-----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, Tr9+1+tZk+pkjyJTOiH9TPv4wVcopZQZp+zk1lI8r2gbGu00u1MQ6/7aVBZwFzVT 52yyh9GjTfqcD6D8DVwHdg== 0000950134-03-008140.txt : 20030515 0000950134-03-008140.hdr.sgml : 20030515 20030515145621 ACCESSION NUMBER: 0000950134-03-008140 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FELCOR LODGING TRUST INC CENTRAL INDEX KEY: 0000923603 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752541756 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14236 FILM NUMBER: 03704105 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 d05903e10vq.txt FORM 10-Q 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 MARCH 31, 2003 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 organization) Identification No.) 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 | | Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No | | The number of shares of Common Stock, par value $.01 per share, of FelCor Lodging Trust Incorporated outstanding on May 12, 2003 was 58,899,907. FELCOR LODGING TRUST INCORPORATED INDEX
Page ---- PART I. -- FINANCIAL INFORMATION Item 1. Financial Statements........................................................................... 3 Consolidated Balance Sheets - March 31, 2003 (unaudited) and December 31, 2002.................................................................. 3 Consolidated Statements of Operations - For the Three Months Ended March 31, 2003 and 2002 (unaudited).............................................. 4 Consolidated Statements of Comprehensive Income (Loss) - For the Three Months Ended March 31, 2003 and 2002 (unaudited) ............................................. 5 Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2003 and 2002 (unaudited).............................................. 6 Notes to Consolidated Financial Statements.................................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General.. 15 Financial Comparison........................................................................ 15 Results of Operations....................................................................... 15 Liquidity and Capital Resources............................................................. 21 Inflation................................................................................... 25 Seasonality................................................................................. 25 Disclosure Regarding Forward Looking Statements............................................. 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................... 26 Item 4. Controls and Procedures........................................................................ 26 PART II. - OTHER INFORMATION Item 5. Other Information.............................................................................. 27 Item 6. Exhibits and Reports on Form 8-K............................................................... 27 SIGNATURE.................................................................................................... 29 Certifications Pursuant to Section 302 of Sarbanes-Oxley Act of 2002......................................... 30
2 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FELCOR LODGING TRUST INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 2003 2002 ----------- ----------- (UNAUDITED) ASSETS Investment in hotels, net of accumulated depreciation of $819,094 at March 31, 2003 and $782,166 at December 31, 2002 ...................... $ 3,466,924 $ 3,473,452 Investment in unconsolidated entities ....................................... 141,170 141,943 Cash and cash equivalents ................................................... 155,671 66,542 Accounts receivable, net of allowance for doubtful accounts of $1,134 in 2003 and $1,413 in 2002 ............................................... 53,557 48,548 Deferred expenses, net of accumulated amortization of $14,554 at March 31, 2003 and $13,357 at December 31, 2002 ....................... 23,636 24,185 Other assets ................................................................ 31,930 25,693 ----------- ----------- Total assets ....................................................... $ 3,872,888 $ 3,780,363 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Debt, net of discount of $4,093 at March 31, 2003 and $3,231 at December 31, 2002 .............................................. $ 2,017,294 $ 1,877,134 Distributions payable ....................................................... 5,485 14,792 Accrued expenses and other liabilities ...................................... 135,666 150,385 Minority interest in FelCor LP, 3,288 and 3,290 units issued and outstanding at March 31, 2003 and December 31, 2002, respectively ........ 71,365 72,639 Minority interest in other partnerships ..................................... 49,026 48,596 ----------- ----------- Total liabilities .................................................. 2,278,836 2,163,546 ----------- ----------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, 20,000 shares authorized: Series A Cumulative Convertible Preferred Stock, 5,980 shares issued and outstanding at March 31, 2003 and December 31, 2002 ............... 149,512 149,512 Series B Cumulative Redeemable Preferred Stock, 68 shares issued and outstanding at March 31, 2003 and December 31, 2002 ............... 169,395 169,395 Common stock, $.01 par value, 200,000 shares authorized, 75,126 shares issued, including shares in treasury, at March 31, 2003 and December 31, 2002 ........................................................ 751 751 Additional paid-in capital .................................................. 2,202,869 2,204,530 Accumulated other comprehensive income ...................................... 4,720 (99) Distributions in excess of earnings ......................................... (621,652) (593,834) Less: Common stock in treasury, at cost, 16,277 and 16,369 shares at March 31, 2003 and December 31, 2002, respectively .................... (311,543) (313,438) ----------- ----------- Total stockholders' equity ......................................... 1,594,052 1,616,817 ----------- ----------- Total liabilities and stockholders' equity ......................... $ 3,872,888 $ 3,780,363 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 2003 AND 2002 (UNAUDITED, IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 2003 2002 --------- --------- Revenues: Hotel operating revenue ............................ $ 306,946 $ 324,140 Retail space rental and other revenue .............. 400 670 --------- --------- Total revenues ........................................ 307,346 324,810 --------- --------- Expenses: Hotel departmental expenses ........................ 109,919 110,540 Other property operating costs ..................... 91,824 89,160 Management and franchise fees ...................... 16,310 15,648 Taxes, insurance and lease expense ................. 32,533 34,570 Corporate expenses ................................. 3,423 3,746 Depreciation ....................................... 36,107 38,618 --------- --------- Total operating expenses .............................. 290,116 292,282 --------- --------- Operating income ...................................... 17,230 32,528 Interest expense, net ................................. (40,253) (41,196) Gain on early extinguishment of debt .................. 953 --------- --------- Loss before equity in income of unconsolidated entities and minority interests ............................. (22,070) (8,668) Equity in income (loss) from unconsolidated entities (148) 1,221 Minority interests ................................. 1,127 1,301 --------- --------- Net loss .............................................. (21,091) (6,146) Preferred dividends ................................ (6,726) (6,150) --------- --------- Net loss applicable to common stockholders ............ $ (27,817) $ (12,296) ========= ========= Earnings (loss) per share data: Basic: Net loss applicable to common stockholders ....... $ (0.48) $ (0.23) ========= ========= Weighted average common shares outstanding ....... 58,532 52,717 Diluted: Net loss applicable to common stockholders ....... $ (0.48) $ (0.23) ========= ========= Weighted average common shares outstanding ....... 58,532 52,717 Cash dividends declared on common stock ............... $ (0.00) $ (0.15) ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2003 2002 -------- ------- Net loss .............................. $(21,091) $(6,146) Foreign currency translation adjustment 4,819 581 -------- ------- Comprehensive loss ............... $(16,272) $(5,565) ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 5 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2003 2002 --------- --------- Cash flows from operating activities: Net loss ................................................................... $ (21,091) $ (6,146) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation ..................................................... 36,107 38,618 Amortization of deferred financing fees .......................... 1,197 1,305 Accretion of debt, net of discount ............................... 91 103 Amortization of unearned compensation ............................ 517 509 Equity in loss (income) from unconsolidated entities ............. 148 (1,221) Gain on debt extinguishment ...................................... (953) Minority interests ............................................... (1,127) (1,301) Changes in assets and liabilities: Accounts receivable .............................................. (5,080) (5,932) Deferred expenses ................................................ (648) (233) Other assets ..................................................... (6,349) (10,217) Accrued expenses and other liabilities ........................... (14,719) (4,201) --------- --------- Net cash flow provided by (used in) operating activities (11,907) 11,284 --------- --------- Cash flows (used in) provided by investing activities: Improvements and additions to hotels ....................................... (24,373) (8,448) Cash distributions from unconsolidated entities ............................ 625 2,265 --------- --------- Net cash flow used in investing activities ............. (23,748) (6,183) --------- --------- Cash flows (used in) provided by financing activities: Proceeds from borrowings ................................................... 149,119 Repayment of borrowings .................................................... (8,379) (13,202) Purchase of treasury stock, stock grants, and assumed stock options ........ (92) Distributions paid to FelCor LP limited partners ........................... (493) (1,351) Distributions paid to preferred stockholders ............................... (6,726) (6,150) Distributions paid to common stockholders .................................. (8,815) (1,749) --------- --------- Net cash flow provided by (used in) financing activities 124,706 (22,544) --------- --------- Effect of exchange rate changes on cash .............................................. 78 732 Net change in cash and cash equivalents .............................................. 89,129 (16,711) Cash and cash equivalents at beginning of periods .................................... 66,542 128,742 --------- --------- Cash and cash equivalents at end of periods .......................................... $ 155,671 $ 112,031 ========= ========= Supplemental cash flow information-- Interest paid .............................................................. $ 44,053 $ 41,594 ========= =========
The accompanying notes are an integral part of these consolidated financial statements 6 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION In 1994, FelCor Lodging Trust Incorporated, or FelCor, went public as a real estate investment trust (REIT) with six hotels and a market capitalization of $120 million. At March 31, 2003, FelCor was the nation's second largest lodging REIT and the largest owner of full service, all-suite hotels. As the sole general partner of, and the owner of a greater than 95% partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP, our portfolio at March 31, 2003, was comprised of 169 hotels, the operating revenues and expenses of which are reflected in our consolidated statements of operations because of our ownership of the operating lessees of these hotels. We owned 77 upscale, all-suite hotels, 83 hotels in the upscale or full service segments and are the largest owner of Embassy Suites(R) Hotels and Doubletree Guest Suites(R) hotels, at March 31, 2003. All of our operations are conducted solely through FelCor LP or its subsidiaries. At March 31, 2003, we owned a 100% real estate interest in 145 hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels and 50% interests in unconsolidated entities that own 29 hotels. The operations of 15 of these 29 hotels are included in our consolidated results of operations due to our ownership of the lessee of the hotels. At March 31, 2003, we had an aggregate of 62,154,164 shares of FelCor common stock and units of FelCor LP limited partnership interest outstanding. The following table provides a schedule of our 169 consolidated hotel operations, by brand, at March 31, 2003:
BRAND Hilton Hotels Corporation, or Hilton, brands: Embassy Suites Hotels ................................... 59 Doubletree(R) and Doubletree Guest Suites ............... 13 Hampton Inn(R) .......................................... 7 Hilton Suites(R) ........................................ 1 Homewood Suites(R) ...................................... 1 InterContinental Hotels Group brands: Holiday Inn(R) .......................................... 39 Crowne Plaza(R) and Crowne Plaza Suites(R) .............. 18 Holiday Inn Select(R) ................................... 10 Holiday Inn Express(R) .................................. 3 Starwood Hotels & Resorts Worldwide Inc., or Starwood, brands: Sheraton(R) and Sheraton Suites(R) ...................... 10 Westin(R) ............................................... 1 Other brands ................................................. 7 --- Total hotels ................................................. 169 ===
At March 31, 2003, the operations of our 169 hotels were located in the United States (35 states) and Canada (six hotels), with a concentration in Texas (36 hotels), California (19 hotels), Florida (16 hotels) and Georgia (12 hotels). Approximately 54% of our hotel room revenues were generated from hotels in these four states during the quarter. 7 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION -- (CONTINUED) At March 31, 2003, of the 169 hotels, (i) subsidiaries of InterContinental Hotels Group managed 82, (ii) subsidiaries of Hilton managed 72, (iii) subsidiaries of Starwood managed 11, (iv) subsidiaries of Interstate Hotels Corporation, or IHC, managed two, and (v) two independent management companies managed one each. 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 stockholders' equity. The financial information for the three months ended March 31, 2003, and 2002, is unaudited. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying financial statements for the three months ended March 31, 2003, and 2002, include adjustments made to management's estimates (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, 2002, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 ("Form 10-K"). Operating results for the three months ended March 31, 2003, are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2003. 2. INVESTMENT IN UNCONSOLIDATED ENTITIES We owned 50% interests in joint venture entities that owned 29 hotels at March 31, 2003, and 24 hotels at March 31, 2002. We also owned a 50% interest in entities that own an undeveloped parcel of land, provide condominium management services, develop condominiums in Myrtle Beach, South Carolina, and lease 13 hotels. We account for our investments in these unconsolidated entities under the equity method. Summarized combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
MARCH 31, DECEMBER 31, 2003 2002 -------- -------- Balance sheet information: Investment in hotels, net of accumulated depreciation $388,530 $383,249 Total assets ........................................ $416,604 $408,979 Debt ................................................ $285,341 $278,978 Total liabilities ................................... $286,415 $279,887 Equity .............................................. $129,811 $129,854
Debt of our unconsolidated entities at March 31, 2003, consisted of $266.7 million of non-recourse mortgage debt. It also included $9.5 million of mortgage debt guaranteed by us and $9.2 million of mortgage debt guaranteed by Hilton, one of our joint venture partners. The debt guaranteed by us consisted primarily of 50% of a loan related to the construction of a residential condominium project in Myrtle Beach, South Carolina. The loan commitment is for $97.6 million, of which approximately $18.4 million was outstanding as of March 31, 2003. Our guarantee reduces from 50% to 25% of the outstanding balance when the condominium project is completed and receives a certificate of occupancy, which we expect to occur in late 2004. Our guarantee is a payment guarantee and will trigger in the event that the joint venture fails to pay interest or principal due under the debt agreement. The loan matures in August 2005, and bears interest at LIBOR plus 200 basis points. As of March 31, 2003, we had not established any liability related to our guarantees of debt because it was not believed to be probable that we would be required to perform under the guarantees. 8 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. INVESTMENT IN UNCONSOLIDATED ENTITIES - (CONTINUED) Summarized combined statement of operations information for 100% of these unconsolidated entities is as follows (in thousands):
THREE MONTHS ENDED MARCH 31, 2003 2002 ------- ------- Total revenues ................... $21,148 $19,177 Net income ....................... $ 720 $ 1,719
3. DEBT Debt at March 31, 2003, and December 31, 2002, consisted of the following (in thousands):
COLLATERAL(a) AT INTEREST RATE AT MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, 2003 2003 MATURITY DATE 2003 2002 ------------- -------------- ------------- ------------- --------- FLOATING RATE DEBT: Line of credit None 4.55% October 2004 $ 149,497 Publicly-traded term notes-swapped None 4.50(b) October 2004 174,792 $ 174,760 Publicly-traded term notes-swapped None 5.37(b) October 2007 75,000 25,000 Promissory note None 3.34 June 2016 650 650 ---- ---------- ---------- Total floating rate debt(c) 4.69% 399,939 200,410 ---- ---------- ---------- FIXED RATE DEBT: Publicly-traded term notes None 7.63 October 2007 49,543 99,518 Publicly-traded term notes None 9.50 September 2008 596,363 596,195 Publicly-traded term notes None 8.50 June 2011 297,969 297,907 Mortgage debt 15 hotels 7.24 November 2007 133,970 134,738 Mortgage debt 7 hotels 7.54 April 2009 93,840 94,288 Mortgage debt 6 hotels 7.55 June 2009 70,604 70,937 Mortgage debt 7 hotels 8.73 May 2010 139,803 140,315 Mortgage debt 8 hotels 8.70 May 2010 179,890 180,534 Mortgage debt 5 hotels 7.20 2005 - 2008 48,338 54,993 Other 1 hotel 9.08 2011 7,035 7,299 ---- ---------- ---------- Total fixed rate debt(c) 8.65 1,617,355 1,676,724 ---- ---------- ---------- Total debt(c) 7.86% $2,017,294 $1,877,134 ==== ========== ==========
(a) At March 31, 2003, we had unencumbered investments in hotels with a net book value totaling $2.3 billion. (b) At March 31, 2003, our $175 million publicly-traded notes due October 2004 and $75 million of our publicly traded notes due October 2007, were matched with interest rate swap agreements that effectively converted the fixed interest rate on the notes to a floating interest rate tied to LIBOR. The differences to be paid or received by us under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense. The interest rate swaps decreased interest expense by $1.6 million for the three months ended March 31, 2003. (c) Calculated based on the weighted average outstanding debt at March 31, 2003. All of our floating rate debt at March 31, 2003, was based upon LIBOR (1.30% as of March 31, 2003). We reported interest expense, net of interest income, of $0.4 million and $0.6 million, and capitalized interest of $0.3 million and $0.1 million, for the three months ended March 31, 2003 and 2002, respectively. We recorded a gain of $1 million as a result of the early extinguishment of a mortgage note, maturing in 2003, during the three months ended March 31, 2003. 9 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. DEBT -- (CONTINUED) Effective March 31, 2003, we completed the refinancing of $16 million of secured debt that was to mature in late 2003. Under the refinancing terms, this 7.15% fixed rate debt will convert to a floating interest rate of LIBOR plus 285 basis points in August 2003. The new maturity is August 2008. In January and February 2003, we entered into two additional interest rate swaps. These new fair value swaps are the same type as those that existed at December 31, 2002, in that they modify a portion of the interest characteristics of our outstanding fixed rate debt, without an exchange of the underlying principal amount, and effectively convert fixed rate debt to a variable rate. As designated fair value hedges, these swaps are marked to market through the income statement, but offset by the change in fair value of our swapped outstanding fixed rate debt. The notional amount of these new swaps is $50 million, on which we will receive a fixed rate of 7.625% and pay a rate of LIBOR plus an average spread of 4.325%. In addition to financial covenants, our line of credit includes certain other affirmative and negative covenants, including: restrictions on our ability to create or acquire wholly-owned subsidiaries; restrictions on the operation/ownership of our hotels; limitations on our ability to lease property or guarantee leases of other persons; limitations on our ability to make restricted payments (such as distributions on common and preferred stock, share repurchases and certain investments); limitations on our ability to merge or consolidate with other persons, issue stock of our subsidiaries and sell all or substantially all of our assets; restrictions on our ability to construct new hotels or acquire hotels under construction; limitations on our ability to change the nature of our business; limitations on our ability to modify certain instruments; limitations on our ability to create liens; limitations on our ability to enter into transactions with affiliates; and limitations on our ability to enter into joint ventures. At March 31, 2003, we were in compliance with all covenants under our line of credit. If revenue per available room declines continue or become more severe, we may be unable to satisfy all of the covenant requirements under our line of credit. In such an event, we may need to obtain further amendments from our lenders or seek other sources of financing. Further amendments to our line of credit, if any, may result in additional restrictions on our financial flexibility. Failure to satisfy one or more of the financial or other covenants under our line of credit could result in an event of default, notwithstanding our ability to meet our debt service obligations. Other events that would be events of default under our line of credit include a default in the payment of other recourse indebtedness in the amount of $10 million or more, bankruptcy or a change of control. Our other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than those in our line of credit. Most of our mortgage debt is non-recourse to us and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of our mortgage debt is prepayable, subject to various prepayment penalties, yield maintenance or defeasance obligations. Our publicly traded senior unsecured notes require that we satisfy a total leverage, a secured leverage and an interest coverage test in order to: incur additional indebtedness, except under our line of credit or to refinance maturing debt with replacement debt, as defined in our senior unsecured note indentures; pay dividends in excess of the minimum dividend required to meet the REIT qualification test; repurchase stock; or merge. As of March 31, 2003, and the date of this filing, we have satisfied all such incurrence tests. 10 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As a consequence of the economic slowdown in our business, and the travel and lodging industries generally, Standard & Poor's lowered its ratings on our $1.2 billion in senior unsecured debt one level, to B+, from BB-, in February 2003, and subsequently revised their outlook from stable to negative. Although Moody's affirmed its current rating on our senior debt in February 2003 (Ba3), we remain on negative outlook. Should Moody's downgrade its Ba3 rating on our senior unsecured debt one level, to B1, the interest rate on $900 million of our $1.2 billion senior unsecured debt would increase by 50 basis points, which would increase our annual interest expense by approximately $4.5 million. 4. DERIVATIVES On the date we enter into a derivative contract, we designate the derivative as a hedge to the exposure to changes in the fair value of a recognized asset or liability or a firm commitment (referred to as a fair value hedge), or the exposure to variable cash flows of a forecasted transaction (referred to as a cash flow hedge). For a fair value hedge, the gain or loss is recognized in earnings in the period of change, together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of that accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value. For a cash flow hedge the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. At March 31, 2003, all of our derivative contracts are fair value hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy, relating to our various hedge transactions. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or specific firm commitments. We also formally assess (both at the hedge's inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows or fair values of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When we determine that a derivative is not (or has ceased to be) highly effective as a hedge, we discontinue hedge accounting prospectively. In the normal course of business, we are exposed to the effect of interest rate changes. We limit these risks by following established risk management policies and procedures including the use of derivatives. It is our objective to use interest rate hedges to manage our fixed and floating interest rate position and not to engage in speculation on interest rates. We manage interest rate risk based on the varying circumstances of anticipated borrowings, and existing floating and fixed rate debt. We will generally seek to pursue interest rate risk mitigation strategies that will result in the least amount of reported earnings volatility under generally accepted accounting principles, while still meeting strategic economic objectives and maintaining adequate liquidity and flexibility. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. To manage the relative mix of our debt between fixed and variable rate instruments, at March 31, 2003, we had entered into nine interest rate swap agreements with five financial institutions with an aggregate notional value of $250 million. These interest rate swap agreements modify a portion of the interest characteristics of our outstanding fixed rate debt, without an exchange of the underlying principal amount, and effectively convert fixed rate debt to a variable rate. To determine the fair values of our derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. The interest rate swap agreements held at March 31, 2003, are designated as fair value hedges, are marked to market through the income statement, but are offset by the change in fair value of our swapped outstanding fixed rate debt. The estimated unrealized net gain on these interest rate swap agreements was approximately $10.1 million at March 31, 2003, and represents the amount we would receive if the agreements were terminated based on current market rates. 11 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. DERIVATIVES -- (CONTINUED) The fixed rates we will receive and the variable rate we will pay under these swaps as of March 31, 2003, are summarized in the following table:
Weighted-average Notional Amount Number of Spread Paid in Fixed Rate Swap Maturity (in millions) Swaps Excess of LIBOR Received ------------- ------------- ----- --------------- -------- October 2004 $175 6 3.2043% 7.3750% October 2007 75 3 4.0725% 7.6250% ---- $250 ====
The differences to be paid or received by us under the terms of the interest rate swap agreements are accrued as interest rates change and we recognize them as an adjustment to interest expense, pursuant to the terms of our interest rate swap agreement; they will have a corresponding effect on our future cash flows. Our interest rate swaps have semiannual settlement dates in April and October. Agreements such as these contain a credit risk in that the counterparties may be unable to fulfill the terms of the agreement. We minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and we do not anticipate nonperformance by the counterparties. The credit ratings for the financial institutions that are counterparties to our interest rate swap agreements range from A to AA-. 5. HOTEL OPERATING REVENUE AND EXPENSE, AND OTHER PROPERTY OPERATING COSTS Hotel operating revenue was comprised of the following (in thousands):
THREE MONTHS ENDED MARCH 31, ------------------- 2003 2002 -------- -------- Room ......................................... $242,972 $257,230 Food and beverage ............................ 47,914 50,691 Other operating departments .................. 16,060 16,219 -------- -------- Total hotel operating revenues .... $306,946 $324,140 ======== ========
Hotel departmental expenses were comprised of the following (in thousands):
THREE MONTHS ENDED MARCH 31, ------------------- 2003 2002 -------- -------- Room ......................................... $ 63,464 $ 63,233 Food and beverage ............................ 38,939 39,991 Other operating departments .................. 7,516 7,316 -------- -------- Total hotel departmental expenses . $109,919 $110,540 ======== ========
Other property operating costs were comprised of the following (in thousands):
THREE MONTHS ENDED MARCH 31, ----------------- 2003 2002 ------- ------- Hotel general and administrative expense ....... $30,344 $31,204 Marketing ...................................... 27,746 26,545 Repair and maintenance ......................... 17,797 16,798 Utilities ...................................... 15,937 14,613 ------- ------- Total other property operating costs $91,824 $89,160 ======= =======
Included in hotel departmental expenses and other property operating costs were hotel compensation and benefit expenses of $103.4 million and $101.0 million for the three months ended March 31, 2003 and 2002, respectively. 12 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. TAXES, INSURANCE AND LEASE EXPENSE Taxes, insurance and lease expense is comprised of the following (in thousands):
THREE MONTHS ENDED MARCH 31, ----------------- 2003 2002 ------- ------- Real estate and personal property taxes ............................... $13,393 $14,794 Operating lease expense, including $2,050 and $3,325 of percentage rent in 2003 and 2002, respectively(a) .................................. 13,483 14,852 Property and general liability insurance .............................. 4,985 4,282 State franchise and Canadian income taxes ............................. 672 642 ------- ------- Total taxes, insurance and lease expense ................... $32,533 $34,570 ======= =======
(a) Includes lease expense associated with 15 hotels owned by unconsolidated entities. 7. EARNINGS (LOSS) PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
THREE MONTHS ENDED MARCH 31, -------------------- 2003 2002 -------- -------- Numerator: Loss from continuing operations .......................... $(21,091) $ (6,146) Less: Preferred dividends ............................. (6,726) (6,150) -------- -------- Loss from continuing operations and net loss applicable to common stockholders .................................... $(27,817) $(12,296) ======== ======== Denominator: Denominator for basic and diluted earnings per share - weighted average shares ................................ 58,532 52,717 Earnings (loss) per share data: Basic: Net loss ................................................. $ (0.48) $ (0.23) ======== ======== Diluted: Net loss ................................................. $ (0.48) $ (0.23) ======== ========
Securities that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share, because they would have been antidilutive for the periods presented, are as follows (in thousands):
THREE MONTHS ENDED MARCH 31, ----- ----- 2003 2002 ----- ----- Stock Options ........................................ 35 Restricted shares granted but not vested ............. 309 322 Series A preferred shares ............................ 4,636 4,636
Series A preferred dividends that would be excluded from net loss applicable to common stockholders, if the Series A preferred shares were dilutive, were $2.9 million for the three months ended March 31, 2003 and 2002, respectively. 13 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. STOCK BASED COMPENSATION PLANS We apply APB Opinion 25 and related interpretations in accounting for our stock based compensation plans for stock based compensation issued prior to January 1, 2003. In 1995, SFAS 123, "Accounting for Stock-Based Compensation," was issued, which, if fully adopted by us, would have changed the methods we apply in recognizing the cost of the plans. As permitted under the transition provisions of SFAS 148, we began recognizing compensation expense for all new awards issued after December 31, 2002. Had the compensation cost for all of our stock-based compensation plans been determined in accordance with SFAS 123, our net income or loss and net income or loss per common share for the three months ended March 31, 2003 and 2002 would approximate the pro forma amounts below (in thousands, except per share data):
THREE MONTHS ENDED MARCH 31, ------------------------------------------------------- 2003 2002 ------------------------- ------------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- SFAS 123 charge.................................... $ 559 $ 628 APB 25 charge...................................... $ 517 $ 509 Income (loss) from continuing operations and net income (loss) applicable to common stockholders.. $ (27,817) $ (27,859) $ (12,296) $ (12,415) Diluted net income (loss) applicable to common stockholders per common share..................................... $ (0.48) $ (0.48) $ (0.23) $ (0.24)
The effects of applying SFAS 123 in this pro forma disclosure are not necessarily indicative of future results. 9. SUBSEQUENT EVENTS On April 24, 2003, we completed a $150 million non-recourse loan, at a floating interest rate of LIBOR plus 250 basis points, secured by 10 full service hotels. The loan matures in May 2006, with two, one-year extension options. The proceeds were used to pay off all outstanding borrowings under our unsecured line of credit. We also reduced our line of credit from $300 million to $150 million in total commitments for excess capacity and to reduce unused line fees. The reduction in our line of credit commitments will result in a $1.6 million expense in the second quarter of 2003, related to the write off of unamortized loan costs. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL For background information relating to us and the definition of certain capitalized terms used herein, reference is made to Notes 1 and 2 of Notes to Consolidated Financial Statements of FelCor Lodging Trust Incorporated appearing elsewhere herein. We have identified three strategic objectives for 2003: improve the competitive positioning of our hotel portfolio, maintain our financial flexibility, and reposition our portfolio. We have made the following progress in meeting these objectives through the date of this filing: - Improve the competitive positioning of our hotel portfolio - The Hilton Myrtle Beach Resort was converted from a Wyndham following the completion of a $15 million renovation. - We continue to provide the necessary capital spending to add long-term value to our hotels. We spent approximately 8% of our revenues, or $24.6 million, on capital expenditures in the first quarter of 2003 and we expect to spend a total of $60 to $70 million for the full year. - Maintenance of our financial flexibility and liquidity - We closed on a $150 million non-recourse secured loan in April and used the proceeds to payoff all outstanding balances under our line of credit. - We had cash on hand at March 31, 2003, of $156 million. - Repositioning our portfolio - We have retained brokers to market 27 of our previously identified 33 non-strategic hotels. - We expect to close on the sale of two non-strategic hotels and a parking garage in the second quarter of 2003, with total cash proceeds of approximately $15 million. FINANCIAL COMPARISON (IN MILLIONS, EXCEPT REVPAR, OPERATING MARGIN AND PERCENTAGE CHANGE)
THREE MONTHS ENDED MARCH 31, ------------------------------------ 2003 2002 % CHANGE ---- ---- -------- RevPAR ...................................... $ 58.13 $ 61.36 (5.3)% Operating Margin(1) ......................... 29.0% 33.6% (13.7)% Funds From Operations ("FFO")(2) ............ $ 9.6 $ 29.3 (67.2)% Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")(2) ......... $ 59.8 $ 77.2 (22.5)% Net loss .................................... $ (21.1) $ (6.1) (245.9)%
- ---------- (1) Operating margin is calculated as the percentage of hotel operating revenue in excess of hotel departmental expenses, other property operating costs, and management and franchise fees to hotel operating revenue. (2) For a discussion of the computation of FFO and EBITDA, and a reconciliation thereof to net loss, see "Results of Operations - Funds From Operations and EBITDA" below. RESULTS OF OPERATIONS Comparison of the Three Months Ended March 31, 2003 and 2002 We recorded a net loss of $21.1 million for the three months ended March 31, 2003, compared to a loss of $6.1 million for the same period in 2002. The principal reason for the increased loss in 2003 was that total revenue decreased $17.5 million for the three months ended March 31, 2003, compared to the same period in 2002. The primary component of this decrease was a decrease in room revenue of $14.3 million. The principal industry measurement of hotel room revenue is RevPAR. The Company's hotel portfolio RevPAR for the three months ended March 31, 2003, was 5.3% below that of the same period in 2002. The decrease in RevPAR was comprised of a 15 4.1% decrease in average daily rate ("ADR"), and a 1.2% decrease in occupied rooms as a percentage of available rooms, ("Occupancy"). The most significant factor contributing to the decreased revenue is the 4.1% decrease in ADR, which reflected the decline in both business and leisure travel for the three months ended March 31, 2003, compared to the same period in the prior year. Travel was negatively affected during the three months ended March 31, 2003, by the war in Iraq, the continued weak economic environment and the SARS outbreak. In addition, the disposition of seven hotels, and acquisition of two hotels, that occurred in 2002 resulted in a net decrease of $1.2 million in total revenue. Total operating expenses decreased by $2.2 million to $290.1 million, for the three months ended March 31, 2003, compared to the same period in 2002. This decrease consisted of decreases in taxes, insurance and lease expense and depreciation expense somewhat offset by increases in hotel operating expenses (defined as hotel departmental expenses, other property operating costs and management and franchise fees). Hotel operating expenses increased by $2.7 million, for the three months ended March 31, 2003, compared to the same period in 2002. Hotel operating margins as a percentage of hotel operating revenue decreased by 460 basis points compared to the same period last year. The deterioration in margins is principally related to a 4.1% decline in ADR and increases in labor related expenses, including health and workers compensation insurance (260 basis points), utility costs (70 basis points) and marketing and repair and maintenance costs, other than labor (80 basis points). Taxes, insurance and lease expense decreased $2.0 million, compared to the same period of 2002, principally as the result of decreases in percentage rent expense of $1.4 million and decreased property taxes of $1.4 million. These decreases were partially offset by an increase in general liability insurance expense of $0.7 million. The decrease in percentage rent expense is from a decrease in hotel revenue for those hotels with participating leases. Property taxes decreased primarily as a result of the resolution in the current quarter of prior year tax disputes. Interest expense, net of interest income, decreased $0.9 million for the three months ended March 31, 2003, from the same period in 2002. The decrease during the first quarter is primarily related to the lower average interest rate. The current quarter includes $1.0 million of gain on early extinguishment of debt. Equity in the income of unconsolidated entities decreased nearly $1.4 million for the three months ended March 31, 2003, compared to the same period in 2002. The change relates principally to a 5.1% decrease in RevPAR from our unconsolidated hotels. Funds From Operations and EBITDA Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminish predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measurements of performance to be helpful in evaluating a real estate company's operations. We consider 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 our 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 generally accepted accounting principles), excluding gains or losses from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. We believe that FFO and EBITDA are helpful to investors as a measure of the performance of an equity REIT. We compute FFO in accordance with standards established by NAREIT. This may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, or that interpret the current 16 NAREIT definition differently than we do. The following table details our computation of FFO and EBITDA (in thousands):
THREE MONTHS ENDED MARCH 31, 2003 2002 -------- -------- FUNDS FROM OPERATIONS Net loss $(21,091) $ (6,146) Depreciation 36,107 38,618 Depreciation from unconsolidated entities 2,859 2,178 Preferred dividends: Series A preferred dividends (2,915) -- Series B preferred dividends (3,811) (3,234) Minority interest in FelCor LP (1,557) (2,087) -------- -------- FFO(a) $ 9,592 $ 29,329 ======== ======== EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION FFO $ 9,592 $ 29,329 Interest expense 40,628 41,775 Interest expense from unconsolidated entities 2,339 2,359 Amortization expense 516 509 Preferred dividends: Series A preferred dividends 2,915 -- Series B preferred dividends 3,811 3,234 -------- -------- EBITDA(a) $ 59,801 $ 77,206 ======== ======== WEIGHTED AVERAGE SHARES AND UNITS Weighted average common shares outstanding 58,532 52,717 Weighted average FelCor LP units outstanding 3,289 9,005 Conversion of Series A preferred shares -- 4,636 Conversion of options and stock grants 309 357 -------- -------- Weighted average common shares and units outstanding 62,130 66,715 ======== ========
(a) Includes a $953,000 gain on early extinguishment of debt during the three months ended March 31, 2003. 17 Hotel Portfolio Composition The following tables set forth as of March 31, 2003, our hotel portfolio distribution by brand, by our top metropolitan markets, by selected states, by type of location, and by market segment. For comparative purposes, also set forth below is the percentage of EBITDA contributed by each grouping for the year ended December 31, 2002.
