. 18 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL For background information relating to the Company and the definitions of certain capitalized terms used herein, reference is made to Note 1 of Notes to Consolidated Financial Statements of FelCor Lodging Trust Incorporated appearing elsewhere herein. SECOND QUARTER ACTIVITIES: FINANCIAL PERFORMANCE (AS COMPARED TO SECOND QUARTER 1999): o Total revenues, after adding back deferred rent of $9.8 million, increased 9.2% to $147.6 million from $135.2 million o Total hotel portfolio, excluding hotels held for sale, (163 hotels) revenue per available room ("RevPAR") increased 9.9% o Comparable hotels, excluding hotels held for sale, (131 hotels) RevPAR increased 8.2% o Non-comparable hotels, excluding hotels held for sale, (32 hotels) RevPAR increased 18.8% o Hotels held for sale (25 hotels) RevPAR decreased 2.1% OTHER HIGHLIGHTS: o FelCor has agreed in principle to purchase DJONT Operations, LLC, one of its two Lessees, currently leasing 86 hotels, effective January 1, 2001, for approximately 417,000 Operating Partnership units. o The Company has identified 25 non-strategic hotels to be sold, with estimated aggregate net sale proceeds of approximately $136 million. In connection with the decision to sell these hotels, the Company has recorded a one-time reserve of $63 million in the second quarter of 2000. o On July 14, the Company entered into a binding sale contract for its Embassy Suites(R) hotel- Los Angeles International Airport-North, California (215 suites) for a gross price of approximately $24 million ($112,000 per room). The Company expects that the sale will close by the end of August 2000, and will record a gain on sale of approximately $3 million in the third quarter of 2000. o The Company sold 31 acres of vacant excess land adjacent to its 179-room Whispering Woods Hotel, Conference Center and Golf Course in Olive Branch, Mississippi, for approximately $1 million. o Renovations were completed at three hotels during the quarter and 13 additional hotels were undergoing renovation at the end of the quarter. o Renovation expenditures on the Company's hotel portfolio totaled $8.3 million during the quarter and an additional $10.4 million was spent on maintenance capital expenditures. The Company expects to spend an additional $28 million in renovation expenditures and $33 million in maintenance capital expenditures during the remainder of 2000. o Construction was started on a 90 room addition at the Holiday Inn-French Quarter hotel located on Royal Street in New Orleans, Louisiana at an expected cost of $10 million. 19 20 CAPITALIZATION: o During the second quarter 2000, FelCor repurchased a total of approximately 718,000 common shares for approximately $14.0 million. For the Year 2000 FelCor has repurchased 3.1 million common shares for approximately $56.7 million. o FelCor declared second quarter dividends of $0.55 per share on its Common Stock, $0.4875 per share on its $1.95 Series A Cumulative Convertible Preferred Stock and $0.5625 per depositary share evidencing its 9% Series B Cumulative Redeemable Preferred Stock. o On August 1, 2000, FelCor renewed, reduced in size, and extended for two years its Senior Revolving Credit Facility. The new $600 million Line of Credit matures in August 2003. The effective interest rate ranges from 87.5 basis points to 250 basis points above LIBOR depending on the Company's leverage and corporate rating. The initial spread is 200 basis points. RESULTS OF OPERATIONS The Company Six Months Ended June 30, 2000 and 1999 For the six months ended June 30, 2000 and 1999, the Company had revenues of $264.7 million and $262.1 million, respectively, consisting primarily of Percentage Lease revenues of $256.3 million and $256.9 million, respectively. The reason for the decline in Percentage Lease revenues is approximately $18.6 million of deferred rent recorded in 2000 but not in 1999. Effective January, 2000, Percentage Leases for 68 of FelCor's 188 hotels were changed to provide for the computation of rent on an annual, rather than quarterly basis. This should result in no change in annual Percentage Rent or cash flows. However, this change requires the deferral of Percentage Lease revenue until annual thresholds are exceeded in accordance with Staff Accounting Bulletin No. 101 (SAB 101). The deferred rent is expected to be fully earned and recognized as Percentage Lease Revenue by the end of 2000. After adding back rent deferred under SAB 101, Percentage Lease revenues for the six months ended June 30, 2000, increased 7.0% to $274.9 million as compared to the six months ended June 30, 1999. The reason for this comparative increase is attributed to an overall increase in RevPAR of 7.7%. This change in hotel RevPAR is more fully discussed under "The Hotels" section of this "Management's Discussion and Analysis of Financial Condition and Results of Operations." Total expenses increased $92.1 million for the six months ended June 30, 2000, from $183.4 million to $275.5 million, compared to the same period in 1999. Since there was no deferred rent recorded in 1999, for comparison purposes deferred rent recorded in 2000 has been added back to total revenue for the computation of expenses as a percent of total revenue. Total expenses as a percentage of total revenue after adding back deferred rent, increased to 97.3% for the six months ended June 30, 2000, from 70.0% in the same period of 1999. Included in total expenses is a one-time reserve of $63.0 million related to the 25 non-strategic hotels the Company has identified as held for sale. This reserve represents the difference between the net book value of the hotels and the estimated net sale proceeds. Other major components of the increase in expenses, as a percentage of total revenue after adding back deferred rent, were interest expense and land lease expenses. 20 21 Interest expense increased, as a percentage of total revenue, after adding back deferred rent, to 27.4% in the six months ended June 30, 2000, from 22.6% in the six months ended June 30, 1999. This increase in interest expense is attributed to the following: o increased debt, which was used to finance renovations and to fund $155 million stock repurchased in 1999 and 2000, o higher average interest rates for debt refinanced in 2000 to extend maturities and convert variable rates to fixed, o an increase in the LIBOR rate which affects the Company's variable rate debt and o reduction of interest capitalized on major renovations and construction from $3.2 million for the six months ended June 30, 1999 to approximately $497,000 in 2000. Land leases as a percent of total revenue, after adding back deferred rent, increased from 3.2% to 4.1% for the six months ended June 30, 1999 and 2000, respectively. The increase in land lease expense is primarily attributed to a reserve established in June 2000, for prior year disputed land lease expense and current year land lease expense for two hotels. The land lease rent for these hotels is computed as a percentage of hotel revenues and these two hotels had larger than average percentage increases in revenue for the period. Three Months Ended June 30, 2000 and 1999 For the three months ended June 30, 2000 and 1999, the Company had revenues of $137.9 million and $135.2 million, respectively, consisting primarily of Percentage Lease revenues of $133.3 million and $131.9 million, respectively. After adding back rent deferred under SAB 101, Percentage Lease revenues for the three months ended June 30, 2000, increased 9.2% to $147.6 million as compared to the three months ended June 30, 1999. The reason for this comparative increase is attributed to an overall increase in RevPAR of 9.3%. This change in RevPAR is more fully discussed under "The Hotels" section of this "Management's Discussion and Analysis of Financial Condition and Results of Operations." Total expenses increased $74.4 million for the three months ended June 30, 2000, from $93.2 million to $167.6 million, compared to the same period in 1999. Since there was no deferred rent recorded in 1999, for comparison purposes deferred rent recorded in 2000 has been added back to total revenue for the computation of expenses as a percent of total revenue. Total expenses as a percentage of total revenue after adding back deferred rent, increased to 113.6% for the six months ended June 30, 2000, from 69.0% in the same period of 1999. Included in the second quarter total expenses is a one-time reserve of $63.0 million related to the 25 non-strategic hotels the Company has identified as held for sale. This reserve represents the difference between the net book value of the hotels and the estimated net sale proceeds. Other major components of the increase in expenses, as a percentage of total revenue after adding back deferred rent, were interest expense and land lease expenses. Interest expense increased, as a percentage of total revenue after adding back deferred rent, from 22.7% to 26.9% for the quarter over the prior year period. The Company's total borrowings increased by approximately $170 million since June 30, 1999, primarily to fund its stock repurchase program and its renovation, redevelopment and rebranding program. In addition, the average interest rate on the Company's floating rate debt increased approximately 130 basis points since the second quarter 1999, as a result of corresponding increases in short term interest rates. 21 22 Land leases as a percent of total revenue, after adding back deferred rent, increased from 3.3% to 4.2% for the quarters ended June 30, 1999 and 2000, respectively. The increase in land lease expense is primarily attributed to a reserve established in June 2000, for prior year disputed land lease expense and current year land lease expense for two hotels. The land lease rent for these hotels is computed as a percentage of hotel revenues and these two hotels had larger than average percentage increases in revenue for the period. Funds From Operations and EBITDA The Company considers Funds From Operations ("FFO") and earnings before interest, taxes, depreciation and amortization ("EBITDA") to be key measures of a REIT's performance and 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 White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from debt restructuring and sales of properties, plus real estate related depreciation and amortization, after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company believes that FFO and EBITDA are helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, they provide investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures, to pay dividends and to fund other cash needs. The Company computes FFO in accordance with standards established by NAREIT, except that the Company adds back rent deferred under SAB 101 to derive FFO. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, that interpret the current NAREIT definition differently than the Company or that do not adjust FFO for rent deferred under SAB 101. FFO and EBITDA do not represent cash generated from operating activities as determined by GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) 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 does it necessarily reflect the funds available to fund the Company's cash needs, including its ability to make cash distributions. FFO and EBITDA may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. 22 23 The following table details the computation of FFO (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- ---------------------- 2000 1999 2000 1999 -------- -------- --------- --------- FFO: Net income (loss) ..................................... $(28,900) $ 40,822 $ (9,973) $ 77,569 Deferred rent ...................................... 9,750 18,604 Reserve for assets held for sale ................... 63,000 63,000 Series B preferred dividends ....................... (3,234) (3,234) (6,468) (6,468) Extraordinary charge from write off of deferred financing fees ................................ 1,113 1,113 Depreciation ....................................... 41,080 37,737 81,480 74,162 Depreciation for unconsolidated entities ........... 2,592 2,426 5,136 5,017 Minority interest in Operating Partnership ......... (3,403) 1,519 (2,399) 2,839 -------- -------- --------- --------- FFO ................................................... $ 80,885 $ 80,383 $ 149,380 $ 154,232 ======== ======== ========= ========= Weighted average common shares and units outstanding (1) .................................. 67,232 76,029 67,987 76,008 ======== ======== ========= =========
- ---------- (1) Weighted average common shares and units outstanding are computed including dilutive options, unvested stock grants, and assuming conversion of Series A Preferred Stock to Common Stock. The following table details the computation of EBITDA (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- EBITDA: Funds from Operations .................................... $ 80,885 $ 80,383 $149,380 $154,232 Interest expense ................................... 39,740 30,750 77,644 59,172 Interest expense of unconsolidated subsidiaries .... 2,157 1,734 4,787 3,343 Amortization of unearned compensation .............. 312 185 474 375 Series B preferred dividends ....................... 3,234 3,234 6,468 6,468 -------- -------- -------- -------- EBITDA ................................................... $126,328 $116,286 $238,753 $253,590 ======== ======== ======== ========
The Hotels The Company believes that when analyzing the performance of the Hotels, looking at "Comparable Hotels" is the most meaningful. The Company defines "Comparable Hotels" as those not undergoing renovation, redevelopment or rebranding in either of the comparison periods. Major renovations generally have an adverse affect on hotel earnings by taking rooms out of service and disrupting hotel operations. "Non-comparable Hotels" are those undergoing renovation, redevelopment or rebranding during either period presented. 23 24 The following table sets forth historical Occupancy, ADR and RevPAR and the percentage changes therein between the periods presented for the Hotels in which the Company had an ownership interest at June 30, 2000. This information is presented regardless of the date of acquisition.
SECOND QUARTER 2000 YEAR TO DATE 2000 -------------------------------- ------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- --- ------ --------- --- ------ DJONT Comparable Hotels 77.7% $ 123.92 $96.31 75.4% $ 126.27 $95.07 Bristol Comparable Hotels 75.1% $ 92.12 $69.23 72.3% $ 91.48 $66.14 Total Comparable Hotels (A) 76.5% $ 108.87 $83.26 73.8% $ 109.00 $80.49 Non-comparable Hotels (B) 74.3% $ 99.58 $73.97 71.6% $ 101.04 $72.32 Total Hotels excluding hotels held for sale 76.0% $ 107.03 $81.37 73.2% $ 106.92 $78.30 Hotels held for sale (C) 60.8% $ 70.42 $42.84 60.1% $ 72.02 $43.28 Total Hotels 74.8% $ 104.57 $78.19 72.1% $ 104.52 $75.41
SECOND QUARTER 1999 YEAR TO DATE 1999 -------------------------------- -------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- --- ------ --------- --- ------ DJONT Comparable Hotels 74.3% $ 119.27 $88.66 73.2% $ 123.07 $90.04 Bristol Comparable Hotels 71.8% $ 89.70 $64.41 70.0% $ 89.81 $62.84 Total Comparable Hotels 73.1% $ 105.28 $76.98 71.5% $ 106.68 $76.33 Non-comparable Hotels 64.2% $ 96.98 $62.28 62.1% $ 99.18 $61.54 Total Hotels excluding hotels held for sale 71.3% $ 103.78 $74.02 69.0% $ 104.88 $72.39 Hotels held for sale 63.0% $ 69.47 $43.74 60.5% $ 72.38 $43.76 Total Hotels 70.6% $ 101.25 $71.51 68.3% $ 102.50 $70.02
CHANGE FROM PRIOR PERIOD CHANGE FROM PRIOR PERIOD 2ND QTR. 2000 VS. 2ND QTR. 1999 2000 VS. 1999 YEAR TO DATE -------------------------------- ------------------------------- OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR --------- --- ------ --------- --- ------ DJONT Comparable Hotels 3.4 pts 3.9% 8.6% 2.2 pts 2.4% 5.6% Bristol Comparable Hotels 3.3 pts 2.7% 7.5% 2.3 pts 1.9% 5.3% Total Comparable Hotels 3.4 pts 3.4% 8.2% 2.3 pts 2.2% 5.5% Non-comparable Hotels 10.1 pts 2.7% 18.8% 9.5 pts 1.9% 17.5% Total Hotels excluding hotels held for sale 4.7 pts 3.1% 9.9% 4.2 pts 1.9% 8.2 % Hotels held for sale (2.2)pts 1.4% (2.1)% (0.4) pts (0.5)% (1.1)% Total Hotels 4.2 pts 3.3% 9.3% 3.8 pts 2.0% 7.7%
- ---------- (A) DJONT Comparable Hotels include 73 and 65 hotels and Bristol Comparable Hotels include 58 and 56 hotels in the second quarter and year-to-date which were not undergoing renovation, redevelopment, or rebranding in either the 2000 or 1999 periods reported, and exclude hotels held for sale. (B) Non-comparable Hotels include 32 and 42 hotels in the second quarter and year-to-date undergoing redevelopment in either the 2000 or 1999 periods reported, and exclude hotels held for sale. (C) Hotels held for sale includes three DJONT lease hotels and 22 Bristol leased hotels, consisting of two Courtyard by Marriott hotels, five Fairfield Inn hotels, six Hampton Inn hotels, eight Holiday-branded hotels, three Doubletree Guest Suites hotels, and one Four Points by Sheraton. 24 25 Comparison of The Hotels' Operating Statistics for the Three and Six Months Ended June 30, 2000 and 1999 For the six months ended June 30, 2000, the Company's Comparable Hotels' RevPAR, excluding hotels held for sale, increased compared to the same period in 1999, by 5.5%. For the same period the Comparable Hotels' ADR and Occupancy increased 2.2% and 2.3 percentage points, respectively. A large portion of the increase in year-to-date 2000 RevPAR came from the second quarter 2000 hotel performance. For the quarter, the Company's Comparable Hotels' RevPAR, excluding hotels held for sale, increased 8.2%. The ADR and Occupancy for these hotels increased 3.4% and 3.4 percentage points, respectively. The total hotel portfolio RevPAR, excluding hotels held for sale, increased 9.9%. This represents the fourth consecutive quarter that the Company's hotels reported increases in both ADR and Occupancy. The DJONT Comparable Hotels are predominately Embassy Suites, Doubletree and Doubletree Guest Suites, and Sheraton hotels. The Bristol Comparable Hotels are predominately Holiday Inn and Crowne Plaza hotels. The following table shows the Comparable Hotel RevPAR changes (excluding hotels held for sale) for the second quarter 2000, compared to 1999:
RevPAR Percentage of Total Change Room Revenue ------ ------------------- Embassy Suites (54 hotels) 9.6% 46.0% Holiday -branded (34 hotels) 9.4% 24.4% Crowne Plaza (14 hotels) 9.0% 11.7% Doubletree -branded (9 hotels) 6.2% 5.1% Sheraton (7 hotels) 5.4% 6.9% Other (13 hotels) (3.2)% 5.9% ---- ----- 8.2% 100.0% ==== =====
The Company attributes much of the improvement in RevPAR to the renovation, rebranding and repositioning program in which the Company has spent approximately $465 million in 1998, 1999 and the first six months of 2000. The Company's Hotels outperformed most other hotels in their respective markets during the second quarter and the Company expects this strong performance to continue. The Company's Embassy Suites hotels experienced their third consecutive quarterly increase in occupancy with 54 Comparable Embassy Suites hotels achieving a 9.6% RevPAR improvement for the quarter compared to prior year. These hotels, which constitute nearly 46% of Comparable Hotel room revenues, increased ADR by 5.0% and Occupancy by 3.3 percentage points over the same three month period in 1999. The Company's Comparable Doubletree hotels had a 6.2% RevPAR gain for the quarter. The Company believes, in addition to the renovation program, the recent Hilton/Promus merger and the addition of the Hilton HHonors(R) program has had a positive impact on its Embassy Suite and Doubletree portfolios. Bass completed its merger with Bristol Hotels & Resorts at the end of the first quarter of 2000. The Company expects the integration of the Bristol management team with Bass will continue to be beneficial to the development and strengthening of the Crowne Plaza and Holiday brands. The Company's 14 Comparable Crowne Plaza hotels (all of which were renovated and rebranded from Holiday Inn and Harvey hotels), reported increased RevPAR of 9% for the second quarter for 2000 compared to the same period in 1999. This increase resulted from an increase of 7.0 percentage points in occupancy, which brought the average occupancy for these hotels up to 75.1% for the quarter. In addition to the recent renovations, the Company attributes a portion of this improvement to the change in marketing for the brand, which now supports the marketing of Crowne Plaza with the Inter-Continental(R) brand. 25 26 The Company's Holiday Inn and Holiday Inn Select hotels continue to outperform their competition. The Company's Holiday-branded hotels increased RevPAR for the quarter by 9.4%. The second quarter increase in RevPAR resulted from a 3.3 percentage point increase in Occupancy and a 4.6% increase in ADR. The Company's 20 Comparable Holiday-branded hotels with greater than 250 rooms (representing nearly 81% of the Company's Holiday-branded revenue) reported an increase in RevPAR of 8.8% for the quarter, which came from Occupancy and ADR increases of 4.0 percentage points and 3.2%, respectively. Nearly 58.3% of the Company's Comparable Hotel room revenues in the quarter were derived from four states: Texas, California, Florida and Georgia. Changes in Comparable Hotel RevPAR during the quarter for these states, excluding hotels held for sale, compared to the same period in 1999, are illustrated in the following table:
RevPAR Percentage of Total Change Room Revenue ------ ------------------- Texas (31 hotels) 5.2% 19.2% California (17 hotels) 17.1% 21.7% Florida (12 hotels) 7.5% 10.4% Georgia (10 hotels) 0.8% 7.0%
The Comparable Hotels in Texas, which account for approximately 19.2% of FelCor's Comparable Hotel total room revenue, experienced the second consecutive quarter with positive RevPAR growth compared to prior year. The growth in supply from new hotels in most major markets in Texas appears to have slowed and management believes that their recently renovated hotels will continue to effectively compete in their market segments. The Company's 17 hotels located in Dallas, which had been adversely affected by new competition in recent quarters, had RevPAR increases of 5.5% for the quarter and 3.7% year-to-date. The Company's Non-comparable Hotels (32 hotels) reported an increase in RevPAR of 18.8% for the quarter and the 42 Non-comparable Hotels had a RevPAR increase of 17.5% year-to-date. These hotels were profoundly affected by the Allerton Crowne Plaza (increased RevPAR by 236% for the second quarter), which was closed for renovation in the third quarter 1998 and partially reopened in the second quarter of 1999. The Non-comparable Hotels, excluding the Allerton, reported increased RevPAR of 11.6%. DJONT The Six Months Ended June 30, 2000 and 1999 Total revenues increased to $448.7 million in the first six months of 2000, from $409.6 million in the first six months of 1999, an increase of 9.5% Total revenues consisted primarily of room and suite revenue of $364.7 million and $334.8 million in the first six months of 2000 and 1999, respectively. The increase in room and suite revenue resulted from a 2.7 percentage point increase in Occupancy combined with a 2.3% increase in ADR and the addition of one hotel to the DJONT portfolio in January of 2000, which contributed $14.4 million in room and suite revenue. DJONT's total expenses decreased as a percentage of total revenues from 101.5% in the six months ended June 30, 1999, to 100.0% in the six months ended June 30, 2000. This is largely due to reductions of Percent Rent as a percentage of total revenue from 41.4% to 39.7%. Net income for DJONT for the six months ended June 30, 2000, was $104,000 compared to a loss of $6.3 million in the same period in 1999. 26 27 The Three Months Ended June 30, 2000 and 1999 Total revenues increased to $229.6 million in the second quarter of 2000 from $205.4 million in the second quarter of 1999, an increase of 11.8%. Total revenues consisted primarily of room and suite revenue of $186.4 million and $167.1 million in the second quarter of 2000 and 1999, respectively. The increase in total revenues is primarily a result of a 3.9 percentage point increase in occupancy coupled with a 3.7% increase in ADR. The addition of one hotel to the DJONT portfolio in January 2000 contributed $8 million to second quarter revenues. DJONT's total expenses decreased as a percentage of total revenues from 102% for the three months ended June 30, 1999, to 100% for the three months ended June 30, 2000. Net loss for DJONT for the quarter ending June 30, 2000, was $408,000 compared to a loss of $3.5 million in the same period in 2000. 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 from the Percentage Leases. For the six months ended June 30, 2000, net cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $138.7 million and Funds From Operations was $149.4 million. The Lessees' obligations under the Percentage Leases are largely unsecured. The Lessees have limited capital resources, and, accordingly, their ability to make lease payments under the Percentage Leases is substantially dependent on the ability of the Lessees to generate sufficient cash flow from the operation of the Hotels. DJONT recorded net income of $104,000 for the six months ended June 30, 2000, but had a cumulative shareholders' deficit of $13.0 million, largely as a result of losses in prior years. Consistent with the operating results for the six months ended June 30, 2000, management anticipates revenue growth at the DJONT hotels during 2000, but DJONT may record a small operating loss for the year 2000. On July 21, 2000, FelCor's Independent Directors approved the acquisition of 100% of DJONT Operations, LLC and its subsidiaries effective January 1, 2001 (the effective date for the recently passed REIT Modernization Act). The purchase price is approximately 417,000 Operating Partnership units. The benefits to FelCor from the purchase of DJONT include: (i) a more direct relationship with the hotel and brand managers, (ii) elimination of potential conflicts of interest and (iii) consolidated hotel level financial reporting. Bristol had entered into an absolute and unconditional guarantee of the obligations of the Bristol Lessees under the Percentage Leases, and is required to maintain a minimum liquid net worth. At June 30, 2000, a portion of this liquid net worth was being satisfied through a letter of credit for the benefit of the Company, in the amount of $9.1 million. On July 27, 2000, the letter of credit was replaced with an absolute and unconditional guarantee not to exceed $20 million, by a wholly owned subsidiary of Bass. The Company currently expects to acquire the Bristol Percentage Leases from Bass by January 1, 2001, but at this date has not entered into any agreements to acquire the Bristol Lessees or their leasehold interests. 27 28 The Company has identified 25 non-strategic hotels which it intends to sell. The Company expects gross sales proceeds from these hotels to be approximately $150 million and net proceeds to be approximately $136 million (after deducting estimated transaction costs). The Company anticipates that the sale of these hotels will result in a book loss of approximately $63 million. Accordingly, FelCor's Board of Directors approved the establishment of a $63 million reserve for hotels held for sale, to reflect the lower of cost or market for these hotels. In January 2000 FelCor's Board of Directors authorized the repurchase of up to $200 million of its outstanding common shares. The stock repurchases may, at the discretion of the Company's management, be made from time to time at prevailing prices in the open market or through privately negotiated transactions. The Company expects to fund the repurchase of stock through the use of cash, existing credit facilities, and proceeds from the sale of assets. From January 2000 through June 30, 2000, FelCor repurchased approximately 3.1 million shares of its outstanding common stock on the open market for approximately $56.7 million. The Company may incur indebtedness to make property acquisitions, to purchase shares of its capital stock, or to meet distribution requirements imposed on a REIT under the Internal Revenue Code, to the extent that working capital and cash flow from the Company's investments and asset sales are insufficient for such purposes. The Line of Credit and the Senior Term Loan contain various affirmative and negative covenants, including limitations on total indebtedness, total secured indebtedness, restricted payments (such as stock repurchases and cash distributions), as well as the obligation to maintain certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At June 30, 2000, the Company was in not in default with respect to any such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit and Senior Term Loan. Most of the mortgage debt is nonrecourse to the Company (with certain exceptions) and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of the mortgage debt is prepayable, subject, however, to various prepayment penalties, yield maintenance, or defeasance obligations. At June 30, 2000, the Company had $50.8 million of cash and cash equivalents and had utilized $410 million of the $850 million available under the Line of Credit. Certain significant credit and debt statistics at June 30, 2000, are as follows: o Interest coverage ratio of 2.9x o Borrowing capacity of $440 million under the Line of Credit o Consolidated debt equal to 41% of investment in hotels, at cost o Fixed interest rate debt equal to 68% of total debt o Weighted average maturity of fixed interest rate debt of approximately six years o Mortgage debt to total assets of 19% o Debt of approximately $17 million maturing for the remainder of 2000 On August 1, 2000, FelCor renewed, reduced in size, and extended for two years its Senior Revolving Credit Facility. The new $600 million Line of Credit matures in August 2003. The effective interest rate ranges from 87.5 basis points to 250 basis points above LIBOR depending on the Company's leverage and corporate rating. The initial spread is 200 basis points. To manage the relative mix of its debt between fixed and variable rate instruments, the Company has entered into interest rate swap agreements with six financial institutions. These interest rate swap agreements modify a portion of the interest characteristics of the Company's outstanding debt under its Line of Credit and 28 29 Senior Term Loan without an exchange of the underlying principal amount and effectively convert variable rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate, and the variable rate to be received by the Company at June 30, 2000, are summarized in the following table:
EFFECTIVE SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 6/30/00 MATURITY --------------- ------------ ---------- ------------- --------- $ 25 million 5.5575% 7.1825% 8.2663% July 2001 $ 25 million 5.5480% 7.1730% 8.2663% July 2001 $ 75 million 5.5550% 7.1800% 8.2663% July 2001 $ 100 million 5.7955% 8.5455% 9.3913% July 2003 $ 25 million 5.8260% 8.5760% 9.3913% July 2003 ------------- $ 250 million =============
The differences to be paid or received by the Company under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense by the Company, pursuant to the terms of its interest rate agreement, and will have a corresponding effect on its future cash flows. Agreements such as these contain a credit risk in that the counterparties may be unable to meet the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. The Company spent approximately $8.3 million during the quarter on upgrading and renovating its Hotels during the three months ended June 30, 2000 and a total of $22.9 million for the year 2000. It had completed renovations at three hotels during the quarter and had 13 additional hotels undergoing renovation at the end of the quarter. Room nights out-of-service, due to renovation, were less than 1% during the quarter. The Company currently plans to spend an additional $30 million on hotel renovations during the remainder of 2000 and expects an insignificant number of room nights to be lost as a result of such renovations. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk exposure is to changes in interest rates on its floating rate debt. The Company manages the risk of increasing interest rates on its floating rate debt through the use of interest rate swaps, which effectively convert variable rate debt to a fixed rate, by locking the interest rates paid. The Company had entered into interest rate swap contracts relating to debt of $250 million at June 30, 2000. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations at June 30, 2000, the table presents scheduled maturities and weighted average interest rates, by maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates, by contractual maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve as of June 30, 2000. The Fair Value of the Company's fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements which could have been borrowed at June 30, 2000 at then current market interest rates. The Fair Value of the Company's variable to fixed interest rate swaps indicates the estimated amount that would have been received by the Company had they been sold at June 30, 2000. 29 30 (in thousands, except rates)
EXPECTED MATURITY DATE ------------------------------------------------------------------------------- REMAINDER OF 2000 2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE ------- -------- ------- -------- --------- ------- ---------- --------- ---------- LIABILITIES Debt: Fixed rate $ 6,656 $ 23,721 $13,040 $ 34,905 $ 188,669 $43,090 $715,391 $1,025,472 $913,929 Average interest rate 8.01% 9.38% 8.19% 8.09% 7.44% 8.67% 8.05% Variable rate $10,712 $411,711 $ 1,785 $ 61,413 $ 371,000 $ 650 $ 857,271 $857,271 Average interest rate 8.29% 8.84% 9.92% 9.57% 10.31% 9.63% INTEREST RATE DERIVATIVES Interest rate swaps: Variable to fixed $125,000 $125,000 $ 250,000 $ 6,207 Average pay rate 5.55% 5.80% Average receive rate 7.21% 7.56%
Swap contracts, such as those described above, contain a credit risk, in that the counterparties may be unable to fulfill the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. INFLATION Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the Lessees' ability to raise room rates. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue, particularly during the fourth quarter, to the extent that it receives Percentage Rent. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in lease revenue, the Company expects to utilize cash on hand or borrowings under the Line of Credit to make distributions to its equity holders. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS Portions of this Quarterly Report on Form 10-Q include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Important factors that could cause actual results to differ materially from the Company's current expectations are disclosed herein and in the Company's other filings under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, (collectively, "Cautionary Disclosures"). The forward looking statements included herein, and all subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf, are expressly qualified in their entirety by the Cautionary Statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Information and disclosures regarding market risks applicable to FelCor is incorporated herein by reference to the discussion under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" contained elsewhere in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2000. 30 31 PART II. -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. FelCor held its 2000 Annual Meeting of Stockholders on May 24, 2000 (the "Annual Meeting"). At the Annual Meeting, the stockholders of FelCor elected Richard S. Ellwood, Richard O. Jacobson and Charles N. Mathewson to serve, as Class III directors, until the Annual Meeting of Stockholders to be held in 2003. The stockholders also approved the proposed amendment to the 1998 Restricted Stock and Stock Option Plan, which removed the limitation on the number of shares that may be awarded as restricted stock. The total number of shares entitled to vote at the Annual Meeting was 55,752,852 shares of Common Stock. A total of 43,925,043 shares of Common Stock were represented in person or by proxy at the Annual Meeting. The following table sets forth, with respect to each of the directors elected, the number of votes case for, and the number of votes withheld, with respect to his election:
NOMINEE VOTES FOR VOTES WITHHELD - ------- --------- -------------- Richard S. Ellwood 43,389,360 535,683 Richard O. Jacobson 43,423,036 502,007 Charles N. Mathewson 42,591,225 1,333,818
There were 39,418,858 votes cast for the proposed amendment to the 1998 Restricted Stock and Stock Option Plan, 4,182,748 votes cast against and 323,437 votes withheld. ITEM 5. OTHER INFORMATION. On May 25, 2000 FelCor's Board of Directors voted to increase the number of directors from ten to eleven and elected Melinda J. Bush to fill the vacancy so created. Ms. Bush will serve as a Class I Director, whose term will expire in 2001. Ms. Bush is Executive Vice President, Editorial and Publishing Director of "Premier Hotels & Resorts", a division of Advanstar Communications, and serves as a director and trustee of the American Hotel Foundation. For information relating to certain other transactions by the Company through June 30, 2000, see Note 1 of Notes to Consolidated Financial Statements of FelCor Lodging Trust Incorporated contained in Item 1 of Part I of this Quarterly Report on Form 10-Q. Such information is incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Exhibit Number Description ------ ----------- 10.24 Form Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents, each dated as of April 20, 2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, as Mortgagee, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.24.2. 10.24.1 Form of Accommodation Cross-Collateralization Mortgage and Security Agreement, each dated as of April 20, 2000, executed by FelCor/MM S-7 Holdings, L.P., in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America. 31 32 10.24.2 Form of fourteen separate Promissory Notes each dated April 20, 2000, each made by FelCor/MM S-7 Holdings, L.P., each separately payable to the order of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, respectively, in the respective original principal amounts of $13,500,000 (Phoenix (Crescent), Arizona), $13,500,000 (Phoenix (Crescent), Arizona), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $9,000,000 (Atlanta Galleria, Georgia), $9,000,000 (Atlanta Galleria, Georgia), $12,500,000 (Chicago O'Hare Airport, Illinois), $12,500,000 (Chicago O'Hare Airport, Illinois), $3,500,000 (Lexington, Kentucky), $3,500,000 (Lexington, Kentucky), $17,000,000 (Philadelphia Society Hill, Philadelphia), $17,000,000 (Philadelphia Society Hill, Philadelphia), $10,500,000 (South Burlington, Vermont), and, $10,500,000 (South Burlington, Vermont). 10.25 Form Deed of Trust and Security Agreement, each dated as of May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each as Borrower, in favor of The Chase Manhattan Bank, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.25.1. 10.25.1 Form of eight separate Promissory Notes each dated May 2, 2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each separately payable to the order of The Chase Manhattan Bank in the respective original principal amounts of $38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield, Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000 (Orlando South, Florida), $32,650,000 (New Orleans, Louisiana), $20,728,000 (Piscataway, New Jersey), and $26,268,000 (South San Francisco, California). 27 Financial Data Schedule. (b) Reports on Form 8-K: Registrant did not file any reports on Form 8-K during the second quarter of 2000. 32 33 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 14, 2000 FELCOR LODGING TRUST INCORPORATED By: /s/ Lester C. Johnson ------------------------------------- Lester C. Johnson Vice President and Controller (Principal Financial Officer and Principal Accounting Officer) 33 34 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.24 Form Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents, each dated as of April 20, 2000, from FelCor/MM S-7 Holdings, L.P., as Mortgagor, in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, as Mortgagee, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.24.2. 10.24.1 Form of Accommodation Cross-Collateralization Mortgage and Security Agreement, each dated as of April 20, 2000, executed by FelCor/MM S-7 Holdings, L.P., in favor of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America. 10.24.2 Form of fourteen separate Promissory Notes each dated April 20, 2000, each made by FelCor/MM S-7 Holdings, L.P., each separately payable to the order of Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, respectively, in the respective original principal amounts of $13,500,000 (Phoenix (Crescent), Arizona), $13,500,000 (Phoenix (Crescent), Arizona), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $6,500,000 (Cypress Creek/Ft. Lauderdale, Florida), $9,000,000 (Atlanta Galleria, Georgia), $9,000,000 (Atlanta Galleria, Georgia), $12,500,000 (Chicago O'Hare Airport, Illinois), $12,500,000 (Chicago O'Hare Airport, Illinois), $3,500,000 (Lexington, Kentucky), $3,500,000 (Lexington, Kentucky), $17,000,000 (Philadelphia Society Hill, Philadelphia), $17,000,000 (Philadelphia Society Hill, Philadelphia), $10,500,000 (South Burlington, Vermont), and, $10,500,000 (South Burlington, Vermont). 10.25 Form Deed of Trust and Security Agreement, each dated as of May 2, 2000, from each of FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each as Borrower, in favor of The Chase Manhattan Bank, as Beneficiary, each covering a separate hotel and securing one of the separate Promissory Notes described in Exhibit 10.25.1. 10.25.1 Form of eight separate Promissory Notes each dated May 2, 2000, made by FelCor/CMB Buckhead Hotel, L.L.C., FelCor/CMB Marlborough Hotel, L.L.C., FelCor/CMB Deerfield Hotel, L.L.C., FelCor/CMB Corpus Holdings, L.P., FelCor/CMB Orsouth Holdings, L.P., FelCor/CMB New Orleans Hotel, L.L.C., FelCor/CMB Piscataway Hotel, L.L.C., and FelCor/CMB SSF Holdings, L.P., each separately payable to the order of The Chase Manhattan Bank in the respective original principal amounts of $38,250,000 (Atlanta Buckhead, Georgia), $20,500,000 (Boston Marlborough, Massachusetts), $16,575,000 (Chicago Deerfield, Illinois), $5,338,000 (Corpus Christi, Texas), $25,583,000 (Orlando South, Florida), $32,650,000 (New Orleans, Louisiana), $20,728,000 (Piscataway, New Jersey), and $26,268,000 (South San Francisco, California). 27 Financial Data Schedule.
EX-10.24 2 ex10-24.txt FORM DEED OF TRUST AND SECURITY AGREEMENT 1 EXHIBIT 10.24 Re: --------------------------- --------------------------- --------------------------- RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: John E. Bromberg, Esq. Stutzman & Bromberg A Professional Corporation 2323 Bryan Street, Suite 2200 Dallas, Texas 75201 DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS Cover Sheet Dated as of April 20, 2000 Trustor: FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited partnership (Hereinafter sometimes "Borrower") Trustor's c/o FelCor Lodging Trust Incorporated Notice Address: 545 E. John Carpenter Freeway, Suite 1300 Irving, Texas 75062 Attention: Andrew J. Welch or Joel M. Eastman Trustee: --------------------------------------- Trustee's Notice Address: ------------------------------- ------------------------------- ------------------------------- 2 Beneficiary: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation, and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation (Hereinafter sometimes collectively "Lender") MassMutual c/o David L. Babson and Company Incorporated Notice Address: 1295 State Street Springfield, Massachusetts 01111-0001 Attention: Senior Managing Director Mortgage Portfolio Department Real Estate Investment Group TIAA Notice Address: 730 Third Avenue New York, New York 10017 Attn: Director Portfolio Management Mortgage and Real Estate Loan Amount: $____________ evidenced by two (2) promissory notes, each in the original principal amount of $____________ Maturity Date: May 1, 2010 State: ------------- Record Owner of the Land FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited (as defined herein): partnership 3 DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS TABLE OF CONTENTS
PAGE ---- GRANTING CLAUSES..................................................................................................1 ARTICLE I - Definition of Terms...................................................................................4 ARTICLE II - Covenants of Borrower...............................................................................16 Section 2.01. - Payment of the Indebtedness......................................................................16 Section 2.02. - Title to the Mortgaged Property..................................................................16 Section 2.03. - Maintenance of the Mortgaged Property............................................................17 Section 2.04. - Insurance; Restoration...........................................................................17 Section 2.05. - Condemnation.....................................................................................23 Section 2.06. - Impositions......................................................................................23 Section 2.07. - Deposits.........................................................................................24 Section 2.08. - Mortgage Taxes...................................................................................25 Section 2.09. - Loan Documents Authorized........................................................................25 Section 2.10. - Maintenance of Existence.........................................................................26 Section 2.11. - Payment of Liens.................................................................................26 Section 2.12. - Costs of Defending and Upholding the Lien........................................................27 Section 2.13. - Costs of Enforcement.............................................................................27 Section 2.14. - Interest on Advances and Expenses................................................................27 Section 2.15. - Indemnification..................................................................................28 Section 2.16. - Financial Statements; Records....................................................................28 Section 2.17. - Prohibition Against Conveyances and Encumbrances.................................................29 Section 2.18. - Estoppel Certificates............................................................................31 Section 2.19. - Assignment of Leases and Property Income.........................................................32 Section 2.20. - Environmental Matters; Warranties; Notice; Indemnity.............................................33 Section 2.21. - Environmental Matters; Remedial Work.............................................................36 Section 2.22. - Environmental Matters; Inspection................................................................36 Section 2.23. - Management.......................................................................................37 Section 2.24. - ERISA............................................................................................37 Section 2.25. - Operating Agreements.............................................................................38 Section 2.26. - Single-Purpose Entity............................................................................38 ARTICLE III - Security Agreement.................................................................................38 Section 3.01. - Warranties, Representations and Covenants of Borrower............................................38 Section 3.02. - Financing Statements.............................................................................40 Section 3.03. - Addresses........................................................................................40
i 4 ARTICLE IV - Default and Remedies................................................................................40 Section 4.01. - Events of Default................................................................................40 Section 4.02. - Remedies.........................................................................................42 Section 4.03. - General Provisions Regarding Remedies............................................................44 ARTICLE V - Trustee..............................................................................................53 Section 5.01. - Certain Actions of Trustee.......................................................................53 Section 5.02. - Reconveyance.....................................................................................53 Section 5.03. - Trustee's Covenants and Compensation.............................................................53 Section 5.04. - Substitution of Trustee..........................................................................53 Section 5.05. - Resignation of Trustee...........................................................................53 Section 5.06. - Ratification of Acts of Trustee..................................................................53 ARTICLE VI - Miscellaneous.......................................................................................54 Section 6.01. - Notices..........................................................................................54 Section 6.02. - Binding Obligations; Joint and Several...........................................................54 Section 6.03. - Captions.........................................................................................54 Section 6.04. - Further Assurances...............................................................................54 Section 6.05. - Severability.....................................................................................55 Section 6.06. - Borrower's Obligations Absolute..................................................................55 Section 6.07. - Amendments.......................................................................................55 Section 6.08. - Other Loan Documents and Schedules...............................................................55 Section 6.09. - Legal Construction...............................................................................56 Section 6.10. - Merger...........................................................................................56 Section 6.11. - Time of the Essence..............................................................................56 Section 6.12. - Transfer of Loan.................................................................................56 Section 6.13. - Satisfaction.....................................................................................56 Section 6.14. - Defeasance Requirements..........................................................................57 Section 6.15. - Partial Release..................................................................................58 Section 6.16. - Substitution of Collateral.......................................................................59 Signature Page...................................................................................................62
Schedule A - Description of Land Schedule B - Permitted Encumbrances Exhibit A - Example for Debt Service Coverage Ratio - Mortgaged Properties Exhibit B - Example for Debt Service Coverage Ratio - Remaining Properties ii 5 DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS THIS DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS (this "Deed of Trust") is made as of April 20, 2000, by and between FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited partnership having an office at c/o FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Trustor" and "Borrower"), in favor of ___________________, having an office at ___________________________________ ("Trustee"), for the use and benefit of MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation having an office at 1295 State Street, Springfield, Massachusetts 01111-0001 ("MassMutual") and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation having an office at 730 Third Avenue, New York, New York 10017 ("TIAA") (MassMutual and TIAA are collectively referred to herein as "Beneficiary" and "Lender"). GRANTING CLAUSES For good and valuable consideration and to secure and enforce pari passu an indebtedness in the principal sum of _________________________________ ($_____________) lawful money of the United States, to be paid according to (i) that certain Promissory Note of even date herewith from Borrower to MassMutual in the principal sum of $_______________ and by this reference made a part hereof (said Promissory Note, as the same may hereafter be amended, modified, consolidated or extended, the "MassMutual Note"), and (ii) that certain Promissory Note of even date herewith from Borrower to TIAA in the principal sum of $______________ and by this reference made a part hereof (said Promissory Note as the same may hereafter be amended, modified, consolidated or extended, the "TIAA Note") (the MassMutual Note and the TIAA Note being hereinafter collectively referred to as the "Note"), together with all other obligations and liabilities due or becoming due to Lender pursuant to the Loan Documents (hereinafter defined) and, all amounts, sums and expenses paid hereunder by or payable to Lender according to the terms hereof, and all other covenants, obligations and liabilities of Borrower under the Note, this Deed of Trust, the Assignment (hereinafter defined) and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Note (all of the foregoing instruments, collectively, the "Loan Documents"), and together with all interest on said indebtedness, obligations, liabilities, amounts, sums, Advances (as hereinafter defined) and expenses (all of the foregoing, collectively, the "Indebtedness"), Borrower has created in favor of Lender a security interest in and mortgaged, warranted, granted, bargained, sold, conveyed, assigned, pledged, 1 6 transferred and set over, and does by these presents create a security interest in and MORTGAGE, WARRANT, GRANT, BARGAIN, SELL, CONVEY, ASSIGN, PLEDGE, TRANSFER AND SET OVER unto Trustee, as trustee for the benefit of Lender, to its successors in the trust created by this Deed of Trust, and to its or their respective assigns forever, in trust, with all POWERS OF SALE and RIGHTS OF ENTRY AND POSSESSION and all STATUTORY RIGHTS AND COVENANTS in the State (hereinafter defined), the following property: The parcel or parcels of land described in Schedule A attached hereto and by this reference made a part hereof (the "Land"); TOGETHER with the buildings, foundations, structures and improvements (including fixtures) now or hereafter located on or in the Land (collectively, the "Improvements"); TOGETHER with all right, title and interest, if any, of Borrower in and to the streets and roads, opened or proposed, abutting the Land, all strips and gores within or adjoining the Land, the air space and right to use the air space above the Land, all rights of ingress and egress to and from the Land, all easements, rights of way, reversions, remainders, estates, rights, titles, interests, privileges, servitudes, tenements, hereditaments, and appurtenances now or hereafter affecting the Land or the Improvements, all royalties and rights and privileges appertaining to the use and enjoyment of the Land or the Improvements, including all air, lateral support, streets, alleys, passages, vaults, drainage, water, oil, gas and mineral rights, development rights, all options to purchase or lease, and all other interests, estates or claims, in law or in equity, which Borrower now has or hereafter may acquire in or with respect to the Land or the Improvements (collectively, the "Appurtenances"); The Land, the Improvements and the Appurtenances are hereinafter sometimes collectively referred to as the "Premises"; TOGETHER with all of Borrower's possessory or title interest in and to all equipment, fittings, furniture, furnishings, appliances, apparatus, and machinery now or hereafter installed in or located upon the Premises and all building materials, supplies and equipment now or hereafter delivered to the Premises and intended to be installed therein or located thereon; all of Borrower's possessory or title interest in and to all fixtures, other goods and personal property of whatever kind and nature now contained on or in or hereafter placed on or in the Premises and used or to be used in connection with the letting or operation thereof (but specifically excluding inventory and other personal property owned by any lessee under a Lease) and all renewals or replacements of any of the foregoing property or articles in substitution thereof (collectively, the "Equipment"); TOGETHER with all right, title and interest of Borrower in and under all present or future accounts, (including trade accounts, accounts receivables, credit card receivables, and rights to payments for goods and services, including food, beverages and other items sold or leased, whether or not 2 7 earned by performance), escrows, documents, instruments, chattel paper, and general intangibles, as the foregoing terms are defined in the Code (hereinafter defined), and all contract rights, including, without limitation, casualty insurance policies and liability insurance policies (irrespective of whether such policies are required to be obtained or maintained in force pursuant to this Deed of Trust or other Loan Documents), trade names, trademarks, servicemarks, logos, copyrights, goodwill, franchises, books, records, plans, specifications, permits, licenses, approvals, actions and causes of action which now or hereafter relate to, are derived from or are used in connection with the Premises or the use, operation, maintenance, occupancy or enjoyment thereof or the conduct of any business or activities thereon (collectively, the "Intangibles"); TOGETHER with all right, title and interest of Borrower in and under all leases, lettings, tenancies, franchises and licenses of the Premises or any part thereof now or hereafter entered into and all amendments, extensions, renewals and guaranties thereof, all security therefor, and all moneys payable thereunder (collectively, the "Leases"); TOGETHER with all room rentals and charges of room rentals, room deposits, rents, income, accounts, receivables, issues, profits, security deposits and other benefits to which Borrower may now or hereafter be entitled from the Premises, the Equipment or the Intangibles or under or in connection with the Leases (collectively, the "Property Income"); and TOGETHER with all proceeds, judgments, claims, compensation, awards of damages and settlements pertaining to or resulting from or in lieu of any condemnation or taking of the Premises by eminent domain or any casualty loss or damage to any of the Premises, the Equipment, the Intangibles, the Leases or the Property Income, and including also, without limitation, the right to assert, prosecute and settle claims arising out of or pertaining to such condemnation or taking or such casualty loss under insurance policies constituting an Intangible and to apply for and receive payments of proceeds under such insurance policies and in any condemnation or taking, the right to apply for and receive all refunds with respect to the payment of property taxes and assessments and all other proceeds from the conversion, voluntary or involuntary, of the Premises, the Equipment, the Intangibles, the Leases or the Property Income, or any part thereof, into cash or liquidated claims. Collectively, all of the foregoing, are herein referred to as the "Proceeds." The Equipment, the Intangibles, the Leases, the Property Income and the Proceeds are hereinafter sometimes collectively referred to as the "Collateral." The Premises and the Collateral are hereinafter sometimes collectively referred to as the "Mortgaged Property." TO HAVE AND TO HOLD the Mortgaged Property, with all the privileges and appurtenances to the same belonging, and with the possession and right of possession thereof, unto Trustee, as trustee for the benefit of Lender as beneficiary, to its successors in the trust created by this Deed of Trust, and to its or their successors and assigns forever, in trust, upon the terms and conditions set forth herein. 3 8 ARTICLE I Definition of Terms As used in this Deed of Trust, the terms set forth below shall have the following meanings: "Advances" - All sums, amounts or expenses advanced or paid and all costs reasonable incurred by Lender, as provided in this Deed of Trust or in any other Loan Document, upon failure of Borrower to pay or perform any obligation or covenant contained herein or in such other Loan Document. "Agreement Concerning Primary Lease Agreement" - means that certain Agreement Concerning Primary Lease Agreement of even date herewith between [FCH/SH Leasing] [FCH/SH Leasing II] and Lender and consented to by Borrower. "Allocated Loan Amount" - means the loan amount allocated to each of the Mortgaged Properties as follows:
Property Loan Amount - -------- ----------- Arizona $27,000,000.00 Florida $13,000,000.00 Georgia $18,000,000.00 Illinois $25,000,000.00 Kentucky $ 7,000,000.00 Pennsylvania $34,000,000.00 Vermont $21,000,000.00
"Annual Debt Service" - means all principal, interest and other payments due under the Note and any Related Note for any calendar year. "Application" - means that certain MassMutual Application for Real Estate Loan dated February 23, 2000 executed by Joel M. Eastman. "Appurtenances" - See Granting Clauses. 4 9 ["Arizona Loan Documents" - means the Arizona Note, the Arizona Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Arizona Note. "Arizona Mortgage" - means that certain Deed of Trust and Security Agreement and Fixture Filing With Assignment of Leases and Rents of even date herewith securing the Arizona Note, executed by Borrower for the benefit of Mortgagee. "Arizona Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $13,500,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $13,500,000.00 executed by Borrower and payable to the order of TIAA.] "Assignment" - The Assignment of Leases and Rents from Borrower to Lender of even date herewith. "Bank"- has the meaning provided in Section 6.17. "Bankruptcy Proceeding" - Any proceeding, action, petition or filing under the Federal Bankruptcy Code or any similar state or federal law now or hereafter in effect relating to bankruptcy, reorganization or insolvency, or the arrangement or adjustment of debts. "Beneficiary" - Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America and their respective successors and assigns (including any other holders from time to time of the Note), and also herein called "Lender." "Borrower" - The party identified and defined as Trustor and Borrower on the Cover Sheet and in the preamble of this Deed of Trust, any subsequent owner of the Mortgaged Property, and its successors and assigns. "Business Day" - Any day other than a Saturday, Sunday or other day on which national banks in the State are not open for business. "Closing Date" - means the date of this Deed of Trust. "Code" - The Uniform Commercial Code of the State. "Collateral" - See Granting Clauses. 5 10 "Debt Service Coverage Ratio - Mortgaged Properties" - means (i) the amount of cash flow generated from the Mortgaged Properties available for payment of principal, interest, escrow deposits and other amounts, if any, due under the Note and each Related Note, after payment in cash of all other costs, fees and expenses attributable on an annual basis to the ownership, operation and maintenance of the Mortgaged Properties (including Impositions, insurance, and an FF&E reserve equal to four percent (4%) of the aggregate room and suite income), divided by (ii) the aggregate amount of principal, interest, escrow deposits and other amounts, if any, due on an annual basis under the Note and each Related Note; an example of the calculation of which is attached hereto as Exhibit A. "Debt Service Coverage Ratio - Remaining Properties" - means (i) the amount of cash flow generated from the Remaining Properties available for payment of principal, interest, escrow deposits and other amounts, if any, due under each remaining Related Note, after payment in cash of all other costs, fees and expenses attributable on an annual basis to the ownership, operation and maintenance of the Remaining Properties (including Impositions, insurance, and an FF&E reserve equal to four percent (4%) of the aggregate room and suite income), divided by (ii) the aggregate amount of principal, interest, escrow deposits and other amounts, if any, due on an annual basis under each remaining Related Note; an example of the calculation of which is attached hereto as Exhibit B. "Default" - means the occurrence of any event which, but for the giving of notice or the passage of time, or both, would be an Event of Default. "Default Rate" - The per annum interest rate equal to the sum of three percent (3%) plus the Contract Rate (as defined in the Note). "Defeasance Deposit" - means the amount that will be sufficient to purchase U.S. Obligations (A) having maturity dates on or prior to, but as close as possible to, successive scheduled Payment Dates (after the Defeasance Release Date) upon which Payment Dates interest and principal payments would be required under the Note and the Related Notes and (B) in amounts sufficient to pay all scheduled principal and interest payments on the Note and the Related Notes. "Defeasance Release Date" - has the meaning provided in Section 6.14(b). "Defeasance Security Agreement" - has the meaning provided in Section 6.14(d). "Entity" - means a (i) corporation, if Borrower is listed as a corporation in the preamble to this Deed of Trust, (ii) limited partnership, if Borrower is listed as a limited partnership in the preamble to this Deed of Trust or (iii) limited liability company, if Borrower is listed as a limited liability company in the preamble to this Deed of Trust. 6 11 "Environmental Law" - Any present or future federal, state or local law, statute, regulation or ordinance, and any judicial or administrative order or judgment thereunder, pertaining to health, industrial hygiene or the environmental or ecological conditions on, under or about the Premises, including, without limitation, each of the following as to date or hereafter amended: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; the Federal Water Pollution Control Act (also known as the Clean Water Act); the Clean Air Act; and the Hazardous Materials Transportation Act; the Solid Waste Disposal Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Emergency Planning and Community Right-To-Know Act; the Federal Insecticide, Fungicide and Rodenticide Act; the National Environmental Policy Act; and, the Rivers and Harbors Appropriation Act, and all ___________ environmental laws, including without limitation, those contained in ________________. "Equipment" - See Granting Clauses; provided, however, the term "Equipment" shall not include the following personal property owned by [FCH/SH Leasing] [FCH/SH Leasing II]: all inventories, supplies, and consumables, including without limitation, food and beverage inventories, inventories of stationery, forms and office supplies, cleaning and maintenance supplies, guest room supplies and other operating supplies, and supplies of linens, terry, uniforms, chinaware, glassware, silverware and serving utensils located at the Premises. "ERISA" - The Employee Retirement Income Security Act of 1974, as amended. "Event of Default" - Any one or more of the events described in Section 4.01 and includes any one or more Monetary Events of Default and/or Non-Monetary Events of Default. "FCH/PSH" - means FCH/PSH, L.P., a Pennsylvania limited partnership. ["FCH/SH Leasing" - means FCH/SH Leasing, L.L.C., a Delaware limited liability company.] ["FCH/SH Leasing II" - means FCH/SH Leasing II, L.L.C., a Delaware limited liability company.] "FF&E" - means furnishings, fixtures and equipment. "Fiscal Year" - The 12 month period commencing on January 1 and ending on December 31 during each year of the term of this Deed of Trust, or such other fiscal year of Borrower as Borrower may select from time to time with the prior consent of Lender. During the first year of the term hereof, Borrower's Fiscal Year shall be deemed to have commenced on the date of this Deed of Trust and shall end on the regular Fiscal Year ending date as indicated in the immediately preceding sentence. 7 12 ["Florida Loan Documents" - means the Florida Note, the Florida Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Florida Note. "Florida Mortgage" - means that certain Mortgage and Security Agreement of even date herewith securing the Florida Note, executed by Borrower and Guarantor for the benefit of Beneficiary. "Florida Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $6,500,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $6,500,000.00 executed by Borrower and payable to the order of TIAA.] ["Georgia Loan Documents" - means the Georgia Note, the Georgia Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Georgia Note. "Georgia Mortgage" - means that certain Deed to Secure Debt and Security Agreement of even date herewith securing the Georgia Note, executed by Borrower for the benefit of Beneficiary. "Georgia Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $9,000,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $9,000,000.00 executed by Borrower and payable to the order of TIAA.] "Guarantor" - means FelCor Lodging Limited Partnership, a Delaware limited partnership, formerly known as FelCor Suites Limited Partnership. "Hazardous Substance" - Any material, waste or substances (other than cleaning solvents and other materials used in the ordinary course of hotel operations and present in normal quantities) which is: (i) included within the definitions of "hazardous substances," "hazardous materials," "toxic substances" or "solid waste" in or pursuant to any Environmental Law, or subject to regulation under any Environmental Law; (ii) listed in the United States Department of Transportation Optional Hazardous Materials Table, 49 C.F.R. Section 172.101, as to date or hereafter amended, or in the United States Environmental Protection Agency List of Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302, as to date or hereafter amended; or 8 13 (iii) explosive, radioactive, asbestos, a polychlorinated biphenyl, oil or a petroleum product. ["Illinois Loan Documents" - means the Illinois Note, the Illinois Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Illinois Note. "Illinois Mortgage" - means that certain Mortgage and Security Agreement of even date herewith securing the Illinois Note, executed by Borrower and Guarantor for the benefit of Beneficiary. "Illinois Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $12,500,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $12,500,000.00 executed by Borrower and payable to the order of TIAA.] "Impositions" - All taxes of every kind and nature, sewer rents, charges for water, for setting or repairing meters and for all other utilities serving the Premises, and assessments, levies, inspection and license fees and all other charges imposed upon or assessed against the Mortgaged Property or any portion thereof (including the Property Income), and any stamp or other taxes which might be required to be paid, or with respect to any of the Loan Documents, any of which might, if unpaid, affect the enforceability of any of the remedies provided in this Deed of Trust or result in a lien on the Mortgaged Property or any portion thereof, regardless of to whom assessed. "Indebtedness" - See Granting Clauses. "Intangibles" - See Granting Clauses. "Interest Accrual Period" - means each calendar month, provided the actual number of days elapsed in the calendar month in which the Closing Date occurs shall also be an Interest Accrual Period. ["Kentucky Loan Documents" - means the Kentucky Note, the Kentucky Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Kentucky Note. "Kentucky Mortgage" - means that certain Mortgage and Security Agreement of even date herewith securing the Kentucky Note, executed by Borrower and Guarantor for the benefit of Beneficiary. "Kentucky Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $3,500,000.00 executed by Borrower and payable to the order of 9 14 MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $3,500,000.00 executed by Borrower and payable to the order of TIAA.] "Land" - See Granting Clauses. "Late Charge" - Any charge designated as such and payable by Borrower for tardy performance by Borrower under the Note, this Deed of Trust or any other Loan Document. "Leases" - See Granting Clauses. "Lender" - Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, the Beneficiary and Lender identified as such on the Cover Sheet and in the preamble of this Deed of Trust, and their respective successors and assigns (including any other holders from time to time of the Note). "Lien" - means any mortgage, deed of trust, deed to secure debt, lien (statutory or other), pledge, easement, restrictive covenant, hypothecation, assignment, preference, priority, security interest, or any other encumbrance or charge on or affecting the Mortgaged Property or any portion thereof or any Collateral or the Borrower, or any interest in any of the foregoing, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement or similar instrument under the UCC or comparable law of any other jurisdiction, domestic or foreign, and mechanic's, materialman's and other similar liens and encumbrances. "Loan" - means the loan from Lender to Borrower and evidenced by the Note and the Loan Documents. "Loan Documents" - See Granting Clauses. "Losses" - claims, suits, liabilities (including without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement, punitive damages, foreseeable and unforeseeable consequential damages of whatever kind or nature (including but not limited to reasonable attorneys' fees and other costs of defense). "Management Agreement" - means that certain Management Agreement dated _________, by and between [FCH/SH Leasing] [FCH/SH Leasing II], as owner, and Sheraton, [as operator, as amended by that certain ________________ dated _____________, by and between [FCH/SH Leasing] [FCH/SH Leasing II] and Sheraton]. 10 15 "Material Lease" - as to the Mortgaged Property, none. "Monetary Event of Default" - has the meaning provided in Section 6 of the Note. "Mortgaged Property" - See Granting Clauses. "Mortgaged Properties" - means collectively the Mortgaged Property and the properties secured by the [Arizona Mortgage, Florida Mortgage, the Georgia Mortgage, the Illinois Mortgage, the Kentucky Mortgage, the Pennsylvania Mortgage, the Vermont Mortgage] or any mortgage, deed of trust or deed to secure debt securing any Substitute Property. "Net Operating Income" - means (a) all payments made under the Primary Lease and any Related Primary Lease less (b) all expenses payable by Borrower under the Primary Lease and any Related Primary Lease or with respect to the ownership and operation of the Mortgaged Properties (i) including Impositions, insurance, and an FF&E reserve equal to four percent (4%) of the aggregate room and suite income, but (ii) excluding deductions for federal, state and other income taxes, debt service expense, depreciation and amortization and other non-cash expenses. "Non-Material Lease" - means any Lease other than the Primary Lease or the Material Lease. "Non-Monetary Event of Default" - has the meaning provided in Section 6 of the Note. "Note" - See Granting Clauses. "Operating Agreements" - means collectively, the Primary Lease and the Management Agreement. "Operating Period" - means each calendar quarter during the term of the Loan. ["Pennsylvania Loan Documents" - means the Pennsylvania Note, the Pennsylvania Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Pennsylvania Note. "Pennsylvania Mortgage" - means that certain Mortgage and Security Agreement of even date herewith securing the Pennsylvania Note, executed by Borrower and FCH/PSH for the benefit of Beneficiary. "Pennsylvania Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $17,000,000.00 executed by Borrower and payable to the order of 11 16 MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $17,000,000.00 executed by Borrower and payable to the order of TIAA.] "Permitted Encumbrances" - The liens and security interest created by this Deed of Trust and the other Loan Documents and those exceptions to title set forth in Schedule B to this Deed of Trust. "Person" - means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization, and any other form of entity, as the context may require. "Premises" - See Granting Clauses. "Primary Lease" - means that certain Lease Agreement dated ___________, by and between _____________, as lessor, and [FCH/SH Leasing] [FCH/SH Leasing II], as lessee, [as amended by that certain Omnibus Lease Amendment Agreement dated June 30, 1998, by and among FelCor Lodging Trust Incorporated, Guarantor, [FCH/SH Leasing] [FCH/SH Leasing II] and certain other lessors and lessees under separate lease agreements]. "Proceeds" - See Granting Clauses. "Property Income" - See Granting Clauses. "Qualified Hotel Operator" - means any reputable Person domiciled in the United States of America which has the greater of the financial strength, qualifications and creditworthiness of [FCH/SH Leasing] [FCH/SH Leasing II] or in Beneficiary's sole determination, a minimum net worth of $30,000,000.00 and liquid assets of not less than $3,000,000.00, all as of a date which is 30 days prior to the date of the transfer. Additionally, neither the proposed purchaser nor any principal of the proposed purchaser, whether on the date for the closing of the transfer of title to the Mortgaged Property or at any time prior thereto, may be (i) in default on any indebtedness or loan from Beneficiary or any affiliate of Beneficiary, (ii) involved as a debtor in any bankruptcy, reorganization or insolvency proceeding, (iii) the subject of any criminal charges or proceedings, or (iv) an entity or individual who is or has been involved in litigation which is in good faith deemed significant by Beneficiary. "Qualified Real Estate Investor" - means any reputable Person domiciled in the United States of America which has equal the financial strength, qualifications and creditworthiness of Borrower at the time of the disbursement of the Note, evaluated as of a date which is 30 days prior to the date of the proposed closing of the transfer of title to the Mortgaged Property and on the day after the proposed closing of the transfer. Additionally, neither the proposed purchaser nor any principal of the proposed purchaser, whether on the date for the closing of the transfer of title to the Mortgaged Property or at any time prior thereto, may be (i) in default on any indebtedness or loan from 12 17 Beneficiary or any affiliate of Beneficiary, (ii) involved as a debtor in any bankruptcy, reorganization or insolvency proceeding, (iii) the subject of any criminal charges or proceeding, or (iv) an entity or individual who is or has been involved in litigation which is in good faith deemed significant by Lender. "Related Loan Documents" - means collectively the Related Notes, the Related Mortgages and any other instrument evidencing, securing or executed in connection with the loans evidenced by the Related Notes. "Related Loans" - means collectively the loans from Lender to Borrower and evidenced by each Related Note and the Related Loan Documents. "Related Mortgage" - means collectively the [Arizona Mortgage, Florida Mortgage, the Georgia Mortgage, the Illinois Mortgage, the Kentucky Mortgage, the Pennsylvania Mortgage, the Vermont Mortgage] or any mortgage or deed of trust or deed to secure debt securing any Substitute Property. "Related Note" - means collectively the [Arizona Note, Florida Note, the Georgia Note, the Illinois Note, the Kentucky Note, the Pennsylvania Note, the Vermont Note] or any promissory note executed in connection with any Substitute Property. "Related Primary Lease" - means collectively any primary lease under the Related Loan Documents. "Release" - Release means and includes the following: the release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of a Hazardous Substance no matter how or by whom or what caused. "Released Property" has the meaning provided in Section 6.16. "Remaining Properties" - means the properties securing the [Arizona Note, Florida Note, the Georgia Note, the Illinois Note, the Kentucky Note, the Pennsylvania Note, the Vermont Note] or any promissory note executed in connection with any Substitute Property. "Remediation" - Remediation means and includes the following: any response, remedial, removal or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance, any actions to prevent, cure or mitigate any Release of a Hazardous Substance, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or evaluation relating to any Hazardous Substances and to anything referred to in Section 2.20. 