Brand Hotels Rooms % of Total Rooms % of 2002 EBITDA - ----- ------ ----- ---------------- ---------------- Embassy Suites(R) 59 14,842 32% 42% Holiday Inn(R)-branded 53 16,019 34 26 Crowne Plaza(R) 18 5,963 13 11 Sheraton(R)-branded 10 3,269 7 8 Doubletree(R)-branded 13 2,675 6 6 Other 16 3,673 8 7 Top Markets Atlanta 10 3,061 7% 8% Dallas 17 5,273 11 7 San Francisco Bay Area 9 3,255 7 5 New Orleans 2 746 2 4 Orlando 6 2,220 5 4 Philadelphia 3 1,174 3 4 Houston 5 1,696 4 3 Phoenix 4 1,027 2 3 Minneapolis 4 955 2 3 Chicago 4 1,239 3 3 Top Four States California 19 6,026 13% 19% Texas 36 10,366 22 16 Florida 16 5,346 12 12 Georgia 12 3,415 7 9 Location Suburban 79 19,615 42% 43% Urban 31 10,483 23 27 Airport 33 9,711 21 21 Highway 14 2,954 6 3 Resort 12 3,678 8 6 Segment Upscale all-suite 77 18,357 39% 52% Full service 55 17,088 37 29 Upscale 28 9,667 21 18 Limited service 9 1,329 3 2 Potential Sale Candidates 33 6,468 14% 7%
18 Hotel Operating Statistics The following tables set forth historical occupancy, ADR and RevPAR at March 31, 2003 and 2002, and the percentage changes therein between the periods presented, for our 169 consolidated hotels: OPERATING STATISTICS BY BRAND (FOR THE THREE MONTHS ENDED MARCH 31)
OCCUPANCY (%) ------------------------------------ 2003 2002 %VARIANCE ---- ---- --------- Embassy Suites hotels 66.7 66.5 0.3 Holiday Inn-branded hotels 58.2 59.3 (1.8) Crowne Plaza hotels 55.4 56.8 (2.4) Doubletree-branded hotels 64.8 60.4 7.3 Sheraton-branded hotels 58.9 56.4 4.4 Other hotels 45.5 54.2 (16.1) Total hotels 60.0 60.7 (1.2)
ADR ($) ------------------------------------ 2003 2002 %VARIANCE ---- ---- --------- Embassy Suites hotels 119.18 124.89 (4.6) Holiday Inn-branded hotels 77.25 80.37 (3.9) Crowne Plaza hotels 89.36 94.04 (5.0) Doubletree-branded hotels 100.72 105.23 (4.3) Sheraton-branded hotels 98.40 104.89 (6.2) Other hotels 84.08 86.45 (2.7) Total hotels 96.92 101.05 (4.1)
REVPAR ($) ------------------------------------ 2003 2002 %VARIANCE ---- ---- --------- Embassy Suites hotels 79.49 83.06 (4.3) Holiday Inn-branded hotels 44.95 47.62 (5.6) Crowne Plaza hotels 49.52 53.40 (7.3) Doubletree-branded hotels 65.27 63.54 2.7 Sheraton-branded hotels 57.98 59.20 (2.1) Other hotels 38.27 46.90 (18.4) Total hotels 58.13 61.36 (5.3)
19 OPERATING STATISTICS FOR OUR TOP 10 MARKETS (FOR THE THREE MONTHS ENDED MARCH 31)
OCCUPANCY (%) ------------------------------------ 2003 2002 %VARIANCE ---- ---- --------- Atlanta 67.1 70.1 (4.3) Dallas 45.7 51.7 (11.6) San Francisco Bay Area 59.8 58.2 2.7 New Orleans 62.2 73.5 (15.4) Orlando 65.7 69.5 (5.5) Philadelphia 52.6 53.8 (2.3) Houston 62.6 69.7 (10.2) Phoenix 80.5 71.9 11.8 Minneapolis 59.6 59.2 0.7 Chicago 58.3 53.2 9.7
ADR ($) ------------------------------------ 2003 2002 %VARIANCE ---- ---- --------- Atlanta 88.96 95.28 (6.6) Dallas 86.95 93.12 (6.6) San Francisco Bay Area 107.06 119.22 (9.1) New Orleans 156.18 165.08 (5.4) Orlando 83.48 89.60 (6.8) Philadelphia 99.47 110.53 (10.0) Houston 74.21 76.23 (2.7) Phoenix 128.61 138.17 (6.9) Minneapolis 119.86 121.72 (1.5) Chicago 101.30 112.38 (9.9)
REVPAR ($) ------------------------------------ 2003 2002 %VARIANCE ---- ---- --------- Atlanta 59.66 66.75 (10.6) Dallas 39.71 48.14 (17.5) San Francisco Bay Area 64.85 69.44 (6.6) New Orleans 97.12 121.31 (19.9) Orlando 54.87 62.30 (11.9) Philadelphia 52.34 59.51 (12.0) Houston 46.44 53.16 (12.6) Phoenix 103.49 99.40 4.1 Minneapolis 71.42 72.00 (0.8) Chicago 59.07 59.76 (1.1)
20 LIQUIDITY AND CAPITAL RESOURCES Our principal source of cash to meet our cash requirements, including distributions to stockholders and repayments of indebtedness, is from the results of operations of our hotels. For the three months ended March 31, 2003, net cash flow used in operating activities, consisting primarily of hotel operations, was $12 million. We currently expect that our cash flow provided by operating activities for 2003 will be approximately $58 million to $68 million using current RevPAR forecasts. We expect our 2003 capital expenditures to be approximately $60 to $70 million and we have no remaining debt maturities during 2003, other than $11 million in normal recurring principal payments. Cash necessary to fund cash flow shortfalls and distributions, if any, will be funded from our cash balances, which were $156 million at March 31, 2003, proceeds from the sale of hotels or additional borrowings. We expect our Board of Directors to defer future common dividends until our hotels experience a 2% to 4% increase in RevPAR over 2002, and to determine the amount of preferred dividends, if any, for each quarterly period, based upon the operating results of that quarter, economic conditions, other operating trends and minimum REIT distribution requirements. We do not currently anticipate paying any dividends on our common stock during 2003. Recent events, including the threat of additional terrorist attacks, the war in Iraq and the bankruptcy of several major corporations, have had an adverse impact on the capital markets. These events, new terrorist attacks or additional bankruptcies could further adversely affect the availability and cost of capital for our business. In addition, should the anticipated recovery of the overall economy, and of the lodging industry, continue to be delayed significantly, that too could adversely affect our operating cash flow and the availability and cost of capital for our business. As a consequence of the economic slowdown in our business, and the travel and lodging industries generally, Standard & Poor's lowered its ratings on our $1.2 billion in senior unsecured debt one level, from BB- to B+, in February 2003, and subsequently revised their outlook from stable to negative. Although Moody's affirmed its current rating on our senior debt in February 2003 (Ba3), we remain on negative outlook. Should Moody's downgrade our current rating, the interest rate on $900 million of our $1.2 billion in senior unsecured debt would increase by 50 basis points, which would increase our interest expense by $4.5 million on an annual basis. We are also subject to the risks of fluctuating hotel operating margins at our hotels, including but not limited to increases in wage and benefit costs, repair and maintenance expenses, utilities, insurance, and other operating expenses that can fluctuate disproportionately to revenues. Theses operating expenses are difficult to predict and control, resulting in an increased risk of volatility in our results of operations. The economic slowdown and the sharp drop in Occupancy and ADR that began in 2001, have resulted both in declines in RevPAR and an erosion in operating margins. If the declines in hotel RevPAR and/or operating margins worsen or continue for a protracted time, they could have a material adverse effect on our operations, earnings and cash flow. On April 24, 2003, we completed a $150 million non-recourse loan, at a floating interest rate of LIBOR plus 250 basis points secured by 10 full service hotels. The loan matures in May 2006, with two, one-year extension options. The proceeds were used to pay off all outstanding borrowings under our unsecured line of credit. We also reduced our line of credit from $300 million to $150 million in total commitments, for excess capacity and to save unused fees. We have no remaining debt maturing during 2003, other than $11 million in normal recurring principal payments. Our next significant debt maturity is our $175 million of senior notes maturing in October 2004. We expect to satisfy this obligation primarily from our excess cash and additional secured debt capacity. However, we also anticipate that we will have positive cash flow from operations and net sales proceeds from the sale of non-strategic hotels that may be available as secondary sources of funds for repayment of this debt. In addition to financial covenants, our line of credit includes certain other affirmative and negative covenants, including: restrictions on our ability to create or acquire wholly-owned subsidiaries; restrictions on the operation/ownership of our hotels; limitations on our ability to lease property or guarantee leases of other persons; limitations on our ability to make restricted payments (such as distributions on common and preferred stock, share repurchases and certain investments); limitations on our ability to merge or consolidate with other persons, to issue stock of our subsidiaries and to sell all or substantially all of our assets; restrictions on our ability to construct new hotels or acquire hotels under construction; limitations on our ability to change the nature of our business; limitations 21 on our ability to modify certain instruments; limitations on our ability to create liens; limitations on our ability to enter into transactions with affiliates; and limitations on our ability to enter into joint ventures. At March 31, 2003, we were in compliance with all of these covenants. Unless our business and cash flow stabilizes, we may not be able to satisfy the current financial covenant requirements. In such an event, we may need to obtain further amendments from our lenders under the line of credit to continue being able to borrow under it. We are not certain whether, to what extent, or upon what terms the lenders may be willing to further relax the covenants. Further amendments to our line of credit may result in additional restrictions on us that, together with any limitation on our ability to borrow under the line, may adversely affect our ability to run our business and manage our financial affairs. The breach of any of the covenants and limitations under our line of credit could result in the acceleration of amounts outstanding. Our failure to satisfy any accelerated indebtedness, if in the amount of $10 million or more, could result in the acceleration of most of our other unsecured recourse indebtedness. We may not be able to refinance or repay our debt in full under those circumstances. However, at March 31, 2003, we had $156 million in cash and our next significant debt maturity is our $175 million of senior notes maturing in October 2004. We expect to satisfy this obligation primarily from our excess cash and additional secured debt capacity. We also anticipate that we will have positive cash flow from operations and net sales proceeds from the sale of non-strategic hotels that may be available as secondary sources of funds for repayment of this debt. Our other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than those in our line of credit. Most of our mortgage debt is non-recourse to us and contains provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of our mortgage debt is prepayable, subject to various prepayment penalties, yield maintenance or defeasance obligations. After the $150 million of secured debt obtained in April 2003, we still have unencumbered investments in hotels with a net book value totaling $2.1 billion. Our publicly traded senior unsecured notes require that we satisfy a total leverage, a secured leverage and an interest coverage test in order to: incur additional indebtedness, except under our line of credit or to refinance maturing debt with replacement debt, as defined under our indentures; pay dividends in excess of the minimum dividend required to meet the REIT qualification test; repurchase stock; or merge. As of the date of this filing, we have satisfied all such incurrence tests. We currently expect that we will have the flexibility to meet these tests unless RevPAR declines continue or become more severe. We anticipate meeting our debt service obligations through a combination of cash on hand, cash flow from operations, additional secured debt and the sale of non-strategic hotel assets. We are currently negotiating with a lender to restructure two non-recourse cross collateralized loans related to two of our Dallas, Texas, hotels, one of which is currently closed. 22 SELECTED RATIOS
MARCH 31, ------------- 2003 2002 ---- ---- Consolidated debt (net of cash) to trailing twelve month EBITDA 6.5x 5.9x Total debt (net of cash) to trailing twelve month EBITDA 7.0x 6.4x Total debt (net of cash) to investment in hotels, at cost(a) 42.7% 41.8% EBITDA to consolidated interest paid(b) 1.8x 1.9x EBITDA to total interest expense(c) 1.7x 1.7x Fixed charge coverage ratio(d) 1.4x 1.5x
(a) Investment in hotels at cost is defined as consolidated investment in hotels, before accumulated depreciation, plus our pro rata share of unconsolidated investment in hotels, before accumulated depreciation. (b) EBITDA to consolidated interest paid represents trailing twelve month consolidated EBITDA divided by trailing twelve month interest expense before capitalized interest and amortization of debt costs. (c) EBITDA to total interest expense represents trailing twelve month consolidated EBITDA divided by trailing twelve month interest expense, including the Company's pro rata share of unconsolidated interest expense. (d) Fixed charges include preferred dividends, consolidated interest expense and interest expense from unconsolidated entities. At March 31, 2003, we had: - $155.7 million of cash and cash equivalents - Fixed interest rate debt equal to 80% of our total debt - Weighted average maturity of fixed interest rate debt of approximately 5.7 years, and - Secured debt to total assets of 17.4% Due to the uncertainties following the war in Iraq, heightened terrorism alerts, SARS and the impact of these events on the nation's economy, it is difficult to develop a meaningful earnings forecast. For the second quarter of 2003, we currently anticipate our portfolio RevPAR to be 7% to 8% below the comparable period of the prior year and operating margins to decrease 3% to 4%. Net loss for the second quarter of 2003, is expected to be within the range of $12 million to $18 million. FFO for the second quarter is expected to be within the range of $20 million to $27 million, and EBITDA is expected to be within the range of $70 million to $77 million for the same period. We estimate our full year 2003 hotel portfolio RevPAR to be 3% to 4% below 2002 and operating margins to decrease 2.25% to 2.75%. Net loss for the full year 2003, is expected to be within the range of $93 million to $103 million. Our FFO for the full year 2003 is currently anticipated to be within the range of $50 million to $60 million, and EBITDA is expected to be within the range of $250 million to $260 million for the same period. In the event that RevPAR declines, compared to the prior year, are greater than anticipated in the preparation of this forecast, or operating margins are lower than anticipated, we may not meet our forecast for the remainder of the year. RevPAR results for April 2003 were approximately 11% below the same period in 2002 and the first 12 days of May were approximately 6.5% below the same period in 2002. We attribute the April RevPAR decline to reduced travel during the war in Iraq, the lack of comparability due to the occurrence of Easter in April 2003, as compared to March in 2002, and the continued economic softness. Non-GAAP estimates of FFO and EBITDA are derived from our estimate of net loss applicable to common shareholders. Estimated FFO was computed by taking estimated net loss applicable to common shareholders, adding forecasted depreciation expense ($40 million for the second quarter and $157 million for the year) and deducting forecasted minority interest in FelCor LP ($1 million for the second quarter and $5 million for the year). To derive estimated EBITDA, FelCor started with estimated FFO and added back interest expense ($43 million for the second quarter and $173 million for the year), amortization ($0.5 million for the second quarter and $2 million for the year) and preferred stock dividends ($7 million for the second quarter and $27 million for the year). 23 The following details our debt outstanding at March 31, 2003, and December 31, 2002 (in thousands):
COLLATERAL(a) AT INTEREST RATE MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, 2003 2003 MATURITY DATE 2003 2002 ---------------- ---------------- ------------- ---------- ---------- FLOATING RATE DEBT: Line of credit None 4.55% October 2004 $ 149,497 Publicly-traded term notes-swapped None 4.50(b) October 2004 174,792 $ 174,760 Publicly-traded term notes-swapped None 5.37(b) October 2007 75,000 25,000 Promissory note None 3.34 June 2016 650 650 ---- ---------- ---------- Total floating rate debt(c) 4.69% 399,939 200,410 ---- ---------- ---------- FIXED RATE DEBT: Publicly-traded term notes None 7.63 October 2007 49,543 99,518 Publicly-traded term notes None 9.50 September 2008 596,363 596,195 Publicly-traded term notes None 8.50 June 2011 297,969 297,907 Mortgage debt 15 hotels 7.24 November 2007 133,970 134,738 Mortgage debt 7 hotels 7.54 April 2009 93,840 94,288 Mortgage debt 6 hotels 7.55 June 2009 70,604 70,937 Mortgage debt 7 hotels 8.73 May 2010 139,803 140,315 Mortgage debt 8 hotels 8.70 May 2010 179,890 180,534 Mortgage debt 5 hotels 7.20 2005 - 2008 48,338 54,993 Other 1 hotel 9.08 2011 7,035 7,299 ---- ---------- ---------- Total fixed rate debt(c) 8.65 1,617,355 1,676,724 ---- ---------- ---------- Total debt(c) 7.86% $2,017,294 $1,877,134 ==== ========== ==========
(a) At March 31, 2003, we had unencumbered investments in hotels with a net book value totaling $2.3 billion. (b) At March 31, 2003, our $175 million publicly-traded notes due October 2004 and $75 million of our publicly traded notes due October 2007, were matched with interest rate swap agreements that effectively converted the fixed interest rate on the notes to a floating interest rate tied to LIBOR. The differences to be paid or received by us under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense. The interest rate swaps decreased interest expense by $1.6 million for the three months ended March 31, 2003. (c) Calculated based on the weighted average outstanding debt as of March 31, 2003. At March 31, 2003, we had $175 million of publicly traded term notes due October 2004, and $75 million of publicly traded term notes due October 2007, that were matched with interest rate swap agreements which effectively convert the fixed interest rate on these notes to a variable interest rate. These interest rate swap agreements have maturity dates coinciding with the maturity dates of these publicly traded term notes. We entered into seven separate interest rate swap agreements with five different financial institutions. Under these agreements, we receive a fixed rate of 7.375% for the agreements maturing in October 2004, and 7.625% for the agreement maturing in October 2007. We pay the six-month LIBOR rate plus a spread ranging from 2.57% to 4.38%. The weighted average spread over LIBOR at March 31, 2003, was 3.46%. We spent approximately $24 million on capital expenditures at our hotels during the three months ended March 31, 2003. Our unconsolidated entities spent approximately $2.5 million on capital expenditures at hotels, and approximately $6.9 million on a residential condominium development project, during the three months ended March 31, 2003. Notwithstanding the current significant economic downturn, we believe that our hotels will continue to benefit from our extensive capital expenditure programs in previous years. We currently anticipate our 2003 capital expenditures to be between $60 and $70 million. Quantitative and Qualitative Disclosures About Market Risk At March 31, 2003, approximately 80% of our consolidated debt had fixed interest rates. Currently, market rates of interest are below the rates we are obligated to pay on our fixed-rate debt. 24 The following table provides information about our financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations at March 31, 2003, the table presents scheduled maturities and weighted average interest rates, by maturity dates. For interest rate swaps, the table presents the notional amount and weighted average interest rate, by contractual maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve as of March 31, 2003. The fair value of our fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements that could have been borrowed at March 31, 2003, at then current market interest rates. EXPECTED DEBT MATURITY DATES (DOLLARS IN THOUSANDS)
2003 2004 2005 2006 2007 THEREAFTER TOTAL FAIR VALUE ---- ---- ---- ---- ---- ---------- ----- ---------- Fixed rate: Debt $ 10,078 $189,083 $ 41,103 $ 13,978 $257,990 $1,359,008 $1,871,240 $1,751,278 Interest rate swaps (a) (175,000) (75,000) (250,000) Average interest rate 7.87% 7.91% 7.49% 8.05% 7.41% 8.87% 8.65% Floating rate: Debt 149,497 650 150,147 150,147 Interest rate swaps (a) 175,000 75,000 250,000 10,058 Average interest rate 4.53% 5.37% 10.20% 4.70% Total debt $ 10,078 $338,580 $ 41,103 $ 13,978 $257,990 $1,359,658 $2,021,387 Average interest rate 7.87% 4.67% 7.49% 8.05% 6.82% 8.87% 7.86% Net discount (4,093) Total debt $2,017,294
(a) At March 31, 2003, the Company's $175 million and $75 million in publicly-traded notes due October 2004 and October 2007, respectively, were matched with interest rate swap agreements that effectively converted the fixed interest rate on the notes to a variable interest rate tied to LIBOR. The interest rate swap agreements have the same maturity as the notes. Swap agreements, such as described above, contain a credit risk, in that the counterparties may be unable to fulfill the terms of the agreement. We minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and we do not anticipate nonperformance by the counterparties. The credit ratings for the financial institutions that are counterparties to our interest rate swap agreements range from A to AA-. INFLATION Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, require us to reduce room rates in the near term and may limit our ability to raise room rates in the future. SEASONALITY The lodging business is seasonal in nature. Generally, hotel revenues are greater in the second and third calendar quarters than in the first and fourth calendar quarters, although this may not be true for hotels in major tourist destinations. Revenues for hotels in tourist areas generally are substantially greater during tourist season than other times of the year. Seasonal variations in revenue at our hotels can be expected to cause quarterly fluctuations in our revenues. Quarterly earnings also may be adversely affected by events beyond our control, such as extreme weather conditions, economic factors and other considerations affecting travel. Historically, to the extent that cash flow from operations has been insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we have utilized cash on hand or borrowings under our line of credit to meet our cash requirements. 25 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. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. The risks, uncertainties and assumptions that may affect our actual results, some of which are discussed more fully in our previous filings under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (collectively, "Cautionary Disclosures") include: general economic conditions, including the timing and magnitude of any recovery from the current soft economy; future acts of terrorism; the availability of capital; the continuing effects of the war in Iraq; the effects of SARS on the travel industry; and numerous other factors that may affect results, performance and achievements. The forward looking statements included herein, and all subsequent written and oral forward looking statements attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the Cautionary Disclosures. We undertake no obligation to update any forward-looking statements to reflect future events or circumstances. 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 months ended March 31, 2003. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely accumulating and communicating to them material information relating to FelCor and its consolidated subsidiaries that are required to be included in our periodic SEC filings. (b) Changes in internal controls. Not applicable. 26 PART II. -- OTHER INFORMATION ITEM 5. OTHER INFORMATION. For information relating to certain other transactions by the Company through March 31, 2003, 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: The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 10.28 - Loan Agreement, dated April 24, 2003, by and between FelCor/JPM Hotels, L.L.C., as borrower, and JPMorgan Chase Bank, as lender, relating to a $115 million loan from lender to borrower (the "Mortgage Loan"). 10.28.1 - Form of Mortgage, Deed of Trust and Security Agreement, each dated April 24, 2003, from FelCor/JPM Hotels, L.L.C., as borrower, and DJONT/JPM Leasing, L.L.C., as lessee, (and, in the case of the Mortgages with respect to the properties located in the State of Florida, FelCor Lodging Limited Partnership) in favor of JPMorgan Chase Bank, as lender, each covering a separate hotel and securing the Mortgage Loan. 10.28.2 - Promissory Note, dated April 24, 2003, made by FelCor/JPM Hotels, L.L.C. payable to the order of JPMorgan Chase Bank in the original principal amount of $115 million. 10.29 - Mezzanine Loan Agreement, dated April 24, 2003, by and between FelCor/JPM Holdings, L.L.C., as borrower, and JPMorgan Chase Bank, as lender, relating to a $10 million senior mezzanine loan from lender to borrower (the "Senior Mezzanine Loan"). 10.29.1 - Pledge and Security Agreement, dated April 24, 2003, from FelCor/JPM Holdings, L.L.C., as pledgor, in favor of JPMorgan Chase Bank, as lender, securing the Senior Mezzanine Loan. 10.29.2 - Promissory Note, dated April 24, 2003, made by FelCor/JPM Holdings, L.L.C. payable to the order of JPMorgan Chase Bank in the original principal amount of $10 million. 10.30 - Junior Mezzanine Loan Agreement, dated April 24, 2003, by and between DJONT/JPM Tenant Co., L.L.C., as borrower, and JPMorgan Chase Bank, as lender, relating to a $25 million junior mezzanine loan from lender to borrower (the "Junior Mezzanine Loan"). 10.30.1 - Pledge and Security Agreement, dated April 24, 2003, from DJONT/JPM Tenant Co., L.L.C., as pledgor, in favor of JPMorgan Chase Bank, as lender, securing the Junior Mezzanine Loan. 10.30.2 - Promissory Note, dated April 24, 2003, made by DJONT/JPM Tenant Co., L.L.C. payable to the order of JPMorgan Chase Bank in the original principal amount of $25 million. 10.30.3 - Security Agreement, dated April 24, 2003, from DJONT/JPM Tenant Co., L.L.C. in favor of JPMorgan Chase Bank, securing the Junior Mezzanine Loan.
27
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 99.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer. 99.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.
(b) Reports on Form 8-K: A current report on Form 8-K dated April 30, 2003, was filed by FelCor on May 1, 2003. This filing, under Item 7 and Item 9, disclosed that on April 30, 2003, FelCor Lodging Trust Incorporated issued a press release announcing its results of operations for the quarterly period ended March 31, 2003, and published its First Quarter 2003 Supplemental Information, which provided additional corporate data, financial highlights and portfolio statistical data for the quarter ended March 31, 2003. Copies of the press release and the First Quarter 2003 Supplemental Information were furnished as Exhibits 99.1 and 99.2, respectively. 28 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: May 15, 2003 FELCOR LODGING TRUST INCORPORATED By: /s/ Richard J. O'Brien ---------------------------- Richard J. O'Brien Executive Vice President and Chief Financial Officer By: /s/ Lester C. Johnson ---------------------------- Lester C. Johnson Senior Vice President and Principal Accounting Officer 29 CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002 I, Thomas J. Corcoran, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of FelCor Lodging Trust Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Thomas J. Corcoran, Jr. ----------------------------- Thomas J. Corcoran, Jr. Chief Executive Officer 30 CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002 I, Richard J. O'Brien, certify that: 1. I have reviewed this quarterly report on Form 10-Q of FelCor Lodging Trust Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: d) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; e) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and f) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): c) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Richard J. O'Brien ----------------------- Richard J. O'Brien Chief Financial Officer 31 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 10.28 - Loan Agreement, dated April 24, 2003, by and between FelCor/JPM Hotels, L.L.C., as borrower, and JPMorgan Chase Bank, as lender, relating to a $115 million loan from lender to borrower (the "Mortgage Loan"). 10.28.1 - Form of Mortgage, Deed of Trust and Security Agreement, each dated April 24, 2003, from FelCor/JPM Hotels, L.L.C., as borrower, and DJONT/JPM Leasing, L.L.C., as lessee, (and, in the case of the Mortgages with respect to the properties located in the State of Florida, FelCor Lodging Limited Partnership) in favor of JPMorgan Chase Bank, as lender, each covering a separate hotel and securing the Mortgage Loan. 10.28.2 - Promissory Note, dated April 24, 2003, made by FelCor/JPM Hotels, L.L.C. payable to the order of JPMorgan Chase Bank in the original principal amount of $115 million. 10.29 - Mezzanine Loan Agreement, dated April 24, 2003, by and between FelCor/JPM Holdings, L.L.C., as borrower, and JPMorgan Chase Bank, as lender, relating to a $10 million senior mezzanine loan from lender to borrower (the "Senior Mezzanine Loan"). 10.29.1 - Pledge and Security Agreement, dated April 24, 2003, from FelCor/JPM Holdings, L.L.C., as pledgor, in favor of JPMorgan Chase Bank, as lender, securing the Senior Mezzanine Loan. 10.29.2 - Promissory Note, dated April 24, 2003, made by FelCor/JPM Holdings, L.L.C. payable to the order of JPMorgan Chase Bank in the original principal amount of $10 million. 10.30 - Junior Mezzanine Loan Agreement, dated April 24, 2003, by and between DJONT/JPM Tenant Co., L.L.C., as borrower, and JPMorgan Chase Bank, as lender, relating to a $25 million junior mezzanine loan from lender to borrower (the "Junior Mezzanine Loan"). 10.30.1 - Pledge and Security Agreement, dated April 24, 2003, from DJONT/JPM Tenant Co., L.L.C., as pledgor, in favor of JPMorgan Chase Bank, as lender, securing the Junior Mezzanine Loan. 10.30.2 - Promissory Note, dated April 24, 2003, made by DJONT/JPM Tenant Co., L.L.C. payable to the order of JPMorgan Chase Bank in the original principal amount of $25 million. 10.30.3 - Security Agreement, dated April 24, 2003, from DJONT/JPM Tenant Co., L.L.C. in favor of JPMorgan Chase Bank, securing the Junior Mezzanine Loan.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 99.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer. 99.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.