13 18 "Sheraton" - means ____________________________________. "Single-Purpose Entity" - means a corporation, limited partnership, or limited liability company which, at all times since its formation and thereafter (i) was and will be organized solely for the purpose of (x) owning the Mortgaged Properties or (y) acting as the managing member of the limited liability company or the general partner of a limited partnership which owns the Mortgaged Properties, (ii) has not and will not engage in any business unrelated to the (x) the ownership of the Mortgaged Properties or (y) acting as a member of a limited liability company or general partner of a limited partnership which owns the Mortgaged Properties, (iii) has not and will not have any assets other than (x) those related to the Mortgaged Properties or (y) its member interest in the limited liability company or its general partnership interest in the limited partnership which owns the Mortgaged Properties, as applicable, (iv) has not and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation or merger, and, except as otherwise expressly permitted by this Deed of Trust, has not and will not engage in, seek or consent to any asset sale, transfer of partnership or membership or shareholder interests, or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation or operating agreement (as applicable), (v) if such entity is a limited partnership, has and will have as a general partner, a general partner which is and will be a Single-Purpose Entity, (vi) has not and will not fail to correct any known misunderstanding regarding the separate identity of such entity, (vii) without the unanimous consent of all of the partners, directors or members, as applicable, has not and will not with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest (a) file a bankruptcy, insolvency or reorganization petition or otherwise institute insolvency proceedings or otherwise seek any relief under any laws relating to the relief from debts or the protection of debtors generally; (b) seek or consent to the appointment of a receiver, liquidator, trustee, sequestrator, custodian or any similar official for such entity or all or any portion of such entity's properties; (c) make any assignment for the benefit of such entity's creditors; or (d) take any action that might cause such entity to become insolvent, (x) has maintained and will maintain its accounts, books and records separate from any other person or entity, (xi) has maintained and will maintain its books, records, resolutions and agreements as official records, (xii) has not commingled and will not commingle its funds or assets with those of any other entity, (xiii) has held and will hold its assets in its own name, (xiv) has conducted and will conduct its business in its name, (xv) has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other person or entity, (xvi) has paid and will pay its own liabilities out of its own funds and assets, (xvii) has observed and will observe all partnership, corporate or limited liability company formalities, as applicable, (xviii) has maintained and will maintain an arms-length relationship with its affiliates other than the leases transferred to Borrower and its general partner as part of their initial capital contributions, (xix) (a) if such entity owns the Mortgaged Properties, has and will have no indebtedness other than the Indebtedness, 14 19 equipment leases permitted by this Deed of Trust and unsecured trade payables in the ordinary course of business relating to the ownership and operation of the Mortgaged Properties which trade payables (1) do not exceed, at any time, a maximum amount of one percent (1%) of the Loan Amount and (2) are paid within thirty (30) days of the date incurred, or (b) if such entity acts as the general partner of a limited partnership or managing member of a limited liability company which owns the Mortgaged Properties, has and will have no indebtedness other than unsecured trade payables in the ordinary course of business relating to acting as general partner or managing member which owns the Mortgaged Properties which (1 ) do not exceed, at any time, Ten Thousand Dollars ($10,000.00) and (2) are paid within thirty (30) days of the date incurred, (xx) has not and will not assume or guarantee or become obligated for the debts of any other entity or hold out its credit as being available to satisfy the obligations of any other entity except for the Indebtedness, (xxi) has not acquired and will not acquire obligations or securities of its partners, members or shareholders, (xxii) has allocated and will allocate fairly and reasonably shared expenses, including, without limitation, shared office space and uses separate stationery, invoices and checks, (xxiii) has not and will not pledge its assets for the benefit of any other person or entity, (xxiv) has held and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name and not as a division or part of any other person or entity, (xxv) has not made and will not make loans to any person or entity, (xxvi) has not and will not identify its partners, members or shareholders, or any affiliates of any of them as a division or part of it, (xxvii) other than the leases transferred to Borrower and its general partner as part of their initial capital contributions has not entered and will not enter into or be a party to, any transaction with its partners, members, shareholders or its affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are no less favorable to it than would be obtained in a comparable arms-length transaction with an unrelated third party, (xxviii) has paid and will pay the salaries of its own employees from its own funds, (xix) has maintained and will maintain adequate capital in light of its contemplated business operations and (xxx) if such entity is a limited liability company or limited partnership, then such entity shall continue (and not dissolve) for so long as a solvent managing member or general partner, as applicable, exists and such entity's organizational documents shall contain such provision. "State" - The State or Commonwealth in which the Land is situated. "Substitute Property" has the meaning provided in Section 6.16. "Trustee" - The party or parties identified and defined as Trustee on the Cover Sheet and in the preamble of this Deed of Trust, and its or their respective successors in the trust created by this Deed of Trust, and its or their respective assigns. 15 20 "Trustor" - The party identified as such on the Cover Sheet and in the preamble of this Deed of Trust, any subsequent owner of the Mortgaged Property, and its successors and assigns. The Trustor is also herein called "Borrower." "U.S. Obligations" - means obligations or securities not subject to prepayment, call or early redemption which are direct obligations of, or obligations fully guaranteed as to timely payment by, the United States of America or any agency or instrumentality of the United States of America, the obligations of which are backed by the full faith and credit of the United States of America. ["Vermont Loan Documents" - means the Vermont Note, the Vermont Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Vermont Note. "Vermont Mortgage" - means that certain Mortgage and Security Agreement of even date herewith securing the Vermont Note, executed by Borrower for the benefit of Beneficiary. "Vermont Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $10,500,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $10,500,000.00 executed by Borrower and payable to the order of TIAA.] ARTICLE II Covenants of Borrower Borrower covenants, warrants, represents and agrees with and to Trustee and Lender as follows: Section 2.01. Payment of the Indebtedness. Borrower shall punctually pay the Indebtedness at the times and in the manner provided in the Note and the other Loan Documents, all in lawful money of the United States of America. Section 2.02. Title to the Mortgaged Property. (a) Borrower has fee simple title (or such lesser estate therein as may be specified in Schedule A) to the Premises and good indefeasible title to the balance of the Mortgaged Property, free and clear of liens and encumbrances except Permitted Encumbrances. (b) Borrower has full power and lawful authority to encumber the Mortgaged Property in the manner and form herein set forth. 16 21 (c) This Deed of Trust is and will remain a valid and enforceable lien on and security interest in the Mortgaged Property. (d) Borrower will preserve such title and will forever warrant and defend the same and the validity and priority of the lien hereof to Trustee and Lender against all claims whatsoever. (e) The Mortgaged Property is in material compliance with all provisions of all zoning, subdivision, land use, environmental, traffic, fire, building, and occupational safety and health rules, regulations, codes, acts and statutes to which it is subject. Section 2.03. Maintenance of the Mortgaged Property. Borrower shall (or shall enforce its rights under the Primary Lease to cause [FCH/SH Leasing] [FCH/SH Leasing II] to) maintain the Mortgaged Property in good and safe condition, working order and repair, and comply with all existing and future federal, state and local laws, ordinances, rules and regulations and court orders affecting or which may be interpreted as affecting the Mortgaged Property. Borrower shall permit Lender to enter upon and inspect the Mortgaged Property (without prior notice in the event of an emergency) at all reasonable hours; provided, Lender makes an appointment through the general manager of the hotel after reasonable notice and in a manner that does not affect normal business operations. Borrower shall not, without the prior consent of Lender, (a) change the use of the Premises or cause or permit the use or occupancy of any part of the Premises to be discontinued if such discontinuance would violate any zoning or other law, ordinance or regulation; (b) consent to any zoning reclassification, modification or restriction affecting the Premises; (c) threaten, commit or permit any waste, structural or material alteration, demolition or removal of the Mortgaged Property or any portion thereof (provided that the Equipment included within the Collateral may be removed if replaced with similar items of equal or greater value); or (d) take any steps whatsoever to convert the Mortgaged Property, or any portion thereof, to a condominium or cooperative form of ownership. No provision of this Section 2.03 shall prohibit Borrower from undertaking and completing tenant improvement work authorized under Leases previously approved by Lender or not requiring Lender's prior approval. Notwithstanding the foregoing, Borrower shall enforce its rights under the Primary Lease to cause [FCH/SH Leasing] [FCH/SH Leasing II] to operate the Mortgaged Property in a first class manner and at all times during the term of the Loan as a "Sheraton, Westin or Luxury Collection " hotel or under another flag acceptable to Lender. Section 2.04. Insurance; Restoration. (a) Borrower shall keep the Improvements and the Equipment insured against damage by fire and the other hazards covered by a comprehensive all risk coverage insurance policy in an amount equal to 100% of the full insurable value thereof (which shall mean the full repair and actual replacement value thereof providing for no deductible in excess of $25,000.00, without reduction for depreciation or co-insurance) as approved by Lender, and against loss of rents in 17 22 an amount not less than 12 months' rental income from all Leases. Borrower shall also carry such other insurance, and in such amounts, as Lender may from time to time reasonably require, against insurable risks which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the availability of insurance and to the type of construction, location, utilities, use and occupancy of the Premises or any replacements or substitutions therefor. Such additional insurance may include workers' compensation, boiler and machinery, flood, earthquake, demolition and contingent liability from the operation of "non-conforming" improvements on the Premises, and shall be obtained within 20 days after demand by Lender. Notwithstanding the foregoing, in the event Borrower obtains an umbrella or a blanket insurance policy or a separate policy or any other insurance policy affecting the Mortgaged Property hereunder, Borrower shall notify Lender of the same and shall cause certified copies of each insurance policy to be delivered as required under Section 2.04(c) below. Any umbrella or blanket insurance policy shall specifically allocate to the Mortgaged Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate policy insuring only the Mortgage Property in compliance with the provisions of Section 2.04(c), giving Lender all of the rights set forth in this Section 2.04. The Proceeds of insurance paid on account of any damage to or destruction of the Premises or any portion thereof shall be paid over to Lender to be applied as hereinafter provided. (b) Borrower shall also maintain or cause to be maintained by [FCH/SH Leasing] [FCH/SH Leasing II] pursuant to the terms of the Primary Lease general liability insurance with respect to the Premises against personal injury, death and property damage, with limits of liability in amounts reasonably satisfactory to Lender. (c) All insurance policies and endorsements required pursuant to this Deed of Trust shall (i) be endorsed to name Lender as an insured thereunder, as its interest may appear, with loss payable to Lender, without contribution, under a long-form, non-contributory mortgagee clause, or otherwise endorsed as Lender may reasonably require; (ii) be fully paid for and contain such provisions and expiration dates and be in such form and issued by such insurance companies licensed to do business in the State, with a rating of "A- VIII" or better as established by Best's Rating Guide or an equivalent rating with such other publication of a similar nature as shall be in current use, as shall be approved by Lender; (iii) without limiting the foregoing, provide that such policy or endorsement may not be canceled or materially changed except upon 30 days prior written notice of intention of non-renewal, cancellation or material change to Lender, and that no act or thing done by Borrower or Lender shall invalidate the policy as against Lender; and (iv) be in form and content reasonably satisfactory to Lender. Borrower shall deliver all original policies including all endorsements and renewals thereof, or copies thereof certified by the insurance company or authorized agent as being true copies, to Lender together with all endorsements required hereunder, on the date of this Deed of Trust and thereafter at least 10 18 23 days prior to the expiration date of such policies. Borrower may request an extension of time not exceeding 120 days to deliver the foregoing policies, endorsements and renewals or certified copies thereof if Borrower has done all things necessary to obtain the issuance of the policies, endorsements and renewals including, without limitation, the payment of all premiums therefor, and Borrower has delivered to Lender within the above 10 day period an insurance binder reasonably satisfactory to Lender issued by the approved insurer showing all required coverage to be in full force and effect for the succeeding 12 month period along with evidence reasonably satisfactory to Lender of payment in full of all premiums. If Borrower fails to maintain insurance in compliance with this Deed of Trust, Lender may (but shall not be obligated to) obtain such insurance and pay the premium therefor and Borrower shall reimburse Lender on demand for all such Advances. Notwithstanding anything to the contrary contained herein or in any provision of law, the Proceeds of insurance policies coming into the possession of Lender shall not be deemed trust funds and Lender shall be entitled to dispose of such Proceeds as hereinafter provided. (d) In the event of any damage to or destruction of the Premises and/or Equipment, Borrower shall give prompt written notice to Lender and shall promptly commence and diligently continue to completion the repair, restoration and rebuilding of the Premises and/or Equipment so damaged or destroyed in full compliance with all legal requirements and with the provisions of Section 2.04(h)(i) below, and free and clear from any and all liens and claims. Such repair, restoration and rebuilding of the Premises are sometimes hereinafter collectively referred to as the "Work." If any Event of Default is then existing or if in Lender's reasonable judgment the cost of the Work is $1,000,000 or more, then Borrower shall not adjust, compromise or settle any claim for insurance proceeds without the prior consent of Lender. Subject to Section 2.04(g), Lender shall have the option in its sole discretion to apply any insurance Proceeds it may receive pursuant to this Deed of Trust (less any cost to Lender of recovering and paying out such Proceeds, including reasonable attorneys' fees) to the payment of the Indebtedness or to allow all or a portion of such Proceeds to be used for the Work. If any insurance Proceeds are applied to reduce the Indebtedness, provided no Event of Default shall have occurred and be continuing, Lender shall apply the same, without any prepayment fee, in the following order: (i) first, to the payment of interest due on any Advances; (ii) next, to the principal amount of any Advances; (iii) next, to any Late Charges, attorney's fees or any other amount due hereunder or under a Loan Document save for the amounts described in (iv) and (v) immediately below; (iv) next, to accrued interest then due under the Note; and 19 24 (v) finally, to the unpaid principal balance of the Note (in the inverse order of maturity of principal installments thereof). If an Event of Default shall have occurred and be continuing, however, Lender, at its option, may apply any insurance Proceeds to the foregoing items in such order and priority as Lender deems appropriate in its sole discretion. (e) In the event of the foreclosure of this Deed of Trust or other transfer of title to or assignment of the Mortgaged Property in extinguishment of the Indebtedness in whole or in part, all right, title and interest of Borrower in and to all policies of insurance required by this Deed of Trust and any insurance Proceeds shall inure to the benefit of and pass to Lender or any purchaser or transferee at the foreclosure sale of the Mortgaged Property. (f) Borrower hereby irrevocably appoints Lender its attorney-in-fact, coupled with an interest, to apply and make claims for insurance Proceeds under all insurance policies constituting Intangibles, to prosecute and settle such claims and to endorse any checks, drafts or other instruments representing any insurance Proceeds whether payable by reason of loss thereunder or otherwise. Additionally, Lender may notify any and all insurers under casualty and liability insurance policies constituting part of the Intangibles that Lender has a security interest pursuant to the provisions of this Deed of Trust in and to such insurance policies and any proceeds thereof, and that any payments under those insurance policies are to be made directly to Lender. Lender's rights under this Section 2.04(f) may be exercised by Lender or a court appointed receiver appointed upon the request of Lender and irrespective of whether or not a default shall have occurred under this Deed of Trust. (g) Notwithstanding the provisions of Section 2.04(d) above, if in Lender's reasonable judgment the cost of the Work shall not exceed 50 percent of the then outstanding principal balance of the Note, then Lender shall, upon request by Borrower, permit Borrower to use the Proceeds for the Work (subject to the provisions of, and less Lender's costs described in, Section 2.04(h) below), so long as: (i) no Event of Default shall then exist nor any matter(s) exist which, after notice of default or passage of time or both, would constitute an Event of Default; (ii) the original Borrower named herein continues to be the owner of the Mortgaged Property; (iii) the Work can be completed within 12 months from the date of the damage to or destruction of the Premises; 20 25 (iv) none of the Operating Agreements in effect immediately prior to the damage or destruction shall have been canceled or terminated and not replaced with substitute agreements reasonably acceptable to Lender; (v) all sums necessary to effect the Work over and above any available Proceeds shall be at the sole cost and expense of the Borrower and, at Lender's request, Borrower shall deposit such additional amounts, as reasonably estimated by Lender, with Lender prior to commencing any Work and at all times thereafter; (vi) at all times during any such Work Borrower shall maintain, at its sole cost and expense, workers' compensation, builders risk and public liability insurance in amounts reasonably satisfactory to Lender and in accordance with the provisions of this Section 2.04; and (vii) any unexpended Proceeds, at the sole option of the Lender, shall either be paid over to the Borrower or shall be applied to the reduction of the Indebtedness. If the Proceeds are used to reduce the Indebtedness, they shall be applied in the order provided in Section 2.04(d), without any prepayment fee. (h) If any insurance Proceeds are used for the Work, then such Proceeds shall be held by Lender and shall be paid out from time to time to Borrower as the Work progresses (less any cost to Lender of recovering and paying out such Proceeds, including reasonable attorneys' fees and costs allocable to inspecting the Work and the plans and specifications therefor), subject to each of the following conditions: (i) If the Work is structural or if the cost of the Work is reasonably estimated to exceed Two Hundred Thousand Dollars ($200,000.00), the Work shall be conducted under the supervision of a certified and registered architect or engineer reasonably satisfactory to Lender. Before Borrower commences any Work, other than temporary work to protect persons or property or prevent interference with business, Lender shall have approved the plans and specifications for the Work, which approval shall not be unreasonably withheld or delayed, it being nevertheless understood that such plans and specifications shall provide for Work so that, upon completion thereof, the Premises shall be at least equal in value and general utility to the Premises immediately prior to the damage or destruction. (ii) Each request for payment shall be made on not less than seven Business Days prior notice to Lender and shall be accompanied by a certificate of the architect or engineer in (i) above (or a certificate given by Borrower if no architect or engineer is so required) stating (A) that all of the Work completed has been done in substantial 21 26 compliance with the approved plans and specifications, if required under (i) above, (B) that the sum requested is justly required to reimburse the Borrower for payments by Borrower, or is justly due to the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the Work (giving a brief description of such services and materials), and that when added to all sums previously paid out by Lender does not exceed the value of the Work done to the date of such certificate, (C) if the sum requested is to cover payment relating to repair and restoration of Equipment required or relating to the Premises, that title to the items of Equipment covered by the request for payment is vested in Borrower, and (D) that the amount of such Proceeds remaining in the hands of Lender will be sufficient on completion of the Work to pay for the same in full (giving in such reasonable detail as Lender may require an estimate of the cost of such completion). Additionally, each request for payment shall contain a statement signed by Borrower approving both the Work done to date and the Work covered by the request for payment in question. (iii) Each request for payment shall be accompanied by waivers of lien satisfactory to Lender covering that part of the Work for which payment or reimbursement is being requested and, if required by Lender, a search prepared by a title company or licensed abstractor, or by other evidence satisfactory to Lender that there has not been filed with respect to the Premises any mechanics' or other lien or instrument for the retention of title relating to any part of the Work not discharged of record. Additionally, as to any Equipment covered by the request for payment, Lender shall be furnished with evidence of payment therefor and such further evidence satisfactory to assure Lender of its valid first lien on the Equipment. (iv) Lender shall have the right to inspect the Work at all reasonable times and may condition any disbursement of Proceeds upon the satisfactory completion, as determined in Lender's reasonable discretion, of any portion of the Work for which payment or reimbursement is being requested. Neither the approval by Lender of the plans and specifications for the Work nor the inspection by Lender of the Work shall make Lender responsible for the preparation of such plans and specifications or the compliance of such plans and specifications, or of the Work, with any applicable law, regulation, ordinance, covenant or agreement. (v) Proceeds shall not be disbursed more frequently than every 30 days. (vi) Any request for payment made after the Work has been completed shall be accompanied by a copy or copies of any certificate or certificates required by law to render occupancy and full operation of the Premises legal. 22 27 (vii) Upon any failure on the part of Borrower to promptly commence the Work or to proceed diligently and continuously to completion of the Work, Lender may apply any such Proceeds it then or thereafter holds to the payment of the Indebtedness; provided, however, that Lender, at its sole option, shall be entitled to apply at any time all or any portion of insurance Proceeds it then holds to the curing of any Event of Default under this Deed of Trust, the Note or any other Loan Document. (i) Notwithstanding any other provision of this Section 2.04, if no Event of Default shall exist or be continuing (nor any matters have occurred which, after notice or passage of time or both, would constitute an Event of Default) and in Lender's reasonable judgment the cost of the Work is less than $1,000,000 and the Work can be completed in less than 180 days, then Lender shall have no rights to apply for or receive the insurance Proceeds, provided that Borrower shall apply such insurance Proceeds solely to the prompt and diligent commencement and completion of such Work and notify Lender as to the foregoing. Section 2.05. Condemnation. Borrower shall notify Lender immediately of the actual or threatened commencement of any proceedings for the condemnation or taking of the Premises or any portion thereof and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in such proceedings and Borrower shall deliver to Lender all instruments requested by Lender to permit such participation. Lender is hereby irrevocably appointed as Borrower's attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain the Proceeds of any such condemnation and to make any compromise or settlement in connection with such proceedings, subject to the provisions of this Deed of Trust. Borrower shall not adjust, compromise, settle or enter into any agreement with respect to such proceedings without the prior consent of Lender. All Proceeds of any condemnation, or purchase in lieu thereof, of the Premises or any portion thereof are hereby assigned to and shall be paid to Lender. Borrower hereby authorizes Lender to collect and receive such Proceeds, to give proper receipts and acquittances therefor and, in Lender's sole discretion, to apply such Proceeds (less any cost to Lender of recovering and paying out such Proceeds, including reasonable attorneys' fees and costs allocable to inspecting any repair, restoration or rebuilding work and the plans and specifications therefor) toward the payment of the Indebtedness or to the repair, restoration or rebuilding of the Premises in the manner and subject to the conditions set forth in Section 2.04(h). If the Proceeds are used to reduce the Indebtedness, they shall be applied in the order provided in Section 2.04(d), without any prepayment fee. Borrower shall promptly execute and deliver all instruments requested by Lender for the purpose of confirming the assignment of the condemnation Proceeds to Lender. Section 2.06. Impositions. (a) Borrower shall pay and discharge all Impositions prior to delinquency and shall furnish to Lender validated receipts or other evidence satisfactory to Lender showing the payment of 23 28 such Impositions within 15 days after the same would otherwise have become delinquent. Borrower's obligation to pay Impositions pursuant to this Deed of Trust shall include, to the extent permitted by applicable law, taxes resulting from future changes in law which impose upon Trustee or Lender an obligation to pay any property taxes or other Impositions or which otherwise adversely affect Trustee's or Lender's interests. Should Borrower default in the payment of any Impositions, Lender may (but shall not be obligated to) pay such Impositions or any portion thereof and Borrower shall reimburse Lender on demand for all such Advances. (b) Borrower shall not be required to pay, discharge or remove any Imposition so long as Borrower contests in good faith such Imposition or the validity, applicability or amount thereof by an appropriate legal proceeding which operates to prevent the collection of such amounts and the sale of the Mortgaged Property or any portion thereof; provided, however, that prior to the date on which such Imposition would otherwise have become delinquent Borrower shall have (i) given Lender prior notice of such contest and (ii) deposited with Lender, and shall deposit such additional amounts as are necessary to keep on deposit at all times, an amount equal to at least 110 per cent of the total of (A) the balance of such Imposition then remaining unpaid and (B) all interest, penalties, costs and charges accrued or accumulated thereon. Any such contest shall be prosecuted with due diligence, and Borrower shall promptly pay the amount of such Imposition as finally determined, together with all interest and penalties payable in connection therewith. Lender shall have full power and authority to apply any amount deposited with Lender under this Section 2.06(b) to the payment of any unpaid Imposition to prevent the sale or forfeiture of the Mortgaged Property for non-payment thereof. Lender shall have no liability, however, for failure to so apply any amount deposited unless Borrower requests the application of such amount to the payment of the particular Imposition for which such amount was deposited. Any surplus retained by Lender after payment of the Imposition for which a deposit was made shall be repaid to Borrower unless an Event of Default shall have occurred under the provisions of this Deed of Trust, in which case said surplus may be retained by Lender to be applied to the Indebtedness. Notwithstanding any provision of this Section 2.06(b) to the contrary, Borrower shall pay any Imposition which it might otherwise be entitled to contest if, in the reasonable opinion of Lender, the Mortgaged Property is in jeopardy or in danger of being forfeited or foreclosed. If Borrower refuses to pay any such Imposition, Lender may (but shall not be obligated to) make such payment and Borrower shall reimburse Lender on demand for all such Advances. Additionally, in such event, if Lender is prevented by law or judicial or administrative order from paying such Imposition, then Lender, at its option, may declare the entire Indebtedness immediately due and payable. Section 2.07. Deposits. Borrower shall deposit with Lender, monthly, on the due date of each monthly installment under the Note, 1/12th of the annual charges (as estimated by Lender) for Impositions, and, if required by Lender, 1/12th of the annual charges for rent (if Borrower is lessee of an interest in the Mortgaged Property). If required by Lender, Borrower shall also deposit with 24 29 Lender, simultaneously with such monthly deposits and/or the execution of this Deed of Trust, a sum of money which together with such monthly deposits will be sufficient to make the payment of each such charge at least 30 days prior to the date initially due. Should such charges not be ascertainable at the time any deposit is required to be made, the deposit shall be made on the basis of the charges for the prior year or payment period, as reasonably estimated by Lender. When the charges are fixed for the then current year or period, Borrower shall deposit any deficiency on demand. All funds deposited with Lender shall be held without interest (unless the payment of interest thereon is required under applicable law), may be commingled with Lender's other funds, and shall be applied in payment of the foregoing charges when and as payable provided that no Event of Default shall have occurred. Should an Event of Default occur, the funds so deposited may be applied in payment of the charges for which such funds shall have been deposited or to the payment of the Indebtedness or any other charges affecting the Mortgaged Property, as Lender in its sole discretion may determine, but no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender as herein provided. Borrower shall furnish Lender with bills and all other documents necessary for the payment of the foregoing charges at least 15 days prior to the date on which each payment thereof shall first become due. Section 2.08. Mortgage Taxes. Borrower shall pay any and all taxes, charges, filing, registration and recording fees, excises and levies imposed upon Lender by reason of its ownership of, or measured by amounts payable under, the Note, this Deed of Trust or any other Loan Document (other than income, franchise and doing business taxes), and shall pay all stamp taxes and other taxes required to be paid on the Note or the other Loan Documents. If Borrower fails to make such payment within five days after notice thereof from Lender, Lender may (but shall not be obligated to) pay the amount due, and Borrower shall reimburse Lender on demand for all such Advances. If applicable law prohibits Borrower from paying such taxes, charges, filing, registration and recording fees, excises, levies, stamp taxes or other taxes, then Lender may declare the Indebtedness then unpaid to be immediately due and payable. In such event, no prepayment fee shall be charged. Section 2.09. Loan Documents Authorized. (a) The execution and delivery of this Deed of Trust, the Note and the other Loan Documents have been duly authorized and there is no provision in Borrower's organizational documents, as amended, requiring further consent for such action by any other person or entity. (b) Borrower is duly organized, validly existing and in good standing under the laws of the state of its formation. (c) Borrower has all necessary franchises, licenses, authorizations, registrations, permits and approvals and full power and authority to own and lease its properties, including the 25 30 Mortgaged Property, and carry on its business as now conducted in each jurisdiction where Borrower conducts its business. (d) The execution and delivery of and performance of its obligations under the Loan Documents (i) will not result in Borrower being in default under any provision of its organizational documents, as amended, any court order, or any mortgage, deed of trust or other agreement to which it is a party and (ii) do not require the consent of or any filing with any governmental authority. (e) All necessary and required actions have been duly taken by and on behalf of Borrower to make and constitute the Loan Documents, and the Loan Documents constitute, legal, valid and binding obligations enforceable in accordance with their respective terms, subject only to the application of bankruptcy and other laws affecting the rights of creditors generally. Section 2.10. Maintenance of Existence. So long as it owns the Mortgaged Property, Borrower shall (or shall enforce its rights under the Primary Lease to cause [FCH/SH Leasing] [FCH/SH Leasing II] to) do all things necessary to preserve and keep in full force and effect its existence, franchises, licenses, authorizations, registrations, permits and approvals under the laws of the state of its formation and the State, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental authority or court now or hereafter applicable to Borrower or, to the Mortgaged Property or any portion thereof. Section 2.11. Payment of Liens. Borrower shall pay when due all payments and charges due under or in connection with any liens and encumbrances on and security interests in the Mortgaged Property or any portion thereof, all rents and charges under any ground leases and other leases forming a part of the Mortgaged Property, and all claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in or permit the creation of a lien on the Mortgaged Property or any portion thereof, and shall cause the prompt (but in no event later than 30 days after imposition), full and unconditional discharge of all liens imposed on or against the Mortgaged Property or any portion thereof. Borrower shall do or cause to be done, at the sole cost of Borrower, everything necessary to fully preserve the initial priority of the lien of this Deed of Trust. If Borrower fails to make any such payment or if a lien attaches to the Mortgaged Property or any portion thereof, Lender may (but shall not be obligated to) make such payment or discharge such lien and Borrower shall reimburse Lender on demand for all such Advances. Notwithstanding the foregoing, Borrower shall not be in default for failure to pay or discharge a mechanic's or materialman's lien asserted against the Mortgaged Property if, and so long as, (a) Borrower shall have notified Lender of same within five (5) days of obtaining actual knowledge thereof; (b) Borrower shall diligently and in good faith contest the same by appropriate legal proceedings which shall operate to prevent the enforcement or collection of the same and the sale of the Mortgaged Property or any part thereof, to satisfy the same; (c) Borrower shall have furnished to Lender a cash deposit, or an indemnity bond satisfactory to Lender with a surety 26 31 satisfactory to Lender, in the amount of the mechanic's or materialman's lien claim, plus a reasonable additional sum to pay all costs, interest and penalties that may be imposed or incurred in connection therewith, to assure payment of the matters under contest and to prevent any sale or forfeiture of the Mortgaged Property or any part thereof; (d) Borrower shall promptly upon final determination thereof pay the amount of any such claim so determined, together with all costs, interest and penalties which may be payable in connection therewith; (e) the failure to pay the mechanic's or materialman's lien claim does not constitute a default under any other deed of trust, mortgage or security interest covering or affecting any part of the Mortgaged Property; and (f) notwithstanding the foregoing, Borrower shall immediately upon request of Lender pay any such claim notwithstanding such contest, if in the opinion of Lender, the Mortgaged Property or any part thereof or interest therein may be in danger of being sold, forfeited, foreclosed, terminated, canceled or lost. Section 2.12. Costs of Defending and Upholding the Lien. Lender and, to the extent authorized by Lender, Trustee may, after notice to Borrower, (a) appear in and defend any action or proceeding, in the name and on behalf of either Lender or Borrower, in which Trustee or Lender is named or which Lender in its sole discretion determines may adversely affect the Mortgaged Property, this Deed of Trust, the lien hereof or any other Loan Document; and (b) institute any action or proceeding which Lender in its sole discretion determines should be instituted to protect the interest or rights of Lender or Trustee's interest in the Mortgaged Property or under this Deed of Trust or any other Loan Document, including, without limitation, foreclosure proceedings. Borrower agrees to bear and shall pay or reimburse Trustee and Lender on demand for all Advances and expenses (including reasonable attorneys' fees) relating to or incurred by Lender in connection with any such action or proceeding. Section 2.13. Costs of Enforcement. Borrower agrees to bear and shall pay or reimburse Trustee and Lender on demand for all Advances and expenses (including reasonable attorneys' and appraisers' fees and the expenses and reasonable fees of any receiver or similar official) of or incidental to the collection of the Indebtedness, any foreclosure of this Deed of Trust or any other Loan Document, any enforcement, compromise or settlement of this Deed of Trust, any other Loan Document or the Indebtedness, or any defense or assertion of the rights or claims of Trustee or Lender in respect of any thereof, by litigation or otherwise. Section 2.14. Interest on Advances and Expenses. All Advances made and any reasonable expenses incurred at any time by Trustee or Lender pursuant to the provisions of this Deed of Trust or the other Loan Documents or under applicable law shall be secured by this Deed of Trust as part of the Indebtedness, with equal rank and priority. All such Advances and expenses shall bear interest at the Default Rate from the date that each such Advance or expenses is made or incurred to the date of repayment and all such Advances and expenses with interest thereon shall be payable to Lender on demand. 27 32 Section 2.15. Indemnification. Borrower shall indemnify and hold Trustee and Lender and their respective directors, officers, employees and agents harmless from and against and reimburse them for all Losses which may be imposed upon, asserted against, or incurred or paid by any of them (a) by reason of, on account of or in connection with any act or occurrence relating to the Mortgaged Property or any bodily injury, death, other personal injury or property damage occurring in, upon or in the vicinity of the Premises from any cause whatsoever, (b) as a result of the failure of Borrower to perform any of its obligations under any of the Loan Documents, or (c) on account of any transaction otherwise arising out of or in any way connected with the Mortgaged Property, this Deed of Trust or the Indebtedness. Section 2.16. Financial Statements; Records. Borrower shall keep adequate books and records of account in accordance with generally accepted accounting principles ("GAAP"), or in accordance with other methods acceptable to Lender in its reasonable discretion, consistently applied, and shall furnish to Lender: (a) all annual operating statements of the Premises received from [FCH/SH Leasing] [FCH/SH Leasing II] or Sheraton detailing the total revenues received, total expenses incurred, total cost of all capital improvements, total debt service and total cash flow, and certified by [FCH/SH Leasing] [FCH/SH Leasing II] or Sheraton, as appropriate, in the form received by Borrower, or if requested by Lender and to the extent available, an audited annual operating statement prepared and certified by an independent certified public accountant acceptable to Lender, within 120 days after the close of each Fiscal Year of Borrower; (b) an annual balance sheet and profit and loss statement of Borrower and Guarantor, in a form reasonably approved by Lender, prepared and certified by Borrower or Guarantor as applicable, and, such statements, if requested by Lender and to the extent available, shall be audited financial statements prepared and certified by an independent certified public accountant acceptable to Lender. All statements shall be delivered to Lender within 120 days after the close of each Fiscal Year of Borrower; (c) annual operating budgets and management plans presented on a monthly basis consistent with the annual operating statements described above for the Premises, including cash flow projections for the upcoming year, and all proposed capital replacements and improvements on or before February 1 of each Fiscal Year; (d) an annual occupancy and average daily rate statement detailing the occupancy rates and average daily room rates to be prepared and certified by Borrower in a form approved by Lender, within 120 days after the end of each Fiscal Year of Borrower; 28 33 (e) an annual FF&E budget which will be submitted by Borrower to Lender, no later than December 30 of each loan year; and (f) upon request from Lender, the following: (i) such other financial or management information as may, from time to time, be reasonably required by Lender and in form and substance reasonably satisfactory to Lender; and, (ii) Borrower's books and records regarding the Premises for examination, review, copying and audit by Lender or its auditors during normal business hours and convenient facilities for such examination review, copying and audit of Borrower's books and records of account. (g) Borrower's agreements as set forth in this Section 2.16 constitute material inducements to Lender in making the loan secured by this Deed of Trust. Accordingly, in the event Borrower fails to furnish any financial report or tax return required by this section as and when required, time being of the essence, then, in addition to all other remedies available to Lender under this Deed of Trust, Borrower agrees to pay Lender a late charge of $100.00 for each day or part thereof that any such financial report or tax return shall be overdue. The foregoing late charges and the costs and expenses of the auditor shall be due and payable to Lender upon demand and shall constitute a part of the Indebtedness. Section 2.17. Prohibition Against Conveyances and Encumbrances. Except with the prior consent of Lender or as permitted by Section 3.01(b), Borrower shall not and shall not permit others to convey, assign, sell, mortgage, encumber, pledge, hypothecate, grant a security interest in, grant options with respect to, or otherwise dispose of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) all or any portion of any legal or beneficial interest (a) in all or any portion of the Mortgaged Property (other than the sale of goods used in the operation of a hotel business or replacement of Equipment in the ordinary course of business) including the Leases; or (b) in Borrower. All requests for Lender's consent under this Section 2.17 shall be on a form previously approved by Lender and shall be accompanied by the payment of Lender's standard processing fee for such transactions then in effect not to exceed one percent (1%) of the then outstanding balance of the Loan. Lender's consent to any of the foregoing actions, if given (in Lender's sole discretion), may be conditioned upon a change in the interest rate, maturity date, amortization period or other terms under the Note, the payment of a transfer fee not to exceed one percent (1%) of the then outstanding balance of the Loan and/or any other requirements of Lender. In addition to the standard processing fee and the transfer fee referred to in this Section 2.17, Borrower agrees to bear and shall pay or reimburse Lender on demand for all reasonable expenses 29 34 (including reasonable attorneys' fees, title search costs, and title insurance endorsement premiums) incurred by Lender in connection with the review, approval and documentation of any such transaction. Notwithstanding the prohibition against conveyances and encumbrances set forth in this Section 2.17, Lender will permit Borrower the right to a one-time sale, transfer or assignment in whole (but not in part) of its interest in the Mortgaged Property, without modification of the terms of the Loan, provided each and every one of the following conditions is satisfied: (a) At least thirty (30) days prior to such transfer, Borrower shall have provided Lender with written notice of the proposed transfer along with the name(s), address(es) and organizational documents of the proposed purchaser and principals of the proposed purchaser. Additionally, Borrower shall furnish to Lender along with such notice the following: (i) detailed and complete financial statements of the proposed purchaser and principals of proposed purchaser, (ii) information with respect to the business and business experience of the proposed purchaser and the proposed purchaser's principals' experience in the ownership and operation of properties similar to the Mortgaged Property and other commercial real estate, (iii) evidence that the Mortgaged Property as of the proposed date of transfer of title and thereafter will be managed by a hotel management company and under a hotel management agreement meeting the requirements of Section 2.17(d) below, (iv) the terms and conditions of the proposed sale and a copy of the purchase and sales agreement, and (v) such other information as Lender may request to permit it to determine the creditworthiness and management abilities of the proposed transferee, its management plan for the Mortgaged Property and the proposed transferee's status as a "Qualified Real Estate Investor". (b) The Loan must be current in all respects and may not be in default either as of the date of the notice given Lender under subparagraph (a) above or thereafter through the date of transfer of title to the Mortgaged Property nor may any event have occurred which, after notice or passage of time or both, would constitute an Event of Default under the Loan. (c) The purchaser is a "Qualified Real Estate Investor". (d) The Mortgaged Property as of the date of transfer and thereafter must be managed by Sheraton or another hotel management company reasonably approved by Lender under the Management Agreement or another hotel management agreement reasonably satisfactory to Lender. The flag under which the Mortgaged Property is operated shall remain the same or, if changed, be satisfactory to Lender. (e) The proposed purchaser of the Mortgaged Property shall assume the Loan under documents in form and substance satisfactory to Lender, subject to the non-recourse provisions of the Loan Documents existing as of the date of the closing of the sale of the Mortgaged Property. 30 35 Additionally, at the time of the assumption of the Loan, the proposed purchaser shall furnish to Lender an environmental indemnity in form and substance satisfactory to Lender from a financially responsible person or entity approved by the Lender. Borrower and the proposed purchaser and any other person as reasonably required by Lender's counsel shall also execute financing statements and such other documents as Lender's counsel shall reasonably require in order to effectuate the transaction as contemplated by this Section 2.17 and shall furnish evidence of fire and extended coverage insurance as required by the Loan Documents. (f) Along with the notice of transfer under subparagraph (a) above, Borrower shall pay to Lender a fee in the amount of one percent (1%) of the then outstanding balance of the Loan in cash or certified funds. Such fee shall be retained by Lender whether or not the transfer occurs except in the situation described in the succeeding sentence and is being paid in order to induce Lender to allow the proposed purchaser to assume the obligations of the Borrower under the Loan Documents and to release Borrower from liability thereunder for all periods from and after the transfer in accordance with these provisions. Such fee shall be returned to Borrower only if Lender disapproves of such transfer as not meeting the requirements of this Section 2.17. (g) The cash flow from the Mortgaged Property (i.e., gross rents received less property taxes, insurance and a reasonable reserve for capital improvements, but excluding principal and interest payments on the Loan, depreciation and other non-cash charges and proceeds from casualty policies) for the 12 month period ending on the last day of the month which is two months prior to the month of the anticipated date of such transfer of title shall be not less than 1.65X times the required payments of principal and interest on the Loan for the same twelve month period as determined by Lender in its sole discretion from financial statements for the Mortgaged Property in form and substance satisfactory to Lender and submitted to Lender. (h) The unpaid principal balance of the Loan shall be not more than sixty percent (60%) of the appraised value of the Mortgaged Property according to a current appraisal furnished to and satisfactory to Lender and prepared by an MAI appraiser acceptable to Lender. (i) Borrower shall pay all of Lender's reasonable outside costs and expenses incurred in connection with the proposed sale of the Mortgaged Property whether or not the sale actually occurs including, without limitations, attorneys' fees, recording charges, title charges and any endorsement to Lender's title policy that Lender's counsel may require. Section 2.18. Estoppel Certificates. Within 10 Business Days of a request by Lender, Borrower shall furnish to Lender a duly acknowledged written statement confirming the amount of the outstanding Indebtedness, the terms of payment and maturity date of the Note, the date to which interest has been paid, and whether any offsets or defenses exist against the Indebtedness. If any such offsets or defenses are alleged to exist, the nature thereof shall be set forth in detail. Borrower shall 31 36 also furnish to Lender within 30 days of its request therefor tenant estoppel letters from such tenants of the Premises as Lender may require, but such requests as to any one tenant shall not be made more often than once in a calendar year period. Section 2.19. Assignment of Leases and Property Income. (a) Borrower hereby absolutely and unconditionally assigns and transfers to Lender the Leases and the Property Income. Borrower shall not otherwise assign, transfer or encumber in any manner the Leases or the Property Income or any portion thereof. Borrower shall have a license to collect and use the Property Income as the same becomes due and payable, revocable by Lender, so long as no Event of Default has occurred, but may not collect any Property Income more than 30 days in advance of the date the same becomes due. The assignment in this Section 2.19 shall constitute an absolute and present assignment of the Leases and the Property Income, and not an additional assignment for security, and the existence or exercise of the Borrower's revocable license to collect Property Income shall not operate to subordinate this assignment to any subsequent assignment. The exercise by Lender of any of its rights or remedies under this Section 2.19 shall not be deemed or construed to make Lender a mortgagee-in-possession. The assignments contained in this Section 2.19(a) shall automatically terminate and be null and void ab initio upon the repayment of the Indebtedness or the release of this Deed of Trust. (b) Borrower shall furnish Lender with executed copies of all Leases within 10 days after execution thereof. All proposed Leases and renewals of existing Leases shall be at rental rates and on terms comparable to existing local market rates and terms and shall be arms-length transactions with bona fide, independent third party tenants; provided, however, that renewals of existing Leases may be made with the existing parties thereto and upon substantially the same terms as such existing Leases. All new Leases shall provide that they are subordinate to this Deed of Trust and that the lessee agrees to attorn to Lender. All proposed Leases and renewals of existing Leases (other than Leases described in Subsection 2.19(d)) shall be subject to the prior review and reasonable approval of Lender and its counsel, at Borrower's expense. (c) Borrower shall perform all obligations as lessor under all Leases and shall enforce all of the terms, covenants and conditions contained in upon the part of the lessee thereunder to be performed or observed. Additionally, Borrower shall not take any action which would cause any Lease to cease to be in full force and effect. Except with the prior consent of Lender, not to be unreasonably withheld, Borrower shall not (i) cancel, terminate (other than exercising Borrower's rights to terminate any Lease upon a lessee's default thereunder and subject to the terms of Section 2.25(d) hereof), surrender, sublet or assign any Lease or consent to any cancellation, termination, surrender, subletting or assignment thereof; (ii) amend, modify or subordinate any Lease to any mortgage, deed of trust or other security interest that is 32 37 subordinate to this Deed of Trust; (iii) enter into any new Lease (except as permitted in Section 2.19(d) below); (iv) waive any default under or breach of any Lease; (v) consent to or accept any prepayment or discount of rent or advance rent under any Lease; (vi) other than exercising Borrower's rights to terminate any Lease upon a lessee's default thereunder (and subject to the terms of Section 2.25(d) hereof), take any other action in connection with any Lease which may impair or jeopardize the validity of such Lease or the Lender's interest therein; or (vii) alter, modify or change the terms of any guaranty, letter of credit or other credit support with respect to any of the Leases or cancel or terminate such guaranty, letter of credit or other credit support without the prior written consent of Lender. (d) Notwithstanding Section 2.19(b), Lender's prior consent shall not be required for entering into any new Lease covering 1,000 square feet of net rentable area or less, or renewals thereof, provided that (i) the Lease or renewal thereof represents an arm's-length transaction and provides for the payment of market rents, and (ii) neither the Lease nor renewal thereof nor the activity of the lessee will violate any provision of any other Lease or restriction or covenant affecting the Premises or this Deed of Trust or any other Loan Document, including Section 2.20(b) hereof. Except for Leases to which Lender's consent is not required, notice and copies of which shall be furnished only upon request, Borrower shall give Lender notice of any Lease or renewal thereof described in this Section 2.19(d), together with a fully-executed and complete copy of such Lease, not later than 10 days after the execution thereof. (e) In addition to the foregoing, Borrower shall comply with all terms and provisions of the Assignment. Section 2.20. Environmental Matters; Warranties; Notice; Indemnity. (a) Borrower represents and warrants to Lender, based upon an environmental assessment of the Premises and the Equipment and information that Borrower knows, as follows: (i) Borrower has not installed, used, generated, manufactured, produced, stored, released, discharged or disposed of in, on, under or about the Premises, or transported to or from any portion of the Premises, any Hazardous Substance or allowed any other person or entity to do so, except under conditions permitted by applicable Environmental Laws; (ii) there are no Hazardous Substances or underground storage tanks in, on, or under or about the Premises, except those that are both (A) in compliance with Environmental Laws and with permits issued pursuant thereto, if necessary, and (B) fully disclosed to Lender in writing pursuant to the written reports resulting from environmental 33 38 assessments of the Mortgaged Property delivered to Lender (the "Environmental Report"); (iii) there are no past, present or threatened Releases of any Hazardous Substance in, on, under or about the Premises except as defined in the Environmental Report; (iv) there is no condition known to Borrower which is expected to result in any Release of Hazardous Substances migrating to the Premises except as described in the Environmental Report; (v) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Premises or the Equipment except as described in the Environmental Report; (vi) Borrower does not know of, and has not received, any written or oral notice or other communication from any person or entity (including, but not limited to, a governmental entity) relating to Hazardous Substances or Remediation thereof, of possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Premises or Equipment, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and, (vii) Borrower has truthfully and fully provided to Lender, in writing, any and all information relating to any presence or Release of Hazardous Materials in, on, under and about the Premises that is known by Borrower and that is contained in Borrower's files and records, including but not limited to any reports relating to Hazardous Substances in, on, under or about the Premises and/or to the environmental condition of the Premises. (b) Borrower shall not install, use, generate, manufacture, produce, store, Release, discharge or dispose of on, under or about the Premises, or transport to or from any portion of the Premises, any Hazardous Substance or allow any other person or entity to do so, except under conditions permitted by applicable Environmental Laws. Additionally, except with the prior written consent of Lender, no portion of the Premises shall be leased, used or occupied for dry cleaning operations (except for drop off dry cleaning operations in the ordinary course of business) or the storage of any chemicals used in the dry cleaning process. (c) Borrower shall keep and maintain the Premises in compliance with, and shall not cause or permit the Premises to be in violation of, applicable Environmental Laws. (d) Borrower shall promptly provide notice to Lender of: 34 39 (i) any proceeding, investigation or inquiry commenced by any governmental authority with respect to the presence of any Hazardous Substance on, under or about the Premises or the migration of any Hazardous Substance to or from adjoining property to which Borrower has knowledge or has received notice; (ii) all claims made or threatened by any person or entity against Borrower, or to Borrower's knowledge, any other party occupying the Premises or any portion thereof, or the Premises, relating to any loss or injury allegedly resulting from any Hazardous Substance; and (iii) the discovery of any occurrence or condition on the Premises or on any real property adjoining or in the vicinity of the Premises, of which Borrower becomes aware, which might cause the Premises or any portion thereof to be in violation of any Environmental Law or subject to any restriction on ownership, occupancy, transferability or use under any Environmental Law (collectively, an "Environmental Violation"). (e) Lender and, to the extent authorized by Lender, Trustee may join and participate in, as a party if Lender so determines, any legal or administrative proceeding or action concerning the Premises or Equipment under any Environmental Law. Borrower agrees to bear and shall pay or reimburse Lender on demand for all Advances and expenses (including reasonable attorneys' fees) relating to or incurred by Lender in connection with any such action or proceeding. (f) Borrower shall indemnify and hold Trustee and Lender and their respective directors, officers, employees and agents harmless from and against any and all claims, demands, liabilities, losses, damages, judgments, penalties, costs and expenses (including reasonable attorneys' fees) directly or indirectly arising out of or attributable to a breach of any warranty, representation or other provision contained in this Section 2.20 including, without limitation, (i) all actual and consequential damages, (ii) the costs of any required Remediation, and (iii) the costs of the preparation and implementation of any plans for Remediation, closure or other required plans. This indemnity shall survive the satisfaction, release or extinguishment of the lien of this Deed of Trust including any extinguishment of such lien by foreclosure or deed in lieu thereof. Notwithstanding anything to the contrary contained herein, the indemnification provided for herein shall survive payment of the Note, but shall become null and void and of no further force and effect in the event Lender or any other party obtains title to the Mortgaged Property through foreclosure or exercise of power of sale under this Deed of Trust or deed-in-lieu of foreclosure or exercise of power of sale. 35 40 Section 2.21. Environmental Matters; Remedial Work. (a) If any investigation, site monitoring, containment, cleanup, removal, restoration or other Remediation of any kind or nature (collectively, the "Remedial Work") is required to be performed by Borrower under any applicable Environmental Law because of or in connection with the current or future presence, suspected presence, release or suspected release of a Hazardous Substance into the air, soil, ground water, surface water, or soil vapor on, under or about the Premises or any portion thereof, Borrower shall promptly commence and diligently prosecute to completion all such Remedial Work. In all events, such Remedial Work shall be commenced within 45 days after any demand therefor by Lender or such shorter period as may be required under any applicable Environmental Law. (b) All Remedial Work shall be performed by contractors, and under the supervision of a consulting engineer, each approved in advance by Lender. All costs and expenses of such Remedial Work and Lender's monitoring or review of such Remedial Work (including reasonable attorneys' fees) shall be paid by Borrower. If Borrower does not timely commence and diligently prosecute to completion the Remedial Work, Lender may (but shall not be obligated to) cause such Remedial Work to be performed. Borrower agrees to bear and shall pay or reimburse Lender on demand for all Advances and expenses (including reasonable attorneys' fees) relating to or incurred by Lender in connection with monitoring, reviewing or performing any Remedial Work. (c) Except with Lender's prior consent (not to be unreasonably withheld), Borrower shall not commence any Remedial Work or enter into any settlement agreement, consent decree or other compromise relating to any Hazardous Substances or Environmental Laws which might, in Lender's sole judgment, impair the value of Lender's security hereunder. Lender's prior consent shall not be required, however, if the presence or threatened presence of Hazardous Substances on, under or about the Premises poses an immediate threat to the health, safety or welfare of any person or is of such a nature that an immediate remedial response is necessary, and it is not possible to obtain Lender's prior consent. In such event Borrower shall notify Lender as soon as practicable of any action taken. Section 2.22. Environmental Matters; Inspection. (a) Lender shall have the right at all reasonable times to enter upon and inspect all or any portion of the Premises, provided that Lender makes an appointment through the general manager of the hotel after reasonable notice and that such inspections shall not unreasonably interfere with the normal business operations of the Premises. Lender may select a consulting engineer to conduct and prepare reports of such inspections. The inspection rights granted to Lender in this Section 2.22 shall be in addition to, and not in limitation of, any other inspection rights granted to Lender in this Deed of Trust, and shall expressly include the right to conduct 36 41 reasonable soil borings and other customary environmental tests, assessments and audits, so long as Lender restores the Mortgaged Property to its previous condition. (b) Borrower agrees to bear and shall pay or reimburse Lender on demand for all Advances and expenses (including reasonable attorneys' fees) relating to or incurred by Lender in connection with the inspections and reports described in this Section 2.22 in the following situations: (i) If Lender has reasonable grounds to believe, at the time any such inspection is ordered, that there exists an Environmental Violation or that a Hazardous Substance is present on, under or about the Premises or is migrating to or from adjoining property, except under conditions permitted by applicable Environmental Laws and not prohibited by any Loan Document; (ii) if any such inspection reveals an Environmental Violation or that a Hazardous Substance is present on, under or about the Premises or is migrating to or from adjoining property, except under conditions permitted by applicable Environmental Laws and not prohibited by any Loan Document; or (iii) if an Event of Default exists at the time any such inspection is ordered. Section 2.23. Management. At all times prior to the payment in full of the Indebtedness, the Mortgaged Property shall be managed by Sheraton or another management company satisfactory to Lender, and pursuant to the Management Agreement or another management agreement reasonably satisfactory to Lender. Such management agreement, and any leasing commissions agreement affecting the Mortgaged Property, shall be subordinate to this Deed of Trust. Section 2.24. ERISA. As of the date hereof and throughout the term of this Deed of Trust, (i) Borrower is not and will not be an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA: (ii) the assets of Borrower do not and will not constitute "plan assets" of one or more such plans for purposes of Title I of ERISA: (iii) Borrower is not and will not be a "governmental plan" within the meaning of Section 3(3) of ERISA; (iv) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of fiduciaries with respect to governmental plans; and (v) Borrower shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under this Deed of Trust, the Note, or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. Borrower further agrees to deliver to Lender such certifications or other evidence of compliance with the provisions of this Section 2.24 as Lender may from time to time request. 37 42 Section 2.25. Operating Agreements. In connection with the Operating Agreements, Trustor acknowledges and agrees as follows: (a) no Operating Agreement shall be amended, modified, supplemented, restated or otherwise altered by Trustor, nor shall Trustor consent or otherwise acquiesce in any of the foregoing, without in each instance Beneficiary's prior written consent, which consent shall not be unreasonably withheld; (b) no Operating Agreement shall be terminated by Trustor unless such terminated Operating Agreement is replaced with a similar agreement upon terms and conditions, and with such third parties, as are reasonably acceptable to Lender; (c) Trustor will deliver to Beneficiary, at the same time received or sent by Trustor, copies of all notices, demands or requests sent or otherwise made by Trustor or any other Person under or pursuant to any Operating Agreement; (d) the term of any Operating Agreement shall not be extended or otherwise renewed by Trustor (unless pursuant to a right currently afforded Trustor thereunder) without in each instance Beneficiary's prior written approval, such approval not to be unreasonably withheld; (e) Trustor agrees to observe, perform and discharge all obligations, covenants and warranties required to be kept and performed by Trustor under the Operating Agreements; and (f) Trustor shall use best efforts to enforce or secure the performance of each and every material obligation, term, covenant, condition and agreement to be performed by any other party to any of the Operating Agreements. Section 2.26. Single-Purpose Entity. Borrower shall at all times be a Single-Purpose Entity. ARTICLE III Security Agreement Section 3.01. Warranties, Representations and Covenants of Borrower. Borrower covenants, warrants, represents and agrees with and to Trustee and Lender as follows: (a) This Deed of Trust constitutes a security agreement under the Code and serves as a fixture filing in accordance with the Code. This Deed of Trust creates a security interest in favor of Lender as secured party under the Code with respect to all property (specifically including the Collateral) included in the Mortgaged Property which is covered by the Code. The mention of 38 43 any portion of the Mortgaged Property in a financing statement filed in the records normally pertaining to personal property shall not derogate from or impair in any manner the intention of Borrower and Lender hereby declared that all items of Collateral described in this Deed of Trust are part of the real property encumbered hereby to the fullest extent permitted by law, regardless of whether any such item is physically attached to the Improvements or whether serial numbers are used for the better identification of certain items. Specifically, the mention in any such financing statement of (i) the rights in or the Proceeds of any policy of insurance, (ii) any condemnation Proceeds, (iii) Borrower's interest in any Leases or Property Income, or (iv) any other item included in the Mortgaged Property, shall not be construed to alter, impair or impugn any rights of Lender as determined by this Deed of Trust or the priority of Lender's lien upon and security interest in the Mortgaged Property. Any such mention shall be for the protection of Lender in the event that notice of Lender's priority of interest as to any portion of the Mortgaged Property is required to be filed in accordance with the Code to be effective against or take priority over the interest of any particular class of persons, including the federal government or any subdivision or instrumentality thereof. (b) Except for the security interest granted by the Loan Documents, Borrower is and, as to portions of the Collateral to be acquired after the date hereof, will be the sole owner of the Collateral, free from any lien, security interest, encumbrance or adverse claim thereon of any kind whatsoever except Permitted Encumbrances. Borrower shall notify Lender of, and shall defend the Collateral against, all claims and demands of all persons at any time claiming the same or any interest therein. Notwithstanding anything to the contrary contained in the Loan Documents, Borrower shall have the right during the term of the Loan to secure the purchase of up to $300,000 of Equipment for the Mortgaged Property with secondary financing including equipment leases. (c) Except as otherwise provided in this Deed of Trust, Borrower shall not lease, sell, convey or in any manner transfer the Collateral without the prior consent of Lender. (d) The Collateral is not used or bought for personal, family or household purposes. (e) The Collateral shall be kept on or at the Premises, and Borrower shall not remove the Collateral from the Premises without the prior consent of Lender, except such portions or items of the Collateral as are consumed or worn out in ordinary usage, all of which shall be promptly replaced by Borrower with items of equal or greater value. (f) In the event of any change in name, identity or structure of Borrower, Borrower shall notify Lender thereof and promptly after request shall execute, file and record such Code forms as are necessary to maintain the priority of Lender's lien upon and security interest in the Collateral, and shall pay all reasonable expenses and fees in connection with the filing and recording 39 44 thereof. If Lender shall require the filing or recording of additional Code forms or continuation statements, Borrower shall, promptly after request, execute, file and record such Code forms or continuation statements as Lender shall deem necessary (subject to Lender's right to sign such statements on behalf of Borrower as provided in Subsection 3.01(g)), and shall pay all reasonable expenses and fees in connection with the filing and recording thereof. If Lender shall initially pay such expenses, Borrower shall promptly reimburse Lender for the expenses. (g) Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to execute in the name of and on behalf of Borrower any and all financing statements and continuations thereof and to file with the appropriate public office on its behalf and at its expense any financing or other statements signed only by Lender, as secured party, in connection with the Collateral covered by this Deed of Trust. Section 3.02. Financing Statements. A CARBON, PHOTOGRAPHIC OR OTHER REPRODUCTION OF THIS DEED OF TRUST OR ANY FINANCING STATEMENT RELATING TO THIS DEED OF TRUST SHALL BE SUFFICIENT AS A FINANCING STATEMENT. Section 3.03. Addresses. The mailing address of Borrower and the address of Lender from which information concerning the security interest granted hereby may be obtained are set forth on the Cover Sheet of this Deed of Trust. Borrower maintains its sole place of business or its chief executive office at the address shown on said Cover Sheet, and Borrower shall immediately notify Lender in writing of any change in said place of business or chief executive office. ARTICLE IV Default and Remedies Section 4.01. Events of Default. Each of the following shall, after the expiration of any notice and cure period provided for in the Note, constitute an Event of Default under this Deed of Trust, the Note and the other Loan Documents: (a) failure in the payment of any amount due as and when due under this Deed of Trust, the Note or any other Loan Document; (b) failure to pay any Imposition as and when due or to maintain insurance as required by this Deed of Trust; (c) default in the due observance or performance of any term, covenant or condition contained in this Deed of Trust, the Note or any other Loan Document; 40 45 (d) if any representation made herein or in any other Loan Document shall prove to be untrue in any material respect; (e) violation of any of the covenants set forth in Section 2.17 with respect to conveyances, sales, encumbrances or other prohibited dispositions of the Mortgaged Property or Borrower or any portion thereof or any interest therein; (f) violation of any of the covenants set forth in Section 2.19(a) with respect to the further assignment, transfer or encumbrance by Borrower of the Leases or the Property Income or any portion thereof; (g) violation of any of the covenants set forth as items (i) through (vi) of Section 2.19(c) with respect to certain actions concerning Leases which shall not be taken by Borrower without the prior consent of Lender; (h) if Borrower, any general partner of Borrower or Guarantor consents to the filing of, or commences or consents to the commencement of, any Bankruptcy Proceeding with respect to Borrower or Guarantor; (i) if any Bankruptcy Proceeding shall have been filed against Borrower, any general partner of Borrower or Guarantor and the same is not withdrawn, dismissed, canceled or terminated within 90 days of such filing; (j) if Borrower, any general partner of Borrower or Guarantor is adjudicated bankrupt or insolvent or a petition for reorganization of Borrower or any such general partner or Guarantor is granted; (k) if a receiver, liquidator or trustee of Borrower, any general partner of Borrower or Guarantor or of any of the properties of Borrower or any such general partner or Guarantor shall be appointed; (l) if Borrower, any general partner of Borrower or Guarantor shall make an assignment for the benefit of its creditors or shall admit in writing the inability to pay its debts generally as they become due; (m) except as otherwise permitted herein, if Borrower, any general partner of Borrower, or Guarantor shall die or shall institute or cause to be instituted any proceeding for the termination or dissolution of Borrower or any such general partner or Guarantor; 41 46 (n) if a default or event of default shall occur under any mortgage, deed of trust, encumbrance, lien or security agreement (except for equipment leases) encumbering all or any portion of the Mortgaged Property which is subordinate or superior to the lien of this Deed of Trust or if any party under any such instrument shall commence a foreclosure or other collection or enforcement action in connection therewith, provided, however, that this provision shall not be deemed to be a waiver of the provisions of Section 2.17 prohibiting further encumbrances or of any other provision of this Deed of Trust, it being understood that it is an event of default under this Deed of Trust to permit any further mortgage, encumbrance, lien or security agreement to encumber all or any portion of the Mortgaged Property except as expressly permitted herein; (o) except as permitted in this Deed of Trust, the actual or threatened alteration, demolition or removal of any of the Improvements without the prior consent of Lender, which shall not be unreasonably withheld; (p) damage to any of the Mortgaged Property in any manner which is not covered by insurance as a result of Borrower's failure to maintain insurance required in accordance with this Deed of Trust; (q) default by [FCH/SH Leasing] [FCH/SH Leasing II] in the due observance or performance of any term, covenant or condition contained in any Operating Agreement or the Agreement Concerning Primary Lease Agreement without Borrower timely curing such default pursuant to its contractual rights to do so; or (r) default by Guarantor in the due observance or performance of any term, covenant or condition contained in any separate guaranty or separate indemnity agreement executed by Guarantor in connection with the Loan. In the event of a conflict between the provisions of this Section 4.01., and the provisions of the Note, the provisions of the Note shall control. Section 4.02. Remedies. Upon the occurrence of any Event of Default, Lender may take such actions against Borrower and/or the Mortgaged Property or any portion thereof as it deems advisable, subject to Section 11 of the Note, to protect and enforce its rights against Borrower and in and to the Mortgaged Property, without notice or demand except as set forth below. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. All actions shall be subject to Section 11 of the Note and may include the following: 42 47 (a) Subject to any applicable provisions of the Note, Lender may declare the entire principal balance under the Note then unpaid, together with all accrued and unpaid interest thereon, and all other unpaid Indebtedness, to be immediately due and payable. (b) Lender may enter into or upon the Mortgaged Property, personally or by its agents, nominees or attorneys, and may dispossess Borrower and its agents and servants therefrom, and thereupon Lender at its sole discretion may: (i) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every portion of the Mortgaged Property and conduct business thereon, in any case either in the name of Lender or in such other name as Lender shall deem best; (ii) complete any construction on the Mortgaged Property in such manner and form as Lender deems advisable; (iii) make alterations, additions, renewals, replacements and improvements to or on the Mortgaged Property; (iv) exercise all rights and powers of Borrower with respect to the Mortgaged Property, whether in the name of Borrower or otherwise, including the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Property Income; and (v) apply the receipts of Property Income to the payment of the Indebtedness (including any prepayment fee payable under the Note) in such order as Lender shall determine in its sole discretion, after deducting therefrom all expenses (including reasonable attorneys' fees) incurred in connection with the aforesaid operations and all amounts necessary to pay the Impositions, insurance and other charges in connection with the Mortgaged Property, as well as just and reasonable compensation for the services of Lender, its agents, nominees and attorneys. (c) Subject to any applicable provisions of the Note, with or without entry, personally or by its agents, nominees or attorneys, Lender may require Trustee to sell all or any portion of the Mortgaged Property and all or any portion of Borrower's estate, right, title, interest, claim and demand therein and right of redemption thereof at one or more private or public sales in the manner and to the extent permitted by law, as an entirety or in parcels or portions, and Trustee shall have any statutory power of sale as may be provided by law in the State. (d) Subject to any applicable provisions of the Note, Lender may institute proceedings for the complete foreclosure of this Deed of Trust, in which case the Mortgaged Property may be sold for cash or upon credit, as an entirety or in parcels or portions. (e) Subject to any applicable provisions of the Note, Lender may institute, or require Trustee to institute, proceedings for the partial foreclosure of this Deed of Trust for the portion of the Indebtedness then due and payable, subject to the continuing lien of this Deed of Trust for the balance of the Indebtedness not then due. 43 48 (f) Lender may institute, or require Trustee to institute, an action, suit or proceeding at law or in equity for the specific performance of any covenant, condition or agreement contained herein or in the Note or any other Loan Document, or in aid of the execution of any power granted hereunder or for the enforcement of any other appropriate legal or equitable remedy. (g) Lender and Trustee shall have the rights and may take such actions as are permitted by the laws of the State. (h) Subject to any applicable provisions of the Note, Lender may recover judgment on the Note, either before, during or after any proceedings for the foreclosure or enforcement of this Deed of Trust. (i) Lender may secure the appointment of a receiver, trustee, liquidator or similar official of the Mortgaged Property or any portion thereof, and Borrower hereby consents and agrees to such appointment, without notice to Borrower and without regard to the adequacy of the security for the Indebtedness and without regard to the solvency of Borrower or any other person, firm or entity liable for the payment of the Indebtedness, and such receiver or other official shall have all rights and powers permitted by applicable law and such other rights and powers as the court making such appointment may confer, but the appointment of such receiver or other official shall not impair or in any manner prejudice the rights of Lender to receive the Property Income pursuant to this Deed of Trust or the Assignment. (j) Lender may exercise any or all of the remedies available to a secured party under the Code, but any sale of the Equipment shall be subject to any applicable provisions of the Note. (k) Lender may pursue, or require Trustee to pursue, any other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. (l) Lender may apply any funds then on deposit with Lender for payment of Impositions, ground rent or insurance premiums in the manner provided for in Section 2.07. (m) Lender in its sole discretion may surrender any insurance policies and collect the unearned premiums and apply such sums against the Indebtedness. Section 4.03. General Provisions Regarding Remedies. (a) Effect of Judgment. No recovery of any judgment by Lender or Trustee and no levy of an execution under any judgment upon the Mortgaged Property or upon any other property of Borrower shall affect in any manner or to any extent the lien of this Deed of Trust upon the Mortgaged Property or any portion thereof, or any rights, powers or remedies of Lender or 44 49 Trustee hereunder. Such lien, rights, powers and remedies of Lender and Trustee shall continue unimpaired as before. (b) Continuing Power of Sale. The power of sale conferred upon Lender in this Deed of Trust shall not be exhausted by any one or more sales as to any portion of the Mortgaged Property remaining unsold, but shall continue unimpaired until all of the Mortgaged Property is sold or all of the Indebtedness is paid. (c) Right to Purchase. At any sale of the Mortgaged Property or any portion thereof pursuant to the provisions of this Deed of Trust, Lender or Trustee shall have the right to purchase the Mortgaged Property being sold, and in such case shall have the right to credit against the amount of the bid made therefor (to the extent necessary) all or any portion of the Indebtedness then due. (d) Right to Terminate Proceedings. Lender or Trustee may terminate or rescind any proceeding or other action brought in connection with its exercise of the remedies provided in Section 4.02 at any time before the conclusion thereof, as determined in Lender's sole discretion and without prejudice to Lender. (e) No Waiver or Release. Lender may resort, or require Trustee to resort, to any remedies and the security given by the Loan Documents, in whole or in part, and in such portions and in such order as determined in Lender's sole discretion. No such action shall in any way be considered a waiver of any rights, benefits or remedies evidenced or provided by the Loan Documents. The failure of Lender or Trustee to exercise any right, remedy or option provided in the Loan Documents shall not be deemed a waiver of such right, remedy or option or of any covenant or obligation secured by the Loan Documents. No acceptance by Lender or Trustee of any payment after the occurrence of an Event of Default and no payment by Lender or Trustee of any Advance or obligation for which Borrower is liable hereunder shall be deemed to waive or cure such Event of Default or Borrower's liability to pay such obligation. No sale of all or any portion of the Mortgaged Property, no forbearance on the part of Lender or Trustee, and no extension of time for the payment of the whole or any portion of the Indebtedness or any other indulgence given by Lender or Trustee to Borrower or any other person or entity, shall operate to release or in any manner affect Lender's or Trustee's interest in the Mortgaged Property or the liability of Borrower to pay the Indebtedness, except to the extent that such liability shall be reduced by Proceeds of the sale of all or any portion of the Mortgaged Property received by Lender. No waiver by Lender or Trustee shall be effective unless it is in writing and then only to the extent specifically stated. (f) No Impairment; No Release. The interests and rights of Lender or Trustee under the Loan Documents shall not be impaired by any indulgence, including (i) any renewal, extension or 45 50 modification which Lender may grant with respect to any of the Indebtedness; (ii) any surrender, compromise, release, renewal, extension, exchange or substitution which Lender or Trustee may grant with respect to the Mortgaged Property or any portion thereof; or (iii) any release or indulgence granted to any maker, endorser, guarantor or surety of any of the Indebtedness. Subject to Section 11 of the Note, if the Mortgaged Property is sold and Lender enters into any agreement with the then owner of the Mortgaged Property extending the time of payment of the Indebtedness, or otherwise modifying the terms hereof or of any other Loan Document, Borrower shall continue to be liable to pay the Indebtedness according to the tenor of any such agreement unless expressly released and discharged in writing by Lender. (g) WAIVERS AND AGREEMENTS REGARDING REMEDIES. TO THE FULLEST EXTENT THAT BORROWER MAY LEGALLY DO SO, BORROWER: (i) AGREES THAT BORROWER WILL NOT AT ANY TIME INSIST UPON, PLEAD, CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF ANY LAWS NOW OR HEREAFTER IN FORCE PROVIDING FOR ANY APPRAISAL OR APPRAISEMENT, VALUATION, STAY, EXTENSION OR REDEMPTION, AND WAIVES AND RELEASES ALL RIGHTS OF REDEMPTION, VALUATION, APPRAISAL OR APPRAISEMENT, STAY OF EXECUTION, EXTENSION AND NOTICE OF ELECTION TO ACCELERATE OR DECLARE DUE THE WHOLE OF THE INDEBTEDNESS; (ii) WAIVES ALL RIGHTS TO A MARSHALING OF THE ASSETS OF BORROWER, BORROWER'S PARTNERS, IF ANY, AND OTHERS WITH INTERESTS IN BORROWER, INCLUDING THE MORTGAGED PROPERTY, OR TO A SALE IN INVERSE ORDER OF ALIENATION IN THE EVENT OF FORECLOSURE OF THE INTERESTS HEREBY CREATED, AND AGREES NOT TO ASSERT ANY RIGHT UNDER ANY LAWS PERTAINING TO THE MARSHALING OF ASSETS, THE SALE IN INVERSE ORDER OF ALIENATION, HOMESTEAD EXEMPTION, THE ADMINISTRATION OF ESTATES OF DECEDENTS, OR ANY OTHER MATTERS WHATSOEVER TO DEFEAT, REDUCE OR AFFECT THE RIGHT OF LENDER UNDER THE LOAN DOCUMENTS TO A SALE OF THE MORTGAGED PROPERTY FOR THE COLLECTION OF THE INDEBTEDNESS WITHOUT ANY PRIOR OR DIFFERENT RESORT FOR COLLECTION, OR THE RIGHT OF LENDER OR TRUSTEE TO THE PAYMENT OF THE INDEBTEDNESS OUT OF THE PROCEEDS OF SALE OF THE MORTGAGED PROPERTY IN PREFERENCE TO EVERY OTHER CLAIMANT WHATSOEVER; (iii) WAIVES ANY RIGHT TO BRING OR UTILIZE ANY DEFENSE, COUNTERCLAIM OR SETOFF, OTHER THAN ONE IN GOOD FAITH, WHICH DENIES THE EXISTENCE OR SUFFICIENCY OF THE FACTS UPON WHICH THE FORECLOSURE ACTION IS GROUNDED OR WHICH IS BASED ON LENDER'S OR TRUSTEE'S WRONGFUL ACTIONS. IF ANY DEFENSE, COUNTERCLAIM OR SETOFF (OTHER THAN ONE PERMITTED BY THE PRECEDING SENTENCE) IS RAISED BY BORROWER IN SUCH FORECLOSURE ACTION, SUCH DEFENSE, COUNTERCLAIM OR SETOFF SHALL BE DISMISSED. IF SUCH DEFENSE, COUNTERCLAIM OR SETOFF IS BASED ON A CLAIM WHICH COULD BE TRIED IN AN ACTION FOR MONEY DAMAGES, THE FOREGOING WAIVER SHALL NOT BAR A SEPARATE 46 51 ACTION FOR SUCH DAMAGE (UNLESS SUCH CLAIM IS REQUIRED BY LAW OR APPLICABLE RULES OF PROCEDURE TO BE PLEADED IN OR CONSOLIDATED WITH THE ACTION INITIATED BY LENDER OR TRUSTEE), BUT SUCH SEPARATE ACTION SHALL NOT THEREAFTER BE CONSOLIDATED WITH LENDER'S OR TRUSTEE'S FORECLOSURE ACTION. THE BRINGING OF SUCH SEPARATE ACTION FOR MONEY DAMAGES SHALL NOT BE DEEMED TO AFFORD ANY GROUNDS FOR STAYING ANY SUCH FORECLOSURE ACTION; (iv) WAIVES AND RELINQUISHES ANY AND ALL RIGHTS AND REMEDIES WHICH BORROWER MAY HAVE OR BE ABLE TO ASSERT BY REASON OF THE PROVISIONS OF ANY LAWS PERTAINING TO THE RIGHTS AND REMEDIES OF SURETIES, INCLUDING WITHOUT LIMITATION, _________________________, OR ANY CORRESPONDING FUTURE STATUTE OR RULE OF LAW; (v) WAIVES THE DEFENSE OF LACHES AND ANY APPLICABLE STATUTES OF LIMITATION; AND (vi) WAIVES ANY RIGHT TO HAVE ANY TRIAL, ACTION OR PROCEEDING TRIED BY A JURY. (h) Lender's Discretion. Lender may exercise its rights, options and remedies and may make all decisions, judgments and determinations under this Deed of Trust and the other Loan Documents in its sole unfettered discretion. (i) Recitals of Facts. Intentionally Deleted. (j) Lender's Right to Waive, Consent or Release. Lender may at any time, in writing, (i) waive compliance by Borrower with any covenant herein made by Borrower to the extent and in the manner specified in such writing; (ii) consent to Borrower's doing any act which Borrower is prohibited hereunder from doing, or consent to Borrower's failing to do any act which Borrower is required hereunder to do, to the extent and in the manner specified in such writing; or (iii) release or require Trustee to release any portion of the Mortgaged Property, or any interest therein, from this Deed of Trust and the lien of the other Loan Documents. No such act shall in any way impair the rights of Lender or Trustee hereunder except to the extent specified by Lender in such writing. (k) Possession of the Mortgaged Property. Upon the occurrence of any Event of Default hereunder and demand by Lender at its option, Borrower shall immediately surrender or cause the surrender of possession of the Premises to Lender subject to the Permitted Encumbrances. Except as expressly provided in any separate written agreement between Lender and any other occupant of the Premises, if Borrower or such occupant is permitted to remain in possession, such possession shall be as tenant of Lender and such occupant (i) shall on demand pay to Lender monthly, in advance, reasonable use and occupancy charges for the space so occupied, and (ii) in default thereof, may be dispossessed by the usual summary proceedings. Upon 47 52 demand, Borrower shall assemble the Collateral and make it available at the Premises to allow Lender to take possession and/or dispose of the Collateral. The covenants herein contained may be enforced by a receiver of the Mortgaged Property or any portion thereof. Nothing in this Section 4.03(k) shall be deemed a waiver of the provisions of this Deed of Trust prohibiting the sale or other disposition of the Mortgaged Property without Lender's consent except as and to the extent expressly permitted in the Loan Documents. (l) Limitations on Liability (i) Notwithstanding anything to the contrary contained in any of the Loan Documents or the Related Loan Documents but subject to the provisions of this Section 4.03(l), in any action or proceedings brought on this Deed of Trust, the Note or on any of the Loan Documents in which a money judgment is sought, Lender and Trustee will look solely to the Mortgaged Property (including the Property Income) for payment of the Indebtedness and, specifically and without limitation, Lender and Trustee agree to waive any right to seek or obtain a deficiency judgment against Borrower. (ii) The provisions of Section 4.03(1)(i) shall not (u) constitute a waiver, release or impairment of any obligation evidenced or secured by this Deed of Trust, the Note or any other Loan Document by either Lender or Trustee to the extent of the Mortgaged Property securing such obligation; (v) be deemed to be a waiver of any right which Lender or Trustee may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Indebtedness secured by this Deed of Trust or to require that all Collateral shall continue to secure all of the Indebtedness owing to Lender in accordance with the Note, this Deed of Trust and the Loan Documents; (w) impair the right of the Lender or Trustee to name the Borrower or any principals of Borrower or any guarantor of the Note as a party or parties defendant in any action or suit for judicial foreclosure and sale under this Deed of Trust; (x) affect the validity or enforceability of, or limit recovery under, any separate indemnity agreement (including the environmental indemnity set forth in any separate environmental indemnity agreement, however designated), or guaranty made in connection with this Deed of Trust, the Note or the Loan Documents; 48 53 (y) impair the right of the Lender or Trustee to obtain the appointment of a receiver; or, (z) impair Lender's or Trustee's rights and remedies under Section 2.19 of this Deed of Trust regarding the assignment of Leases and Property Income to Lender or under the Assignment. (iii) Notwithstanding any provisions of this Subsection 4.03(l), nothing herein shall be deemed to impair or prejudice in any way the right of Lender or Trustee (which right is specifically reserved) to pursue or obtain personal recourse liability against Borrower, or Guarantor to recover Losses incurred by Lender or Trustee arising out of or resulting from: (u) obligations and liabilities under any separate guaranty or separate indemnity agreement; (v) fraud or material misrepresentation in connection with the Application or the making of the Loan; (w) insurance and/or condemnation proceeds received but not paid over or applied in accordance with the Loan Documents; (x) misappropriation of any security deposits, advances or prepaid rents, cancellation or termination payments or other similar sums received by Borrower from any tenants or other occupants of the Premises; (y) personal property covered by Lender's security interest obtained in connection with the Loan which is taken from the Mortgaged Property by or on behalf of Borrower and not replaced in the ordinary course of business with personal property of the same utility and of the same or greater value; (z) any act of arson, malicious destruction or material waste by Borrower, any principal, affiliate, member or general or limited partner of Borrower, or by any guarantor or indemnitor under any of the Loan Documents given to Lender in connection with the making of the Loan; (aa) revenues of the Mortgaged Property which are not applied to payments due under the Loan or to operating expenses of the Mortgaged Property (including, without limitation, any reserves or escrows required by any Loan Document) thereby resulting in, or contributing materially to, a default under the 49 54 Loan Documents. Lender, however, shall have no right to recover distributions from the revenues of the Mortgaged Property to Borrower or Guarantor or any principal of Borrower or Guarantor made in good faith (after determining the sufficiency of revenues to cover the payments on the Loan and the foregoing operating and capital expenses) more than ninety (90) days prior to a default occurring under any Loan Document; (bb) [FCH/SH Leasing] [FCH/SH Leasing II]'s pledge in violation of the Loan Documents of the revenues or operating accounts relating to the Mortgaged Property, Lessee's Personal Property (as defined in the Primary Lease) or any other rights of [FCH/SH Leasing] [FCH/SH Leasing II] under the Primary Lease or [FCH/SH Leasing] [FCH/SH Leasing II]'s failure to keep all of the foregoing lien free in violation of the Loan Documents; (cc) any fraudulent conveyance or transfer (or claim of any fraudulent conveyance or transfer) of any of the Mortgaged Properties (or any interest therein) to Borrower; (dd) the bankruptcy or insolvency of any fee owner of any of the Mortgaged Properties other than Borrower; or (ee) any transfer or mortgage tax (or claim of any transfer or mortgage tax) arising from the transfer to Borrower or mortgage by the fee owner or Borrower of any of the Mortgaged Properties or any interest therein. (iv) Notwithstanding the foregoing and subject to the last sentence of this paragraph, the agreement of Lender and Trustee not to pursue recourse liability as set forth in Section 4.03(l)(i) above SHALL AUTOMATICALLY BECOME NULL AND VOID and be of no further force and effect in the event (x) Borrower, any general partner or member (if Borrower shall be a limited liability company) of Borrower or any guarantor of the Indebtedness files or consents to the filing of any petition under the U.S. Bankruptcy Code respecting its or their debts, or (y) any such petition shall have been filed against any of the foregoing which is not dismissed within 90 days of such filing; except for an involuntary bankruptcy filed by Lender and provided further, that if: (1) after ninety (90) days following the filing of an involuntary bankruptcy proceeding, such proceeding is dismissed with prejudice and without adversely affecting the enforceability or priority of any of the Loan Documents; and (2) such dismissal occurs prior to the occurrence of any of the following: (v) the entry of any order that adversely affects the enforceability or priority of any of the Loan Documents (other than solely by reason of the automatic stay), (w) the entry of 50 55 any order granting any person relief from the automatic stay to foreclose against, enforce any lien or security interest, levy upon, or repossess any material assets of Borrower that constitute a part of, or that relate to the Mortgaged Properties, or to terminate any Management Agreement or Primary Lease, (x) the liquidation of any material assets of Borrower that constitute a part of, or that relate to, the Mortgaged Properties, (y) the entry of any order approving the rejection or termination of any Primary Lease or any Management Agreement, or (z) the entry of any order approving any plan of reorganization for Borrower; and (3) throughout the period following the filing of such bankruptcy proceeding, Borrower or one or more of Borrower and persons or entities having an interest in Borrower have continued to make regular payments of debt service on a timely basis in accordance with the provisions of the Loan Documents. Borrower or one or more of Borrower and Guarantor shall be personally liable only for the actual damages, losses, costs, and expenses (including attorneys' fees) incurred by Lender (expressly including any diminution, loss or damage to the Collateral) as a result of such bankruptcy filing. (m) Subrogation. If all or any portion of the proceeds of the Note or any Advance shall be used directly or indirectly to pay off, discharge or satisfy, in whole or in part, any prior lien or encumbrance upon the Mortgaged Property or any portion thereof, then Lender and Trustee shall be subrogated to, and shall have the benefit of the priority of, such other lien or encumbrance and any additional security held by the holder thereof. (n) Additional Provisions Regarding Remedies. (i) Should Lender elect to foreclose by exercise of power of sale set forth in this Deed of Trust, then upon receipt of such notice from Lender, Trustee shall cause to be recorded, published, posted and mailed to Borrower and other persons as required by law a Notice of Trustee's Sale in the manner required by law. Without further notice to Borrower and after the lapse of such time as may then be required by law, Trustee shall sell the Mortgaged Property at the time and place of sale fixed by it in said Notice of Trustee's Sale or as otherwise provided by law. The Mortgaged Property may be sold as a whole or in such separate lots, parcels or items as Trustee shall deem expedient, and such order as Trustee may determine, at public auction in the manner provided by law. Trustee shall deliver to the purchaser or purchasers its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. Any person, including Borrower, Trustee or Lender, may purchase at such sale. 51 56 (ii) After deducting all costs, fees and expenses of Trustee and of this Deed of Trust, including reasonable attorneys' fees and all costs of title reports and other evidence of title and any appraisals, environmental and other professional reports obtained by Lender or Trustee in connection with the sale, Trustee shall apply the proceeds of sale to payment of the Indebtedness and the remainder, if any, to the person or persons legally entitled thereto, or as provided in _________________. (iii) Trustee may postpone the sale of all or any portion of the Mortgaged Property or change the place of sale in the manner provided by law. (iv) The power of sale under this Deed of Trust shall not be exhausted by any one or more sales (or attempted sales) as to all or any portion of the Mortgaged Property remaining unsold, but shall continue unimpaired until all of the Mortgaged Property has been sold and all of the Indebtedness has been paid in full. (o) Additional Remedies. Subject to the provisions of Section 4.03(l) hereof, Lender shall have, in addition to all other rights and remedies provided herein and in the Loan Documents and at law or in equity, the rights and remedies afforded by _________________, without regard to the adequacy of the security or to the solvency of Borrower or to whether Trustee or Lender has commenced to exercise any other right or remedy herein or in any other Loan Document or at law or in equity. (p) Accurate Reflection. Borrower hereby acknowledges and agrees that the Loan Documents accurately reflect the agreements and understandings of the parties thereto with respect to the subject matter thereof, and hereby waives any claims against Lender that Borrower may now have or may hereafter acquire to the effect that the actual agreements and understandings of the parties to the Loan Documents, with respect to the subject matter thereof, may not be accurately set forth in the Loan Documents. 52 57 ARTICLE V Trustee Section 5.01. Certain Actions of Trustee. Upon the written request of Lender, Trustee may at any time (a) reconvey all or any portion of the Mortgaged Property, (b) consent to the making of any map or plat thereof, (c) join in granting any easement thereon or in creating any covenants or conditions restricting the use or occupancy thereof, or (d) join in any extension agreement or in any agreement subordinating the lien or charge hereof. Any such action may be taken by Trustee without notice, and shall not affect the personal liability of any person for the payment of the Indebtedness or the lien of this Deed of Trust upon the Mortgaged Property for the full amount of the Indebtedness. Section 5.02. Reconveyance. Upon the written request of Lender stating that all sums secured hereby have been paid, and upon payment of its fees, Trustee shall reconvey without warranty the Mortgaged Property then held by Trustee hereunder. Section 5.03. Trustee's Covenants and Compensation. Trustee, by its acceptance hereof, covenants faithfully to perform and fulfill the trust herein created, being liable, however, only for negligence or willful misconduct. Trustee hereby waives any statutory fee and shall be entitled to, and hereby agrees to accept, reasonable compensation in lieu thereof for all services rendered or expenses incurred in the administration or execution of the trust hereby created. Borrower hereby agrees to pay such compensation subject to any applicable legal limitations. Section 5.04. Substitution of Trustee. Lender at any time in its sole discretion may select and appoint a successor or substitute Trustee hereunder by instrument in writing in any manner now or hereafter provided by law. Such writing, upon recordation in the county where the Land is located, shall be conclusive proof of proper substitution of such successor or substitute Trustee which shall thereupon and without conveyance from the predecessor Trustee succeed to all its title, estate rights, powers and duties. Section 5.05. Resignation of Trustee. Trustee may resign at any time upon giving 30 days' notice to Borrower and to Lender. Section 5.06. Ratification of Acts of Trustee. Borrower hereby ratifies and confirms any and all acts which Trustee named herein or its successors or assigns in this trust shall do lawfully by virtue hereof. 53 58 ARTICLE VI Miscellaneous Section 6.01. Notices. (a) All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (i) certified or registered United States mail, postage prepaid, or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, addressed in either case to any party hereto at its address as stated on the Cover Sheet of this Deed of Trust, or at such other address and person as shall be designated from time to time by Lender or Borrower, as the case may be, in a written notice to the other party in the manner provided for in this Section 6.01. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, three Business Days after deposit in the United States mail; or in the case of expedited prepaid delivery, upon the first attempted delivery on a Business Day. A party receiving a notice which does not comply with the technical requirements for notice under this Section 6.01 may elect to waive any deficiencies and treat the notice as having been properly given. (b) Borrower shall notify Lender promptly of the occurrence of any of the following: (i) receipt of notice from any governmental authority of material violations of applicable law relating to the Mortgaged Property; (ii) receipt of any notice from the holder of any other lien or security interest in the Mortgaged Property; or (iii) commencement of any judicial or administrative proceedings by, against or otherwise materially adversely affecting Borrower or Guarantor, the Mortgaged Property, or any other action by any creditor thereof as a result of any default under the terms of any loan. Section 6.02. Binding Obligations; Joint and Several. The provisions and covenants of this Deed of Trust shall run with the land, shall be binding upon Borrower, its successors and assigns, and shall inure to the benefit of Lender and Trustee and their respective successors and assigns. If there is more than one Borrower, all their obligations and undertakings hereunder are and shall be joint and several. Section 6.03. Captions. The captions of the sections and subsections of this Deed of Trust are for convenience only and are not intended to be a part of this Deed of Trust and shall not be deemed to modify, explain, enlarge or restrict any of the provisions hereof. Section 6.04. Further Assurances. Borrower shall do, execute, acknowledge and deliver, at its sole cost and expense, such further acts, instruments or documentation, including additional title insurance policies or endorsements, as Lender or Trustee may reasonably require from time to time to better assure, transfer and confirm unto Lender the rights now or hereafter intended to be granted to Lender and/or Trustee under this Deed of Trust or any other Loan Document. 54 59 Section 6.05. Severability. If any one or more of the provisions contained in this Deed of Trust shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Deed of Trust, but this Deed of Trust shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Section 6.06. Borrower's Obligations Absolute. Except as expressly permitted by the Loan Documents, all sums payable by Borrower hereunder shall be paid without notice, demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Borrower hereunder shall in no way be released, discharged, or otherwise affected (except as expressly provided herein) by reason of: (a) any damage to or destruction of or any condemnation or similar taking of the Mortgaged Property or any portion thereof; (b) any restriction or prevention of or interference with any use of the Mortgaged Property or any portion thereof; (c) any title defect or encumbrance or any eviction from the Premises or any portion thereof by title paramount or otherwise; (d) any Bankruptcy Proceeding relating to Borrower, any general partner of Borrower, or any guarantor or indemnitor, or any action taken with respect to this Deed of Trust or any other Loan Document by any trustee or receiver of Borrower or any such general partner, guarantor or indemnitor, or by any court, in any such proceeding; (e) any claim presently known to Borrower which Borrower has or might have against Lender or Trustee; (f) any default or failure on the part of Lender or Trustee prior to the date hereof to perform or comply with any of the terms hereof or of any other agreement with Borrower; or (g) any other occurrence whatsoever, whether similar or dissimilar to the foregoing. Except as expressly provided herein, Borrower waives all rights now or hereafter conferred by statute or otherwise to any abatement, suspension, deferment, diminution or reduction of any sum secured hereby and payable by Borrower. Section 6.07. Amendments. This Deed of Trust cannot be altered, amended, modified or discharged orally and no executory agreement shall be effective to modify or discharge it in whole or in part, unless in writing and signed by the party against which enforcement is sought. Section 6.08. Other Loan Documents and Schedules. All of the agreements, conditions, covenants, provisions and stipulations contained in the Note and the other Loan Documents, and each of them, which are to be kept and performed by Borrower are hereby made a part of this Deed of Trust to the same extent and with the same force and effect as if they were fully set forth in this Deed of Trust, and Borrower shall keep and perform the same, or cause them to be kept and performed, strictly in accordance with their respective terms. The Cover Sheet and each schedule attached to this Deed of Trust are integral parts of this Deed of Trust and are incorporated herein by this reference. In the event of any conflict between the provisions of any such schedule and the remainder of this Deed of Trust, the provisions of such schedule or rider shall prevail. 55 60 Section 6.09. Legal Construction. (a) The enforcement of this Deed of Trust shall be governed by, and construed and interpreted in accordance with, the laws of the State. (b) All terms contained herein shall be construed, whenever the context of this Deed of Trust so requires, so that the singular number shall include the plural, and the plural the singular, and the use of any gender shall include all genders. (c) The terms "include" and "including" as used in this Deed of Trust shall be construed as if followed by the phrase "without limitation". (d) Any provision of this Deed of Trust permitting the recovery of attorneys' fees and costs shall be deemed to include such fees and costs incurred in all appellate proceedings. Section 6.10. Merger. So long as any Indebtedness shall remain unpaid, fee title to and any other estate in the Mortgaged Property shall not merge, but shall be kept separate and distinct, notwithstanding the union of such estates in any person or entity. Section 6.11. Time of the Essence. Time shall be of the essence in the performance of all obligations of Borrower under this Deed of Trust. Section 6.12. Transfer of Loan. Lender, in the management of its investments or for any other reason, may, at any time, sell, transfer or assign the Note, the Deed of Trust and the other Loan Documents and the servicing rights with respect thereto or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in the Note, Deed of Trust and other Loan Documents (collectively, a "Transfer"). As part of a Transfer, Lender may forward to each transferee, assignee, servicer, participant or investor all documents and information which Lender now has or may hereafter acquire relating to the Indebtedness, the Loan Documents and the Mortgaged Property. Borrower agrees to cooperate with Lender at no cost to Borrower in connection with a Transfer including, without limitation, the delivery of any estoppel certificates required under Section 2.18 and such other documents as may be reasonably be requested by Lender. Section 6.13. Satisfaction. If all of the Indebtedness is paid in full in accordance with the Note and the other Loan Documents, then in that event only all rights of Lender and Trustee under this Deed of Trust and the other Loan Documents shall terminate and the Mortgaged Property shall become wholly clear of the liens, grants, security interests, conveyances and assignments evidenced hereby and thereby, and Lender shall release or cause to be released such liens, grants, assignments, conveyances and security interests in due form at Borrower's cost (to the extent permitted by the law of the State), and this Deed of Trust shall be void; provided, however, that no provision of this Deed of 56 61 Trust or any other Loan Document which, by its own terms, is intended to survive such payment and release (nor the rights of Lender or Trustee under any such provision) shall be affected in any manner thereby and such provision shall, in fact, survive. Recitals of any matters or facts in any release instrument executed by Lender or Trustee under this Section 6.13 shall be prima facie evidence of the truthfulness thereof. To the extent permitted by law, such an instrument may describe the grantee or releasee as "the person or persons legally entitled thereto" and Lender and Trustee shall not have any duty to determine the rights of persons claiming to be rightful grantees or releasees of any of the Mortgaged Property. When this Deed of Trust has been fully released or discharged by Lender and/or Trustee, the release or discharge hereof shall operate as a release and discharge of the Assignment and as a reassignment of all future Leases and Property Income with respect to the Mortgaged Property to the person or persons legally entitled thereto, unless such release expressly provides to the contrary. Section 6.14. Defeasance Requirements. (a) Five (5) years after the Closing Date, Borrower may voluntarily defease all of the Loan and the Related Loans. (b) Any defeasance of the Loan and the Related Loans by Borrower shall be made on a Payment Date. (c) Borrower shall not be permitted at any time to defease all or any part of the Loan or the Related Loans except as expressly provided in this Section 6.14. (d) Subject to the terms and conditions of this Deed of Trust, Borrower may defease the Loan and the Related Loans if Borrower: (i) has provided not less than thirty (30) days prior written notice to Lender specifying a Payment Date (the "Defeasance Release Date") on which the payments provided in clauses (ii) and (iii) below are to be made and the deposit provided in clause (iv) below is to be made, (ii) pays all interest accrued and unpaid on the outstanding principal amount of the Loan and the Related Loans to and including the Defeasance Release Date, (iii) pays all other sums then due and payable under the Loan Documents and the Related Loan Documents, (iv) deposits with Lender an amount equal to the Defeasance Deposit, (v) delivers to Lender (A) a security agreement, in form and substance satisfactory to Lender and Borrower, creating a first priority perfected Lien on the deposits required pursuant to this Section 6.14 and the U.S. Obligations purchased on behalf of Borrower in accordance with this Section 6.14 (the "Defeasance Security Agreement"), (B) a release of the Mortgaged Property from the lien of the Deed of Trust in a form appropriate for the jurisdiction in which the Mortgaged Property is located, to be executed by Lender, (C) an officer's certificate of Borrower certifying that the requirements set forth in this Section 6.14 have been satisfied, and (D) such other certificates, documents or instruments as Lender may reasonably request, and (vi) assigns to such other entity or entities established or designated by Lender (the "Successor 57 62 Obligor") all of Borrower's rights, interests and obligations under the Note, each Related Note, the other Loan Documents and the other Related Loan Documents and the Defeasance Security Agreement together with the pledged U.S. Obligations. The Successor Obligor shall assume, in a writing or writings reasonably satisfactory to Lender in Lender's discretion, all of Borrower's obligations under the Note, each Related Note, the other Loan Documents and the other Related Loan Documents and the Defeasance Security Agreement and, upon such assignment Borrower and Guarantor shall, except as set forth herein, be relieved of its obligation under all the Loan Documents and all of the Related Loan Documents. (e) The U.S. Obligations shall mature on or be redeemable, or provide for payment thereon, on or prior to the Business Day immediately preceding the date on which payments under the Note and each Related Note are due and payable and the proceeds thereof shall be payable directly to Lender. In connection with the foregoing, Borrower appoints Lender as Borrower's agent for the purpose of applying the amounts delivered pursuant to clause (d)(iv) above to purchase U.S. Obligations. (f) If any notice of defeasance is given, Borrower shall be required to defease the Loan and the Related Loans on the specified Payment Date (unless such notice is revoked in writing by Borrower prior to the date specified therein in which event Borrower shall immediately reimburse Lender for any costs incurred by Lender in connection with Borrower's giving of such notice and revocation). (g) Upon defeasance of the Loan and the Related Loans in accordance with the requirements of this Section 6.14, the Mortgaged Property shall be released from the lien of the Deed of Trust and the Remaining Properties shall be released from the liens of the Related Mortgages. Notwithstanding the foregoing, Borrower acknowledges that Borrower only has the right to simultaneously defease the Loan and the Related Loans and shall have no right to defease any such loan in and of itself. (h) Nothing in this Section 6.14 shall release Borrower from any liability or obligation relating to any environmental matters arising under Sections 2.20 through 2.22 hereof. Section 6.15. Partial Release. Borrower shall be entitled at any time to a release of the lien of this Deed of Trust (but not any other Related Mortgage) only if each of the following conditions has been satisfied: (a) A release under this Section 6.15 and Section 5.15 of each Related Mortgage may not take place more than three (3) times (in the aggregate) during the term of this Loan and the Related Loans; 58 63 (b) No more than a total of three (3) of the Mortgaged Properties may be released under this Section 6.15 and Section 5.15 of each Related Mortgage, and no more than a total of three (3) of the Mortgaged Properties may be released under (i) this Section 6.15 and Section 5.15 of each Related Mortgage, and (ii) Section 6.16 of this Deed of Trust and Section 5.16 of each Related Mortgage; (c) After the proposed release, the Debt Service Coverage Ratio - Remaining Properties for the twelve (12) months prior to the release and projected twelve (12) months following the release must be at least equal to or greater than the greater of (x) 1.65, or (y) the current Debt Service Coverage Ratio - Mortgaged Properties calculated for the twelve (12) month period prior to the release; (d) After the proposed release, the loan to value ratio of the remaining Related Loans must be less than or equal to 60% as calculated immediately prior to the release based upon appraisals furnished to Lender in form and substance reasonably satisfactory to Lender and prepared by an MAI appraiser approved by Lender at Borrower's cost or as determined by Lender; (e) Borrower shall pay Lender in reduction of the principal balance of the Loan a sum equal to 115% of the original Allocated Loan Amount for the Mortgaged Property, plus Borrower shall in addition pay to Lender a "prepayment premium" applied to said sum and computed in the manner specified in the Note; (f) Neither the Loan nor the Related Loans shall be in Default at the time such request for release is made through the completion of the release; (g) Borrower must pay all of Lender's costs associated with the partial release plus a fee of .5% of the original Allocated Loan Amount for the Mortgaged Property to be released; (h) The original Borrower named in the Loan Documents and the Related Loan Documents continues to be the owner of the Remaining Mortgaged Properties; and (i) All documents relating to the release shall be in form and substance satisfactory to Lender. Section 6.16. Substitution of Collateral. Borrower shall be entitled to substitute a property (being defined as releasing a property that then constitutes security for the Loan (the "Released Property")) and substituting another property owned in fee by Borrower (the "Substitute Property") in its place on the following terms and conditions: (a) A substitution may not take place more than three (3) times during the term of the Loan and the Related Loans; 59 64 (b) No more than three (3) properties (in the aggregate) may be released under this Section 6.16 and Section 5.16 of each Related Mortgage, and no more than a total of three (3) of the Mortgaged Properties may be released under (i) Section 6.15 above and Section 5.15 of each Related Mortgage, and (ii) this Section 6.16 and Section 5.16 of each Related Mortgage; (c) After the proposed substitution, the Debt Service Coverage Ratio - Remaining Properties for the twelve (12) months prior to the substitution and projected twelve (12) months following the substitution must be at least equal to or greater than the greater of (i) 1.65, or (ii) the current Debt Service Coverage Ratio - Mortgaged Properties calculated for the twelve (12) month period prior to the substitution; (d) After the proposed substitution, the loan to value ratio of the remaining Related Loans must be less than or equal to the lesser of (i) 60%, or (ii) the current loan to value ratio of the existing Loan and Related Loans calculated immediately prior to the substitution based upon appraisals furnished to Lender in form and substance reasonably satisfactory to Lender and prepared by an MAI appraiser approved by Lender at Borrower's cost; (e) The net operating income and/or RevPar (as reported by Smith Travel) of the Substitute Property must not show a downward trend for any of the three (3) years prior to the substitution; (f) The appraised value (based upon appraisals furnished to Lender in form and substance reasonably satisfactory to Lender and prepared by an MAI appraiser approved by Lender at Borrower's cost), the net operating income and current debt service coverage ratio of the Substitute Property must be 120% greater than the appraised value, net operating income and the debt service coverage ratio of the Released Property; (g) Lender may at its sole discretion reject any property substitution that in Lender's sole determination would not be in compliance with the terms and provisions of the Loan Application, would be detrimental to the overall quality and/or value of the Mortgaged Properties, or would not be in compliance with Lender's then existing underwriting standards and criteria; (h) The Substitute Property must be franchised as a "Sheraton or Sheraton Suites", or other franchise reasonably acceptable to Lender, and managed by the manager under the Management Agreement or another a nationally recognized hotel management company with a franchise and hotel agreement similar to the Management Agreement or otherwise reasonably acceptable to Lender; 60 65 (i) Borrower must pay (i) all of Lender's costs (all of which must be paid, whether or not such substitution is actually approved or completed) associated with the substitution including but not limited to legal fees, appraised fees, market studies and expenses, title insurance premiums on the new property, engineering fees and expenses, recording fees and transfer taxes, and (ii) a fee of 1% of the original Allocated Loan Amount for the Released Property; (j) The Loan and any Related Loan shall not be in Default at the time such request for substitution is made through the completion of the substitution; (k) The original Borrower named in the Loan Documents and Related Loan Documents continues to be the owner of the Remaining Mortgaged Properties; and (l) In order to substitute one property for another as security for the Loan or any Related Loan, Borrower acknowledges that such substitute property shall be subject to all of Lender's underwriting and due diligence requirements and criteria, including, without limitation, environmental assessment, review of leases, receipt of tenant subordination letters, title policy endorsements, etc. Borrower agrees that the Substitute Property shall be subject to all the terms and conditions of the Loan Application. [SEE FOLLOWING PAGE FOR SIGNATURES] 61 66 IN WITNESS WHEREOF, this Deed of Trust has been duly executed and delivered as of the day and year first above written. BORROWER FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited partnership By: FelCor/MM S-7 Hotels, L.L.C., a Delaware limited liability company, its general partner By: ---------------------------------- Joel M. Eastman, Vice President 62 67 ACKNOWLEDGMENT STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on this _____ day of April, 2000, by Joel M. Eastman, as Vice President of FelCor/MM S-7 Hotels, L.L.C., a Delaware limited liability company, which is the general partner of FelCor/MM S-7 Holdings, L.P., a Delaware limited partnership, on behalf of said entities. My Commission expires: ------------------------------------------- Notary Public in and for the State of Texas - ---------------------- ------------------------------------------- Printed/Typed Name of Notary 68 SCHEDULE A DESCRIPTION OF LAND 69 SCHEDULE B PERMITTED ENCUMBRANCES EX-10.24.1 3 ex10-24_1.txt FORM OF ACCOMODATION CROSS-COLLATERALIZATION 1 EXHIBIT 10.24.1 Re: --------------------------- --------------------------- --------------------------- RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: John E. Bromberg, Esq. Stutzman & Bromberg A Professional Corporation 2323 Bryan Street, Suite 2200A Dallas, Texas 75201 ACCOMMODATION CROSS-COLLATERALIZATION DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS Cover Sheet Dated as of April 20, 2000 Trustor: FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited partnership (Hereinafter sometimes "Borrower") Trustor's c/o FelCor Lodging Trust Incorporated Notice Address: 545 E. John Carpenter Freeway, Suite 1300 Irving, Texas 75062 Attention: Andrew J. Welch or Joel M. Eastman Trustee: --------------------------------------- Trustee's Notice Address: ------------------------------- ------------------------------- ------------------------------- 2 Beneficiary: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation, and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation (Hereinafter sometimes collectively "Lender") MassMutual c/o David L. Babson and Company Incorporated Notice Address: 1295 State Street Springfield, Massachusetts 01111-0001 Attention: Senior Managing Director Mortgage Portfolio Department Real Estate Investment Group TIAA Notice Address 730 Third Avenue New York, New York 10017 Attn: Director Portfolio Management Mortgage and Real Estate Loan Amount: $_________________ evidenced by two (2) promissory notes, each in the original principal amount of $__________ Maturity Date: May 1, 2010 State: --------------- Record Owner of the Land FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited (as defined herein): partnership 3 ACCOMMODATION CROSS-COLLATERALIZATION DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS TABLE OF CONTENTS
PAGE ---- GRANTING CLAUSES..................................................................................................1 ARTICLE I - Definition of Terms...................................................................................4 ARTICLE II - Covenants of Borrower...............................................................................17 Section 2.01. - Payment of the Indebtedness......................................................................17 Section 2.02. - Title to the Mortgaged Property..................................................................17 Section 2.03. - Maintenance of the Mortgaged Property............................................................17 Section 2.04. - Insurance; Restoration...........................................................................18 Section 2.05. - Condemnation.....................................................................................24 Section 2.06. - Impositions......................................................................................24 Section 2.07. - Deposits.........................................................................................25 Section 2.08. - Mortgage Taxes...................................................................................26 Section 2.09. - Loan Documents Authorized........................................................................26 Section 2.10. - Maintenance of Existence.........................................................................27 Section 2.11. - Payment of Liens.................................................................................27 Section 2.12. - Costs of Defending and Upholding the Lien........................................................27 Section 2.13. - Costs of Enforcement.............................................................................28 Section 2.14. - Interest on Advances and Expenses................................................................28 Section 2.15. - Indemnification..................................................................................28 Section 2.16. - Financial Statements; Records....................................................................28 Section 2.17. - Prohibition Against Conveyances and Encumbrances.................................................30 Section 2.18. - Estoppel Certificates............................................................................32 Section 2.19. - Assignment of Leases and Property Income.........................................................32 Section 2.20. - Environmental Matters; Warranties; Notice; Indemnity.............................................34 Section 2.21. - Environmental Matters; Remedial Work.............................................................36 Section 2.22. - Environmental Matters; Inspection................................................................37 Section 2.23. - Management.......................................................................................38 Section 2.24. - ERISA............................................................................................38 Section 2.25. - Operating Agreements.............................................................................38 Section 2.26. - Single-Purpose Entity............................................................................39
i 4 ARTICLE III - Security Agreement.................................................................................39 Section 3.01. - Warranties, Representations and Covenants of Borrower............................................39 Section 3.02. - Financing Statements.............................................................................41 Section 3.03. - Addresses........................................................................................41 ARTICLE IV - Default and Remedies................................................................................41 Section 4.01. - Events of Default................................................................................41 Section 4.02. - Remedies.........................................................................................43 Section 4.03. - General Provisions Regarding Remedies............................................................45 ARTICLE V - Trustee..............................................................................................53 Section 5.01. - Certain Actions of Trustee.......................................................................53 Section 5.02. - Reconveyance.....................................................................................53 Section 5.03. - Trustee's Covenants and Compensation.............................................................53 Section 5.04. - Substitution of Trustee..........................................................................53 Section 5.05. - Resignation of Trustee...........................................................................54 Section 5.06. - Ratification of Acts of Trustee..................................................................54 ARTICLE VI - Miscellaneous.......................................................................................54 Section 6.01. - Notices..........................................................................................54 Section 6.02. - Binding Obligations; Joint and Several...........................................................55 Section 6.03. - Captions.........................................................................................55 Section 6.04. - Further Assurances...............................................................................55 Section 6.05. - Severability.....................................................................................55 Section 6.06. - Borrower's Obligations Absolute..................................................................55 Section 6.07. - Amendments.......................................................................................56 Section 6.08. - Other Loan Documents and Schedules...............................................................56 Section 6.09. - Legal Construction...............................................................................56 Section 6.10. - Merger...........................................................................................56 Section 6.11. - Time of the Essence..............................................................................56 Section 6.12. - Transfer of Loan.................................................................................57 Section 6.13. - Satisfaction.....................................................................................57 Section 6.14. - Defeasance Requirements..........................................................................57 Section 6.15. - Partial Release..................................................................................59 Section 6.16. - Substitution of Collateral.......................................................................60 Section 6.17. - Subordinate......................................................................................61 Signature Page...................................................................................................63
Schedule A - Description of Land Schedule B - Permitted Encumbrances Exhibit A - Example for Debt Service Coverage Ratio - Mortgaged Properties Exhibit B - Example for Debt Service Coverage Ratio - Remaining Properties ii 5 ACCOMMODATION CROSS-COLLATERALIZATION DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS THIS ACCOMMODATION CROSS-COLLATERALIZATION DEED OF TRUST AND SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES AND RENTS (this "Deed of Trust") is made as of April 20, 2000, by and between FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited partnership having an office at c/o FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Trustor" and "Borrower"), in favor of ____________________________ having an office at ___________________ ("Trustee"), for the use and benefit of MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation having an office at 1295 State Street, Springfield, Massachusetts 01111-0001 ("MassMutual") and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation ("TIAA") having an office at 730 Third Avenue, New York, New York 10017 (MassMutual and TIAA are collectively referred to herein as "Beneficiary" and "Lender"). GRANTING CLAUSES For good and valuable consideration and to secure and enforce pari passu an indebtedness in the principal sum of _____________________ ($_________________) lawful money of the United States, to be paid according to (i) that certain Promissory Note of even date herewith from Borrower to MassMutual in the principal sum of $______________ and by this reference made a part hereof (said Promissory Note, as the same may hereafter be amended, modified, consolidated or extended, the "MassMutual Note"), and (ii) that certain Promissory Note of even date herewith from Borrower to TIAA in the principal sum of $_______________ and by this reference made a part hereof (said Promissory Note as the same may hereafter be amended, modified, consolidated or extended, the "TIAA Note") (the MassMutual Note and the TIAA Note being hereinafter collectively referred to as the "Note"), together with all other obligations and liabilities due or becoming due to Lender pursuant to the Loan Documents (hereinafter defined) and the Related Loan Documents (hereinafter defined) and, all amounts, sums and expenses paid hereunder by or payable to Lender according to the terms hereof, and all other covenants, obligations and liabilities of Borrower under the Note, this Deed of Trust, the Assignment (hereinafter defined) and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Note (all of the foregoing instruments, collectively, the "Loan Documents") and the Related Loan Documents, together with all interest on said indebtedness, 1 6 obligations, liabilities, amounts, sums, Advances (as hereinafter defined) and expenses (all of the foregoing, collectively, the "Indebtedness"), Borrower has created in favor of Lender a security interest in and mortgaged, warranted, granted, bargained, sold, conveyed, assigned, pledged, transferred and set over, and does by these presents create a security interest in and MORTGAGE, WARRANT, GRANT, BARGAIN, SELL, CONVEY, ASSIGN, PLEDGE, TRANSFER AND SET OVER unto Trustee, as trustee for the benefit of Lender, to its successors in the trust created by this Deed of Trust, and to its or their respective assigns forever, in trust, with all POWERS OF SALE and RIGHTS OF ENTRY AND POSSESSION and all STATUTORY RIGHTS AND COVENANTS in the State (hereinafter defined), the following property: The parcel or parcels of land described in Schedule A attached hereto and by this reference made a part hereof (the "Land"); TOGETHER with the buildings, foundations, structures and improvements (including fixtures) now or hereafter located on or in the Land (collectively, the "Improvements"); TOGETHER with all right, title and interest, if any, of Borrower in and to the streets and roads, opened or proposed, abutting the Land, all strips and gores within or adjoining the Land, the air space and right to use the air space above the Land, all rights of ingress and egress to and from the Land, all easements, rights of way, reversions, remainders, estates, rights, titles, interests, privileges, servitudes, tenements, hereditaments, and appurtenances now or hereafter affecting the Land or the Improvements, all royalties and rights and privileges appertaining to the use and enjoyment of the Land or the Improvements, including all air, lateral support, streets, alleys, passages, vaults, drainage, water, oil, gas and mineral rights, development rights, all options to purchase or lease, and all other interests, estates or claims, in law or in equity, which Borrower now has or hereafter may acquire in or with respect to the Land or the Improvements (collectively, the "Appurtenances"); The Land, the Improvements and the Appurtenances are hereinafter sometimes collectively referred to as the "Premises"; TOGETHER with all of Borrower's possessory or title interest in and to all equipment, fittings, furniture, furnishings, appliances, apparatus, and machinery now or hereafter installed in or located upon the Premises and all building materials, supplies and equipment now or hereafter delivered to the Premises and intended to be installed therein or located thereon; all of Borrower's possessory or title interest in and to all fixtures, other goods and personal property of whatever kind and nature now contained on or in or hereafter placed on or in the Premises and used or to be used in connection with the letting or operation thereof (but specifically excluding inventory and other personal property owned by any lessee under a Lease) and all renewals or replacements of any of the foregoing property or articles in substitution thereof (collectively, the "Equipment"); 2 7 TOGETHER with all right, title and interest of Borrower in and under all present or future accounts, (including trade accounts, accounts receivables, credit card receivables, and rights to payments for goods and services, including food, beverages and other items sold or leased, whether or not earned by performance), escrows, documents, instruments, chattel paper, and general intangibles, as the foregoing terms are defined in the Code (hereinafter defined), and all contract rights, including, without limitation, casualty insurance policies and liability insurance policies (irrespective of whether such policies are required to be obtained or maintained in force pursuant to this Deed of Trust or other Loan Documents), trade names, trademarks, servicemarks, logos, copyrights, goodwill, franchises, books, records, plans, specifications, permits, licenses, approvals, actions and causes of action which now or hereafter relate to, are derived from or are used in connection with the Premises or the use, operation, maintenance, occupancy or enjoyment thereof or the conduct of any business or activities thereon (collectively, the "Intangibles"); TOGETHER with all right, title and interest of Borrower in and under all leases, lettings, tenancies, franchises and licenses of the Premises or any part thereof now or hereafter entered into and all amendments, extensions, renewals and guaranties thereof, all security therefor, and all moneys payable thereunder (collectively, the "Leases"); TOGETHER with all room rentals and charges of room rentals, room deposits, rents, income, accounts, receivables, issues, profits, security deposits and other benefits to which Borrower may now or hereafter be entitled from the Premises, the Equipment or the Intangibles or under or in connection with the Leases (collectively, the "Property Income"); and TOGETHER with all proceeds, judgments, claims, compensation, awards of damages and settlements pertaining to or resulting from or in lieu of any condemnation or taking of the Premises by eminent domain or any casualty loss or damage to any of the Premises, the Equipment, the Intangibles, the Leases or the Property Income, and including also, without limitation, the right to assert, prosecute and settle claims arising out of or pertaining to such condemnation or taking or such casualty loss under insurance policies constituting an Intangible and to apply for and receive payments of proceeds under such insurance policies and in any condemnation or taking, the right to apply for and receive all refunds with respect to the payment of property taxes and assessments and all other proceeds from the conversion, voluntary or involuntary, of the Premises, the Equipment, the Intangibles, the Leases or the Property Income, or any part thereof, into cash or liquidated claims. Collectively, all of the foregoing, are herein referred to as the "Proceeds." The Equipment, the Intangibles, the Leases, the Property Income and the Proceeds are hereinafter sometimes collectively referred to as the "Collateral." The Premises and the Collateral are hereinafter sometimes collectively referred to as the "Mortgaged Property." 3 8 TO HAVE AND TO HOLD the Mortgaged Property, with all the privileges and appurtenances to the same belonging, and with the possession and right of possession thereof, unto Trustee, as trustee for the benefit of Lender as beneficiary, to its successors in the trust created by this Deed of Trust, and to its or their successors and assigns forever, in trust, upon the terms and conditions set forth herein. TRUSTOR AGREES THAT THE LOAN EVIDENCED BY THE NOTE IS CROSS-DEFAULTED AND CROSS-COLLATERALIZED WITH THE LOANS EVIDENCED BY THE RELATED NOTES. IN THAT RESPECT, ANY DEFAULT UNDER THE RELATED LOAN DOCUMENTS SHALL CONSTITUTE A DEFAULT HEREUNDER. ARTICLE I Definition of Terms As used in this Deed of Trust, the terms set forth below shall have the following meanings: "Advances" - All sums, amounts or expenses advanced or paid and all costs reasonable incurred by Lender, as provided in this Deed of Trust or in any other Loan Document, upon failure of Borrower to pay or perform any obligation or covenant contained herein or in such other Loan Document. "Agreement Concerning Primary Lease Agreement" - means that certain Agreement Concerning Primary Lease Agreement of even date herewith between [FCH/SH Leasing] [FCH/SH Leasing II] and Lender and consented to by Borrower. "Allocated Loan Amount" - means the loan amount allocated to each of the Mortgaged Properties as follows:
Property Loan Amount - -------- ----------- Arizona $27,000,000.00 Florida $13,000,000.00 Georgia $18,000,000.00 Illinois $25,000,000.00 Kentucky $ 7,000,000.00 Pennsylvania $34,000,000.00 Vermont $21,000,000.00
4 9 "Annual Debt Service" - means all principal, interest and other payments due under the Note and any Related Note for any calendar year. "Application" - means that certain MassMutual Application for Real Estate Loan dated February 23, 2000 executed by Joel M. Eastman. "Appurtenances" - See Granting Clauses. ["Arizona Loan Documents" - means the Arizona Note, the Arizona Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Arizona Note. "Arizona Mortgage" - means that certain Deed of Trust and Security Agreement and Fixture Filing With Assignment of Leases and Rents of even date herewith securing the Arizona Note, executed by Borrower for the benefit of Mortgagee. "Arizona Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $13,500,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $13,500,000.00 executed by Borrower and payable to the order of TIAA.] "Assignment" - The Assignment of Leases and Rents from Borrower to Lender of even date herewith. "Bank" - has the meaning provided in Section 6.17. "Bankruptcy Proceeding" - Any proceeding, action, petition or filing under the Federal Bankruptcy Code or any similar state or federal law now or hereafter in effect relating to bankruptcy, reorganization or insolvency, or the arrangement or adjustment of debts. "Beneficiary" - Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America and their respective successors and assigns (including any other holders from time to time of the Note), and also herein called "Lender." "Borrower" - The party identified and defined as Trustor and Borrower on the Cover Sheet and in the preamble of this Deed of Trust, any subsequent owner of the Mortgaged Property, and its successors and assigns. "Business Day" - Any day other than a Saturday, Sunday or other day on which national banks in the State are not open for business. 5 10 "Closing Date" - means the date of this Deed of Trust. "Code" - The Uniform Commercial Code of the State. "Collateral" - See Granting Clauses. "Debt Service Coverage Ratio - Mortgaged Properties" - means (i) the amount of cash flow generated from the Mortgaged Properties available for payment of principal, interest, escrow deposits and other amounts, if any, due under the Note and each Related Note, after payment in cash of all other costs, fees and expenses attributable on an annual basis to the ownership, operation and maintenance of the Mortgaged Properties (including Impositions, insurance, and an FF&E reserve equal to four percent (4%) of the aggregate room and suite income), divided by (ii) the aggregate amount of principal, interest, escrow deposits and other amounts, if any, due on an annual basis under the Note and each Related Note; an example of the calculation of which is attached hereto as Exhibit A. "Debt Service Coverage Ratio - Remaining Properties" - means (i) the amount of cash flow generated from the Remaining Properties available for payment of principal, interest, escrow deposits and other amounts, if any, due under each remaining Related Note, after payment in cash of all other costs, fees and expenses attributable on an annual basis to the ownership, operation and maintenance of the Remaining Properties (including Impositions, insurance, and an FF&E reserve equal to four percent (4%) of the aggregate room and suite income), divided by (ii) the aggregate amount of principal, interest, escrow deposits and other amounts, if any, due on an annual basis under each remaining Related Note; an example of the calculation of which is attached hereto as Exhibit B. "Default" - means the occurrence of any event which, but for the giving of notice or the passage of time, or both, would be an Event of Default. "Default Rate" - The per annum interest rate equal to the sum of three percent (3%) plus the Contract Rate (as defined in the Note). "Defeasance Deposit" - means the amount that will be sufficient to purchase U.S. Obligations (A) having maturity dates on or prior to, but as close as possible to, successive scheduled Payment Dates (after the Defeasance Release Date) upon which Payment Dates interest and principal payments would be required under the Note and the Related Notes and (B) in amounts sufficient to pay all scheduled principal and interest payments on the Note and the Related Notes. "Defeasance Release Date" - has the meaning provided in Section 6.14(b). 6 11 "Defeasance Security Agreement" - has the meaning provided in Section 6.14(d). "Entity" - means a (i) corporation, if Borrower is listed as a corporation in the preamble to this Deed of Trust, (ii) limited partnership, if Borrower is listed as a limited partnership in the preamble to this Deed of Trust or (iii) limited liability company, if Borrower is listed as a limited liability company in the preamble to this Deed of Trust. "Environmental Law" - Any present or future federal, state or local law, statute, regulation or ordinance, and any judicial or administrative order or judgment thereunder, pertaining to health, industrial hygiene or the environmental or ecological conditions on, under or about the Premises, including, without limitation, each of the following as to date or hereafter amended: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; the Federal Water Pollution Control Act (also known as the Clean Water Act); the Clean Air Act; and the Hazardous Materials Transportation Act; the Solid Waste Disposal Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Emergency Planning and Community Right-To-Know Act; the Federal Insecticide, Fungicide and Rodenticide Act; the National Environmental Policy Act; and, the Rivers and Harbors Appropriation Act, and all ________ Environmental laws, including without limitation, those contained in ______________________. "Equipment" - See Granting Clauses; provided, however, the term "Equipment" shall not include the following personal property owned by [FCH/SH Leasing] [FCH/SH Leasing II]: all inventories, supplies, and consumables, including without limitation, food and beverage inventories, inventories of stationery, forms and office supplies, cleaning and maintenance supplies, guest room supplies and other operating supplies, and supplies of linens, terry, uniforms, chinaware, glassware, silverware and serving utensils located at the Premises. "ERISA" - The Employee Retirement Income Security Act of 1974, as amended. "Event of Default" - Any one or more of the events described in Section 4.01 and includes any one or more Monetary Events of Default and/or Non-Monetary Events of Default. "FCH/PSH" - means FCH/PSH, L.P., a Pennsylvania limited partnership. ["FCH/SH Leasing" - means FCH/SH Leasing, L.L.C., a Delaware limited liability company.] ["FCH/SH Leasing II" - means FCH/SH Leasing II, L.L.C., a Delaware limited liability company.] "FF&E" - means furnishings, fixtures and equipment. 7 12 "Fiscal Year" - The 12 month period commencing on January 1 and ending on December 31 during each year of the term of this Deed of Trust, or such other fiscal year of Borrower as Borrower may select from time to time with the prior consent of Lender. During the first year of the term hereof, Borrower's Fiscal Year shall be deemed to have commenced on the date of this Deed of Trust and shall end on the regular Fiscal Year ending date as indicated in the immediately preceding sentence. ["Florida Loan Documents" - means the Florida Note, the Florida Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Florida Note. "Florida Mortgage" - means collectively (i) that certain Mortgage and Security Agreement of even date herewith securing the Florida Note, executed by Borrower and Guarantor for the benefit of Beneficiary, and (ii) that certain Accommodation Cross-Collateralization Mortgage and Security Agreement of even date herewith securing the Florida Note and the Related Notes, executed by Borrower and Guarantor for the benefit of Beneficiary. "Florida Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $6,500,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $6,500,000.00 executed by Borrower and payable to the order of TIAA.] ["Georgia Loan Documents" - means the Georgia Note, the Georgia Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Georgia Note. "Georgia Mortgage" - means collectively (i) that certain Deed to Secure Debt and Security Agreement of even date herewith securing the Georgia Note, executed by Borrower for the benefit of Beneficiary, and (ii) that certain Accommodation Cross-Collateralization Deed to Secure Debt and Security Agreement of even date herewith securing the Georgia Note and the Related Notes, executed by Borrower for the benefit of Beneficiary. "Georgia Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $9,000,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $9,000,000.00 executed by Borrower and payable to the order of TIAA.] "Guarantor" - means FelCor Lodging Limited Partnership, a Delaware limited partnership, formerly known as FelCor Suites Limited Partnership. 8 13 "Hazardous Substance" - Any material, waste or substances (other than cleaning solvents and other materials used in the ordinary course of hotel operations and present in normal quantities) which is: (i) included within the definitions of "hazardous substances," "hazardous materials," "toxic substances" or "solid waste" in or pursuant to any Environmental Law, or subject to regulation under any Environmental Law; (ii) listed in the United States Department of Transportation Optional Hazardous Materials Table, 49 C.F.R. Section 172.101, as to date or hereafter amended, or in the United States Environmental Protection Agency List of Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302, as to date or hereafter amended; or (iii) explosive, radioactive, asbestos, a polychlorinated biphenyl, oil or a petroleum product. ["Illinois Loan Documents" - means the Illinois Note, the Illinois Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Illinois Note. "Illinois Mortgage" - means collectively (i) that certain Mortgage and Security Agreement of even date herewith securing the Illinois Note, executed by Borrower and Guarantor for the benefit of Beneficiary, and (ii) that certain Accommodation Cross-Collateralization Mortgage and Security Agreement of even date herewith securing the Illinois Note and the Related Notes, executed by Borrower and Guarantor for the benefit of Beneficiary. "Illinois Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $12,500,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $12,500,000.00 executed by Borrower and payable to the order of TIAA.] "Impositions" - All taxes of every kind and nature, sewer rents, charges for water, for setting or repairing meters and for all other utilities serving the Premises, and assessments, levies, inspection and license fees and all other charges imposed upon or assessed against the Mortgaged Property or any portion thereof (including the Property Income), and any stamp or other taxes which might be required to be paid, or with respect to any of the Loan Documents, any of which might, if unpaid, affect the enforceability of any of the remedies provided in this Deed of Trust or result in a lien on the Mortgaged Property or any portion thereof, regardless of to whom assessed. "Indebtedness" - See Granting Clauses. "Intangibles" - See Granting Clauses. 9 14 "Interest Accrual Period" - means each calendar month, provided the actual number of days elapsed in the calendar month in which the Closing Date occurs shall also be an Interest Accrual Period. ["Kentucky Loan Documents" - means the Kentucky Note, the Kentucky Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Kentucky Note. "Kentucky Mortgage" - means collectively (i) that certain Mortgage and Security Agreement of even date herewith securing the Kentucky Note, executed by Borrower and Guarantor for the benefit of Beneficiary, and (ii) that certain Accommodation Cross-Collateralization Mortgage and Security Agreement of even date herewith securing the Kentucky Note and the Related Notes, executed by Borrower and Guarantor for the benefit of Beneficiary. "Kentucky Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $3,500,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $3,500,000.00 executed by Borrower and payable to the order of TIAA.] "Land" - See Granting Clauses. "Late Charge" - Any charge designated as such and payable by Borrower for tardy performance by Borrower under the Note, this Deed of Trust or any other Loan Document. "Leases" - See Granting Clauses. "Lender" - Massachusetts Mutual Life Insurance Company and Teachers Insurance and Annuity Association of America, the Beneficiary and Lender identified as such on the Cover Sheet and in the preamble of this Deed of Trust, and their respective successors and assigns (including any other holders from time to time of the Note). "Lien" - means any mortgage, deed of trust, deed to secure debt, lien (statutory or other), pledge, easement, restrictive covenant, hypothecation, assignment, preference, priority, security interest, or any other encumbrance or charge on or affecting the Mortgaged Property or any portion thereof or any Collateral or the Borrower, or any interest in any of the foregoing, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement or similar instrument under the UCC or comparable law of any other jurisdiction, domestic or foreign, and mechanic's, materialman's and other similar liens and encumbrances. 10 15 "Loan" - means the loan from Lender to Borrower and evidenced by the Note and the Loan Documents. "Loan Documents" - See Granting Clauses. "Losses" - claims, suits, liabilities (including without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement, punitive damages, foreseeable and unforeseeable consequential damages of whatever kind or nature (including but not limited to reasonable attorneys' fees and other costs of defense). "Management Agreement" - means that certain Management Agreement dated ______________, by and between [FCH/SH Leasing] [FCH/SH Leasing II], as owner, and Sheraton, as operator, [as amended by that certain __________________ dated ____________, by and between [FCH/SH Leasing] [FCH/SH Leasing II] and Sheraton.] "Material Lease" - as to the Mortgaged Property, none. "Monetary Event of Default" - has the meaning provided in Section 6 of the Note. "Mortgaged Property" - See Granting Clauses. "Mortgaged Properties" - means collectively the Mortgaged Property and the properties secured by the [Arizona Mortgage, Florida Mortgage, the Georgia Mortgage, the Illinois Mortgage, the Kentucky Mortgage, the Pennsylvania Mortgage, the Vermont Mortgage] or any mortgage, deed of trust or deed to secure debt securing any Substitute Property. "Net Operating Income" - means (a) all payments made under the Primary Lease and any Related Primary Lease less (b) all expenses payable by Borrower under the Primary Lease and any Related Primary Lease or with respect to the ownership and operation of the Mortgaged Properties (i) including Impositions, insurance, and an FF&E reserve equal to four percent (4%) of the aggregate room and suite income, but (ii) excluding deductions for federal, state and other income taxes, debt service expense, depreciation and amortization and other non-cash expenses. "Non-Material Lease" - means any Lease other than the Primary Lease or the Material Lease. "Non-Monetary Event of Default" - has the meaning provided in Section 6 of the Note. "Note" - See Granting Clauses. 11 16 "Operating Agreements" - means collectively, the Primary Lease and the Management Agreement. "Operating Period" - means each calendar quarter during the term of the Loan. ["Pennsylvania Loan Documents" - means the Pennsylvania Note, the Pennsylvania Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Pennsylvania Note. "Pennsylvania Mortgage" - means collectively (i) that certain Mortgage and Security Agreement of even date herewith securing the Pennsylvania Note, executed by Borrower and FCH/PSH for the benefit of Beneficiary, and (ii) that certain Accommodation Cross-Collateralization Mortgage and Security Agreement of even date herewith securing the Pennsylvania Note and the Related Notes, executed by Borrower and FCH/PSH for the benefit of Beneficiary. "Pennsylvania Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $17,000,000.00 executed by Borrower and payable to the order of MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $17,000,000.00 executed by Borrower and payable to the order of TIAA.] "Permitted Encumbrances" - The liens and security interest created by this Deed of Trust and the other Loan Documents and those exceptions to title set forth in Schedule B to this Deed of Trust. "Person" - means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization, and any other form of entity, as the context may require. "Premises" - See Granting Clauses. "Primary Lease" - means that certain Lease Agreement dated ___________, by and between ____________, as lessor, and [FCH/SH Leasing] [FCH/SH Leasing II], as lessee, [as amended by that certain Omnibus Lease Amendment Agreement dated June 30, 1998, by and among FelCor Lodging Trust Incorporated, Guarantor, [FCH/SH Leasing] [FCH/SH Leasing II] and certain other lessors and lessees under separate lease agreements]. "Proceeds" - See Granting Clauses. "Property Income" - See Granting Clauses. 12 17 "Qualified Hotel Operator" - means any reputable Person domiciled in the United States of America which has the greater of the financial strength, qualifications and creditworthiness of [FCH/SH Leasing] [FCH/SH Leasing II]or in Beneficiary's sole determination, a minimum net worth of $30,000,000.00 and liquid assets of not less than $3,000,000.00, all as of a date which is 30 days prior to the date of the transfer. Additionally, neither the proposed purchaser nor any principal of the proposed purchaser, whether on the date for the closing of the transfer of title to the Mortgaged Property or at any time prior thereto, may be (i) in default on any indebtedness or loan from Beneficiary or any affiliate of Beneficiary, (ii) involved as a debtor in any bankruptcy, reorganization or insolvency proceeding, (iii) the subject of any criminal charges or proceedings, or (iv) an entity or individual who is or has been involved in litigation which is in good faith deemed significant by Beneficiary. "Qualified Real Estate Investor" - means any reputable Person domiciled in the United States of America which has equal the financial strength, qualifications and creditworthiness of Borrower at the time of the disbursement of the Note, evaluated as of a date which is 30 days prior to the date of the proposed closing of the transfer of title to the Mortgaged Property and on the day after the proposed closing of the transfer. Additionally, neither the proposed purchaser nor any principal of the proposed purchaser, whether on the date for the closing of the transfer of title to the Mortgaged Property or at any time prior thereto, may be (i) in default on any indebtedness or loan from Beneficiary or any affiliate of Beneficiary, (ii) involved as a debtor in any bankruptcy, reorganization or insolvency proceeding, (iii) the subject of any criminal charges or proceeding, or (iv) an entity or individual who is or has been involved in litigation which is in good faith deemed significant by Lender. "Related Loan Documents" - means collectively the Related Notes, the Related Mortgages and any other instrument evidencing, securing or executed in connection with the loans evidenced by the Related Notes. "Related Loans" - means collectively the loans from Lender to Borrower and evidenced by each Related Note and the Related Loan Documents. "Related Mortgage" - means collectively the [Arizona Mortgage, Florida Mortgage, the Georgia Mortgage, the Illinois Mortgage, the Kentucky Mortgage, the Pennsylvania Mortgage, the Vermont Mortgage] or any mortgage or deed of trust or deed to secure debt securing any Substitute Property. "Related Note" - means collectively the [Arizona Note, Florida Note, the Georgia Note, the Illinois Note, the Kentucky Note, the Pennsylvania Note, the Vermont Note] or any promissory note executed in connection with any Substitute Property. 