EX-10.28 3 d05903exv10w28.txt LOAN AGREEMENT EXHIBIT 10.28 LOAN AGREEMENT Dated as of April 24, 2003 Between FELCOR/JPM HOTELS, L.L.C., as Borrower and JPMORGAN CHASE BANK, as Lender I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION............................................................... 1 SECTION 1.1 Definitions......................................................................... 1 SECTION 1.2 Principles of Construction.......................................................... 26 II. GENERAL TERMS......................................................................................... 26 SECTION 2.1 Loan Commitment; Disbursement to Borrower........................................... 26 2.1.1 Agreement to Lend and Borrow........................................................ 26 2.1.2 Single Disbursement to Borrower..................................................... 27 2.1.3 The Note, Security Instruments and Loan Documents................................... 27 2.1.4 Use of Proceeds..................................................................... 27 SECTION 2.2 Interest; Loan Payments; Late Payment Charge........................................ 27 2.2.1 Payments............................................................................ 27 2.2.2 Interest Calculation................................................................ 28 2.2.3 Eurodollar Rate Unascertainable; Illegality; Increased Costs........................ 28 2.2.4 Payment on Maturity Date............................................................ 30 2.2.5 Payments after Default.............................................................. 30 2.2.6 Late Payment Charge................................................................. 30 2.2.7 Usury Savings....................................................................... 30 2.2.8 Foreign Taxes....................................................................... 31 SECTION 2.3 Prepayments......................................................................... 32 2.3.1 Voluntary Prepayments............................................................... 32 2.3.2 Mandatory Prepayments............................................................... 33 2.3.3 Prepayments After Default........................................................... 33 2.3.4 Making of Payments.................................................................. 33 2.3.5 Application of Prepayments.......................................................... 34 SECTION 2.4 Interest Rate Cap Agreement......................................................... 34 2.5.1 Release of Individual Property...................................................... 36 2.5.2 Release on Payment in Full.......................................................... 37 SECTION 2.6 Substitution of Properties.......................................................... 37 III. CASH MANAGEMENT....................................................................................... 44 SECTION 3.1 Establishment of Accounts........................................................... 44 SECTION 3.2 Deposits into Lockbox Account....................................................... 45 SECTION 3.3 Account Name........................................................................ 46 SECTION 3.4 Eligible Accounts................................................................... 46
SECTION 3.5 Permitted Investments............................................................... 47 SECTION 3.6 The Initial Deposits................................................................ 47 SECTION 3.7 Transfer To and Disbursements from the Lockbox Account.............................. 47 SECTION 3.8 Withdrawals From the Tax Account and the Insurance Premium Account.................. 48 SECTION 3.9 Withdrawals from the Replacement Reserve Account.................................... 49 SECTION 3.10 Withdrawals from the Required Repair Account........................................ 49 SECTION 3.11 Withdrawals from the Debt Service Account........................................... 49 SECTION 3.12 Withdrawals from the Mezzanine Account.............................................. 49 SECTION 3.13 Withdrawals from the Junior Mezzanine Account....................................... 49 SECTION 3.14 Withdrawals from the Ground Rent Account............................................ 49 SECTION 3.15 Withdrawals from the Excess Cash Flow Account....................................... 49 SECTION 3.18 Sole Dominion and Control........................................................... 50 SECTION 3.19 Security Interest................................................................... 50 SECTION 3.20 Rights on Default................................................................... 50 SECTION 3.21 Financing Statement; Further Assurances............................................. 50 SECTION 3.22 Borrower's Obligation Not Affected.................................................. 51 SECTION 3.23 Payments Received Under this Agreement.............................................. 51 IV. REPRESENTATIONS AND WARRANTIES........................................................................ 51 SECTION 4.1 Borrower Representations............................................................ 51 4.1.1 Organization........................................................................ 51 4.1.2 Proceedings......................................................................... 52 4.1.3 No Conflicts........................................................................ 52 4.1.4 Litigation.......................................................................... 53 4.1.5 Agreements.......................................................................... 53 4.1.6 Solvency............................................................................ 53 4.1.7 Full and Accurate Disclosure........................................................ 54 4.1.8 No Plan Assets...................................................................... 54 4.1.9 Compliance.......................................................................... 54 4.1.10 Financial Information............................................................... 55 4.1.11 Condemnation........................................................................ 55 4.1.12 Federal Reserve Regulations......................................................... 55 4.1.13 Utilities and Public Access......................................................... 55
ii 4.1.14 Not a Foreign Person................................................................ 56 4.1.15 Separate Lots....................................................................... 56 4.1.16 Assessments......................................................................... 56 4.1.17 Enforceability...................................................................... 56 4.1.18 No Prior Assignment................................................................. 56 4.1.19 Insurance........................................................................... 56 4.1.20 Use of Property..................................................................... 57 4.1.21 Certificate of Occupancy; Licenses.................................................. 57 4.1.22 Flood Zone.......................................................................... 57 4.1.23 Physical Condition.................................................................. 57 4.1.24 Boundaries.......................................................................... 57 4.1.25 Leases.............................................................................. 58 4.1.26 Survey.............................................................................. 58 4.1.27 Intentionally Omitted............................................................... 58 4.1.28 Filing and Recording Taxes.......................................................... 58 4.1.29 Franchise Agreement................................................................. 59 4.1.30 Management Agreement/Operating Lease................................................ 59 4.1.31 Illegal Activity.................................................................... 59 4.1.32 No Change in Facts or Circumstances; Disclosure..................................... 59 4.1.33 Investment Company Act.............................................................. 59 4.1.34 Principal Place of Business; State of Organization.................................. 60 4.1.35 Single Purpose Entity............................................................... 60 4.1.36 Business Purposes................................................................... 64 4.1.37 Taxes............................................................................... 64 4.1.38 Intentionally Omitted............................................................... 65 4.1.39 Environmental Representations and Warranties........................................ 65 4.1.40 Taxpayer Identification Number...................................................... 65 4.1.41 OFAC................................................................................ 65 4.1.42 Ground Lease Representations........................................................ 65 4.1.43 Deposit Accounts.................................................................... 67 SECTION 4.2 Survival of Representations......................................................... 67 V. BORROWER COVENANTS.................................................................................... 67 SECTION 5.1 Affirmative Covenants............................................................... 67
iii 5.1.1 Existence; Compliance with Legal Requirements....................................... 68 5.1.2 Taxes and Other Charges............................................................. 69 5.1.3 Litigation.......................................................................... 69 5.1.4 Access to Properties................................................................ 69 5.1.5 Notice of Default................................................................... 69 5.1.6 Cooperate in Legal Proceedings...................................................... 70 5.1.7 Award and Insurance Benefits........................................................ 70 5.1.8 Further Assurances.................................................................. 70 5.1.9 Mortgage and Intangible Taxes....................................................... 70 5.1.10 Financial Reporting................................................................. 71 5.1.11 Business and Operations............................................................. 76 5.1.12 Costs of Enforcement................................................................ 76 5.1.13 Estoppel Statement.................................................................. 76 5.1.14 Loan Proceeds....................................................................... 77 5.1.15 Performance by Borrower............................................................. 77 5.1.16 Confirmation of Representations..................................................... 77 5.1.17 Leasing Matters..................................................................... 78 5.1.18 Management Agreement................................................................ 79 5.1.19 Environmental Covenants............................................................. 81 5.1.20 Alterations......................................................................... 82 5.1.21 Franchise Agreement................................................................. 82 5.1.22 Operating Lease..................................................................... 83 5.1.23 OFAC................................................................................ 83 5.1.25 O&M Program......................................................................... 86 SECTION 5.2 Negative Covenants.................................................................. 86 5.2.1 Liens............................................................................... 86 5.2.2 Dissolution......................................................................... 86 5.2.3 Change In Business.................................................................. 87 5.2.4 Debt Cancellation................................................................... 87 5.2.5 Zoning.............................................................................. 87 5.2.6 No Joint Assessment................................................................. 87 5.2.7 Name, Identity, Structure, or Principal Place of Business........................... 87 5.2.8 ERISA............................................................................... 88
iv 5.2.9 Affiliate Transactions.............................................................. 88 5.2.10 Transfers........................................................................... 88 VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS................................................... 90 SECTION 6.1 Insurance........................................................................... 90 SECTION 6.2 Casualty............................................................................ 96 SECTION 6.3 Condemnation........................................................................ 96 SECTION 6.4 Restoration......................................................................... 96 VII. RESERVE FUNDS......................................................................................... 100 SECTION 7.1 Required Repair Funds............................................................... 100 7.1.1 Deposits............................................................................ 100 7.1.2 Release of Required Repair Funds.................................................... 101 SECTION 7.2 Tax and Insurance Escrow Fund....................................................... 102 SECTION 7.3 Replacements and Replacement Reserve................................................ 103 7.3.1 Replacement Reserve Fund............................................................ 103 7.3.2 Disbursements from Replacement Reserve Account...................................... 103 7.3.3 Performance of Replacements......................................................... 104 7.3.4 Failure to Make Replacements........................................................ 106 7.3.5 Balance in the Replacement Reserve Account.......................................... 106 SECTION 7.4 Ground Lease Escrow Fund............................................................ 107 SECTION 7.5 UST Reserve Funds................................................................... 107 SECTION 7.6 Reserve Funds, Generally............................................................ 108 VIII. DEFAULTS.............................................................................................. 109 SECTION 8.1 Event of Default.................................................................... 109 SECTION 8.2 Remedies............................................................................ 113 SECTION 8.3 Remedies Cumulative; Waivers........................................................ 114 IX. SPECIAL PROVISIONS.................................................................................... 114 SECTION 9.2 Securitization Indemnification...................................................... 116 SECTION 9.3 Servicer............................................................................ 118 SECTION 9.4 Exculpation......................................................................... 118 X. MISCELLANEOUS......................................................................................... 121 SECTION 10.1 Survival............................................................................ 121 SECTION 10.2 Lender's Discretion................................................................. 121 SECTION 10.3 Governing Law....................................................................... 121
v SECTION 10.4 Modification, Waiver in Writing..................................................... 122 SECTION 10.5 Delay Not a Waiver.................................................................. 122 SECTION 10.6 Notices............................................................................. 122 SECTION 10.7 Trial by Jury....................................................................... 123 SECTION 10.8 Headings............................................................................ 124 SECTION 10.9 Severability........................................................................ 124 SECTION 10.10 Preferences......................................................................... 124 SECTION 10.11 Waiver of Notice.................................................................... 124 SECTION 10.12 Remedies of Borrower................................................................ 124 SECTION 10.13 Expenses; Indemnity................................................................. 125 SECTION 10.14 Schedules and Exhibits Incorporated................................................. 126 SECTION 10.15 Offsets, Counterclaims and Defenses................................................. 126 SECTION 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries....................... 127 SECTION 10.17 Publicity........................................................................... 127 SECTION 10.18 Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets............. 127 SECTION 10.19 Waiver of Counterclaim.............................................................. 128 SECTION 10.20 Conflict; Construction of Documents; Reliance....................................... 128 SECTION 10.21 Brokers and Financial Advisors...................................................... 128 SECTION 10.22 Prior Agreements.................................................................... 129 SECTION 10.23 Counterparts........................................................................ 129 SECTION 10.24 Liability........................................................................... 129
vi LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of April 24, 2003 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "Agreement"), between JPMORGAN CHASE BANK, a New York banking corporation, having an address at 270 Park Avenue, New York, New York 10017 ("Lender") and FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company, having its principal place of business at c/o FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower"). W I T N E S S E T H: WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender; and WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined). NOW THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION SECTION 1.1. Definitions. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "Acceptable Counterparty" means any Counterparty to the Interest Rate Cap Agreement that has and shall maintain, until the expiration of the applicable Interest Rate Cap Agreement, a long-term unsecured debt rating of not less than "AA-" (or the equivalent) by the Rating Agencies. "Account Collateral" shall mean: (i) the Accounts, and all Cash, checks, drafts, certificates and instruments, if any, from time to time deposited or held in the Accounts from time to time; (ii) any and all amounts invested in Permitted Investments; (iii) all interest, dividends, Cash, instruments and other property from time to time received, receivable or otherwise payable in respect of, or in exchange for, any or all of the foregoing; and (iv) to the extent not covered by clauses (i) - (iii) above, all "proceeds" (as defined under the UCC as in effect in the State in which the Accounts are located) of any or all of the foregoing. "Accounts" shall mean, collectively, the Property Account, the Concentration Account, the Tax Account, the Insurance Premium Account, the Required Repair Account, the Replacement Reserve Account, the Debt Service Account, the Ground Rent Account, the UST Reserve Account, the Mezzanine Account, the Junior Mezzanine Account, the Excess Cash Flow Account and the Lockbox Account. "Accounts Receivable" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property. "Acquired Property" shall have the meaning set forth in Section 5.1.10(h)(i) hereof. "Acquired Property Statements" shall have the meaning set forth in Section 5.1.10(h)(i) hereof. "Act" shall have the meaning set forth in Section 4.1.35 hereof. "Adjusted Net Operating Income" means the amount obtained by subtracting Adjusted Operating Expenses from Gross Income from Operations, provided, however, Adjusted Net Operating Income shall only include the Properties that are subject to the Lien of a Security Instrument at the time of such calculation. "Adjusted Operating Expenses" shall mean the total of all expenditures, computed in accordance with GAAP, of whatever kind relating to the operation, maintenance and management of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs and maintenance, insurance premiums, license fees, property taxes and assessments, advertising expenses, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs, including contributions to the Replacement Reserve Fund, but excluding depreciation, Debt Service, Capital Expenditures and contributions to the Reserve Funds (other than the Replacement Reserve Fund). "Adjusted Prime Rate" shall mean an interest rate per annum equal to the Prime Rate in effect from time to time plus one percent (1%). "Affiliate" shall mean, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person or of an Affiliate of such Person. "Affiliated Loans" shall have the meaning set forth in Section 5.1.10(m) hereof. "Affiliated Manager" shall mean any property manager which is an Affiliate of Borrower, any Operating Lessee SPE Entity, Principal, or any Guarantor or Indemnitor, or in which Borrower, any Operating Lessee SPE Entity, Principal, or any Guarantor or Indemnitor has, directly or indirectly, any legal, beneficial or economic equity interest. "Allocated Loan Amount" shall mean, for an Individual Property, the amount set forth on Schedule I hereto. "ALTA" shall mean American Land Title Association, or any successor thereto. 2 "Annual Budget" shall mean the operating budget, including all planned capital expenditures, for each Individual Property prepared by Manager and approved by Borrower for the applicable Fiscal Year or other period. "Applicable Laws" shall mean all existing and future U.S. federal, state and local laws, orders, ordinances, governmental rules and regulations and court orders. "Applicable Interest Rate" shall mean (A) from and including the date of this Agreement through the first Payment Date, an interest rate per annum equal to 2.625%; and (B) from and including the first Payment Date and for each successive Interest Period through and including the date on which the Debt is paid in full, an interest rate per annum equal to (I) the Eurodollar Rate or (II) the Adjusted Prime Rate, if the Loan begins bearing interest at the Adjusted Prime Rate in accordance with the provisions of Section 2.2.3 hereof. "Appraisal" shall mean an appraisal prepared in accordance with the requirements of FIRREA, prepared by an independent third party appraiser holding an MAI designation, who is State licensed or State certified if required under the laws of the State where the applicable Individual Property is located, who meets the requirements of FIRREA and who is otherwise satisfactory to Lender. "Approved Annual Budget" shall have the meaning set forth in Section 5.1.10(d) hereof. "Assignment of Interest Rate Cap" shall mean that certain Collateral Assignment of Interest Rate Cap Agreement made by Borrower to Lender dated as of the date hereof required by this Agreement as security for the Loan, consented to by the Counterparty, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Assignment of Leases" shall mean, with respect to each Individual Property, that certain first priority Assignment of Leases and Rents, dated as of the date hereof, from Borrower and Operating Lessee, as assignor, to Lender, as assignee, assigning to Lender all of Borrower's and Operating Lessee's interest in and to the Leases and Rents of such Individual Property as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Assignment of Management Agreement" shall mean, with respect to each Individual Property that certain Conditional Assignment of Management Agreement dated the date hereof among Lender, Borrower, Operating Lessee and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Award" shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect of all or any part of any Individual Property. "Bankruptcy Code" shall mean Title 11 U.S.C. ss. 101 et seq., and the regulations adopted and promulgated pursuant thereto (as the same may be amended from time to time). "Basic Carrying Costs" shall mean, with respect to each Individual Property, the sum of the following costs associated with such Individual Property for the relevant Fiscal Year or payment period: (i) Taxes and (ii) Insurance Premiums. 3 "Borrower" shall have the meaning set forth in the introductory paragraph hereto, together with its successors and assigns. "Breakage Costs" shall have the meaning set forth in Section 2.2.3(d) hereof. "Business Day" shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. "Business Party" shall have the meaning set forth in Section 4.1.35(aa) hereof. "Capital Expenditures" shall mean, for any period, the amount expended for items capitalized under GAAP (including, but not limited to, expenditures for building improvements or major repairs, leasing commissions and tenant improvements). "Cash" shall mean coin or currency of the United States of America or immediately available federal funds, including such fund delivered by wire transfer. "Cash Flow Threshold" shall mean $17,900,000.00; provided, however, in connection with a release and/or substitution of an Individual Property in accordance with the terms hereof, Cash Flow Threshold shall be recalculated so as to equal the aggregate of (i) with respect to Individual Properties that were subject to the Lien of a Security Instrument on the Closing Date eight-five percent (85%) of the Adjusted Net Operating Income of each such Individual Property for the twelve (12) month period preceding the Closing Date as indicated on Schedule XIII attached hereto and made a part hereof and (ii) with respect to Individual Properties that were not subject to the Lien of a Security Instrument on the Closing Date, eight-five percent (85%) of the Adjusted Net Operating Income of each such Individual Property for the most recently available twelve (12) month period preceding the date of the calculation. "Casualty" shall have the meaning set forth in Section 6.2 hereof. "Casualty Consultant" shall have the meaning set forth in Section 6.4(b)(iii) hereof. "Casualty Retainage" shall have the meaning set forth in Section 6.4(b)(iv) hereof. "Closing Date" shall mean the date of the funding of the Loan. "Code" shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and all applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "Collateral" shall mean the Properties, the Accounts, the Reserve Funds, the Personal Property, the Rents, the Account Collateral, and all other real or personal property of Borrower or any Guarantor that is at any time pledged, mortgaged or otherwise given as security to Lender for the payment of the Debt under the Security Instruments, this Agreement or any other Loan Document. "Concentration Account" shall have the meaning set forth in Section 3.1(a) hereof. 4 "Condemnation" shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Individual Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Individual Property or any part thereof. "Condemnation Proceeds" shall have the meaning set forth in Section 6.4(b) hereof. "Control" (and the correlative terms "controlled by" and "controlling") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of the business and affairs of the entity in question by reason of the ownership of beneficial interests, by contract or otherwise. "Counterparty" shall mean JPMorgan Chase Bank or any other Person which is the issuer of the Interest Rate Cap Agreement. "Creditors Rights Laws" shall mean with respect to any Person, 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. "Debt" shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums due to Lender in respect of the Loan under the Note, this Agreement, the Security Instruments or any other Loan Document, including, without limitation, all Reserve Fund Deposits. "Debt Service" shall mean, with respect to any particular period of time, interest payments and all Scheduled Amortization Payments due under the Note for such period. "Debt Service Account" shall have the meaning set forth in Section 3.1 hereof. "Debt Service Coverage Ratio" shall mean a ratio in which: (a) the numerator is the Net Operating Income for the most recently available 12 full calendar month period preceding the date of calculation as set forth in the financial statements required hereunder, without deduction for (i) actual management fees incurred in connection with the operation of the Properties, (ii) actual franchise fees incurred in connection with the operation of the Properties, or (iii) amounts paid to the Reserve Funds, less (A) management fees equal to the greater of (1) assumed management fees of four percent (4%) of Gross Income from Operations or (2) the actual management fees incurred, (B) the actual franchise fees incurred and (C) the greater of (1) actual Replacement Reserve Fund contributions equal to 4% of Gross Income from Operations and (2) contributions for Replacements required pursuant to the Management Agreements and the Franchise Agreements; and (b) the denominator is all the aggregate interest and principal payments that would be due and payable for such 12 full calendar month period on the Loan, the Mezzanine Loan and the Junior Mezzanine Loan assuming a principal and interest constant equal to 10.90%. 5 "Default" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would constitute an Event of Default. "Default Rate" shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the Maximum Legal Rate, or (b) five percent (5%) above the Applicable Interest Rate. "Disclosure Document" shall have the meaning set forth in Section 9.2(a) hereof. "Dow Jones Market Service Page 3750" means the display designated as page 3750 on the Dow Jones Market Service (formerly Telerate) Page 3750 (or such other page as may replace page 3750 on that service or such other service as may be nominated by the British Bankers-Association as the information vendor for the purposes of displaying British Bankers-Association Interest Settlement Rates for U.S. dollar deposits). "Eligible Account" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or State-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or State chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a State chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R.ss.9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and State authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. "Eligible Institution" shall mean a depository institution or trust company, insured by the Federal Deposit Insurance Corporation, (a) the short term unsecured debt obligations or commercial paper of which are rated at least A-1 by S&P, P-1 by Moody's and F-1 by Fitch in the case of accounts in which funds are held for thirty (30) days or less, or (b) the long term unsecured debt obligations of which are rated at least AA by Fitch and S&P and Aa2 by Moody's in the case of accounts in which funds are held for more than thirty (30) days. "Environmental Indemnity" shall mean that certain Environmental Indemnity Agreement executed by Borrower and Indemnitor in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Environmental Law" shall mean any federal, State and local laws, statutes, ordinances, rules, regulations, standards, policies and other government directives or requirements, as well as common law, that, at any time, apply to Borrower and/or Indemnitor or any Property and relate to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act. "Environmental Liens" shall have the meaning set forth in Section 5.1.19(a) hereof. "Environmental Reports" shall have the meaning set forth in Section 4.1.39 hereof. 6 "Equipment" shall have the meaning set forth in Section 5.2.10 hereof. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "Eurodollar Rate" shall mean, with respect to any Interest Period, an interest rate per annum equal to LIBOR plus one and one-quarter percent (1.25%) per annum. "Event of Default" shall have the meaning set forth in Section 8.1(a) hereof. "Excess Cash Flow" shall mean, on each Payment Date, an amount equal to the difference between (a) all Cash contained in the Concentration Account less (b) the Monthly Pegged Amount and less (c) the monthly payments deposited pursuant to Section 3.7(b)(i) - (ix) hereof for such month. "Excess Cash Flow Account" shall have the set forth in Section 3.1(b)(v) hereof. "Excess Cash Flow Application Date" shall mean the first Payment Date after the date which is twelve (12) calendar months after the occurrence of an Excess Cash Flow Sweep Event, unless an Excess Cash Flow Sweep Period Termination has occurred. "Excess Cash Flow Sweep Event" shall occur when Lender determines that the Adjusted Net Operating Income for the Properties does not exceed the Cash Flow Threshold for three (3) consecutive calendar months. "Excess Cash Flow Sweep Period" shall mean the period commencing upon the occurrence of a Excess Cash Flow Sweep Event and terminating upon the occurrence of an Excess Cash Flow Sweep Period Termination. "Excess Cash Flow Sweep Period Termination" shall mean the delivery by Borrower of evidence satisfactory to Lender that the Adjusted Net Operating Income for the Properties exceeds the Cash Flow Threshold for three (3) consecutive calendar months. "Exchange Act" shall have the meaning set forth in Section 9.2(a) hereof. "Exchange Act Filing" shall have the meaning set forth in Section 9.2(a) hereof. "Expiring Franchise Agreement Property" shall mean the Individual Property located in Lexington, Kentucky. "Expiring Management Agreement Properties" shall mean the Individual Properties located in (i) Jacksonville, Florida, (ii) Lexington, Kentucky (iii) Tulsa, Oklahoma and (iv) Dallas, Texas. "Extension Criteria" shall mean, with respect to each extension of the Maturity Date as provided herein, (i) no Event of Default has occurred and is continuing under the Loan, (ii) Borrower sends Lender written request at least sixty (60) days, but not more than one hundred twenty (120) days, prior to the expiration of the initial or Extension Term, as applicable, (an 7 "Extension Notice") (iii) Borrower shall obtain and deliver to Lender prior to exercise of such Extension Term, one or more Replacement Interest Rate Cap Agreements, which Replacement Interest Rate Cap Agreements shall be effective commencing on the first day of such Extension Term and shall have a maturity date not earlier than the Maturity Date, (iv) Borrower pays to Lender the applicable Extension Fee (v) Lender has determined that the applicable Extension DSCR Test has been satisfied, (vi) unless a Mezzanine Event of Default has occurred and is continuing, the Mezzanine Loan is simultaneously extended pursuant to the terms thereof and (vii) unless a Junior Mezzanine Event of Default has occurred and is continuing, the Junior Mezzanine Loan is simultaneously extended pursuant to the terms thereof. "Extension DSCR Test" shall mean the Debt Service Coverage Ratio (based upon the Loan only) for the twelve (12) full calendar months immediately preceding (i) Lender's receipt of the Extension Notice and (ii) the first day of the applicable Extension Term, for the Properties remaining subject to the Lien of the Security Instruments shall be equal to or greater (A) with respect to the first Extension Term, 1.30:1.00 and (B) with respect to the second Extension Term, 1.35:1.00. The Extension DSCR Test may be obtained by prepaying a portion of the Loan and no prepayment consideration shall be due in connection therewith. "Extension Fee" shall mean a fee equal to (i) with respect to the first Extension Term, 0.125% of the outstanding principal balance of the Loan at the time of Lender's receipt of the applicable Extension Notice and (ii) with respect to the second Extension Term, 0.25% of the outstanding principal balance of the Loan at the time of Lender's receipt of the applicable Extension Notice. "FIRREA" shall mean the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as the same may be amended from time to time. "Fiscal Year" shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during the term of the Loan. "Fitch" shall mean Fitch, Inc. "Flood Insurance Act" shall have the meaning set forth in Section 6.1(a)(vii) hereof. "Florida Properties" shall mean the Individual Properties located in Tampa, Florida and Jacksonville, Florida. "Foreign Taxes" shall mean any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority. "Franchise Agreement" shall mean those certain franchise agreements more specifically identified on Schedule VII attached hereto. "Franchisor" shall mean each franchisor with respect to the applicable Franchise Agreement, as same is identified on Schedule VII attached hereto. 8 "GAAP" shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "Governmental Authority" shall mean any court, board, agency, commission, office, central bank or other authority of any nature whatsoever for any governmental unit (federal, State, county, district, municipal, city, country or otherwise) or quasi-governmental unit whether now or hereafter in existence. "Gross Income from Operations" shall mean all income, room revenues, food and beverage revenue, telephone revenue, computed in accordance with GAAP derived from the ownership and operation of the Properties from whatever source, including, but not limited to, the Rents, utility charges, service fees or charges, license fees, parking fees, rent concessions or credits, and other required pass-throughs, but excluding sales, use and occupancy or other taxes on receipts required to be accounted for by Borrower or Operating Lessee to any Governmental Authority, interest on the Reserve Funds, interest on credit accounts, refunds and uncollectible accounts, sales of furniture, fixtures and equipment, Insurance Proceeds (other than business interruption or other loss of income insurance), Awards, payments received under the Interest Rate Cap Agreement, unforfeited security deposits, utility and other similar deposits, escalations, forfeited security deposits and any disbursements to Borrower from the Reserve Funds. Gross income shall not be diminished as a result of the Security Instruments or the creation of any intervening estate or interest in a Property or any part thereof. "Ground Lease" shall mean, individually and collectively, as the context may require, each ground lease described on Schedule XII attached hereto and made a part hereof. "Ground Lease Escrow Fund" shall have the meaning set forth in Section 7.4 hereof. "Ground Lessor" shall mean the fee owner, as landlord, under each Ground Lease. "Ground Rent" shall have the meaning set forth in Section 7.4 hereof. "Ground Rent Account" shall have the meaning set forth in Section 3.1 hereof. "Guarantor" shall mean FelCor Lodging Limited Partnership and any other entity guaranteeing any payment or performance obligation of Borrower. "Guaranty" shall mean that certain Guaranty of Recourse Obligations of Borrower, dated as of the date hereof, from Guarantor to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "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 ("PCBs") 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; toxic mold; any substance the presence of which on any Property is prohibited by any federal, State or local authority; any substance that requires special handling and/or disposal; and any other material or substance now or in the future defined as a "hazardous substance," 9 "hazardous material," "hazardous waste," "toxic substance," "toxic pollutant," "contaminant," "pollutant" or other words of similar import within the meaning of any Environmental Law. "Hilton Franchised Properties" shall mean the Individual Properties located at (i) Bloomington, Minnesota, (ii) Dallas, Texas, (iii) Jacksonville, Florida, (iv) Lexington, Kentucky and (v) Tulsa, Oklahoma. "Improvements" shall have the meaning set forth in Article 1 of the related Security Instrument with respect to each Individual Property. "Indebtedness" of a Person, at a particular date, means the sum (without duplication) at such date of (a) all indebtedness or liability of such Person (including, without limitation, amounts for borrowed money); (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations); (d) obligations under letters of credit; (e) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss; and (f) obligations secured by any Liens, whether or not the obligations have been assumed. "Indemnified Liabilities" shall have the meaning set forth in Section 10.13(b) hereof. "Indemnified Parties" shall mean Lender, any Affiliate of Lender who is or will have been involved in the origination of the Loan, any Person who is or will have been involved in the servicing of the Loan, any Person in whose name the encumbrance created by the Security Instruments is or will have been recorded, Persons who may hold or acquire or will have held a full or partial interest in the Loan, the holders of any Securities, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties) as well as the respective directors, officers, shareholders, partners, members, employees, agents, servants, representatives, contractors, subcontractors, Affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including but not limited to any other Person who holds or acquires or will have held a participation or other full or partial interest in the Loan or any Property, whether during the term of the Loan or as a part of or following a foreclosure of the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Lender's assets and business). "Indemnitor" shall mean FelCor Lodging Limited Partnership. "Independent Director" shall have the meaning set forth in Section 4.1.35(aa) hereof. "Individual Property" shall mean each parcel of real property (including, without limitation, any interest created pursuant to a Ground Lease), the Improvements thereon and all Personal Property owned by Borrower, Operating Lessee and Ground Lessor and encumbered by a Security Instrument, together with all rights pertaining to such Property and Improvements, as more particularly described in Article 1 of each Security Instrument and referred to therein as the "Property", including any Release Property prior to its release or Substitute Property upon substitution. 