13 18 "Related Primary Lease" - means collectively any primary lease under the Related Loan Documents. "Release" - Release means and includes the following: the release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of a Hazardous Substance no matter how or by whom or what caused. "Released Property" has the meaning provided in Section 6.16. "Remaining Properties" - means the properties securing the [Arizona Note, Florida Note, the Georgia Note, the Illinois Note, the Kentucky Note, the Pennsylvania Note, the Vermont Note] or any promissory note executed in connection with any Substitute Property. "Remediation" - Remediation means and includes the following: any response, remedial, removal or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance, any actions to prevent, cure or mitigate any Release of a Hazardous Substance, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or evaluation relating to any Hazardous Substances and to anything referred to in Section 2.20. "Sheraton" - means _________________________________. "Single-Purpose Entity" - means a corporation, limited partnership, or limited liability company which, at all times since its formation and thereafter (i) was and will be organized solely for the purpose of (x) owning the Mortgaged Properties or (y) acting as the managing member of the limited liability company or the general partner of a limited partnership which owns the Mortgaged Properties, (ii) has not and will not engage in any business unrelated to the (x) the ownership of the Mortgaged Properties or (y) acting as a member of a limited liability company or general partner of a limited partnership which owns the Mortgaged Properties, (iii) has not and will not have any assets other than (x) those related to the Mortgaged Properties or (y) its member interest in the limited liability company or its general partnership interest in the limited partnership which owns the Mortgaged Properties, as applicable, (iv) has not and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation or merger, and, except as otherwise expressly permitted by this Deed of Trust, has not and will not engage in, seek or consent to any asset sale, transfer of partnership or membership or shareholder interests, or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation or operating agreement (as applicable), (v) if such entity is a limited partnership, has and will have as a general partner, a general partner which is and will be a Single-Purpose Entity, (vi) has not and will not fail to correct any known misunderstanding 14 19 regarding the separate identity of such entity, (vii) without the unanimous consent of all of the partners, directors or members, as applicable, has not and will not with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest (a) file a bankruptcy, insolvency or reorganization petition or otherwise institute insolvency proceedings or otherwise seek any relief under any laws relating to the relief from debts or the protection of debtors generally; (b) seek or consent to the appointment of a receiver, liquidator, trustee, sequestrator, custodian or any similar official for such entity or all or any portion of such entity's properties; (c) make any assignment for the benefit of such entity's creditors; or (d) take any action that might cause such entity to become insolvent, (x) has maintained and will maintain its accounts, books and records separate from any other person or entity, (xi) has maintained and will maintain its books, records, resolutions and agreements as official records, (xii) has not commingled and will not commingle its funds or assets with those of any other entity, (xiii) has held and will hold its assets in its own name, (xiv) has conducted and will conduct its business in its name, (xv) has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other person or entity, (xvi) has paid and will pay its own liabilities out of its own funds and assets, (xvii) has observed and will observe all partnership, corporate or limited liability company formalities, as applicable, (xviii) has maintained and will maintain an arms-length relationship with its affiliates other than the leases transferred to Borrower and its general partner as part of their initial capital contributions, (xix) (a) if such entity owns the Mortgaged Properties, has and will have no indebtedness other than the Indebtedness, equipment leases permitted by this Deed of Trust and unsecured trade payables in the ordinary course of business relating to the ownership and operation of the Mortgaged Properties which trade payables (1) do not exceed, at any time, a maximum amount of one percent (1%) of the Loan Amount and (2) are paid within thirty (30) days of the date incurred, or (b) if such entity acts as the general partner of a limited partnership or managing member of a limited liability company which owns the Mortgaged Properties, has and will have no indebtedness other than unsecured trade payables in the ordinary course of business relating to acting as general partner or managing member which owns the Mortgaged Properties which (1 ) do not exceed, at any time, Ten Thousand Dollars ($10,000.00) and (2) are paid within thirty (30) days of the date incurred, (xx) has not and will not assume or guarantee or become obligated for the debts of any other entity or hold out its credit as being available to satisfy the obligations of any other entity except for the Indebtedness, (xxi) has not acquired and will not acquire obligations or securities of its partners, members or shareholders, (xxii) has allocated and will allocate fairly and reasonably shared expenses, including, without limitation, shared office space and uses separate stationery, invoices and checks, (xxiii) has not and will not pledge its assets for the benefit of any other person or entity, (xxiv) has held and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name and not as a division or part of any other person or entity, (xxv) has not made and will not make loans to any person or entity, (xxvi) has not and will not identify its partners, members or shareholders, or any affiliates of any of them as a division or part of it, (xxvii) other than the leases transferred to Borrower and its general partner 15 20 as part of their initial capital contributions has not entered and will not enter into or be a party to, any transaction with its partners, members, shareholders or its affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are no less favorable to it than would be obtained in a comparable arms-length transaction with an unrelated third party, (xxviii) has paid and will pay the salaries of its own employees from its own funds, (xxix) has maintained and will maintain adequate capital in light of its contemplated business operations and (xxx) if such entity is a limited liability company or limited partnership, then such entity shall continue (and not dissolve) for so long as a solvent managing member or general partner, as applicable, exists and such entity's organizational documents shall contain such provision. "State" - The State or Commonwealth in which the Land is situated. "Substitute Property" has the meaning provided in Section 6.16. "Trustee" - The party or parties identified and defined as Trustee on the Cover Sheet and in the preamble of this Deed of Trust, and its or their respective successors in the trust created by this Deed of Trust, and its or their respective assigns. "Trustor" - The party identified as such on the Cover Sheet and in the preamble of this Deed of Trust, any subsequent owner of the Mortgaged Property, and its successors and assigns. The Trustor is also herein called "Borrower." "U.S. Obligations" - means obligations or securities not subject to prepayment, call or early redemption which are direct obligations of, or obligations fully guaranteed as to timely payment by, the United States of America or any agency or instrumentality of the United States of America, the obligations of which are backed by the full faith and credit of the United States of America. ["Vermont Loan Documents" - means the Vermont Note, the Vermont Mortgage and any other instrument evidencing, securing or executed in connection with the loan evidenced by the Vermont Note. "Vermont Mortgage" - means collectively (i) that certain Mortgage and Security Agreement of even date herewith securing the Vermont Note, executed by Borrower for the benefit of Beneficiary, and (ii) that certain Accommodation Cross-Collateralization Mortgage and Security Agreement of even date herewith securing the Vermont Note and the Related Notes, executed by Borrower for the benefit of Beneficiary. "Vermont Note" - means collectively (i) that certain promissory note of even date herewith in the original principal amount of $10,500,000.00 executed by Borrower and payable to the order of 16 21 MassMutual, and (ii) that certain promissory note of even date herewith in the original principal amount of $10,500,000.00 executed by Borrower and payable to the order of TIAA.] ARTICLE II Covenants of Borrower Borrower covenants, warrants, represents and agrees with and to Trustee and Lender as follows: Section 2.01. Payment of the Indebtedness. Borrower shall punctually pay the Indebtedness at the times and in the manner provided in the Note and the other Loan Documents, all in lawful money of the United States of America. Section 2.02. Title to the Mortgaged Property. (a) Borrower has fee simple title (or such lesser estate therein as may be specified in Schedule A) to the Premises and good indefeasible title to the balance of the Mortgaged Property, free and clear of liens and encumbrances except Permitted Encumbrances. (b) Borrower has full power and lawful authority to encumber the Mortgaged Property in the manner and form herein set forth. (c) This Deed of Trust is and will remain a valid and enforceable lien on and security interest in the Mortgaged Property. (d) Borrower will preserve such title and will forever warrant and defend the same and the validity and priority of the lien hereof to Trustee and Lender against all claims whatsoever. (e) The Mortgaged Property is in material compliance with all provisions of all zoning, subdivision, land use, environmental, traffic, fire, building, and occupational safety and health rules, regulations, codes, acts and statutes to which it is subject. Section 2.03. Maintenance of the Mortgaged Property. Borrower shall (or shall enforce its rights under the Primary Lease to cause [FCH/SH Leasing] [FCH/SH Leasing II] to) maintain the Mortgaged Property in good and safe condition, working order and repair, and comply with all existing and future federal, state and local laws, ordinances, rules and regulations and court orders affecting or which may be interpreted as affecting the Mortgaged Property. Borrower shall permit Lender to enter upon and inspect the Mortgaged Property (without prior notice in the event of an emergency) at all reasonable hours; provided, Lender makes an appointment through the general manager of the hotel after reasonable notice and in a manner that does not affect normal business operations. Borrower 17 22 shall not, without the prior consent of Lender, (a) change the use of the Premises or cause or permit the use or occupancy of any part of the Premises to be discontinued if such discontinuance would violate any zoning or other law, ordinance or regulation; (b) consent to any zoning reclassification, modification or restriction affecting the Premises; (c) threaten, commit or permit any waste, structural or material alteration, demolition or removal of the Mortgaged Property or any portion thereof (provided that the Equipment included within the Collateral may be removed if replaced with similar items of equal or greater value); or (d) take any steps whatsoever to convert the Mortgaged Property, or any portion thereof, to a condominium or cooperative form of ownership. No provision of this Section 2.03 shall prohibit Borrower from undertaking and completing tenant improvement work authorized under Leases previously approved by Lender or not requiring Lender's prior approval. Notwithstanding the foregoing, Borrower shall enforce its rights under the Primary Lease to cause [FCH/SH Leasing] [FCH/SH Leasing II] to operate the Mortgaged Property in a first class manner and at all times during the term of the Loan as a "Sheraton, Westin or Luxury Collection" hotel or under another flag acceptable to Lender. Section 2.04. Insurance; Restoration. (a) Borrower shall keep the Improvements and the Equipment insured against damage by fire and the other hazards covered by a comprehensive all risk coverage insurance policy in an amount equal to 100% of the full insurable value thereof (which shall mean the full repair and actual replacement value thereof providing for no deductible in excess of $25,000.00, without reduction for depreciation or co-insurance) as approved by Lender, and against loss of rents in an amount not less than 12 months' rental income from all Leases. Borrower shall also carry such other insurance, and in such amounts, as Lender may from time to time reasonably require, against insurable risks which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the availability of insurance and to the type of construction, location, utilities, use and occupancy of the Premises or any replacements or substitutions therefor. Such additional insurance may include workers' compensation, boiler and machinery, flood, earthquake, demolition and contingent liability from the operation of "non-conforming" improvements on the Premises, and shall be obtained within 20 days after demand by Lender. Notwithstanding the foregoing, in the event Borrower obtains an umbrella or a blanket insurance policy or a separate policy or any other insurance policy affecting the Mortgaged Property hereunder, Borrower shall notify Lender of the same and shall cause certified copies of each insurance policy to be delivered as required under Section 2.04(c) below. Any umbrella or blanket insurance policy shall specifically allocate to the Mortgaged Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate policy insuring only the Mortgage Property in compliance with the provisions of Section 2.04(c), giving Lender all of the rights set forth in this Section 2.04. The Proceeds of insurance paid on account of any damage to or destruction 18 23 of the Premises or any portion thereof shall be paid over to Lender to be applied as hereinafter provided. (b) Borrower shall also maintain or cause to be maintained by [FCH/SH Leasing] [FCH/SH Leasing II] pursuant to the terms of the Primary Lease general liability insurance with respect to the Premises against personal injury, death and property damage, with limits of liability in amounts reasonably satisfactory to Lender. (c) All insurance policies and endorsements required pursuant to this Deed of Trust shall (i) be endorsed to name Lender as an insured thereunder, as its interest may appear, with loss payable to Lender, without contribution, under a long-form, non-contributory mortgagee clause, or otherwise endorsed as Lender may reasonably require; (ii) be fully paid for and contain such provisions and expiration dates and be in such form and issued by such insurance companies licensed to do business in the State, with a rating of "A- VIII" or better as established by Best's Rating Guide or an equivalent rating with such other publication of a similar nature as shall be in current use, as shall be approved by Lender; (iii) without limiting the foregoing, provide that such policy or endorsement may not be canceled or materially changed except upon 30 days prior written notice of intention of non-renewal, cancellation or material change to Lender, and that no act or thing done by Borrower or Lender shall invalidate the policy as against Lender; and (iv) be in form and content reasonably satisfactory to Lender. Borrower shall deliver all original policies including all endorsements and renewals thereof, or copies thereof certified by the insurance company or authorized agent as being true copies, to Lender together with all endorsements required hereunder, on the date of this Deed of Trust and thereafter at least 10 days prior to the expiration date of such policies. Borrower may request an extension of time not exceeding 120 days to deliver the foregoing policies, endorsements and renewals or certified copies thereof if Borrower has done all things necessary to obtain the issuance of the policies, endorsements and renewals including, without limitation, the payment of all premiums therefor, and Borrower has delivered to Lender within the above 10 day period an insurance binder reasonably satisfactory to Lender issued by the approved insurer showing all required coverage to be in full force and effect for the succeeding 12 month period along with evidence reasonably satisfactory to Lender of payment in full of all premiums. If Borrower fails to maintain insurance in compliance with this Deed of Trust, Lender may (but shall not be obligated to) obtain such insurance and pay the premium therefor and Borrower shall reimburse Lender on demand for all such Advances. Notwithstanding anything to the contrary contained herein or in any provision of law, the Proceeds of insurance policies coming into the possession of Lender shall not be deemed trust funds and Lender shall be entitled to dispose of such Proceeds as hereinafter provided. (d) In the event of any damage to or destruction of the Premises and/or Equipment, Borrower shall give prompt written notice to Lender and shall promptly commence and diligently continue to 19 24 completion the repair, restoration and rebuilding of the Premises and/or Equipment so damaged or destroyed in full compliance with all legal requirements and with the provisions of Section 2.04(h)(i) below, and free and clear from any and all liens and claims. Such repair, restoration and rebuilding of the Premises are sometimes hereinafter collectively referred to as the "Work." If any Event of Default is then existing or if in Lender's reasonable judgment the cost of the Work is $1,000,000 or more, then Borrower shall not adjust, compromise or settle any claim for insurance proceeds without the prior consent of Lender. Subject to Section 2.04(g), Lender shall have the option in its sole discretion to apply any insurance Proceeds it may receive pursuant to this Deed of Trust (less any cost to Lender of recovering and paying out such Proceeds, including reasonable attorneys' fees) to the payment of the Indebtedness or to allow all or a portion of such Proceeds to be used for the Work. If any insurance Proceeds are applied to reduce the Indebtedness, provided no Event of Default shall have occurred and be continuing, Lender shall apply the same, without any prepayment fee, in the following order: (i) first, to the payment of interest due on any Advances; (ii) next, to the principal amount of any Advances; (iii) next, to any Late Charges, attorney's fees or any other amount due hereunder or under a Loan Document save for the amounts described in (iv) and (v) immediately below; (iv) next, to accrued interest then due under the Note; and (v) finally, to the unpaid principal balance of the Note (in the inverse order of maturity of principal installments thereof). If an Event of Default shall have occurred and be continuing, however, Lender, at its option, may apply any insurance Proceeds to the foregoing items in such order and priority as Lender deems appropriate in its sole discretion. (e) In the event of the foreclosure of this Deed of Trust or other transfer of title to or assignment of the Mortgaged Property in extinguishment of the Indebtedness in whole or in part, all right, title and interest of Borrower in and to all policies of insurance required by this Deed of Trust and any insurance Proceeds shall inure to the benefit of and pass to Lender or any purchaser or transferee at the foreclosure sale of the Mortgaged Property. (f) Borrower hereby irrevocably appoints Lender its attorney-in-fact, coupled with an interest, to apply and make claims for insurance Proceeds under all insurance policies constituting Intangibles, to prosecute and settle such claims and to endorse any checks, drafts or other instruments representing any insurance Proceeds whether payable by reason of loss thereunder 20 25 or otherwise. Additionally, Lender may notify any and all insurers under casualty and liability insurance policies constituting part of the Intangibles that Lender has a security interest pursuant to the provisions of this Deed of Trust in and to such insurance policies and any proceeds thereof, and that any payments under those insurance policies are to be made directly to Lender. Lender's rights under this Section 2.04(f) may be exercised by Lender or a court appointed receiver appointed upon the request of Lender and irrespective of whether or not a default shall have occurred under this Deed of Trust. (g) Notwithstanding the provisions of Section 2.04(d) above, if in Lender's reasonable judgment the cost of the Work shall not exceed 50 percent of the then outstanding principal balance of the Note, then Lender shall, upon request by Borrower, permit Borrower to use the Proceeds for the Work (subject to the provisions of, and less Lender's costs described in, Section 2.04(h) below), so long as: (i) no Event of Default shall then exist nor any matter(s) exist which, after notice of default or passage of time or both, would constitute an Event of Default; (ii) the original Borrower named herein continues to be the owner of the Mortgaged Property; (iii) the Work can be completed within 12 months from the date of the damage to or destruction of the Premises; (iv) none of the Operating Agreements in effect immediately prior to the damage or destruction shall have been canceled or terminated and not replaced with substitute agreements reasonably acceptable to Lender; (v) all sums necessary to effect the Work over and above any available Proceeds shall be at the sole cost and expense of the Borrower and, at Lender's request, Borrower shall deposit such additional amounts, as reasonably estimated by Lender, with Lender prior to commencing any Work and at all times thereafter; (vi) at all times during any such Work Borrower shall maintain, at its sole cost and expense, workers' compensation, builders risk and public liability insurance in amounts reasonably satisfactory to Lender and in accordance with the provisions of this Section 2.04; and (vii) any unexpended Proceeds, at the sole option of the Lender, shall either be paid over to the Borrower or shall be applied to the reduction of the Indebtedness. If the Proceeds 21 26 are used to reduce the Indebtedness, they shall be applied in the order provided in Section 2.04(d), without any prepayment fee. (h) If any insurance Proceeds are used for the Work, then such Proceeds shall be held by Lender and shall be paid out from time to time to Borrower as the Work progresses (less any cost to Lender of recovering and paying out such Proceeds, including reasonable attorneys' fees and costs allocable to inspecting the Work and the plans and specifications therefor), subject to each of the following conditions: (i) If the Work is structural or if the cost of the Work is reasonably estimated to exceed Two Hundred Thousand Dollars ($200,000.00), the Work shall be conducted under the supervision of a certified and registered architect or engineer reasonably satisfactory to Lender. Before Borrower commences any Work, other than temporary work to protect persons or property or prevent interference with business, Lender shall have approved the plans and specifications for the Work, which approval shall not be unreasonably withheld or delayed, it being nevertheless understood that such plans and specifications shall provide for Work so that, upon completion thereof, the Premises shall be at least equal in value and general utility to the Premises immediately prior to the damage or destruction. (ii) Each request for payment shall be made on not less than seven Business Days prior notice to Lender and shall be accompanied by a certificate of the architect or engineer in (i) above (or a certificate given by Borrower if no architect or engineer is so required) stating (A) that all of the Work completed has been done in substantial compliance with the approved plans and specifications, if required under (i) above, (B) that the sum requested is justly required to reimburse the Borrower for payments by Borrower, or is justly due to the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the Work (giving a brief description of such services and materials), and that when added to all sums previously paid out by Lender does not exceed the value of the Work done to the date of such certificate, (C) if the sum requested is to cover payment relating to repair and restoration of Equipment required or relating to the Premises, that title to the items of Equipment covered by the request for payment is vested in Borrower, and (D) that the amount of such Proceeds remaining in the hands of Lender will be sufficient on completion of the Work to pay for the same in full (giving in such reasonable detail as Lender may require an estimate of the cost of such completion). Additionally, each request for payment shall contain a statement signed by Borrower approving both the Work done to date and the Work covered by the request for payment in question. 22 27 (iii) Each request for payment shall be accompanied by waivers of lien satisfactory to Lender covering that part of the Work for which payment or reimbursement is being requested and, if required by Lender, a search prepared by a title company or licensed abstractor, or by other evidence satisfactory to Lender that there has not been filed with respect to the Premises any mechanics' or other lien or instrument for the retention of title relating to any part of the Work not discharged of record. Additionally, as to any Equipment covered by the request for payment, Lender shall be furnished with evidence of payment therefor and such further evidence satisfactory to assure Lender of its valid first lien on the Equipment. (iv) Lender shall have the right to inspect the Work at all reasonable times and may condition any disbursement of Proceeds upon the satisfactory completion, as determined in Lender's reasonable discretion, of any portion of the Work for which payment or reimbursement is being requested. Neither the approval by Lender of the plans and specifications for the Work nor the inspection by Lender of the Work shall make Lender responsible for the preparation of such plans and specifications or the compliance of such plans and specifications, or of the Work, with any applicable law, regulation, ordinance, covenant or agreement. (v) Proceeds shall not be disbursed more frequently than every 30 days. (vi) Any request for payment made after the Work has been completed shall be accompanied by a copy or copies of any certificate or certificates required by law to render occupancy and full operation of the Premises legal. (vii) Upon any failure on the part of Borrower to promptly commence the Work or to proceed diligently and continuously to completion of the Work, Lender may apply any such Proceeds it then or thereafter holds to the payment of the Indebtedness; provided, however, that Lender, at its sole option, shall be entitled to apply at any time all or any portion of insurance Proceeds it then holds to the curing of any Event of Default under this Deed of Trust, the Note or any other Loan Document. (i) Notwithstanding any other provision of this Section 2.04, if no Event of Default shall exist or be continuing (nor any matters have occurred which, after notice or passage of time or both, would constitute an Event of Default) and in Lender's reasonable judgment the cost of the Work is less than $1,000,000 and the Work can be completed in less than 180 days, then Lender shall have no rights to apply for or receive the insurance Proceeds, provided that Borrower shall apply such insurance Proceeds solely to the prompt and diligent commencement and completion of such Work and notify Lender as to the foregoing. 23 28 Section 2.05. Condemnation. Borrower shall notify Lender immediately of the actual or threatened commencement of any proceedings for the condemnation or taking of the Premises or any portion thereof and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in such proceedings and Borrower shall deliver to Lender all instruments requested by Lender to permit such participation. Lender is hereby irrevocably appointed as Borrower's attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain the Proceeds of any such condemnation and to make any compromise or settlement in connection with such proceedings, subject to the provisions of this Deed of Trust. Borrower shall not adjust, compromise, settle or enter into any agreement with respect to such proceedings without the prior consent of Lender. All Proceeds of any condemnation, or purchase in lieu thereof, of the Premises or any portion thereof are hereby assigned to and shall be paid to Lender. Borrower hereby authorizes Lender to collect and receive such Proceeds, to give proper receipts and acquittances therefor and, in Lender's sole discretion, to apply such Proceeds (less any cost to Lender of recovering and paying out such Proceeds, including reasonable attorneys' fees and costs allocable to inspecting any repair, restoration or rebuilding work and the plans and specifications therefor) toward the payment of the Indebtedness or to the repair, restoration or rebuilding of the Premises in the manner and subject to the conditions set forth in Section 2.04(h). If the Proceeds are used to reduce the Indebtedness, they shall be applied in the order provided in Section 2.04(d), without any prepayment fee. Borrower shall promptly execute and deliver all instruments requested by Lender for the purpose of confirming the assignment of the condemnation Proceeds to Lender. Section 2.06. Impositions. (a) Borrower shall pay and discharge all Impositions prior to delinquency and shall furnish to Lender validated receipts or other evidence satisfactory to Lender showing the payment of such Impositions within 15 days after the same would otherwise have become delinquent. Borrower's obligation to pay Impositions pursuant to this Deed of Trust shall include, to the extent permitted by applicable law, taxes resulting from future changes in law which impose upon Trustee or Lender an obligation to pay any property taxes or other Impositions or which otherwise adversely affect Trustee's or Lender's interests. Should Borrower default in the payment of any Impositions, Lender may (but shall not be obligated to) pay such Impositions or any portion thereof and Borrower shall reimburse Lender on demand for all such Advances. (b) Borrower shall not be required to pay, discharge or remove any Imposition so long as Borrower contests in good faith such Imposition or the validity, applicability or amount thereof by an appropriate legal proceeding which operates to prevent the collection of such amounts and the sale of the Mortgaged Property or any portion thereof; provided, however, that prior to the date on which such Imposition would otherwise have become delinquent Borrower shall have (i) given Lender prior notice of such contest and (ii) deposited with Lender, and shall deposit such additional amounts as are necessary to keep on deposit at all times, an amount 24 29 equal to at least 110 per cent of the total of (A) the balance of such Imposition then remaining unpaid and (B) all interest, penalties, costs and charges accrued or accumulated thereon. Any such contest shall be prosecuted with due diligence, and Borrower shall promptly pay the amount of such Imposition as finally determined, together with all interest and penalties payable in connection therewith. Lender shall have full power and authority to apply any amount deposited with Lender under this Section 2.06(b) to the payment of any unpaid Imposition to prevent the sale or forfeiture of the Mortgaged Property for non-payment thereof. Lender shall have no liability, however, for failure to so apply any amount deposited unless Borrower requests the application of such amount to the payment of the particular Imposition for which such amount was deposited. Any surplus retained by Lender after payment of the Imposition for which a deposit was made shall be repaid to Borrower unless an Event of Default shall have occurred under the provisions of this Deed of Trust, in which case said surplus may be retained by Lender to be applied to the Indebtedness. Notwithstanding any provision of this Section 2.06(b) to the contrary, Borrower shall pay any Imposition which it might otherwise be entitled to contest if, in the reasonable opinion of Lender, the Mortgaged Property is in jeopardy or in danger of being forfeited or foreclosed. If Borrower refuses to pay any such Imposition, Lender may (but shall not be obligated to) make such payment and Borrower shall reimburse Lender on demand for all such Advances. Additionally, in such event, if Lender is prevented by law or judicial or administrative order from paying such Imposition, then Lender, at its option, may declare the entire Indebtedness immediately due and payable. Section 2.07. Deposits. Borrower shall deposit with Lender, monthly, on the due date of each monthly installment under the Note, 1/12th of the annual charges (as estimated by Lender) for Impositions, and, if required by Lender, 1/12th of the annual charges for rent (if Borrower is lessee of an interest in the Mortgaged Property). If required by Lender, Borrower shall also deposit with Lender, simultaneously with such monthly deposits and/or the execution of this Deed of Trust, a sum of money which together with such monthly deposits will be sufficient to make the payment of each such charge at least 30 days prior to the date initially due. Should such charges not be ascertainable at the time any deposit is required to be made, the deposit shall be made on the basis of the charges for the prior year or payment period, as reasonably estimated by Lender. When the charges are fixed for the then current year or period, Borrower shall deposit any deficiency on demand. All funds deposited with Lender shall be held without interest (unless the payment of interest thereon is required under applicable law), may be commingled with Lender's other funds, and shall be applied in payment of the foregoing charges when and as payable provided that no Event of Default shall have occurred. Should an Event of Default occur, the funds so deposited may be applied in payment of the charges for which such funds shall have been deposited or to the payment of the Indebtedness or any other charges affecting the Mortgaged Property, as Lender in its sole discretion may determine, but no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender as herein provided. Borrower shall furnish Lender with bills and all other documents necessary 25 30 for the payment of the foregoing charges at least 15 days prior to the date on which each payment thereof shall first become due. Section 2.08. Mortgage Taxes. Borrower shall pay any and all taxes, charges, filing, registration and recording fees, excises and levies imposed upon Lender by reason of its ownership of, or measured by amounts payable under, the Note, this Deed of Trust or any other Loan Document (other than income, franchise and doing business taxes), and shall pay all stamp taxes and other taxes required to be paid on the Note or the other Loan Documents. If Borrower fails to make such payment within five days after notice thereof from Lender, Lender may (but shall not be obligated to) pay the amount due, and Borrower shall reimburse Lender on demand for all such Advances. If applicable law prohibits Borrower from paying such taxes, charges, filing, registration and recording fees, excises, levies, stamp taxes or other taxes, then Lender may declare the Indebtedness then unpaid to be immediately due and payable. In such event, no prepayment fee shall be charged. Section 2.09. Loan Documents Authorized. (a) The execution and delivery of this Deed of Trust, the Note and the other Loan Documents have been duly authorized and there is no provision in Borrower's organizational documents, as amended, requiring further consent for such action by any other person or entity. (b) Borrower is duly organized, validly existing and in good standing under the laws of the state of its formation. (c) Borrower has all necessary franchises, licenses, authorizations, registrations, permits and approvals and full power and authority to own and lease its properties, including the Mortgaged Property, and carry on its business as now conducted in each jurisdiction where Borrower conducts its business. (d) The execution and delivery of and performance of its obligations under the Loan Documents (i) will not result in Borrower being in default under any provision of its organizational documents, as amended, any court order, or any mortgage, deed of trust or other agreement to which it is a party and (ii) do not require the consent of or any filing with any governmental authority. (e) All necessary and required actions have been duly taken by and on behalf of Borrower to make and constitute the Loan Documents, and the Loan Documents constitute, legal, valid and binding obligations enforceable in accordance with their respective terms, subject only to the application of bankruptcy and other laws affecting the rights of creditors generally. 26 31 Section 2.10. Maintenance of Existence. So long as it owns the Mortgaged Property, Borrower shall (or shall enforce its rights under the Primary Lease to cause [FCH/SH Leasing] [FCH/SH Leasing II] to) do all things necessary to preserve and keep in full force and effect its existence, franchises, licenses, authorizations, registrations, permits and approvals under the laws of the state of its formation and the State, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental authority or court now or hereafter applicable to Borrower or, to the Mortgaged Property or any portion thereof. Section 2.11. Payment of Liens. Borrower shall pay when due all payments and charges due under or in connection with any liens and encumbrances on and security interests in the Mortgaged Property or any portion thereof, all rents and charges under any ground leases and other leases forming a part of the Mortgaged Property, and all claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in or permit the creation of a lien on the Mortgaged Property or any portion thereof, and shall cause the prompt (but in no event later than 30 days after imposition), full and unconditional discharge of all liens imposed on or against the Mortgaged Property or any portion thereof. Borrower shall do or cause to be done, at the sole cost of Borrower, everything necessary to fully preserve the initial priority of the lien of this Deed of Trust. If Borrower fails to make any such payment or if a lien attaches to the Mortgaged Property or any portion thereof, Lender may (but shall not be obligated to) make such payment or discharge such lien and Borrower shall reimburse Lender on demand for all such Advances. Notwithstanding the foregoing, Borrower shall not be in default for failure to pay or discharge a mechanic's or materialman's lien asserted against the Mortgaged Property if, and so long as, (a) Borrower shall have notified Lender of same within five (5) days of obtaining actual knowledge thereof; (b) Borrower shall diligently and in good faith contest the same by appropriate legal proceedings which shall operate to prevent the enforcement or collection of the same and the sale of the Mortgaged Property or any part thereof, to satisfy the same; (c) Borrower shall have furnished to Lender a cash deposit, or an indemnity bond satisfactory to Lender with a surety satisfactory to Lender, in the amount of the mechanic's or materialman's lien claim, plus a reasonable additional sum to pay all costs, interest and penalties that may be imposed or incurred in connection therewith, to assure payment of the matters under contest and to prevent any sale or forfeiture of the Mortgaged Property or any part thereof; (d) Borrower shall promptly upon final determination thereof pay the amount of any such claim so determined, together with all costs, interest and penalties which may be payable in connection therewith; (e) the failure to pay the mechanic's or materialman's lien claim does not constitute a default under any other deed of trust, mortgage or security interest covering or affecting any part of the Mortgaged Property; and (f) notwithstanding the foregoing, Borrower shall immediately upon request of Lender pay any such claim notwithstanding such contest, if in the opinion of Lender, the Mortgaged Property or any part thereof or interest therein may be in danger of being sold, forfeited, foreclosed, terminated, canceled or lost. Section 2.12. Costs of Defending and Upholding the Lien. Lender and, to the extent authorized by Lender, Trustee may, after notice to Borrower, (a) appear in and defend any action or 27 32 proceeding, in the name and on behalf of either Lender or Borrower, in which Trustee or Lender is named or which Lender in its sole discretion determines may adversely affect the Mortgaged Property, this Deed of Trust, the lien hereof or any other Loan Document; and (b) institute any action or proceeding which Lender in its sole discretion determines should be instituted to protect the interest or rights of Lender or Trustee's interest in the Mortgaged Property or under this Deed of Trust or any other Loan Document, including, without limitation, foreclosure proceedings. Borrower agrees to bear and shall pay or reimburse Trustee and Lender on demand for all Advances and expenses (including reasonable attorneys' fees) relating to or incurred by Lender in connection with any such action or proceeding. Section 2.13. Costs of Enforcement. Borrower agrees to bear and shall pay or reimburse Trustee and Lender on demand for all Advances and expenses (including reasonable attorneys' and appraisers' fees and the expenses and reasonable fees of any receiver or similar official) of or incidental to the collection of the Indebtedness, any foreclosure of this Deed of Trust or any other Loan Document, any enforcement, compromise or settlement of this Deed of Trust, any other Loan Document or the Indebtedness, or any defense or assertion of the rights or claims of Trustee or Lender in respect of any thereof, by litigation or otherwise. Section 2.14. Interest on Advances and Expenses. All Advances made and any reasonable expenses incurred at any time by Trustee or Lender pursuant to the provisions of this Deed of Trust or the other Loan Documents or under applicable law shall be secured by this Deed of Trust as part of the Indebtedness, with equal rank and priority. All such Advances and expenses shall bear interest at the Default Rate from the date that each such Advance or expenses is made or incurred to the date of repayment and all such Advances and expenses with interest thereon shall be payable to Lender on demand. Section 2.15. Indemnification. Borrower shall indemnify and hold Trustee and Lender and their respective directors, officers, employees and agents harmless from and against and reimburse them for all Losses which may be imposed upon, asserted against, or incurred or paid by any of them (a) by reason of, on account of or in connection with any act or occurrence relating to the Mortgaged Property or any bodily injury, death, other personal injury or property damage occurring in, upon or in the vicinity of the Premises from any cause whatsoever, (b) as a result of the failure of Borrower to perform any of its obligations under any of the Loan Documents, or (c) on account of any transaction otherwise arising out of or in any way connected with the Mortgaged Property, this Deed of Trust or the Indebtedness. Section 2.16. Financial Statements; Records. Borrower shall keep adequate books and records of account in accordance with generally accepted accounting principles ("GAAP"), or in accordance with other methods acceptable to Lender in its reasonable discretion, consistently applied, and shall furnish to Lender: 28 33 (a) all annual operating statements of the Premises received from [FCH/SH Leasing] [FCH/SH Leasing II] or Sheraton detailing the total revenues received, total expenses incurred, total cost of all capital improvements, total debt service and total cash flow, and certified by [FCH/SH Leasing] [FCH/SH Leasing II] or Sheraton, as appropriate, in the form received by Borrower, or if requested by Lender and to the extent available, an audited annual operating statement prepared and certified by an independent certified public accountant acceptable to Lender, within 120 days after the close of each Fiscal Year of Borrower; (b) an annual balance sheet and profit and loss statement of Borrower and Guarantor, in a form reasonably approved by Lender, prepared and certified by Borrower or Guarantor as applicable, and, such statements, if requested by Lender and to the extent available, shall be audited financial statements prepared and certified by an independent certified public accountant acceptable to Lender. All statements shall be delivered to Lender within 120 days after the close of each Fiscal Year of Borrower; (c) annual operating budgets and management plans presented on a monthly basis consistent with the annual operating statements described above for the Premises, including cash flow projections for the upcoming year, and all proposed capital replacements and improvements on or before February 1 of each Fiscal Year; (d) an annual occupancy and average daily rate statement detailing the occupancy rates and average daily room rates to be prepared and certified by Borrower in a form approved by Lender, within 120 days after the end of each Fiscal Year of Borrower; (e) an annual FF&E budget which will be submitted by Borrower to Lender, no later than December 30 of each loan year; and (f) upon request from Lender, the following: (i) such other financial or management information as may, from time to time, be reasonably required by Lender and in form and substance reasonably satisfactory to Lender; and, (ii) Borrower's books and records regarding the Premises for examination, review, copying and audit by Lender or its auditors during normal business hours and convenient facilities for such examination review, copying and audit of Borrower's books and records of account. 29 34 (g) Borrower's agreements as set forth in this Section 2.16 constitute material inducements to Lender in making the loan secured by this Deed of Trust. Accordingly, in the event Borrower fails to furnish any financial report or tax return required by this section as and when required, time being of the essence, then, in addition to all other remedies available to Lender under this Deed of Trust, Borrower agrees to pay Lender a late charge of $100.00 for each day or part thereof that any such financial report or tax return shall be overdue. The foregoing late charges and the costs and expenses of the auditor shall be due and payable to Lender upon demand and shall constitute a part of the Indebtedness. Section 2.17. Prohibition Against Conveyances and Encumbrances. Except with the prior consent of Lender or as permitted by Section 3.01(b), Borrower shall not and shall not permit others to convey, assign, sell, mortgage, encumber, pledge, hypothecate, grant a security interest in, grant options with respect to, or otherwise dispose of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) all or any portion of any legal or beneficial interest (a) in all or any portion of the Mortgaged Property (other than the sale of goods used in the operation of a hotel business or replacement of Equipment in the ordinary course of business) including the Leases; or (b) in Borrower. All requests for Lender's consent under this Section 2.17 shall be on a form previously approved by Lender and shall be accompanied by the payment of Lender's standard processing fee for such transactions then in effect not to exceed one percent (1%) of the then outstanding balance of the Loan. Lender's consent to any of the foregoing actions, if given (in Lender's sole discretion), may be conditioned upon a change in the interest rate, maturity date, amortization period or other terms under the Note, the payment of a transfer fee not to exceed one percent (1%) of the then outstanding balance of the Loan and/or any other requirements of Lender. In addition to the standard processing fee and the transfer fee referred to in this Section 2.17, Borrower agrees to bear and shall pay or reimburse Lender on demand for all reasonable expenses (including reasonable attorneys' fees, title search costs, and title insurance endorsement premiums) incurred by Lender in connection with the review, approval and documentation of any such transaction. Notwithstanding the prohibition against conveyances and encumbrances set forth in this Section 2.17, Lender will permit Borrower the right to a one-time sale, transfer or assignment in whole (but not in part) of its interest in the Mortgaged Property, without modification of the terms of the Loan, provided each and every one of the following conditions is satisfied: (a) At least thirty (30) days prior to such transfer, Borrower shall have provided Lender with written notice of the proposed transfer along with the name(s), address(es) and organizational documents of the proposed purchaser and principals of the proposed purchaser. Additionally, Borrower shall furnish to Lender along with such notice the following: (i) detailed and complete financial statements of the proposed purchaser and principals of proposed purchaser, (ii) information with respect to the business and business experience of the proposed purchaser and the proposed purchaser's principals' experience in the ownership and operation of 30 35 properties similar to the Mortgaged Property and other commercial real estate, (iii) evidence that the Mortgaged Property as of the proposed date of transfer of title and thereafter will be managed by a hotel management company and under a hotel management agreement meeting the requirements of Section 2.17(d) below, (iv) the terms and conditions of the proposed sale and a copy of the purchase and sales agreement, and (v) such other information as Lender may request to permit it to determine the creditworthiness and management abilities of the proposed transferee, its management plan for the Mortgaged Property and the proposed transferee's status as a "Qualified Real Estate Investor". (b) The Loan must be current in all respects and may not be in default either as of the date of the notice given Lender under subparagraph (a) above or thereafter through the date of transfer of title to the Mortgaged Property nor may any event have occurred which, after notice or passage of time or both, would constitute an Event of Default under the Loan. (c) The purchaser is a "Qualified Real Estate Investor". (d) The Mortgaged Property as of the date of transfer and thereafter must be managed by Sheraton or another hotel management company reasonably approved by Lender under the Management Agreement or another hotel management agreement reasonably satisfactory to Lender. The flag under which the Mortgaged Property is operated shall remain the same or, if changed, be satisfactory to Lender. (e) The proposed purchaser of the Mortgaged Property shall assume the Loan under documents in form and substance satisfactory to Lender, subject to the non-recourse provisions of the Loan Documents existing as of the date of the closing of the sale of the Mortgaged Property. Additionally, at the time of the assumption of the Loan, the proposed purchaser shall furnish to Lender an environmental indemnity in form and substance satisfactory to Lender from a financially responsible person or entity approved by the Lender. Borrower and the proposed purchaser and any other person as reasonably required by Lender's counsel shall also execute financing statements and such other documents as Lender's counsel shall reasonably require in order to effectuate the transaction as contemplated by this Section 2.17 and shall furnish evidence of fire and extended coverage insurance as required by the Loan Documents. (f) Along with the notice of transfer under subparagraph (a) above, Borrower shall pay to Lender a fee in the amount of one percent (1%) of the then outstanding balance of the Loan in cash or certified funds. Such fee shall be retained by Lender whether or not the transfer occurs except in the situation described in the succeeding sentence and is being paid in order to induce Lender to allow the proposed purchaser to assume the obligations of the Borrower under the Loan Documents and to release Borrower from liability thereunder for all periods from and after the 31 36 transfer in accordance with these provisions. Such fee shall be returned to Borrower only if Lender disapproves of such transfer as not meeting the requirements of this Section 2.17. (g) The cash flow from the Mortgaged Property (i.e., gross rents received less property taxes, insurance and a reasonable reserve for capital improvements, but excluding principal and interest payments on the Loan, depreciation and other non-cash charges and proceeds from casualty policies) for the 12 month period ending on the last day of the month which is two months prior to the month of the anticipated date of such transfer of title shall be not less than 1.65X times the required payments of principal and interest on the Loan for the same twelve month period as determined by Lender in its sole discretion from financial statements for the Mortgaged Property in form and substance satisfactory to Lender and submitted to Lender. (h) The unpaid principal balance of the Loan shall be not more than sixty percent (60%) of the appraised value of the Mortgaged Property according to a current appraisal furnished to and satisfactory to Lender and prepared by an MAI appraiser acceptable to Lender. (i) Borrower shall pay all of Lender's reasonable outside costs and expenses incurred in connection with the proposed sale of the Mortgaged Property whether or not the sale actually occurs including, without limitations, attorneys' fees, recording charges, title charges and any endorsement to Lender's title policy that Lender's counsel may require. Section 2.18. Estoppel Certificates. Within 10 Business Days of a request by Lender, Borrower shall furnish to Lender a duly acknowledged written statement confirming the amount of the outstanding Indebtedness, the terms of payment and maturity date of the Note, the date to which interest has been paid, and whether any offsets or defenses exist against the Indebtedness. If any such offsets or defenses are alleged to exist, the nature thereof shall be set forth in detail. Borrower shall also furnish to Lender within 30 days of its request therefor tenant estoppel letters from such tenants of the Premises as Lender may require, but such requests as to any one tenant shall not be made more often than once in a calendar year period. Section 2.19. Assignment of Leases and Property Income. (a) Borrower hereby absolutely and unconditionally assigns and transfers to Lender the Leases and the Property Income. Borrower shall not otherwise assign, transfer or encumber in any manner the Leases or the Property Income or any portion thereof. Borrower shall have a license to collect and use the Property Income as the same becomes due and payable, revocable by Lender, so long as no Event of Default has occurred, but may not collect any Property Income more than 30 days in advance of the date the same becomes due. The assignment in this Section 2.19 shall constitute an absolute and present assignment of the Leases and the Property Income, and not an additional assignment for security, and the existence or exercise of the 32 37 Borrower's revocable license to collect Property Income shall not operate to subordinate this assignment to any subsequent assignment. The exercise by Lender of any of its rights or remedies under this Section 2.19 shall not be deemed or construed to make Lender a mortgagee-in-possession. The assignments contained in this Section 2.19(a) shall automatically terminate and be null and void ab initio upon the repayment of the Indebtedness or the release of this -- ------ Deed of Trust. (b) Borrower shall furnish Lender with executed copies of all Leases within 10 days after execution thereof. All proposed Leases and renewals of existing Leases shall be at rental rates and on terms comparable to existing local market rates and terms and shall be arms-length transactions with bona fide, independent third party tenants; provided, however, that renewals of existing Leases may be made with the existing parties thereto and upon substantially the same terms as such existing Leases. All new Leases shall provide that they are subordinate to this Deed of Trust and that the lessee agrees to attorn to Lender. All proposed Leases and renewals of existing Leases (other than Leases described in Subsection 2.19(d)) shall be subject to the prior review and reasonable approval of Lender and its counsel, at Borrower's expense. (c) Borrower shall perform all obligations as lessor under all Leases and shall enforce all of the terms, covenants and conditions contained in upon the part of the lessee thereunder to be performed or observed. Additionally, Borrower shall not take any action which would cause any Lease to cease to be in full force and effect. Except with the prior consent of Lender, not to be unreasonably withheld, Borrower shall not (i) cancel, terminate (other than exercising Borrower's rights to terminate any Lease upon a lessee's default thereunder and subject to the terms of Section 2.25(d) hereof), surrender, sublet or assign any Lease or consent to any cancellation, termination, surrender, subletting or assignment thereof; (ii) amend, modify or subordinate any Lease to any mortgage, deed of trust or other security interest that is subordinate to this Deed of Trust; (iii) enter into any new Lease (except as permitted in Section 2.19(d) below); (iv) waive any default under or breach of any Lease; (v) consent to or accept any prepayment or discount of rent or advance rent under any Lease; (vi) other than exercising Borrower's rights to terminate any Lease upon a lessee's default thereunder (and subject to the terms of Section 2.25(d) hereof), take any other action in connection with any Lease which may impair or jeopardize the validity of such Lease or the Lender's interest therein; or (vii) alter, modify or change the terms of any guaranty, letter of credit or other credit support with respect to any of the Leases or cancel or terminate such guaranty, letter of credit or other credit support without the prior written consent of Lender. (d) Notwithstanding Section 2.19(b), Lender's prior consent shall not be required for entering into any new Lease covering 1,000 square feet of net rentable area or less, or renewals thereof, provided that (i) the Lease or renewal thereof represents an arm's-length transaction and provides for the payment of market rents, and (ii) neither the Lease nor renewal thereof nor the 33 38 activity of the lessee will violate any provision of any other Lease or restriction or covenant affecting the Premises or this Deed of Trust or any other Loan Document, including Section 2.20(b) hereof. Except for Leases to which Lender's consent is not required, notice and copies of which shall be furnished only upon request, Borrower shall give Lender notice of any Lease or renewal thereof described in this Section 2.19(d), together with a fully-executed and complete copy of such Lease, not later than 10 days after the execution thereof. (e) In addition to the foregoing, Borrower shall comply with all terms and provisions of the Assignment. Section 2.20. Environmental Matters; Warranties; Notice; Indemnity. (a) Borrower represents and warrants to Lender, based upon an environmental assessment of the Premises and the Equipment and information that Borrower knows, as follows: (i) Borrower has not installed, used, generated, manufactured, produced, stored, released, discharged or disposed of in, on, under or about the Premises, or transported to or from any portion of the Premises, any Hazardous Substance or allowed any other person or entity to do so, except under conditions permitted by applicable Environmental Laws; (ii) there are no Hazardous Substances or underground storage tanks in, on, or under or about the Premises, except those that are both (A) in compliance with Environmental Laws and with permits issued pursuant thereto, if necessary, and (B) fully disclosed to Lender in writing pursuant to the written reports resulting from environmental assessments of the Mortgaged Property delivered to Lender (the "Environmental Report"); (iii) there are no past, present or threatened Releases of any Hazardous Substance in, on, under or about the Premises except as defined in the Environmental Report; (iv) there is no condition known to Borrower which is expected to result in any Release of Hazardous Substances migrating to the Premises except as described in the Environmental Report; (v) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Premises or the Equipment except as described in the Environmental Report; 34 39 (vi) Borrower does not know of, and has not received, any written or oral notice or other communication from any person or entity (including, but not limited to, a governmental entity) relating to Hazardous Substances or Remediation thereof, of possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Premises or Equipment, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and, (vii) Borrower has truthfully and fully provided to Lender, in writing, any and all information relating to any presence or Release of Hazardous Materials in, on, under and about the Premises that is known by Borrower and that is contained in Borrower's files and records, including but not limited to any reports relating to Hazardous Substances in, on, under or about the Premises and/or to the environmental condition of the Premises. (b) Borrower shall not install, use, generate, manufacture, produce, store, Release, discharge or dispose of on, under or about the Premises, or transport to or from any portion of the Premises, any Hazardous Substance or allow any other person or entity to do so, except under conditions permitted by applicable Environmental Laws. Additionally, except with the prior written consent of Lender, no portion of the Premises shall be leased, used or occupied for dry cleaning operations (except for drop off dry cleaning operations in the ordinary course of business) or the storage of any chemicals used in the dry cleaning process. (c) Borrower shall keep and maintain the Premises in compliance with, and shall not cause or permit the Premises to be in violation of, applicable Environmental Laws. (d) Borrower shall promptly provide notice to Lender of: (i) any proceeding, investigation or inquiry commenced by any governmental authority with respect to the presence of any Hazardous Substance on, under or about the Premises or the migration of any Hazardous Substance to or from adjoining property to which Borrower has knowledge or has received notice; (ii) all claims made or threatened by any person or entity against Borrower, or to Borrower's knowledge, any other party occupying the Premises or any portion thereof, or the Premises, relating to any loss or injury allegedly resulting from any Hazardous Substance; and (iii) the discovery of any occurrence or condition on the Premises or on any real property adjoining or in the vicinity of the Premises, of which Borrower becomes aware, which might cause the Premises or any portion thereof to be in violation of any Environmental 35 40 Law or subject to any restriction on ownership, occupancy, transferability or use under any Environmental Law (collectively, an "Environmental Violation"). (e) Lender and, to the extent authorized by Lender, Trustee may join and participate in, as a party if Lender so determines, any legal or administrative proceeding or action concerning the Premises or Equipment under any Environmental Law. Borrower agrees to bear and shall pay or reimburse Lender on demand for all Advances and expenses (including reasonable attorneys' fees) relating to or incurred by Lender in connection with any such action or proceeding. (f) Borrower shall indemnify and hold Trustee and Lender and their respective directors, officers, employees and agents harmless from and against any and all claims, demands, liabilities, losses, damages, judgments, penalties, costs and expenses (including reasonable attorneys' fees) directly or indirectly arising out of or attributable to a breach of any warranty, representation or other provision contained in this Section 2.20 including, without limitation, (i) all actual and consequential damages, (ii) the costs of any required Remediation, and (iii) the costs of the preparation and implementation of any plans for Remediation, closure or other required plans. This indemnity shall survive the satisfaction, release or extinguishment of the lien of this Deed of Trust including any extinguishment of such lien by foreclosure or deed in lieu thereof. Notwithstanding anything to the contrary contained herein, the indemnification provided for herein shall survive payment of the Note, but shall become null and void and of no further force and effect in the event Lender or any other party obtains title to the Mortgaged Property through foreclosure or exercise of power of sale under this Deed of Trust or deed-in-lieu of foreclosure or exercise of power of sale. Section 2.21. Environmental Matters; Remedial Work. (a) If any investigation, site monitoring, containment, cleanup, removal, restoration or other Remediation of any kind or nature (collectively, the "Remedial Work") is required to be performed by Borrower under any applicable Environmental Law because of or in connection with the current or future presence, suspected presence, release or suspected release of a Hazardous Substance into the air, soil, ground water, surface water, or soil vapor on, under or about the Premises or any portion thereof, Borrower shall promptly commence and diligently prosecute to completion all such Remedial Work. In all events, such Remedial Work shall be commenced within 45 days after any demand therefor by Lender or such shorter period as may be required under any applicable Environmental Law. (b) All Remedial Work shall be performed by contractors, and under the supervision of a consulting engineer, each approved in advance by Lender. All costs and expenses of such Remedial Work and Lender's monitoring or review of such Remedial Work (including reasonable attorneys' fees) shall be paid by Borrower. If Borrower does not timely commence 36 41 and diligently prosecute to completion the Remedial Work, Lender may (but shall not be obligated to) cause such Remedial Work to be performed. Borrower agrees to bear and shall pay or reimburse Lender on demand for all Advances and expenses (including reasonable attorneys' fees) relating to or incurred by Lender in connection with monitoring, reviewing or performing any Remedial Work. (c) Except with Lender's prior consent (not to be unreasonably withheld), Borrower shall not commence any Remedial Work or enter into any settlement agreement, consent decree or other compromise relating to any Hazardous Substances or Environmental Laws which might, in Lender's sole judgment, impair the value of Lender's security hereunder. Lender's prior consent shall not be required, however, if the presence or threatened presence of Hazardous Substances on, under or about the Premises poses an immediate threat to the health, safety or welfare of any person or is of such a nature that an immediate remedial response is necessary, and it is not possible to obtain Lender's prior consent. In such event Borrower shall notify Lender as soon as practicable of any action taken. Section 2.22. Environmental Matters; Inspection. (a) Lender shall have the right at all reasonable times to enter upon and inspect all or any portion of the Premises, provided that Lender makes an appointment through the general manager of the hotel after reasonable notice and that such inspections shall not unreasonably interfere with the normal business operations of the Premises. Lender may select a consulting engineer to conduct and prepare reports of such inspections. The inspection rights granted to Lender in this Section 2.22 shall be in addition to, and not in limitation of, any other inspection rights granted to Lender in this Deed of Trust, and shall expressly include the right to conduct reasonable soil borings and other customary environmental tests, assessments and audits, so long as Lender restores the Mortgaged Property to its previous condition. (b) Borrower agrees to bear and shall pay or reimburse Lender on demand for all Advances and expenses (including reasonable attorneys' fees) relating to or incurred by Lender in connection with the inspections and reports described in this Section 2.22 in the following situations: (i) If Lender has reasonable grounds to believe, at the time any such inspection is ordered, that there exists an Environmental Violation or that a Hazardous Substance is present on, under or about the Premises or is migrating to or from adjoining property, except under conditions permitted by applicable Environmental Laws and not prohibited by any Loan Document; (ii) if any such inspection reveals an Environmental Violation or that a Hazardous Substance is present on, under or about the Premises or is migrating to or from 37 42 adjoining property, except under conditions permitted by applicable Environmental Laws and not prohibited by any Loan Document; or (iii) if an Event of Default exists at the time any such inspection is ordered. Section 2.23. Management. At all times prior to the payment in full of the Indebtedness, the Mortgaged Property shall be managed by Sheraton or another management company satisfactory to Lender, and pursuant to the Management Agreement or another management agreement reasonably satisfactory to Lender. Such management agreement, and any leasing commissions agreement affecting the Mortgaged Property, shall be subordinate to this Deed of Trust. Section 2.24. ERISA. As of the date hereof and throughout the term of this Deed of Trust, (i) Borrower is not and will not be an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA: (ii) the assets of Borrower do not and will not constitute "plan assets" of one or more such plans for purposes of Title I of ERISA: (iii) Borrower is not and will not be a "governmental plan" within the meaning of Section 3(3) of ERISA; (iv) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of fiduciaries with respect to governmental plans; and (v) Borrower shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under this Deed of Trust, the Note, or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. Borrower further agrees to deliver to Lender such certifications or other evidence of compliance with the provisions of this Section 2.24 as Lender may from time to time request. Section 2.25. Operating Agreements. In connection with the Operating Agreements, Trustor acknowledges and agrees as follows: (a) no Operating Agreement shall be amended, modified, supplemented, restated or otherwise altered by Trustor, nor shall Trustor consent or otherwise acquiesce in any of the foregoing, without in each instance Beneficiary's prior written consent, which consent shall not be unreasonably withheld; (b) no Operating Agreement shall be terminated by Trustor unless such terminated Operating Agreement is replaced with a similar agreement upon terms and conditions, and with such third parties, as are reasonably acceptable to Lender; (c) Trustor will deliver to Beneficiary, at the same time received or sent by Trustor, copies of all notices, demands or requests sent or otherwise made by Trustor or any other Person under or pursuant to any Operating Agreement; 38 43 (d) the term of any Operating Agreement shall not be extended or otherwise renewed by Trustor (unless pursuant to a right currently afforded Trustor thereunder) without in each instance Beneficiary's prior written approval, such approval not to be unreasonably withheld; (e) Trustor agrees to observe, perform and discharge all obligations, covenants and warranties required to be kept and performed by Trustor under the Operating Agreements; and (f) Trustor shall use best efforts to enforce or secure the performance of each and every material obligation, term, covenant, condition and agreement to be performed by any other party to any of the Operating Agreements. Section 2.26. Single-Purpose Entity. Borrower shall at all times be a Single-Purpose Entity. ARTICLE III Security Agreement Section 3.01. Warranties, Representations and Covenants of Borrower. Borrower covenants, warrants, represents and agrees with and to Trustee and Lender as follows: (a) This Deed of Trust constitutes a security agreement under the Code and serves as a fixture filing in accordance with the Code. This Deed of Trust creates a security interest in favor of Lender as secured party under the Code with respect to all property (specifically including the Collateral) included in the Mortgaged Property which is covered by the Code. The mention of any portion of the Mortgaged Property in a financing statement filed in the records normally pertaining to personal property shall not derogate from or impair in any manner the intention of Borrower and Lender hereby declared that all items of Collateral described in this Deed of Trust are part of the real property encumbered hereby to the fullest extent permitted by law, regardless of whether any such item is physically attached to the Improvements or whether serial numbers are used for the better identification of certain items. Specifically, the mention in any such financing statement of (i) the rights in or the Proceeds of any policy of insurance, (ii) any condemnation Proceeds, (iii) Borrower's interest in any Leases or Property Income, or (iv) any other item included in the Mortgaged Property, shall not be construed to alter, impair or impugn any rights of Lender as determined by this Deed of Trust or the priority of Lender's lien upon and security interest in the Mortgaged Property. Any such mention shall be for the protection of Lender in the event that notice of Lender's priority of interest as to any portion of the Mortgaged Property is required to be filed in accordance with the Code to be effective against or take priority over the interest of any particular class of persons, including the federal government or any subdivision or instrumentality thereof. 39 44 (b) Except for the security interest granted by the Loan Documents, Borrower is and, as to portions of the Collateral to be acquired after the date hereof, will be the sole owner of the Collateral, free from any lien, security interest, encumbrance or adverse claim thereon of any kind whatsoever except Permitted Encumbrances. Borrower shall notify Lender of, and shall defend the Collateral against, all claims and demands of all persons at any time claiming the same or any interest therein. Notwithstanding anything to the contrary contained in the Loan Documents, Borrower shall have the right during the term of the Loan to secure the purchase of up to $300,000 of Equipment for the Mortgaged Property with secondary financing including equipment leases. (c) Except as otherwise provided in this Deed of Trust, Borrower shall not lease, sell, convey or in any manner transfer the Collateral without the prior consent of Lender. (d) The Collateral is not used or bought for personal, family or household purposes. (e) The Collateral shall be kept on or at the Premises, and Borrower shall not remove the Collateral from the Premises without the prior consent of Lender, except such portions or items of the Collateral as are consumed or worn out in ordinary usage, all of which shall be promptly replaced by Borrower with items of equal or greater value. (f) In the event of any change in name, identity or structure of Borrower, Borrower shall notify Lender thereof and promptly after request shall execute, file and record such Code forms as are necessary to maintain the priority of Lender's lien upon and security interest in the Collateral, and shall pay all reasonable expenses and fees in connection with the filing and recording thereof. If Lender shall require the filing or recording of additional Code forms or continuation statements, Borrower shall, promptly after request, execute, file and record such Code forms or continuation statements as Lender shall deem necessary (subject to Lender's right to sign such statements on behalf of Borrower as provided in Subsection 3.01(g)), and shall pay all reasonable expenses and fees in connection with the filing and recording thereof. If Lender shall initially pay such expenses, Borrower shall promptly reimburse Lender for the expenses. (g) Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to execute in the name of and on behalf of Borrower any and all financing statements and continuations thereof and to file with the appropriate public office on its behalf and at its expense any financing or other statements signed only by Lender, as secured party, in connection with the Collateral covered by this Deed of Trust. 40 45 Section 3.02. Financing Statements. A CARBON, PHOTOGRAPHIC OR OTHER REPRODUCTION OF THIS DEED OF TRUST OR ANY FINANCING STATEMENT RELATING TO THIS DEED OF TRUST SHALL BE SUFFICIENT AS A FINANCING STATEMENT. Section 3.03. Addresses. The mailing address of Borrower and the address of Lender from which information concerning the security interest granted hereby may be obtained are set forth on the Cover Sheet of this Deed of Trust. Borrower maintains its sole place of business or its chief executive office at the address shown on said Cover Sheet, and Borrower shall immediately notify Lender in writing of any change in said place of business or chief executive office. ARTICLE IV Default and Remedies Section 4.01. Events of Default. Each of the following shall, after the expiration of any notice and cure period provided for in the Note, constitute an Event of Default under this Deed of Trust, the Note and the other Loan Documents: (a) failure in the payment of any amount due as and when due under this Deed of Trust, the Note or any other Loan Document; (b) failure to pay any Imposition as and when due or to maintain insurance as required by this Deed of Trust; (c) default in the due observance or performance of any term, covenant or condition contained in this Deed of Trust, the Note or any other Loan Document; (d) if any representation made herein or in any other Loan Document shall prove to be untrue in any material respect; (e) violation of any of the covenants set forth in Section 2.17 with respect to conveyances, sales, encumbrances or other prohibited dispositions of the Mortgaged Property or Borrower or any portion thereof or any interest therein; (f) violation of any of the covenants set forth in Section 2.19(a) with respect to the further assignment, transfer or encumbrance by Borrower of the Leases or the Property Income or any portion thereof; (g) violation of any of the covenants set forth as items (i) through (vi) of Section 2.19(c) with respect to certain actions concerning Leases which shall not be taken by Borrower without the prior consent of Lender; 41 46 (h) if Borrower, any general partner of Borrower or Guarantor consents to the filing of, or commences or consents to the commencement of, any Bankruptcy Proceeding with respect to Borrower or Guarantor; (i) if any Bankruptcy Proceeding shall have been filed against Borrower, any general partner of Borrower or Guarantor and the same is not withdrawn, dismissed, canceled or terminated within 90 days of such filing; (j) if Borrower, any general partner of Borrower or Guarantor is adjudicated bankrupt or insolvent or a petition for reorganization of Borrower or any such general partner or Guarantor is granted; (k) if a receiver, liquidator or trustee of Borrower, any general partner of Borrower or Guarantor or of any of the properties of Borrower or any such general partner or Guarantor shall be appointed; (l) if Borrower, any general partner of Borrower or Guarantor shall make an assignment for the benefit of its creditors or shall admit in writing the inability to pay its debts generally as they become due; (m) except as otherwise permitted herein, if Borrower, any general partner of Borrower, or Guarantor shall die or shall institute or cause to be instituted any proceeding for the termination or dissolution of Borrower or any such general partner or Guarantor; (n) if a default or event of default shall occur under any mortgage, deed of trust, encumbrance, lien or security agreement (except for equipment leases) encumbering all or any portion of the Mortgaged Property which is subordinate or superior to the lien of this Deed of Trust or if any party under any such instrument shall commence a foreclosure or other collection or enforcement action in connection therewith, provided, however, that this provision shall not be deemed to be a waiver of the provisions of Section 2.17 prohibiting further encumbrances or of any other provision of this Deed of Trust, it being understood that it is an event of default under this Deed of Trust to permit any further mortgage, encumbrance, lien or security agreement to encumber all or any portion of the Mortgaged Property except as expressly permitted herein; (o) except as permitted in this Deed of Trust, the actual or threatened alteration, demolition or removal of any of the Improvements without the prior consent of Lender, which shall not be unreasonably withheld; 42 47 (p) damage to any of the Mortgaged Property in any manner which is not covered by insurance as a result of Borrower's failure to maintain insurance required in accordance with this Deed of Trust; (q) if a default shall occur under any of the Related Loan Documents; (r) default by [FCH/SH Leasing] [FCH/SH Leasing II] in the due observance or performance of any term, covenant or condition contained in any Operating Agreement or the Agreement Concerning Primary Lease Agreement without Borrower timely curing such default pursuant to its contractual rights to do so; or (s) default by Guarantor in the due observance or performance of any term, covenant or condition contained in any separate guaranty or separate indemnity agreement executed by Guarantor in connection with the Loan. In the event of a conflict between the provisions of this Section 4.01., and the provisions of the Note, the provisions of the Note shall control. Section 4.02. Remedies. Upon the occurrence of any Event of Default, Lender may take such actions against Borrower and/or the Mortgaged Property or any portion thereof as it deems advisable, subject to Section 11 of the Note, to protect and enforce its rights against Borrower and in and to the Mortgaged Property, without notice or demand except as set forth below. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. All actions shall be subject to Section 11 of the Note and may include the following: (a) Subject to any applicable provisions of the Note, Lender may declare the entire principal balance under the Note then unpaid, together with all accrued and unpaid interest thereon, and all other unpaid Indebtedness, to be immediately due and payable. (b) Lender may enter into or upon the Mortgaged Property, personally or by its agents, nominees or attorneys, and may dispossess Borrower and its agents and servants therefrom, and thereupon Lender at its sole discretion may: (i) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every portion of the Mortgaged Property and conduct business thereon, in any case either in the name of Lender or in such other name as Lender shall deem best; (ii) complete any construction on the Mortgaged Property in such manner and form as Lender deems advisable; (iii) make alterations, additions, renewals, replacements and improvements to or on the Mortgaged Property; (iv) exercise all rights and 43 48 powers of Borrower with respect to the Mortgaged Property, whether in the name of Borrower or otherwise, including the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Property Income; and (v) apply the receipts of Property Income to the payment of the Indebtedness (including any prepayment fee payable under the Note) in such order as Lender shall determine in its sole discretion, after deducting therefrom all expenses (including reasonable attorneys' fees) incurred in connection with the aforesaid operations and all amounts necessary to pay the Impositions, insurance and other charges in connection with the Mortgaged Property, as well as just and reasonable compensation for the services of Lender, its agents, nominees and attorneys. (c) Subject to any applicable provisions of the Note, with or without entry, personally or by its agents, nominees or attorneys, Lender may require Trustee to sell all or any portion of the Mortgaged Property and all or any portion of Borrower's estate, right, title, interest, claim and demand therein and right of redemption thereof at one or more private or public sales in the manner and to the extent permitted by law, as an entirety or in parcels or portions, and Trustee shall have any statutory power of sale as may be provided by law in the State. (d) Subject to any applicable provisions of the Note, Lender may institute proceedings for the complete foreclosure of this Deed of Trust, in which case the Mortgaged Property may be sold for cash or upon credit, as an entirety or in parcels or portions. (e) Subject to any applicable provisions of the Note, Lender may institute, or require Trustee to institute, proceedings for the partial foreclosure of this Deed of Trust for the portion of the Indebtedness then due and payable, subject to the continuing lien of this Deed of Trust for the balance of the Indebtedness not then due. (f) Lender may institute, or require Trustee to institute, an action, suit or proceeding at law or in equity for the specific performance of any covenant, condition or agreement contained herein or in the Note or any other Loan Document, or in aid of the execution of any power granted hereunder or for the enforcement of any other appropriate legal or equitable remedy. (g) Lender and Trustee shall have the rights and may take such actions as are permitted by the laws of the State. (h) Subject to any applicable provisions of the Note, Lender may recover judgment on the Note, either before, during or after any proceedings for the foreclosure or enforcement of this Deed of Trust. (i) Lender may secure the appointment of a receiver, trustee, liquidator or similar official of the Mortgaged Property or any portion thereof, and Borrower hereby consents and agrees to such 44 49 appointment, without notice to Borrower and without regard to the adequacy of the security for the Indebtedness and without regard to the solvency of Borrower or any other person, firm or entity liable for the payment of the Indebtedness, and such receiver or other official shall have all rights and powers permitted by applicable law and such other rights and powers as the court making such appointment may confer, but the appointment of such receiver or other official shall not impair or in any manner prejudice the rights of Lender to receive the Property Income pursuant to this Deed of Trust or the Assignment. (j) Lender may exercise any or all of the remedies available to a secured party under the Code, but any sale of the Equipment shall be subject to any applicable provisions of the Note. (k) Lender may pursue, or require Trustee to pursue, any other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. (l) Lender may apply any funds then on deposit with Lender for payment of Impositions, ground rent or insurance premiums in the manner provided for in Section 2.07. (m) Lender in its sole discretion may surrender any insurance policies and collect the unearned premiums and apply such sums against the Indebtedness. Section 4.03. General Provisions Regarding Remedies. (a) Effect of Judgment. No recovery of any judgment by Lender or Trustee and no levy of an execution under any judgment upon the Mortgaged Property or upon any other property of Borrower shall affect in any manner or to any extent the lien of this Deed of Trust upon the Mortgaged Property or any portion thereof, or any rights, powers or remedies of Lender or Trustee hereunder. Such lien, rights, powers and remedies of Lender and Trustee shall continue unimpaired as before. (b) Continuing Power of Sale. The power of sale conferred upon Lender in this Deed of Trust shall not be exhausted by any one or more sales as to any portion of the Mortgaged Property remaining unsold, but shall continue unimpaired until all of the Mortgaged Property is sold or all of the Indebtedness is paid. (c) Right to Purchase. At any sale of the Mortgaged Property or any portion thereof pursuant to the provisions of this Deed of Trust, Lender or Trustee shall have the right to purchase the Mortgaged Property being sold, and in such case shall have the right to credit against the amount of the bid made therefor (to the extent necessary) all or any portion of the Indebtedness then due. 45 50 (d) Right to Terminate Proceedings. Lender or Trustee may terminate or rescind any proceeding or other action brought in connection with its exercise of the remedies provided in Section 4.02 at any time before the conclusion thereof, as determined in Lender's sole discretion and without prejudice to Lender. (e) No Waiver or Release. Lender may resort, or require Trustee to resort, to any remedies and the security given by the Loan Documents, in whole or in part, and in such portions and in such order as determined in Lender's sole discretion. No such action shall in any way be considered a waiver of any rights, benefits or remedies evidenced or provided by the Loan Documents. The failure of Lender or Trustee to exercise any right, remedy or option provided in the Loan Documents shall not be deemed a waiver of such right, remedy or option or of any covenant or obligation secured by the Loan Documents. No acceptance by Lender or Trustee of any payment after the occurrence of an Event of Default and no payment by Lender or Trustee of any Advance or obligation for which Borrower is liable hereunder shall be deemed to waive or cure such Event of Default or Borrower's liability to pay such obligation. No sale of all or any portion of the Mortgaged Property, no forbearance on the part of Lender or Trustee, and no extension of time for the payment of the whole or any portion of the Indebtedness or any other indulgence given by Lender or Trustee to Borrower or any other person or entity, shall operate to release or in any manner affect Lender's or Trustee's interest in the Mortgaged Property or the liability of Borrower to pay the Indebtedness, except to the extent that such liability shall be reduced by Proceeds of the sale of all or any portion of the Mortgaged Property received by Lender. No waiver by Lender or Trustee shall be effective unless it is in writing and then only to the extent specifically stated. (f) No Impairment; No Release. The interests and rights of Lender or Trustee under the Loan Documents shall not be impaired by any indulgence, including (i) any renewal, extension or modification which Lender may grant with respect to any of the Indebtedness; (ii) any surrender, compromise, release, renewal, extension, exchange or substitution which Lender or Trustee may grant with respect to the Mortgaged Property or any portion thereof; or (iii) any release or indulgence granted to any maker, endorser, guarantor or surety of any of the Indebtedness. Subject to Section 11 of the Note, if the Mortgaged Property is sold and Lender enters into any agreement with the then owner of the Mortgaged Property extending the time of payment of the Indebtedness, or otherwise modifying the terms hereof or of any other Loan Document, Borrower shall continue to be liable to pay the Indebtedness according to the tenor of any such agreement unless expressly released and discharged in writing by Lender. (g) WAIVERS AND AGREEMENTS REGARDING REMEDIES. TO THE FULLEST EXTENT THAT BORROWER MAY LEGALLY DO SO, BORROWER: 46 51 (i) AGREES THAT BORROWER WILL NOT AT ANY TIME INSIST UPON, PLEAD, CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF ANY LAWS NOW OR HEREAFTER IN FORCE PROVIDING FOR ANY APPRAISAL OR APPRAISEMENT, VALUATION, STAY, EXTENSION OR REDEMPTION, AND WAIVES AND RELEASES ALL RIGHTS OF REDEMPTION, VALUATION, APPRAISAL OR APPRAISEMENT, STAY OF EXECUTION, EXTENSION AND NOTICE OF ELECTION TO ACCELERATE OR DECLARE DUE THE WHOLE OF THE INDEBTEDNESS; (ii) WAIVES ALL RIGHTS TO A MARSHALING OF THE ASSETS OF BORROWER, BORROWER'S PARTNERS, IF ANY, AND OTHERS WITH INTERESTS IN BORROWER, INCLUDING THE MORTGAGED PROPERTY, OR TO A SALE IN INVERSE ORDER OF ALIENATION IN THE EVENT OF FORECLOSURE OF THE INTERESTS HEREBY CREATED, AND AGREES NOT TO ASSERT ANY RIGHT UNDER ANY LAWS PERTAINING TO THE MARSHALING OF ASSETS, THE SALE IN INVERSE ORDER OF ALIENATION, HOMESTEAD EXEMPTION, THE ADMINISTRATION OF ESTATES OF DECEDENTS, OR ANY OTHER MATTERS WHATSOEVER TO DEFEAT, REDUCE OR AFFECT THE RIGHT OF LENDER UNDER THE LOAN DOCUMENTS TO A SALE OF THE MORTGAGED PROPERTY FOR THE COLLECTION OF THE INDEBTEDNESS WITHOUT ANY PRIOR OR DIFFERENT RESORT FOR COLLECTION, OR THE RIGHT OF LENDER OR TRUSTEE TO THE PAYMENT OF THE INDEBTEDNESS OUT OF THE PROCEEDS OF SALE OF THE MORTGAGED PROPERTY IN PREFERENCE TO EVERY OTHER CLAIMANT WHATSOEVER; (iii) WAIVES ANY RIGHT TO BRING OR UTILIZE ANY DEFENSE, COUNTERCLAIM OR SETOFF, OTHER THAN ONE IN GOOD FAITH, WHICH DENIES THE EXISTENCE OR SUFFICIENCY OF THE FACTS UPON WHICH THE FORECLOSURE ACTION IS GROUNDED OR WHICH IS BASED ON LENDER'S OR TRUSTEE'S WRONGFUL ACTIONS. IF ANY DEFENSE, COUNTERCLAIM OR SETOFF (OTHER THAN ONE PERMITTED BY THE PRECEDING SENTENCE) IS RAISED BY BORROWER IN SUCH FORECLOSURE ACTION, SUCH DEFENSE, COUNTERCLAIM OR SETOFF SHALL BE DISMISSED. IF SUCH DEFENSE, COUNTERCLAIM OR SETOFF IS BASED ON A CLAIM WHICH COULD BE TRIED IN AN ACTION FOR MONEY DAMAGES, THE FOREGOING WAIVER SHALL NOT BAR A SEPARATE ACTION FOR SUCH DAMAGE (UNLESS SUCH CLAIM IS REQUIRED BY LAW OR APPLICABLE RULES OF PROCEDURE TO BE PLEADED IN OR CONSOLIDATED WITH THE ACTION INITIATED BY LENDER OR TRUSTEE), BUT SUCH SEPARATE ACTION SHALL NOT THEREAFTER BE CONSOLIDATED WITH LENDER'S OR TRUSTEE'S FORECLOSURE ACTION. THE BRINGING OF SUCH SEPARATE ACTION FOR MONEY DAMAGES SHALL NOT BE DEEMED TO AFFORD ANY GROUNDS FOR STAYING ANY SUCH FORECLOSURE ACTION; (iv) WAIVES AND RELINQUISHES ANY AND ALL RIGHTS AND REMEDIES WHICH BORROWER MAY HAVE OR BE ABLE TO ASSERT BY REASON OF THE PROVISIONS OF ANY LAWS PERTAINING TO THE RIGHTS AND REMEDIES OF SURETIES, INCLUDING WITHOUT LIMITATION, _________________________, OR ANY CORRESPONDING FUTURE STATUTE OR RULE OF LAW; (v) WAIVES THE DEFENSE OF LACHES AND ANY APPLICABLE STATUTES OF LIMITATION; AND 47 52 (vi) WAIVES ANY RIGHT TO HAVE ANY TRIAL, ACTION OR PROCEEDING TRIED BY A JURY. (h) Lender's Discretion. Lender may exercise its rights, options and remedies and may make all decisions, judgments and determinations under this Deed of Trust and the other Loan Documents in its sole unfettered discretion. (i) Recitals of Facts. Intentionally Deleted. (j) Lender's Right to Waive, Consent or Release. Lender may at any time, in writing, (i) waive compliance by Borrower with any covenant herein made by Borrower to the extent and in the manner specified in such writing; (ii) consent to Borrower's doing any act which Borrower is prohibited hereunder from doing, or consent to Borrower's failing to do any act which Borrower is required hereunder to do, to the extent and in the manner specified in such writing; or (iii) release or require Trustee to release any portion of the Mortgaged Property, or any interest therein, from this Deed of Trust and the lien of the other Loan Documents. No such act shall in any way impair the rights of Lender or Trustee hereunder except to the extent specified by Lender in such writing. (k) Possession of the Mortgaged Property. Upon the occurrence of any Event of Default hereunder and demand by Lender at its option, Borrower shall immediately surrender or cause the surrender of possession of the Premises to Lender subject to the Permitted Encumbrances. Except as expressly provided in any separate written agreement between Lender and any other occupant of the Premises, if Borrower or such occupant is permitted to remain in possession, such possession shall be as tenant of Lender and such occupant (i) shall on demand pay to Lender monthly, in advance, reasonable use and occupancy charges for the space so occupied, and (ii) in default thereof, may be dispossessed by the usual summary proceedings. Upon demand, Borrower shall assemble the Collateral and make it available at the Premises to allow Lender to take possession and/or dispose of the Collateral. The covenants herein contained may be enforced by a receiver of the Mortgaged Property or any portion thereof. Nothing in this Section 4.03(k) shall be deemed a waiver of the provisions of this Deed of Trust prohibiting the sale or other disposition of the Mortgaged Property without Lender's consent except as and to the extent expressly permitted in the Loan Documents. (l) Limitations on Liability (i) Notwithstanding anything to the contrary contained in any of the Loan Documents or the Related Loan Documents but subject to the provisions of this Section 4.03(l), in any action or proceedings brought on this Deed of Trust, the Note or on any of the Loan Documents in which a money judgment is sought, Lender and Trustee will look 48 53 solely to the Mortgaged Property (including the Property Income) for payment of the Indebtedness and, specifically and without limitation, Lender and Trustee agree to waive any right to seek or obtain a deficiency judgment against Borrower. (ii) The provisions of Section 4.03(1)(i) shall not (u) constitute a waiver, release or impairment of any obligation evidenced or secured by this Deed of Trust, the Note or any other Loan Document by either Lender or Trustee to the extent of the Mortgaged Property securing such obligation; (v) be deemed to be a waiver of any right which Lender or Trustee may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Indebtedness secured by this Deed of Trust or to require that all Collateral shall continue to secure all of the Indebtedness owing to Lender in accordance with the Note, this Deed of Trust and the Loan Documents; (w) impair the right of the Lender or Trustee to name the Borrower or any principals of Borrower or any guarantor of the Note as a party or parties defendant in any action or suit for judicial foreclosure and sale under this Deed of Trust; (x) affect the validity or enforceability of, or limit recovery under, any separate indemnity agreement (including the environmental indemnity set forth in any separate environmental indemnity agreement, however designated), or guaranty made in connection with this Deed of Trust, the Note or the Loan Documents; (y) impair the right of the Lender or Trustee to obtain the appointment of a receiver; or, (z) impair Lender's or Trustee's rights and remedies under Section 2.19 of this Deed of Trust regarding the assignment of Leases and Property Income to Lender or under the Assignment. (iii) Notwithstanding any provisions of this Subsection 4.03(l), nothing herein shall be deemed to impair or prejudice in any way the right of Lender or Trustee (which right is specifically reserved) to pursue or obtain personal recourse liability against Borrower, or Guarantor to recover Losses incurred by Lender or Trustee arising out of or resulting from: 49 54 (u) obligations and liabilities under any separate guaranty or separate indemnity agreement; (v) fraud or material misrepresentation in connection with the Application or the making of the Loan; (w) insurance and/or condemnation proceeds received but not paid over or applied in accordance with the Loan Documents; (x) misappropriation of any security deposits, advances or prepaid rents, cancellation or termination payments or other similar sums received by Borrower from any tenants or other occupants of the Premises; (y) personal property covered by Lender's security interest obtained in connection with the Loan which is taken from the Mortgaged Property by or on behalf of Borrower and not replaced in the ordinary course of business with personal property of the same utility and of the same or greater value; (z) any act of arson, malicious destruction or material waste by Borrower, any principal, affiliate, member or general or limited partner of Borrower, or by any guarantor or indemnitor under any of the Loan Documents given to Lender in connection with the making of the Loan; (aa) revenues of the Mortgaged Property which are not applied to payments due under the Loan or to operating expenses of the Mortgaged Property (including, without limitation, any reserves or escrows required by any Loan Document) thereby resulting in, or contributing materially to, a default under the Loan Documents. Lender, however, shall have no right to recover distributions from the revenues of the Mortgaged Property to Borrower or Guarantor or any principal of Borrower or Guarantor made in good faith (after determining the sufficiency of revenues to cover the payments on the Loan and the foregoing operating and capital expenses) more than ninety (90) days prior to a default occurring under any Loan Document; (bb) [FCH/SH Leasing] [FCH/SH Leasing II]'s pledge in violation of the Loan Documents of the revenues or operating accounts relating to the Mortgaged Property, Lessee's Personal Property (as defined in the Primary Lease) or any other rights of [FCH/SH Leasing] [FCH/SH Leasing II] under the Primary Lease or [FCH/SH Leasing] [FCH/SH Leasing II]'s failure to keep all of the foregoing lien free in violation of the Loan Documents; 50 55 (cc) any fraudulent conveyance or transfer (or claim of any fraudulent conveyance or transfer) of any of the Mortgaged Properties (or any interest therein) to Borrower; (dd) the bankruptcy or insolvency of any fee owner of any of the Mortgaged Properties other than Borrower; or (ee) any transfer or mortgage tax (or claim of any transfer or mortgage tax) arising from the transfer to Borrower or mortgage by the fee owner or Borrower of any of the Mortgaged Properties or any interest therein. (iv) Notwithstanding the foregoing and subject to the last sentence of this paragraph, the agreement of Lender and Trustee not to pursue recourse liability as set forth in Section 4.03(l)(i) above SHALL AUTOMATICALLY BECOME NULL AND VOID and be of no further force and effect in the event (x) Borrower, any general partner or member (if Borrower shall be a limited liability company) of Borrower or any guarantor of the Indebtedness files or consents to the filing of any petition under the U.S. Bankruptcy Code respecting its or their debts, or (y) any such petition shall have been filed against any of the foregoing which is not dismissed within 90 days of such filing; except for an involuntary bankruptcy filed by Lender and provided further, that if: (1) after ninety (90) days following the filing of an involuntary bankruptcy proceeding, such proceeding is dismissed with prejudice and without adversely affecting the enforceability or priority of any of the Loan Documents; and (2) such dismissal occurs prior to the occurrence of any of the following: (v) the entry of any order that adversely affects the enforceability or priority of any of the Loan Documents (other than solely by reason of the automatic stay), (w) the entry of any order granting any person relief from the automatic stay to foreclose against, enforce any lien or security interest, levy upon, or repossess any material assets of Borrower that constitute a part of, or that relate to the Mortgaged Properties, or to terminate any Management Agreement or Primary Lease, (x) the liquidation of any material assets of Borrower that constitute a part of, or that relate to, the Mortgaged Properties, (y) the entry of any order approving the rejection or termination of any Primary Lease or any Management Agreement, or (z) the entry of any order approving any plan of reorganization for Borrower; and (3) throughout the period following the filing of such bankruptcy proceeding, Borrower or one or more of Borrower and persons or entities having an interest in Borrower have continued to make regular payments of debt service on a timely basis in accordance with the provisions of the Loan Documents. Borrower or one or more of Borrower and Guarantor shall be personally liable only for the actual 51 56 damages, losses, costs, and expenses (including attorneys' fees) incurred by Lender (expressly including any diminution, loss or damage to the Collateral) as a result of such bankruptcy filing. (m) Subrogation. If all or any portion of the proceeds of the Note or any Advance shall be used directly or indirectly to pay off, discharge or satisfy, in whole or in part, any prior lien or encumbrance upon the Mortgaged Property or any portion thereof, then Lender and Trustee shall be subrogated to, and shall have the benefit of the priority of, such other lien or encumbrance and any additional security held by the holder thereof. (n) Additional Provisions Regarding Remedies. (i) Should Lender elect to foreclose by exercise of power of sale set forth in this Deed of Trust, then upon receipt of such notice from Lender, Trustee shall cause to be recorded, published, posted and mailed to Borrower and other persons as required by law a Notice of Trustee's Sale in the manner required by law. Without further notice to Borrower and after the lapse of such time as may then be required by law, Trustee shall sell the Mortgaged Property at the time and place of sale fixed by it in said Notice of Trustee's Sale or as otherwise provided by law. The Mortgaged Property may be sold as a whole or in such separate lots, parcels or items as Trustee shall deem expedient, and such order as Trustee may determine, at public auction in the manner provided by law. Trustee shall deliver to the purchaser or purchasers its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. Any person, including Borrower, Trustee or Lender, may purchase at such sale. (ii) After deducting all costs, fees and expenses of Trustee and of this Deed of Trust, including reasonable attorneys' fees and all costs of title reports and other evidence of title and any appraisals, environmental and other professional reports obtained by Lender or Trustee in connection with the sale, Trustee shall apply the proceeds of sale to payment of the Indebtedness and the remainder, if any, to the person or persons legally entitled thereto, or as provided in _______________. (iii) Trustee may postpone the sale of all or any portion of the Mortgaged Property or change the place of sale in the manner provided by law. (iv) The power of sale under this Deed of Trust shall not be exhausted by any one or more sales (or attempted sales) as to all or any portion of the Mortgaged Property remaining unsold, but shall continue unimpaired until all of the Mortgaged Property has been sold and all of the Indebtedness has been paid in full. 52 57 (o) Additional Remedies. Subject to the provisions of Section 4.03(l) hereof, Lender shall have, in addition to all other rights and remedies provided herein and in the Loan Documents and at law or in equity, the rights and remedies afforded by _____________, without regard to the adequacy of the security or to the solvency of Borrower or to whether Trustee or Lender has commenced to exercise any other right or remedy herein or in any other Loan Document or at law or in equity. (p) Accurate Reflection. Borrower hereby acknowledges and agrees that the Loan Documents accurately reflect the agreements and understandings of the parties thereto with respect to the subject matter thereof, and hereby waives any claims against Lender that Borrower may now have or may hereafter acquire to the effect that the actual agreements and understandings of the parties to the Loan Documents, with respect to the subject matter thereof, may not be accurately set forth in the Loan Documents. ARTICLE V Trustee Section 5.01. Certain Actions of Trustee. Upon the written request of Lender, Trustee may at any time (a) reconvey all or any portion of the Mortgaged Property, (b) consent to the making of any map or plat thereof, (c) join in granting any easement thereon or in creating any covenants or conditions restricting the use or occupancy thereof, or (d) join in any extension agreement or in any agreement subordinating the lien or charge hereof. Any such action may be taken by Trustee without notice, and shall not affect the personal liability of any person for the payment of the Indebtedness or the lien of this Deed of Trust upon the Mortgaged Property for the full amount of the Indebtedness. Section 5.02. Reconveyance. Upon the written request of Lender stating that all sums secured hereby have been paid, and upon payment of its fees, Trustee shall reconvey without warranty the Mortgaged Property then held by Trustee hereunder. Section 5.03. Trustee's Covenants and Compensation. Trustee, by its acceptance hereof, covenants faithfully to perform and fulfill the trust herein created, being liable, however, only for negligence or willful misconduct. Trustee hereby waives any statutory fee and shall be entitled to, and hereby agrees to accept, reasonable compensation in lieu thereof for all services rendered or expenses incurred in the administration or execution of the trust hereby created. Borrower hereby agrees to pay such compensation subject to any applicable legal limitations. Section 5.04. Substitution of Trustee. Lender at any time in its sole discretion may select and appoint a successor or substitute Trustee hereunder by instrument in writing in any manner now or 53 58 hereafter provided by law. Such writing, upon recordation in the county where the Land is located, shall be conclusive proof of proper substitution of such successor or substitute Trustee which shall thereupon and without conveyance from the predecessor Trustee succeed to all its title, estate rights, powers and duties. Section 5.05. Resignation of Trustee. Trustee may resign at any time upon giving 30 days' notice to Borrower and to Lender. Section 5.06. Ratification of Acts of Trustee. Borrower hereby ratifies and confirms any and all acts which Trustee named herein or its successors or assigns in this trust shall do lawfully by virtue hereof. ARTICLE VI Miscellaneous Section 6.01. Notices. (a) All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (i) certified or registered United States mail, postage prepaid, or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, addressed in either case to any party hereto at its address as stated on the Cover Sheet of this Deed of Trust, or at such other address and person as shall be designated from time to time by Lender or Borrower, as the case may be, in a written notice to the other party in the manner provided for in this Section 6.01. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, three Business Days after deposit in the United States mail; or in the case of expedited prepaid delivery, upon the first attempted delivery on a Business Day. A party receiving a notice which does not comply with the technical requirements for notice under this Section 6.01 may elect to waive any deficiencies and treat the notice as having been properly given. (b) Borrower shall notify Lender promptly of the occurrence of any of the following: (i) receipt of notice from any governmental authority of material violations of applicable law relating to the Mortgaged Property; (ii) receipt of any notice from the holder of any other lien or security interest in the Mortgaged Property; or (iii) commencement of any judicial or administrative proceedings by, against or otherwise materially adversely affecting Borrower or Guarantor, the Mortgaged Property, or any other action by any creditor thereof as a result of any default under the terms of any loan. 54 59 Section 6.02. Binding Obligations; Joint and Several. The provisions and covenants of this Deed of Trust shall run with the land, shall be binding upon Borrower, its successors and assigns, and shall inure to the benefit of Lender and Trustee and their respective successors and assigns. If there is more than one Borrower, all their obligations and undertakings hereunder are and shall be joint and several. Section 6.03. Captions. The captions of the sections and subsections of this Deed of Trust are for convenience only and are not intended to be a part of this Deed of Trust and shall not be deemed to modify, explain, enlarge or restrict any of the provisions hereof. Section 6.04. Further Assurances. Borrower shall do, execute, acknowledge and deliver, at its sole cost and expense, such further acts, instruments or documentation, including additional title insurance policies or endorsements, as Lender or Trustee may reasonably require from time to time to better assure, transfer and confirm unto Lender the rights now or hereafter intended to be granted to Lender and/or Trustee under this Deed of Trust or any other Loan Document. Section 6.05. Severability. If any one or more of the provisions contained in this Deed of Trust shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Deed of Trust, but this Deed of Trust shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Section 6.06. Borrower's Obligations Absolute. Except as expressly permitted by the Loan Documents, all sums payable by Borrower hereunder shall be paid without notice, demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Borrower hereunder shall in no way be released, discharged, or otherwise affected (except as expressly provided herein) by reason of: (a) any damage to or destruction of or any condemnation or similar taking of the Mortgaged Property or any portion thereof; (b) any restriction or prevention of or interference with any use of the Mortgaged Property or any portion thereof; (c) any title defect or encumbrance or any eviction from the Premises or any portion thereof by title paramount or otherwise; (d) any Bankruptcy Proceeding relating to Borrower, any general partner of Borrower, or any guarantor or indemnitor, or any action taken with respect to this Deed of Trust or any other Loan Document by any trustee or receiver of Borrower or any such general partner, guarantor or indemnitor, or by any court, in any such proceeding; (e) any claim presently known to Borrower which Borrower has or might have against Lender or Trustee; (f) any default or failure on the part of Lender or Trustee prior to the date hereof to perform or comply with any of the terms hereof or of any other agreement with Borrower; or (g) any other occurrence whatsoever, whether similar or dissimilar to the foregoing. Except as expressly provided herein, 55 60 Borrower waives all rights now or hereafter conferred by statute or otherwise to any abatement, suspension, deferment, diminution or reduction of any sum secured hereby and payable by Borrower. Section 6.07. Amendments. This Deed of Trust cannot be altered, amended, modified or discharged orally and no executory agreement shall be effective to modify or discharge it in whole or in part, unless in writing and signed by the party against which enforcement is sought. Section 6.08. Other Loan Documents and Schedules. All of the agreements, conditions, covenants, provisions and stipulations contained in the Note and the other Loan Documents, and each of them, which are to be kept and performed by Borrower are hereby made a part of this Deed of Trust to the same extent and with the same force and effect as if they were fully set forth in this Deed of Trust, and Borrower shall keep and perform the same, or cause them to be kept and performed, strictly in accordance with their respective terms. The Cover Sheet and each schedule attached to this Deed of Trust are integral parts of this Deed of Trust and are incorporated herein by this reference. In the event of any conflict between the provisions of any such schedule and the remainder of this Deed of Trust, the provisions of such schedule or rider shall prevail. Section 6.09. Legal Construction. (a) The enforcement of this Deed of Trust shall be governed by, and construed and interpreted in accordance with, the laws of the State. (b) All terms contained herein shall be construed, whenever the context of this Deed of Trust so requires, so that the singular number shall include the plural, and the plural the singular, and the use of any gender shall include all genders. (c) The terms "include" and "including" as used in this Deed of Trust shall be construed as if followed by the phrase "without limitation". (d) Any provision of this Deed of Trust permitting the recovery of attorneys' fees and costs shall be deemed to include such fees and costs incurred in all appellate proceedings. Section 6.10. Merger. So long as any Indebtedness shall remain unpaid, fee title to and any other estate in the Mortgaged Property shall not merge, but shall be kept separate and distinct, notwithstanding the union of such estates in any person or entity. Section 6.11. Time of the Essence. Time shall be of the essence in the performance of all obligations of Borrower under this Deed of Trust. 56 61 Section 6.12. Transfer of Loan. Lender, in the management of its investments or for any other reason, may, at any time, sell, transfer or assign the Note, the Deed of Trust and the other Loan Documents and the servicing rights with respect thereto or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in the Note, Deed of Trust and other Loan Documents (collectively, a "Transfer"). As part of a Transfer, Lender may forward to each transferee, assignee, servicer, participant or investor all documents and information which Lender now has or may hereafter acquire relating to the Indebtedness, the Loan Documents and the Mortgaged Property. Borrower agrees to cooperate with Lender at no cost to Borrower in connection with a Transfer including, without limitation, the delivery of any estoppel certificates required under Section 2.18 and such other documents as may be reasonably be requested by Lender. Section 6.13. Satisfaction. If all of the Indebtedness is paid in full in accordance with the Note and the other Loan Documents, then in that event only all rights of Lender and Trustee under this Deed of Trust and the other Loan Documents shall terminate and the Mortgaged Property shall become wholly clear of the liens, grants, security interests, conveyances and assignments evidenced hereby and thereby, and Lender shall release or cause to be released such liens, grants, assignments, conveyances and security interests in due form at Borrower's cost (to the extent permitted by the law of the State), and this Deed of Trust shall be void; provided, however, that no provision of this Deed of Trust or any other Loan Document which, by its own terms, is intended to survive such payment and release (nor the rights of Lender or Trustee under any such provision) shall be affected in any manner thereby and such provision shall, in fact, survive. Recitals of any matters or facts in any release instrument executed by Lender or Trustee under this Section 6.13 shall be prima facie evidence of the truthfulness thereof. To the extent permitted by law, such an instrument may describe the grantee or releasee as "the person or persons legally entitled thereto" and Lender and Trustee shall not have any duty to determine the rights of persons claiming to be rightful grantees or releasees of any of the Mortgaged Property. When this Deed of Trust has been fully released or discharged by Lender and/or Trustee, the release or discharge hereof shall operate as a release and discharge of the Assignment and as a reassignment of all future Leases and Property Income with respect to the Mortgaged Property to the person or persons legally entitled thereto, unless such release expressly provides to the contrary. Section 6.14. Defeasance Requirements. (a) Five (5) years after the Closing Date, Borrower may voluntarily defease all of the Loan and the Related Loans. (b) Any defeasance of the Loan and the Related Loans by Borrower shall be made on a Payment Date. (c) Borrower shall not be permitted at any time to defease all or any part of the Loan or the Related Loans except as expressly provided in this Section 6.14. 57 62 (d) Subject to the terms and conditions of this Deed of Trust, Borrower may defease the Loan and the Related Loans if Borrower: (i) has provided not less than thirty (30) days prior written notice to Lender specifying a Payment Date (the "Defeasance Release Date") on which the payments provided in clauses (ii) and (iii) below are to be made and the deposit provided in clause (iv) below is to be made, (ii) pays all interest accrued and unpaid on the outstanding principal amount of the Loan and the Related Loans to and including the Defeasance Release Date, (iii) pays all other sums then due and payable under the Loan Documents and the Related Loan Documents, (iv) deposits with Lender an amount equal to the Defeasance Deposit, (v) delivers to Lender (A) a security agreement, in form and substance satisfactory to Lender and Borrower, creating a first priority perfected Lien on the deposits required pursuant to this Section 6.14 and the U.S. Obligations purchased on behalf of Borrower in accordance with this Section 6.14 (the "Defeasance Security Agreement"), (B) a release of the Mortgaged Property from the lien of the Deed of Trust in a form appropriate for the jurisdiction in which the Mortgaged Property is located, to be executed by Lender, (C) an officer's certificate of Borrower certifying that the requirements set forth in this Section 6.14 have been satisfied, and (D) such other certificates, documents or instruments as Lender may reasonably request, and (vi) assigns to such other entity or entities established or designated by Lender (the "Successor Obligor") all of Borrower's rights, interests and obligations under the Note, each Related Note, the other Loan Documents and the other Related Loan Documents and the Defeasance Security Agreement together with the pledged U.S. Obligations. The Successor Obligor shall assume, in a writing or writings reasonably satisfactory to Lender in Lender's discretion, all of Borrower's obligations under the Note, each Related Note, the other Loan Documents and the other Related Loan Documents and the Defeasance Security Agreement and, upon such assignment Borrower and Guarantor shall, except as set forth herein, be relieved of its obligation under all the Loan Documents and all of the Related Loan Documents. (e) The U.S. Obligations shall mature on or be redeemable, or provide for payment thereon, on or prior to the Business Day immediately preceding the date on which payments under the Note and each Related Note are due and payable and the proceeds thereof shall be payable directly to Lender. In connection with the foregoing, Borrower appoints Lender as Borrower's agent for the purpose of applying the amounts delivered pursuant to clause (d)(iv) above to purchase U.S. Obligations. (f) If any notice of defeasance is given, Borrower shall be required to defease the Loan and the Related Loans on the specified Payment Date (unless such notice is revoked in writing by Borrower prior to the date specified therein in which event Borrower shall immediately reimburse Lender for any costs incurred by Lender in connection with Borrower's giving of such notice and revocation). 58 63 (g) Upon defeasance of the Loan and the Related Loans in accordance with the requirements of this Section 6.14, the Mortgaged Property shall be released from the lien of the Deed of Trust and the Remaining Properties shall be released from the liens of the Related Mortgages. Notwithstanding the foregoing, Borrower acknowledges that Borrower only has the right to simultaneously defease the Loan and the Related Loans and shall have no right to defease any such loan in and of itself. (h) Nothing in this Section 6.14 shall release Borrower from any liability or obligation relating to any environmental matters arising under Sections 2.20 through 2.22 hereof. Section 6.15. Partial Release. Borrower shall be entitled at any time to a release of the lien of this Deed of Trust (but not any other Related Mortgage) only if each of the following conditions has been satisfied: (a) A release under this Section 6.15 and Section 5.15 of each Related Mortgage may not take place more than three (3) times (in the aggregate) during the term of this Loan and the Related Loans; (b) No more than a total of three (3) of the Mortgaged Properties may be released under this Section 6.15 and Section 5.15 of each Related Mortgage, and no more than a total of three (3) of the Mortgaged Properties may be released under (i) this Section 6.15 and Section 5.15 of each Related Mortgage, and (ii) Section 6.16 of this Deed of Trust and Section 5.16 of each Related Mortgage; (c) After the proposed release, the Debt Service Coverage Ratio - Remaining Properties for the twelve (12) months prior to the release and projected twelve (12) months following the release must be at least equal to or greater than the greater of (x) 1.65, or (y) the current Debt Service Coverage Ratio - Mortgaged Properties calculated for the twelve (12) month period prior to the release; (d) After the proposed release, the loan to value ratio of the remaining Related Loans must be less than or equal to 60% as calculated immediately prior to the release based upon appraisals furnished to Lender in form and substance reasonably satisfactory to Lender and prepared by an MAI appraiser approved by Lender at Borrower's cost or as determined by Lender; (e) Borrower shall pay Lender in reduction of the principal balance of the Loan a sum equal to 115% of the original Allocated Loan Amount for the Mortgaged Property, plus Borrower shall in addition pay to Lender a "prepayment premium" applied to said sum and computed in the manner specified in the Note; 59 64 (f) Neither the Loan nor the Related Loans shall be in Default at the time such request for release is made through the completion of the release; (g) Borrower must pay all of Lender's costs associated with the partial release plus a fee of .5% of the original Allocated Loan Amount for the Mortgaged Property to be released; (h) The original Borrower named in the Loan Documents and the Related Loan Documents continues to be the owner of the Remaining Mortgaged Properties; and (i) All documents relating to the release shall be in form and substance satisfactory to Lender. Section 6.16. Substitution of Collateral. Borrower shall be entitled to substitute a property (being defined as releasing a property that then constitutes security for the Loan (the "Released Property")) and substituting another property owned in fee by Borrower (the "Substitute Property") in its place on the following terms and conditions: (a) A substitution may not take place more than three (3) times during the term of the Loan and the Related Loans; (b) No more than three (3) properties (in the aggregate) may be released under this Section 6.16 and Section 5.16 of each Related Mortgage, and no more than a total of three (3) of the Mortgaged Properties may be released under (i) Section 6.15 above and Section 5.15 of each Related Mortgage, and (ii) this Section 6.16 and Section 5.16 of each Related Mortgage; (c) After the proposed substitution, the Debt Service Coverage Ratio - Remaining Properties for the twelve (12) months prior to the substitution and projected twelve (12) months following the substitution must be at least equal to or greater than the greater of (i) 1.65, or (ii) the current Debt Service Coverage Ratio - Mortgaged Properties calculated for the twelve (12) month period prior to the substitution; (d) After the proposed substitution, the loan to value ratio of the remaining Related Loans must be less than or equal to the lesser of (i) 60%, or (ii) the current loan to value ratio of the existing Loan and Related Loans calculated immediately prior to the substitution based upon appraisals furnished to Lender in form and substance reasonably satisfactory to Lender and prepared by an MAI appraiser approved by Lender at Borrower's cost; (e) The net operating income and/or RevPar (as reported by Smith Travel) of the Substitute Property must not show a downward trend for any of the three (3) years prior to the substitution; 60 65 (f) The appraised value (based upon appraisals furnished to Lender in form and substance reasonably satisfactory to Lender and prepared by an MAI appraiser approved by Lender at Borrower's cost), the net operating income and current debt service coverage ratio of the Substitute Property must be 120% greater than the appraised value, net operating income and the debt service coverage ratio of the Released Property; (g) Lender may at its sole discretion reject any property substitution that in Lender's sole determination would not be in compliance with the terms and provisions of the Loan Application, would be detrimental to the overall quality and/or value of the Mortgaged Properties, or would not be in compliance with Lender's then existing underwriting standards and criteria; (h) The Substitute Property must be franchised as a "Sheraton or Sheraton Suites", or other franchise reasonably acceptable to Lender, and managed by the manager under the Management Agreement or another a nationally recognized hotel management company with a franchise and hotel agreement similar to the Management Agreement or otherwise reasonably acceptable to Lender; (i) Borrower must pay (i) all of Lender's costs (all of which must be paid, whether or not such substitution is actually approved or completed) associated with the substitution including but not limited to legal fees, appraised fees, market studies and expenses, title insurance premiums on the new property, engineering fees and expenses, recording fees and transfer taxes, and (ii) a fee of 1% of the original Allocated Loan Amount for the Released Property; (j) The Loan and any Related Loan shall not be in Default at the time such request for substitution is made through the completion of the substitution; (k) The original Borrower named in the Loan Documents and Related Loan Documents continues to be the owner of the Remaining Mortgaged Properties; and (l) In order to substitute one property for another as security for the Loan or any Related Loan, Borrower acknowledges that such substitute property shall be subject to all of Lender's underwriting and due diligence requirements and criteria, including, without limitation, environmental assessment, review of leases, receipt of tenant subordination letters, title policy endorsements, etc. Borrower agrees that the Substitute Property shall be subject to all the terms and conditions of the Loan Application. Section 16.17. Subordinate. The lien of this Deed of Trust shall at all times be subject and subordinate to the lien of that certain Deed of Trust and Security Agreement and Fixture Filing With Assignment of Leases and Rents of even date herewith, made by Borrower, as trustor, to _________________, as 61 66 trustee, for the benefit of Lender, as beneficiary, and recorded concurrently herewith in the Official Records of __________,___________ (the "Prior Deed of Trust"). Notwithstanding anything to the contrary contained herein, in the event the Prior Deed of Trust is released or terminated in accordance with its terms, then such release or termination shall also act as a release or termination of this Deed of Trust. [SEE FOLLOWING PAGE FOR SIGNATURES] 62 67 IN WITNESS WHEREOF, this Deed of Trust has been duly executed and delivered as of the day and year first above written. BORROWER FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited partnership By: FelCor/MM S-7 Hotels, L.L.C., a Delaware limited liability company, its general partner By: -------------------------------- Joel M. Eastman, Vice President 63 68 ACKNOWLEDGMENT STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on this _____ day of April, 2000, by Joel M. Eastman, as Vice President of FelCor/MM S-7 Hotels, L.L.C., a Delaware limited liability company, which is the general partner of FelCor/MM S-7 Holdings, L.P., a Delaware limited partnership, on behalf of said entities. My Commission expires: ------------------------------------------- Notary Public in and for the State of Texas - ---------------------- ------------------------------------------- Printed/Typed Name of Notary 69 SCHEDULE A DESCRIPTION OF LAND 70 SCHEDULE B PERMITTED ENCUMBRANCES EX-10.24.2 4 ex10-24_2.txt FORM OF FOURTEEN SEPERATE PROMISSORY NOTES 1 EXHIBIT 10.24.2 Mortgage Loan No.: ----------- ------------------------ PROMISSORY NOTE $ April 20, 2000 --------------- FOR VALUE RECEIVED, the undersigned ("Borrower"), promise(s) to pay to the order of [MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY] [TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA] ("Lender"), at its home office in ____________________, or at such other place as Lender may direct, in lawful money of the United States of America, without grace or offset, the principal sum of _________________________________________($_________________), with interest thereon at the rate of eight and seventy three one hundredths percent (8.73%) per annum (the "Contract Rate") to be paid as provided hereinbelow. This Promissory Note is secured by, among other things, (a) a Deed of Trust and Security Agreement and Fixture Filing with Assignment of Leases and Rents of even date herewith (the "Mortgage"), covering real property and other property described in the Mortgage, and located in the City of ____________, County of __________, State of ____________, and (b) certain other mortgages, deeds of trust and/or deeds to secure debt made by Borrower for the benefit of Lender as additional security for the Loan. 1. PAYMENT TERMS Payments shall be made on this Promissory Note as follows: A. On the date the loan evidenced hereby is made, a payment of interest only shall be due and payable for the period from such date to the first day of the next calendar month. B. Successive monthly installments of principal and interest (in arrears), shall be made on the first day of June, 2000 and on the first day of each calendar month thereafter up to and including the first day of April, 2010. C. Each monthly installment shall be in the constant amount of ____________________________ ($__________________). D. A final installment equal to the entire principal balance then remaining unpaid, with accrued interest thereon, shall be due and payable on May 1, 2010 (the "Maturity Date"); Unless otherwise directed by Lender in writing, all payments shall be made by wire transfer of immediate federal funds or equivalent to Lender's bank and bank account. Borrower acknowledges that, since the term of the loan evidenced hereby is shorter than the amortization period, a substantial portion of the principal balance will be due on the Maturity Date. Whenever 1 Borrower's Initials: ----- 2 any payment to be made under this Promissory Note is stated to be due on a date which is not a Business Day (defined hereinbelow), the due date shall be extended to the next succeeding Business Day and interest shall continue to accrue and be payable at the applicable rate during such extension. 2. INTEREST The monthly payments of combined principal and interest of this Promissory Note are based upon a twenty-five (25) year amortization period, and all interest accruing hereunder shall be calculated on the basis of a 360-day year consisting of twelve (12) months of thirty (30) days each; provided, however, that for any partial monthly payment, interest shall be calculated on the basis of a 365-day year. 3. DEFAULT INTEREST If the entire unpaid principal balance of this Promissory Note, together with accrued and unpaid interest thereon, is not paid when due, whether on the Maturity Date or any earlier date as a result of acceleration of this Promissory Note after an Event of Default (hereinafter defined), then the amount unpaid shall bear interest from the Maturity Date or such earlier date, as the case may be, at the per annum interest rate (the "Default Rate") equal to the sum of three percent (3%) plus the Contract Rate. The Default Rate shall continue until the first occurring of the following: (i) payment in full of any sums due hereunder and under the Loan Documents (hereinafter defined) or (ii) reinstatement of the loan evidenced hereby pursuant to statutory provisions requiring such reinstatement, but only after the curing of all defaults and payments of all sums due hereunder. 4. LATE CHARGE If any regular monthly installment of principal or interest due hereunder, or any monthly deposit for taxes, ground rent, insurance, replacements and other sums if required under any Loan Document, shall not be paid as required under this Promissory Note or Loan Document, as the case may be, by the tenth (10th) day of the month in which the same shall be due, Borrower shall pay to Lender a late charge (the "Late Charge") of four cents ($0.04) for each dollar so overdue in order to compensate Lender for its loss of the timely use of the money and frustration of Lender in the meeting of its financial commitments and to defray part of Lender's incurred cost of collection occasioned by such late payment. Any Late Charge incurred shall be immediately due and payable. If, however, during any consecutive twelve (12) month period Borrower on more than three (3) occasions shall pay any such installments or deposits after the due dates thereof (whether prior to or after the time that the Late Charge is payable as above), then the time period after which a Late Charge will be charged and paid shall thereafter be reduced from ten (10) days 2 Borrower's Initials: ----- 3 to two (2) days after a due date. Nothing herein contained shall be deemed to constitute a waiver or modification of the due date for such installments or deposits or the requirement that Borrower make all payment of installments and deposits as and when the same are due and payable. 5. APPLICATION OF PAYMENTS Each payment received by Lender shall be applied in the following order: A. First, to the interest due on any advances made by Lender under any instrument which is a Loan Document; B. Next, to the principal amount of any advances made by Lender under any instrument which is a Loan Document; C. Next, to Late Charges, attorney's fees or any other amount due hereunder or under a Loan Document save for the amounts described in (D) and (E) immediately below; D. Next, to accrued interest due hereunder; and E. Finally, to the principal balance hereof. Notwithstanding the foregoing, in the event that Borrower does not pay the outstanding principal balance and accrued interest due under this Promissory Note, when due, whether on the Maturity Date or on any earlier date as a result of acceleration of this Promissory Note, the Lender at its option shall apply any payments it then receives in such order as Lender deems appropriate in its sole discretion. 6. MONETARY AND NON-MONETARY EVENTS OF DEFAULT AND ACCELERATION A. (i) The failure to make any payment required under this Promissory Note, as and when due; (ii) the failure to pay on the Maturity Date the outstanding principal balance, accrued interest, and other payments due under this Promissory Note, or the Loan Documents; (iii) the failure to have or keep in force insurance as required under any of the Loan Documents; (iv) the insolvency or bankruptcy of Borrower or Guarantor; (v) a sale, transfer, or encumbrance of the Mortgaged Property (except as expressly permitted in the Mortgage), without the required approval of Lender; or (vi) the failure of Borrower to be a Single-Purpose Entity at all times during the term of the Loan, shall each be and constitute a monetary event of default ("Monetary Event of Default") hereunder, without any action required to be taken by or on behalf of Lender. B. Upon the occurrence of a Monetary Event of Default, Lender may, at any time thereafter, together or singly, 3 Borrower's Initials: ----- 4 (i) declare the outstanding principal balance due hereunder, together with all accrued and unpaid interest thereon, to be immediately due and payable, thereby accelerating this Promissory Note; (ii) exercise immediately and without notice any and all other rights and remedies available under the Loan Documents, and/or at law or in equity; except that the acceleration of this Promissory Note for the Monetary Event of Default set forth in (i) above shall be subject to the terms of Section 7 of this Promissory Note. The failure to comply with any term, covenant, or condition of the Loan Documents, other than as set forth in Section A (i) through (vi) above shall be a non-monetary event of default ("Non-Monetary Event of Default"); provided that declaration of a Non-Monetary Event of Default shall be in accordance with the provisions of Section 7 of this Promissory Note. 7. NOTICE AND CURE PRIOR TO ACCELERATION A. If the Monetary Event of Default is one set forth in (i) of Section 6A above, Lender shall give Borrower notice specifying the Monetary Event of Default, and ten (10) days opportunity to cure and eliminate the Monetary Event of Default, prior to exercising its rights under Section 6B (i) or (ii). B. If the Monetary Event of Default is one set forth in (ii) through (vi) of Section 6A above, Lender shall not be obligated to give notice of any kind, prior to exercising its rights under Section 6B (i) or (ii). C. Prior to declaring a Non-Monetary Event of Default, Lender shall give Borrower notice specifying the potential Non-Monetary Event of Default, and thirty (30) days opportunity to cure the potential Non-Monetary Event of Default. If Borrower has not cured the potential Non-Monetary Event of Default, by the end of said thirty (30) day period, unless additional time to cure is specifically permitted under any other Loan Document with respect to such Non-Monetary Event of Default, then Lender may declare a Non-Monetary Event of Default by a notice declaring such Non-Monetary Event of Default. From and after such notice declaring the Non-Monetary Event of Default, Lender may exercise its rights under Section 6B (i) or (ii) together or singly, without further notice, at any time thereafter. D. The Lender's agreement to give notice and time to cure are on the further conditions that: (i) the failure of Lender to give any notice(s) required shall not result in the imposition of any liabilities or penalties upon Lender; (ii) the agreement to give notice and time to cure is personal to Borrower, and does not extend to or vest any such rights in any other person or entity; and 4 Borrower's Initials: ----- 5 (iii) nothing contained in this Section 7 shall prevent the imposition of Late Charges. 8. DEFINITIONS Any terms used in this Promissory Note requiring a definition shall have the definition given in this Section, unless elsewhere defined in this Promissory Note. Any and all instruments securing or executed in connection with this Promissory Note, including, without limitation, this Promissory Note, the Mortgage, guarantees, indemnities, pledges, security agreements and assignments of leases and rents are herein collectively referred to as the "Loan Documents." Any instrument included within the term "Loan Documents" is herein referred to in the singular as a "Loan Document." The terms, "Agreement Concerning Primary Lease Agreement", "Application", "Collateral", "Equipment", "[FCH/SH Leasing] [FCH/SH Leasing II]", "Guarantor", "Indebtedness", "Loan", "Losses", "Management Agreement", "Material Lease", "Mortgaged Property", "Mortgaged Properties", "Premises", "Primary Lease", "Proceeds", "Property Income", "Related Loan Documents", "Related Notes" and "Single-Purpose Entity" shall have the meaning set forth in the Mortgage. The term "Event of Default" shall have the meaning given in Section 6 hereof. The term "Prepayment Premium" shall have the meaning given in Section 9 hereof. The term "Business Day" as used herein shall mean any day other than a Saturday, Sunday or other day on which national banks in the State of _________ are not open for business. 9. PREPAYMENT A. During the period commencing ninety (90) days prior to the Maturity Date, Borrower may prepay the Loan in full, but not in part, without any Prepayment Premium. Except as expressly set forth in the Loan Documents, Borrower shall have no right to prepay in full or in part the principal amount due under this Promissory Note. B. If the maturity of this Promissory Note is accelerated by the Lender because of the occurrence of an Event of Default, the resulting acceleration shall be deemed to be an election on the part of Borrower to prepay the loan evidenced hereby. Accordingly, there shall be added to the amount due after an Event of Default and resulting acceleration, a Prepayment Premium, calculated as set forth below and using as the prepayment date the date on which any tender of payment is made, and Borrower agrees to pay the same. Any tender of payment made after acceleration by or on behalf of Borrower (including, without limitation, payment by any guarantor or purchaser at a foreclosure sale), shall include the Prepayment Premium computed as provided herein. C. For purposes hereof, the Prepayment Premium shall be equal to the greater of (x) or (y), where (x) is equal to the amount to be prepaid multiplied by 1%; and (y) is equal to the product (discounted as hereinafter provided) obtained by multiplying the amount to be prepaid by the "Prepayment Premium Rate". The "Prepayment 5 Borrower's Initials: ----- 6 Premium Rate" shall be the percentage obtained by multiplying the excess, if any, of the Contract Rate over the market yield of U.S. Treasury issues which have the closest maturity (month and year) to the Maturity Date, as quoted in The Wall Street Journal published on the scheduled prepayment date, by a fraction, the numerator of which is equal to the number of days remaining from and including the scheduled prepayment date to and including the Maturity Date, and the denominator of which is 365. Should more than one U.S. Treasury issue be quoted as maturing on the date closest to the Maturity Date, then the issue having the market yield which differs least from the Contract Rate will be used in the calculations. If The Wall Street Journal is not in publication on the applicable date, or ceases to publish such U.S. Treasury issue yield, then any other publication acceptable to Lender quoting daily market yields for U.S. Treasury issues will be used. The product obtained from the foregoing shall then be discounted, on a semi-annual basis over the remaining term of this Promissory Note, as of the date of prepayment to its then present value, using the U.S. Treasury yield, referred to in this subparagraph (y). D. No Prepayment Premium shall be required to be paid in connection with payment of fire, casualty, or condemnation proceeds to the Lender in accordance with the provisions of the Mortgage. E. There will be due with such principal, all accrued and unpaid interest thereon, in addition to all other amounts due under this Promissory Note. F. The Prepayment Premium herein provided for represents the reasonable estimate of Lender and Borrower of a fair average compensation for the loss that will be sustained by Lender resulting from the payment of the outstanding principal balance of the loan evidenced hereby prior to the Maturity Date. The Prepayment Premium shall be paid without prejudice to the right of Lender to collect any other amounts provided to be paid under this Promissory Note, or under the other Loan Documents, or pursuant to the provisions of law. G. Notwithstanding the foregoing, any Prepayment Premium incurred under this Promissory Note as a result of an acceleration as described in Section 9B above, shall also trigger a Prepayment Premium (and acceleration) under the [MassMutual Note] [TIAA Note] in an equal amount. Furthermore, Maker shall not be allowed to exercise its right and privilege to prepay in full this Promissory Note as described in Section 9A above unless Maker also concurrently prepays in full the [MassMutual Note] [TIAA Note]. As used herein, the term "[MassMutual Note] [TIAA Note]" shall mean that certain promissory note of even date herewith executed by Maker and payable to the order of [Massachusetts Mutual Life Insurance Company] [Teachers Insurance and Annuity Association of America] in the original principal amount of $__________. 10. WAIVERS AND EXTENSIONS Borrower and all endorsers and guarantors and any and all others who may at any time be or become liable for payment of all or any part of the loan evidenced hereby severally waive presentment for payment, demand, notice of dishonor or nonpayment, protest and notice of protest, notice of acceleration and of intention to accelerate the Maturity Date (except as provided above in the clause entitled "Notice and Cure Prior to Acceleration") and any and all 6 Borrower's Initials: ----- 7 lack of diligence or delays in collection or enforcement hereof, and agree that Lender from time to time may extend the time for payment of any sums due under this Promissory Note and grant releases to all endorsers and guarantors hereof, and may release all or any portion of the Mortgaged Property, without in any way affecting the liability of such parties hereunder. 11. LIMITATIONS ON LIABILITY A. In any action or proceeding brought on this Promissory Note or on the Mortgage or on any of the Loan Documents in which a money judgment is sought (subject to paragraphs B, C, and D below), Lender will look solely to the Mortgaged Property described in the Loan Documents (including, without limitation, the Collateral) for payment of the Indebtedness and, specifically and without limitation, Lender agrees to waive any right to seek or obtain a deficiency judgment against Borrower. B. The provisions of this Section 11 shall not (i) constitute a waiver, release or impairment of any obligation evidenced or secured by this Promissory Note, the Mortgage or any other Loan Document to the extent of the Mortgaged Property securing such obligation; (ii) be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Indebtedness secured by the Mortgage or to require that all Collateral shall continue to secure all of the Indebtedness owing to the Lender in accordance with the Promissory Note, the Mortgage and the other Loan Documents; (iii) impair the right of Lender to name Borrower or any principals of Borrower, or any guarantor of this Promissory Note, as a party or parties defendant in any action or suit for judicial foreclosure and sale under the Mortgage; (iv) affect the validity or enforceability of, or limit recovery under, any separate indemnity agreement (including, without limitation, any environmental indemnity set forth in any separate environmental indemnity agreement, however designated) or separate guaranty, if any, made in connection with this Promissory Note, the Mortgage, or the Loan Documents; (v) impair the right of Lender to obtain the appointment of a receiver; or (vi) impair the enforcement of an assignment of leases or an assignment of rents contained in the Mortgage or any separate Assignment of Leases and Rents executed in connection herewith. C. Notwithstanding any provisions of this Section 11 to the contrary, nothing herein shall be deemed to prejudice the right of Lender (which right is specifically reserved) to pursue or obtain 7 Borrower's Initials: ----- 8 personal recourse liability against the Borrower and Guarantor to recover Losses incurred by Lender, arising out of, or resulting from: (i) obligations and liabilities under any separate guaranty or separate indemnity agreement; (ii) fraud or material misrepresentation in connection with the Application or the making of the Loan; (iii) insurance and/or condemnation proceeds received but not paid over or applied in accordance with the Loan Documents; (iv) misappropriation of any security deposits, advances or prepaid rents, cancellation or termination payments or other similar sums received by Borrower from any tenants or other occupants of the Premises; (v) personal property covered by Lender's security interest obtained in connection with the Loan which is taken from the Mortgaged Property by or on behalf of Borrower and not replaced in the ordinary course of business with personal property of the same utility and of the same or greater value; (vi) any act of arson, malicious destruction or material waste by Borrower, any principal, affiliate, member or general or limited partner of Borrower, or by Guarantor under any of the Loan Documents given to Lender in connection with the making of the Loan; (vii) revenues of the Mortgaged Property which are not applied to payments due under the Loan or to operating expenses of the Mortgaged Property (including, without limitation, any reserves or escrows required by any Loan Document) thereby resulting in, or contributing materially to, a default under the Loan Documents. Lender, however, shall have no right to recover distributions from the revenues of the Mortgaged Property to Borrower or Guarantor or any principal of Borrower or Guarantor made in good faith (after determining the sufficiency of revenues to cover the payments on the Loan and the foregoing operating and capital expenses) more than ninety (90) days prior to a default occurring under any Loan Document; (viii) [FCH/SH Leasing] [FCH/SH Leasing II]'s pledge in violation of the Loan Documents of the revenues or operating accounts relating to the Mortgaged Property, Lessee's Personal Property (as defined in the Primary Lease) or any other rights of [FCH/SH Leasing] [FCH/SH Leasing II] under the Primary Lease or [FCH/SH Leasing] [FCH/SH Leasing II]'s failure to keep all of the foregoing lien free in violation of the Loan Documents; 8 Borrower's Initials: ----- 9 (ix) any fraudulent conveyance or transfer (or claim of any fraudulent conveyance or transfer) of any of the Mortgaged Properties (or any interest therein) to Borrower; (x) the bankruptcy or insolvency of any fee owner of any of the Mortgaged Properties other than Borrower; or (xi) any transfer or mortgage tax (or claim of any transfer or mortgage tax) arising from the transfer to Borrower or mortgage by the fee owner or Borrower of any of the Mortgaged Properties or any interest therein. D. Notwithstanding the foregoing and subject to the last sentence of this paragraph, the agreement of Lender not to pursue personal recourse liability as set forth in this Section 11 above SHALL AUTOMATICALLY BECOME NULL AND VOID and shall be of no further force and effect in the event (i) Borrower, any general partner or member of Borrower, or any guarantor of the Note, files, or consents to the filing of, any petition under the U.S. Bankruptcy Code respecting its or their debts or (ii) any such petition shall have been filed against the Borrower, any general partner of the Borrower, or any guarantor of this Promissory Note, and the same is not dismissed within ninety (90) days of such filing; except for an involuntary bankruptcy filed by Lender and provided further, that if: (1) after ninety (90) days following the filing of an involuntary bankruptcy proceeding, such proceeding is dismissed with prejudice and without adversely affecting the enforceability or priority of any of the Loan Documents; and (2) such dismissal occurs prior to the occurrence of any of the following: (v) the entry of any order that adversely affects the enforceability or priority of any of the Loan Documents (other than solely by reason of the automatic stay), (w) the entry of any order granting any person relief from the automatic stay to foreclose against, enforce any lien or security interest, levy upon, or repossess any material assets of Borrower that constitute a part of, or that relate to the Mortgaged Properties, or to terminate any Management Agreement or Primary Lease, (x) the liquidation of any material assets of Borrower that constitute a part of, or that relate to, the Mortgaged Properties, (y) the entry of any order approving the rejection or termination of any Primary Lease or any Management Agreement, or (z) the entry of any order approving any plan of reorganization for Borrower; and (3) throughout the period following the filing of such bankruptcy proceeding, Borrower or one or more of Borrower and persons or entities having an interest in Borrower have continued to make regular payments of debt service on a timely basis in accordance with the provisions of the Loan Documents. Borrower or one or more of Borrower and Guarantor shall be personally liable only for the actual damages, losses, costs, and expenses (including attorneys' fees) incurred by Lender (expressly including any diminution, loss or damage to the Collateral) as a result of any such bankruptcy filing. 12. USURY No amounts under this Promissory Note or the Loan Documents shall be charged, paid or collected from Borrower if the result of such charge payment or collection would be to cause the loan evidenced hereby to be usurious under applicable law. If, however, an amount is paid or collected which would otherwise cause the loan to be usurious, such excess causing the Loan to be usurious shall be deemed a payment of principal and shall be applied against and shall reduce 9 Borrower's Initials: ----- 10 the then outstanding principal balance of the loan by a corresponding amount, and no Prepayment Premium shall be charged on any such excess amount applied to principal. Borrower agrees to pay an effective rate of interest which is the stated rate provided for in this Promissory Note plus any additional rate of interest resulting from any charges of interest or in the nature of interest paid or to be paid in connection with the loan evidenced hereby, including without limitation, all amounts paid by or on behalf of Borrower to Lender pursuant to the terms of the Application. 13. TRANSFERS Upon the transfer of this Promissory Note, Borrower hereby waiving advance notice of any such transfer, Lender may assign all of its rights in, under and to the Loan Documents, Proceeds, Property Income or Collateral, or any part hereof, to the transferee who shall thereupon become vested with all rights herein, or under applicable law, given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility under or with respect to this Promissory Note, and the Loan Documents, Proceeds, Property Income and Collateral so transferred; but Lender shall retain all rights hereby given to it with respect to any obligations of the Borrower and the Loan Documents, Proceeds, Property Income or Collateral not so transferred. Upon any such transfer, the term "Lender" as used herein shall mean such transferee. 14. SEVERABILITY In the event any one or more of the provisions contained in this Promissory Note or the Loan Documents shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Promissory Note or of the Loan Documents, but this Promissory Note and the Loan Documents shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein. 15. WAIVER OF TRIAL BY JURY BORROWER AND LENDER, BY ACCEPTANCE OF THIS PROMISSORY NOTE, HEREBY WAIVE TRIAL BY JURY IN ANY COURT ACTION, PROCEEDING OR COUNTERCLAIM WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS PROMISSORY NOTE, ANY APPLICATION FOR THE LOAN EVIDENCED BY THIS PROMISSORY NOTE, THIS PROMISSORY NOTE, THE MORTGAGE OR THE LOAN DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH. 10 Borrower's Initials: ----- 11 16. JOINT AND SEVERAL LIABILITY If there shall be more than one (1) Borrower named in this Promissory Note, then the obligations and liabilities of such parties as Borrower shall be joint and several. 17. REMEDIES CUMULATIVE The rights, powers and remedies of Lender permitted by law, equity or contract or as set forth herein or in the Loan Documents shall be cumulative and concurrent, and may be pursued singly, successively or together against Borrower or the Mortgaged Property, the Collateral or the Property Income, at the sole discretion of the Lender, and to the fullest extent permitted by law. Such rights, powers and remedies shall not be exhausted by any exercise thereof but may be exercised as often as occasion therefor shall occur. The failure to exercise any such right, power or remedy shall in no event be construed as a waiver or release of the same. Lender shall not by any act of omission or commission be deemed to have waived any of its rights, powers or remedies under this Promissory Note or the Loan Documents unless such waiver be in writing and signed by Lender, and then only to the extent specifically set forth therein. A waiver of a right in one event shall not be construed as continuing or as a bar, or as a waiver of such right on a subsequent event. 18. FEES AND COSTS Borrower further promises to pay upon demand all reasonable attorney's fees and costs (including, without limitation, court costs and appraisal fees) incurred by Lender in connection with any Event of Default under this Promissory Note and in any proceeding, including all appeals, brought to enforce any of the provisions of this Promissory Note or of the Loan Documents. 19. TIME OF THE ESSENCE Time shall be of the essence in performance of all obligations of Borrower under this Promissory Note and the Loan Documents including, without limitation, the time periods provided for the curing of defaults. 20. HEADINGS FOR CONVENIENCE Headings and captions used in this Promissory Note are inserted for convenience of reference only and neither constitute a part of this Promissory Note nor are to be used to construe or interpret any of the provisions hereof. 21. NOTICES: HOW GIVEN Any notice required or permitted under this Promissory Note or under any Loan Document shall be given in writing and shall be effective for all purposes if hand delivered to the party designated below, or if sent by (a) certified or registered United States mail, postage 11 Borrower's Initials: ----- 12 prepaid; or (b) expedited prepaid delivery service, commercial or United States Postal Service, with proof of attempted delivery, addressed in either case as follows:
To Borrower: To Lender: FelCor/MM S-7 Holdings, L.P. Massachusetts Mutual Life Insurance Company c/o FelCor Lodging Trust Incorporated c/o David L. Babson and Company Incorporated 545 E. John Carpenter Freeway Real Estate Finance Group Suite 1300 1295 State Street Irving, TX 75062-3933 Springfield, MA 01111-0001 Attention: Andrew J. Welch or Attention: Senior Managing Director Joel M. Eastman And Teachers Insurance and Annuity Association of America 730 Third Avenue New York, NY 10017 Attention: Director Portfolio Management Mortgage and Real Estate with a copy to: with a copy to: Jenkens & Gilchrist, P.C. Stutzman & Bromberg, Fountain Place A Professional Corporation 1445 Ross Avenue 2323 Bryan Street Suite 3200 Suite 2200 Dallas, TX 75202-2799 Dallas, TX 75231 Attention: Robert W. Dockery Attention: John E. Bromberg