10 "Initial Replacement Reserve Monthly Deposit" shall mean $257,300.00. "Initial Tier" shall have the meaning set forth in Section 6.1(b) hereof. "Initial Tier Insurer" shall have the meaning set forth in Section 6.1(b) hereof. "Insolvency Opinion" shall mean, that certain bankruptcy non-consolidation opinion letter delivered by counsel for Borrower in connection with the Loan and approved by Lender or the Rating Agencies, as the case may be. "Insurance Premium Account" shall have the meaning set forth in Section 3.1 hereof. "Insurance Premiums" shall have the meaning set forth in Section 6.1(b) hereof. "Insurance Proceeds" shall have the meaning set forth in Section 6.4(b) hereof. "Interest Period" shall mean the period from the ninth (9th) day of each month through and including the eighth (8th) day of the following month, provided that, notwithstanding the foregoing, Lender shall have the one (1) time right to change the Interest Period by giving notice of such change to Borrower. "Interest Rate Cap Agreement" shall mean the Interest Rate Cap Agreement (together with the confirmation and schedules relating thereto), between an Acceptable Counterparty and Borrower obtained by Borrower and dated as of the date hereof. The Interest Rate Cap Agreement shall be written on the then current standard ISDA documentation, and shall provide for interest periods and calculations consistent with the payment terms of this Agreement. After delivery of a Replacement Interest Rate Cap Agreement to Lender, the term "Interest Rate Cap Agreement" shall be deemed to mean such Replacement Interest Rate Cap Agreement. "Interest Shortfall" shall have the meaning set forth in Section 2.3.1(b) hereof. "Investor" shall have the meaning set forth in Section 5.1.10(g) hereof. "Jacksonville Property" shall mean the Individual Property located at 9300 Baymeadows Road, Jacksonville, Florida. "JPMorgan Chase" shall have the meaning set forth in Section 9.2(b) hereof. "JPMorgan Chase Group" shall have the meaning set forth in Section 9.2(b) hereof. "Junior Mezzanine Account" shall mean such account as Junior Mezzanine Lender may from time to time designate by written notice to Lender. "Junior Mezzanine Borrower" shall mean DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company together with its successors and permitted assigns. "Junior Mezzanine Event of Default" shall have the meaning ascribed to the term "Event of Default" in the Junior Mezzanine Loan Agreement. 11 "Junior Mezzanine Lender" shall mean JPMorgan Chase Bank, together with its successors and permitted assigns. "Junior Mezzanine Loan" shall mean that certain loan in the original principal amount of TWENTY FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00) of even date herewith made by Junior Mezzanine Lender to Junior Mezzanine Borrower. "Junior Mezzanine Loan Agreement" shall mean that certain Junior Mezzanine Loan Agreement dated as of the date hereof among Junior Mezzanine Borrower, Junior Mezzanine Lender and other parties set forth therein, if any. "Junior Mezzanine Loan Documents" shall have the meaning ascribed to the term "Loan Documents" in the Junior Mezzanine Loan Agreement. "Junior Mezzanine Principal" shall have the meaning ascribed to the term "Principal" in the Junior Mezzanine Loan Agreement. "Leases" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property, including, without limitation, the Operating Lease. "Legal Requirements" shall mean, with respect to each Individual Property, all federal, State, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, Ground Lessor with respect to the Florida Properties or any Individual Property or any part thereof, or the zoning, construction, use, alteration, occupancy or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting such Individual Property or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations in or to such Individual Property or any part thereof, or (b) in any way limit the use and enjoyment thereof. "Lender" shall have the meaning set forth in the introductory paragraph hereto, together with its successors and assigns. "Liabilities" shall have the meaning set forth in Section 9.2(b) hereof. "LIBOR" shall mean the rate per annum calculated as set forth below: (i) With respect to each Interest Period, the rate for deposits in U.S. Dollars, for a period equal to one month, which appears on the Dow Jones Market Service (formerly Telerate) Page 3750 as of 11:00 a.m., London time, on the related LIBOR Determination Date (rounded upwards to the nearest 1/16 of 1%). If such rate does not appear on Dow Jones Market Service Page 3750, the rate for that Interest Period shall be determined on the basis of the rates at which deposits in Dollars are offered by any four major reference banks in the London interbank market selected by Lender to provide such bank's offered quotation of such rates at approximately 11:00 a.m., London time, on the related LIBOR Determination Date to prime banks in the London interbank market 12 for a period of one month, commencing on the first day of such Interest Period and in an amount that is representative for a single such transaction in the relevant market at the relevant time. Lender shall request the principal London office of any four major reference banks in the London interbank market selected by Lender to provide a quotation of such rates, as offered by each such bank. If at least two such quotations are provided, the rate for that Interest Period shall be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that Interest Period shall be the arithmetic mean of the rates quoted by major banks in New York City selected by Lender, at approximately 11:00 a.m., New York City time, on the LIBOR Determination Date with respect to such Interest Period for loans in Dollars to leading European banks for a period equal to one month, commencing on the first day of such Interest Period and in an amount that is representative for a single transaction in the relevant market at the relevant time. Lender shall determine LIBOR for each Interest Period and the determination of LIBOR by Lender shall be binding upon Borrower absent manifest error. (ii) In the event that Lender shall have determined in its reasonable discretion that none of the methods set forth in the definition of "LIBOR" herein are available, then Lender shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) day prior to the last day of the related Interest Period. If such notice is given, LIBOR, commencing with such related Interest Period, shall be LIBOR in effect for the most recent Interest Period. "LIBOR Business Day" shall mean any day on which banks are open for dealing in foreign currency and exchange in London, England. "LIBOR Determination Date" shall mean (i) with respect to any Interest Period prior to the Interest Period that commences in the month during which the Securitization Closing Date occurs, two (2) LIBOR Business Days prior to the fifteenth (15th) day of the calendar month in which the applicable Interest Period commences; (ii) with respect to the Interest Period that commences in the month in which the Securitization Closing Date occurs, the date that is two (2) LIBOR Business Days prior to the Securitization Closing Date and (iii) with respect to each Interest Period thereafter, the date that is two (2) LIBOR Business Days prior to the fifteenth (15th) day of the calendar month in which such Interest Period commences, provided that, notwithstanding the foregoing, Lender shall have the one (1) time right to change the LIBOR Determination Date by giving notice of such change to Borrower. "Licenses" shall have the meaning set forth in Section 4.1.21 hereof. "Lien" shall mean, with respect to each Individual Property, any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, Operating Lessee, Ground Lessor with respect to the Florida Properties, the related Individual Property, any portion thereof or any interest therein, 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, and mechanic's, materialmen's and other similar liens and encumbrances. 13 "LLC Agreement" shall have the meaning set forth in Section 4.1.35 hereof. "Loan" shall mean the loan made by Lender to Borrower pursuant to this Agreement and the other Loan Documents. "Loan Documents" shall mean, collectively, this Agreement, the Note, the Security Instruments, the Assignments of Leases, the Environmental Indemnity, the Assignments of Management Agreement, the Guaranty, the Assignment of Interest Rate Cap Agreement, the Operating Lease Subordination Agreement and all other documents executed and/or delivered in connection with the Loan. "Lockbox Account" shall have the meaning set forth in Section 3.1(b) hereof. "Lockbox Bank" shall mean any Eligible Institution selected by Lender. "Lockout Period" shall have the meaning set forth in Section 2.3.1 hereof. "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, expenses, judgments, awards, amounts paid in settlement of whatever kind or nature (including but not limited to attorneys' fees and other costs of defense). "Major Lease" shall mean (i) the Operating Lease, (ii) any Lease for sit-down restaurant facilities at any Individual Property, (iii) any Lease which together with all other Leases to the same tenant and to all Affiliates of such tenant, (A) provides for ten percent (10%) or more of the total gross income for any Individual Property, (B) covers five percent (5%) or more of the total space at any Individual Property, in the aggregate, (C) provides for a lease term of more than ten (10) years including options to renew or (D) is with an Affiliate of Borrower and (iv) any instrument guaranteeing or providing credit support for any Major Lease. "Management Agreement" shall mean, with respect to any Individual Property, the management agreement entered into by and between Borrower or Operating Lessee and Manager, pursuant to which the Manager is to provide management and other services with respect to such Individual Property, or, if the context requires, the Replacement Management Agreement executed in accordance with the terms and provisions of this Agreement. "Manager" shall mean, for each Individual Property, that certain property manager set forth on Schedule IX or, if the context requires, a Qualified Manager who is managing the Properties or any Individual Property in accordance with the terms and provisions of this Agreement. "Manager Account" shall mean such account as Manager may from time to time designate by written notice to Lender and the bank maintaining the Concentration Account. "Maturity Date" shall mean May 9, 2006, or such other date on which the final payment of the principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise; provided, however, upon 14 compliance with the Extension Criteria, Borrower shall have the right to extend the Maturity Date for two (2) additional periods of one (1) year each (each, an "Extension Term"). "Maximum Legal Rate" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or in the other Loan Documents, under the laws of such State or States whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "Member" shall have the meaning set forth in Section 4.1.35 hereof. "Mezzanine Account" shall mean such account as Mezzanine Lender may from time to time designate by written notice to Lender. "Mezzanine Borrower" shall mean FelCor/JPM Holdings, L.L.C., together with its successors and permitted assigns. "Mezzanine Event of Default" shall have the meaning ascribed to the term "Event of Default" in the Mezzanine Loan Agreement. "Mezzanine Lender" shall mean JPMorgan Chase Bank, together with its successors and permitted assigns. "Mezzanine Loan" shall mean that certain loan in the original principal amount of TEN MILLION AND 00/100 DOLLARS ($10,000,000.00) made by Mezzanine Lender to Mezzanine Borrower, as of the date hereof. "Mezzanine Loan Agreement" shall mean that certain Mezzanine Loan Agreement dated as of the date hereof among Mezzanine Borrower, Mezzanine Lender and other parties set forth therein, if any. "Mezzanine Loan Documents" shall have the meaning ascribed to the term "Loan Documents" in the Mezzanine Loan Agreement. "Mezzanine Principal" shall have the meaning ascribed to the term "Principal" in the Mezzanine Loan Agreement. "Monthly Debt Service Payment Amount" shall mean the amount of interest and the Scheduled Amortization Payment due and payable on each Payment Date, pursuant to the Note and Section 2.2 hereof. "Monthly Ground Rent Deposit" shall have the meaning set forth in Section 7.4 hereof. "Monthly Insurance Premium Deposit" shall have the meaning set forth in Section 7.2 hereof. "Monthly Pegged Amount" shall mean an amount, which amount shall be determined on April 1st of each Fiscal Year, equal to one hundred fifteen percent (115%) of one-twelfth (1/12) 15 of the annual operating expenses required to be paid during the then current Fiscal Year by Manager, on behalf of Borrower, in accordance with the Approved Annual Budget; provided however that such annual operating expenses shall not include Taxes, Insurance Premiums and incentive management fees. The Monthly Pegged Amount shall be adjusted based upon the release and/or substitution of Properties in accordance with the terms hereof. "Monthly Tax Deposit" shall have the meaning set forth in Section 7.2 hereof. "Moody's" shall mean Moody's Investors Service, Inc. "Net Cash Flow" for any period shall mean the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period. "Net Cash Flow Schedule" shall have the meaning set forth in 5.1.10(b) hereof. "Net Operating Income" means the amount obtained by subtracting Operating Expenses from Gross Income from Operations. "Net Proceeds" shall have the meaning set forth in Section 6.4(b) hereof. "Net Proceeds Deficiency" shall have the meaning set forth in Section 6.4(b)(vi) hereof. "Note" shall mean that certain promissory note of even date herewith in the original principal amount of ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, extended, renewed, supplemented, severed, split, or otherwise modified from time to time. "O&M Program" shall mean, with respect to each Individual Property listed on Schedule XIV hereof, the asbestos operations and maintenance program developed by Borrower and approved by Lender, as the same may be amended, replaced, supplemented or otherwise modified from time to time. "Obligations" shall mean Borrower's obligation to pay the Debt and perform its obligations under the Note, this Agreement and the other Loan Documents. "Offering Document Date" shall have the meaning set forth in Section 5.1.10(h)(iv) hereof. "Officers' Certificate" shall mean a certificate delivered to Lender by Borrower which is signed by a Responsible Officer of Borrower. "Omaha Property" shall mean the Individual Property located at 655 North 108th Avenue, Omaha, Nebraska. "Open Date" shall have the meaning set forth in Section 2.3.1.(b) hereof. 16 "Operating Expenses" shall mean the total of all expenditures, computed in accordance with GAAP, of whatever kind relating to the operation, maintenance and management of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs and maintenance, insurance premiums, license fees, property taxes and assessments, advertising expenses, management fees, franchise fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation, Debt Service, Capital Expenditures and contributions to the Reserve Funds. "Operating Lease" shall mean those certain Operating Leases described on Schedule VIII attached hereto. "Operating Lease Subordination Agreement" shall mean those certain Operating Lease Subordination Agreements with respect to the Properties. "Operating Lessee" shall mean DJONT/JPM Leasing, L.L.C. "Operating Lessee Principal" shall have the meaning set forth in the Operating Lease Subordination Agreement. "Operating Lessee SPE Entities" shall mean individually and collectively, Operating Lessee and Operating Lessee Principal. "Operating Lessee Documents" shall mean the Security Instruments, the Assignments of Leases, the Environmental Indemnity, the Assignment of Management Agreement, the Operating Lease Subordination Agreement and all other documents executed and/or delivered by Operating Lessee in connection with the Loan. "Other Charges" shall mean all personal property taxes, Ground Rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any Individual Property, now or hereafter levied or assessed or imposed against such Individual Property or any part thereof. "Payment Date" shall mean the ninth (9th) day of each month, or if such day is not a Business Day, the immediately succeeding Business Day. Notwithstanding the foregoing, Lender shall have the one (1) time right to change the Payment Date by giving at least thirty (30) days prior written notice of such change to Borrower. "Permitted Encumbrances" shall mean, with respect to an Individual Property, collectively, (a) the Liens and security interests created by the Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policy relating to such Individual Property or any part thereof, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet delinquent, (d) Liens securing Permitted FF&E Financing. and (e) such other title and survey exceptions as Lender has approved or may approve in writing in Lender's sole discretion. "Permitted FF&E Financing" shall have the meaning set forth in Section 5.2.10 hereof. 17 "Permitted Investments" shall mean any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by Servicer, the trustee under any Securitization or any of their respective Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior to the date it is anticipated such funds will be needed to meet Borrower's obligations hereunder and meeting one of the appropriate standards set forth below: (i) obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of: the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (ii) Federal Housing Administration debentures; (iii) obligations of the following United States government sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (iv) federal funds, unsecured certificates of deposit, time deposits, bankers' acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar 18 of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (v) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers' acceptances with maturities of not more than 365 days and issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vi) debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest long-term unsecured rating category; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vii) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) in its highest short-term unsecured debt rating; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single 19 interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (viii) units of taxable money market funds, with maturities of not more than 365 days and which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have the highest rating available from each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that such investment would not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities) for money market funds; and (ix) any other security, obligation or investment which has been approved as a Permitted Investment in writing by (a) Lender and (b) each Rating Agency, as evidenced by a written confirmation that the designation of such security, obligation or investment as a Permitted Investment will not, in and of itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by such Rating Agency; provided, however, that no obligation or security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments or (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. "Person" shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, State, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "Personal Property" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property. "Physical Conditions Report" shall mean, with respect to each Individual Property, a structural engineering report prepared by a company satisfactory to Lender regarding the physical condition of such Individual Property, satisfactory in form and substance to Lender in its sole discretion, which report shall, among other things, (a) confirm that such Individual Property and its use complies, in all material respects, with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building laws) and (b) include a copy of a final certificate of occupancy with respect to all Improvements on such Individual Property. "Plan" shall mean an employee benefit plan (as defined in section 3(3) of ERISA) whether or not subject to ERISA or a plan or other arrangement within the meaning of section 4975 of the Code. "Plan Assets" shall mean assets of a Plan within the meaning of section 29 C.F.R. section 2510.3-101 or similar law. 20 "Policies" shall have the meaning set forth in Section 6.1(b) hereof. "Prepayment Date" shall have the meaning set forth in Section 2.3.1 hereof. "Prime Rate" shall mean, on a particular date, a rate per annum equal to the rate of interest published in The Wall Street Journal as the "prime rate", as in effect on such day, with any change in the prime rate resulting from a change in said prime rate to be effective as of the date of the relevant change in said prime rate; provided, however, that if more than one prime rate is published in The Wall Street Journal for a day, the average of the prime rates shall be used; provided, further, however, that the Prime Rate (or the average of the prime rates) will be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. In the event that The Wall Street Journal should cease or temporarily interrupt publication, then the Prime Rate shall mean the daily average prime rate published in another business newspaper, or business section of a newspaper, of national standing chosen by Lender. If The Wall Street Journal resumes publication, the substitute index will immediately be replaced by the prime rate published in The Wall Street Journal. In the event that a prime rate is no longer generally published or is limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall select a comparable interest rate index which is readily available to Borrower and verifiable by Borrower but is beyond the control of Lender. Lender shall give Borrower prompt written notice of its choice of a substitute index and when the change became effective. Such substitute index will also be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. The determination of the Prime Rate by Lender shall be conclusive and binding absent manifest error. "Principal" shall have the meaning set forth in Section 4.1.35 hereof, together with its successors and assigns. "Prohibited Person" shall mean any Person: (a) listed in the Annex to, or otherwise subject to the provisions of, the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (the "Executive Order"); (b) that is owned or controlled by, or acting for or on behalf of, any person or entity that is listed to the Annex to, or is otherwise subject to the provisions of, the Executive Order; (c) with whom Lender is prohibited from dealing or otherwise engaging in any transaction by any terrorism or money laundering law, including the Executive Order; (d) who commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order; (e) that is named as a "specially designated national and blocked person" on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov.ofac/t11sdn.pdf or at any replacement website or other replacement official publication of such list; or 21 (f) who is an Affiliate of or affiliated with a Person listed above. "Properties" shall mean, collectively, each and every Individual Property which is subject to the terms of this Agreement. "Property" shall mean, as the context may require, the Properties or an Individual Property. "Property Account" shall have the meaning set forth in Section 3.1(a) hereof. "Property Account Agreement" shall have the meaning set forth in Section 3.1(a) hereof. "Property Account Bank" shall mean, for each Individual Property, that certain property account bank set forth on Schedule X, provided that such bank remains an Eligible Institution, and any successor Eligible Institution or other Eligible Institution selected by Borrower, subject to Lender's approval. "Provided Information" shall have the meaning set forth in Section 9.1(a) hereof. "Qualified Insurer" shall have the meaning set forth in Section 6.1(b) hereof. "Qualified Manager" shall mean a reputable and experienced professional management organization (a) which manages, together with its Affiliates, one hundred fifty (150) properties of a type, quality and size similar to the Properties, totaling in the aggregate no less than 30,000 guest rooms and (b) prior to whose employment as manager of the Properties (i) prior to the occurrence of a Securitization, such employment shall have been approved by Lender, which approval shall not be unreasonably withheld or delayed and (ii) after the occurrence of a Securitization, Lender shall have received written confirmation from the Rating Agencies that the employment of such manager will not result in a downgrade, withdrawal or qualification of the initial, or if higher, then current ratings of the Securities. "Quality Assurance Reports" shall mean any quality assurance reports of inspection or compliance from a Franchisor under a Franchise Agreement with respect to any Individual Property. "Rating Agencies" shall mean each of S&P, Moody's, and Fitch, and any other nationally-recognized statistical rating agency which has been approved by Lender and has rated the Securities. "Regulation S-X Reporting Requirements" shall have the meaning set forth in Section 5.1.10(o) hereof. "Release" of any Hazardous Materials shall mean any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. "Release Price" shall mean, for each Individual Property, one hundred twenty-five percent (125%) of the Allocated Loan Amount for such Individual Property. 22 "Release Property" shall have the meaning set forth in Section 2.6 hereof. "REMIC Trust" shall mean a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code that holds the Note. "Renewal Lease" shall have the meaning set forth in Section 5.1.17(a) hereof. "Rents" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property. "Replacement Interest Rate Cap Agreement" means an interest rate cap agreement from an Acceptable Counterparty with terms identical to the Interest Rate Cap Agreement. "Replacement Management Agreement" shall mean, collectively, (a) either (i) a management agreement with a Qualified Manager substantially in the same form and substance as the Management Agreement, or (ii) a management agreement with a Qualified Manager, which management agreement shall be acceptable to Lender in form and substance, provided, with respect to this subclause (ii), Lender, at its option, may require that Borrower obtain confirmation from the applicable Rating Agencies that such management agreement will not result in a downgrade, withdrawal or qualification of the initial, or if higher, then current rating of the Securities or any class thereof; and (b) a conditional assignment of management agreement substantially in the form of the Assignment of Management Agreement (or such other form acceptable to Lender), executed and delivered to Lender by Operating Lessee and such Qualified Manager at Borrower's expense; provided, however, with respect to the Expiring Management Agreement Properties only, Borrower shall not be required to obtain Lender's consent or such a confirmation from the Rating Agencies in the event that the Management Agreements in effect on the date hereof are extended on the same or more favorable terms to Borrower and/or Operating Lessee, as applicable, prior to the expiration thereof. "Replacement Reserve Account" shall have the meaning set forth in Section 3.1(b)(iv) hereof. "Replacement Reserve Fund" shall have the meaning set forth in Section 7.3.1 hereof. "Replacement Reserve Monthly Deposit" shall mean the greater of (i) such amounts as are required under the Franchise Agreements to be reserved for furniture, fixtures and equipment, (ii) such amounts as are required under the Management Agreements to be reserved for furniture, fixtures and equipment and (iii)(1) until the end of the calendar year in which the Closing Date occurs, the amount of the Initial Replacement Reserve Monthly Deposit, and (2) thereafter, the quotient obtained by dividing (A) the aggregate Gross Income from Operations for the Properties still subject to the Lien of a Security Instrument for the preceding calendar year (as reflected in Borrower's annual operating statements as approved and accepted by Lender) multiplied by four percent (4%) by (B) twelve (12). The Replacement Reserve Monthly Deposit shall be adjusted annually and shall be effective for the Replacement Reserve Monthly Deposit due on the Payment Date first occurring after the appropriate financial statements have been delivered to Lender as required herein. "Replacements" shall have the meaning set forth in Section 7.3.1 hereof. 23 "Required Remediation" shall mean the management, abatement, removal, storage disposition or any other remedial or corrective action taken in connection with the underground storage tanks located at the Omaha Property. "Required Repair Account" shall have the meaning set forth in Section 7.1.1 hereof. "Required Repair Fund" shall have the meaning set forth in Section 7.1.1 hereof. "Required Repairs" shall have the meaning set forth in Section 7.1.1 hereof. "Reserve Fund Deposits" shall mean the amounts to be deposited into the Reserve Funds for any given month or at any other time as provided in this Agreement or in the Other Loan Documents. "Reserve Funds" shall mean the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund, the UST Reserve Fund, the Ground Lease Escrow Fund or any other escrow or reserve fund established by the Loan Documents. "Responsible Officer" means with respect to a Person, the president, chief financial officer or treasurer of such Person. "Restoration" shall mean the repair and restoration of an Individual Property after a Casualty or Condemnation as nearly as possible to the condition the Individual Property was in immediately prior to such Casualty or Condemnation, with such alterations as may be approved by Lender. "Restricted Party" shall mean Borrower, Principal, Mezzanine Borrower, Mezzanine Principal, Junior Mezzanine Borrower, Junior Mezzanine Principal, the Operating Lessee SPE Entities, or any Affiliated Manager or any shareholder, partner or member or any direct or indirect legal or beneficial owner of, Borrower, Principal, Mezzanine Borrower, Mezzanine Principal, Junior Mezzanine Borrower, Junior Mezzanine Principal, the Operating Lessee SPE Entities or any Affiliated Manager; provided, however, that in no event shall FelCor Lodging Limited Partnership or FelCor Lodging Trust Incorporated be deemed a Restricted Party. "S&P" shall mean Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. "Sale or Pledge" shall mean a voluntary or involuntary sale, conveyance, transfer or pledge of a direct or indirect legal or beneficial interest. "Scheduled Amortization Payments" shall mean the amount of principal set forth on Schedule VI hereto to be paid on each Payment Date. "Second Tier" shall have the meaning set forth in Section 6.1(b) hereof. "Second Tier Insurer" shall have the meaning set forth in Section 6.1(b) hereof. "Securities" shall have the meaning set forth in Section 9.1 hereof. 24 "Securitization" shall have the meaning set forth in Section 9.1 hereof. "Securitization Closing Date" shall mean the date upon which a Securitization closes. "Securities Act" shall have the meaning set forth in Section 9.2(a) hereof. "Security Deposits" shall have the meaning set forth in Section 5.1.17(e) hereof. "Security Instrument" shall mean, with respect to each Individual Property, that certain first priority Mortgage (or Deed of Trust or Deed to Secure Debt, as applicable) and Security Agreement, executed and delivered by Borrower and Operating Lessee as security for the Loan and encumbering such Individual Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Servicer" shall have the meaning set forth in Section 9.3 hereof. "Servicing Agreement" shall have the meaning set forth in Section 9.3 hereof. "Severed Loan Documents" shall have the meaning set forth in Section 8.2(c) hereof. "Special Member" shall have the meaning set forth in Section 4.1.35 hereof. "Standard Statement" shall have the meaning set forth in Section 5.1.10(h)(i) hereof. "State" shall mean, with respect to an Individual Property, the State or Commonwealth in which such Individual Property or any part thereof is located. "Strike Rate" shall mean 6.0%. "Substitute Allocated Loan Amount" shall have the meaning set forth in Section 2.6(i) hereof. "Substitute Property" shall have the meaning set forth in Section 2.6 hereof. "Survey" shall mean, with respect to an Individual Property, a survey prepared by a surveyor licensed in the State where such Individual Property is located and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender. "Tax Account" shall have the meaning set forth in Section 3.1 hereof. "Tax and Insurance Escrow Fund" shall have the meaning set forth in Section 7.2 hereof. "Taxes" shall mean all real estate taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Individual Property or part thereof. "Terrorism Exclusion" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Terrorism Insurance" shall have the meaning set forth in Section 6.1(a)(x) hereof. 25 "Terrorism Insurance Cap" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Terrorism Insurance Required Amount" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Title Insurance Policy" shall mean, with respect to each Individual Property, an ALTA mortgagee title insurance policy in a form acceptable to Lender (or, if an Individual Property is located in a State which does not permit the issuance of such ALTA policy, such form as shall be permitted in such State and acceptable to Lender) issued with respect to such Individual Property and insuring the lien of the Security Instrument encumbering such Individual Property. "Transfer" shall have the meaning set forth in Section 5.2.10(a) hereof. "Triggering Event" shall mean the earlier to occur of: (i) an Event of Default or (ii) the date the Debt Service Coverage Ratio for the twelve (12) full calendar months immediately preceding the date of such calculation is not in excess of 1.15 to 1.00. "UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in the State in which an Individual Property is located. "Underwriter Group" shall have the meaning set forth in Section 9.2(b) hereof. "U.S. Obligations" shall mean direct non-callable obligations of the United States of America. "UST Reserve Account" shall have the meaning set forth in Section 3.1(b)(vii) hereof. "UST Reserve Fund" shall have the meaning set forth in Section 7.5.1 hereof. SECTION 1.2 Principles of Construction. All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All uses of the word "including" shall mean "including, without limitation" unless the context shall indicate otherwise. Unless otherwise specified, the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. II. GENERAL TERMS SECTION 2.1 Loan Commitment; Disbursement to Borrower. 2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date. 26 2.1.2 Single Disbursement to Borrower. Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed. 2.1.3 The Note, Security Instruments and Loan Documents. The Loan shall be evidenced by the Note and secured by the Security Instruments, the Assignments of Leases and the other Loan Documents. Borrower and Operating Lessee hereby authorize Lender to file a financing statement or statements under the UCC in connection with the Properties in the form required to properly perfect Lender's security interest therein. 2.1.4 Use of Proceeds. Borrower shall use the proceeds of the Loan to (a) repay and discharge any existing loans relating to the Properties, (b) pay all past-due Basic Carrying Costs, if any, with respect to the Properties, (c) make deposits into the Reserve Funds on the Closing Date in the amounts provided herein or in the Other Loan Documents or (d) pay costs and expenses incurred in connection with the closing of the Loan, as approved by Lender. The balance, if any, shall be distributed to Borrower. SECTION 2.2 Interest; Loan Payments; Late Payment Charge. 2.2.1 Payments. (a) Interest. Interest on the outstanding principal balance of the Loan shall accrue from the Closing Date to the end of the Interest Period in which the Maturity Date occurs at the Applicable Interest Rate. Monthly installments of interest only shall be paid on each Payment Date commencing on June 9, 2003 and on each subsequent Payment Date thereafter up to and including the Maturity Date for the Interest Period in which such Payment Date or Maturity Date occurs. Interest on the outstanding principal amount of the Loan for the period through and including May 8, 2003 shall be paid by Borrower on the Closing Date. The outstanding principal balance of the Loan together with all accrued and unpaid interest thereon shall be due and payable on the Maturity Date (including, without limitation, all interest that would accrue on the outstanding principal balance of the Loan through the end of the Interest Period during which the Maturity Date occurs (even if such period extends beyond the Maturity Date)). (b) Principal. The Scheduled Amortization Payments shall be paid on June 9, 2003 and on each subsequent Payment Date thereafter. (c) Excess Cash Flow. Beginning on an Excess Cash Flow Application Date and on each Payment Date thereafter, payments of Excess Cash Flow shall be payable in accordance with the provisions of Section 3.13 hereof. (d) All payments and other amounts due under the Note, this Agreement and the other Loan Documents shall be made without any setoff, defense or irrespective of, and without deduction for, counterclaims. 27 2.2.2 Interest Calculation. Interest on the outstanding principal balance of the Loan shall be calculated by multiplying (a) the actual number of days elapsed in the period for which the calculation is being made by (b) a daily rate equal to the Applicable Interest Rate divided by three hundred sixty (360) by (c) the outstanding principal balance. 