or to such other address and person as shall be designated from time to time by Lender or Borrower, as the case may be, in a written notice to the other given in the manner provided for in this paragraph. The notice shall be deemed to have been given at the time of delivery if hand delivered, or in the case of registered or certified mail, three (3) Business Days after deposit in the United States mail, or if by expedited prepaid delivery, upon first attempted delivery on a Business Day. A party receiving a notice which does not comply with the technical requirements for notice under this paragraph may elect to waive any deficiencies and treat the notice as having been properly given. 12 Borrower's Initials: ----- 13 22. NO ORAL CHANGE This Promissory Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of the Borrower or Lender, but only by an agreement in writing , intended for that specific purpose and signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. 23. CROSS-DEFAULT A default under (a) any other note now or hereafter secured by the Loan Documents, or (b) any of the Related Notes, or (c) any of the Related Loan Documents, or (d) any other note now or hereafter secured by the Related Loan Documents, constitutes a default under this Promissory Note and under the Loan Documents; provided that, for any such default Borrower shall be entitled to the same notice and right to cure, if any, under Section 7 of this Promissory Note, as Borrower is entitled to under Section 7 of the Related Note. When a default under any of the Related Notes constitutes an Event of Default under such Related Note or the Related Loan Documents, respectively, an Event of Default also will exist under this Promissory Note and the Loan Documents. 24. APPLICABLE STATE LAW This Promissory Note shall be governed, construed, applied and enforced in accordance with the laws of the State of _____________. Federal Taxpayer I.D. No. Borrower: 75-2871808 FELCOR/MM S-7 HOLDINGS, L.P., a Delaware limited partnership By: FelCor/MM S-7 Hotels, L.L.C., a Delaware limited liability company By: --------------------------------- Joel M. Eastman Vice President 13 Borrower's Initials: ----- EX-10.25 5 ex10-25.txt DEED OF TRUST AND SECURITY AGREEMENT 1 EXHIBIT 10.25 ATTENTION: COUNTY CLERK - THIS INSTRUMENT COVERS GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN AND IS TO BE FILED FOR RECORD IN THE RECORDS WHERE MORTGAGES AND DEEDS OF TRUST ON REAL ESTATE ARE RECORDED. ADDITIONALLY, THIS INSTRUMENT SHOULD BE APPROPRIATELY INDEXED, NOT ONLY AS A MORTGAGE OR DEED OF TRUST, BUT ALSO AS A FINANCING STATEMENT COVERING GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN. THE MAILING ADDRESSES OF THE BORROWER (DEBTOR) AND LENDER (SECURED PARTY) ARE SET FORTH IN THIS INSTRUMENT , as Grantor ------------------------------- (Borrower) and , as Grantor ------------------------------- (Borrower) to , as Trustee ------------------------------- (Trustee) for the benefit of THE CHASE MANHATTAN BANK, as Beneficiary (Lender) ----------------------------------- DEED OF TRUST AND SECURITY AGREEMENT ----------------------------------- Dated: May 2, 2000 Location: ----------------------- ----------------------- County: ----------------------- PREPARED BY AND UPON RECORDATION RETURN TO: MESSRS. THACHER PROFFITT & WOOD & WOOD Two World Trade Center New York, New York 10048 Attention: Peter J. Mignone, Esq. File No.: 86000-00686. 2 Article 1 - GRANTS OF SECURITY................................................2 Section 1.1 PROPERTY MORTGAGED.................................2 Section 1.2 ASSIGNMENT OF LEASES AND RENTS.....................6 Section 1.3 SECURITY AGREEMENT.................................7 Section 1.4 PLEDGE OF MONIES HELD..............................7 Section 1.5 CONDITIONS TO GRANT................................7 Article 2 - DEBT AND OBLIGATIONS SECURED......................................7 Section 2.1 DEBT. ............................................7 Section 2.2 OTHER OBLIGATIONS..................................8 Section 2.3 DEBT AND OTHER OBLIGATIONS.........................8 Section 2.4 PAYMENTS...........................................8 Article 3 - LOAN PARTY COVENANTS..............................................9 Section 3.1 PAYMENT OF DEBT....................................9 Section 3.2 INCORPORATION BY REFERENCE.........................9 Section 3.3 INSURANCE..........................................9 Section 3.4 PAYMENT OF TAXES, ETC.............................14 Section 3.5 ESCROW FUND.......................................14 Section 3.7 RESTORATION.......................................16 Section 3.8 LEASES AND RENTS..................................20 Section 3.9 MAINTENANCE AND USE OF PROPERTY...................20 Section 3.10 WASTE. ..........................................21 Section 3.11 COMPLIANCE WITH LAWS..............................21 Section 3.12 BOOKS AND RECORDS.................................22 Section 3.13 PAYMENT FOR LABOR AND MATERIALS...................26 Section 3.14 PERFORMANCE OF OTHER AGREEMENTS...................27 Section 3.15 CHANGE OF NAME, IDENTITY OR STRUCTURE.............27 Section 3.16 EXISTENCE.........................................27 Section 3.17 MANAGEMENT AND FRANCHISE AGREEMENTS...............27 Section 3.18 PRINCIPAL PLACE OF BUSINESS.......................30 Section 3.19 TRADED SHARES.....................................30 Section 3.20 NON-CONSOLIDATION OPINION.........................30 Section 3.21 TERMINATION OF OPERATING LEASE. .................30 Article 4 - SPECIAL COVENANTS................................................31 Section 4.1 PROPERTY USE. ...................................31 Section 4.2 SINGLE PURPOSE ENTITY. ..........................31 Section 4.3 ERISA.............................................35 Section 4.4 FF&E RESERVE. ...................................35 Article 5 - REPRESENTATIONS AND WARRANTIES...................................36 Section 5.1 WARRANTY OF TITLE.................................36 Section 5.2 LEGAL STATUS AND AUTHORITY........................36 Section 5.3 VALIDITY OF DOCUMENTS. ..........................36 Section 5.4 LITIGATION. .....................................37
3 Section 5.5 STATUS OF PROPERTY................................37 Section 5.6 NO FOREIGN PERSON. ..............................38 Section 5.7 SEPARATE TAX LOT. ...............................38 Section 5.8 LEASES. .........................................38 Section 5.9 SOLVENCY..........................................39 Section 5.10 BUSINESS PURPOSES. ..............................39 Section 5.11 TAXES. ..........................................39 Section 5.12 MAILING ADDRESS. ................................39 Section 5.13 NO CHANGE IN FACTS OR CIRCUMSTANCES. ............39 Section 5.14 DISCLOSURE. .....................................40 Section 5.15 THIRD PARTY REPRESENTATIONS. ....................40 Section 5.16 ILLEGAL ACTIVITY/FORFEITURE.......................40 Section 5.17 PERMITTED EXCEPTIONS. ...........................40 Section 5.18 PRINCIPAL PLACE OF BUSINESS. ....................40 Section 5.19 ERISA.............................................40 Section 5.20 FRANCHISE AGREEMENT. ............................41 Section 5.21 MANAGEMENT AGREEMENT..............................41 Section 5.22 NON-CONSOLIDATION OPINION ASSUMPTIONS. ..........41 Section 5.23 FEDERAL RESERVE REGULATIONS.......................41 Section 5.24 INVESTMENT COMPANY ACT. .........................41 Article 6 - OBLIGATIONS AND RELIANCES........................................41 Section 6.1 RELATIONSHIP OF THE LOAN PARTIES AND LENDER. ....41 Section 6.2 NO RELIANCE ON LENDER. ..........................41 Section 6.3 NO LENDER OBLIGATIONS.............................41 Section 6.4 RELIANCE. .......................................42 Article 7 - FURTHER ASSURANCES...............................................42 Section 7.1 RECORDING OF SECURITY INSTRUMENT, ETC. ..........42 Section 7.2 FURTHER ACTS, ETC. ..............................42 Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS........................................43 Section 7.4 ESTOPPEL CERTIFICATES.............................43 Section 7.5 FLOOD INSURANCE. ................................44 Section 7.6 REPLACEMENT DOCUMENTS. ..........................44 Article 8 - DUE ON SALE/ENCUMBRANCE..........................................45 Section 8.1 TRANSFER DEFINITIONS. ...........................45 Section 8.2 NO SALE/ENCUMBRANCE...............................45 Section 8.3 PERMITTED TRANSFERS. ............................47 Section 8.4 RESERVED..........................................48 Section 8.5 LENDER'S RIGHTS. ................................48 Article 9 - PREPAYMENT.......................................................49 Section 9.1 PREPAYMENT. .....................................49 Article 10 - DEFAULT.........................................................49 Section 10.1 EVENTS OF DEFAULT. ..............................49
4 Article 11 - RIGHTS AND REMEDIES.............................................51 Section 11.1 REMEDIES. .......................................51 Section 11.2 APPLICATION OF PROCEEDS. ........................54 Section 11.3 RIGHT TO CURE DEFAULTS............................54 Section 11.4 ACTIONS AND PROCEEDINGS. ........................54 Section 11.5 RECOVERY OF SUMS REQUIRED TO BE PAID. ...........55 Section 11.6 EXAMINATION OF BOOKS AND RECORDS. ...............55 Section 11.7 OTHER RIGHTS, ETC.................................55 Section 11.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY. ...56 Section 11.9 VIOLATION OF LAWS. ..............................56 Section 11.10 RIGHT OF ENTRY. .................................56 Section 11.11 SUBROGATION.......................................56 Article 12 - ENVIRONMENTAL HAZARDS...........................................56 Section 12.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. ...56 Section 12.2 ENVIRONMENTAL COVENANTS. ........................57 Section 12.3 LENDER'S RIGHTS. ................................58 Article 13 - INDEMNIFICATIONS................................................58 Section 13.1 GENERAL INDEMNIFICATION. ........................58 Section 13.2 MORTGAGE AND/OR INTANGIBLE TAX. .................59 Section 13.3 DUTY TO DEFEND; LEGAL FEES AND OTHER FEES AND EXPENSES.................................59 Section 13.4 ENVIRONMENTAL INDEMNITY. ........................59 Article 14 - WAIVERS.........................................................59 Section 14.1 WAIVER OF COUNTERCLAIM. .........................59 Section 14.2 MARSHALLING AND OTHER MATTERS. ..................59 Section 14.3 WAIVER OF NOTICE. ...............................60 Section 14.4 WAIVER OF STATUTE OF LIMITATIONS. ...............60 Section 14.5 SOLE DISCRETION OF LENDER. ......................60 Section 14.6 WAIVER OF TRIAL BY JURY. ........................60 Section 14.7 WAIVER OF FORECLOSURE DEFENSE. ..................60 Section 14.7 SURETY WAIVERS. .................................60 Article 15 - EXCULPATION.....................................................61 Section 15.1 EXCULPATION. ....................................61 Article 16 - NOTICES.........................................................61 Section 16.1 NOTICES. ........................................61 Article 17 - CHOICE OF LAW/SUBMISSION TO JURISDICTION........................62 Section 17.1 CHOICE OF LAW. ..................................62 Section 17.2 PROVISIONS SUBJECT TO LAW. ......................62 Section 17.3 SUBMISSION TO JURISDICTION. .....................63 Article 18 - SECONDARY MARKET................................................63 5 Section 18.1 TRANSFER OF LOAN. ...............................63 Section 18.2 COOPERATION. ....................................63 Section 18.3 RESERVES/ESCROWS. ...............................63 Article 19 - COSTS...........................................................63 Section 19.1 PERFORMANCE AT BORROWER'S EXPENSE. ..............63 Section 19.2 LEGAL FEES FOR ENFORCEMENT. .....................64 Article 20 - DEFINITIONS.....................................................64 Section 20.1 GENERAL DEFINITIONS. ............................64 Section 20.2 HEADINGS, ETC. ..................................65 Article 21 - MISCELLANEOUS PROVISIONS........................................65 Section 21.1 NO ORAL CHANGE. .................................65 Section 21.2 LIABILITY. ......................................65 Section 21.3 INAPPLICABLE PROVISIONS. ........................65 Section 21.4 DUPLICATE ORIGINALS; COUNTERPARTS. ..............65 Section 21.5 NUMBER AND GENDER. ..............................65 Section 21.6 GUARANTORS AND INDEMNITORS. .....................65 Article 22 - SPECIAL ______________ PROVISIONS...............................65 Article 23 - DEED OF TRUST PROVISIONS........................................65 Section 23.1 CONCERNING THE TRUSTEE. .........................65 Section 23.2 TRUSTEE'S FEES. .................................66 Section 23.3 CERTAIN RIGHTS. .................................66 Section 23.4 RETENTION OF MONEY. .............................66 Section 23.5 PERFECTION OF APPOINTMENT. ......................67 Section 23.6 SUCCESSION INSTRUMENTS. .........................67 Article 24 - OPERATING LEASE PROVISIONS......................................67 Section 24.1 THE OPERATING LEASE. ............................67 Section 24.2 SUBLEASES. ......................................67 Section 24.3 NO MERGER OF FEE AND LEASEHOLD ESTATES; RELEASES. 68 Section 24.4 SUBORDINATION/PURCHASE RIGHTS.....................68 6 THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Security Instrument") is made as of the 2nd day of May, 2000, by _______________________, a Delaware __________, having its principal place of business at 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower") and _________________________________, a Delaware limited liability company, having its principal place of business at 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Operating Tenant") (Borrower and Operating Tenant shall collectively and individually, as the context may require, be referred to herein as the "Loan Parties"), as grantors, to __________________________, having an address at __________________________________, as trustee ("Trustee"), for the benefit of THE CHASE MANHATTAN BANK, a New York banking corporation, having an address at 380 Madison Avenue, 10th Floor, New York, New York 10017, as beneficiary ("Lender"). RECITALS: Borrower is the [fee] [leasehold] owner of the real property described in Exhibit A attached hereto (the "Land"). Operating Tenant is the current owner of the leasehold estate in said real property created pursuant to that certain Lease Agreement by and between FLLP, as owner, and _______________, as tenant, dated _______________ (the "Operating Lease"). Borrower by its promissory note of even date herewith given to Lender is indebted to Lender in the principal sum of $________________ in lawful money of the United States of America (the note together with all extensions, renewals, modifications, substitutions and amendments thereof shall collectively be referred to as the "Note"), with interest from the date thereof at the rates set forth in the Note, principal and interest to be payable in accordance with the terms and conditions provided in the Note. Borrower desires to secure the payment of the Debt (defined in Article 2) and the performance of all of its obligations under the Note and the Other Obligations (defined in Article 2), and Operating Tenant has agreed to encumber its leasehold estate in the Property (as defined below) as additional security therefor. Article 1 - GRANTS OF SECURITY Section 1.1 PROPERTY MORTGAGED. (A) Loan Parties do hereby irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to Trustee, its successors and assigns, for the benefit of Lender, and grant a security interest to Lender and Trustee in the Operating Lease and the leasehold estate created thereby in the Land; (B) Borrower does hereby irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to Trustee, its successors and assigns, for the benefit of Lender, and grant a security interest to Lender in all right, title, interest and fee estate of Borrower, now owned or hereafter acquired in and to the Land; 2 7 TOGETHER WITH all right, title, interest and estate of the Loan Parties now owned or hereafter acquired, in and to the following property, rights, interests and estate (the foregoing fee and leasehold interests in the Land together with the following property, rights, interests and estates being hereinafter collectively referred to as the "Property"): (a) Operating Lease. The Operating Lease and the leasehold estate created thereby; (b) Assignments/Modifications. All assignments, modifications, extensions and renewals of the Operating Lease and all credits, deposits, options, privileges and rights of Operating Tenant as tenant under the Operating Lease, including, but not limited to, rights of first refusal, if any, and the right, if any, to renew or extend the Operating Lease for a succeeding term or terms, and also including all the right, title, claim or demand whatsoever of Operating Tenant either in law or in equity, in possession or expectancy, of, in and to Lender's right, as tenant under the Operating Lease, to elect under Section 365(h)(1) of the Bankruptcy Code, Title 11 U.S.C.A. Section 101 et seq. (the "Bankruptcy Code") to terminate or treat the Operating Lease as terminated in the event (i) of the bankruptcy, reorganization or insolvency of the Borrower, and (ii) the rejection of the Operating Lease by the Borrower, as debtor in possession, or by a trustee for the Borrower, pursuant to Section 365 of the Bankruptcy Code; (c) Additional Land. All additional lands, estates and development rights hereafter acquired by the Loan Parties for use in connection with the Land and the development of the Land and all additional lands and estates therein which may, from time to time, by supplemental mortgage or otherwise be expressly made subject to the lien of this Security Instrument; (d) Improvements. The buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Land (the "Improvements"); (e) Easements. All easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating or pertaining to the Land and/or the Improvements, including, but not limited to, those arising under and by virtue of the Operating Lease, and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both at law and in equity, of the Loan Parties of, in and to the Land and/or the Improvements, including, but not limited to, those arising under and by virtue of the Operating Lease, and every part and parcel thereof, with the appurtenances thereto; (f) Fixtures and Personal Property. All machinery, equipment, fixtures (including, but not limited to, all heating, air conditioning, plumbing, lighting, communications, elevator 3 8 fixtures, inventory and goods), inventory and articles of personal property and accessions thereof and renewals, replacements thereof and substitutions therefor (including, but not limited to, beds, bureaus, chiffonniers, chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades, venetian blinds, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, linens, pillows, blankets, glassware, silverware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers, radios, television sets, intercom and paging equipment, electric and electronic equipment, dictating equipment, private telephone systems, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, cooling and air-conditioning systems, elevators, escalators, fittings, plants, apparatus, stoves, ranges, refrigerators, laundry machines, tools, machinery, engines, dynamos, motors, boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems, brackets, electrical signs, bulbs, bells, ash and fuel, conveyors, cabinets, lockers, shelving, spotlighting equipment, dishwashers, garbage disposals, washers and dryers), other customary hotel equipment and other tangible property of every kind and nature whatsoever owned by the Loan Parties, or in which the Loan Parties have or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, and usable in connection with the present or future operation and occupancy of the Land and the Improvements and all building equipment, materials and supplies of any nature whatsoever owned by the Loan Parties, or in which the Loan Parties have or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, and usable in connection with the present or future operation and occupancy of the Land and the Improvements (hereinafter collectively called the "Personal Property"), including the right, title and interest of the Loan Parties in and to any of the Personal Property which may be subject to any security interests, as defined in the Uniform Commercial Code, as adopted and enacted by the state or states where any of the Property is located (the "Uniform Commercial Code"), superior in lien to the lien of this Security Instrument and all proceeds and products of all of the above; (g) Leases and Rents. All leases (including the Operating Leases), subleases, rental agreements, registration cards and agreements, if any, and other agreements whether or not in writing affecting the use, enjoyment or occupancy of the Land and/or the Improvements heretofore or hereafter entered into and all extensions, amendments and modifications thereto, whether before or after the filing by or against the Loan Parties of any petition for relief under Creditors Rights Laws (defined in Article 10) (the "Leases") and all right, title and interest of the Loan Parties' successors and assigns therein and thereunder, including, without limitation, any guaranties of the lessees' obligations thereunder, cash or securities deposited thereunder to secure the performance by the lessees of their obligations thereunder and all rents, additional rents, revenues, issues, registration fees, if any, and profits (including all oil and gas or other mineral royalties and bonuses) from the Land and the Improvements, all income, rents, room rates, issues, profits, revenues, deposits, accounts and other benefits from the operation of the hotel on the Land and/or the Improvements, including, without limitation, all revenues and credit card receipts collected from guest rooms, restaurants, bars, mini-bars, meeting rooms, banquet rooms and recreational facilities and otherwise, all receivables, customer obligations, installment payment obligations and other 4 9 obligations now existing or hereafter arising or created out of sale, lease, sublease, license, concession or other grant of the right of the possession, use or occupancy of all or any portion of the Land and/or Improvements, or personalty located thereon, or rendering of services by the Loan Parties or any operator or manager of the hotel or the commercial space located in the Improvements or acquired from others including, without limitation, from the rental of any office space, retail space, commercial space, guest room or other space, halls, stores or offices, including any deposits securing reservations of such space, exhibit or sales space of every kind, license, lease, sublease and concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales, service charges, vending machine sales and proceeds, if any, from business interruption or other loss of income insurance relating to the use, enjoyment or occupancy of the Land and/or the Improvements whether paid or accruing before or after the filing by or against the Loan Parties of any petition for relief under Creditors Rights Laws (the "Rents") and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Debt; (h) Insurance Proceeds. All proceeds of and any unearned premiums on any insurance policies covering the Land, the Improvements, the Personal Property and other collateral granted under this Section 1.1, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Property; (i) Condemnation Awards. All awards or payments, including interest thereon, which may heretofore and hereafter be made with respect to the Land, the Improvements, the Personal Property and other collateral granted under this Section 1.1, whether from the exercise of the right of eminent domain (including but not limited to any transfer made in lieu of or in anticipation of the exercise of the right), or for a change of grade, or for any other injury to or decrease in the value of the Property; (j) Tax Certiorari. All refunds, rebates or credits in connection with a reduction in real estate taxes and assessments charged against the Land, the Improvements, the Personal Property and other collateral granted under this Section 1.1 as a result of tax certiorari or any applications or proceedings for reduction; (k) Conversion. All proceeds of the conversion, voluntary or involuntary, of any of the foregoing including, without limitation, proceeds of insurance and condemnation awards, into cash or liquidation claims; (l) Rights. The right, in the name and on behalf of the Loan Parties to appear in and defend any action or proceeding brought with respect to the Property and to commence any action or proceeding to protect the interest of Lender in the Land, the Improvements, the Personal Property and other collateral granted under this Section 1.1; (m) Agreements. Except for the Franchise Agreement (defined below), all agreements, contracts, certificates, instruments, franchises, permits, licenses, plans, specifications and other documents, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction, management or 5 10 operation of the Land and any part thereof and any Improvements or respecting any business or activity conducted on the Land and any part thereof, including, without limitation, the right, upon the occurrence and during the continuance of an Event of Default (defined in Article 10) to receive and collect any sums payable to the Loan Parties thereunder; (n) Intangibles. All trade names, trademarks, servicemarks, logos, copyrights, goodwill, books and records, tenant or guest lists, advertising materials, telephone exchange numbers identified in such materials and all other general intangibles relating to or used in connection with the operation of the Land, the Improvements and the Personal Property; (o) Accounts Receivables. All right, title and interest of the Loan Parties arising from the operation of the Land and the Improvements in and to all payments for goods or property sold or leased or for services rendered, whether or not yet earned by performance, and not evidenced by an instrument or chattel paper, (hereinafter referred to as "Accounts Receivable") including, without limiting the generality of the foregoing, (i) all accounts, contract rights, book debts, and notes arising from the operation of a hotel on the Land and the Improvements or arising from the sale, lease or exchange of goods or other property and/or the performance of services, (ii) the Loan Parties' rights to payment from any consumer credit/charge card organization or entities which sponsor and administer such cards as the American Express Card, the Visa Card and the Mastercard, (iii) the Loan Parties' rights in, to and under all purchase orders for goods, services or other property, (iv) the Loan Parties' rights to any goods, services or other property represented by any of the foregoing, (v) monies due to or to become due to the Loan Parties' under all contracts for the sale, lease or exchange of goods or other property and/or the performance of services including the right to payment of any interest or finance charges in respect thereto (whether or not yet earned by performance on the part of the Loan Parties) and (vi) all collateral security and guaranties of any kind given by any person or entity with respect to any of the foregoing. Accounts Receivable shall include those now existing or hereafter created, substitutions therefor, proceeds (whether cash or non-cash, movable or immovable, tangible or intangible) received upon the sale, exchange, transfer, collection or other disposition or substitution thereof and any and all of the foregoing and proceeds therefrom; (p) Accounts. All reserves, escrows and deposit accounts maintained by the Loan Parties with respect to the Property including, without limitation, any lockbox account and cash management account, and all securities, investments, property and financial assets held therein from time to time and all proceeds, products, distributions or dividends or substitutions thereon and thereof; and (q) Other Rights. Any and all other rights of the Loan Parties in and to the items set forth in Subsections (a) through (p) above. Section 1.2 ASSIGNMENT OF LEASES AND RENTS. The Loan Parties hereby absolutely and unconditionally assign to Lender and Trustee the Loan Parties' right, title and interest in and to all current and future Leases and Rents, which assignment is more particularly set forth in that certain Assignment of Leases and Rents dated as of the date hereof and recorded simultaneously herewith. It is intended by the Loan Parties that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Nevertheless, subject to the terms of 6 11 this Section 1.2 and Sections 3.8 and 11.1(h), Lender grants to the Loan Parties a revocable license to collect and receive the Rents. Borrower shall hold a portion of the Rents sufficient to discharge all current sums due on the Debt, for use in the payment of such sums. Section 1.3 SECURITY AGREEMENT. This Security Instrument is both a real property mortgage and a "security agreement" within the meaning of the Uniform Commercial Code. The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of the Loan Parties in the Property. By executing and delivering this Security Instrument, the Loan Parties hereby grant to Lender and Trustee, as security for the Obligations (defined in Section 2.3), a security interest in the Personal Property and other collateral given as security for the Obligations (whether denominated as part of the Property or otherwise) to the extent that under applicable law the same would be governed by the Uniform Commercial Code (collectively, "UCC Collateral") to the full extent that the Personal Property and other UCC Collateral may be subject to the Uniform Commercial Code. Section 1.4 PLEDGE OF MONIES HELD. The Loan Parties hereby pledge to Lender any and all monies now or hereafter held by Lender, including, without limitation, any sums deposited in the Escrow Fund (as defined in Section 3.5), Net Proceeds (defined in Section 3.7) and any accounts established pursuant to that certain FF&E Reserve and Security Agreement dated as of the date hereof between Borrower and Lender (the "FF&E Reserve") and that certain Reserve and Security Agreement dated as of the date hereof between Borrower and Lender (the "Cash Reserve"), as additional security for the Obligations until expended or applied as provided in this Security Instrument, the FF&E Reserve and the Cash Reserve, as applicable. Section 1.5 CONDITIONS TO GRANT. TO HAVE AND TO HOLD the above granted and described Property unto Trustee for and on behalf of Lender and to the use and benefit of Lender and Trustee, and for their successors and assigns forever; IN TRUST, WITH POWER OF SALE, to secure payment to Lender of the Debt at the time and in the manner provided for its payment in the Note and in this Security Instrument. PROVIDED, HOWEVER, these presents are upon the express condition that, if Borrower shall pay to Lender the Debt at the time and in the manner provided in the Note and this Security Instrument, shall perform the Other Obligations as set forth in this Security Instrument and shall comply with each and every covenant and condition set forth herein and in the Note, these presents and the estate hereby granted shall cease, terminate and be void. Article 2 - DEBT AND OBLIGATIONS SECURED Section 2.1 DEBT. This Security Instrument and the grants, assignments and transfers made in Article 1 are given for the purpose of securing the payment of the following, in such order of priority as Lender may determine in its sole discretion (the "Debt"): (a) the indebtedness evidenced by the Note in lawful money of the United States of America; 7 12 (b) interest, default interest, late charges and other sums, as provided in the Note, this Security Instrument or the Other Security Documents (defined in Section 3.2); (c) the Default Consideration (defined in the Note), if any; (d) all other monies agreed or provided to be paid to Lender pursuant to the Note, this Security Instrument or the Other Security Documents; (e) all sums advanced pursuant to this Security Instrument to protect and preserve the Property and the lien and the security interest created hereby; and (f) all sums advanced and costs and expenses incurred by Lender in connection with the Debt or any part thereof, any renewal, extension, or change of or substitution for the Debt or any part thereof, or the acquisition or perfection of the security therefor, and payable pursuant to the Note, this Security Instrument or the Other Security Documents. Section 2.2 OTHER OBLIGATIONS. This Security Instrument and the grants, assignments and transfers made in Article 1 are also given for the purpose of securing the performance of the following (the "Other Obligations"): (a) all other obligations of the Loan Parties contained herein; (b) each obligation of the Loan Parties contained in the Note and in the Other Security Documents; and (c) each obligation of the Loan Parties contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of the Note, this Security Instrument or the Other Security Documents. Section 2.3 DEBT AND OTHER OBLIGATIONS. Borrower's obligations for the payment of the Debt and the Loan Parties' performance of the Other Obligations shall be referred to collectively as the "Obligations." Section 2.4 PAYMENTS. Unless payments are made in the required amount in immediately available funds at the place where the Note is payable, remittances in payment of all or any part of the Debt shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in funds immediately available at the place where the Note is payable (or any other place as Lender, in Lender's sole discretion, may have established by delivery of written notice thereof to Borrower) and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks; provided, however, Lender shall not be required to accept payment for any Obligation in cash. Acceptance by Lender of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default. 8 13 Article 3 - LOAN PARTY COVENANTS Borrower and Operating Tenant, as applicable, covenant and agree that: Section 3.1 PAYMENT OF DEBT. Borrower will pay the Debt at the time and in the manner provided in the Note and in this Security Instrument. Section 3.2 INCORPORATION BY REFERENCE. All the covenants, conditions and agreements contained in (a) the Note and (b) all and any of the documents other than the Note or this Security Instrument now or hereafter executed and delivered by the Loan Parties and/or others and by or in favor of Lender, which wholly or partially secure or guaranty payment of the Note or are otherwise executed and delivered in connection with the Loan (hereinafter defined; such other documents, together with any and all extensions, renewals, substitutions, replacements, amendments, modifications and/or restatements thereof, the "Other Security Documents") are hereby made a part of this Security Instrument to the same extent and with the same force as if fully set forth herein. Section 3.3 INSURANCE. (a) Borrower shall obtain and maintain, or cause to be maintained, insurance for the Loan Parties and the Property providing at least the following coverages: (i) insurance with respect to the Improvements and the Personal Property insuring against any peril now or hereafter included within the classification "All Risk" or "Special Perils", in each case (A) in an amount equal to 100% of the "Full Replacement Cost," which for purposes of this Security Instrument shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property waiving all co-insurance provisions; (C) providing for no deductible in excess of $25,000 (provided, however, if flood insurance is required pursuant to Subsection 3.3(a)(vii) of this Security Instrument, the deductible for this type of insurance only shall not exceed $100,000); and (D) providing coverage for contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction Endorsements together with an "Ordinance or Law Coverage" or "Enforcement" endorsement. The Full Replacement Cost shall be redetermined from time to time (but not more frequently than once in any twelve (12) calendar months) at the request of Lender by an appraiser or contractor designated and paid by Borrower and approved by Lender, or by an engineer or appraiser in the regular employ of the insurer. After the first appraisal, additional appraisals may be based on construction cost indices customarily employed in the trade. No omission on the part of Lender to request any such ascertainment shall relieve Borrower of any of its obligations under this Subsection; (ii) commercial general liability insurance against all claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Property, including "Dram Shop" or other liquor liability coverage if alcoholic beverages are sold from or may be consumed at the Property, such insurance (A) to be on the so-called "occurrence" form with a general aggregate limit of not less than $6,000,000 and a per occurrence limit of not less than $6,000,000; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing 9 14 by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; (4) blanket contractual liability for all written and oral contracts; and (5) contractual liability covering the indemnities contained in Article 13 hereof to the extent the same is available; (iii) loss of rents and/or business interruption insurance (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in Subsection 3.3(a)(i); (C) in an amount equal to the actual loss sustained (i) if a Casualty Restoration has been commenced within the twelve (12) month period following the date of the loss, from the date of the loss through and including the date occurring twelve (12) months following the date in which the Property has been restored as nearly as possible to the condition the Property was in immediately prior to the loss or (ii) if a Casualty Restoration has not been commenced within the twelve (12) month period following the date of the loss, during the twelve (12) month period following the date of the loss; and (D) containing an extended period of indemnity endorsement which provides that after the physical loss to the Improvements and the Personal Property has been repaired, the continued loss of income will be insured until such income returns to the same level it was prior to the loss, or the expiration of eighteen (18) months from the date of the loss, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period. All insurance proceeds payable to Lender pursuant to this Subsection shall be held by Lender and shall be applied to the obligations secured hereunder from time to time due and payable hereunder and under the Note; provided, however, that nothing herein contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured hereunder on the respective dates of payment provided for in the Note except to the extent such amounts are actually paid out of the proceeds of such loss of rents and/or business interruption insurance; (iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in Subsection 3.3(a)(i) written in a so-called builder's risk completed value form (1) on a non-reporting basis, (2) against all risks insured against pursuant to Subsection 3.3(a)(i), (3) including permission to occupy the Property, and (4) with an agreed amount endorsement waiving co-insurance provisions; (v) to the extent required by law, workers' compensation, subject to the statutory limits of the state in which the Property is located, and employer's liability insurance with a limit of at least $1,000,000 per accident and per disease per employee, and $1,000,000 for disease aggregate in respect of any work or operations on or about the Property, or in connection with the Property or its operation (if applicable); 10 15 (vi) comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender; (vii) if any portion of the Improvements is at any time located in an area identified by the Secretary of Housing and Urban Development or any successor thereto as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended, or any successor law (the "Flood Insurance Acts"), flood hazard insurance in an amount equal to the lesser of (A) the principal balance of the Note, and (B) the maximum limit of coverage available for the Property under the Flood Insurance Acts; (viii) earthquake, sinkhole and mine subsidence insurance, if required in amounts, form and substance satisfactory to Lender, provided that the insurance pursuant to this Subsection (viii) shall be on terms consistent with the all risk insurance policy required under Section 3.3(a)(i). Lender acknowledges that such insurance is not required as of the date hereof; (ix) to the extent Borrower or Operating Tenant employs or retains any Employees and Agents (defined below), a blanket fidelity bond and errors and omissions insurance coverage insuring against losses resulting from dishonest or fraudulent acts committed by (A) Borrower's or Operating Tenant's personnel; (B) any employees of outside firms that provide appraisal, legal, data processing or other services for Borrower or Operating Tenant or (C) temporary contract employees or student interns (each of the foregoing, the "Employees and Agents"); (x) umbrella liability insurance in an amount not less than Twenty-Five Million and No/100 Dollars ($25,000,000.00) per occurrence on terms consistent with the commercial general liability insurance policy required under subsection (ii) above; and (xi) such other insurance and in such amounts as are required pursuant to the Franchise Agreement (hereinafter defined) or as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Property located in or around the region in which the Property is located. (b) All insurance provided for in Subsection 3.3(a) hereof shall be obtained under valid and enforceable policies (the "Policies" or in the singular, the "Policy"), in such forms and, from time to time after the date hereof, in such amounts as may be satisfactory to Lender, issued by financially sound and responsible insurance companies authorized and admitted to do business in the state in which the Property is located and approved by Lender. The insurance companies must have a general policy rating of A or better and a financial class of VIII or better by A.M. Best Company, Inc., and a claims paying ability/financial strength rating of "AA-" (or its equivalent) or better by at least two (2) of the rating agencies which have assigned a rating to the Securities (each, a "Rating Agency") (one of which will be Standard & Poor's Rating Group if they are rating the Securities and one of which shall be 11 16 Moody's Investors Service, Inc. if they are rating the Securities), or if only one Rating Agency is rating the Securities, then only by such Rating Agency (each such insurer shall be referred to below as a "Qualified Insurer"). Notwithstanding the foregoing, the insurance company providing the insurance required under Subsection 3.3(a)(ii) above may have a claims paying ability/financial strength rating of "A+" (or its equivalent) by at least two (2) Rating Agencies, provided that such insurance company shall have a financial class of XV or better as determined by A.M. Best Company, Inc. Not less than twenty (20) days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to Subsection 3.3(a), Borrower shall deliver certified copies of the Policies marked "premium paid" or accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder (the "Insurance Premiums"), provided, however, that in the case of renewal Policies, Borrower may furnish Lender with binders therefor to be followed by the original Policies within ten (10) days after the issuance of said Policies. Without limiting the foregoing, in the event Borrower has obtained any Blanket Policy (defined below) in accordance with the provisions of Subsection 3.3(c), then Borrower shall be obligated to deliver Lender certified copies of each such Blanket Policy in lieu of the original Blanket Policy. (c) Except to the extent required pursuant to Section 3.3(a) hereof, Borrower shall not obtain (i) any umbrella or blanket liability or casualty Policy (each, a "Blanket Policy") unless, in each case, such Policy is approved in advance in writing by Lender and Lender's interest is included therein as provided in this Security Instrument and such Policy is issued by a Qualified Insurer, or (ii) separate insurance concurrent in form or contributing in the event of loss with that required in Subsection 3.3(a) to be furnished by, or which may be reasonably required to be furnished by, Borrower. In the event Borrower obtains separate insurance or an umbrella or a blanket Policy, Borrower shall notify Lender of the same and shall cause certified copies of each Policy to be delivered as required in Subsection 3.3(a). Any blanket insurance Policy shall specifically allocate to the Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Property in compliance with the provisions of Subsection 3.3(a). Notwithstanding Lender's approval of any umbrella or blanket liability or casualty Policy hereunder, Lender reserves the right, in its sole discretion, to require Borrower to obtain a separate Policy in compliance with this Section 3.3. (d) All Policies of insurance provided for or contemplated by Subsection 3.3(a), except for the Policy referenced in Subsection 3.3(a)(v), shall name Lender, Borrower and Operating Tenant as the insured or additional insured, as their respective interests may appear, and in the case of property damage, boiler and machinery, and flood insurance, shall contain a so-called New York standard non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be payable to Lender. (e) All Policies of insurance provided for in Subsection 3.3(a) shall contain clauses or endorsements to the effect that: (i) no act or negligence of the Loan Parties, or anyone acting for the Loan Parties, or of any tenant under any Lease or other occupant, or failure to comply with the provisions of any Policy which might otherwise result in a forfeiture of the insurance or any part thereof, shall in any way affect the validity or enforceability of the insurance insofar as Lender is concerned; 12 17 (ii) the Policy shall not be materially changed (other than to increase the coverage provided thereby) or cancelled without at least 30 days' written notice to Lender and any other party named therein as an insured; and (iii) each Policy shall provide that the issuers thereof shall give written notice to Lender if the Policy has not been renewed thirty (30) days prior to its expiration; and (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder. (f) Borrower shall furnish to Lender, on or before thirty (30) days after the close of each of Borrower's fiscal years, a statement certified by Borrower or a duly authorized officer of Borrower of the amounts of insurance maintained in compliance herewith, of the risks covered by such insurance and of the insurance company or companies which carry such insurance and, if requested by Lender, verification of the adequacy of such insurance by an independent insurance broker or appraiser acceptable to Lender. (g) If at any time Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, after notice to Borrower to take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, the obtaining of such missing insurance coverage as Lender in its sole discretion deems appropriate, and all expenses incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and until paid shall be secured by this Security Instrument and shall bear interest in accordance with Article 4 of the Note; provided, however, in the event that any insurance required hereunder is not in full force and effect, Lender shall not be obligated to provide any notice to the Loan Parties before obtaining such insurance. (h) If the Property shall be damaged or destroyed, in whole or in part, by fire or other casualty, the Loan Parties shall give prompt notice of such damage to Lender and, provided the Insurance Proceeds (as defined below) have been made available to Borrower for repair and restoration pursuant to the terms of Section 3.7 hereof, shall promptly commence and diligently prosecute the completion of the repair and restoration of the Property as nearly as possible to the condition the Property was in immediately prior to such fire or other casualty, with such alterations as may be approved by Lender (the "Casualty Restoration") and otherwise in accordance with Section 3.7 of this Security Instrument. Provided the Insurance Proceeds have been made available to Borrower for the Casualty Restoration pursuant to the terms of Section 3.7 hereof, Borrower shall pay all costs of such Casualty Restoration whether or not such costs are covered by insurance. Notwithstanding anything to the contrary contained in this Subsection, Borrower shall not be obligated to notify Lender of any damage to the Property which shall cost less than $25,000.00 to repair or restore. 13 18 (i) In the event of a foreclosure of the Security Instrument or other transfer of title to the Property in extinguishment in whole or in part of the Debt, all right, title and interest of the Loan Parties in and to the Policies then in force concerning the Property and all proceeds payable thereunder shall thereupon vest exclusively in Lender or the purchaser at such foreclosure or other transferee in the event of such other transfer of title. Section 3.4 PAYMENT OF TAXES, ETC. (a) Borrower shall promptly pay or cause to be paid by their due date all taxes and other governmental impositions, including, without limitation, assessments, water rates, sewer rents, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Land, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "Taxes"), not paid from the Escrow Fund, all ground rents payable under the Operating Lease, maintenance charges and similar charges, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "Other Charges"), and all charges for utility services provided to the Property as same become due and payable. Borrower will deliver to Lender, promptly upon Lender's request, evidence satisfactory to Lender that the Taxes, Other Charges and utility service charges have been so paid or are not then delinquent. Borrower shall not suffer and shall promptly cause to be paid and discharged any lien or charge whatsoever which may be or become a lien or charge against the Property. Except to the extent sums sufficient to pay all Taxes and Other Charges have been deposited with Lender in accordance with the terms of this Security Instrument, Borrower shall furnish to Lender paid receipts for the payment of the Taxes and Other Charges prior to the date the same shall become delinquent. (b) After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any of the Taxes, provided that (i) no Event of Default has occurred and is continuing under the Note, this Security Instrument or any of the Other Security Documents, (ii) Borrower is permitted to do so under the provisions of any other mortgage, deed of trust or deed to secure debt affecting the Property, (iii) such proceeding shall suspend the collection of the Taxes from the Loan Parties and from the Property or Borrower shall have paid all of the Taxes under protest, (iv) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder, (v) neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost, and (vi) Borrower shall have deposited with Lender adequate reserves for the payment of the Taxes, together with all interest and penalties thereon, unless Borrower has paid all of the Taxes under protest, or Borrower shall have furnished the security as may be required in the proceeding, or as may be reasonably requested by Lender to insure the payment of any contested Taxes, together with all interest and penalties thereon, taking into consideration the amount in the Escrow Fund available for payment of Taxes. Section 3.5 ESCROW FUND. In addition to the initial deposits with respect to Taxes and, if applicable, Insurance Premiums made by Borrower to Lender on the date hereof to be held by Lender in escrow, Borrower shall pay, or shall cause to be paid, to Lender on the tenth day of each 14 19 calendar month (a) one-twelfth of an amount which would be sufficient to pay the Taxes payable, or reasonably estimated by Lender to be payable, during the next ensuing twelve (12) months and (b) at the option of Lender, if the liability or casualty Policy maintained by Borrower covering the Property shall not constitute an approved blanket or umbrella Policy pursuant to Subsection 3.3(c) hereof, or Lender shall require Borrower to obtain a separate Policy pursuant to Subsection 3.3(c) hereof, one-twelfth of an amount which would be sufficient to pay the Insurance Premiums due for the renewal of the coverage afforded by the Policies upon the expiration thereof (the amounts in (a) and (b) above shall be called the "Escrow Fund"). In the event Lender shall elect to collect payments in escrow for Insurance Premiums, Borrower shall pay to Lender an initial deposit to be determined by Lender, in its sole discretion, to increase the amounts in the Escrow Fund to an amount which, together with anticipated monthly escrow payments, shall be sufficient to pay all Insurance Premiums and Taxes as they become due. Borrower agrees to notify Lender immediately of any changes to the amounts, schedules and instructions for payment of any Taxes and Insurance Premiums of which it has or obtains knowledge and authorizes Lender or its agent to obtain the bills for Taxes directly from the appropriate taxing authority. The Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Provided there are sufficient amounts in the Escrow Fund and no Event of Default exists, Lender shall be obligated to pay the Taxes and Insurance Premiums as they become due on their respective due dates on behalf of Borrower by applying the Escrow Fund to the payment of such Taxes and Insurance Premiums. If the amount of the Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Sections 3.3 and 3.4 hereof, Lender shall, in its discretion, return any excess to Borrower or credit such excess against future payments to be made to the Escrow Fund. In allocating such excess, Lender may deal with the person shown on the records of Lender to be the owner of the Property. If the Escrow Fund is not sufficient to pay the items set forth in (a) and (b) above, Borrower shall promptly pay to Lender, upon demand, an amount which Lender shall reasonably estimate as sufficient to make up the deficiency. The Escrow Fund shall not constitute a trust fund and may be commingled with other monies held by Lender. Unless otherwise required by applicable state or federal law, no earnings or interest on the Escrow Fund shall be payable to the Loan Parties. Section 3.6 CONDEMNATION. The Loan Parties shall promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding affecting the Property and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Notwithstanding any taking by any public or quasi-public authority through eminent domain or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), and whether or not any award or payment made in any condemnation or eminent domain proceeding affecting the Property (an "Award") is made available to the Loan Parties for Restoration in accordance with Section 3.7, Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Security Instrument and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. The Loan Parties shall cause the Award made in any condemnation or eminent domain proceeding, which is payable to the Loan Parties, to be paid directly to Lender. Lender may apply any Award to the reduction or discharge of the Debt whether or not then due and payable. In the event that the Property or any portion thereof is taken by any condemning authority, Borrower shall promptly (i) proceed to restore, 15 20 repair, replace or rebuild the Property or (ii) cause the Property to be restored, repaired, replaced or rebuilt, in a workmanlike manner to the extent practicable to be of at least equal value and substantially the same character as prior to such condemnation or eminent domain proceeding (the "Condemnation Restoration"; the Condemnation Restoration and the Casualty Restoration are collectively hereinafter referred to as the "Restoration"). If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt. Section 3.7 RESTORATION. The following provisions shall apply in connection with the Restoration of the Property: (a) If the Net Proceeds (defined below) shall be less than$150,000.00 and the costs of completing the Restoration shall be less than $150,000.00, the Net Proceeds will be disbursed by Lender to Borrower upon receipt, provided that all of the conditions set forth in Subsection 3.7(b)(i) are met and Borrower delivers to Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Security Instrument. (b) If the Net Proceeds are equal to or greater than $150,000.00 or the costs of completing the Restoration are equal to or greater than $150,000.00, Lender shall make the Net Proceeds available for the Restoration in accordance with the provisions of this Section 3.7(b). The term "Net Proceeds" for the purposes of this Section shall mean: (1) the net amount of all insurance proceeds received by Lender pursuant to Sections 3.3(a)(i), (iv), (vi), (vii), (viii) and, as applicable, (xi) of this Security Instrument as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable legal fees), if any, in collecting same ("Insurance Proceeds") or (2) the net amount of the Award received by Lender, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable legal fees), if any, in collecting same ("Condemnation Proceeds"), whichever the case may be. (i) The Net Proceeds shall be made available to Borrower for the Restoration provided that each of the following conditions are met: (A) no Event of Default shall have occurred and be continuing under the Note, this Security Instrument or any of the Other Security Documents; (B) (1) in the event the Net Proceeds are Insurance Proceeds, less than fifty percent (50%) of the total floor area of the Improvements has been damaged, destroyed or rendered unusable as a result of such fire or other casualty or (2) in the event the Net Proceeds are Condemnation Proceeds, less than ten percent (10%) of the land constituting the Property has been taken, such land is located along the perimeter or periphery of the Property, no portion of the Improvements is located on such land and such taking does not materially impair the existing access to the Property; 16 21 (C) Intentionally omitted; (D) Borrower shall commence the Restoration as soon as reasonably practicable (but in no event later than thirty (30) days after such damage, destruction or taking occurs) and shall diligently pursue the same to satisfactory completion; (E) Lender shall be satisfied that any operating deficits which will be incurred with respect to the Property as a result of the occurrence of any such fire or other casualty or taking will be covered out of (1) the Net Proceeds, (2) the insurance coverage referred to in Subsection 3.3(a)(iii), or (3) by other funds of Borrower; (F) Lender shall be satisfied that, upon the completion of the Restoration, the gross cash flow and the net cash flow of the Property will be restored to a level sufficient to cover all carrying costs and operating expenses of the Property, including, without limitation, debt service on the Note at a coverage ratio (after deducting all required reserves as required by Lender from net operating income) of at least 1.10 to 1.0, which coverage ratio shall be determined by Lender in its sole and absolute discretion on the basis of the Applicable Interest Rate (as defined in the Note); (G) Lender shall be satisfied that the Restoration will be completed on or before the earliest to occur of (1) six (6) months prior to the Maturity Date (as defined in the Note), (2) eighteen (18) months after the occurrence of such fire or other casualty or taking, (3) the date required for such completion pursuant to the Franchise Agreement or (4) such time as may be required under applicable zoning law, ordinance, rule or regulation in order to repair and restore the Property to the condition it was in immediately prior to such fire or other casualty or taking; (H) Borrower shall execute and deliver to Lender a completion guaranty in form and substance satisfactory to Lender and its counsel pursuant to the provisions of which Borrower shall guaranty to Lender the lien-free completion by Borrower of the Restoration in accordance with the provisions of this Subsection 3.7(b); (I) the Property and the use thereof after the Restoration will be in compliance with and permitted under all applicable zoning laws, ordinances, rules and regulations; (J) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable governmental laws, rules and regulations (including, without limitation, all applicable Environmental Laws (defined below)) and in accordance with the terms and conditions of the Franchise Agreement; and 17 22 (K) the Franchise Agreement is not terminated as a result of such casualty. (ii) The Net Proceeds shall be held by Lender and, until disbursed in accordance with the provisions of this Subsection 3.7(b), shall constitute additional security for the Obligations. The Net Proceeds shall be disbursed by Lender to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of evidence satisfactory to Lender that (A) all materials installed and work and labor performed (except to the extent that they are to be paid for out of the requested disbursement) in connection with the Restoration have been paid for in full, and (B) there exist no notices of pendency, stop orders, mechanic's or materialman's liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the Property arising out of the Restoration which have not either been fully bonded to the satisfaction of Lender and discharged of record or in the alternative fully insured to the satisfaction of Lender by the title company insuring the lien of this Security Instrument. (iii) All plans and specifications required in connection with the Restoration shall be subject to prior review and acceptance in all respects by Lender and by an independent consulting engineer selected by Lender (the "Restoration Consultant"). In the event an Event of Default has occurred and is continuing under the Note, the Security Instrument or the Other Security Documents, Lender shall have the right to use the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender and the Restoration Consultant. All costs and expenses reasonably incurred by Lender in connection with making the Net Proceeds available for the Restoration including, without limitation, reasonable legal fees and disbursements and the Restoration Consultant's fees, shall be paid by Borrower. (iv) In no event shall Lender be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Restoration Consultant, minus the Restoration Retainage. The term "Restoration Retainage" as used in this Subsection 3.7(b) shall mean an amount equal to 10% of the costs actually incurred for work in place as part of the Restoration, as certified by the Restoration Consultant, until such time as the Restoration Consultant certifies to Lender that Net Proceeds representing 50% of the required Restoration have been disbursed. There shall be no Restoration Retainage with respect to costs actually incurred by Borrower for work in place in completing the last 50% of the required Restoration. The Restoration Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Subsection 3.7(b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Restoration Retainage shall not be released until the Restoration Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Subsection 3.7(b) and that all approvals necessary for the 18 23 re-occupancy and use of the Property have been obtained from all appropriate governmental and quasi-governmental authorities, and Lender receives evidence reasonably satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Restoration Retainage, provided, however, that Lender will release the portion of the Restoration Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Restoration Consultant certifies to Lender that the contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of the contractor's, subcontractor's or materialman's contract, and the contractor, subcontractor or materialman delivers the lien waivers and evidence of payment in full of all sums due to the contractor, subcontractor or materialman as may be reasonably requested by Lender or by the title company insuring the lien of this Security Instrument. If required by Lender, the release of any such portion of the Restoration Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman. (v) Lender shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month. (vi) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the reasonable opinion of Lender, be sufficient to pay in full the balance of the costs which are estimated by the Restoration Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the "Net Proceeds Deficiency") in immediately available funds with Lender before any further disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency deposited with Lender shall be held by Lender and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds, and until so disbursed pursuant to this Subsection 3.7(b) shall constitute additional security for the Obligations. (vii) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net Proceeds Deficiency deposited with Lender after the Restoration Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Subsection 3.7(b), and the receipt by Lender of evidence satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to Borrower, provided no Event of Default shall have occurred and shall be continuing under the Note, this Security Instrument or any of the Other Security Documents. (c) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Subsection 3.7(b)(vii) may be retained and applied by Lender toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Lender in its discretion shall deem proper or, at the discretion of Lender, the same may be paid, either in whole or in part, to Borrower for such purposes as Lender shall designate, in its discretion. If Lender shall receive and retain Net Proceeds, the lien of this Security Instrument shall be reduced only by the amount thereof received and retained by Lender and actually applied by Lender in reduction of the Debt. 19 24 Section 3.8 LEASES AND RENTS. Upon request, the Loan Parties shall furnish Lender with executed copies of all Leases. In addition, all renewals of Leases and all proposed future Leases shall provide for rental rates and terms comparable to existing local market rates and terms and shall be arms-length transactions with bona fide, independent third party tenants. Any proposed future Major Lease (defined below) and renewals of existing Major Leases, if any, shall be subject to the prior approval of Lender and its counsel, at Borrower's expense. Any proposed future Major Lease or renewal of any existing Major Lease that has not been approved by Lender and its counsel shall be void and of no force and effect. All future Leases shall provide that they are subordinate to this Security Instrument and that the lessee agrees to attorn to Lender. The Loan Parties (i) shall observe and perform all the obligations imposed upon the lessor under the Leases (except that with respect to the Operating Lease, the Operating Tenant shall observe and perform all of the obligations imposed upon lessee) and shall not do or permit to be done anything to impair the value of any of the Leases as security for the Debt; (ii) shall promptly send copies to Lender of all notices of default which the Loan Parties shall send or receive thereunder; (iii) shall enforce all of the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed, excluding the Operating Lease; provided, however, that the Loan Parties shall not be entitled to terminate a Major Lease without the prior written consent of Lender; (iv) shall not collect any of the Rents more than one (1) month in advance; (v) shall not execute any other assignment of the lessor's interest in any of the Leases or the Rents; (vi) shall not alter, modify or change the financial or other material terms of any Major Leases without the prior written consent of Lender, or cancel or terminate any Major Lease or accept a surrender thereof or convey or transfer or suffer or permit a conveyance or transfer of the Land or of any interest therein so as to effect a merger of the estates and rights of or a termination or diminution of the obligations of, lessees thereunder; (vii) shall not alter, modify or change the terms of any guaranty, letter of credit or other credit support with respect to any of the Major Leases (the "Lease Guaranty") or cancel or terminate such Lease Guaranty without the prior written consent of Lender; and (viii) shall not consent to any assignment of or subletting under any Major Leases not in accordance with their terms (or with respect to the Operating Lease, assign its interest thereunder or sublet any interest thereunder unless in accordance with the terms of this Section 3.8), without the prior written consent of Lender. The term "Major Lease" shall mean (i) the Operating Lease and (ii) any Lease which (A) provides for rental income representing ten percent (10%) or more of the total income for the Property or (B) covers ten percent (10%) or more of the total space at the Property, in the aggregate. Section 3.9 MAINTENANCE AND USE OF PROPERTY. Borrower shall cause the Property to be maintained in a good and safe condition and repair and in the condition required under the Franchise Agreement. The Improvements and the Personal Property shall not be removed, demolished or materially altered (except for normal replacement of the Personal Property) without the consent of Lender. Borrower shall promptly repair, replace or rebuild any part of the Property which may be destroyed by any casualty, or become damaged, worn or dilapidated or which may be affected by any proceeding of the character referred to in Section 3.6 hereof and shall complete and pay for any structure at any time in the process of construction or repair on the Land. The Loan Parties shall not initiate, join in, acquiesce in, or consent to any change in any private restrictive covenant, zoning law or other public or private restriction, limiting or defining the uses which may be made of the Property or any part thereof. If under applicable zoning provisions the use of all or 20 25 any portion of the Property is or shall become a nonconforming use, the Loan Parties will not cause or permit the nonconforming use to be discontinued or the nonconforming Improvement to be abandoned without the express written consent of Lender. Section 3.10 WASTE. The Loan Parties shall not commit or suffer any waste of the Property or make any change in the use of the Property which will in any way materially increase the risk of fire or other hazard arising out of the operation of the Property, or take any action that might invalidate or give cause for cancellation of any Policy, or do or permit to be done thereon anything that may in any way materially impair the value of the Property or the security of this Security Instrument. The Loan Parties will not, without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, regardless of the depth thereof or the method of mining or extraction thereof. Section 3.11 COMPLIANCE WITH LAWS. (a) The Loan Parties shall promptly comply with all Applicable Laws (defined in Section 20.1) affecting the Property, or the use thereof, including all Environmental Laws. (b) Borrower shall from time to time, upon Lender's reasonable request, provide Lender with evidence reasonably satisfactory to Lender that the Property complies with all Applicable Laws or is exempt from compliance with Applicable Laws. (c) Notwithstanding any provisions set forth herein or in any document regarding Lender's approval of alterations of the Property, the Loan Parties shall not alter the Property in any manner which would materially increase the Loan Parties' responsibilities for compliance with Applicable Laws without the prior written approval of Lender. Lender's approval of the plans, specifications, or working drawings for alterations of the Property shall create no responsibility or liability on behalf of Lender for their completeness, design, sufficiency or their compliance with Applicable Laws. The foregoing shall apply to tenant improvements constructed by the Loan Parties or by any of its tenants. Lender may condition any such approval upon receipt of a certificate of compliance with Applicable Laws from an independent architect, engineer, or other person acceptable to Lender. (d) The Loan Parties shall give prompt notice to Lender of the receipt by the Loan Parties of any notice related to a violation of any Applicable Laws and of the commencement of any proceedings or investigations which relate to compliance with Applicable Laws. (e) After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the Applicable Laws affecting the Property, provided that (i) no Event of Default has occurred and is continuing under the Note, this Security Instrument or any of the Other Security Documents; (ii) Borrower is permitted to do so under the provisions of any other mortgage, deed of trust or deed to secure debt affecting the Property; (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower or the Property is subject and shall not constitute a default thereunder; (iv) neither the Property, any part thereof or interest therein, any of the 21 26 tenants or occupants thereof, nor the Loan Parties shall be affected in any material adverse way as a result of initiating or prosecuting such proceeding; (v) either non-compliance with the Applicable Laws shall not impose civil or criminal liability on Borrower or Lender or Borrower shall comply with the Applicable Laws during the pendency of the proceeding; (vi) Borrower shall have furnished the security as may be required in the proceeding or by Lender to ensure compliance by Borrower with the Applicable Laws and (vii) Borrower shall have furnished to Lender all other items reasonably requested by Lender. Section 3.12 BOOKS AND RECORDS. (a) The Loan Parties and any Guarantors (defined in Subsection 10.1(e)) and Indemnitor(s) (defined in Section 13.4), if any, shall keep adequate books and records of account in accordance with generally accepted accounting principals ("GAAP") or the Uniform System of Accounts for the Lodging Industry as approved by the American Hotel and Motel Association (as in effect from time to time) (the "Uniform System of Accounts"), or in accordance with other methods acceptable to Lender in its sole discretion, consistently applied and shall furnish to Lender: (i) in the event all leases at the Property (excluding the Operating Lease) in the aggregate (A) provide for rental income representing ten percent (10%) or more of the total income for the Property or (B) cover ten percent (10%) or more of the total space at the Property, quarterly certified rent rolls signed and dated by the Loan Parties, detailing the names of all tenants of the Improvements under any Major Lease, the portion of Improvements occupied by each tenant, the base rent and any other charges payable under each Lease and the term of each Lease, including the expiration date, the extent to which any tenant is in default under any Lease, and any other information as is reasonably required by Lender (the "Rent Rolls"), within twenty (20) days after the end of each calendar quarter; provided, however, that Lender may demand at any time that the Loan Parties furnish to Lender certified Rent Rolls for any given month(s); (ii) quarterly operating statements of the Property, prepared and certified by the respective Loan Parties in the form reasonably required by Lender, detailing the revenues received, the expenses incurred and the net operating income before and after debt service (principal and interest) and major capital improvements for that quarter and containing appropriate year to date information, within thirty (30) days after the end of each fiscal quarter; provided, however, that with respect to the fourth fiscal quarter only, said statements shall be furnished to Lender within forty-five (45) days after the end of the said quarter; (iii) a quarterly comparison of the budgeted total income and total expenses to the actual total income and total expenses for the subject quarter with a detailed explanation of any material variances reasonably determined by Lender between budgeted and actual amounts for such quarter and a report of occupancy for the subject quarter including an average daily room rate, occupancy rates and room revenues, within thirty (30) days after the end of each fiscal quarter; provided, 22 27 however, that with respect to the fourth fiscal quarter only, said comparison shall be furnished to Lender within forty-five (45) days after the end of the said quarter; (iv) an annual comparison of the budgeted total income and total expenses to the actual total income and total expenses with a detailed explanation of any material variances reasonably determined by Lender between budgeted and actual amounts for such year and an annual occupancy report including an average daily room rate, occupancy rates and room revenues, within ninety (90) days after the close of each fiscal year of the Loan Parties; (v) an annual operating statement of the Property detailing the total revenues received, total expenses incurred, total cost of all capital improvements, total debt service and total cash flow, to be prepared and certified by the respective Loan Parties in the form reasonably required by Lender, or if required (a) by Lender after the occurrence of an Event of Default under the Note, this Security Instrument or the Other Security Documents or (b) for Lender to comply with Regulation S-X of the federal securities laws, an audited annual operating statement prepared and certified by an independent certified public accountant acceptable to Lender, within ninety (90) days after the close of each fiscal year of the applicable Loan Parties; (vi) an annual balance sheet and profit and loss statement of the Loan Parties, any Guarantors and any Indemnitor(s) in the form reasonably required by Lender, prepared and certified by the respective the Loan Parties, Guarantors and/or Indemnitor(s), or if required (a) by Lender after the occurrence of an Event of Default under the Note, this Security Instrument or the Other Security Documents or (b) for Lender to comply with Regulation S-X of the federal securities laws, audited financial statements prepared by an independent certified public accountant acceptable to Lender, within ninety (90) days after the close of each fiscal year of the applicable Loan Party, Guarantors and Indemnitor(s), as the case may be; and (vii) an annual operating budget presented on a monthly basis consistent with the annual operating statement described above for the Property, including cash flow projections for the upcoming year, and all known proposed capital replacements and improvements as prepared and delivered by Franchisor (defined below) pursuant to the Management Agreement, but in no event after the start of each fiscal year. (b) Upon request from Lender, the Loan Parties, any Guarantor and any Indemnitor shall furnish in a timely manner to Lender: (i) a property management report containing any such information requested by Lender from time to time, certified by the respective Loan Parties (or an officer, general partner, member or principal of such Loan Party if such Loan Party is not an individual) under penalty of perjury to be true and complete, but no more frequently than quarterly; and (ii) an accounting of all security deposits held in connection with any Lease of any part of the Property, including the name and identification number of the 23 28 accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name of the person to contact at such financial institution, along with any authority or release necessary for Lender to obtain information regarding such accounts directly from such financial institutions. (c) The Loan Parties, any Guarantor and any Indemnitor shall furnish Lender with such other additional financial or management information (including State and Federal tax returns) as may, from time to time, be reasonably required by Lender in form and substance satisfactory to Lender. (d) The Loan Parties, any Guarantor and any Indemnitor shall furnish to Lender and its agents convenient facilities for the examination and audit of any such books and records. (e) Any reports, statements or other information required to be delivered under this Security Instrument shall be delivered in paper form and in the event that Lender requires financial statements in connection with subsection (f) below because the Loan together with any Affiliated Loans (defined below) equal or exceed 20% of the aggregate principal amount of all mortgage loans included in a Securitization (defined below), the Loan Parties shall deliver such reports, statements and other information (i) on a diskette, and (ii) if requested by Lender and within the capabilities of the applicable Loan Party's data systems without change or modification thereto, in electronic form and prepared using Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). (f) If requested by Lender, the Loan Parties shall provide Lender, promptly upon request, with the following financial statements if, at the time a preliminary or final prospectus, prospectus supplement, private placement memorandum, offering circular or other offering document (the "Disclosure Document") is being prepared for a Securitization, it is expected that the principal amount of the Loan together with any Affiliated Loans at the time of Securitization may, or if the principal amount of the Loan together with any Affiliated Loans at any time during which the Loan and any Affiliated Loans are included in a Securitization does, equal or exceed 20% of the aggregate principal amount of all mortgage loans included or expected to be included, as applicable, in the Securitization: (i) A balance sheet with respect to the Property for the two most recent fiscal years, meeting the requirements of Section 210.3-01 of Regulation S-X of the Securities Act and statements of income and statements of cash flows with respect to the Property for the three most recent fiscal years, meeting the requirements of Section 210.3-02 of Regulation S-X, and, to the extent that such balance sheet is more than 135 days old as of the date of the document in which such financial statements are included, interim financial statements of the Property meeting the requirements of Section 210.3-01 and 210.3-02 of Regulation S-X (all of such financial statements, collectively, the "Standard Statements"); provided, however, that with respect to a Property (other than properties that are hotels, nursing homes, or other properties that would be deemed to constitute a business and not real estate 24 29 under Regulation S-X or other legal requirements) that has been acquired by the Loan Parties from an unaffiliated third party (such Property, "Acquired Property"), as to which the other conditions set forth in Section 210.3-14 of Regulation S-X for provision of financial statements in accordance with such Section have been met, in lieu of the Standard Statements otherwise required by this section, the Loan Parties shall instead provide the financial statements required by such Section 210.3-14 of Regulation S-X ("Acquired Property Statements"). (ii) Not later than 30 days after the end of each fiscal quarter following the date hereof, a balance sheet of the Property as of the end of such fiscal quarter, meeting the requirements of Section 210.3-01 of Regulation S-X, and statements of income and statements of cash flows of the Property for the period commencing following the last day of the most recent fiscal year and ending on the date of such balance sheet and for the corresponding period of the most recent fiscal year, meeting the requirements of Section 210.3-02 of Regulation S-X (provided, that if for such corresponding period of the most recent fiscal year Acquired Property Statements were permitted to be provided hereunder pursuant to subsection (i) above, the Loan Parties shall instead provide Acquired Property Statements for such corresponding period). (iii) Not later than 75 days after the end of each fiscal year following the date hereof, a balance sheet of the Property as of the end of such fiscal year, meeting the requirements of Section 210.3-01 of Regulation S-X, and statements of income and statements of cash flows of the Property for such fiscal year, meeting the requirements of Section 210.3-02 of Regulation S-X. (iv) Within ten business days after notice from the Lender in connection with the Securitization of this Loan, such additional financial statements, such that, as of the date (each an "Offering Document Date") of each Disclosure Document, the Loan Parties shall have provided Lender with all financial statements as described in subsection (f)(i) above; provided that the fiscal year and interim periods for which such financial statements shall be provided shall be determined as of such Offering Document Date. (g) If requested by Lender, the Loan Parties shall provide Lender, promptly upon request, with summaries of the financial statements referred to in Section 3.12(f) hereof if, at the time a Disclosure Document is being prepared for a Securitization, it is expected that the principal amount of the Loan and any Affiliated Loans at the time of Securitization may, or if the principal amount of the Loan and any Affiliated Loans at any time during which the Loan and any Affiliated Loans are included in a Securitization does, equal or exceed 10% (but is less than 20%) of the aggregate principal amount of all mortgage loans included or expected to be included, as applicable, in a Securitization. Such summaries shall meet the requirements for "summarized financial information," as defined in Section 210.1-02(bb) of Regulation S-X, or such other requirements as may be determined to be necessary or appropriate by Lender. 25 30 (h) All financial statements provided by the Loan Parties hereunder pursuant to Section 3.12(f) and (g) hereof shall be prepared in accordance with GAAP, and shall meet the requirements of Regulation S-X and other applicable legal requirements. All financial statements referred to in Subsections 3.12(f)(i) and 3.12(f)(iii) above shall be, if required by Lender, audited by independent accountants of the Loan Parties acceptable to Lender in accordance with Regulation S-X and all other applicable legal requirements, shall be accompanied by the manually executed report of the independent accountants thereon, which report shall meet the requirements of Regulation S-X and all other applicable legal requirements, and shall be further accompanied by a manually executed written consent of the independent accountants, in form and substance acceptable to Lender, to the inclusion of such financial statements in any Disclosure Document and any Exchange Act Filing and to the use of the name of such independent accountants and the reference to such independent accountants as "experts" in any Disclosure Document and Exchange Act Filing (as defined below), all of which shall be provided at the same time as the related financial statements are required to be provided. All financial statements (audited or unaudited) provided by the Loan Parties under this Section 3.12 shall be certified by the chief financial officer or administrative member of the respective Loan Parties, which certification shall state that such financial statements meet the requirements set forth in the first sentence of this Section 3.12(h). (i) If requested by Lender, the Loan Parties shall provide Lender, promptly upon request, with any other or additional financial statements, or financial, statistical or operating information, as Lender shall determine to be required pursuant to Regulation S-X or any amendment, modification or replacement thereto or other legal requirements in connection with any Disclosure Document or any filing under or pursuant to the Exchange Act in connection with or relating to a Securitization (hereinafter an "Exchange Act Filing") or as shall otherwise be reasonably requested by the Lender. (j) In the event Lender determines, in connection with a Securitization, that the financial statements required in order to comply with Regulation S-X or other legal requirements are other than as provided herein, then notwithstanding the provisions of Section 3.12(f), (g) and (h) hereof, Lender may request, and the Loan Parties shall promptly provide, such combination of Acquired Property Statement and/or Standard Statements or such other financial statements as Lender determines to be necessary or appropriate for such compliance. (k) The term "Affiliated Loans" shall mean a loan made by Lender to a parent, subsidiary or such other entity affiliated with the Loan Parties any Indemnitor or any Guarantor. The term "Securitization" shall mean the sale or transfer of the whole Loan, the granting of Participations, or the issuance of mortgage pass-through certificates or other Securities evidencing a beneficial interest in a rated or unrated public offering or private placement. Section 3.13 PAYMENT FOR LABOR AND MATERIALS. Borrower will promptly pay or cause to be paid when due all bills and costs for labor, materials, and specifically fabricated materials incurred in connection with the Property and never permit or cause to exist in respect of the Property or any part thereof any lien or security interest, even though inferior to the liens and the security interests hereof, and in any event never permit or cause to be created or exist in respect of 26 31 the Property or any part thereof any other or additional lien or security interest other than the liens or security interests hereof, except for the Permitted Exceptions (defined below). Section 3.14 PERFORMANCE OF OTHER AGREEMENTS. Each Loan Party shall observe and perform each and every term to be observed or performed by such Loan Party pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Property, or given by such Loan Party to Lender for the purpose of further securing an Obligation and any amendments, modifications or changes thereto. Section 3.15 CHANGE OF NAME, IDENTITY OR STRUCTURE. Except as may be permitted under Article 8 hereof, the Loan Parties will not change their respective name, identity (including its trade name or names) or, if not an individual, their respective corporate, partnership or other structure without notifying Lender of such change in writing at least thirty (30) days prior to the effective date of such change and, in the case of a change in their respective structure, without first obtaining the prior written consent of Lender. Section 3.16 EXISTENCE. The Loan Parties will continuously maintain their respective (a) existence and shall not dissolve or permit their dissolution, (b) rights to do business in the state where the Property is located and (c) franchises and trade names, if any. Section 3.17 MANAGEMENT AND FRANCHISE AGREEMENTS. (a) The Improvements are operated under the terms and conditions of that certain Management Agreement dated ________________ between ________________, as assigned to Operating Tenant, and Promus Hotels, Inc., a Delaware corporation (the "Franchisor"), as successor-in-interest to Embassy Suites, Inc., a Delaware corporation (hereinafter, together with any renewals or replacements thereof, being referred to as the "Management Agreement"), which Management Agreement has been approved by Lender. Operating Tenant shall (i) diligently perform, observe and enforce all of the terms, covenants and conditions of the Management Agreement on the part of Operating Tenant to be performed, observed and enforced to the end that all things shall be done which are necessary to keep unimpaired the rights of Operating Tenant under the Management Agreement and (ii) promptly notify Lender of the giving of any notice to Operating Tenant of any default by Operating Tenant in the performance or observance of any of the terms, covenants or conditions of the Management Agreement on the part of Operating Tenant to be performed and observed and deliver to Lender a true copy of each such notice. Operating Tenant shall not surrender the Management Agreement, consent to the assignment by the Franchisor of its interest under the Management Agreement, or terminate or cancel the Management Agreement or modify, change, supplement, alter or amend the Management Agreement, in any respect, either orally or in writing, and Operating Tenant hereby assigns to Lender as further security for the payment of the Debt and for the performance and observance of the terms, covenants and conditions of this Security Instrument, all the rights, privileges and prerogatives of Operating Tenant to surrender the Management Agreement or to terminate, cancel, modify, change, supplement, alter or amend the Management Agreement in any respect, and any such surrender of the Management Agreement or termination, cancellation, modification, change, supplement, alteration or amendment of the Management Agreement without the prior consent of Lender shall be void and of no force and effect. If Operating 27 32 Tenant shall default in the performance or observance of any material term, covenant or condition of the Management Agreement on the part of Operating Tenant to be performed or observed, then, without limiting the generality of the other provisions of this Security Instrument, and without waiving or releasing Operating Tenant from any of its obligations hereunder, Lender shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all the terms, covenants and conditions of the Management Agreement on the part of Operating Tenant to be performed or observed to be promptly performed or observed on behalf of Operating Tenant, to the end that the rights of Operating Tenant in, to and under the Management Agreement shall be kept unimpaired and free from default. Lender and any person designated by Lender shall have, and are hereby granted, the right to enter upon the Property at any time and from time to time for the purpose of taking any such action. If the Franchisor under the Management Agreement shall deliver to Lender a copy of any notice sent to Operating Tenant of default under the Management Agreement, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender in good faith, in reliance thereon. Operating Tenant shall notify Lender if the Franchisor sub-contracts to a third party or an affiliate any or all of its management responsibilities under the Management Agreement. Operating Tenant shall, from time to time, use its best efforts to obtain from the Franchisor under the Management Agreement such certificates of estoppel with respect to compliance by Operating Tenant with the terms of the Management Agreement as may be requested by Lender. Operating Tenant shall exercise each individual option, if any, to extend or renew the term of the Management Agreement upon demand by Lender made at any time within one (1) year of the last day upon which any such option may be exercised, and Operating Tenant expressly authorizes and appoints Lender its attorney-in-fact to exercise any such option to renew or extend the term of the Management Agreement in the name of and upon behalf of Operating Tenant, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest; provided, however, Lender agrees only to exercise said right upon the occurrence and during the continuance of an Event of Default under the Note, this Security Instrument or the Other Security Documents. Any sums expended by Lender pursuant to this paragraph shall bear interest at the Default Rate (defined in the Note) from the date such cost is incurred to the date of payment to Lender, shall be deemed to constitute a portion of the Debt, shall be secured by the lien of this Security Instrument and the other Loan Documents and shall be immediately due and payable upon demand by Lender therefor. (b) Without limitation of the foregoing, if (i) the Management Agreement expires pursuant to the terms of the Management Agreement, (ii) Franchisor terminates the Management Agreement pursuant to the terms of the Management Agreement, or (iii) the Management Agreement is otherwise terminated pursuant to the terms of that certain Conditional Assignment of Management Agreement dated as of the date hereof among, the Loan Parties, Lender and Franchisor, then Lender, at its option, may require Borrower or Operating Tenant, as applicable, to engage a bona-fide independent third party management agent approved by Lender and, provided no Event of Default has occurred and is continuing, Borrower (the "New Manager") to manage the Property. The New Manager shall be engaged by Borrower or Operating Tenant, as applicable, pursuant to a written management agreement that complies with the terms hereof and is otherwise satisfactory to Lender and, provided no Event of Default has occurred and is continuing, Borrower, and the New 28 33 Manager and Borrower or Operating Tenant, as applicable, shall execute a Conditional Assignment of Management Agreement in the form then used by Lender. (c) The Improvements shall be operated under the terms and conditions of that certain Embassy Suites(R) License Agreement (the "License Agreement") dated ________ entered into between Franchisor and _______________ ("_______"), as assigned to Operating Tenant and that certain System 21(TM) Agreement dated __________ entered into between Franchisor and ____________, as assigned to Operating Tenant (the "Software Agreement"; the License Agreement and the Software Agreement, together with any renewals or replacements thereof, shall collectively be referred to herein as the "Franchise Agreement"). Operating Tenant shall (i) pay all sums required to be paid by Operating Tenant under the Franchise Agreement, (ii) diligently perform, observe and enforce all of the terms, covenants and conditions of the Franchise Agreement on the part of Operating Tenant to be performed, observed and enforced to the end that all things shall be done which are necessary to keep unimpaired the rights of Operating Tenant under the Franchise Agreement, (iii) promptly notify Lender of the giving of any notice to Operating Tenant of any default by Operating Tenant in the performance or observance of any of the terms, covenants or conditions of the Franchise Agreement on the part of Operating Tenant to be performed and observed and deliver to Lender a true copy of each such notice, and (iv) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditure plan, budget, notice, report and estimate received by it under the Franchise Agreement. Operating Tenant shall not, without the prior consent of the Lender, surrender the Franchise Agreement or terminate or cancel the Franchise Agreement or modify, change, supplement, alter or amend the Franchise Agreement, in any respect, either orally or in writing, and Operating Tenant hereby assigns to Lender as further security for the payment of the Debt and for the performance and observance of the terms, covenants and conditions of this Security Instrument, all the rights, privileges and prerogatives of Operating Tenant to surrender the Franchise Agreement or to terminate, cancel, modify, change, supplement, alter or amend the Franchise Agreement in any respect, and any such surrender of the Franchise Agreement or termination, cancellation, modification, change, supplement, alteration or amendment of the Franchise Agreement without the prior consent of Lender shall be void and of no force and effect. If Operating Tenant shall default in the performance or observance of any material term, covenant or condition of the Franchise Agreement on the part of Operating Tenant to be performed or observed, then, without limiting the generality of the other provisions of this Security Instrument, and without waiving or releasing Operating Tenant from any of its obligations hereunder, Lender shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all the terms, covenants and conditions of the Franchise Agreement on the part of Operating Tenant to be performed or observed to be promptly performed or observed on behalf of Operating Tenant, to the end that the rights of Operating Tenant in, to and under the Franchise Agreement shall be kept unimpaired and free from default. Lender and any person designated by Lender shall have, and are hereby granted, the right to enter upon the Property at any time and from time to time for the purpose of taking any such action. If Franchisor shall deliver to Lender a copy of any notice sent to Operating Tenant of default under the Franchise Agreement, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender in good faith, in reliance thereon. Operating Tenant shall, from time to time, use its best efforts to obtain from Franchisor such certificates of estoppel with respect to compliance by 29 34 Operating Tenant with the terms of the Franchise Agreement as may be requested by Lender. Operating Tenant shall exercise each individual option, if any, to extend or renew the term of the Franchise Agreement upon demand by Lender made at any time within one (1) year of the last day upon which any such option may be exercised, and Operating Tenant expressly authorizes and appoints Lender as its attorney- in-fact to exercise any such option to renew or extend the term of the Franchise Agreement in the name of and upon behalf of Operating Tenant, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest; provided, however, Lender agrees only to exercise said right upon the occurrence and during the continuance of an Event of Default under the Note, this Security Instrument or the Other Security Documents. Any sums expended by Lender pursuant to this paragraph shall bear interest at the Default Rate from the date such cost is incurred to the date of payment to Lender, shall be deemed to constitute a portion of the Debt, shall be secured by the lien of this Security Instrument and the other Loan Documents and shall be immediately due and payable upon demand by Lender therefor. Section 3.18 PRINCIPAL PLACE OF BUSINESS. The Loan Parties shall not change their respective principal places of business or chief executive offices set forth in Subsection 5.18 below unless (i) the Loan Parties provide written notice of said change to Lender and (ii) the Loan Parties promptly execute and deliver additional financing statements, security agreements and other instruments which may be necessary to effectively evidence or perfect Lender's security interest in the Property as a result of such change of principal place of business. Section 3.19 TRADED SHARES. The Traded Entity (hereinafter defined) shall cause its issued and outstanding shares of stock to be listed for trading on the New York Stock Exchange or such other nationally recognized stock exchange throughout the term of the Loan. Section 3.20 NON-CONSOLIDATION OPINION. The Loan Parties have complied and will comply with each of the assumptions made with respect to it in that certain substantive non-consolidation opinion letter, dated the date hereof, and the certifications contained in any certificate referred to therein, delivered in connection with the Loan and any subsequent non-consolidation opinion delivered in accordance with the terms and conditions of this Security Instrument or the Cooperation Letter, including, but not limited to, any exhibits attached thereto (the Non-Consolidation Opinion"). Each entity other than the Loan Parties with respect to which an assumption is made in the Non-Consolidation Opinion has complied and will comply with each of the assumptions made with respect to it in the Non-Consolidation Opinion. Section 3.21 TERMINATION OF OPERATING LEASE. Upon Lender's taking title to the Property without terminating Operating Tenant's interest in the Operating Lease, whether by foreclosure of the Security Instrument or acceptance of a deed in lieu of foreclosure, power of sale or otherwise, Operating Tenant may, upon sixty (60) days written notice to Lender, terminate the Operating Lease, provided, however, Operating Tenant shall fully cooperate in transferring its responsibility for the management of the Property to Lender or to a third party designated by Lender. 30 35 Article 4 - SPECIAL COVENANTS The Loan Parties each covenant and agree that: Section 4.1 PROPERTY USE. The Property shall be used only for a full service hotel, and for no other use without the prior written consent of Lender. Section 4.2 SINGLE PURPOSE ENTITY. Each of the Loan Parties covenant and agree that it has not and shall not and agrees that its general partner(s), if such Loan Party is a partnership, or its managing member(s), if such Loan Party is a multiple member limited liability company (disregarding any special member) (in each case, "Principal"), has not and shall not: (i) with respect to any Loan Party, engage in any business or activity other than the acquisition, development, ownership, operation, leasing, managing and maintenance of the Property, entering into the Loan, and refinancing the Property in connection with a permitted repayment of the Loan, and activities incidental thereto and with respect to Principal, engage in any business or activity other than the ownership of its interest in any Loan Party, and activities incidental thereto including the management of the Property; (ii) (a) with respect to Borrower, acquire or own any material assets other than (i) the Property, and (ii) such incidental Personal Property as may be beneficial or necessary for the operation of the Property, (b) with respect to Operating Tenant, acquire or own any material assets other than (i) its leasehold in the Property and (ii) such incidental Personal Property as may be beneficial or necessary for the operation of the Property and (c) and with respect to Principal, acquire or own any material asset other than its interest in Borrower or Operating Tenant, as applicable; (iii) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure; (iv) (i) fail to observe its organizational formalities or preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, and qualification to do business in the state where the Property is located or (ii) without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of such Loan Party's Partnership Agreement, Articles or Certificate of Incorporation, Articles of Organization or similar organizational documents, as the case may be, or of Principal's Regulations, Partnership Agreement, Articles of Organization or similar organizational documents, as the case may be, whichever is applicable; (v) with respect to such Loan Party, own any subsidiary or make any investment in, any person or entity without the consent of Lender, and with respect to Principal, own any subsidiary or make any investment in, any person or entity (other than interests in such Loan Party owned as of the date hereof or obtained subsequent to the date hereof in accordance with the terms of this Security Instrument) without the consent of Lender; (vi) except as described in that certain Certificate Regarding Lessee Bank Accounts attached to the Non-Consolidation Opinion, commingle its assets with the assets of any of its members, general partners, affiliates, principals or of any other person or entity, participate in a cash management system with any other entity or person or fail to use its own 31 36 separate stationery, invoices and checks. Notwithstanding the foregoing, any rents payable to Borrower under the Operating Lease shall be paid directly to Borrower and shall be held by Borrower in bank accounts separate and apart from any of Borrower's members, general partners, affiliates, principals or any other person or entity; (vii) with respect to such Loan Party incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Debt, except for trade payables in the ordinary course of its business of owning and operating the Property (which shall include the Permitted Purchase Money Indebtedness (defined below)), provided that such debt (i) is not evidenced by a note, (ii) is paid within sixty (60) days of the date incurred, (iii) does not exceed in the aggregate four percent (4%) of the outstanding principal balance of the Note and (iv) is payable to trade creditors and in amounts as are normal and reasonable under the circumstances and with respect to Principal, incur any debt secured or unsecured, direct or contingent (including guaranteeing any obligations). The term "Permitted Purchase Money Indebtedness" shall mean purchase money indebtedness and equipment financing incurred in connection with the purchase of telephone equipment, computer equipment, televisions, audiovisual equipment, copiers, motor vehicles and other equipment related thereto (the "Purchase Money Property"), provided (A) Lender has received prior written notification of a Loan Party's intent to obtain such financing, (B) said financing (x) is subject to commercially prudent terms and conditions and (y) does not exceed $100,000.00 in the aggregate at any given time and (C) the Purchase Money Property is readily replaceable without material interference or interruption to the operation of the Property as a hotel and restaurant. Notwithstanding the foregoing, the Permitted Purchase Money Indebtedness may be increased to $300,000.00 in the aggregate at any given time upon Lender's consent, which consent shall not be unreasonably withheld; (viii) become insolvent and fail to pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due; (ix) (i) fail to maintain its records (including financial statements), books of account and bank accounts separate and apart from those of the members, general partners, principals and affiliates of Borrower or of any Principal, as the case may be, the affiliates of a member, general partner or principal of Borrower or of any Principal, as the case may be, and any other person or entity, (ii) permit its assets or liabilities to be listed as assets or liabilities on the financial statement of any other entity or person or (iii) include the assets or liabilities of any other person or entity on its financial statements. Notwithstanding anything to the contrary contained herein, each Loan Party's financial position, results of operations and cash flows may be included in the consolidated financial statements of any parent in accordance with GAAP, provided, however, that any such consolidated financial statements shall contain a note indicating that each Loan Party and its affiliates are separate legal entities and maintain records, books of account and bank accounts separate and apart from any other person or entity; (x) enter into any contract or agreement with any member, general partner, principal or affiliate of any Loan Party or of any Principal, as the case may be, Guarantor or Indemnitor, or any member, general partner, principal or affiliate thereof (other than a 32 37 business management services agreement with an affiliate of Borrower, provided that (i) such agreement is acceptable to Lender, (ii) the manager, or equivalent thereof, under such agreement holds itself out as an agent of the such Loan Party and (iii) the agreement meets the standards set forth in this subsection (x) following this parenthetical), except upon terms and conditions that are commercially reasonable, intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any member, general partner, principal or affiliate of any Loan Party or of any Principal, as the case may be, Guarantor or Indemnitor, or any member, general partner, principal or affiliate thereof; (xi) seek the dissolution or winding up in whole, or in part, of such Loan Party or of Principal, as the case may be; (xii) fail to correct any known misunderstandings regarding the separate identity of such Loan Party or of Principal, as the case may be, or any member, general partner, principal or affiliate thereof or any other person; (xiii) guarantee or become obligated for the debts of any other entity or person, or hold itself out to be responsible for the debts of another entity or person; (xiv) make any loans or advances to any third party, including any member, general partner, principal or affiliate of any Loan Party or of any Principal, as the case may be, or any member, general partner, principal or affiliate thereof, and shall not acquire obligations or securities of any member, general partner, principal or affiliate of any Loan Party or any Principal, as the case may be, or any member, general partner, or affiliate thereof; (xv) fail to file its own tax returns or be included on the tax returns of any other person or entity except as required by applicable law; (xvi) fail either to hold itself out to the public as a legal entity separate and distinct from any other entity or person or to conduct its business solely in its own name or a name franchised or licensed to it by an entity other than an affiliate of any Loan Party or of any Principal, as the case may be, and not as a division or part of any other entity in order not (i) to mislead others as to the identity with which such other party is transacting business, or (ii) to suggest that such Loan Party or any Principal, as the case may be, is responsible for the debts of any third party (including any member, general partner, principal or affiliate of any Loan Party, or of Principal, as the case may be, or any member, general partner, principal or affiliate thereof); (xvii) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (xviii) except for sharing any common logo of the REIT (defined below), share any common logo with or hold itself out as or be considered as a department or division of (i) any general partner, principal, member or affiliate of any Loan Party or of any Principal, as the 33 38 case may be, (ii) any affiliate of a general partner, principal or member of any Loan Party or of any Principal, as the case may be, or (iii) any other person or entity; (xix) fail to 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; (xx) other that the Personal Property purchased in connection with the Permitted Purchase Money Indebtedness, pledge its assets for the benefit of any other person or entity, and with respect to the such Loan Party other than with respect to the Loan; (xxi) fail to maintain a sufficient number of employees in light of its contemplated business operations; (xxii) fail to provide in its (i) articles of organization, regulations, certificate of formation and/or operating agreement, as applicable, if it is a limited liability company, (ii) limited partnership agreement, if it is a limited partnership or (iii) certificate of incorporation, if it is a corporation, that for so long as the Loan is outstanding pursuant to the Note and this Security Instrument, it shall not file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors without the affirmative vote of the Independent Manager (defined below) and of all other general partners/managing members/directors/manager of such Loan Party; (xxiii) fail to hold its assets in its own name; (xxiv) if such Loan Party is a corporation, fail to consider the interests of its creditors in connection with all corporate actions to the extent permitted by applicable law; (xxv) except for that certain Guaranty of Recourse Obligations dated as of the date hereof given by the REIT and FelCor Lodging Limited Partnership ("FLLP") to Lender, have any of its obligations guaranteed by an affiliate; (xxvi) violate or cause to be violated the assumptions made with respect to such Loan Party and its principals in the Non-Consolidation Opinion, to Lender and the Rating Agencies in connection with the Loan; (xxvii) with respect to Principal and any Loan Party not having a Principal, fail at any time to have at least one independent manager (an "Independent Manager") that is not and has not been for at least five (5) years: (a) a stockholder, director, officer, employee, partner, member, attorney or counsel of any Loan Party or of any Principal or any affiliate of either of them (other than an independent director, manager or like position with limited powers and rights substantially similar to those required by the Independent Manager hereunder); (b) a customer, supplier or other person who derives any of its profits or revenues (other than any fee paid to such manager as compensation for such director to serve as an Independent Manager or like capacity) from its activities with such Loan Party, Principal or any affiliate of either of them (a "Business Party"); (c) a person or other entity controlling or under 34 39 common control with any such stockholder, partner, member, director, officer, attorney, counsel or Business Party; or (d) a member of the immediate family of any such stockholder, director, officer, employee, partner, member, attorney, counsel or Business Party. (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 or entity, whether through ownership of voting securities, by contract or otherwise); or (xxviii) with respect to Principal, permit its board of managers to take any action which, under the terms of any operating agreement, articles of organization or similar documents requires the unanimous vote of one hundred percent (100%) of the members of the board unless at the time of such action there shall be at least one manager who is an Independent Manager. Section 4.3 ERISA. (a) It shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Security Instrument and the Other Security Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (b) The Loan Parties further covenant and agree to deliver to Lender such certifications (subject to Article 15 hereof) or other evidence from time to time throughout the term of the Security Instrument, as requested by Lender in its sole discretion, that (i) the Loan Parties are not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(32) of ERISA; (ii) the Loan Parties are not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is true: (A) Equity interests in the Loan Parties are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (B) Less than 25 percent of each outstanding class of equity interests in the Loan Parties are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (C) The Loan Parties qualify as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e) or an investment company registered under The Investment Company Act of 1940. Section 4.4 FF&E RESERVE. Borrower shall establish and maintain until the Debt has been paid in full, a reserve for the replacement of Personal Property (the "FF&E Reserve") which reserve shall be held by Lender. The amount of the FF&E Reserve is set forth in and may be adjusted in accordance with the terms and provisions of that certain FF&E Reserve and Security Agreement by and between Borrower and Lender dated the date hereof (the "FF&E Reserve Agreement"). The FF&E Reserve shall be held and disbursed in accordance with the terms and provisions of the FF&E Reserve Agreement. 35 40 Article 5 - REPRESENTATIONS AND WARRANTIES Borrower and Owner, as applicable represents and warrants to Lender that: Section 5.1 WARRANTY OF TITLE. The Loan Parties collectively have good title to the Property and has the right to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the same. Operating Tenant possesses an unencumbered leasehold estate (created by and pursuant to the terms of the Operating Lease) and Borrower possesses an unencumbered fee simple absolute estate in the Land and the Improvements. The Loan Parties own the Property free and clear of all liens, encumbrances and charges whatsoever except for those exceptions shown in the title insurance policy insuring the lien of this Security Instrument (the "Permitted Exceptions") and those security interests granted in the Personal Property purchased in connection with the Permitted Purchase Money Indebtedness. The Loan Parties further represent and warrant that (a) the Operating Lease is in full force and effect and has not been further modified or amended in any manner whatsoever, (b) there are no defaults under the Operating Lease and no event has occurred which but for the passage of time, or notice, or both would constitute a default under the Operating Lease, and (c) all rents, additional rents and other sums due and payable under the Operating Lease have been paid in full. Neither Operating Tenant nor Borrower has commenced any action or given or received any notice for the purpose of terminating the Operating Lease. The Loan Parties shall forever warrant, defend, at Borrower's cost, and preserve the title and the validity and priority of the lien of this Security Instrument and shall forever warrant and defend, at Borrower's cost, the same to Lender and/or Trustee against the claims of all persons whomsoever. Section 5.2 LEGAL STATUS AND AUTHORITY. Each Loan Party (a) is duly organized, validly existing and in good standing under the laws of its state of organization or incorporation; (b) is duly qualified to transact business and is in good standing in the state where the Property is located; and (c) has all necessary approvals, governmental and otherwise, and full power and authority to own, operate (in the case of Operating Tenant only) and lease the Property. Each Loan Party has full power, authority and legal right to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the Property pursuant to the terms hereof and to keep and observe all of the terms of this Security Instrument on such Loan Party's part to be performed. Section 5.3 VALIDITY OF DOCUMENTS. (a) The execution, delivery and performance of the Note, this Security Instrument and the Other Security Documents and the borrowing evidenced by the Note (i) are within the power and authority of the Loan Parties; (ii) have been authorized by all requisite organizational action; (iii) have received all necessary approvals and consents, corporate, governmental or otherwise; (iv) will not violate, conflict with, result in a breach of or constitute (with notice or lapse of time, or both) a material default under any provision of law, any order or judgment of any court or governmental authority, any license, certificate or other approval required to operate the Property, the articles of incorporation, by-laws, partnership or trust agreement, articles of organization, operating agreement, or other governing instrument of the Loan Parties, or any indenture, agreement or other instrument to which the Loan Parties are a party or by which it or any of its assets or the Property is or may be bound or affected, including, without limitation, the Franchise Agreement and the Management Agreement; (v) will not result in the creation or imposition 36 41 of any lien, charge or encumbrance whatsoever upon any of its assets, except the lien and security interest created hereby; and (vi) will not require any authorization or license from, or any filing with, any governmental or other body (except for the recordation of this Security Instrument and the separate Assignment of Leases and Rents given by the Loan Parties to Lender contemporaneously herewith in appropriate land records in the State where the Property is located and except for Uniform Commercial Code filings relating to the security interest created hereby), (b) the Note, this Security Instrument and the Other Security Documents have been duly executed and delivered by the Loan Parties through the undersigned authorized representatives of the Loan Parties and (c) to the best of the Loan Parties' knowledge, the Note, this Security Instrument and the Other Security Documents constitute the legal, valid and binding obligations of the Loan Parties executing the respective document. Section 5.4 LITIGATION. There is no action, suit or proceeding, judicial, administrative or otherwise (including any condemnation or similar proceeding), pending or, to the best of the Loan Parties' knowledge, threatened or contemplated against the Loan Parties, a Guarantor, if any, an Indemnitor, if any, or against or affecting the Property that has not been disclosed to Lender by the Loan Parties in writing. Section 5.5 STATUS OF PROPERTY. (a) The Loan Parties have obtained all necessary certificates, licenses and other approvals, governmental and otherwise, necessary for the operation of the Property and the conduct of its business and all required zoning, building code, land use, environmental and other similar permits or approvals, all of which are in full force and effect as of the date hereof and not subject to revocation, suspension, forfeiture or modification. (b) The Property and the present and contemplated use and occupancy thereof are in full compliance with all applicable zoning ordinances, building codes, land use laws, Environmental Laws and other similar laws. (c) The Property is served by all utilities required for the current or contemplated use thereof. All utility service is provided by public utilities and the Property has accepted or is equipped to accept such utility service. (d) All public roads and streets necessary for service of and access to the Property for the current or contemplated use thereof have been completed, are serviceable and all-weather and are physically and legally open for use by the public. (e) The Property is served by public water and sewer systems. (f) The Property is free from damage caused by fire or other casualty. (g) All costs and expenses of any and all labor, materials, supplies and equipment used in the construction of the Improvements have been paid in full. (h) The Loan Parties have paid in full for, and is the owner of, all furnishings, fixtures and equipment (other than tenants' property and the Personal Property purchased in 37 42 connection with the Permitted Purchase Money Indebtedness) used in connection with the operation of the Property, free and clear of any and all security interests, liens or encumbrances, except the lien and security interest created hereby. (i) All liquid and solid waste disposal, septic and sewer systems located on the Property are in a good and safe condition and repair and in compliance with all Applicable Laws. (j) No portion of the Improvements is located in an area identified by the Federal Emergency Management Agency or any successor thereto as an area having special flood hazards pursuant to the Flood Insurance Acts or, if any portion of the Improvements is located within such area, Borrower has obtained and will maintain the insurance prescribed in Section 3.3 hereof. (k) All the Improvements lie within the boundaries of the Land. Section 5.6 NO FOREIGN PERSON. No Loan Party is a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended and the related Treasury Department regulations. Section 5.7 SEPARATE TAX LOT. The Property is assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a part of such lot or lots, and no other land or improvements is assessed and taxed together with the Property or any portion thereof. Section 5.8 LEASES. Except as disclosed in the rent roll for the Property delivered to and approved by Lender, (a)(i) Borrower is the sole owner of the entire lessor's interest in the Operating Lease and (ii) except for the Operating Lease, Operating Tenant is the sole owner of the entire lessor's interest in the Leases; (b) the Leases are valid and enforceable and in full force and effect; (c) all of the Leases are at least as favorable for the lessor as arms-length agreements with bona fide, independent third parties; (d) no party under any Lease is in default; (e) all Rents due have been paid in full; (f) the terms of all alterations, modifications and amendments to the Leases are reflected in the certified occupancy statement delivered to and approved by Lender; (g) none of the Rents reserved in the Leases have been assigned or otherwise pledged or hypothecated; (h) none of the Rents have been collected for more than one (1) month in advance (except a security deposit shall not be deemed rent collected in advance); (i) the premises demised under the Leases have been completed and the tenants under the Leases have accepted the same and have taken possession of the same on a rent-paying basis; (j) there exist no offsets or defenses to the payment of any portion of the Rents and the Loan Parties have no monetary obligation to any tenant under any Lease; (k) the Loan Parties have received no notice from any tenant challenging the validity or enforceability of any Lease; (l) there are no agreements with the tenants under the Leases other than expressly set forth in each Lease; (m) the Leases are valid and enforceable against the Loan Parties and the tenants set forth therein; (n) no Lease (other than the Operating Lease) contains an option to purchase, right of first refusal to purchase, right of first refusal to lease additional space at the Property, or any other similar provision; (o) no person or entity (other than hotel guests and Franchisor) has any possessory interest in, or right to occupy, the Property except under and pursuant to a Lease; (p) each Lease is subordinate to this Security Instrument, either pursuant to its terms or a recordable subordination agreement; (q) no 38 43 Lease has the benefit of a non-disturbance agreement that would be considered unacceptable to prudent institutional lenders; (r) all security deposits relating to the Leases reflected on the certified rent roll delivered to Lender have been collected by the Loan Parties and (s) no brokerage commissions or finders fees are due and payable regarding any Lease. Section 5.9 SOLVENCY. Each Loan Party (a) has not entered into the transaction or executed the Note, this Security Instrument or any Other Security Document with the actual intent to hinder, delay or defraud any creditor and (b) received reasonably equivalent value in exchange for its obligations under such documents. Giving effect to the Loan, the fair saleable value of each Loan Party's assets exceeds and will, immediately following the making of the Loan, exceed its total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. The fair saleable value of each Loan Party's assets is and will, immediately following the making of the Loan, be greater than its probable liabilities, including the maximum amount of its contingent liabilities on its debts as such debts become absolute and matured. Each Loan Party's assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Each Loan Party does not intend to, and does not believe that it will, incur debt and liabilities (including contingent liabilities and other commitments) beyond its ability to pay each such Loan Party's debt and liabilities as they mature (taking into account the timing and amounts of cash to be received by it and the amounts to be payable on or in respect of obligations of it). Except as expressly disclosed to Lender in writing, no petition in bankruptcy has been filed against any Loan Party, any Indemnitor, any Guarantor, any Principal or any related entity thereof, or any principal, general partner or member thereof, in the last seven (7) years, and neither any Loan Party, any Indemnitor, any Guarantor, any Principal nor any related entity thereof, nor any principal, general partner or member thereof, in the last seven (7) years has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. Section 5.10 BUSINESS PURPOSES. The loan evidenced by the Note secured by the Security Instrument and the Other Security Documents (the "Loan") is solely for the business purpose of Borrower, and is not for personal, family, household, or agricultural purposes. Section 5.11 TAXES. The Loan Parties, any Guarantor and any Indemnitor have filed all federal, state, county, municipal, and city income, personal property and other tax returns required to have been filed by them and have paid all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by them. Neither any Loan Party, any Guarantor nor any Indemnitor knows of any basis for any additional assessment in respect of any such taxes and related liabilities for prior years. Section 5.12 MAILING ADDRESS. The Loan Parties' mailing address, as set forth in the opening paragraph hereof or as changed in accordance with the provisions hereof, is true and correct. Section 5.13 NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in the application for the Loan submitted to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the application or in satisfaction of the terms thereof, are accurate, complete and correct in all material respects. There has been no adverse change in any condition, fact, circumstance or event that would make any such information materially inaccurate, incomplete or otherwise misleading. 39 44 Section 5.14 DISCLOSURE. The Loan Parties have disclosed to Lender all material facts and have not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. Section 5.15 THIRD PARTY REPRESENTATIONS. To the best of the Loan Parties' knowledge, each of the representations and the warranties made by each Guarantor and Indemnitor in any Other Security Document(s) is true and correct in all material respects. Section 5.16 ILLEGAL ACTIVITY/FORFEITURE. (a) No portion of the Property has been or will be purchased, improved, equipped or furnished with proceeds of any illegal activity and to the best of the Loan Parties' knowledge, there are no illegal activities at the Property. (b) There has not been and shall never be committed by the Loan Parties or any other person in occupancy of, or involved with the operation or use of, the Property any act or omission affording the federal government or any state or local government the right of forfeiture as against the Property or any part thereof or any monies paid in performance of the Loan Parties' obligations under the Note, this Security Instrument or the Other Security Documents. The Loan Parties hereby covenant and agree not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Section 5.17 PERMITTED EXCEPTIONS. None of the Permitted Exceptions, individually or in the aggregate, materially interferes with the benefits of the security intended to be provided by the Security Instrument, the Note, and the Other Security Documents, materially and adversely affects the value of the Property, impairs the use or the operation of the Property or impairs Borrower's ability to pay its obligations in a timely manner. Section 5.18 PRINCIPAL PLACE OF BUSINESS. Each Loan Party's principal place of business and chief executive office as of the date hereof is: 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062. Section 5.19 ERISA. (a) As of the date hereof and throughout the term of this Security Instrument, (i) the Loan Parties are not and will not be an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, and (ii) the assets of the Loan Parties do not and will not constitute "plan assets" of one or more such plans for purposes of Title I of ERISA; and (b) As of the date hereof and throughout the term of this Security Instrument (i) the Loan Parties are not and will not be a "governmental plan" within the meaning of Section 3(32) of ERISA and (ii) transactions by or with the Loan Parties are not and will not be subject to state statutes applicable to the Loan Parties regulating investments of and fiduciary obligations with respect to governmental plans. 40 45 Section 5.20 FRANCHISE AGREEMENT. The Franchise Agreement is in full force and effect, all franchise fees, reservation fees, royalties and other sums due thereunder have been paid in full to date, and neither Operating Tenant or Franchisor is in default thereunder. Section 5.21 MANAGEMENT AGREEMENT. The Management Agreement is in full force and effect, all fees and other sums due thereunder have been paid in full to date, and neither Operating Tenant or Franchisor is in default thereunder. Section 5.22 NON-CONSOLIDATION OPINION ASSUMPTIONS. All of the assumptions made in the Non-Consolidation Opinion, including, but not limited to, any exhibits attached thereto, are true and correct. Section 5.23 FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Security Instrument, the Note or the Other Security Documents. Section 5.24 INVESTMENT COMPANY ACT. No Loan Party is (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. Article 6 - OBLIGATIONS AND RELIANCES Section 6.1 RELATIONSHIP OF THE LOAN PARTIES AND LENDER. The relationship between the Loan Parties and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with the Loan Parties, and no term or condition of any of the Note, this Security Instrument and the Other Security Documents shall be construed so as to deem the relationship between the Loan Parties and Lender to be other than that of debtor and creditor. Section 6.2 NO RELIANCE ON LENDER. The members, general partners, principals and (if any Loan Party is a trust) beneficial owners of each Loan Party are experienced in the ownership and operation of properties similar to the Property, and the Loan Parties and Lender are relying solely upon such expertise in connection with the ownership and operation of the Property. No Loan Party is relying on Lender's expertise, business acumen or advice in connection with the Property. Section 6.3 NO LENDER OBLIGATIONS. (a) Notwithstanding the provisions of Subsections 1.1(f) and (l) or Section 1.2, Lender is not undertaking the performance of (i) any obligations under the Leases; or (ii) any obligations with respect to such agreements, contracts, certificates, instruments, franchises, permits, trademarks, licenses and other documents. 41 46 (b) By accepting or approving anything required to be observed, performed or fulfilled or to be given to Lender pursuant to this Security Instrument, the Note or the Other Security Documents, including without limitation, any officer's certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, Lender shall not be deemed to have warranted, consented to, or affirmed the sufficiency, the legality or effectiveness of same, and such acceptance or approval thereof shall not constitute any warranty or affirmation with respect thereto by Lender. Section 6.4 RELIANCE. The Loan Parties recognize and acknowledge that in accepting the Note, this Security Instrument and the Other Security Documents, Lender is expressly and primarily relying on the truth and accuracy of the warranties and representations set forth in Article 5 and Article 12 without any obligation to investigate the Property and notwithstanding any investigation of the Property by Lender; that such reliance existed on the part of Lender prior to the date hereof; that the warranties and representations are a material inducement to Lender in accepting the Note, this Security Instrument and the Other Security Documents; and that Lender would not be willing to make the Loan and accept this Security Instrument in the absence of the warranties and representations as set forth in Article 5 and Article 12. Article 7 - FURTHER ASSURANCES Section 7.1 RECORDING OF SECURITY INSTRUMENT, ETC. Borrower forthwith upon the execution and delivery of this Security Instrument and thereafter, from time to time, will cause this Security Instrument and any of the Other Security Documents creating a lien or security interest or evidencing the lien hereof upon the Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect and perfect the lien or security interest hereof upon, and the interest of Lender in, the Property. Borrower will pay or cause to be paid all taxes, filing, registration or recording fees, and all expenses incident to the preparation, execution, acknowledgment and/or recording of the Note, this Security Instrument, the Other Security Documents, any note or deed of trust or mortgage supplemental hereto, any security instrument with respect to the Property and any instrument of further assurance, and any modification or amendment of the foregoing documents, and all federal, state, county and municipal taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Security Instrument, any deed of trust or mortgage supplemental hereto, any security instrument with respect to the Property or any instrument of further assurance, and any modification or amendment of the foregoing documents, except where prohibited by law so to do. Section 7.2 FURTHER ACTS, ETC. The Loan Parties will, at the cost of Borrower, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender and Trustee the Property and rights hereby deeded, mortgaged, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which the Loan Parties may be or may hereafter 42 47 become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument, or for complying with all Applicable Laws. The Loan Parties, on demand, will execute and deliver and hereby authorizes Lender, following ten (10) days' notice to the Loan Parties and the Loan Parties' failure to do so, to execute in the name of any Loan Party or without the signature of such Loan Party to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or other instruments, to evidence or perfect more effectively the security interest of Lender in the Property. Each Loan Party grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender pursuant to this Section 7.2, provided, however, Lender agrees only to exercise said right upon the occurrence and during the continuance of an Event of Default under the Note, this Security Instrument or the Other Security Documents. Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS. (a) If any law is enacted or adopted or amended after the date of this Security Instrument which deducts the Debt from the value of the Property for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Lender's interest in the Property, Borrower will pay, or cause to be paid, the tax, with interest and penalties thereon, if any. If Lender is advised by counsel chosen by it that the payment of tax by the Loan Parties would be unlawful or taxable to Lender or unenforceable or provide the basis for a defense of usury, then Lender shall have the option, exercisable by written notice of not less than ninety (90) days, to declare the Debt immediately due and payable. (b) Borrower will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes or Other Charges assessed against the Property, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of the Property, or any part thereof, for real estate tax purposes by reason of this Security Instrument or the Debt. If such claim, credit or deduction shall be required by law, Lender shall have the option, exercisable by written notice of not less than ninety (90) days, to declare the Debt immediately due and payable. (c) If at any time the United States of America, any State thereof or any subdivision of any such State shall require revenue or other stamps to be affixed to the Note, this Security Instrument, or any of the Other Security Documents or impose any other tax or charge on the same, Borrower will pay for, or cause to be paid, the same, with interest and penalties thereon, if any. Section 7.4 ESTOPPEL CERTIFICATES. (a) After request by Lender, Borrower and with respect to items (vi) through (xiii) only, Operating Tenant, shall within ten (10) days furnish Lender or any proposed assignee with a statement, duly acknowledged and certified, setting forth (i) the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest of the Note, (iv) the terms of payment and maturity date of the Note, (v) the date installments of interest and/or principal were last paid, (vi) that, to the best of the Loan Parties' 43 48 knowledge, except as provided in such statement, there are no defaults or events which with the passage of time or the giving of notice or both, would constitute an event of default under the Note or the Security Instrument, (vii) that the Note and this Security Instrument are valid, legal and binding obligations and have not been modified or, if modified, giving particulars of such modification, (viii) whether to the best of the Loan Parties' knowledge, any offsets or defenses exist against the obligations secured hereby and, if any are alleged to exist, a detailed description thereof, (ix) that all Leases are in full force and effect and have not been modified (or if modified, setting forth all modifications), (x) the date to which the Rents thereunder have been paid pursuant to the Leases, (xi) whether or not, to the best knowledge of the Loan Parties, any of the lessees under the Leases are in default under the Leases, and, if any of the lessees are in default, setting forth the specific nature of all such defaults, (xii) the amount of security deposits held by the Loan Parties under each Lease and that such amounts are consistent with the amounts required under each Lease, and (xiii) as to any other matters reasonably requested by Lender and reasonably related to the Leases, the obligations secured hereby, the Property or this Security Instrument. (b) The Loan Parties shall use its reasonable best efforts to deliver to Lender, promptly upon request, duly executed estoppel certificates from any one or more lessees as required by Lender attesting to such facts regarding the Lease as Lender may require, including, but not limited to, attestations that each Lease covered thereby is in full force and effect with no defaults thereunder on the part of any party, that none of the Rents have been paid more than one month in advance, except as security, and that the lessee claims no defense or offset against the full and timely performance of its obligations under the Lease. (c) Upon any transfer or proposed transfer contemplated by Section 18.1 hereof, at Lender's request, the Loan Parties, any Guarantors and any Indemnitor(s) shall provide an estoppel certificate to the Investor (defined in Section 18.1) or any prospective Investor in such form, substance and detail as (i) Lender may reasonably require or (ii) such Investor or prospective Investor may require. (d) Operating Tenant shall, promptly upon request of Lender, deliver an estoppel certificate from Franchisor stating that (i) the Franchise Agreement is in full force and effect and has not been modified, amended or assigned, (ii) neither Franchisor nor Operating Tenant is in default under any of the terms, covenants or provisions of the Franchise Agreement and Franchisor knows of no event which, but for the passage of time or the giving of notice or both, would constitute an event of default under the Franchise Agreement, (iii) neither Franchisor nor Operating Tenant has commenced any action or given or received any notice for the purpose of terminating the Franchise Agreement and (iv) all sums due and payable to Franchisor under the Franchise Agreement have been paid in full. Section 7.5 FLOOD INSURANCE. After Lender's request, Borrower shall deliver evidence satisfactory to Lender that no portion of the Improvements is situated in a federally designated "special flood hazard area" or, if it is, that Borrower has obtained insurance meeting the requirements of Section 3.3(a)(vii). Section 7.6 REPLACEMENT DOCUMENTS. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any Other Security Document 44 49 which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or Other Security Document, the Loan Parties will issue, in lieu thereof, a replacement Note or Other Security Document, dated the date of such lost, stolen, destroyed or mutilated Note or Other Security Document in the same principal amount thereof and otherwise of like tenor. Article 8 - DUE ON SALE/ENCUMBRANCE Section 8.1 TRANSFER DEFINITIONS. For purposes of this Article 8, (a) an "Affiliated Manager" shall mean any property manager managing the Property in which FLLP or________________ (i) own, directly or indirectly, 51% or more of the beneficial ownership of such property manager, and (ii) control the day to day operations of such property manager; (b) a "Restricted Party" shall mean (i) the Borrower, (ii) the Operating Tenant, (iii) or any Principal; and (c) a "Sale or Pledge" shall mean a voluntary or involuntary sale, conveyance, transfer or pledge of a direct legal or beneficial ownership interest. Section 8.2 NO SALE/ENCUMBRANCE. (a) Other than as expressly permitted in the Note, this Security Instrument or the Other Security Documents, the occurrence of any of the following transactions (each, a "Transfer") without the prior written consent of Lender shall constitute an Event of Default under this Security Agreement: (i) a sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, grant of options with respect to, or any other transfer or disposition of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) the Property or any part thereof or any legal or beneficial interest therein, by any Restricted Party, (ii) a Sale or Pledge of an interest in any Restricted Party unless following such Sale or Pledge (A) FLLP (or its successor in interest) will continue to (x) own, directly or indirectly, at least 51% of the beneficial ownership of Borrower, (y) own, directly or indirectly, 100% of the general partnership or managing member interest in Borrower, and (z) control the day to day operations of Borrower, and (B) _____________ (or its successor in interest) will continue to (x) own, directly or indirectly, at least 51% of the beneficial ownership of Operating Tenant, (y) own, directly or indirectly, 100% of the general partnership or managing member interest in Operating Tenant, and (z) control the day to day operations of Operating Tenant, (iii) a Sale or Pledge of an interest in any Affiliated Manager unless following such Sale or Pledge (A) FLLP (or its successor in interest) or _________________ (or its successor in interest) will continue to (x) own, directly or indirectly, at least 51% of the beneficial ownership of such Affiliated Manager, and (y) control the day to day operations of such Affiliated Manager, 45 50 (iv) a Sale or Pledge of a direct ownership interest in any entity other than a Restricted Party which (A) holds an indirect ownership interest in Borrower and (B) is owned, directly or indirectly, by FLLP (or its successor in interest) , unless following such Sale or Pledge, FLLP (or its successor in interest) will continue to (x) own, directly or indirectly, at least 51% of the beneficial ownership of Borrower, (y) own, directly or indirectly, 100% of the general partnership or managing member interest in Borrower, and (z) control the day to day operations of Borrower. (v) a Sale or Pledge of a direct ownership interest in any entity other than a Restricted Party which (A) holds an indirect ownership interest in Operating Tenant and (B) is owned, directly or indirectly, by ________________ (or its successor in interest), unless following such Sale or Pledge,______________________ (or its successor in interest) will continue to (x) own, directly or indirectly, at least 51% of the beneficial ownership of Operating Tenant, (y) own, directly or indirectly, 100% of the general partnership or managing member interest in Operating Tenant, and (z) control the day to day operations of Operating Tenant. (vi) a sale or transfer of the REIT's direct or indirect ownership interest in FLLP, the change, removal, resignation or addition of FLLP's general partner, or the creation or issuance of partnership interests in FLLP, unless (A) following which the REIT continues to (x) own, directly or indirectly, at least 51% of the beneficial ownership of FLLP, (y) own, directly or indirectly, 100% of the general partnership interest in FLLP, and (z) control the day to day operations of FLLP, or (B) a No- downgrade Letter (defined below) is obtained from the Rating Agencies with respect to and in advance of such transaction, (vii) the sale, transfer, issuance or repurchase of stock in the REIT following which the REIT's stock will no longer be listed on the New York Stock Exchange or such other nationally recognized stock exchange, unless a No- downgrade Letter is obtained from the Rating Agencies with respect to and in advance of such transaction, (viii) any merger or consolidation of FLLP, the REIT or _________________ unless a No-downgrade Letter is obtained from the Rating Agencies with respect to and in advance of such merger or consolidation, (ix) a sale or transfer of any direct or indirect beneficial ownership interest in ___________________, the change, removal, resignation or addition of any member or the creation or issuance of new membership interests, unless (A) following which __________________________ continue[s] to (x) own, directly or indirectly, at least 25% of the beneficial ownership of __________________, (y) control the day to day operations of __________________ and (z) maintain 100% of the voting rights in ____________________ or (B) a No-downgrade Letter is obtained from the Rating Agencies with respect to an in advance of such transaction. (b) A Transfer shall include, but not be limited to, (i) an installment sales agreement wherein any Loan Party agrees to sell the Property or any part thereof for a price to be paid in installments; (ii) an agreement by any Loan Party leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder or a sale, 46 51 assignment or other transfer of, or the grant of a security interest in, any Loan Party's right, title and interest in and to any Leases or any Rents; (iii) if a Restricted Party is a corporation, any merger, consolidation or Sale or Pledge of such corporation's stock or the creation or issuance of new stock; (iv) if a Restricted Party is a limited or general partnership or joint venture, any merger or consolidation or the change, removal, resignation or addition of a general partner or the Sale or Pledge of the partnership interest of any general partner or any profits or proceeds relating to such partnership interest, or the Sale or Pledge of limited partnership interests or any profits or proceeds relating to such limited partnership interests or the creation or issuance of new limited partnership interests; (v) if a Restricted Party is a limited liability company, any merger or consolidation of such limited liability company or the change, removal, resignation or addition of a managing member (or if no managing member, any member (other than a special member)) or the Sale or Pledge of the membership interest of a managing member (or if no managing member, any member (other than a special member)) or any profits or proceeds relating to such membership interest, or the Sale or Pledge of non-managing membership interests (other than a special member) or the creation or issuance of new non-managing membership interests (other than a special member); (vi) if a Restricted Party is a trust or nominee trust, any merger, consolidation or the Sale or Pledge of the legal or beneficial interest in a Restricted Party or the creation or issuance of new legal or beneficial interests; or (vii) the removal or the resignation of the managing agent (including, without limitation, an Affiliated Manager) other than in accordance with Section 3.17, provided, however, that a Transfer shall not include the resignation of (A) Franchisor as the managing agent resulting from (1) the occurrence of the expiration of the Management Agreement or (2) Franchisor's terminating the Management Agreement pursuant to the terms of the Management Agreement, or (B) any special member provided such special member is replaced in accordance with the terms of the Loan Documents. Section 8.3 PERMITTED TRANSFERS. Notwithstanding the provisions of Sections 8.1 and 8.2, the following transfers shall not be deemed to be a Transfer: (a) a transfer by devise or descent or by operation of law upon the death of a member, partner or shareholder of a Restricted Party; (b) the sale or transfer of all the stock or membership interests, as applicable, in Operating Tenant to an entity wholly-owned, directly or indirectly, by FLLP; provided, however, as a condition to each such transfer, Lender shall receive not less than thirty (30) days prior written notice of such proposed transfer; and (c) the sale or transfer of all of Operating Tenant's interest in the Operating Lease to an entity wholly-owned, directly or indirectly, by FLLP (the "Operating Tenant Transferee"); provided, however, as a condition to each such sale or transfer under this subsection (c), (i) Lender shall receive not less than thirty (30) days prior written notice of such proposed sale or transfer, (ii) the Loan Parties shall pay any and all out-of-pocket costs incurred in connection with the transfer (including, without limitation, Lender's counsel fees and disbursements and all recording fees, title insurance premiums and mortgage and intangible taxes), (iii) the Operating Tenant Transferee must not have been a party to any bankruptcy proceeding, voluntary or involuntary, made an assignment for the benefit of creditors or taken advantage of any insolvency act, or any act for the benefit of debtors within seven (7) years prior to the date of the transfer, (iv) the Operating Tenant Transferee shall assume all of the obligations of Operating Tenant under the Security Instrument and the Other Security Documents in a manner satisfactory to Lender in all respects, including, without limitation, by entering into an assumption agreement in form and substance satisfactory to Lender (the "Assumption Agreement"), (v) there shall be no material litigation pending against Operating Tenant Transferee that is not acceptable to Lender, (vi) the Operating Tenant Transferee shall not have 47 52 defaulted under its or their obligations with respect to any other indebtedness, (vii) Lender shall have received evidence satisfactory to it (which, if required by Lender, shall include a substantive non-consolidation opinion letter acceptable to Lender) that the Operating Tenant Transferee satisfies all the covenants set forth in Section 4.2 of this Security Instrument, and (viii) the Operating Tenant Transferee shall deliver an endorsement to the existing title policy insuring the Security Instrument as modified by the assumption agreement, as a valid first lien on the Property and naming the Operating Tenant Transferee as owner of the leasehold estate in the Property, which endorsement shall insure that as of the recording of the Assumption Agreement, the Property shall not be subject to any additional exceptions or liens other than those contained in the title policy issued in connection with this Security Instrument. Section 8.4 RESERVED. Section 8.5 LENDER'S RIGHTS. Lender reserves the right to condition the consent required in connection with any sale or transfer of the Property, any Sale or Pledge of an interest in a Restricted Party or any other transaction prohibited by this Article 8 upon a modification of the terms hereof and on assumption of the Note, this Security Instrument and the Other Security Documents as so modified in connection with the proposed Transfer, Lender's approval of the proposed transferee, which approval shall not be unreasonably withheld, Lender's receipt of a No-downgrade Letter, the proposed transferee's continued compliance with the covenants set forth in this Security Instrument, including, without limitation, the covenants in Section 4.2 hereof, or such other conditions and/or legal opinions as Lender shall determine in its sole discretion to be in the interest of Lender, including, without limitation, delivery to Lender of a substantive non-consolidation opinion acceptable to Lender in all respects. As a condition to any consent by Lender requested under this Article 8, (a) Borrower shall pay to Lender a transfer fee of three-quarters of one percent (.75%) of the principal balance of the Note, a $10,000 processing fee, and all of Lender's and any Rating Agency's expenses incurred in connection with such Transfer, and (b) all expenses incurred by Lender and any Rating Agency and the $10,000 processing fee shall be payable by Borrower whether or not Lender consents to the Transfer. As a condition to any transfer which does not require Lender's consent but requires a No-downgrade Letter, Borrower shall pay to Lender a transfer fee of one-quarter of one percent (.25%) of the principal balance of the Note, a $10,000 processing fee, and all of Lender's and any Rating Agency's expenses incurred in connection with such Transfer. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon a Transfer without Lender's consent. This provision shall apply to every Transfer regardless of whether voluntary or not, or whether or not Lender has consented to any previous Transfer. Notwithstanding anything to the contrary contained in this Article ?, in the event any transfer (whether or not such transfer shall constitute a Transfer) results in any entity or party owning in excess of forty-nine percent (49%) of the ownership interest in a Restricted Party, the Loan Parties shall, prior to such transfer, deliver a substantive non-consolidation opinion to Lender covering such Restricted Party, which opinion shall be in form substantially similar to the Non-Consolidation Opinion or in form sufficient to satisfy then current rating agency requirements. The term "No-downgrade Letter" shall mean a written recommendation from the Rating Agencies to the effect that the subject transaction will not result in a qualification, reduction, or withdrawal of (i) any rating initially assigned or to be assigned in a Securitization or (ii) if higher than said initial rating, the then-current rating assigned in a Securitization, or (iii) if Securities have not yet been issued, any ratings to be assigned in connection with the issuance of the Securities. 48 53 Article 9 - PREPAYMENT Section 9.1 PREPAYMENT. The Debt may not be prepaid in whole or in part except in strict accordance with the express terms and conditions of the Note. Article 10 - DEFAULT Section 10.