2.2.3 Eurodollar Rate Unascertainable; Illegality; Increased Costs. (a) (i) In the event that Lender shall have determined (which determination shall be conclusive and binding upon Borrower absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Lender shall forthwith give notice by telephone of such determination, to Borrower at least one (1) Business Day prior to the last day of the related Interest Period, with a written confirmation of such determination promptly thereafter. If such notice is given, the Loan shall bear interest at the Adjusted Prime Rate beginning on the first day of the next succeeding Interest Period. (ii) If, pursuant to the terms of this Section 2.2.3(a), the Loan is bearing interest at the Adjusted Prime Rate and Lender shall determine (which determination shall be conclusive and binding upon Borrower absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Lender shall give notice thereof to Borrower by telephone of such determination, confirmed in writing, to Borrower as soon as reasonably practical, but in no event later than one (1) Business Day prior to the last day of the then current Interest Period. If such notice is given, the Loan shall bear interest at the Eurodollar Rate beginning on the first day of the next succeeding Interest Period. Notwithstanding any provision of this Agreement to the contrary, in no event shall Borrower have the right to elect to have the Loan bear interest at either the Eurodollar Rate or the Adjusted Prime Rate. (b) If any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for Lender in good faith to make or maintain the portion of the Loan bearing interest at the Eurodollar Rate, (I) the obligation of Lender hereunder to make the Loan bearing interest at the Eurodollar Rate shall be canceled forthwith and (II) the Loan shall automatically bear interest at the Adjusted Prime Rate on the next succeeding Payment Date or within such earlier period as required by Applicable Law. Borrower hereby agrees promptly to pay Lender (within ten (10) days of Lender's written demand therefor), any additional amounts necessary to compensate Lender for any reasonable costs incurred by Lender in making any conversion in accordance with this Agreement, including, without limitation, any interest or fees payable by Lender to lenders of funds obtained by it in order to make or maintain the Loan hereunder. Upon written demand from Borrower, Lender shall demonstrate in reasonable detail the circumstances giving rise to Lender's determination and the calculation substantiating the Adjusted Prime Rate and any additional costs incurred by Lender in making the conversion. Lender's written notice of such costs, as certified to Borrower, shall be conclusive absent manifest error. (c) In the event that any change in any requirement of any Applicable Law or in the interpretation or application thereof, or compliance in good faith by Lender with any request or directive (whether or not having the force of law) hereafter issued from any 28 Governmental Authority, in each such case, which is generally applicable to all Lenders subject to such Governmental Authority's jurisdiction: (i) shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any U.S. office of Lender which is not otherwise included in the determination of LIBOR hereunder; (ii) shall, if the Loan is then bearing interest at the Eurodollar Rate, hereafter have the effect of reducing the rate of return on Lender's capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender's policies with respect to capital adequacy) by any amount deemed by Lender to be material; or (iii) shall, if the Loan is then bearing interest at the Eurodollar Rate, hereafter impose on Lender any other condition, the result of which is to increase the cost to Lender of making, renewing or maintaining loans or extensions of credit or to reduce any amount receivable hereunder by any amount deemed by Lender to be material; then, in any such case, Borrower shall promptly pay Lender (within ten (10) days of Lender's written demand therefor), any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable which Lender deems to be material. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.3(c), Lender shall provide Borrower with written notice specifying in reasonable detail the event or circumstance by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount. A certificate as to any additional costs or amounts payable pursuant to the foregoing sentence submitted by Lender to Borrower shall be conclusive absent manifest error. This provision shall survive payment of the Note and the satisfaction of all other obligations of Borrower under the Note, this Agreement and the other Loan Documents. (c) Borrower agrees to indemnify Lender and to hold Lender harmless from any loss or expense which Lender sustains or incurs to the extent it is a consequence of (I) any default by Borrower in payment of the principal of or interest on the Loan while bearing interest at the Eurodollar Rate, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Eurodollar Rate, (II) any prepayment (whether voluntary or mandatory) of the Loan on a day that (A) is not the Payment Date immediately following the last day of an Interest Period with respect thereto or (B) is the Payment Date immediately following the last day of an Interest Period with respect thereto if Borrower did not give the prior written notice of such prepayment required pursuant to the terms of this Agreement, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Eurodollar Rate hereunder and (III) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest Rate from the Eurodollar Rate to the Adjusted Prime Rate with respect to any portion of the outstanding principal amount of the Loan then bearing interest at the Eurodollar Rate on a date other than 29 the Payment Date immediately following the last day of an Interest Period, including, without limitation, such loss or expenses arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Eurodollar Rate hereunder (the amounts referred to in clauses (I), (II) and (III) are herein referred to collectively as the "Breakage Costs"). This provision shall survive payment of the Note and the satisfaction of all other obligations of Borrower under this Agreement and the other Loan Documents. 2.2.4 Payment on Maturity Date. Borrower shall pay to Lender on (or, to the extent permitted herein before) the Maturity Date the outstanding principal balance, all accrued and unpaid interest thereon, and all other amounts due hereunder and under the Note, the Security Instruments and the other Loan Documents, including, without limitation, all interest that would accrue on the outstanding principal balance of the Loan through and including the end of the Interest Period in which the Maturity Date occurs (even if such Interest Period extends beyond the Maturity Date). 2.2.5 Payments after Default. Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by Applicable Law, overdue interest and other amounts due in respect of the Loan, shall accrue at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein Interest at the Default Rate shall be computed from the occurrence of the default until the actual receipt and collection of the Debt (or that portion thereof that is then due). To the extent permitted by Applicable Law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Security Instruments. This paragraph 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. 2.2.6 Late Payment Charge. If any principal, interest or any other sums due under the Loan Documents is not paid by Borrower on 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 such unpaid sum or the maximum amount permitted by Applicable Law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Security Instruments and the other Loan Documents to the extent permitted by Applicable Law; provided, however, Borrower shall have the option, not to be exercised more than three (3) times during the term of the Loan, to not pay the late payment charge contemplated by this Section 2.2.6 in the event any Monthly Debt Service Payment Amount is paid within one (1) Business Day after the date the same was due. 2.2.7 Usury Savings. This Agreement and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan 30 Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal 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 sums due under the Loan, shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. 2.2.8 Foreign Taxes. If the Loan is bearing interest at the Eurodollar Rate, all payments made by Borrower hereunder shall be made free and clear of, and without reduction for or on account of, Foreign Taxes, excluding, in the case of Lender, Foreign Taxes measured by its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which Lender is resident or organized, or any political subdivision thereof and, in the case of Lender, taxes measured by its overall net income, and franchise taxes imposed on it, by the jurisdiction of Lender's lending office or any political subdivision thereof or in which Lender is resident or engaged in business. If any non-excluded Foreign Taxes are required to be withheld from any amounts payable to Lender hereunder, the amounts so payable to Lender shall be increased to the extent necessary to yield to Lender (after payment of all non-excluded Foreign Taxes) interest or any such other amounts payable hereunder at the rate or in the amounts specified hereunder. Whenever any non-excluded Foreign Tax is payable pursuant to Applicable Law by Borrower, Borrower shall send to Lender an original official receipt showing payment of such non-excluded Foreign Tax or other evidence of payment reasonably satisfactory to Lender. Borrower hereby indemnifies Lender for any incremental taxes, interest or penalties that may become payable by Lender which may result from any failure by Borrower to pay any such non-excluded Foreign Tax when due to the appropriate taxing authority or any failure by Borrower to remit to Lender the required receipts or other required documentary evidence, provided, however, in the event that Lender or any successor and/or assign of Lender is not incorporated under the laws of the United States of America or a state thereof Lender agrees that, prior to the first date on which any payment is due such entity hereunder, it will deliver to Borrower (i) two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI or successor applicable form, as the case may be, certifying in each case that such entity is entitled to receive payments under the Note, without deduction or withholding of any United States federal income taxes, or (ii) an Internal Revenue Service Form W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each entity required to deliver to Borrower a Form W-8BEN or W-8ECI or Form W-9 pursuant to the preceding sentence further undertakes to deliver to Borrower two further copies of the said letter and W-8BEN or W-8ECI or Form W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires (which, in the case of the Form W-8ECI, is the last day of each U.S. taxable year of the non-U.S. entity) or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to Borrower, and such other extensions or renewals thereof as may reasonably be 31 requested by Borrower, certifying in the case of a Form W-8BEN or W-8ECI that such entity is entitled to receive payments under the Note without deduction or withholding of any United States federal income taxes, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such entity from duly completing and delivering any such letter or form with respect to it and such entity advises Borrower that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-9, establishing an exemption from United States backup withholding tax. Notwithstanding the foregoing, if such entity fails to provide a duly completed Form W-8BEN or W-8ECI or other applicable form and, under Applicable Law, in order to avoid liability for Foreign Taxes, Borrower is required to withhold on payments made to such entity that has failed to provide the applicable form, Borrower shall be entitled to withhold the appropriate amount of Foreign Taxes. In such event, Borrower shall promptly provide to such entity evidence of payment of such Foreign Taxes to the appropriate taxing authority and shall promptly forward to such entity any official tax receipts or other documentation with respect to the payment of the Foreign Taxes as may be issued by the taxing authority. SECTION 2.3 Prepayments. 2.3.1 Voluntary Prepayments. Except as otherwise provided herein, Borrower shall not have the right to prepay the Loan in whole or in part prior to the Payment Date occurring in November, 2003 (the "Lockout Period"). On any Payment Date occurring after the expiration of the Lockout Period, Borrower may, at its option, prepay the Loan in whole, but not in part, upon satisfaction of the following conditions: (a) Borrower shall provide prior written notice to Lender specifying the date (the "Prepayment Date") upon which the prepayment is to be made, which notice shall be delivered to Lender not less than thirty (30) Business Days prior to such payment; (b) Borrower shall pay to Lender, simultaneously with such prepayment, (i) if such prepayment occurs prior to the Payment Date occurring in May, 2004 (the "Open Date"), a prepayment premium equal to one percent (1%) of the original principal amount of the Loan, (ii) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date together with an amount equal to the interest that would have accrued at the Applicable Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment (the "Interest Shortfall"), (iii) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (ii); and (iv) all other sums then due under this Agreement, the Note or the other Loan Documents; (c) Mezzanine Borrower simultaneously prepays the Mezzanine Loan in accordance with the provisions of the Mezzanine Loan Agreement; and 32 (d) Junior Mezzanine Borrower simultaneously prepays the Junior Mezzanine Loan in accordance with the provisions of the Junior Mezzanine Loan Agreement. This Section 2.3.1 shall not apply to prepayments made in accordance with the provisions of Section 2.5 hereof. 2.3.2 Mandatory Prepayments. On the next occurring Payment Date following the date on which Borrower actually receives any Net Proceeds, if and to the extent Lender is not obligated to make such Net Proceeds available to Borrower for the Restoration of an Individual Property, Borrower shall prepay the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Proceeds. Such prepayment shall be applied, first, to interest on the outstanding principal balance of the Loan that would have accrued at the Applicable Interest Rate on the amount prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment, and then to all other amounts then due to Lender under this Agreement or any of the other Loan Documents and then to the outstanding principal balance of the Loan; provided, however, Borrower shall not be obligated to pay any prepayment premium in connection with such prepayment. 2.3.3 Prepayments After Default. If, following an uncured Event of Default, Borrower tenders payment of all or any part of the Debt, or if all or any portion of the Debt is recovered by Lender after such Event of Default such tender or recovery shall be deemed a voluntary prepayment by Borrower in violation of the prohibition against prepayment of the Loan prior to the expiration of the Lockout Period and Borrower shall pay, in addition to the Debt, (i) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date together with an amount equal to the interest that would have accrued at the Applicable Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment, (ii) if such prepayment occurs prior to the expiration of the Open Period, a prepayment consideration equal to five percent (5%) of the amount being prepaid, (iii) the Interest Shortfall, if applicable, with respect to the amount prepaid, (iv) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (iii); and (v) all other sums due under this Agreement, the Note or the other Loan Documents in connection with a partial or total prepayment. 2.3.4 Making of Payments. Each payment by Borrower hereunder or under the Note shall be made in funds settled through the New York Clearing House Interbank Payments System or other funds immediately available to Lender by 12:00 p.m., New York City time, on or prior to the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. Whenever any payment hereunder or under the Note shall be stated to be due on a 33 day which is not a Business Day, such payment shall be made on the first Business Day succeeding such scheduled due date. 2.3.5 Application of Prepayments. All prepayments received pursuant to this Section 2.3 and Section 2.5 shall be applied first, to interest on the outstanding principal balance being prepaid that accrued through and including the Prepayment Date, second, to interest on the outstanding principal balance being prepaid that would have accrued through the end of the Interest Period in which the prepayment occurred, notwithstanding that such Interest Period extends beyond the date of prepayment, and third, to the payments of principal due under the Loan in the inverse order of maturity. SECTION 2.4 Interest Rate Cap Agreement. (a) Borrower shall obtain, or cause to be obtained, and shall thereafter maintain in effect, an Interest Rate Cap Agreement with an Acceptable Counterparty, which shall be coterminous with the Loan, as the same may be extended in accordance with the terms hereof, and have a notional amount which shall not at any time be less than the outstanding principal balance of the Loan and which shall at all times have a strike rate equal to the Strike Rate. The Counterparty shall be obligated under the Interest Rate Cap Agreement to make monthly payments equal to the excess of one (1) month LIBOR over the Strike Rate, calculated on the notional amount. The notional amount of the Interest Rate Cap Agreement may be reduced from time to time in amounts equal to any payment of the principal of the Loan in accordance with the terms hereof. (b) Borrower shall collaterally assign to Lender pursuant to an Assignment of Interest Rate Cap Agreement substantially in the form annexed hereto as Exhibit C, all of its right, title and interest to receive any and all payments under the Interest Rate Cap Agreement (and any related guarantee, if any) and shall deliver to Lender an executed counterpart of such Interest Rate Cap Agreement and notify the Counterparty of such collateral assignment (either in such Interest Rate Cap Agreement or by separate instrument). The Counterparty shall agree in writing to make all payments it is required to make under the Interest Rate Cap Agreement directly to the Lockbox Account or if the Lockbox Account is not then required to be in effect, into such Account as specified by Lender. At such time as the Loan is repaid in full, all of Lender's right, title and interest in the Interest Rate Cap Agreement shall terminate and Lender shall promptly execute and deliver at Borrower's sole cost and expense, such documents as may be required to evidence Lender's release of the Interest Rate Cap Agreement and to notify the Counterparty of such release. (c) Borrower shall comply with all of its obligations under the terms and provisions of the Interest Rate Cap Agreement. All amounts paid by the Counterparty under the Interest Rate Cap Agreement shall be deposited immediately into the Lockbox Account or if the Lockbox Account is not then required to be in effect, into such Account as specified by Lender. Borrower shall take all actions reasonably requested by Lender to enforce Borrower's and Lender's rights under the Interest Rate Cap Agreement in the event of a default by the Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder. 34 (d) In the event of any downgrade, withdrawal or qualification of the rating of the Counterparty below "AA-" (or the equivalent) by the Rating Agencies, Borrower shall replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement with an Acceptable Counterparty not later than ten (10) Business Days following receipt of notice from Lender or Servicer of such downgrade, withdrawal or qualification. (e) In the event that Borrower fails to purchase and deliver to Lender the Interest Rate Cap Agreement or any Replacement Interest Cap Agreement as and when required hereunder, Lender may purchase such Interest Rate Cap Agreement and the cost incurred by Lender in purchasing such Interest Rate Cap Agreement shall be paid by Borrower to Lender with interest thereon at the Default Rate from the date such cost was incurred by Lender until such cost is paid by Borrower to Lender. (f) In connection with an Interest Rate Cap Agreement, if requested by Lender in connection with a Securitization, Borrower shall use commercially reasonable efforts to obtain and deliver to Lender an opinion of counsel from counsel for the Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that: (1) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Interest Rate Cap Agreement; (2) the execution and delivery of the Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property; (3) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and (4) the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 35 SECTION 2.5 Release of Property. 2.5.1 Release of Individual Property. Provided no Event of Default has occurred and is continuing, after the expiration of the Lockout Period, Borrower may obtain the release of an Individual Property from the Lien of the Security Instrument thereon (and related Loan Documents) and the release of Borrower's obligations under the Loan Documents with respect to such Individual Property (other than those expressly stated to survive), but only upon the satisfaction of each of the following conditions: (a) Borrower shall provide Lender with at least thirty (30) days but no more than ninety (90) days prior written notice of its request to obtain a release of the Individual Property; (b) Borrower shall have delivered evidence satisfactory to Lender that (i)(A) Mezzanine Borrower complied with all of the terms and conditions set forth in Section 2.5.1 of the Mezzanine Loan Agreement with respect to a release of the security interest corresponding to the release requested pursuant to this Section 2.5.1 and (B) Mezzanine Lender has granted such release to Mezzanine Borrower and (ii) Junior Mezzanine Borrower complied with all of the terms and conditions set forth in Section 2.5.1 of the Junior Mezzanine Loan Agreement with respect to a release of the security interest corresponding to the release requested pursuant to this Section 2.5.1 and (B) Junior Mezzanine Lender has granted such release to Junior Mezzanine Borrower; (c) Lender shall have received a wire transfer of immediately available federal funds in an amount equal to the Release Price for the applicable Individual Property, together with (i) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date, (ii) if such release occurs on or prior to the Open Date, a prepayment premium equal to one percent (1%) of the applicable Release Price, (iii) the Interest Shortfall, if applicable, with respect to the amount prepaid, (iv) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (iii); and (v) all other sums due under this Agreement, the Note or the other Loan Documents in connection with a partial prepayment; (d) Borrower shall submit to Lender, not less than ten (10) days prior to the date of such release, a release of Lien (and related Loan Documents) for such Individual Property for execution by Lender. Such release shall be in a form appropriate in each State in which the Individual Property is located and shall contain standard provisions, if any, protecting the rights of Lender. In addition, Borrower shall provide all other documentation Lender reasonably requires to be delivered by Borrower in connection with such release, together with an Officer's Certificate certifying that (i) such documentation is in compliance with all applicable Legal Requirements, and (ii) the release will not impair or otherwise adversely affect the Liens, security interests and other rights of Lender under the Loan Documents not being released (or as to the parties to the Loan Documents and Properties subject to the Loan Documents not being released); 36 (e) After giving effect to such release, Lender shall have determined that the Debt Service Coverage Ratio for the Properties then remaining subject to the Lien of a Security Instrument (not including the Individual Property to be released) (but for the purpose of this calculation only, assuming a Release Price equal to the Allocated Loan Amount) shall be at least equal to the Debt Service Coverage Ratio for all of the Properties (including the Individual Property to be released) for the twelve (12) full calendar months immediately preceding the release of the Individual Property; (f) Lender shall have received evidence that the Individual Property to be released shall be conveyed to a Person other than Borrower or Principal; (g) In the event the Release Property is subject to an Operating Lease along with one or more additional Properties, Lender shall have received a certified copy of an amendment to the Operating Lease reflecting the deletion of the Individual Property to be released; and (h) Lender shall have received payment of all Lender's reasonable costs and expenses, including due diligence review costs and reasonable counsel fees and disbursements incurred in connection with the release of the Individual Property from the lien of the related Security Instrument and the review and approval of the documents and information required to be delivered in connection therewith. 2.5.2 Release on Payment in Full. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of all principal and interest due on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Agreement, release the Lien of the Security Instrument on each Individual Property not theretofore released. SECTION 2.6 Substitution of Properties. Subject to the terms of this Section 2.6 after the expiration of the Lockout Period, Borrower may obtain a release of the Lien of a Security Instrument (and the related Loan Documents) encumbering an Individual Property (a "Release Property") by substituting therefor another hotel property of like kind and quality acquired by Borrower (individually, a "Substitute Property" and collectively, the "Substitute Properties"), provided that the following conditions precedent are satisfied: (a) Borrower shall not have the right to release and substitute (i) more than one (1) Individual Property in accordance with this Section in any twelve (12) month period and (ii) any Properties after such time as Borrower has released and substituted Properties which in the aggregate had an appraised value of more than thirty-five percent (35%) of the aggregate appraised values of the Properties subject to the Lien of the Security Instruments as of the Closing Date. (b) Lender shall have received at least thirty (30) days prior written notice requesting the substitution and identifying the Substitute Property and Release Property. 37 (c) If the Borrower continues to own an Individual Property subject to the Lien of a Security Instrument, Lender shall have received (i) a copy of a deed conveying all of Borrower's right, title and interest in and to the Release Property to a Person other than Borrower or Principal pursuant to an arms length transaction and (ii) a letter from Borrower countersigned by a title insurance company acknowledging receipt of such deed and agreeing to record such deed in the real estate records for the county in which the Release Property is located. (d) Lender shall have received a current Appraisal of (i) the Substitute Property and (ii) the Release Property, each prepared within sixty (60) days prior to the release and substitution, showing an appraised value of the Substitute Property equal to or greater than one hundred percent (100%) of (A) the appraised value of the Release Property as of the Closing Date and (B) the appraised value of the Release Property immediately prior to the date of the proposed substitution. (e) Intentionally Omitted. (f) Lender shall have received a certificate of Borrower certifying, together with other evidence that would be satisfactory to a prudent institutional mortgage loan lender that, the Debt Service Coverage Ratio for the twelve (12) months immediately preceding the substitution with respect to the Substitute Property is equal to or greater than the Debt Service Coverage Ratio for the twelve (12) full calendar months immediately preceding the date of the proposed substitution with respect to the Release Property, which Debt Service Coverage Ratio shall be based upon the Allocated Loan Amounts of the Substitute Property and the Release Property. (g) If the Loan is part of a Securitization, Lender shall have received confirmation in writing from the Rating Agencies to the effect that such release and substitution will not result in a withdrawal, qualification or downgrade of the respective ratings in effect immediately prior to such release and substitution for the Securities issued in connection with the Securitization that are then outstanding. If the Loan is not part of a Securitization, Lender shall have consented in writing to such release and substitution, which consent shall be given in Lender's reasonable discretion applying the requirements of a prudent institutional mortgage loan lender with respect to real estate collateral of similar size, scope and value of the Substitute Property. (h) Unless such event or condition relates solely to the Release Property and will be fully cured by the release and substitution, no Event of Default shall have occurred and be continuing and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each other Loan Document on Borrower's part to be observed or performed. Lender shall have received a certificate from Borrower confirming the foregoing, stating that the representations and warranties contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of the release and substitution with respect to Borrower, the Properties and the Substitute Property and containing any other representations and warranties with respect to Borrower, the Properties, the Substitute Property or the Loan as (i) Lender, if a Securitization has not occurred, or (ii) the Rating Agencies, if a Securitization has occurred, may require, unless such 38 certificate would be inaccurate, such certificate to be in form and substance satisfactory to Lender or the Rating Agencies, as applicable. (i) Borrower shall (A) have executed, acknowledged and delivered to Lender (I) a Security Instrument, an Assignment of Leases and Rents and two UCC-1 Financing Statements with respect to the Substitute Property, together with a letter from Borrower countersigned by a title insurance company acknowledging receipt of such Security Instrument, Assignment of Leases and Rents and UCC-1 Financing Statements and agreeing to record or file, as applicable, such Security Instrument, Assignment of Leases and Rents and one of the UCC-1 Financing Statements in the real estate records for the county in which the Substitute Property is located and to file one of the UCC-1 Financing Statements in the office of the Secretary of State (or other central filing office) of the State in which the Substitute Property is located, so as to effectively create upon such recording and filing valid and enforceable first priority Liens upon the Substitute Property, in favor of Lender (or such other trustee as may be desired under local law), subject only to the Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents and (II) an Environmental Indemnity with respect to the Substitute Property from Indemnitor and (B) have caused Guarantor to acknowledge and confirm its obligations under the Loan Documents. The Security Instrument, Assignment of Leases and Rents, UCC-1 Financing Statements and Environmental Indemnity shall be the same in form and substance as the counterparts of such documents executed and delivered with respect to the related Release Property subject to modifications reflecting only the Substitute Property as the Individual Property and such modifications reflecting the laws of the State in which the Substitute Property is located. The Security Instrument encumbering the Substitute Property shall secure all amounts then outstanding under the Note, provided that in the event that the jurisdiction in which the Substitute Property is located imposes a mortgage recording, intangibles or similar tax and does not permit the allocation of indebtedness for the purpose of determining the amount of such tax payable, the principal amount secured by such Security Instrument shall be equal to one hundred twenty-five percent (125%) of the Allocated Loan Amount for the Substitute Property. The amount of the Loan allocated to the Substitute Property (such amount being hereinafter referred to as the "Substitute Allocated Loan Amount") shall equal the Allocated Loan Amount of the related Release Property. (j) Lender shall have received (A) to the extent available, any "tie-in" or similar endorsement, together with a "first loss" endorsement, to each Title Insurance Policy insuring the Lien of the existing Security Instruments as of the date of the substitution with respect to the Title Insurance Policy insuring the Lien of the Security Instrument with respect to the Substitute Property and (B) a Title Insurance Policy (or a marked, signed and redated commitment to issue such Title Insurance Policy) insuring the Lien of the Security Instrument encumbering the Substitute Property, issued by the title company that issued the Title Insurance Policies insuring the Lien of the existing Security Instruments and dated as of the date of the substitution, with reinsurance and direct access agreements that replace such agreements issued in connection with the Title Insurance Policy insuring the Lien of the Security Instrument encumbering the Release Property. The Title Insurance Policy issued with respect to the Substitute Property shall (1) provide coverage in the amount of the Substitute Allocated Loan Amount if the "tie-in" or similar endorsement described above is available or, if such endorsement is not available, in an amount equal to one hundred twenty-five percent 39 (125%) of the Substitute Allocated Loan Amount, together, if available, with "last dollar endorsement," (2) insure Lender that the relevant Security Instrument creates a valid first lien on the Substitute Property encumbered thereby, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (3) contain such endorsements and affirmative coverages as are then available and are contained in the Title Insurance Policies insuring the Liens of the existing Security Instruments, and such other endorsements or affirmative coverage that a prudent institutional mortgage lender would require, and (4) name Lender as the insured. Lender also shall have received copies of paid receipts or other evidence showing that all premiums in respect of such endorsements and Title Insurance Policies have been paid. (k) Lender shall have received a current Survey for each Substitute Property, certified to the title company and Lender and its successors and assigns, in the same form and having the same content as the certification of the Survey of the Release Property prepared by a professional land surveyor licensed in the State in which the Substitute Property is located and acceptable to the Rating Agencies in accordance with the 1999 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys. Such Survey shall reflect the same legal description contained in the Title Insurance Policy relating to such Substitute Property and shall include, among other things, a metes and bounds description of the real property comprising part of such Substitute Property (unless such real property has been satisfactorily designated by lot number on a recorded plat). The surveyor's seal shall be affixed to each Survey and each Survey shall certify whether or not the surveyed property is located in a "one-hundred-year flood hazard area." (l) Lender shall have received valid certificates of insurance indicating that the requirements for the policies of insurance required for an Individual Property hereunder have been satisfied with respect to the Substitute Property and evidence of the payment of all Insurance Premiums payable for the existing policy period. (m) Lender shall have received a Phase I environmental report dated not more than one hundred eighty (180) days prior to the proposed date of substitution and otherwise acceptable to a prudent institutional mortgage loan lender and, if recommended under the Phase I environmental report, a Phase II environmental report that would be acceptable to a prudent institutional mortgage loan lender, which conclude that the Substitute Property does not contain any Hazardous Materials and is not subject to any significant risk of contamination from any off site Hazardous Materials. (n) Borrower shall deliver or cause to be delivered to Lender (A) updates or, if the Substitute Property is to be owned by an Affiliate of Borrower, originals, in either case certified by Borrower or such Affiliate, as applicable, of all organizational documentation related to Borrower or such Affiliate, as applicable, and/or the formation, structure, existence, good standing and/or qualification to do business delivered to Lender on the Closing Date; (B) good standing certificates, certificates of qualification to do business in the jurisdiction in which the Substitute Property is located (if required in such jurisdiction); and (C) resolutions of Borrower or such Affiliate, as applicable, authorizing the substitution and any actions taken in connection with such substitution. 