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) if any portion of the Debt is not paid on or prior to the date the same is due or if the entire Debt is not paid on or before the Maturity Date; (b) if any of the Taxes or Other Charges is not paid when the same is due and payable except to the extent sums sufficient to pay such Taxes and Other Charges have been deposited with Lender in accordance with the terms of this Security Instrument; (c) if the Policies are not kept in full force and effect, or if the Policies are not delivered to Lender as provided in Section 3.3(b); (d) if any Loan Party or any Principal, as applicable, violates or does not comply with any of the provisions of Section 4.2, Article 8 or Article 24; (e) if any representation or warranty of, or with respect to, any Loan Party, any Indemnitor or any person guaranteeing payment of the Debt or any portion thereof or performance by the Loan Parties of any of the terms of this Security Instrument (a "Guarantor"), or any member, general partner, principal or beneficial owner of any of the foregoing, made herein or in the Environmental Indemnity (defined below) or in any guaranty, or in any certificate, report, financial statement or other instrument or document furnished to Lender shall have been false or misleading in any material respect when made; (f) if (i) any Loan Party or any managing member or general partner of any Loan Party, or any Guarantor or Indemnitor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship, arrangement, adjustment, winding- up, liquidation, dissolution, composition or other relief with respect to its debts or debtors ("Creditors Rights Laws"), seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Loan Party or any managing member or general partner of any Loan Party or any Guarantor or Indemnitor shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Loan Party or any managing member or general partner of any Loan Party or any Guarantor or Indemnitor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (iii) there shall be commenced against any Loan 49 54 Party or any managing member or general partner of any Loan Party or any Guarantor or Indemnitor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (iv) any Loan Party or any managing member or general partner of any Loan Party or any Guarantor or Indemnitor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the any Loan Party or any managing member or general partner of any Loan Party, or any Guarantor or Indemnitor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; (g) if any Loan Party shall be in default beyond applicable notice and grace periods under any other mortgage, deed of trust, deed to secure debt or other security agreement covering any part of the Property whether it be superior or junior in lien to this Security Instrument; (h) if the Property becomes subject to any mechanic's, materialman's or other lien other than a lien for any Taxes not then due and payable and the lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of thirty (30) days after any Loan Party obtains knowledge, or should have known, of the imposition of said lien; (i) if any federal tax lien is filed against any Loan Party, any member or general partner of any Loan Party, any Guarantor, any Indemnitor or the Property and same is not discharged of record within thirty (30) days after any Loan Party obtains knowledge, or should have known, of the imposition of said lien; (j) if any Loan Party shall fail to deliver to Lender, within ten (10) days after request by Lender, the estoppel certificates required by Subsections 7.4(a) and (c); (k) if any default occurs under any separate guaranty or indemnity agreement executed in connection herewith (including, without limitation, the Cooperation Letter (defined in Section 18.2) and the Environmental Indemnity (defined in Section 13.4)) and such default continues after the expiration of applicable grace periods, if any; (l) if a default has occurred and continues beyond any applicable cure period under the Franchise Agreement, if such default permits Franchisor to terminate or cancel the Franchise Agreement; (m) if the Property ceases to be operated as a hotel or if such business is terminated for any reason whatsoever (other than temporary cessation in connection with any renovations to the Property or restoration of the Property after casualty or condemnation); (n) if any Loan Party terminates or cancels the Franchise Agreement or operates the Property under the name of any hotel chain or system other than Embassy Suites, without Lender's prior written consent; 50 55 (o) if any of the assumptions contained in the Non-Consolidation Opinion were not true and correct as of the date of such Non-Consolidation Opinion or thereafter became untrue or incorrect in any respect; (p) if any Loan Party shall fail to deliver to Lender, (i) the statements referred to in Section 3.12(f) hereof in accordance with the terms thereof or (ii) any statements referred to in Section 3.12, other than those referred to in Section 3.12(f) hereof, within thirty (30) days after request by Lender; (q) if any Loan Party defaults under the management agreement relating to the Property beyond the expiration of applicable notice and grace periods, if any, thereunder or if the management agreement is canceled, terminated or surrendered or expires pursuant to its terms, unless in such case the Borrower or Operating Tenant, as applicable, shall enter into a new management agreement on market terms and conditions no less favorable than the current management agreement and with a management company, both to be acceptable to Lender in all respects; or (r) if any Loan Party shall continue to be in default under any term, covenant or condition of the Note, this Security Instrument or the Other Security Documents (including, without limitation, the Cooperation Letter) not set forth in Subsections 10.1(a) through (q) above for more than ten (10) days after notice from Lender in the case of any default which can be cured by the payment of a sum of money or for thirty (30) days after notice from Lender in the case of any other default, provided that if such default cannot reasonably be cured within such thirty (30) day period and such Loan Party shall have commenced to cure such default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period shall be extended for so long as it shall require such Loan Party in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of sixty (60) days. Article 11 - RIGHTS AND REMEDIES Section 11.1 REMEDIES. Upon the occurrence of any Event of Default, the Loan Parties agree that Lender may or acting by or through Trustee may take such action, without notice or demand, as it deems advisable to protect and enforce its rights against the Loan Parties in and to the Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Lender or Trustee may determine, in their sole discretion, without impairing or otherwise affecting the other rights and remedies of Lender or Trustee: (a) declare the entire unpaid Debt to be immediately due and payable; (b) institute proceedings, judicial or otherwise, for the complete foreclosure of this Security Instrument under any applicable state or federal law in which case the Property or any interest therein may be sold for cash or upon credit in one or more parcels or in several interests or portions and in any order or manner; 51 56 (c) with or without entry, to the extent permitted and pursuant to the procedures provided by applicable state or federal law, institute proceedings for the partial foreclosure of this Security Instrument for the portion of the Debt then due and payable, subject to the continuing lien and security interest of this Security Instrument for the balance of the Debt not then due, unimpaired and without loss of priority; (d) sell for cash or upon credit the Property or any part thereof and all estate, claim, demand, right, title and interest of the Loan Parties therein and rights of redemption thereof, pursuant to power of sale or otherwise, at one or more sales, in one or more parcels, at such time and place, upon such terms and after such notice thereof as may be required or permitted by law; (e) subject to the provisions of Article 15, institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, in the Note or in the Other Security Documents; (f) subject to the provisions of Article 15, recover judgment on the Note either before, during or after any proceedings for the enforcement of this Security Instrument or the Other Security Documents; (g) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Debt and without regard for the solvency of any Loan Party, any Guarantor, Indemnitor or of any person, firm or other entity liable for the payment of the Debt; (h) subject to any applicable state or federal law, the license granted to the Loan Parties under Section 1.2 shall automatically be revoked and Lender may enter into or upon the Property, either personally or by its agents, nominees or attorneys and dispossess the Loan Parties and their agents and servants therefrom, without liability for trespass, damages or otherwise and exclude the Loan Parties and their agents or servants wholly therefrom, and take possession of all rent rolls, leases, subleases and rental and license agreements with the tenants, subtenants and licensees, in possession of the Property or any part or parts thereof; tenants', subtenants' and licensees' money deposits or other property (including, without limitation, any letter of credit) given to secure tenants', subtenants' and licensees' obligations under leases, subleases or licenses, together with a list of the foregoing; all lists pertaining to current rent and license fee arrears; any and all architects' plans and specifications, licenses and permits, documents, books, records, accounts, surveys and property which relate to the management, leasing, operation, occupancy, ownership, insurance, maintenance, or service of or construction upon the Property and the Loan Parties agree to surrender possession thereof and of the Property to Lender upon demand, and thereupon Lender may (i) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Property and conduct the business thereat; (ii) complete any construction on the Property in such manner and form as Lender deems advisable; (iii) make alterations, additions, renewals, replacements and improvements to or on the Property; (iv) exercise all rights and powers of the Loan Parties with respect to the Property, whether in the name of the Loan Parties or otherwise, including, without limitation, the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents 52 57 of the Property and every part thereof; (v) either require the Loan Parties (A) to pay monthly in advance to Lender, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of such part of the Property as may be occupied by the Loan Parties or (B) to vacate and surrender possession of the Property to Lender or to such receiver and, in default thereof, the Loan Parties may be evicted by summary proceedings or otherwise; and (vi) apply the receipts from the Property to the payment of the Debt, in such order, priority and proportions as Lender shall deem appropriate in its sole discretion after deducting therefrom all expenses (including reasonable legal fees) incurred in connection with the aforesaid operations and all amounts necessary to pay the Taxes, Other Charges, Insurance Premiums and other expenses in connection with the Property, as well as just and reasonable compensation for the services of Lender, its counsel, agents and employees; (i) exercise any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing: (i) the right to take possession of the Personal Property and other UCC Collateral or any part thereof, and to take such other measures as Lender or Trustee may deem necessary for the care, protection and preservation of the Personal Property and other UCC Collateral, and (ii) request the Loan Parties at its expense to assemble the Personal Property and other UCC Collateral and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender or Trustee with respect to the Personal Property and other UCC Collateral sent to the Loan Parties in accordance with the provisions hereof at least ten (10) Business Days prior to such action, shall constitute commercially reasonable notice to the Loan Parties; (j) apply any sums then deposited in the Escrow Fund and any other sums held in escrow or otherwise by Lender in accordance with the terms of this Security Instrument or any Other Security Document to the payment of the following items in any order in its sole discretion: (i) Taxes and Other Charges; (ii) Insurance Premiums; (iii) interest on the unpaid principal balance of the Note; (iv) amortization of the unpaid principal balance of the Note; and (v) all other sums payable pursuant to the Note, this Security Instrument and the Other Security Documents, including without limitation advances made by Lender pursuant to the terms of this Security Instrument; (k) surrender the Policies maintained pursuant to Article 3 hereof, collect the unearned Insurance Premiums and apply such sums as a credit on the Debt in such priority and proportion as Lender in its discretion shall deem proper, and in connection therewith, the Loan Parties hereby appoint Lender as agent and attorney-in-fact (which is coupled with an interest and is therefore irrevocable) for the Loan Parties to collect such unearned Insurance Premiums; 53 58 (l) apply the undisbursed balance of any Net Proceeds Deficiency deposit, together with interest thereon, to the payment of the Debt in such order, priority and proportions as Lender shall deem to be appropriate in its discretion; or (m) pursue such other remedies as Lender may have under applicable state or federal law. In the event of a sale, by foreclosure, power of sale, or otherwise, of less than all of the Property, this Security Instrument shall continue as a lien and security interest on the remaining portion of the Property unimpaired and without loss of priority. Notwithstanding the provisions of this Section 11.1 to the contrary, if any Event of Default as described in clause (i) or (ii) of Subsection 10.1(f) shall occur, the entire unpaid Debt shall be automatically due and payable, without any further notice, demand or other action by Lender. Section 11.2 APPLICATION OF PROCEEDS. The purchase money, proceeds and avails of any disposition of the Property, or any part thereof, or any other sums collected by Lender pursuant to the Note, this Security Instrument or the Other Security Documents, shall be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper. Section 11.3 RIGHT TO CURE DEFAULTS. Upon the occurrence of any Event of Default, Lender may, but without any obligation to do so and without notice to or demand on the Loan Parties and without releasing the Loan Parties from any obligation hereunder, make or do the same in such manner and to such extent as Lender may deem necessary to protect the security hereof. Lender or Trustee is authorized to enter upon the Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Property or to foreclose this Security Instrument or collect the Debt. The cost and expense of any cure hereunder (including reasonable legal fees to the extent permitted by law), with interest as provided in this Section 11.3, shall constitute a portion of the Debt and shall be due and payable to Lender upon demand. All such costs and expenses incurred by Lender or Trustee in remedying such Event of Default or in appearing in, defending, or bringing any such action or proceeding shall bear interest at the Default Rate, for the period after notice from Lender that such cost or expense was incurred to the date of payment to Lender. All such costs and expenses incurred by Lender together with interest thereon calculated at the Default Rate shall be deemed to constitute a portion of the Debt and be secured by this Security Instrument and the Other Security Documents and shall be immediately due and payable upon demand by Lender therefor. Section 11.4 ACTIONS AND PROCEEDINGS. Lender or Trustee has the right to appear in and defend any action or proceeding brought with respect to the Property, and after the occurrence and during the continuance of an Event of Default, to bring any action or proceeding, in the name and on behalf of any Loan Party, which Lender, in its discretion, decides should be brought to protect its interest in the Property. 54 59 Section 11.5 RECOVERY OF SUMS REQUIRED TO BE PAID. Lender shall have the right from time to time to take action to recover any sum or sums which constitute a part of the Debt as the same become due, without regard to whether or not the balance of the Debt shall be due, and without prejudice to the right of Lender or Trustee thereafter to bring an action of foreclosure, or any other action, for a default or defaults by any Loan Party existing at the time such earlier action was commenced. Section 11.6 EXAMINATION OF BOOKS AND RECORDS. Lender, its agents, accountants and attorneys shall have the right upon prior written notice to the Loan Parties (unless an Event of Default exists, in which case no notice shall be required), to examine and audit, during reasonable business hours, the records, books, management and other papers of the Loan Parties and their affiliates or of any Guarantor or Indemnitor which pertain to their financial condition or the income, expenses and operation of the Property, at the Property or at any office regularly maintained by the Loan Parties, its affiliates or any Guarantor or Indemnitor where the books and records are located. Lender and its agents shall have the right upon notice to make copies and extracts from the foregoing records and other papers. Section 11.7 OTHER RIGHTS, ETC. (a) The failure of Lender or Trustee to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Security Instrument. No Loan Party shall be relieved of such Loan Party's obligations hereunder by reason of (i) the failure of Lender or Trustee to comply with any request of any Loan Party, any Guarantor or any Indemnitor to take any action to foreclose this Security Instrument or otherwise enforce any of the provisions hereof or of the Note or the Other Security Documents, (ii) the release, regardless of consideration, of the whole or any part of the Property, or of any person liable for the Debt or any portion thereof, or (iii) any agreement or stipulation by Lender extending the time of payment, changing the rate of interest, or otherwise modifying or supplementing the terms of the Note, this Security Instrument or the Other Security Documents. (b) It is agreed that the risk of loss or damage to the Property is on Borrower, and Lender shall have no liability whatsoever for decline in value of the Property, for failure to maintain the Policies, or for failure to determine whether insurance in force is adequate as to the amount of risks insured. Possession by Lender shall not be deemed an election of judicial relief, if any such possession is requested or obtained, with respect to any Property or collateral not in Lender's possession. (c) Lender may resort for the payment of the Debt to any other security held by Lender in such order and manner as Lender, in its discretion, may elect. Lender or Trustee may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Lender or Trustee thereafter to foreclose this Security Instrument. The rights of Lender or Trustee under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender or Trustee shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Neither Lender nor Trustee shall be limited exclusively to the rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity. 55 60 Section 11.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY. Lender may release any portion of the Property for such consideration as Lender may require without, as to the remainder of the Property, in any way impairing or affecting the lien or priority of this Security Instrument, or improving the position of any subordinate lienholder with respect thereto, except to the extent that the obligations hereunder shall have been reduced by the actual monetary consideration, if any, received by Lender for such release, and may accept by assignment, pledge or otherwise any other property in place thereof as Lender may require without being accountable for so doing to any other lienholder. This Security Instrument shall continue as a lien and security interest in the remaining portion of the Property. Section 11.9 VIOLATION OF LAWS. If the Property is not in compliance with Applicable Laws, Lender may impose additional requirements upon the Loan Parties in connection herewith including, without limitation, monetary reserves or financial equivalents. Section 11.10 RIGHT OF ENTRY. Lender and its agents shall have the right, upon forty- eight (48) hours advance notice, to enter and inspect the Property at all reasonable times. Section 11.11 SUBROGATION. If any or all of the proceeds of the Note have been used to extinguish, extend or renew any indebtedness heretofore existing against the Property, then, to the extent of the funds so used, Lender shall be subrogated to all of the rights, claims, liens, titles, and interests existing against the Property heretofore held by, or in favor of, the holder of such indebtedness and such former rights, claims, liens, titles, and interests, if any, are not waived but rather are continued in full force and effect in favor of Lender and are merged with the lien and security interest created herein as cumulative security for the repayment of the Debt, the performance and discharge of the Loan Parties' obligations hereunder, under the Note and the Other Security Documents and the performance and discharge of the Other Obligations. Article 12 - ENVIRONMENTAL HAZARDS Section 12.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. The Loan Parties represent and warrant, based upon an environmental site assessment of the Property and information that the Loan Parties know or should reasonably have known, that: (a) there are no Hazardous Materials (defined below) or underground storage tanks in, on, or under the Property, except those that are both (i) in compliance with Environmental Laws and with permits issued pursuant thereto (if such permits are required), and (ii) either (A) in amounts not in excess of that necessary to operate the Property or (B) fully disclosed to and approved by Lender in writing pursuant to the written reports resulting from the environmental site assessments of the Property delivered to Lender (the "Environmental Report"); (b) there are no past, present or threatened Releases (defined below) of Hazardous Materials in violation of any Environmental Law and which would require remediation by a governmental authority in, on, under or from the Property except as described in the Environmental Report; (c) there is no threat of any Release of Hazardous Materials migrating to the Property which would violate Environmental Laws, except as described in the Environmental Report; (d) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Property except as described in the Environmental Report; (e) the Loan Parties do not know of, and has not received, any written or oral notice or other communication from any person or entity (including but not limited to a governmental entity) relating to Hazardous Materials in, on, under or from the Property, except those that are both 56 61 (i) in compliance with Environmental Laws and with permits issued pursuant thereto (if such permits are required), and (ii) either (A) in amounts not in excess of that necessary to operate the Property or (B) fully disclosed to and approved by Lender in writing pursuant to the Environmental Report; and (f) the Loan Parties have truthfully and fully provided to Lender, in writing, any and all material information not disclosed in the Environmental Report relating to environmental conditions in, on, under or from the Property known to the Loan Parties or contained in the Loan Parties' files and records, including but not limited to any reports relating to Hazardous Materials in, on, under or migrating to or from the Property and/or to the environmental condition of the Property. "Environmental Law" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations, standards, policies and other government directives or requirements, as well as common law, that apply to the Loan Parties or the Property and relate to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act. "Hazardous Materials" shall mean petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives; flammable materials; radioactive materials; polychlorinated biphenyls and compounds containing them; lead and lead-based paint; asbestos or asbestos- containing materials in any form that is or could become friable; underground or above-ground storage tanks, whether empty or containing any substance; any substance the presence of which on the Property is prohibited by any federal, state or local authority; any substance that requires special handling; and any other material or substance now or in the future defined as a "hazardous substance," "hazardous material," "hazardous waste,""toxic substance," "toxic pollutant," "contaminant," "pollutant" or other words of similar import within the meaning of any Environmental Law. "Release" of any Hazardous Materials includes but is not limited to any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. Section 12.2 ENVIRONMENTAL COVENANTS. The Loan Parties covenant and agree that so long as the Loan Parties own, manage, are in possession of, or otherwise control the operation of the Property: (a) all uses and operations on or of the Property, whether by the Loan Parties or any other person or entity, shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (b) there shall be no Releases of Hazardous Materials in, on, under or from the Property in violation of any Environmental Laws; (c) there shall be no Hazardous Materials in, on, or under the Property, except those that are both (i) in compliance with all Environmental Laws and with permits issued pursuant thereto, if and to the extent required, and (ii) (A) in amounts not in excess of that necessary to operate the Property or (B) fully disclosed to and approved by Lender in writing; (d) the Loan Parties shall keep the Property, at Borrower's sole cost and expense, free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of any Loan Party or any other person or entity (the "Environmental Liens"); (e) the Loan Parties shall, at Borrower's sole cost and expense, fully and expeditiously cooperate in all activities pursuant to Section 12.3 below, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (f) the Loan Parties shall, at Borrower's sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Property, pursuant to any reasonable written request of Lender, upon Lender's reasonable belief that the Property is not in full compliance with all Environmental Laws, and share with Lender the reports and other results thereof, and Lender and other Indemnified Parties (as defined in the Environmental Indemnity) shall be entitled to rely on such reports and other results thereof; (g) the Loan Parties shall, at their sole cost and expense, 57 62 comply with all reasonable written requests of Lender to (i) reasonably effectuate remediation required by any Environmental Law of any Hazardous Materials in, on, under or from the Property; and (ii) comply with any Environmental Law; (h) the Loan Parties shall not allow any tenant or other user of the Property to violate any Environmental Law; and (i) each Loan Party shall immediately notify Lender in writing after it has become aware of (A) any presence or Release or threatened Release of Hazardous Materials in, on, under, from or migrating towards the Property in violation, or which would be in violation, as the case may be, of any Environmental Laws; (B) any non-compliance with any Environmental Laws related in any way to the Property; (C) any actual or potential Environmental Lien against the Property; (D) any required or proposed remediation under any Environmental Law of environmental conditions relating to the Property; and (E) any written or oral notice or other communication of which such Loan Party becomes aware from any source whatsoever (including but not limited to a governmental entity) relating in any way to the presence or Release of Hazardous Materials at, on, under or above the Property in violation of any Environmental Laws. Section 12.3 LENDER'S RIGHTS. Upon (a) the occurrence of an Event of Default under the Note, this Security Instrument or the Other Security Documents or (b) Lender's reasonable belief that the Property is not in compliance with Environmental Laws, Lender and any other person or entity designated by Lender, including but not limited to any representative of a governmental entity, and any environmental consultant, and any receiver appointed by any court of competent jurisdiction, shall have the right, but not the obligation, to enter upon the Property at all reasonable times to assess any and all aspects of the environmental condition of the Property and its use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Lender's sole and absolute discretion) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing. The Loan Parties shall cooperate with and provide access to Lender and any such person or entity designated by Lender. Lender shall, at its cost and expense, repair any damage to the Property caused by Lender's gross negligence or wilful misconduct in performing such assessment. Article 13 - INDEMNIFICATIONS Section 13.1 GENERAL INDEMNIFICATION. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses (defined below) imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any one or more of the following: (a) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (b) any use, nonuse or condition in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (c) performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof; (d) any failure of the Property to be in compliance with any Applicable Laws; (e) any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants, or agreements contained in any Lease; or (f) the payment of any commission, charge or brokerage fee to anyone which may be payable in connection with the funding of the Loan evidenced by the Note and secured by this Security Instrument. Any amounts payable to Lender by reason of the application of this Section 13.1 shall become immediately due and payable and shall bear interest at the Default Rate from the date loss or damage is sustained by Lender until paid. 58 63 The term "Losses" shall mean any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, fines, penalties, charges, fees, judgments, awards, amounts paid in settlement of whatever kind or nature (including but not limited to reasonable legal fees and other costs of defense). Section 13.2 MORTGAGE AND/OR INTANGIBLE TAX. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any tax on the making and/or recording of this Security Instrument, the Note or any of the Other Security Documents. Section 13.3 DUTY TO DEFEND; LEGAL FEES AND OTHER FEES AND EXPENSES. Upon written request by any Indemnified Party, Borrower shall defend such Indemnified Party (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals reasonably approved by the Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may, in their sole discretion, engage their own attorneys and other professionals to defend or assist them, and, at the option of Indemnified Parties, their attorneys shall act as co- counsel in connection with the resolution of any claim or proceeding, provided, however, that upon an Event of Default under the Note, this Security Instrument or the Other Security Documents, the attorneys of Indemnified Parties shall control the resolution of any claim or proceeding. Upon demand, Borrower shall pay or, in the sole discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith. Section 13.4 ENVIRONMENTAL INDEMNITY. Simultaneously with this Security Instrument, Borrower and other persons or entities defined therein have executed and delivered that certain environmental indemnity agreement dated the date hereof (collectively, the "Indemnitors") to Lender (the "Environmental Indemnity"), which Environmental Indemnity is not secured by this Security Instrument. Article 14 - WAIVERS Section 14.1 WAIVER OF COUNTERCLAIM. The Loan Parties hereby waive the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against it by Lender arising out of or in any way connected with this Security Instrument, the Note, any of the Other Security Documents, or the Obligations, provided, however, the foregoing shall not be deemed a waiver of the Loan Parties' right to assert any other claim which would constitute a defense, setoff, counterclaim or crossclaim of any nature against Lender so long as the Loan Parties assert said claim in a separate action. Section 14.2 MARSHALLING AND OTHER MATTERS. The Loan Parties hereby waive, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, the Loan Parties hereby expressly waive any and all rights of redemption from sale under any order or decree of foreclosure of this Security Instrument on behalf of the Loan 59 64 Parties, and on behalf of each and every person acquiring any interest in or title to the Property subsequent to the date of this Security Instrument and on behalf of all persons to the extent permitted by Applicable Law. Section 14.3 WAIVER OF NOTICE. The Loan Parties shall not be entitled to any notices of any nature whatsoever from Lender or Trustee except (a) with respect to matters for which this Security Instrument specifically and expressly provides for the giving of notice by Lender or Trustee to the Loan Parties and (b) with respect to matters for which Lender or Trustee is required by Applicable Law to give notice, and the Loan Parties hereby expressly waive the right to receive any notice from Lender or Trustee with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Lender or Trustee to the Loan Parties. Section 14.4 WAIVER OF STATUTE OF LIMITATIONS. The Loan Parties hereby expressly waive and release to the fullest extent permitted by law, the pleading of any statute of limitations as a defense to payment of the Debt or performance of its Other Obligations. Section 14.5 SOLE DISCRETION OF LENDER. Wherever pursuant to this Security Instrument (a) Lender exercises any right given to it to approve or disapprove, (b) any arrangement or term is to be satisfactory to Lender, or (c) any other decision or determination is to be made by Lender, the decision to approve or disapprove, all decisions that arrangements or terms are satisfactory or not satisfactory and all other decisions and determinations made by Lender, shall be in the sole discretion of Lender, except as may be otherwise expressly and specifically provided herein. Section 14.6 WAIVER OF TRIAL BY JURY. THE LOAN PARTIES AND LENDER, BY ACCEPTANCE OF THIS SECURITY INSTRUMENT, HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE APPLICATION FOR THE LOAN, THE NOTE, THIS SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER OR THE LOAN PARTIES. Section 14.7 WAIVER OF FORECLOSURE DEFENSE. The Loan Parties hereby waive any defense the Loan Parties might assert or have by reason of Lender's failure to make any tenant or lessee of the Property a party defendant in any foreclosure proceeding or action instituted by Lender. Section 14.7 SURETY WAIVERS. Operating Tenant hereby waives notice of the acceptance hereof, presentment, demand for payment, protest, notice of protest, or any and all notice of non-payment, non-performance or non-observance, or other proof, or notice or demand, whereby to charge Operating Tenant therefor. 60 65 Article 15 - EXCULPATION Section 15.1 EXCULPATION. The provisions of Article 14 of the Note are hereby incorporated by reference to the fullest extent as if the text of such Article were set forth in its entirety herein. Article 16 - NOTICES Section 16.1 NOTICES. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (defined below) 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 requested, addressed as follows: If to Borrower: -------------------------------------------- 545 East John Carpenter Freeway, Suite 1300 Irving, Texas 75062 Attention: General Counsel Facsimile No.: (972) 444-4949 With a copy to: Jenkens & Gilchrist Fountain Place 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attention: Robert G. McCormick Facsimile No.: (214) 855-4300 If to Operating Tenant: -------------------------------------------- 545 East John Carpenter Freeway #1300 Irving, Texas 75062 Attention: General Counsel Facsimile No.: (972) 444-4949 With a copy to: Jenkens & Gilchrist Fountain Place 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attention: Robert G. McCormick Facsimile No.: (214) 855-4300 If to Lender: The Chase Manhattan Bank c/o Chase Commercial Mortgage Banking Corp. Servicing Department 380 Madison Avenue 10th Floor New York, New York 10017 Attention: Ms. Janice Smith Facsimile No.: (212) 622-3553 61 66 and The Chase Manhattan Bank Legal Department 270 Park Avenue 39th Floor New York, New York 10017 Attention: Ronald A. Wilcox, Esq. Facsimile No.: (212) 270-2934 With a copy to: Thacher Proffitt & Wood Two World Trade Center New York, New York 10048 Attention: Joseph Philip Forte, Esq. Facsimile No.: (212) 912-7751 If to Trustee: -------------------------------------------- -------------------------------------------- -------------------------------------------- -------------------------------------------- -------------------------------------------- or addressed as such party may from time to time designate by written notice to the other parties. Any party by notice to the other party may designate additional or different addresses for subsequent notices or communications. For purposes of this Subsection, "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in New York, New York. Article 17 - CHOICE OF LAW/SUBMISSION TO JURISDICTION Section 17.1 CHOICE OF LAW. This Security Instrument shall be deemed to be a contract entered into pursuant to the laws of the State of New York and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New York, provided however, that with respect to the creation, perfection, priority and enforcement of the lien of this Security Instrument, and the determination of deficiency judgments, the laws of the state where the Property is located shall apply. Section 17.2 PROVISIONS SUBJECT TO LAW. All rights, powers and remedies provided in this Security Instrument may be exercised only to the extent that the exercise thereof does not violate any applicable state or federal law and are intended to be limited to the extent necessary so that they will not render this Security Instrument invalid, unenforceable or not entitled to be recorded, registered or filed under any applicable state or federal law. 62 67 Section 17.3 SUBMISSION TO JURISDICTION. With respect to any claim or action arising hereunder or under the Note or the Other Security Documents, the Loan Parties and Lender (a) irrevocably submit to the nonexclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York, New York, and appellate courts from any thereof, (b) irrevocably waive any objection which it may have at any time to the laying on venue of any suit, action or proceeding arising out of or relating to this Security Instrument brought in any such court, and (c) irrevocably waive any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing in this Security Instrument will be deemed to preclude Lender from bringing an action or proceeding with respect hereto in any other jurisdiction. Article 18 - SECONDARY MARKET Section 18.1 TRANSFER OF LOAN. Lender may, at any time, sell, transfer or assign the Note, this Security Instrument and the Other Security Documents, and any or all servicing rights with respect thereto, or grant participations therein (the "Participations") or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (the "Securities"). Lender may forward to each purchaser, transferee, assignee, servicer, participant, or investor in such Participations or Securities (collectively, the "Investor") or any Rating Agency rating such Securities, each prospective Investor, and any organization maintaining databases on the underwriting and performance of commercial mortgage loans, all documents and information which Lender now has or may hereafter acquire relating to the Debt and to the Loan Parties, any Guarantor, any Indemnitor(s) and the Property, whether furnished by the Loan Parties, any Guarantor, any Indemnitor(s) or otherwise, as Lender determines necessary or desirable. The Loan Parties irrevocably waive any and all rights they may have under Applicable Laws to prohibit such disclosure, including but not limited to any right of privacy. Section 18.2 COOPERATION. The Loan Parties, any Guarantor and any Indemnitor agree to cooperate with Lender in connection with any transfer made or any Securities created pursuant to this Article 18, including, without limitation, complying with all of the terms and conditions of that certain letter agreement, dated the date hereof, among Lender, the Loan Parties and other parties set forth therein (the "Cooperation Letter"). Section 18.3 RESERVES/ESCROWS. In the event that Securities are issued in connection with the Loan, all funds held by Lender in escrow or pursuant to reserves in accordance with this Security Instrument or the Other Security Documents shall be deposited in eligible accounts at eligible institutions as then defined and required by the Rating Agencies. Article 19 - COSTS Section 19.1 PERFORMANCE AT BORROWER'S EXPENSE. Borrower acknowledges and confirms that Lender may impose certain administrative processing and/or commitment fees in connection with (a) the extension, renewal, modification, amendment, substitution and termination of the Loan or any part thereof, (b) the release, substitution, acquisition or perfection of collateral therefor, (c) obtaining certain consents, waivers and approvals with respect to the Property, or (d) the review of any Lease or proposed Lease or the preparation or review of any subordination, non- disturbance agreement (the occurrence of any of the above shall be called an "Event"). Borrower 63 68 further acknowledges and confirms that it shall be responsible for the payment of all costs of reappraisal of the Property or any part thereof, whether (i) required by law, regulation, or any governmental or quasi-governmental authority or (ii) reasonably required by Lender. Borrower hereby acknowledges and agrees to pay, immediately, with or without demand, all such fees (as the same may be increased or decreased from time to time), and any additional fees of a similar type or nature which may be imposed by Lender from time to time, upon the occurrence of any Event or otherwise. Wherever it is provided for herein that Borrower pay any costs and expenses, such costs and expenses shall include, but not be limited to, all reasonable legal fees of Lender (excluding Lender's in-house legal costs). Section 19.2 LEGAL FEES FOR ENFORCEMENT. (a) Borrower shall pay all reasonable legal fees (excluding Lender's in-house legal costs) incurred by Lender in connection with (i) the preparation of the Note, this Security Instrument and the Other Security Documents and (ii) the items set forth in Section 19.1 above, and (b) Borrower shall pay to Lender on demand any and all expenses, including legal fees, incurred or paid by Lender in protecting its interest in the Property or in collecting, after the occurrence of an Event of Default under the Note, this Security Instrument or the Other Security Documents, any amount payable under the Note, this Security Instrument or the Other Security Documents, or in enforcing its rights hereunder with respect to the Property, whether or not any legal proceeding is commenced hereunder or thereunder, together with interest thereon at the Default Rate from the date paid or incurred by Lender until such expenses are paid by Borrower. Article 20 - DEFINITIONS Section 20.1 GENERAL DEFINITIONS. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Security Instrument may be used interchangeably in singular or plural form and the words "Applicable Laws" shall mean all existing and future federal, state and local laws, orders, ordinances, governmental rules and regulations and court orders and the word "Loan Parties" shall mean "Loan Parties and Loan Parties' respective successors and assigns," the word "Borrower" shall mean "Borrower and Borrower's successors and assigns," the word "Operating Tenant" shall mean "Operating Tenant and Operating Tenant's successors and assigns," the word "Borrower" shall mean "Borrower and Borrower's successors and assigns," the word "Lender" shall mean "Lender and any subsequent holder of the Note," the word "Trustee" shall mean "Trustee and any substitute Trustee of the estates, properties, powers, trusts and rights conferred upon Trustee pursuant to this Security Instrument," the word "Note" shall mean "the Note and any other evidence of indebtedness secured by this Security Instrument," the word "person" shall include an individual, corporation, limited liability company, partnership, trust, unincorporated association, government, governmental authority, and any other entity, the word "Property" shall include any portion of the Property and any interest therein, and the phrase "legal fees" and "counsel fees" shall include any and all counsel, attorney, paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Property, the Leases and the Rents and enforcing its rights hereunder, whether with respect to retained firms, the reimbursement for the expenses of in-house staff or otherwise. 64 69 Section 20.2 HEADINGS, ETC. The headings and captions of various Articles and Sections of this Security Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. Article 21 - MISCELLANEOUS PROVISIONS Section 21.1 NO ORAL CHANGE. This Security Instrument, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part any Loan Party or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. Section 21.2 LIABILITY. The obligations of the Loan Parties hereunder shall be joint and several obligations. This Security Instrument shall be binding upon and inure to the benefit of the Loan Parties and Lender and their respective successors and assigns forever. Section 21.3 INAPPLICABLE PROVISIONS. If any term, covenant or condition of the Note or this Security Instrument is held to be invalid, illegal or unenforceable in any respect, the Note and this Security Instrument shall be construed without such provision. Section 21.4 DUPLICATE ORIGINALS; COUNTERPARTS. This Security Instrument may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Security Instrument may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Security Instrument. The failure of any party hereto to execute this Security Instrument, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. Section 21.5 NUMBER AND GENDER. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. Section 21.6 GUARANTORS AND INDEMNITORS. Lender hereby acknowledges that as of the date hereof, there are no Guarantors or Indemnitors other than Borrower, FelCor Lodging Trust Incorporated (the "REIT") and FLLP. Article 22 - SPECIAL ____________ PROVISIONS [This section contained state-specific provisions that varied depending on the applicable state law.] Article 23 - DEED OF TRUST PROVISIONS Section 23.1 CONCERNING THE TRUSTEE. Trustee shall be under no duty to take any action hereunder except as expressly required hereunder or by law, or to perform any act which would involve Trustee in any expense or liability or to institute or defend any suit in respect hereof, unless properly indemnified to Trustee's reasonable satisfaction. Trustee, by acceptance of this 65 70 Security Instrument, covenants to perform and fulfill the trusts herein created, being liable, however, only for gross negligence or willful misconduct, and hereby waives any statutory fee and agrees to accept reasonable compensation, in lieu thereof, for any services rendered by Trustee in accordance with the terms hereof. Trustee may resign at any time upon giving thirty (30) days' notice to the Loan Parties and to Lender. Lender may remove Trustee at any time or from time to time and select a successor trustee. In the event of the death, removal, resignation, refusal to act, or inability to act of Trustee, or in its sole discretion for any reason whatsoever Lender may, without notice and without specifying any reason therefor and without applying to any court, select and appoint a successor trustee, by an instrument recorded wherever this Security Instrument is recorded and all powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon become vested in such successor. Such substitute trustee shall not be required to give bond for the faithful performance of the duties of Trustee hereunder unless required by Lender. The procedure provided for in this paragraph for substitution of Trustee shall be in addition to and not in exclusion of any other provisions for substitution, by law or otherwise. Section 23.2 TRUSTEE'S FEES. Borrower shall pay all reasonable costs, fees and expenses incurred by Trustee and Trustee's agents and counsel in connection with the performance by Trustee of Trustee's duties hereunder and all such costs, fees and expenses shall be secured by this Security Instrument. Section 23.3 CERTAIN RIGHTS. With the approval of Lender, Trustee shall have the right to take any and all of the following actions: (i) to select, employ, and advise with counsel (who may be, but need not be, counsel for Lender) upon any matters arising hereunder, including the preparation, execution, and interpretation of the Note, this Security Instrument or the Other Security Documents, and shall be fully protected in relying as to legal matters on the advice of counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through his/her agents or attorneys, (iii) to select and employ, in and about the execution of his/her duties hereunder, suitable accountants, engineers and other experts, agents and attorneys-in-fact, either corporate or individual, not regularly in the employ of Trustee, and Trustee shall not be answerable for any act, default, negligence, or misconduct of any such accountant, engineer or other expert, agent or attorney-in-fact, if selected with reasonable area, or for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee's gross negligence or bad faith, and (iv) any and all other lawful action as Lender may instruct Trustee to take to protect or enforce Lender's rights hereunder. Trustee shall not be personally liable in case of entry by Trustee, or anyone entering by virtue of the powers herein granted to Trustee, upon the Property for debts contracted for or liability or damages incurred in the management or operation of the Property. Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting an action taken or proposed to be taken by Trustee hereunder, believed by Trustee in good faith to be genuine. Trustee shall be entitled to reimbursement for actual expenses incurred by Trustee in the performance of Trustee's duties hereunder and to reasonable compensation for such of Trustee's services hereunder as shall be rendered. Section 23.4 RETENTION OF MONEY. All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by applicable law) and Trustee shall be under no liability for interest on any moneys received by Trustee hereunder. 66 71 Section 23.5 PERFECTION OF APPOINTMENT. Should any deed, conveyance, or instrument of any nature be required from the Loan Parties by any Trustee or substitute trustee to more fully and certainly vest in and confirm to the Trustee or substitute trustee such estates rights, powers, and duties, then, upon request by the Trustee or substitute trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be caused to be recorded and/or filed by the Loan Parties. Section 23.6 SUCCESSION INSTRUMENTS. Any substitute trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed, or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its or his/her predecessor in the rights hereunder with like effect as if originally named as Trustee herein; but nevertheless, upon the written request of Lender or of the substitute trustee, the Trustee ceasing to act shall execute and deliver any instrument transferring to such substitute trustee, upon the trusts herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and moneys held by such Trustee to the substitute trustee so appointed in the Trustee's place. Article 24 - OPERATING LEASE PROVISIONS Section 24.1 THE OPERATING LEASE. Operating Tenant shall (i) pay all rents, additional rents and other sums required to be paid by Operating Tenant, as tenant under and pursuant to the provisions of the Operating Lease, (ii) diligently perform and observe all of the terms, covenants and conditions of the Operating Lease on the part of Operating Tenant, as tenant thereunder, and (iii) promptly notify Lender of the giving of any notice by Borrower to Operating Tenant of any default by Operating Tenant, as tenant thereunder, and deliver to Lender a true copy of each such notice. Operating Tenant shall not, without the prior consent of Lender, surrender the leasehold estate created by the Operating Lease or terminate or cancel the Operating Lease or modify, change, supplement, alter or amend the Operating Lease, in any respect, either orally or in writing, and if Operating Tenant shall default in the performance or observance of any term, covenant or condition of the Operating Lease on the part of Operating Tenant, as tenant thereunder, Lender shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all of the terms, covenants and conditions of the Operating Lease on the part of Operating Tenant to be performed or observed on behalf of Operating Tenant, to the end that the rights of Operating Tenant in, to and under the Operating Lease shall be kept unimpaired and free from default. If Borrower shall deliver to Lender a copy of any notice of default under the Operating Lease, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender, in good faith, in reliance thereon. Operating Tenant shall exercise each individual option, if any, to extend or renew the term of the Operating Lease upon demand by Lender made at any time within one (1) year prior to the last day upon which any such option may be exercised, and Operating Tenant hereby expressly authorizes and appoints Lender its attorney-in-fact to exercise any such option in the name of and upon behalf of Operating Tenant, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest. Section 24.2 SUBLEASES. Notwithstanding anything contained in the Operating Lease to the contrary, Operating Tenant shall only sublet any portion of the Land in accordance with the terms and conditions of Section 3.8. Each such Lender-approved sublease hereafter made shall provide that, (a) in the event of the termination of the Operating Lease, the lease shall not terminate 67 72 or be terminable by the lessee; (b) in the event of any action for the foreclosure of this Security Instrument, the lease shall not terminate or be terminable by the subtenant by reason of the termination of the Operating Lease unless the lessee is specifically named and joined in any such action and unless a judgment is obtained therein against the lessee; and (c) in the event that the Operating Lease is terminated as aforesaid, the lessee shall attorn to the lessor under the Operating Lease or to the purchaser at the sale of the Property on such foreclosure, as the case may be. In the event that any portion of the Land shall be sublet pursuant to the terms of this Subsection, such sublease shall be deemed to be included in the Property. Section 24.3 NO MERGER OF FEE AND LEASEHOLD ESTATES; RELEASES. So long as any portion of the Debt shall remain unpaid, unless Lender shall otherwise consent, the fee title to the Land and the leasehold estate therein created pursuant to the provisions of the Operating Lease shall not merge but shall always be kept separate and distinct, notwithstanding the union of such estates in Operating Tenant, Borrower, or in any other person by purchase, operation of law or otherwise. Lender reserves the right, at any time, to release portions of the Property, including, but not limited to, the leasehold estate created by the Operating Lease, with or without consideration, at Lender's election, without waiving or affecting any of its rights hereunder or under the Note or the Other Security Documents and any such release shall not affect Lender's rights in connection with the portion of the Property not so released. Section 24.4 SUBORDINATION/PURCHASE RIGHTS. (a) Any option to purchase, right of first refusal to purchase, right of first refusal to lease additional space at the Property, or any similar right of Operating Tenant, whether pursuant to the Operating Lease or otherwise (collectively, the "Purchase Rights"), are and shall at all times continue to be subject and subordinate in all respects to the terms, covenants and provisions of this 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 delivery of the Operating Lease or such other document containing any Purchase Right. Operating Tenant hereby acknowledges and agrees that its right to receive any payments pursuant to the terms of the Operating Lease is subordinate to the payment of the interest, principal and other sums due pursuant to the Note. (b) Operating Tenant represents and warrants that (i) Operating Tenant is the sole owner and holder of all of the Purchase Rights; (ii) Operating Tenant has not granted or made any assignment, transfer, conveyance or other disposition of the Purchase Rights; (iii) Operating Tenant has not granted or created any lien or encumbrance of any Purchase Rights; and (iv) Operating Tenant has not exercised any Purchase Rights. (c) Operating Tenant hereby agrees that so long at the Loan is outstanding, it shall not exercise any of the Purchase Rights or assign, transfer or convey all or any of the Purchase Rights. (d) The Loan Parties agree to notify Lender in writing of (i) the proposed exercise of any of the Purchase Rights not less than thirty (30) days prior to the date of the exercise 68 73 of any of the Purchase Rights, (ii) any notice given to Borrower with respect to exercise of any of the Purchase Rights, concurrently with the giving of such notice to Borrower, and shall include a copy of any notice given to Borrower with respect to such exercise and (iii) any proposed assignment, transfer or conveyance of all or any of the Purchase Rights, or agreement to do so, in the case of Operating Tenant, not less than thirty (30) days prior to the date of any such assignment, transfer or conveyance, and in the case of Borrower, concurrently with Borrower's receipt of any notice of such proposed assignment, transfer or conveyance. [NO FURTHER TEXT ON THIS PAGE]. 69 74 IN WITNESS THEREOF, this Security Instrument has been executed by the Loan Parties the day and year first above written. -----------------------------, a Delaware By: ---------------------- Name: ---------------------- Title: ---------------------- ------------------------------, a Delaware limited liability company By: ---------------------- Name: ---------------------- Title: ---------------------- 75 STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) This instrument was acknowledged before me on the ____ day of April, 2000, by ____________________, ____________________ of ____________________, a Delaware ____________________, [on behalf of said ___________________, which limited liability company is a general partner of and acknowledged this instrument on behalf of _________________., a Delaware limited partnership]. [SEAL] -------------------------------------------- Notary Public in and for the State of ------ My Commission Expires: Print Name of Notary Public. -------------------------------------------- 76 STATE OF NEW YORK ) : ss: COUNTY OF NEW YORK ) This instrument was acknowledged before me on the __ day of April, 2000 by ________________________, a ________________________ of ____________________, a Delaware limited liability company, on behalf of said limited liability company. [SEAL] Notary Public in and for the State of ------- My Commission Expires: Print Name of Notary Public. ----------------------------------------------- 77 EXHIBIT A (Description of Land) ALL of that certain lot, piece or parcel of land, with the buildings and improvements thereon, situate, lying and being. 78 EXHIBIT B COMMINGLED CASH MANAGEMENT CERTIFICATION EX-10.25.1 6 ex10-25_1.txt PROMISSORY NOTE DATED MAY 2, 2000 1 EXHIBIT 10.25.1 PROMISSORY NOTE $ New York, New York --------------- May 2, 2000 FOR VALUE RECEIVED _______________________., a Delaware _____________, as maker, having its principal place of business at 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower"), hereby unconditionally promises to pay to the order of THE CHASE MANHATTAN BANK, a New York banking corporation, as payee, having an address at 380 Madison Avenue, 10th Floor, New York, New York 10017 ("Lender"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of _____________________________________________________________($_____________) in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Applicable Interest Rate (defined below), and to be paid in installments as follows: ARTICLE 1 PAYMENT TERMS (a) A payment of interest only on the ______ day of May, 2000; (b) A payment of $_____________ on the ____ day of June, 2000 and on the tenth day of each calendar month thereafter up to and including the ____ day of April, 2010; each of the payments to be applied as follows: (i) first, to the payment of interest computed at the Applicable Interest Rate; and (ii) the balance toward the reduction of the principal sum; and the balance of the principal sum and all interest thereon shall be due and payable on the _____ day of May, 2010 (the "Maturity Date"). Interest on the principal sum of this Note shall be calculated by multiplying the actual number of days elapsed in the applicable period by a daily rate based upon a three hundred sixty (360) day year. The first interest accrual period hereunder shall commence on and include the date that principal is advanced hereunder and shall end on and include the next ____ (___th) day of a calendar month, unless principal is advanced on the ______ (___th) day of a month, in which case the first interest accrual period shall consist of only such _____ (___th) day. Each interest accrual period thereafter shall commence on the tenth day of each calendar month during the term of this Note and shall end on and include the ______ (___th) day of the next occurring calendar month. ARTICLE 2 INTEREST The term "Applicable Interest Rate" as used in the Security Instrument (defined below) and this Note shall mean an interest rate equal to eight and six hundred fifteen thousandths percent (8.615%) per annum. 2 ARTICLE 3 DEFAULT AND ACCELERATION (a) The whole of the principal sum of this Note, (b) interest, default interest, late charges and other sums, as provided in this Note, the Security Instrument or the Other Security Documents (defined below), (c) all other monies agreed or provided to be paid by Borrower in this Note, the Security Instrument or the Other Security Documents, (d) all sums advanced pursuant to the Security Instrument to protect and preserve the Property (defined below) and the lien and the security interest created thereby, and (e) all sums advanced and costs and expenses incurred by Lender in connection with the Debt (defined below) or any part thereof, any renewal, extension, or change of or substitution for the Debt or any part thereof, or the acquisition or perfection of the security therefor, whether made or incurred at the request of Borrower or Lender (all the sums referred to in (a) through (e) above shall collectively be referred to as the "Debt") shall without notice become immediately due and payable at the option of Lender upon the occurrence of an Event of Default (as defined in the Security Instrument) under this Note, the Security Instrument or the Other Security Documents. ARTICLE 4 DEFAULT INTEREST Borrower does hereby agree that upon the occurrence of an Event of Default, Lender shall be entitled to receive and Borrower shall pay interest on the entire unpaid principal sum at a rate equal to the lesser of (a) five percent (5%) per annum plus the Applicable Interest Rate and (b) the maximum interest rate which Borrower may by law pay (the "Default Rate"). The Default Rate shall be computed from the occurrence of the Event of Default until the earlier of the date upon which the Event of Default is cured or the date upon which the Debt is paid in full. Interest calculated at the Default Rate shall be added to the Debt, and shall be deemed secured by the Security Instrument. This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default. ARTICLE 5 PREPAYMENT; DEFEASANCE (a) The principal balance of this Note may not be prepaid in whole or in part prior to the Maturity Date except as expressly permitted pursuant to Section 5(l) hereof. (b) Subject to compliance with and satisfaction of the terms and conditions of this Article 5 and provided that no Event of Default exists under this Note, Borrower may elect on any Monthly Payment Date (defined below) after the Lockout Period Expiration Date (defined below), to release (the "Release") the Property from the lien of the Security Instrument by delivering to Lender (a "Defeasance"), as security for the payment of all interest and principal due and to become due pursuant to this Note throughout the term hereof, Defeasance Collateral (defined below) sufficient to generate Scheduled Defeasance Payments (defined below). "Monthly Payment Date" shall mean the _____ (___th) day of each calendar month prior to the Maturity Date. "Lockout Period Expiration Date" shall mean the earlier to occur of (A) May ___, 2003, or (B) the second anniversary of the "startup day" within the meaning of Section 860G(a)(9) of the IRS Code (defined below) of a REMIC Trust (defined below). -2- 3 (c) As a condition precedent to a Defeasance, and prior to any Release, Borrower shall have complied with all of the following: (i) Borrower shall provide not less than sixty (60) days prior written notice to Lender of the Monthly Payment Date upon which it intends to effect a Defeasance hereunder (the "Defeasance Date"). (ii) All accrued and unpaid interest and all other sums due under this Note, the Security Instrument and the Other Security Documents up to the Defeasance Date shall be paid in full on or prior to the Defeasance Date. (iii) Borrower shall have delivered to Lender all necessary documents to reflect that the principal balance of this Note has been defeased. This Note shall thereafter be secured by the Defeasance Collateral delivered in connection with the Defeasance. After Defeasance, this Note cannot be prepaid in whole or in part or be the subject of any further Defeasance. (iv) Borrower shall execute and deliver to Lender any and all certificates, opinions, documents or instruments reasonably required by Lender in connection with the Defeasance and Release, including, without limitation, a pledge and security agreement satisfactory to Lender creating a first priority lien on the Defeasance Collateral (a "Defeasance Security Agreement"). (v) Borrower shall have delivered to Lender an opinion of Borrower's counsel in form and substance satisfactory to Lender stating (A) that the Defeasance Collateral and the proceeds thereof have been duly and validly assigned and delivered to Lender and that Lender has a valid, perfected, first priority lien and security interest in the Defeasance Collateral delivered by Borrower and the proceeds thereof, or (B) that if the holder of this Note shall at the time of the Release be a REMIC (defined below), (1) the Defeasance Collateral and the proceeds thereof have been duly and validly assigned and delivered to the REMIC Trust which holds this Note (the "REMIC Trust") and that the REMIC Trust has a valid, perfected, first priority lien and security interest in the Defeasance Collateral delivered by Borrower and the proceeds thereof, (2) the Defeasance has been effected in accordance with the requirements of Treasury Regulation 1.860(g)-2(a)(8) (as such regulation may be amended or substituted from time to time) and will not be treated as an exchange pursuant to Section 1001 of the IRS Code and (3) the tax qualification and status of the REMIC Trust as a REMIC will not be adversely affected or impaired as a result of the Defeasance. The term "REMIC" shall mean a "real estate mortgage investment conduit" within the meaning of Section 860D of the IRS Code. "IRS Code" shall mean the United States Internal Revenue Code of 1986, as amended, and the related Treasury Department regulations, including temporary regulations. (vi) Borrower shall have delivered to Lender written confirmation from the Rating Agencies (defined in the Security Instrument) that such Defeasance will not result in a withdrawal, downgrade or qualification of the then current ratings by the applicable Rating Agencies of the Securities (defined in the Security Instrument). If required by the Rating Agencies, Borrower shall, at Borrower's expense, also deliver or cause to be delivered a non-consolidation opinion with respect to the Defeasance Obligor (as defined below) in form and substance satisfactory to Lender and the Rating Agencies. -3- 4 (vii) Borrower shall have delivered to Lender a certificate satisfactory to Lender given by Borrower's independent certified public accountant (which accountant shall be satisfactory to Lender) certifying that the Defeasance Collateral shall generate monthly amounts equal to or greater than the Scheduled Defeasance Payments required to be paid under this Note through and including the Maturity Date. (d) In connection with any Defeasance hereunder, Borrower shall (unless otherwise agreed to in writing by Lender), at Borrower's expense, establish or designate a successor entity, which shall be a single purpose, bankruptcy remote entity approved by Lender, as such term is described in Section 4.2 of the Security Instrument (the "Defeasance Obligor"), and Borrower shall transfer and assign all obligations, rights and duties under and to this Note together with the pledged Defeasance Collateral to such Defeasance Obligor. Such Defeasance Obligor shall assume the obligations under this Note and any Defeasance Security Agreement, and Borrower shall be relieved of its obligations under this Note, the Security Instrument or the Other Security Documents except with respect to any provisions of such documents which by their terms expressly survive payment of the Debt in full. (e) Each of the obligations of the United States of America that is part of the Defeasance Collateral shall be duly endorsed by the holder thereof as directed by Lender or accompanied by a written instrument of transfer in form and substance wholly satisfactory to Lender (including, without limitation, such instruments as may be required by the depository institution holding such securities or by the issuer thereof, as the case may be, to effectuate book-entry transfers and pledges through the book-entry facilities of such institution) in order to perfect upon the delivery of the Defeasance Collateral a first priority security interest therein in favor of the Lender in conformity with all applicable state and federal laws governing the granting of such security interests. Borrower or the Defeasance Obligor shall authorize and direct that the payments received from such obligations shall be made directly to Lender or Lender's designee and applied to satisfy the obligations of Borrower or, if applicable, the Defeasance Obligor, under this Note. (f) The Defeasance Collateral shall generate payments on or prior to, but as close as possible to, the Business Day (defined below) prior to each successive Monthly Payment Date after the date of the Defeasance upon which payments are required under this Note and in amounts equal to or greater than the payments due on such dates (including, without limitation scheduled payments of principal, interest, servicing fees (if any) and any other regularly scheduled amounts due under this Note, the Security Instrument or the Other Security Documents on such dates) together with the outstanding principal amount of this Note which would be due on the Maturity Date (the "Scheduled Defeasance Payments"). The term "Business Day" shall mean a day upon which commercial banks are not authorized or required by law to close in New York, New York. (g) Notwithstanding any release of the Security Instrument granted pursuant to this Article 5 or any Defeasance hereunder, the Defeasance Obligor shall, and hereby agrees to be, bound by and obligated under Sections 3.1, 7.2, 7.4(a), 11.2, 11.7 and 14.2 and Articles 13 (except Section -4- 5 13.4) and 15 of the Security Instrument; provided, however, that all references therein to "Property" or "Personal Property" shall be deemed to refer only to the Defeasance Collateral delivered to Lender. (h) Any costs or expenses incurred or to be incurred in connection with the Defeasance and any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection with the transfer of this Note, or otherwise required to accomplish the Defeasance shall be paid by Borrower simultaneously with the occurrence of any Defeasance. (i) The term "Defeasance Collateral" as used herein shall mean non-callable and non- redeemable securities evidencing an obligation to timely pay principal and interest in a full and timely manner that are direct obligations of the United States of America for the payment of which its full faith and credit is pledged. (j) Upon Borrower's compliance with all of the conditions to Defeasance and a Release set forth in Article 5(b) through (i), Lender shall release Borrower from this Note and the Property from the lien of the Security Instrument and the Other Security Documents. All costs and expenses of Lender incurred in connection with the Defeasance and Release, including, without limitation, Lender's reasonable counsel's fees and expenses, shall be paid by Borrower simultaneously with the delivery of the Release documentation. (k) If a Default Prepayment (defined below) occurs, Borrower shall pay to Lender the entire Debt, including, without limitation, an amount (the "Default Consideration") equal to the greater of (i) the amount (if any) which, when added to the outstanding principal amount of the Note will be sufficient to purchase Defeasance Collateral providing the required Scheduled Defeasance Payments assuming Defeasance would be permitted hereunder, or (ii) one percent (1%) of the Default Prepayment. For purposes of this Note, the term "Default Prepayment" shall mean a prepayment of the principal amount of this Note made after the acceleration of the Maturity Date under any circumstances, including, without limitation, a prepayment occurring after an Event of Default or in connection with reinstatement of the Security Instrument provided by statute under foreclosure proceedings or exercise of a power of sale, any statutory right of redemption exercised by Borrower or any other party having a statutory right to redeem or prevent foreclosure, any sale in foreclosure or under exercise of a power of sale or otherwise. (l) Notwithstanding anything to the contrary herein, provided no Event of Default exists under this Note, the Security Instrument or the Other Security Documents, (i) Borrower may prepay the principal balance of this Note in whole during the three (3) months prior to the Maturity Date and no prepayment consideration shall be due in connection therewith, but Borrower shall be required to pay all other sums due hereunder together with all interest which would have accrued on the principal balance of this Note after the date of prepayment to the next Monthly Payment Date (the "Interest Shortfall Payment"), if such prepayment occurs on a date which is not a Monthly Payment Date; and (ii) if a complete or partial prepayment results from the application of insurance proceeds or condemnation awards pursuant to Sections 3.3, 3.6 or 3.7 of the Security Instrument, no prepayment consideration or Default Consideration shall be due in connection therewith, but Borrower shall be required to pay all other sums due hereunder, including, without limitation, the Interest Shortfall Payment, if applicable. -5- 6 ARTICLE 6 SECURITY This Note is secured by the Security Instrument and the Other Security Documents. The term "Security Instrument" as used in this Note shall mean the Deed of Trust and Security Agreement dated the date hereof in the principal sum of $_____________ given by Borrower to (or for the benefit of) Lender, together with any and all extensions, renewals, substitutions, replacements, amendments, modifications and/or restatements thereof covering the fee estate of Borrower in certain premises located in ________ County, State of ________, and other property, as more particularly described therein (collectively, the "Property") and intended to be duly recorded in said County. The term "Other Security Documents" as used in this Note shall mean all and any of the documents other than this Note or the Security Instrument now or hereafter executed by Borrower and/or others and by or in favor of Lender, which wholly or partially secure or guarantee payment of this Note or are otherwise executed and/or delivered in connection with the loan evidenced by this Note, together with any and all extensions, renewals, substitutions, replacements, amendments, modifications and/or restatements thereof. Whenever used, the singular number shall include the plural, the plural number shall include the singular, and the words "Lender" and "Borrower" shall include their respective successors, assigns, heirs, executors and administrators. All of the terms, covenants and conditions contained in the Security Instrument and the Other Security Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. ARTICLE 7 SAVINGS CLAUSE This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance due hereunder at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of this Note, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of such maximum rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to such maximum rate and all previous payments in excess of the maximum rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the Debt, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. ARTICLE 8 LATE CHARGE If any sum payable under this Note is not paid on or prior to the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of the unpaid sum or the maximum amount permitted by applicable law to defray the expenses incurred by -6- 7 Lender in handling and processing the delinquent payment and to compensate Lender for the loss of the use of the delinquent payment and the amount shall be secured by the Security Instrument and the Other Security Documents. ARTICLE 9 NO ORAL CHANGE This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 10 JOINT AND SEVERAL LIABILITY If Borrower consists of more than one person or party, the obligations and liabilities of each person or party shall be joint and several. ARTICLE 11 WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Security Instrument or the Other Security Documents made by agreement between Lender or any other person or party shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other person or entity who may become liable for the payment of all or any part of the Debt, under this Note, the Security Instrument or the Other Security Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Security Instrument or the Other Security Documents. If Borrower is a partnership, the agreements contained herein shall remain in full force and effect, notwithstanding any changes in the individuals or entities comprising the partnership, and the term "Borrower," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and its partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and effect notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "Borrower" as used herein, shall include any alternate or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If Borrower is a limited liability company, the agreements herein contained shall remain in full force and effect, notwithstanding any changes in the individuals or entities comprising the limited liability company and the term "Borrower," as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and its members shall not be released from any liability. (Nothing in the foregoing sentence shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, corporation or limited liability company which may be set forth in the Security Instrument or any Other Security Document.) -7- 8 ARTICLE 12 TRANSFER Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Security Instrument and the Other Security Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter, but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 13 WAIVER OF TRIAL BY JURY BORROWER AND LENDER EACH HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE, THIS NOTE, THE SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH. ARTICLE 14 EXCULPATION (a) Except as otherwise provided herein, in the Security Instrument or in the Other Security Documents, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in this Note, the Security Instrument or the Other Security Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, action for specific performance or other appropriate action or proceeding to enable Lender to enforce and realize upon this Note, the Security Instrument, the Other Security Documents, and the interest in the Property, the Rents (as defined in the Security Instrument) and any other collateral given to Lender created by this Note, the Security Instrument and the Other Security Documents; provided, however, that any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Property, in the Rents and in any other collateral given to Lender. Lender, by accepting this Note and the Security Instrument, agrees that it shall not, except as otherwise provided in this Article 14, sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding, under or by reason of or under or in connection with this Note, the Other Security Documents or the Security Instrument. The provisions of this Section shall not, however, (i) constitute a waiver, release or impairment of any obligation evidenced or secured by this Note, the Other Security Documents or the Security Instrument; (ii) impair the right of Lender to name -8- 9 Borrower as a party defendant in any action or suit for judicial foreclosure and sale under the Security Instrument; (iii) affect the validity or enforceability of any indemnity (including, without limitation, the Environmental Indemnity (as defined in the Security Instrument)), guaranty (including, without limitation, the Guaranty of Recourse Obligations of Borrower dated as of the date hereof given to Lender by FelCor Lodging Trust Incorporated and FelCor Lodging Limited Partnership, master lease or similar instrument made in connection with this Note, the Security Instrument, or the Other Security Documents; (iv) impair the right of Lender to obtain the appointment of a receiver; (v) impair the enforcement of the Assignment of Leases and Rents executed in connection herewith; (vi) impair the right of Lender to enforce the provisions of Section 13.2 of the Security Instrument; or (vii) impair the right of Lender to obtain a deficiency judgment or other judgment on the Note against Borrower if necessary to obtain any insurance proceeds or condemnation awards to which Lender would otherwise be entitled under the Security Instrument; provided however, Lender shall only enforce such judgment to the extent of the insurance proceeds and/or condemnation awards. (b) Notwithstanding the provisions of this Article 14 to the contrary, Borrower shall be personally liable to Lender for the Losses (as defined in the Security Instrument) it incurs due to: (i) fraud or intentional misrepresentation by Borrower or any other person or entity in connection with the execution and the delivery of this Note, the Security Instrument or the Other Security Documents; (ii) Borrower's misapplication or misappropriation of Rents received by Borrower after the occurrence of an Event of Default; (iii) Borrower's misapplication or misappropriation of tenant security deposits or Rents collected in advance; (iv) the misapplication or the misappropriation of insurance proceeds or condemnation awards; (v) Borrower's failure to pay Taxes (as defined in the Security Instrument), Other Charges (as defined in the Security Instrument) (except to the extent that sums sufficient to pay such amounts have been deposited in escrow with Lender pursuant to the terms of the Security Instrument), charges for labor or materials or other charges that can create liens on the Property; (vi) Borrower's failure to return or to reimburse Lender for all Personal Property (as defined in the Security Instrument) taken from the Property by or on behalf of Borrower and not replaced with Personal Property of the same utility and of the same or greater value; (vii) any act of actual waste or arson by Borrower, any principal, affiliate, member or general partner thereof or by any Indemnitor (as defined in the Security Instrument) or Guarantor (as defined in the Security Instrument); (viii) any fees or commissions paid by Borrower to any principal, affiliate, member or general partner of Borrower, Indemnitor or Guarantor in violation of the terms of this Note, the Security Instrument or the Other Security Documents; or (ix) Borrower's failure to comply with the provisions of Sections 12.1 and 12.2 of the Security Instrument. (c) Notwithstanding the foregoing, the agreement of Lender not to pursue recourse liability as set forth in Subsection (a) above SHALL BECOME NULL AND VOID and shall be of no further force and effect in the event of any default under Sections 10.1(p) (but with respect to a failure to deliver the statements required pursuant to the terms of Section 3.12(f), only after ten (10) days written notice) or 4.2 or Article 8 of the Security Instrument; provided, however, that with respect to any default under Section 10.1(p) of the Security Instrument only, upon Borrower's cure of said default and Lender's acceptance of said cure, Lender's agreement not to pursue recourse liability shall be reinstated, provided further, however, that Borrower shall be liable to Lender for the losses it realizes due to the failure to deliver the statements required pursuant to the terms of Section 10.1(p) of the Security Instrument from the date of said failure up to and including the date of said cure and acceptance thereof. -9- 10 (d) Nothing herein shall be deemed to be a waiver of any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provision of the U.S. Bankruptcy Code to file a claim for the full amount of the indebtedness secured by the Security Instrument or to require that all collateral shall continue to secure all of the indebtedness owing to Lender in accordance with this Note, the Security Instrument and the Other Security Documents. ARTICLE 15 AUTHORITY Borrower represents that Borrower has full power, authority and legal right to execute and deliver this Note, the Security Instrument and the Other Security Documents and that this Note, the Security Instrument and the Other Security Documents constitute valid and binding obligations of Borrower. ARTICLE 16 APPLICABLE LAW This Note shall be deemed to be a contract entered into pursuant to the laws of the State of New York and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New York. ARTICLE 17 JURISDICTION With respect to any claim or action arising hereunder or under the Security Instrument or the Other Security Documents, Borrower and Lender each (a) irrevocably submits to the nonexclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York, New York, and appellate courts from any thereof, and (b) irrevocably waives any objection which it may have at any time to the laying on venue of any suit, action or proceeding arising out of or relating to this Note brought in any such court, irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing in this Note will be deemed to preclude Lender from bringing an action or proceeding with respect hereto in any other jurisdiction. ARTICLE 18 COUNSEL FEES In the event that it should become necessary to employ counsel to collect the Debt or to protect or foreclose the security therefor, Borrower also agrees to pay all reasonable fees and expenses of Lender, including, without limitation, reasonable attorney's fees for the services of such counsel whether or not suit be brought. -10- 11 ARTICLE 19 NOTICES All notices required or permitted hereunder shall be given and become effective as provided in the Security Instrument. ARTICLE 20 MISCELLANEOUS (a) Wherever pursuant to this Note (i) Lender exercises any right given to it to approve or disapprove, (ii) any arrangement or term is to be satisfactory to Lender, or (iii) any other decision or determination is to be made by Lender, the decision of Lender to approve or disapprove, all decisions that arrangements or terms are satisfactory or not satisfactory and all other decisions and determinations made by Lender, shall be in the sole and absolute discretion of Lender, except as may be otherwise expressly and specifically provided herein. (b) Wherever pursuant to this Note it is provided that Borrower pay any costs and expenses, such costs and expenses shall include, but not be limited to, reasonable legal fees and disbursements of Lender with respect to retained firms. ARTICLE 21 DEFINITIONS The terms set forth below are defined in the following Sections of this Note: (a) Applicable Interest Rate: Article 2; (b) Borrower: Preamble, Articles 6 and 11; (c) Business Day: Article 5, Section 5(f); (d) Debt: Article 3; (e) Default Consideration: Article 5, Section 5(l); (f) Default Prepayment: Article 5, Section 5(l); (g) Default Rate: Article 4; (h) Defeasance: Article 5, Section 5(b); (i) Defeasance Collateral: Article 5, Section 5(i); (j) Defeasance Date: Article 5, Subsection 5(c)(i); (k) Defeasance Obligor: Article 5, Section 5(d); -11- 12 (l) Defeasance Security Agreement: Article 5, Subsection 5(c)(iv); (m) Event of Default: Article 3; (n) Interest Shortfall Payment: Article 5, Section 5(l); (o) Lender: Preamble and Article 6; (p) Lockout Period Expiration Date: Article 5, Section 5(b); (q) Maturity Date: Article 1, Section 1(b); (r) Monthly Payment Date Article 5, Section 5(b); (s) Other Security Documents: Article 6; (t) Property: Article 6; (u) Release: Article 5, Section 5(b); (v) REMIC Trust: Article 5, Subsection 5(c)(v); (w) Scheduled Defeasance Payments: Article 5, Section 5(f); and (x) Security Instrument: Article 6. -12- 13 IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first written. ----------------------------, a Delaware ----------------- By: --------------------------------- Name: Title: -13- EX-27 7 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM FELCOR LODGING TRUST INCORPORATED JUNE 30, 2000 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 50,852 0 36,326 0 0 87,178 4,194,490 397,735 4,176,765 127,176 1,882,743 0 295,000 694 1,598,564 4,176,765 0 264,670 0 0 0 0 77,644 (9,973) 0 (9,973) 0 0 0 (9,972) (0.39) (0.39)
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