40 (o) Lender shall have received the following opinions of Borrower's counsel: (A) an opinion or opinions of counsel admitted to practice under the laws of the State in which the Substitute Property is located stating that the Loan Documents delivered with respect to the Substitute Property pursuant to clause (i) above are valid and enforceable in accordance with their terms, subject to the laws applicable to creditors' rights and equitable principles, and that Borrower is qualified to do business and in good standing under the laws of the jurisdiction where the Substitute Property is located or that Borrower is not required by Applicable Law to qualify to do business in such jurisdiction; (B) an opinion of counsel acceptable to the Rating Agencies if the Loan is part of a Securitization, or Lender if the Loan is not part of a Securitization, stating that the Loan Documents delivered with respect to the Substitute Property pursuant to this Section, among other things, duly authorized, executed and delivered by Borrower and that the execution and delivery of such Loan Documents and the performance by Borrower of its obligations thereunder will not cause a breach of, or a default under, any agreement, document or instrument to which Borrower is a party or to which it or its properties are bound; (C) an update of the Insolvency Opinion indicating that the substitution does not affect the opinions set forth therein; (D) if the Loan is part of a Securitization, an opinion of counsel acceptable to the Rating Agencies that the substitution does not constitute a "significant modification" of the Loan under Section 1001 of the Code or otherwise cause a tax to be imposed on a "prohibited transaction" by any REMIC Trust. (p) Borrower shall (i) have paid, (ii) have escrowed with Lender or (iii) be contesting in accordance with the terms hereof, all Basic Carrying Costs relating to each of the Properties and the Substitute Property, including without limitation, (x) accrued but unpaid Insurance Premiums relating to each of the Properties and the Substitute Property, and (y) currently due and payable Taxes (including any in arrears) relating to each of the Properties and the Substitute Property and (z) currently due and payable Other Charges relating to each of the Properties and Substitute Property. (q) Borrower shall have paid or reimbursed Lender for all reasonable costs and expenses incurred by Lender (including, without limitation, reasonable attorneys' fees and disbursements) in connection with the release and substitution and Borrower shall have paid all recording charges, filing fees, taxes or other expenses (including, without limitation, mortgage and intangibles taxes and documentary stamp taxes) payable in connection with the substitution. Borrower shall have paid all costs and expenses of the Rating Agencies incurred in connection with the substitution. (r) Lender shall have received annual operating statements and occupancy statements for the Substitute Property for the most current completed fiscal year and a current operating statement for the Release Property, each certified by Borrower to Lender as being true and correct in all material respects and a certificate from Borrower certifying that there has been no material adverse change in the financial condition of the Substitute Property since the date of such operating statements. (s) Upon the request of Lender, Borrower shall have delivered to Lender estoppel certificates from all tenants under Leases at the Substitute Property. All such estoppel certificates shall be substantially in the form approved by Lender in connection with the origination of the Loan and shall indicate that (1) the subject Lease is a valid and binding 41 obligation of the tenant thereunder, (2) to the best of the tenant's knowledge, there are no defaults under such Lease on the part of the landlord or tenant thereunder, (3) the tenant thereunder has no knowledge of any defense or offset to the payment of rent under such Lease, (4) no rent under such Lease has been paid more than one (1) month in advance, (5) the tenant thereunder has no option under such Lease to purchase all or any portion of the Substitute Property, and (6) all tenant improvement work required under such Lease has been substantially completed and the tenant under such Lease is in actual occupancy of its leased premises. If an estoppel certificate indicates that all tenant improvement work required under the subject Lease has not yet been completed, Borrower shall deliver to Lender financial statements indicating that Borrower has adequate funds to pay all costs related to such tenant improvement work as required under such Lease. (t) Lender shall have received copies of all Leases affecting the Substitute Property certified by Borrower as being true and correct. (u) Upon the request of Lender, Lender shall have received subordination agreements in the form approved by Lender in connection with the origination of the Loan (or such other form approved by Lender, which approval shall not be unreasonably withheld) with respect to tenants under all Leases at the Substitute Property to the extent such Leases for such tenants are not automatically subordinate (in lien and in terms) pursuant to the terms of the applicable Leases. (v) Lender shall have received (A) an endorsement to the Title Insurance Policy insuring the Lien of the Security Instrument encumbering the Substitute Property insuring that the Substitute Property constitutes a separate tax lot or, if such an endorsement is not available in the State in which the Substitute Property is located, a letter from the title insurance company issuing such Title Insurance Policy stating that the Substitute Property constitutes a separate tax lot or (B) a letter from the appropriate taxing authority stating that the Substitute Property constitutes a separate tax lot. (w) Lender shall have received a Physical Conditions Report with respect to the Substitute Property stating that the Substitute Property and its use comply in all material respects with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building laws) and that the Substitute Property is in good condition and repair and free of damage or waste or in the event such report indicates the need for immediate or on-going repairs at the Substitute Property, Lender shall have established a reserve in the amount of 125% of the estimated cost of completing such immediate or on-going repairs, provided, however, in no event shall Lender be obligated to accept a Substitute Property if the physical condition report relating to such Substitute Property indicates any damage or deficiencies which in Lender's reasonable judgment create a risk to the safety or well-being to the occupants of such Substitute Property. (x) Lender shall have received evidence which would be satisfactory to a prudent institutional mortgage loan lender to the effect that all material building and operating licenses and permits necessary for the use and occupancy of the Substitute Property as a hotel including, but not limited to, current certificates of occupancy, have been obtained and are in full force and effect. 42 (y) Lender shall have received an Operating Lease (i) in substantially the form as the Operating Lease in effect on the date hereof or (ii) which would be satisfactory to a prudent institutional mortgage loan lender encumbering only the Substitute Property or, in the event the Release Property is subject to a Operating Lease along with one or more additional Properties, Lender shall have received a certified copy of an amendment to the Operating Lease reflecting the deletion of the Release Property and, if appropriate, the addition of the Substitute Property as a property encumbered pursuant thereto. (z) In the event the Release Property is subject to a Management Agreement along with one or more additional Properties, Lender shall have received a certified copy of an amendment to the Management Agreement reflecting the deletion of the Release Property and, if appropriate, the addition of the Substitute Property as a property managed pursuant thereto and Manager shall have executed and delivered to Lender an amendment to the Assignment of Management Agreement reflecting such amendment to the Management Agreement. In the event that the Release Property is subject to a Management Agreement relating only to such Release Property, Lender shall have received a Replacement Management Agreement for the Substitute Property and the Manager thereunder shall have executed and delivered to Lender an Assignment of Management Agreement with respect to such new Management Agreement on substantially the same terms as used in connection with the Release Property or such other terms as would be acceptable to a prudent institutional mortgage loan lender. (aa) Lender shall have received such other approvals, opinions, documents and information in connection with the substitution as requested by the Rating Agencies if the Loan is part of a Securitization, or as reasonably requested by Lender if the Loan is not part of a Securitization. (bb) Lender shall have received certified copies of all material contracts and agreements relating to the leasing and operation of the Substitute Property (other than the Management Agreement), each of which shall be in a form and substance which would be satisfactory to a prudent institutional mortgage loan lender. (cc) Lender shall have received certified copies of all material consents, licenses and approvals, if any, required in connection with the substitution of a Substitute Property, including, without limitation, liquor licenses and evidence that such consents, licenses and approvals are in full force and effect. (dd) Lender shall have received satisfactory (i.e., showing no Liens other than Permitted Encumbrances) UCC searches, together with tax lien, judgment and litigation searches with respect to the Substitute Property and Borrower in the State where the Substitute Property is located and the jurisdictions where each such Person has its principal place of business. (ee) Lender shall have received a Franchisor Estoppel and Recognition Letter from the franchisor under the Franchise Agreement, if any, for the Substitute Property, in form and substance reasonably satisfactory to a prudent institutional mortgage loan lender. 43 (ff) Lender shall have received certified copies of the most recent Quality Assurance Reports, if any which shall be reasonably satisfactory to a prudent institutional mortgage loan lender. (gg) Borrower shall submit to Lender, not less than ten (10) days prior to the date of such substitution, a release of Lien (and related Loan Documents) for the Release Property for execution by Lender. Such release shall be in a form appropriate for the jurisdiction in which the Release Property is located and shall contain standard provisions, if any, protecting the rights of the releasing lender. (hh) Borrower stall deliver an Officers Certificate certifying that the requirements set forth in this Section 2.6 have been satisfied. Upon the satisfaction of the foregoing conditions precedent, Lender will release its Lien from the Release Property and the Substitute Property shall be deemed to be an Individual Property for purposes of this Agreement and the Substitute Allocated Loan Amount with respect to such Substitute Property shall be deemed to be the Allocated Loan Amount with respect to such Substitute Property for all purposes hereunder. All due diligence required to be delivered to Lender in connection with this Section 2.6 shall be in form, scope and substance which would be satisfactory to a prudent institutional mortgage loan lender. III. CASH MANAGEMENT SECTION 3.1 Establishment of Accounts. (a) Borrower and Operating Lessee shall, simultaneously herewith, (i) establish one or more accounts (individually and collectively, the "Property Account") with one or more Property Account Banks into which Borrower and/or Operating Lessee shall deposit, or cause to be deposited, all Gross Income from Operations not already deposited directly into the Concentration Account, (ii) establish one or more accounts (individually and collectively, the "Concentration Account") with an Eligible Institution into which Borrower shall deposit, or cause to be deposited, all of the funds on deposit in the applicable Property Account and (iii) execute an agreement with Lender and each Property Account Bank providing for the control of the applicable Property Account and Concentration Account substantially in the form of Exhibit A attached herewith (the "Property Account Agreement"). (b) Lender (or Servicer on behalf of Lender) shall, simultaneously herewith establish an account with the Lockbox Bank (the "Lockbox Account"), into which, upon the occurrence of a Triggering Event, Borrower and Operating Lessee shall deposit or cause Manager to deposit all sums on deposit in the Concentration Account, in accordance with Section 3.2 and Section 3.6 hereof, establishing the following Accounts (which may be book entry sub-accounts) into which amounts in the Concentration Account shall be deposited or allocated: (i) An account with Lockbox Bank into which Borrower shall deposit, or cause to be deposited, the Monthly Tax Deposit (the "Tax Account"); 44 (ii) An account with Lockbox Bank into which Borrower shall deposit, or cause to be deposited, the Monthly Insurance Premium Deposit, if any (the "Insurance Premium Account"); (iii) An account with Lockbox Bank into which Borrower shall deposit, or cause to be deposited, the Monthly Debt Service Payment Amount (the "Debt Service Account"); (iv) An account with Lockbox Bank into which Borrower shall deposit, or cause to be deposited, the Replacement Reserve Monthly Deposit (the "Replacement Reserve Account"); (v) An account with Lockbox Bank into which Borrower shall, during an Excess Cash Flow Sweep Period, deposit, or cause to be deposited, Excess Cash Flow (the "Excess Cash Flow Account"); (vi) An account with Lockbox Bank into which Borrower shall deposit, or cause to be deposited, the Monthly Ground Rent Deposit, if any (the "Ground Rent Account"); (vii) An account with Lockbox Bank into which Borrower shall deposit, or cause to be deposited, the UST Reserve Fund (the "UST Reserve Account"). (viii) The Mezzanine Account into which Borrower shall deposit, or cause to be deposited, the payments required pursuant to Section 3.7(b)(viii) hereof; and (ix) The Junior Mezzanine Account into which Borrower shall deposit, or cause to be deposited, the payments required pursuant to Section 3.7(b)(ix) hereof. SECTION 3.2 Deposits into Lockbox Account. (a) Borrower represents, warrants and covenants that (i) Borrower shall, or shall cause Manager or Operating Lessee to, immediately deposit all Gross Income from Operations into the applicable Property Account or Concentration Account, (ii) Borrower or Operating Lessee shall send a notice, substantially in the form of Exhibit B, to all tenants now or hereafter occupying space at each Individual Property directing them to pay all Rents and other sums due under the Lease to which they are a party into the applicable Property Account or Concentration Account, (iii) Borrower, Operating Lessee or Manager shall instruct the Franchisor to deposit all Accounts Receivable for the Properties and all other sums collected by Franchisor pursuant to the Franchise Agreement into the applicable Property Account or the Concentration Account, (iv) Borrower, Operating Lessee or Manager shall deliver a notice substantially in the form of Exhibit D hereto to all credit card companies to pay all Accounts Receivable directly into the applicable Property Account or the Concentration Account, (v) Borrower shall deposit, or shall cause the Counterparty to deposit, all sums paid under the Interest Rate Cap Agreement directly into the Concentration Account or the Lockbox Account; (vi) other than the Accounts, there shall be no other accounts maintained by Borrower, Operating Lessee or any other Person into which revenues from the ownership and operation of the Properties are deposited, (vii) neither Borrower nor any other Person shall open any other such account with respect to the deposit of 45 income in connection with the Properties, (viii) on or before May 1st of each Fiscal Year, Borrower shall provide to Lender evidence reasonably satisfactory to Lender that Borrower has notified the Eligible Institution(s) maintaining the Concentration Account(s) of the revised calculation of the Monthly Pegged Amount and (ix) three (3) Business Days before each Payment Date, Borrower and/or Operating Lessee shall cause Manager to deposit, or cause to be deposited, all remaining funds on deposit in the Manager Account into the Concentration Account. Until deposited into the applicable Property Account, any Gross Income from Operations from the Properties held by Borrower or Operating Lessee shall be deemed to be Collateral and shall be held in trust by it for the benefit, and as the property, of Lender and shall not be commingled with any other funds or property of Borrower or Operating Lessee. (a) Borrower, Operating Lessee or Lender on behalf of Borrower or Operating Lessee, shall direct each Property Account Bank to transfer, on each Business Day, all funds on deposit in the applicable Property Account to the Concentration Account and Borrower, Operating Lessee or Lender on behalf of Borrower or Operating Lessee, shall direct each Eligible Institution maintaining a Concentration Account to transfer, on each Business Day, all funds on deposit in the Concentration Account to (i) prior to the occurrence of a Triggering Event, such account as shall be specified by Borrower and Operating Lessee in writing and (ii) following the occurrence of a Triggering Event, (I) the Manager Account until sums equal to the Monthly Pegged Amount have been transferred to the Manager Account for the then current calendar month and (II) thereafter, the Lockbox Account. (b) Borrower and Operating Lessee warrant and covenant that they shall not rescind, withdraw or change any notices or instructions required to be sent by it pursuant to this Section 3.2 without Lender's prior written consent. SECTION 3.3 Account Name. (a) The Accounts (other than the Manager Account) shall each be in the name of Borrower for the benefit Lender. (b) In the event Lender transfers or assigns the Loan, Borrower and Operating Lessee acknowledge that each Property Account Bank and Lockbox Bank, at Lender's request, shall change the name of each Account to the name of Borrower for the benefit of the transferee or assignee. In the event Lender retains a servicer to service the Loan, Borrower and Operating Lessee acknowledge that each Property Account Bank and Lockbox Bank, at Lender's request, shall be rename each account to be in the name of Borrower for the benefit of the servicer, as agent for Lender. SECTION 3.4 Eligible Accounts. Borrower and Operating Lessee shall, and Borrower and Operating Lessee shall cause each Property Account Bank, Lockbox Account Bank and the Eligible Institution maintaining the Concentration Account to, maintain each Account as an Eligible Account. 46 SECTION 3.5 Permitted Investments. Sums on deposit in any Account other than any Property Account, the Concentration Account or Lockbox Account may be invested in Permitted Investments provided (i) such investments are then regularly offered by Lockbox Bank for accounts of this size, category and type, (ii) such investments are permitted by Applicable Law, (iii) the maturity date of the Permitted Investment is not later than the date on which sums in the applicable Account are anticipated by Lender to be required for payment of an obligation for which such Account was created, and (iv) no Event of Default shall have occurred and be continuing. All income earned from Permitted Investments the property of Borrower. Borrower and Operating Lessee hereby irrevocably authorize and direct Lockbox Bank, to hold any income earned from Permitted Investments as part of the Accounts. Borrower shall be responsible for payment of any federal, State or local income or other tax applicable to income earned from Permitted Investments. No other investments of the sums on deposit in the Accounts shall be permitted except as set forth in this Section 3.5. Lender shall not be liable for any loss sustained on the investment of any funds constituting the Reserve Funds or of any funds deposited in the related Accounts. Notwithstanding anything to the contrary contained herein, Borrower acknowledges that the only Permitted Investment which Lockbox Bank may only offer is an interest bearing escrow account (bearing interest at a money market rate as determined by Lockbox Bank) SECTION 3.6 The Initial Deposits. Lender shall determine, in its reasonable discretion, the initial deposit amounts (the "Initial Deposits") required to be deposited in each of the Tax Account, the Insurance Premium Account, the Replacement Reserve Account, the Required Repair Account, the UST Reserve Account, the Ground Rent Account and Borrower shall deposit the respective Initial Deposits into each Account on the Closing Date. SECTION 3.7 Transfer To and Disbursements from the Lockbox Account. (a) Lockbox Bank shall withdraw all funds on deposit in the Lockbox Account on the date immediately preceding each Payment Date (and if such day is not a Business Day then the preceding day which is a Business Day). (b) Lockbox Bank shall disburse the funds in the Lockbox Account in the following order of priority: (i) First, funds sufficient to pay the Monthly Ground Rent Deposit shall be deposited in the Ground Rent Account; (ii) Second, funds sufficient to pay the Monthly Tax Deposit shall be deposited in the Tax Account; (iii) Third, funds sufficient to pay the Monthly Insurance Premium Deposit, if any, shall be deposited in the Insurance Premium Account; (iv) Fourth, funds sufficient to pay the Monthly Debt Service Payment Amount shall be deposited into the Debt Service Account to be applied (A) first, to the 47 payment of accrued and unpaid interest computed at the Applicable Interest Rate; and (B) second to the payment of the Scheduled Amortization Payment and the reduction of the principal sum (if such Scheduled Amortization Payment is due); (v) Fifth, funds sufficient to pay the Replacement Reserve Monthly Deposit shall be deposited in the Replacement Reserve Account; (vi) Sixth, funds sufficient to pay any interest accruing at the Default Rate, and late payment charges, if any, shall be deposited in the Debt Service Account; (vii) Seventh, to the payment of Lockbox Bank for customary and reasonable fees and expenses incurred in connection with this Agreement and the accounts established hereunder; (viii) Eighth, provided no Event of Default has occurred and is continuing and until such time as the Mezzanine Loan has been paid in full, funds sufficient to pay debt service under the Mezzanine Loan and any other sums then due under the Mezzanine Loan as communicated to Lender in writing by Mezzanine Lender, shall be deposited into the Mezzanine Account; (ix) Ninth, provided no Event of Default has occurred and is continuing and until such time as the Junior Mezzanine Loan has been paid in full, funds sufficient to pay debt service under the Junior Mezzanine Loan and any other sums then due under the Junior Mezzanine Loan as communicated to Lender in writing by Junior Mezzanine Lender, shall be deposited into the Junior Mezzanine Account; (x) Tenth, provided no Event of Default has occurred and is continuing all amounts remaining in the Lockbox Account after deposits for items (i) through (ix) for the current month and all prior months shall be (A) during a Excess Cash Flow Sweep Period, deposited into the Excess Cash Flow Account and (B) at all other times, disbursed to Borrower. (c) Lender shall have no duty to confirm, inquire or determine the accuracy of any notice purporting to be from Mezzanine Lender or Junior Mezzanine Lender and may rely on any notice it believes in good faith to be genuine and given by Mezzanine Lender or Junior Mezzanine Lender. SECTION 3.8 Withdrawals From the Tax Account and the Insurance Premium Account. Lender shall have the right to withdraw funds from the Tax Account to pay Taxes on or before the date Taxes are delinquent. Lender shall have the right to withdraw funds from the Insurance Premium Account to pay Insurance Premiums on or before the date Insurance Premiums are due and payable. Lockbox Bank shall disburse funds from the Tax Account and the Insurance Premium Account in accordance with Lender's written request therefor on the Business Day following Lockbox Bank's receipt of such written request. 48 SECTION 3.9 Withdrawals from the Replacement Reserve Account. Lender shall disburse funds on deposit in the Replacement Reserve Account in accordance with the provisions of Section 7.3 hereof. SECTION 3.10 Withdrawals from the Required Repair Account. Lender shall disburse funds on deposit in the Required Repair Account in accordance with the provisions of Section 7.1 hereof. SECTION 3.11 Withdrawals from the Debt Service Account. Lender shall have the right to withdraw funds from the Debt Service Account to pay the Monthly Debt Service Payment Amount on or after the date when due, together with any late payment charges or interest accruing at the Default Rate. SECTION 3.12 Withdrawals from the Mezzanine Account. Amounts on deposit in the Mezzanine Account may be applied by Mezzanine Lender in accordance with the Mezzanine Loan Documents. SECTION 3.13 Withdrawals from the Junior Mezzanine Account. Amounts on deposit in the Junior Mezzanine Account may be applied by Junior Mezzanine Lender in accordance with the Junior Mezzanine Loan Documents. SECTION 3.14 Withdrawals from the Ground Rent Account Lender shall have the right to withdraw funds from the Ground Rent Account in accordance with Section 7.4 hereof. SECTION 3.15 Withdrawals from the Excess Cash Flow Account. Lender shall disburse all the funds in the Excess Cash Flow Account to (i) provided no Mezzanine Event of Default or no Junior Mezzanine Event of Default has occurred and is continuing, Borrower or (ii) after the occurrence and during the continuance of either a Mezzanine Event of Default or a Junior Mezzanine Event of Default, Mezzanine Lender or Junior Mezzanine Lender, as applicable, on the Payment Date immediately following the occurrence of the Excess Cash Flow Sweep Period Termination; provided, however, if on an Excess Cash Flow Application Date and on each Payment Date thereafter, the Excess Cash Flow Account contains any funds, such funds will be applied to reduce the principal balance of the Loan and shall be sent to Mezzanine Lender and Junior Mezzanine Lender to reduce the principal balance of the Mezzanine Loan and the principal balance of the Junior Mezzanine Loan, pro rata, until such times as the Adjusted Net Operating Income for the Properties exceeds the Cash Flow Threshold for three (3) consecutive calendar months. Notwithstanding the foregoing, provided (a) no Event of Default has occurred and is continuing and (b) Lender has not received notification of a Mezzanine Event of Default or a Junior Mezzanine Event of Default, upon Borrower's written request, Lender shall withdraw funds contained in the Excess 49 Cash Flow Account to be used by Borrower to pay any incentive management fees which are then due and payable to a Manager pursuant to the applicable Management Agreement. SECTION 3.16 Withdrawals from the UST Reserve Account. Lender shall disburse funds on deposit in the UST Reserve Account in accordance with the provisions of Section 7.5 hereof. SECTION 3.17 Sole Dominion and Control. Borrower and Operating Lessee acknowledge and agree that the Accounts are subject to the sole dominion, control and discretion of Lender, its authorized agents or designees, including Property Account Bank and Lockbox Bank, subject to the terms hereof; and Borrower and Operating Lessee shall have no right of withdrawal with respect to any Account except with the prior written consent of Lender or as otherwise provided herein. SECTION 3.18 Security Interest. Borrower and Operating Lessee hereby grant to Lender a first priority security interest in each of the Accounts and the Account Collateral as additional security for the Debt. SECTION 3.19 Rights on Default. Notwithstanding anything to the contrary in this Article 3, upon the occurrence of an Event of Default, Lender shall promptly notify Property Account Bank and Lockbox Bank in writing of such Event of Default and, without notice from Property Account Bank, Lockbox Bank or Lender, (a) Borrower and Operating Lessee shall have no further right in respect of (including, without limitation, the right to instruct Lockbox Bank or Property Account Bank to transfer from) the Accounts, (b) Lender may direct Lockbox Account to liquidate and transfer any amounts then invested in Permitted Investments to the Accounts or reinvest such amounts in other Permitted Investments as Lender may reasonably determine is necessary to perfect or protect any security interest granted or purported to be granted hereby or pursuant to the other Loan Documents or to enable Lockbox Bank, as agent for Lender, or Lender to exercise and enforce Lender's rights and remedies hereunder or under any other Loan Document with respect to any Account or any Account Collateral, and (c) Lender shall have all rights and remedies with respect to the Accounts and the amounts on deposit therein and the Account Collateral as described in this Agreement and in the Security Instruments, in addition to all of the rights and remedies available to a secured party under the UCC, and, notwithstanding anything to the contrary contained in this Agreement or in the Security Instruments, Lender may apply the amounts of such Accounts as Lender determines in its sole discretion including, but not limited to, payment of the Debt. SECTION 3.20 Financing Statement; Further Assurances. Borrower and Operating Lessee hereby authorize Lender to file, and upon Lender's request, shall execute and deliver to Lender for filing, a financing statement or statements under the UCC in connection with any of the Accounts and the Account Collateral with respect thereto in the form required to properly perfect Lender's security interest therein. Borrower and 50 Operating Lessee agree that at any time and from time to time, at the expense of Borrower, Borrower and Operating Lessee will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Lender may request, in order to perfect and protect any security interest granted or purported to be granted hereby (including, without limitation, any security interest in and to any Permitted Investments) or to enable Lockbox Bank or Lender to exercise and enforce its rights and remedies hereunder with respect to any Account or Account Collateral. SECTION 3.21 Borrower's Obligation Not Affected. The insufficiency of funds on deposit in the Accounts shall not absolve Borrower of the obligation to make any payments, as and when due pursuant to this Agreement and the other Loan Documents, and such obligations shall be separate and independent, and not conditioned on any event or circumstance whatsoever. SECTION 3.22 Payments Received Under this Agreement. Notwithstanding anything to the contrary contained in this Agreement or the other Loan Documents, and provided no Event of Default has occurred and is continuing, Borrower's obligations with respect to the monthly payment of Debt Service and amounts due for the Tax and Insurance Escrow Fund, Required Repair Fund, Ground Lease Escrow Fund, Replacement Escrow Fund, and any other payment reserves established pursuant to this Agreement or any other Loan Document shall (provided Lender is not prohibited from withdrawing or applying any funds in the Accounts by Applicable Law or otherwise) be deemed satisfied to the extent sufficient amounts are deposited in the Lockbox Account established pursuant to this Agreement to satisfy such obligations on the dates each such payment is required, regardless of whether any of such amounts are so applied by Lender. IV. REPRESENTATIONS AND WARRANTIES SECTION 4.1 Borrower Representations. Borrower represents and warrants as of the Closing Date that: 4.1.1 Organization. (a) Borrower is duly organized and is validly existing and in good standing in the jurisdiction in which it is organized, with requisite power and authority to own the Properties and to transact the businesses in which it is now engaged. Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with the Properties, its businesses and operations. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own the Properties and to transact the businesses in which it is now engaged. Attached hereto as Schedule IV is an organizational chart of Borrower. (b) Operating Lessee is duly organized and is validly existing and in good standing in the jurisdiction in which it is organized, with requisite power and authority to own the lessee's interest in the Operating Lease and to operate the Properties and to transact the businesses in 51 which it is now engaged. Operating Lessee is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with the Properties, its businesses and operations. Operating Lessee possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to transact the businesses in which it is now engaged. Attached hereto as Schedule V is an organizational chart of Operating Lessee. 4.1.2 Proceedings. (a) Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and the other Loan Documents have been duly executed and delivered by or on behalf of Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (b) Operating Lessee has taken all necessary action to authorize the execution, delivery and performance of the Operating Lessee Documents. The Operating Lessee Documents have been duly executed and delivered by or on behalf of Operating Lessee and constitutes the legal, valid and binding obligations of Operating Lessee enforceable against Operating Lessee in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 4.1.3 No Conflicts. (a) The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement, management agreement, franchise agreement, or other agreement or instrument to which Borrower is a party or by which any of Borrower's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Borrower or any of the Properties or any of Borrower's other assets, or any license or other approval required to operate the Properties, and any consent, approval, authorization, order, registration or qualification of or with any Governmental Agency required for the execution, delivery and performance by Borrower of this Agreement or any other Loan Documents have been obtained and is in full force and effect. (b) The execution, delivery and performance of the Operating Lessee Documents by Operating Lessee will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien, 52 charge or encumbrance (other than pursuant to such Loan Documents) upon any of the property or assets of Operating Lessee pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement, management agreement, franchise agreement, or other agreement or instrument to which Operating Lessee is a party or by which any of Operating Lessee's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Operating Lessee or any of the Properties or any of Operating Lessee's other assets, or any license or other approval required to operate the Properties, and any consent, approval, authorization, order, registration or qualification of or with any Governmental Agency required for the execution, delivery and performance by Operating Lessee of the Operating Lessee Documents have been obtained and is in full force and effect. 4.1.4 Litigation. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or threatened against or affecting Borrower, Operating Lessee or any Individual Property, which actions, suits or proceedings, if determined against Borrower, Operating Lessee or any Individual Property, would reasonably be expected to materially adversely affect the condition (financial or otherwise) or business of Borrower, Operating Lessee or the condition or ownership of any Individual Property. 4.1.5 Agreements. Neither Borrower nor Operating Lessee is a party to any agreement or instrument or subject to any restriction which would reasonably be expected to materially and adversely affect Borrower, Operating Lessee or any Individual Property, or Borrower's or Operating Lessee's business, properties or assets, operations or condition, financial or otherwise. Neither Borrower nor Operating Lessee is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which Borrower, Operating Lessee or any of the Properties are bound. Neither Borrower nor Operating Lessee has material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower or Operating Lessee is a party or by which Borrower or Operating Lessee is a party or by which Borrower, Operating Lessee or any Property is otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Properties and (b) obligations under the Loan Documents. 4.1.6 Solvency. Neither Borrower nor Operating Lessee (a) has entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any creditor and (b) has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the Loan, the fair saleable value of Borrower's and Operating Lessee's assets exceeds and will, immediately following the making of the Loan, exceed Borrower's and Operating Lessee's total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. Borrower's and 53 Operating Lessee'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. Neither Borrower nor Operating Lessee intends to incur debt and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debt and liabilities as they mature (taking into account the timing and amounts of cash to be received by Borrower and Operating Lessee and the amounts to be payable on or in respect of obligations of Borrower and Operating Lessee). No petition under the Bankruptcy Code or similar state bankruptcy or insolvency law has been filed against Borrower, Operating Lessee or any constituent Person in the last seven (7) years, and neither Borrower, Operating Lessee nor any constituent Person 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. Neither Borrower, Operating Lessee nor any of its constituent Persons are contemplating either the filing of a petition by it under the Bankruptcy Code or similar state bankruptcy or insolvency law or the liquidation of all or a major portion of Borrower's or Operating Lessee's assets or property, and neither Borrower nor Operating Lessee has any knowledge of any Person contemplating the filing of any such petition against it or such constituent Persons. 4.1.7 Full and Accurate Disclosure. No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading in any material respects. No statement of fact made by Operating Lessee in the Operating Lessee Documents contain any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading in any material respect. There is no fact presently known to Borrower or Operating Lessee which has not been disclosed to Lender which materially and adversely affects, or would reasonably be expected to materially and adversely affect, any Individual Property or the business, operations or condition (financial or otherwise) of Borrower or Operating Lessee. 4.1.8 No Plan Assets. Neither Borrower nor Operating Lessee is, a Plan and none of the assets of Borrower or Operating Lessee constitute or will constitute "Plan Assets" of one or more Plans. In addition, (a) neither Borrower nor Operating Lessee is a "governmental plan" within the meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower and Operating Lessee are not subject to State statutes regulating investment of, and fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Agreement. 4.1.9 Compliance. Borrower, Operating Lessee, Ground Lessor with respect to the Florida Properties and the Properties and the use thereof comply in all material respects with all applicable Legal Requirements, including, without limitation, to the best of Borrower's knowledge, all Environmental Laws, building and zoning ordinances and codes. Neither Borrower nor 54 Operating Lessee is in default or violation in any material respect of any order, writ, injunction, decree or demand of any Governmental Authority. There has not been committed by Borrower, Operating Lessee or any other Person in occupancy of or involved with the operation or use of the Properties any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against any Individual Property or any part thereof or any monies paid in performance of Borrower's or Operating Lessee's obligations under any of the Loan Documents. 4.1.10 Financial Information. All financial data, including, without limitation, the statements of cash flow and income and operating expense, that have been delivered to Lender by or on behalf of Borrower, Operating Lessee and the Properties (i) considered in the aggregate, are true, complete and correct in all material respects, (ii) fairly present the financial condition of Borrower, Operating Lessee and the Properties, as applicable, as of the date of such reports, and (iii) have been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein (but subject to normal year-end adjustments). Except for Permitted Encumbrances, neither Borrower nor Operating Lessee have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower or Operating Lessee and reasonably likely to have a materially adverse effect on any Individual Property or the operation thereof as hotels except as referred to or reflected in said financial statements. Since the date of the most recent such financial statements, there has been no materially adverse change in the financial condition, operations or business of Borrower or Operating Lessee from that set forth in said financial statements. 4.1.11 Condemnation. Except as provided on Exhibit E attached hereto, no Condemnation or other similar proceeding has been commenced or, to the best of Borrower's and Operating Lessee's knowledge, is threatened or contemplated with respect to all or any portion of any Individual Property or for the relocation of roadways providing access to any Individual Property. 4.1.12 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 Agreement or the other Loan Documents. 4.1.13 Utilities and Public Access. Each Individual Property has rights of access to public ways and is served by public water, sewer, sanitary sewer and storm drain facilities adequate to service such Individual Property for its respective intended uses. All public utilities necessary or convenient to the full use and enjoyment of each Individual Property are located either in the public right-of-way 55 abutting each Individual Property (which are connected so as to serve each Individual Property without passing over other property) or in recorded easements serving each Individual Property and such easements are set forth in and insured by the Title Insurance Policy. All roads necessary for the use of each Individual Property for their current respective purposes have been completed, are physically open and except as disclosed on the Surveys, are dedicated to public use and have been accepted by all Governmental Authorities. 4.1.14 Not a Foreign Person. Neither Borrower nor Operating Lessee is a "foreign person" within the meaning of ss.1445(f)(3) of the Code. 4.1.15 Separate Lots. Each Individual Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of such Individual Property. 4.1.16 Assessments. To the best of Borrower's knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting any Individual Property, nor are there any contemplated improvements to any Individual Property that may result in such special or other assessments. 4.1.17 Enforceability. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower or Operating Lessee, including the defense of usury, and neither Borrower nor Operating Lessee has asserted any right of rescission, set-off, counterclaim or defense with respect thereto. 4.1.18 No Prior Assignment. There are no prior assignments of the Leases or any portion of the Rents due and payable or to become due and payable which are presently outstanding. 4.1.19 Insurance. Borrower has obtained and has delivered to Lender certified copies of all insurance policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. To the best of Borrower's knowledge, no Person, including Borrower and Operating Lessee, has done, by act or omission, anything which would impair the coverage of any such policy. 56 4.1.20 Use of Property. Each Individual Property is used exclusively for hotel purposes and other appurtenant and related uses including but not limited to restaurants and lounges. 4.1.21 Certificate of Occupancy; Licenses. All material certifications, permits, licenses and approvals, including without limitation, certificates of completion and occupancy permits required for the legal use, occupancy and operation of each Individual Property by Borrower and Operating Lessee as a hotel (collectively, the "Licenses"), have been obtained and are in full force and effect and are not subject to revocation, suspension or forfeiture. Borrower shall keep and maintain all Licenses necessary for the operation of each Individual Property as a hotel. The use being made of each Individual Property is in conformity with the certificate of occupancy issued for such Individual Property. 4.1.22 Flood Zone. Except as disclosed on the Surveys, none of the Improvements on any Individual Property are located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards and, if so located, the flood insurance required pursuant to Section 6.1(a)(vii) is in full force and effect with respect to each such Individual Property. 4.1.23 Physical Condition. Each Individual Property, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; there exists no structural or other material defects or damages in any Individual Property, whether latent or otherwise, and Borrower and Operating Lessee have not received notice from any insurance company or bonding company of any defects or inadequacies in any Individual Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. Each Individual Property is free from damage caused by fire or other casualty. All liquid and solid waste disposal, septic and sewer systems located on each Individual Property are, in all material respects, in a good and safe condition and repair and in compliance with all Legal Requirements. 4.1.24 Boundaries. Except as disclosed on the Surveys, all of the Improvements which were included in determining the appraised value of each Individual Property lie wholly within the boundaries and building restriction lines of such Individual Property, and no improvements on adjoining properties encroach upon such Individual Property, and no easements or other encumbrances upon the applicable Individual Property encroach upon any of the Improvements. 57 4.1.25 Leases. Borrower is the owner and lessor of landlord's interest in the Operating Leases. Operating Lessee is the lessor under all other Leases. No Person (other than hotel guests) has any possessory interest in any Individual Property or right to occupy the same except under and pursuant to the provisions of the Leases and Management Agreements. The current Leases are in full force and effect and, there are no defaults by Borrower or, to the best of Borrower's knowledge, any tenant under any Lease, and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute defaults under any Lease. No Rent has been paid more than one (1) month in advance of its due date. There are no offsets or defenses to the payment of any portion of the Rents. All work to be performed by Borrower under each Lease has been performed as required and has been accepted by the applicable tenant, and any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by Borrower to any tenant has already been received by such tenant. There has been no prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received therein which is still in effect. No tenant under any Lease has sublet all or any portion of the premises demised thereby, nor does anyone except such tenant and its employees occupy such leased premises. No tenant under any Lease has a right or option pursuant to such Lease or otherwise to purchase all or any part of the leased premises or the building of which the leased premises are a part. Except as set forth in the Leases, no tenant under any Lease has any right or option for additional space in the Improvements. To the best of Borrower's knowledge, no Hazardous Materials have been disposed, stored or treated by any tenant under any Lease on or about the leased premises nor does Borrower or Operating Lessee have any knowledge of any tenant's intention to use its leased premises for any activity which, directly or indirectly, involves the use, generation, treatment, storage, disposal or transportation of any Hazardous Materials, except those that are both (i) in compliance with current 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, clean, repair and maintain the applicable Individual Property or each tenant's respective business at such Individual Property as set forth in their respective Leases, (B) held by a tenant for sale to the public in its ordinary course of business, or (C) fully disclosed to and approved by Lender in writing pursuant to the Environmental Reports. 4.1.26 Survey. To the best of Borrower's knowledge, the Survey for each Individual Property delivered to Lender in connection with this Agreement does not fail to reflect any material matter affecting such Individual Property or the title thereto. 4.1.27 Intentionally Omitted. 4.1.28 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Properties to Borrower have been paid. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person 58 under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Security Instruments, have been paid. 4.1.29 Franchise Agreement. The Franchise Agreement, if applicable, for each Individual Property is in full force and effect, all franchise fees, reservation fees, royalties and other sums due and payable thereunder have been paid in full to date, and neither Borrower, Operating Lessee nor, to the best of Borrower's knowledge, Franchisor is in default thereunder. 4.1.30 Management Agreement/Operating Lease. (a) The Management Agreement for each Individual Property is in full force and effect and there is no default thereunder by Borrower, Operating Lessee or, to Borrower's knowledge, Manager thereunder and, to the best of Borrower's knowledge, no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder (b) The Operating Lease for each Individual Property is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder. 4.1.31 Illegal Activity. No portion of any Individual Property has been or will be purchased by Borrower or Operating Lessee with proceeds of any illegal activity and to the best of Borrower's knowledge, there are no illegal activities or activities relating to any controlled substances at any Individual Property. 4.1.32 No Change in Facts or Circumstances; Disclosure. All information submitted by Borrower and Operating Lessee to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by Borrower and Operating Lessee in this Agreement or in any other Loan Document, considered in the aggregate, are accurate, complete and correct in all material respects. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects or would reasonably be expected to materially and adversely affect the use, operation or value of the Properties or the business operations or the financial condition of Borrower or Operating Lessee. 4.1.33 Investment Company Act. Neither Borrower nor Operating Lessee 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 59 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. 4.1.34 Principal Place of Business; State of Organization. Borrower's principal place of business as of the date hereof is the address set forth in the introductory paragraph of this Agreement. Borrower is organized under the laws of the State of Delaware and its organizational identification number is 3643670. 4.1.35 Single Purpose Entity. Borrower covenants and agrees that its organizational documents shall provide that it has not, and shall not, and that the organizational documents of its general partner(s), if Borrower is a partnership, or its managing member(s), if Borrower is a limited liability company (in each case, "Principal") shall provide that it has not and shall not: (a) with respect to Borrower, engage in any business or activity other than the acquisition, development, ownership, operation, leasing, managing and maintenance of the Properties, and entering into 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 Borrower, and activities incidental thereto; (b) with respect to Borrower, acquire or own any material assets other than (i) the Properties, and (ii) such incidental Personal Property as may be necessary for the operation of the Individual Property or Properties, as the case may be and with respect to Principal, acquire or own any material asset other than its interest in Borrower; (c) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure; (d) (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 a Property or Properties is located, if applicable, or (ii) without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of Borrower's Partnership Agreement, Articles of Organization or similar organizational documents, as the case may be, or of Principal's Certificate of Incorporation, Articles of Organization or similar organizational documents, as the case may be, whichever is applicable; (e) own any subsidiary or make any investment in, any Person without the prior written consent of Lender; (f) 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 60 (other than pursuant to the Management Agreement) with any other entity or Person or fail to use its own separate stationery, invoices and checks; (g) with respect to Borrower, incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than (I) Permitted Encumbrances, (II) the Permitted FF&E Financing and (III) the Debt, except for trade payables in the ordinary course of its business of owning and operating the Individual Property or Properties as applicable, provided that such trade 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); (h) 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; (i) (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 Principal, as the case may be, the Affiliates of a member, general partner or principal of Borrower or of Principal, as the case may be, and any other Person, (ii) permit its assets or liabilities to be listed as assets or liabilities on the financial statement of any other Person or (iii) include the assets or liabilities of any other Person on its financial statements; except for consolidated financial statements which contain a note indicating that Borrower's and Principal's separate assets and liabilities are neither available to pay the debts of the consolidated entity nor constitute obligations of the consolidated entity (j) Other than in connection with the Operating Leases, enter into any contract or agreement with any member, general partner, principal or Affiliate of Borrower or of Principal, as the case may be, or any member, general partner, principal or Affiliate thereof (other than a 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 Borrower and (iii) the agreement meets the standards set forth in this subsection (j) 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 Borrower or of Principal, as the case may be, or any member, general partner, principal or Affiliate thereof; (k) seek the dissolution or winding up in whole, or in part, of Borrower or of Principal, as the case may be; (l) fail to correct any known misunderstandings regarding the separate identity of Borrower, or of Principal, as the case may be, or any member, general partner, principal or Affiliate thereof or any other Person; 61 (m) other than Borrower's guaranty of Operating Lessee's obligation under the Management Agreement, guarantee or become obligated for the debts of any other Person or hold itself out to be responsible for the debts of another Person; (n) make any loans or advances to any third party, including any member, general partner, principal or Affiliate of Borrower or of 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 Borrower or Principal, as the case may be, or any member, general partner, or Affiliate thereof; (o) fail to file its own tax returns or be included on the tax returns of any other Person except as required by Applicable Law; (p) fail either to hold itself out to the public as a legal entity separate and distinct from any other 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 Borrower or of 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 Borrower or Principal, as the case may be, is responsible for the debts of any third party (including any member, general partner, principal or Affiliate of Borrower, or of Principal, as the case may be, or any member, general partner, principal or Affiliate thereof); (q) 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; (r) share any common logo (other than a name franchised or licensed to it by an entity other than an Affiliate of Borrower or of Principal) with or hold itself out as or be considered as a department or division of (i) any general partner, principal, member or Affiliate of Borrower or of Principal, as the case may be, (ii) any Affiliate of a general partner, principal or member of Borrower or of Principal, as the case may be, or (iii) any other Person; (s) 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; (t) pledge its assets for the benefit of any other Person, and (i) with respect to Borrower, other than with respect to the Loan and (ii) with respect to Principal, other than with respect to the Mezzanine Loan; (u) fail to maintain a sufficient number of employees in light of its contemplated business operations; (v) fail to provide in its (i) Articles of Organization, 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, this Agreement and the other Loan Documents, it shall not file or consent to the filing of any petition, either 62 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 Director and of all other general partners/managing members/directors; (w) fail to hold its assets in its own name; (x) if Borrower or Principal is a corporation, fail to consider the interests of its creditors in connection with all corporate actions to the extent required by Applicable Law; (y) have any of its obligations guaranteed by an Affiliate; (z) violate or cause to be violated the assumptions made with respect to Borrower and Principal in the Insolvency Opinion; (aa) with respect to Principal, or if Borrower is a single member limited liability company that complies with the requirements of Section 4.1.35(cc) below, fail at any time to have at least one independent director/manager (an "Independent Director") that is not and has not been for at least five (5) years: (a) a stockholder, director (other than an independent director of an Affiliate of Borrower), officer, employee, partner, member, attorney or counsel of Borrower or of Principal or any Affiliate of either of them; (b) a customer, supplier or other Person who derives its purchases or revenues (other than any fee paid to such director as compensation for such director to serve as an Independent Director) from its activities with Borrower, Principal or any Affiliate of either of them (a "Business Party"); (c) a person or other entity controlling or under 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; or (bb) with respect to Principal, or if Borrower is a single member limited liability company that complies with the requirements of Section 4.1.35(cc) below, permit its board of directors/managers to take any action which, under the terms of any applicable organizational documents, requires the unanimous vote of one hundred percent (100%) of the members of the board without the vote of the Independent Director. (cc) In the event Borrower is a Delaware limited liability company that does not have a managing member which complies with the requirements for a Principal under this Section 4.1.35, the limited liability company agreement of Borrower (the "LLC Agreement") shall provide that (A) upon the occurrence of any event that causes the last remaining member of Borrower ("Member") to cease to be the member of Borrower (other than (1) upon an assignment by Member of all of its limited liability company interest in Borrower and the admission of the transferee in accordance with the Loan Documents and the LLC Agreement, or (2) the resignation of Member and the admission of an additional member of Borrower in accordance with the terms of the Loan Documents and the LLC Agreement), any person designated by Borrower shall, without any action of any other Person and simultaneously with the Member ceasing to be the member of Borrower, automatically be admitted to Borrower ("Special Member") and shall continue Borrower without dissolution and (B) Special Member 63 may not resign from Borrower or transfer its rights as Special Member unless a successor Special Member has been admitted to Borrower as Special Member in accordance with requirements of Delaware law. The LLC Agreement shall further provide that (v) Special Member shall automatically cease to be a member of Borrower upon the admission to Borrower of a substitute Member, (w) Special Member shall be a member of Borrower that has no interest in the profits, losses and capital of Borrower and has no right to receive any distributions of Borrower assets, (x) pursuant to Section 18-301 of the Delaware Limited Liability Company Act (the "Act"), Special Member shall not be required to make any capital contributions to Borrower and shall not receive a limited liability company interest in Borrower, (y) Special Member, in its capacity as Special Member, may not bind Borrower and (z) except as required by any mandatory provision of the Act, Special Member, in its capacity as Special Member, shall have no right to vote on, approve or otherwise consent to any action by, or matter relating to, Borrower, including, without limitation, the merger, consolidation or conversion of Borrower. In order to implement the admission to Borrower of Special Member, Special Member shall execute a counterpart to the LLC Agreement. Prior to its admission to Borrower as Special Member, Special Member shall not be a member of Borrower. Upon the occurrence of any event that causes the Member to cease to be a member of Borrower, to the fullest extent permitted by law, the personal representative of Member shall, within ninety (90) days after the occurrence of the event that terminated the continued membership of Member in Borrower, agree in writing (A) to continue Borrower and (B) to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of Borrower, effective as of the occurrence of the event that terminated the continued membership of Member of Borrower in Borrower. Any action initiated by or brought against Member or Special Member under any Creditors Rights Laws shall not cause Member or Special Member to cease to be a member of Borrower and upon the occurrence of such an event, the business of Borrower shall continue without dissolution. The LLC Agreement shall provide that each of Member and Special Member waives any right it might have to agree in writing to dissolve Borrower upon the occurrence of any action initiated by or brought against Member or Special Member under any Creditors Rights Laws, or the occurrence of an event that causes Member or Special Member to cease to be a member of Borrower. 4.1.36 Business Purposes. The Loan is solely for the business purpose of Borrower, and is not for personal, family, household, or agricultural purposes. 4.1.37 Taxes. Borrower and Operating Lessee have each filed all federal, State, county, municipal, and city income and other tax returns required to have been filed by it and has paid, prior to delinquency thereof, all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by it. Borrower and Operating Lessee know of no basis for any additional assessment in respect of any such taxes and related liabilities for prior years. 64 4.1.38 Intentionally Omitted. 4.1.39 Environmental Representations and Warranties. Borrower represents and warrants, except as disclosed on those certain written reports identified on Schedule XI attached hereto and made a part hereof (collectively, the "Environmental Report") of each Individual Property that: (a) there are no Hazardous Materials or underground storage tanks in, on, or under any of the Properties, except those that are both (i) in compliance with current 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, clean, repair and maintain the applicable Individual Property or each tenant's respective business at such Individual Property as set forth in their respective Leases, or (B) held by a tenant for sale to the public in its ordinary course of business, (b) there are no past, present or threatened Releases of Hazardous Materials in violation of any Environmental Law and which would require remediation by a Governmental Authority in, on, under or from any of the Properties; (c) there is no threat of any Release of Hazardous Materials migrating to any of the Properties; (d) there is no present or, to Borrower's knowledge, prior non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with any of the Properties except as described in the Environmental Reports; (e) Borrower and Operating Lessee do not know of, and has not received, any written or oral notice or other communication from any Person (including but not limited to a Governmental Authority) relating to Hazardous Materials in, on, under or from any of the Properties; and (f) Borrower and Operating Lessee have truthfully and fully provided to Lender, in writing, any and all information relating to environmental conditions in, on, under or from any of the Properties known to Borrower or Operating Lessee or contained in Borrower's or Operating Lessee's files and records, including but not limited to any reports relating to Hazardous Materials in, on, under or migrating to or from any of the Properties and/or to the environmental condition of the Properties. 4.1.40 Taxpayer Identification Number. Borrower's United States taxpayer identification number is 51-0456443. 4.1.41 OFAC. Borrower represents and warrants that neither Borrower, Operating Lessee Guarantor, Indemnitor or any of their respective Affiliates is a Prohibited Person, and Borrower, Operating Lessee Guarantor, Indemnitor and their respective Affiliates are in compliance in all material respects with all applicable orders, rules, regulations and recommendations of The Office of Foreign Assets Control of the U.S. Department of the Treasury. 4.1.42 Ground Lease Representations. (a) (i) Each Ground Lease is in full force and effect and has not been modified or amended in any manner whatsoever, (ii) there are no defaults under any Ground Lease by Borrower or the landlord thereunder, and no event has occurred which but for the passage of time, or notice, or both would constitute a default under such Ground Lease, (iii) all rents, additional rents and other sums due and payable under each Ground Lease have been paid in 65 full, and (iv) neither Borrower nor Ground Lessor under each Ground Lease has commenced any action or given or received any notice for the purpose of terminating such Ground Lease; (b) Each Security Instrument which is secured by Borrower's interest in a Ground Lease is also secured by the related fee interest in the applicable Property, and the fee interest is subject and subordinate of record to the applicable Security Instrument, and such Security Instrument does not by its terms provide that it will be subordinated to the Lien of any other mortgage or other Lien upon such fee interest, and upon the occurrence of an Event of Default, Lender has the right to foreclose or otherwise exercise its rights with respect to the fee interest within a commercially reasonable time; (c) The Ground Leases or a memorandum thereof have been duly recorded, the Ground Leases permit the interest of the lessee thereunder to be encumbered by the applicable Security Instrument, and there has not been any change in the terms of the Ground Leases since their recordation. The Ground Leases cannot be cancelled, terminated, surrendered or amended without the prior written consent of Lender; (d) Borrower's interest in the Ground Leases are not subject to any Liens superior to, or of equal priority with, the applicable Security Instrument; (e) Borrower's interest in the Ground Leases are assignable upon notice to, but without the consent of, the lessor thereunder and, in the event that it is so assigned, it is further assignable upon notice to, but without the need to obtain the consent of, such lessor; (f) The Ground Leases require the lessor thereunder to give notice of any default by Borrower to Lender and the Ground Leases further provide that notice of termination given under the Ground Leases are not effective against Lender unless a copy of the notice has been delivered to Lender in the manner described in the applicable Ground Lease; (g) Lender is permitted a reasonable opportunity (including, where necessary, sufficient time to gain possession of the interest of Borrower under the Ground Leases) to cure any default under the Ground Leases, which is curable after the receipt of notice of any default before the lessor thereunder may terminate such Ground Lease; (h) The Ground Leases have a term which extends not less than twenty (20) years beyond the Maturity Date; (i) The Ground Leases require the lessor to enter into a new lease upon termination of the applicable Ground Lease for any reason, including rejection of such Ground Lease in a bankruptcy proceeding; (j) Under the terms of each Ground Lease and the applicable Loan Documents, taken together, any Net Proceeds will be applied either to the Restoration of all or part of the Properties, with Lender or a trustee appointed by Lender having the right to hold and disburse such Net Proceeds as the Restoration progresses, or to the payment of the outstanding principal balance of the Loan together with any accrued interest thereon; and (k) The Ground Leases do not impose restrictions on subletting. 66 4.1.43 Deposit Accounts. (a) This Agreement and the Property Account Agreements create valid and continuing security interests (as defined in the UCC) in the Property Accounts, the Lockbox Account and the Concentration Account in favor of Lender, which security interests are prior to all other Liens and are enforceable as such against creditors of and purchasers from Borrower; (b) The Property Accounts, the Lockbox Account and the Concentration Account each constitute "deposit accounts" within the meaning of the applicable UCC; (c) Borrower owns and has good and marketable title to the Property Accounts, the Lockbox Account and the Concentration Account free and clear of any Lien or claim of any Person (other than Lender); (d) Borrower has delivered to Lender fully executed agreements pursuant to which the banks maintaining the Property Accounts, the Lockbox Account and the Concentration Account have agreed to comply with all instructions originated by Lender directing disposition of the funds in such accounts without further consent by Borrower; (e) Other than the security interest granted to Lender pursuant to this Agreement and the Property Account Agreements, Borrower has not pledged, assigned, or sold, granted a security interest in, or otherwise conveyed any of the Property Accounts, the Lockbox Account; or the Concentration Account and (f) The Property Accounts, the Lockbox Account and the Concentration Account are not in the name of any Person other than Borrower or Lender. Borrower has not consented to the banks maintaining, the Lockbox Account, the Property Accounts or the Concentration Account, to comply with instructions of any Person other than Lender. SECTION 4.2 Survival of Representations. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. V. BORROWER COVENANTS SECTION 5.1 Affirmative Covenants. From the date hereof and until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Liens of all Security Instruments encumbering the Properties (and all related obligations) in accordance with the terms 67 of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender that: 5.1.1 Existence; Compliance with Legal Requirements. (a) Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises, and comply, in all material respects, with all Legal Requirements applicable to it and the Properties. There shall never be committed by Borrower or any other Person in occupancy of or involved with the operation or use of the Properties any act or omission affording the federal government or any State or local government the right of forfeiture against any Individual Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall, or shall cause Operating Lessee to, at all times maintain, preserve and protect all franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and shall keep the Properties in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Security Instruments. Borrower shall keep the Properties insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in this Agreement. Borrower shall or shall cause Operating Lessee to operate any Individual Property that is the subject of any O&M Program in accordance with the terms and provisions thereof in all material respects. (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 validity of any Legal Requirement, the applicability of any Legal Requirement to Borrower or any Individual Property or any alleged violation of any Legal Requirement, provided that (i) no Event of Default has occurred and remains uncured; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all Applicable Laws; (iii) no Individual Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) Borrower shall promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any Legal Requirement; (v) such proceeding shall suspend the enforcement of the contested Legal Requirement against Borrower or any Individual Property; and (vi) Borrower shall furnish such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure compliance with such Legal Requirement, together with all interest and penalties payable in connection therewith. Lender may apply any such security or part thereof, as necessary to cause compliance with such Legal Requirement at any time when, in the judgment of Lender, the validity, applicability or violation of such Legal Requirement is finally established or any Individual Property (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost. 68 5.1.2 Taxes and Other Charges. Borrower shall pay all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Properties or any part thereof prior to delinquency thereof. Borrower shall furnish to Lender receipts, or other evidence for the payment of the Taxes and the Other Charges prior to the date the same shall become delinquent (provided, however, that Borrower is not required to furnish such receipts for payment of Taxes in the event that such Taxes are being paid by Lender pursuant to Section 7.2 hereof). 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 Properties, and shall promptly pay for all utility services provided to the Properties. 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 Taxes or Other Charges, provided that (i) no Event of Default has occurred and remains uncured; (ii) 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 and such proceeding shall be conducted in accordance with all Applicable Laws; (iii) no Individual Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) Borrower shall promptly upon final determination thereof pay the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (v) such proceeding shall suspend the collection of such contested Taxes or Other Charges from the applicable Individual Property; and (vi) Borrower shall furnish such security as may be required in the proceeding, or as may be requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon. Lender may apply such security or part thereof held by Lender at any time when, in the judgment of Lender, the validity or applicability of such Taxes or Other Charges are established or any Individual Property (or part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any danger of the Lien of any Security Instrument being primed by any related Lien. 5.1.3 Litigation. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened against Borrower which might materially adversely affect Borrower's condition (financial or otherwise) or business or any Individual Property. 5.1.4 Access to Properties. Borrower shall permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice. 5.1.5 Notice of Default. Borrower shall promptly advise Lender of any material adverse change in Borrower's condition, financial or otherwise, or of the occurrence of any Default or Event of Default of which Borrower has knowledge. 69 5.1.6 Cooperate in Legal Proceedings. Borrower shall cooperate fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way adversely affect the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings. 5.1.7 Award and Insurance Benefits. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Awards or Insurance Proceeds lawfully or equitably payable in connection with any Individual Property, and Lender shall be reimbursed for any expenses incurred in connection therewith (including attorneys' fees and disbursements, and the payment by Borrower of the expense of an appraisal on behalf of Lender in case of Casualty or Condemnation affecting any Individual Property or any part thereof) out of such Award or Insurance Proceeds. 5.1.8 Further Assurances. Borrower shall, at Borrower's sole cost and expense: (a) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or reasonably requested by Lender in connection therewith; (b) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the obligations of Borrower under the Loan Documents, as Lender may reasonably require including, without limitation, the authorization of Lender to execute and/or the execution by Borrower of UCC financing statements and the execution and delivery of all such writings necessary to transfer any liquor licenses into the name of Lender or its designee after the occurrence of any Event of Default; and (c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time. 5.1.9 Mortgage and Intangible Taxes. Borrower shall pay (to the extent permitted by Applicable Law) all State, county and municipal recording, mortgage, intangible, and all other taxes imposed upon the execution and recordation of the Security Instruments and/or upon the execution and delivery of the Note. 70 5.1.10 Financial Reporting. (a) Borrower and Operating Lessee will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and Operating Lessee and all items of income and expense in connection with the operation on an individual basis of the Properties. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower, Operating Lessee or any other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. Upon the occurrence and during the continuance of an Event of Default, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower's accounting records with respect to the Properties, as Lender shall determine to be necessary or appropriate. All operating and profits and loss statements required pursuant to this Section 5.1.10 shall be prepared for each Individual Property and for the Properties taken as a whole. All other statements required pursuant to this Section 5.1.10 shall be prepared for the Properties taken as a whole. (b) Borrower will furnish to Lender annually, within ninety (90) days following the end of each Fiscal Year, a complete copy of (i) Operating Lessee's annual financial statements audited by a "Big Four" accounting firm or other independent certified public accountant acceptable to Lender accompanied by a consolidating schedule reflecting the results of operation of each Property individually, (ii) Borrower's annual financial statements certified by a Responsible Officer of Borrower, both in accordance with GAAP (or such other accounting basis acceptable to Lender) covering the Properties for such Fiscal Year and containing statements of profit and loss and a balance sheet and (iii) an operating statement certified by a Responsible Officer of Borrower for each Individual Property and the Properties taken as a whole which present the operating results of the Properties in a manner consistent with those operating statements given by Borrower to Lender in connection with Lender's underwriting of the Loan, which operating statement shall be in substantially the form attached hereto as Schedule XV. Such statements referred to in subsection (iii) above shall set forth the financial condition and the results of operations of the Properties for such Fiscal Year, and shall include, but not be limited to, amounts representing annual Net Cash Flow, Net Operating Income, Gross Income from Operations and Operating Expenses. Borrower's and Operating Lessee's annual financial statements shall be accompanied by (i) a comparison of the budgeted income and expenses and the actual income and expenses for the prior Fiscal Year, (ii) a certificate executed by a Responsible Officer or other appropriate officer of Borrower, an Operating Lessee SPE Entity or Principal, as applicable, stating that each such annual financial statement presents fairly the financial condition and the results of operations of Borrower, Operating Lessee and the Properties being reported upon and has been prepared in accordance with GAAP, (iii) with respect to Operating Lessee's financial statements only, an unqualified opinion of a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender and (iv) an annual occupancy report for such year, including the average daily room rate for such year. Notwithstanding the foregoing, for calendar year 2003 only, the statements required pursuant to Section 5.1.10(b)(i) and (ii) hereof shall assume Borrower's operations commenced on May 1, 2003. 71 (c) Borrower will furnish, or cause to be furnished, to Lender on or before forty-five (45) days after the end of each calendar quarter (or within thirty (30) days after the end of each calendar month in the case of (ii) below) the following items, accompanied by a certificate of a Responsible Officer or other appropriate officer of Borrower or Principal, as applicable, stating that such items are true, correct, accurate, and complete and fairly present the results of the operations of Borrower and the Properties: (i) a report of occupancy for the subject quarter including an average daily rate, and any and all franchise inspection reports received by Borrower during the subject quarter accompanied by an Officer's Certificate with respect thereto; (ii) monthly and year-to-date operating statements (including Capital Expenditures) presented for each Individual Property and the Properties taken as a whole in a form consistent with the operating statements delivered by Borrower to Lender in connection with Lender's underwriting of the Loan) which operating statement shall be in substantially the form attached hereto as Schedule XV) and prepared for each calendar monthly, noting Net Operating Income, Gross Income from Operations, and Operating Expenses (not including any contributions to the Replacement Reserve Fund), and other information necessary and sufficient to fairly present the results of operation of the Properties during such calendar month, and containing a comparison of budgeted income and expenses and the actual income and expenses, (iii) a detailed explanation of any variances which are both (I) ten percent (10%) or more and (II) in excess of $20,000 between budgeted and actual amounts for such periods, all in form satisfactory to Lender; (iv) a calculation reflecting the annual Debt Service Coverage Ratio for the immediately preceding twelve (12) month period as of the last day of such quarter accompanied by an Officer's Certificate with respect thereto and (v) a Smith Travel Research STAR Report or similar market benchmarking service. (d) Beginning in Fiscal Year 2004 and for each Fiscal Year thereafter, (I) Borrower shall submit to Lender a preliminary Annual Budget for each Individual Property not later than thirty (30) days prior to the commencement of such Fiscal Year and (II) Borrower shall submit to Lender a final proposed Annual Budget for each Individual Property not later than sixty (60) days after to the commencement of such Fiscal Year, each in form reasonably satisfactory to Lender, and shall be subject to Lender's written approval (each such Annual Budget after it has been approved in writing by Lender shall be hereinafter referred to as an "Approved Annual Budget"). In the event that Lender objects to either the preliminary or final proposed Annual Budget submitted by Borrower, Lender shall advise Borrower of such objections within fifteen (15) days after receipt respectively thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall promptly revise such Annual Budget and resubmit the same to Lender. Lender shall advise Borrower of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall promptly revise the same in accordance with the process described in this subsection until Lender approves the Annual Budget. Until such time that Lender approves a proposed Annual Budget, the most recently Approved Annual Budget shall apply; provided that, such Approved Annual Budget shall be adjusted to reflect actual increases in Taxes, Insurance Premiums and utilities expenses. Any such preliminary or final proposed Annual Budget submitted to Lender for Lender's approval shall be deemed approved if Lender shall have failed to notify Borrower of its approval or disapproval within fifteen (15) Business Days following Lender's receipt of Borrower's written request together with such preliminary or final proposed Annual Budget, as the case may be, and any and all required information and documentation required 72 by Lender to reach a decision, provided, such request to Lender is marked in bold lettering with the following language: "LENDER'S RESPONSE IS REQUIRED WITHIN FIFTEEN (15) BUSINESS DAYS OF RECEIPT OF THIS NOTICE PURSUANT TO THE TERMS OF A LOAN AGREEMENT BETWEEN THE UNDERSIGNED AND LENDER" and the envelope containing the request must be marked "PRIORITY". (e) Borrower shall furnish to Lender, within ten (10) Business Days after written request such further detailed information with respect to the operation of the Properties and the financial affairs of Borrower as may be reasonably requested by Lender. (f) Any reports, statements or other information required to be delivered under this Agreement shall be delivered (i) in paper form, (ii) if requested by Lender, on a diskette or via email, and (iii) if requested by Lender and within the capabilities of Borrower's data systems without change or modification thereto, in electronic form and prepared using a Microsoft Excel, Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). (g) Borrower agrees that Lender may forward to each purchaser, transferee, assignee, servicer, participant, or investor in all or any portion of the Loan or any Securities (collectively, the "Investor") or any Rating Agency rating such participations and/or Securities and 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 Borrower, any Guarantor, any Indemnitor and the Properties, whether furnished by Borrower, any Guarantor, any Indemnitor or otherwise, as Lender determines necessary or desirable. To the fullest extent permitted by Applicable Laws, Borrower irrevocably waives any and all rights it may have under any Applicable Laws to prohibit such disclosure, including, but not limited, to any right of privacy. (h) If requested by Lender in order to comply with Regulation S-X of the Securities Act, Borrower shall provide Lender, promptly upon request or within the time periods set forth in this subsection (h), with the following financial statements if, at the time a 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 Properties 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 Properties 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 Properties meeting the requirements of Section 210.3 01 and 210.3 02 of Regulation S-X (all of such financial statements, collectively, the 73 "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 under Regulation S-X or other legal requirements) that has been acquired by Borrower 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, Borrower 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 Properties 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 Properties 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, Borrower 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 Properties 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 Properties for such fiscal year, meeting the requirements of Section 210.3 02 of Regulation S-X. (iv) Within twenty (20) 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, Borrower shall have provided Lender with all financial statements as described in subsection (h)(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. (i) If requested by Lender, Borrower shall provide Lender, promptly upon request (but in no event later than the time periods set forth in Section 5.1.10(h) hereof), with summaries of the financial statements referred to in Section 5.1.10(h) 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. 74 (j) All financial statements provided by Borrower hereunder pursuant to Section 5.1.10(h) and (i) 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 5.1.10(h)(i) and 5.1.10(h)(iii) above shall be audited by independent accountants of Borrower 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 reasonably 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, 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 Borrower under this Section 5.1.10 shall be certified by a Responsible Officer of Borrower, which certification shall state that such financial statements meet the requirements set forth in the first sentence of this Section 5.1.10(j). (k) If requested by Lender, Borrower shall provide Lender, promptly upon request, with any other or additional financial statements, or financial, statistical or operating information, as Lender shall reasonably 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 Exchange Act filing in connection with or relating to a Securitization or as shall otherwise be reasonably requested by the Lender. (l) In the event Lender reasonably 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 5.1.10(h), (i) and (j) hereof, Lender may request, and Borrower 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. (m) The term "Affiliated Loans" shall mean a loan made by Lender to a parent, subsidiary or such other entity affiliated with Borrower, any Indemnitor or any Guarantor. (n) Borrower shall promptly deliver to Lender true, correct an complete copies of any franchise inspection reports received by Borrower or Operating Lessee from any Franchisor. (o) Other than costs and expenses which are otherwise the responsible of Borrower, Guarantor and/or Indemnitor pursuant to the terms of the Loan Documents, Borrower shall not be obligated to incur any material cost or expense in connection with the provisions of Section 5.1.10(h), (i), (j), (k), (l) or (m) hereof (the "Regulation S-X Reporting Requirements"); provided, however, Borrower shall be obligated to full comply with the Regulation S-X Reporting Requirements in the event that Lender reimburses Borrower for any additional cost or expense incurred by Borrower in connection with such compliance. 75 5.1.11 Business and Operations. Borrower and Operating Lessee will continue to engage in the businesses presently conducted by them as and to the extent the same are necessary for the ownership, maintenance, management and operation of the Properties. Borrower and Operating Lessee will remain in good standing under the laws of each jurisdiction to the extent required for the ownership, maintenance, management and operation of the Properties. 5.1.12 Costs of Enforcement. In the event (a) that any Security Instrument encumbering any Individual Property is foreclosed in whole or in part or that any such Security Instrument is put into the hands of an attorney for collection, suit, action or foreclosure, (b) of the foreclosure of any mortgage prior to or subsequent to any Security Instrument encumbering any Individual Property in which proceeding Lender is made a party, or (c) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower, Ground Lessor, Operating Lessee or any of their constituent Persons or an assignment by Borrower, Ground Lessor, Operating Lessee or any of their constituent Persons for the benefit of its creditors, Borrower, Ground Lessor, Operating Lessee, their successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including attorneys' fees and costs, incurred by Lender, Borrower, Ground Lessor or Operating Lessee in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes. 5.1.13 Estoppel Statement. (a) After written request by Lender, Borrower shall within ten (10) Business Days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the Applicable Interest Rate of the Note, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, and (vi) that the Note, this Agreement, the Security Instruments and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (a) Borrower shall deliver to Lender upon request, tenant estoppel certificates from each commercial tenant leasing space at the Properties in form and substance reasonably satisfactory to Lender. (b) Borrower shall use commercially reasonable efforts, 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 Lessee 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 Lessee has commenced any action or given or received any notice for the purpose of terminating the Franchise Agreement and 76 (iv) all sums due and payable to Franchisor under the Franchise Agreement have been paid in full. (c) Borrower shall, promptly upon request of Lender, deliver to Lender an estoppel certificate from Operating Lessee stating that (i) the Operating Lease is in full force and effect and has not been modified, amended or assigned, (ii) neither Operating Lessee nor Borrower is in default under any of the terms, covenants or provisions of the Operating Lease and Operating Lessee 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 Operating Lease, (iii) neither Operating Lessee nor Borrower has commenced any action or given or received any notice for the purpose of terminating the Operating Lease and (iv) all sums due and payable under the Operating Lease have been paid in full. (d) Borrower shall, promptly upon request of Lender, deliver to Lender an estoppel certificate from each Ground Lessor stating that (i) the applicable Ground Lease is in full force and effect and has not been modified, amended or assigned, (ii) neither Ground Lessor nor Borrower is in default under any of the terms, covenants or provisions of the Ground Lease and Ground Lessor 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 Ground Lease, (iii) neither Ground Lessor nor Borrower has commenced any action or given or received any notice for the purpose of terminating the Ground Lease and (iv) all sums due and payable under the Ground Lease have been paid in full. 5.1.14 Loan Proceeds. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the purposes set forth in Section 2.1.4. 5.1.15 Performance by Borrower. Borrower shall in a timely manner observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior written consent of Lender. 5.1.16 Confirmation of Representations. Borrower shall deliver, in connection with any Securitization, (a) one or more Officer's Certificates certifying as to the accuracy of all representations made by Borrower in the Loan Documents as of the date of the closing of such Securitization in all relevant jurisdictions, and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of Borrower, Principal and the Operating Lessee SPE Entities as of the date of the closing of such Securitization. 77 5.1.17 Leasing Matters. (a) With respect to any Individual Property, Borrower may (and may allow Operating Lessee to) enter into a proposed Lease (including the renewal or extension of an existing Lease (a "Renewal Lease")) without the prior written consent of Lender, provided such proposed Lease or Renewal Lease (i) provides for rental rates and terms comparable to existing local market rates and terms (taking into account the type and quality of the tenant) as of the date such Lease is executed by Borrower or Operating Lessee (unless, in the case of a Renewal Lease, the rent payable during such renewal, or a formula or other method to compute such rent, is provided for in the original Lease), (ii) is an arms-length transaction with a bona fide, independent third party tenant, (iii) does not have a material adverse effect on the value or quality of the applicable Individual Property, (iv) is subject and subordinate to the related Security Instrument and, upon Lender's reasonable request, the lessee thereunder agrees to attorn to Lender and (v) is not a Major Lease. All proposed Leases which do not satisfy the requirements set forth in this Section 5.1.17(a) shall be subject to the prior approval of Lender, which approval shall not be unreasonably withheld. At Lender's request, Borrower shall promptly deliver to Lender copies of all Leases which are entered into pursuant to this Subsection together with Borrower's certification that it has satisfied all of the conditions of this Section. (b) Borrower and/or Operating Lessee, as applicable, (i) shall observe and perform all the obligations imposed upon the lessor under the Major Leases and shall not do or permit to be done anything to impair the value of any of the Major Leases as security for the Debt; (ii) shall promptly send copies to Lender of all notices of default or other material matters which Borrower or Operating Lessee shall send or receive with respect to the Major Leases; (iii) shall enforce all of the material terms, covenants and conditions contained in the Major Leases upon the part of the tenant thereunder to be observed or performed (except for termination of a Major Lease which shall require Lender's prior written approval); (iv) shall not collect any of the Rents more than one (1) month in advance (except Security Deposits shall not be deemed Rents collected in advance); (v) shall not execute any other assignment of the lessor's interest in any of the Leases or the Rents; and (vi) shall not consent to any assignment of or subletting under any Major Leases not in accordance with their terms, without the prior written consent of Lender. (c) Borrower may (and may allow Operating Lessee to), without the consent of Lender, amend, modify or waive the provisions of any Lease or terminate, reduce rents under, accept a surrender of space under, or shorten the term of, any Lease (including any guaranty, letter of credit or other credit support with respect thereto) provided that such Lease is not a Major Lease and that such action (taking into account, in the case of a termination, reduction in rent, surrender of space or shortening of term, the planned alternative use of the affected space) does not have a material adverse effect on the value of the applicable Individual Property taken as a whole, and provided that such Lease, as amended, modified or waived, is otherwise in compliance with the requirements of this Agreement and any lease subordination agreement binding upon Lender with respect to such Lease. A termination of a Lease (other than a Major Lease) with a tenant who is in default beyond applicable notice and grace periods shall not be considered an action which has a material adverse effect on the value of the applicable Individual Property taken as a whole. Any amendment, modification, waiver, 78 termination, rent reduction, space surrender or term shortening which does not satisfy the requirements set forth in this Subsection shall be subject to the prior written approval of Lender and its counsel, at Borrower's expense. At Lender's request, Borrower shall promptly deliver to Lender copies of all Leases, amendments, modifications and waivers which are entered into pursuant to this Section 5.1.17(c) together with Borrower's certification that it has satisfied all of the conditions of this Section 5.1.17(c). (d) Notwithstanding anything contained herein to the contrary, with respect to any Individual Property, Borrower shall not (and shall not allow Operating Lessee to), without the prior written consent of Lender, enter into, materially amend, materially modify, waive any material provisions of, terminate, reduce rents under, accept a surrender of space under, or shorten the term of, or renew or extend upon terms and conditions less favorable to Operating Lessee, any Major Lease or any instrument guaranteeing or providing credit support for any Major Lease. (e) To the extent actually received by Lender, Lender shall hold any and all monies representing security deposits under the Leases (the "Security Deposits") received by Lender, in accordance with the terms of the respective Lease, and shall only release the Security Deposits in order to return a tenant's Security Deposit to such tenant if such tenant is entitled to the return of the Security Deposit under the terms of the Lease. 5.1.18 Management Agreement. (a) The Improvements on the Properties are operated under the terms and conditions of the Management Agreement. In no event shall the base management fees under the Management Agreement exceed (I) with respect to the Properties managed by Six Continents Hotels, the sum of (x) five percent (5%) of total room revenue and (y) two percent (2%) of total revenue; provided, however, Six Continents Hotels shall not charge any additional franchise fees in connection with such Properties and (II) with respect to the Properties managed by any Person other than Six Continents Hotels, four percent (4%) of the gross income derived from the Property (excluding any incentive management fees which are subordinate to the Loan). Borrower shall (or shall cause Operating Lessee to) (i) diligently perform and observe all of the terms, covenants and conditions of the Management Agreement, on the part of Operating Lessee to be performed and observed to the end that all things shall be done which are necessary to keep unimpaired the rights of Operating Lessee under the Management Agreement and (ii) promptly notify Lender of the giving of any notice by Manager to Operating Lessee of any default by Operating Lessee in the performance or observance of any of the terms, covenants or conditions of the Management Agreement on the part of Operating Lessee to be performed and observed and deliver to Lender a true copy of each such notice. Neither Borrower nor Operating Lessee shall surrender the Management Agreement, consent to the assignment by the Manager 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 material respect, either orally or in writing. Borrower hereby assigns (and Borrower shall cause Operating Lessee to assign) 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 Agreement, all the rights, privileges and prerogatives of Borrower and/or Operating Lessee to surrender the Management Agreement, or to terminate, cancel, modify, change, supplement, alter or amend the 79 Management Agreement, in any material respect, and any such surrender of the Management Agreement, or termination, cancellation, modification, change, supplement, alteration or amendment of the Management Agreement in any material respect, without the prior consent of Lender, shall be void and of no force and effect. If Operating Lessee shall default in the performance or observance of any material term, covenant or condition of the Management Agreement on the part of Operating Lessee to be performed or observed, then, without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrower 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 Lessee to be performed or observed to be promptly performed or observed on behalf of Operating Lessee to the end that the rights of Operating Lessee in, to and under the Management Agreement shall be kept unimpaired and free from default. Lender and any Person designated by Lender by written notice to Borrower shall have, and are hereby granted, the right to enter upon the applicable Individual Property at any time and from time to time for the purpose of taking any such action. If the Manager shall deliver to Lender a copy of any notice sent to Borrower and/or Operating Lessee 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. Borrower and Operating Lessee shall not, and shall not permit the Manager to, sub-contract all or any material portion of its management responsibilities under the Management Agreement to a third-party without the prior written consent of Lender, which consent shall not be unreasonably withheld. Borrower shall, from time to time, cause Operating Lessee to request of Manager and deliver to Lender upon receipt such certificates of estoppel with respect to compliance by Operating Lessee with the terms of the Management Agreement as may be reasonably requested by Lender. Borrower and/or Operating Lessee shall exercise each individual option, if any, to extend or renew the term of the Management Agreement to the extent required to continue it in full force and effect until after the Maturity Date, and Borrower hereby authorizes and appoints (and shall cause Operating Lessee to authorize and appoint) Lender their attorney-in-fact to exercise any such option in the name of and upon behalf of Borrower and/or Operating Lessee, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest. Any sums expended by Lender pursuant to this paragraph (i) shall bear interest at the Default Rate from the date such cost is incurred to the date of payment to Lender, (ii) shall be deemed to constitute a portion of the Debt, (iii) shall be secured by the lien of the Security Instruments and the other Loan Documents and (iv) shall be immediately due and payable upon demand by Lender therefor. (a) Without limitation of the foregoing, Borrower shall cause Operating Lessee, upon the request of Lender and in accordance with the provisions of the applicable Assignment of Management Agreement, to terminate the Management Agreement and replace the Manager, without penalty or fee, if at any time during the Loan: (a) the Manager shall become insolvent or a debtor in any bankruptcy or insolvency proceeding, (b) there exists an Event of Default or (c) there exists an event of default by Manager under the Management Agreement. At such time as the Manager may be removed, provided no Event of Default has occurred, a Qualified Manager may be selected by Borrower and/or Operating Lessee to assume management of the applicable Individual Property pursuant to a Replacement Management Agreement. 80 5.1.19 Environmental Covenants. (a) Borrower covenants and agrees that so long as the Loan is outstanding (i) all uses and operations on or of the Properties, whether by Borrower or any other Person, shall be in compliance in all material respects with all Environmental Laws and permits issued pursuant thereto; (ii) there shall be no Releases of Hazardous Materials in, on, under or from any of the Properties; (iii) there shall be no Hazardous Materials in, on, or under any of the Properties, except those that are both (A) in compliance with all Environmental Laws and with permits issued pursuant thereto, if and to the extent required, and (B) (1) in amounts not in excess of that necessary to operate the applicable Individual Property or (2) fully disclosed to and approved by Lender in writing; (iv) Borrower shall keep the Properties free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Borrower or any other Person (the "Environmental Liens"); (v) Borrower shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to paragraph (b) below, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (vi) Borrower shall, at its sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with any of the Properties, pursuant to any reasonable written request of Lender, upon Lender's reasonable belief that an Individual 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 shall be entitled to rely on such reports and other results thereof; (vii) Borrower shall, at its sole cost and expense, comply with all reasonable written requests of Lender to (A) reasonably effectuate remediation of any Hazardous Materials in, on, under or from any Individual Property; and (B) comply with any Environmental Law; (viii) Borrower shall not allow any tenant or other user of any of the Properties to violate any Environmental Law; and (ix) Borrower shall immediately notify Lender in writing after it has become aware of (A) any presence or Release or threatened Releases of Hazardous Materials in, on, under, from or migrating towards any of the Properties; (B) any non-compliance with any Environmental Laws related in any way to any of the Properties; (C) any actual or potential Environmental Lien; (D) any required or proposed remediation of environmental conditions relating to any of the Properties; and (E) any written or oral notice or other communication of which Borrower becomes aware from any source whatsoever (including but not limited to a Governmental Authority) relating in any way to Hazardous Materials in connection with the Properties. (a) Lender and any other Person designated by Lender by written notice to Borrower, including but not limited to any representative of a Governmental Authority, 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 any Individual Property at all reasonable times to assess any and all aspects of the environmental condition of any Individual 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. Borrower shall cooperate with and provide access to Lender and any such Person or entity designated by Lender by written notice to Borrower. 81 5.1.20 Alterations. Borrower shall obtain Lender's prior written consent to any structural or other material alterations to any Improvements, which consent shall not be unreasonably withheld except with respect to alterations that may have a material adverse effect on Borrower's financial condition, the value of the related Individual Property or the Net Operating Income thereof. 5.1.21 Franchise Agreement. (a) Subject to the provisions of Section 5.1.21(b), the Improvements on the Properties shall be operated under the terms and conditions of the Franchise Agreements, if applicable. Borrower shall (or shall cause Operating Lessee to) (i) pay all sums required to be paid by Operating Lessee 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 Lessee to be performed, observed and enforced to the end that all things shall be done which are necessary to keep unimpaired the rights of Borrower and/or Operating Lessee under the Franchise Agreement, (iii) promptly notify Lender of the giving of any notice to Operating Lessee of any default by Operating Lessee in the performance or observance of any of the terms, covenants or conditions of the Franchise Agreement on the part of Operating Lessee 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, notice, report and estimate received by it under the Franchise Agreement. Subject to the provisions of Section 5.1.21(b), Borrower shall not (and shall cause Operating Lessee to not), without the prior consent of Lender, surrender the Franchise Agreement or terminate or cancel the Franchise Agreement or modify, change, supplement, alter or amend the Franchise Agreement, in any material respect, either orally or in writing, and Borrower hereby assigns (and Borrower shall cause Operating Lessee to assign) 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 Agreement, all the rights, privileges and prerogatives of Borrower and Operating Lessee to surrender the Franchise Agreement or to terminate, cancel, modify, change, supplement, alter or amend the Franchise Agreement in any material respect, and any such surrender of the Franchise Agreement or termination, cancellation, modification, change, supplement, alteration or amendment of the Franchise Agreement in any material respect without the prior consent of Lender shall be void and of no force and effect. If Operating Lessee shall default in the performance or observance of any material term, covenant or condition of the Franchise Agreement on the part of Operating Lessee to be performed or observed, then, without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrower 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 Lessee to be performed or observed to be promptly performed or observed on behalf of Operating Lessee, to the end that the rights of Operating Lessee in, to and under the Franchise Agreement shall be kept unimpaired and free from default. Lender and any Person designated by Lender by written notice to Borrower shall have, and are hereby granted, the right to enter upon the Properties 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 Borrower and/or Operating Lessee of default 82 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. Borrower shall, from time to time, use its best efforts to obtain from Franchisor such certificates of estoppel with respect to compliance by Operating Lessee with the terms of the Franchise Agreement as may be requested by Lender. Borrower and/or Operating Lessee shall exercise each individual option, if any, to extend or renew the term of the Franchise Agreement to the extent required to continue it in full force and effect until after the Maturity Date, and Borrower hereby expressly authorizes and appoints (and Borrower shall cause Operating Lessee to authorize and appoint) Lender as its attorney-in-fact to exercise any such option in the name of and upon behalf of Borrower and/or Operating Lessee, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest. 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 the Security Instruments and the other Loan Documents and shall be immediately due and payable upon demand by Lender therefor. (b) With respect to the Expiring Franchise Agreement Property only, Borrower shall not be required to obtain Lender's consent or a confirmation from the Rating Agencies in the event that the Franchise Agreement in effect on the date hereof is extended on the same or more favorable terms to Borrower and/or Operating Lessee, as applicable, prior to the expiration thereof. 5.1.22 Operating Lease. Borrower shall: (i) promptly perform and/or observe all of the covenants and agreements required to be performed and observed by it under the Operating Lease and do all things necessary to preserve and to keep unimpaired its rights thereunder; (ii) promptly notify Lender of any event of default under the Operating Lease; (iii) promptly enforce the performance and observance of all of the covenants and agreements required to be performed and/or observed by the Operating Lessee under the Operating Lease. 5.1.23 OFAC. At all times throughout the term of the Loan, Borrower, Guarantor, Indemnitor and their respective Affiliates shall be in compliance in all material respects with all applicable orders, rules, regulations and recommendations of The Office of Foreign Assets Control of the U.S. Department of the Treasury. 5.1.24 The Ground Lease. (a) With respect to each Ground Lease, Borrower shall (i) pay all rents, additional rents and other sums required to be paid by Borrower, as tenant under and pursuant to the provisions of each Ground Lease, (ii) diligently perform and observe all of the terms, covenants 83 and conditions of each Ground Lease on the part of Borrower, as tenant thereunder, (iii) promptly notify Lender of the giving of any notice by the landlord under the applicable Ground Lease to Borrower of any default by Borrower, as tenant thereunder, and deliver to Lender a true copy of each such notice within five (5) days of receipt and (iv) promptly notify Lender of any bankruptcy, reorganization or insolvency of the landlord under the applicable Ground Lease or of any notice thereof, and deliver to Lender a true copy of such notice within five (5) days of Borrower's receipt. Borrower shall not, without the prior consent of Lender, surrender the leasehold estate created by the applicable Ground Lease or terminate or cancel any Ground Lease or modify, change, supplement, alter, amend or waive any material term of any Ground Lease, either orally or in writing, and if Borrower shall default in the performance or observance of any term, covenant or condition of any Ground Lease on the part of Borrower, as tenant thereunder, and shall fail to cure the same prior to the expiration of any applicable cure period provided 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 such Ground Lease on the part of Borrower to be performed or observed on behalf of Borrower, to the end that the rights of Borrower in, to and under such Ground Lease shall be kept unimpaired and free from default. If the landlord under the applicable Ground Lease shall deliver to Lender a copy of any notice of default under such Ground 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. Borrower shall exercise each individual option, if any, to extend or renew the term of each Ground 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 Borrower hereby expressly authorizes and appoints Lender its attorney-in-fact to exercise any such option in the name of and upon behalf of Borrower, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest. (b) Subleases. Notwithstanding anything contained in any Ground Lease to the contrary, Borrower shall not further sublet any portion of the related Individual Property (other than as permitted pursuant to Section 5.1.17 hereof) without prior written consent of Lender. Each sublease hereafter made shall provide that, (a) in the event of the termination of the Ground Lease, the sublease shall not terminate or be terminable by the lessee thereunder; (b) in the event of any action for the foreclosure of the Security Instrument with respect to the related Individual Property, the sublease shall not terminate or be terminable by the lessee thereunder by reason of the termination of the Ground Lease unless such lessee is specifically named and joined in any such action and unless a judgment is obtained therein against such lessee; and (c) in the event that the Ground Lease is terminated as aforesaid, the lessee under the sublease shall attorn to the lessor under the Ground Lease or to the purchaser at the sale of the related Individual Property on such foreclosure, as the case may be. In the event that any portion of such Individual Property shall be sublet pursuant to the terms of this subsection, such sublease shall be deemed to be included in the Individual Property. (c) Notwithstanding anything to the contrary contained herein with respect to any Ground Lease: (i) The Lien of the Security Instruments attach to all of Borrower's rights and remedies at any time arising under or pursuant to subsection 365(h) of the Bankruptcy 84 Code, including, without limitation, all of Borrower's rights, as debtor, to remain in possession of the related Individual Property which is subject to a Ground Lease; (ii) Borrower shall not, without Lender's written consent, elect to treat a Ground Lease as terminated under subsection 365(h)(1) of the Bankruptcy Code. Any such election made without Lender's prior written consent shall be void; (iii) As security for the Debt, Borrower unconditionally assigns, transfers and sets over to Lender all of Borrower's claims and rights to the payment of damages arising from any rejection by any Ground Lessor under the Bankruptcy Code. Lender and Borrower shall proceed jointly or in the name of Borrower in respect of any claim, suit, action or proceeding relating to the rejection of a Ground Lease, including, without limitation, the right to file and prosecute any proofs of claim, complaints, motions, applications, notices and other documents in any case in respect a Ground Lessor under the Bankruptcy Code. This assignment constitutes a present, irrevocable and unconditional assignment of the foregoing claims, rights and remedies, and shall continue in effect until all of the Debt shall have been satisfied and discharged in full. Any amounts received by Lender or Borrower as damages arising out of the rejection of a Ground Lease as aforesaid shall be applied to all costs and expenses of Lender (including, without limitation, reasonable attorneys' fees and costs) incurred in connection with the exercise of any of its rights or remedies in accordance with the applicable provisions hereof; (iv) If pursuant to subsection 365(h) of the Bankruptcy Code, Borrower seeks to offset, against the rent reserved in a Ground Lease, the amount of any damages caused by the nonperformance by the applicable Ground Lessor of any of its obligations thereunder after the rejection by such Ground Lessor under the Bankruptcy Code, then Borrower shall not effect any offset of the amounts so objected to by Lender. If Lender has failed to object as aforesaid within ten (10) days after notice from Borrower in accordance with the first sentence of this subsection, Borrower may proceed to offset the amounts set forth in Borrower's notice to Lender; (v) In any action, proceeding, motion or notice shall be commenced or filed in respect of any Ground Lessor of all or any part any Individual Property subject to a Ground Lease in connection with any case under the Bankruptcy Code, Lender and Borrower shall cooperatively conduct and control any such litigation with counsel agreed upon between Borrower and Lender in connection with such litigation. Borrower shall, upon demand, pay to Lender all costs and expenses (including reasonable attorneys' fees and costs) actually paid or actually incurred by Lender in connection with the cooperative prosecution or conduct of any such proceedings. All such costs and expenses shall be secured by the Lien of the applicable Security Instrument; and (vi) Borrower shall promptly, after obtaining knowledge of such filing, notify Lender orally of any filing by or against a Ground Lessor of a petition under the Bankruptcy Code. Borrower shall thereafter promptly give written notice of such filing to Lender, setting forth any information available to Borrower as to the date of such filing, the court in which such petition was filed, and the relief sought in such filing. 85 Borrower shall promptly deliver to Lender any and all notices, summons, pleadings, applications and other documents received by Borrower in connection with any such petition and any proceedings relating to such petition. 5.1.25 O&M Program. With respect to each Individual Property listed on Schedule XIV hereof, Borrower shall enter into a contract with a licensed industrial hygienist to develop a fully documented O&M Program which Borrower shall submit within ninety (90) days of the date hereof to Lender for its approval. Borrower further covenants and agrees to implement and follow the terms and conditions of such O&M Program during the term of the Loan, including any extension or renewal thereof. Lender's requirement that Borrower develop and comply with the O&M Program shall not be deemed to constitute a waiver or modification of any of Borrower's covenants and agreements with respect to Hazardous Materials or Environmental Laws. 5.1.26 Capital Budget Borrower shall to comply with Borrower's 2003 capital budget in all material respects (as delivered to Lender in connection with the underwriting of the Loan), unless otherwise agreed to by Lender. SECTION 5.2 Negative Covenants. From the date hereof until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Liens of all Security Instruments encumbering the Properties in accordance with the terms of this Agreement and the other Loan Documents, Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following: 5.2.1 Liens. Borrower shall not create, incur, assume or suffer to exist any Lien on any portion of any Individual Property or permit any such action to be taken, except for Permitted Encumbrances. 5.2.2 Dissolution. (a) Borrower shall not (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Borrower except to the extent expressly permitted by the Loan Documents, (c) except as expressly permitted under the Loan Documents, modify, amend, waive or terminate its organizational documents or its qualification and good standing in any jurisdiction or (d) cause Principal to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which Principal would be dissolved, wound up or liquidated in whole or in part, or (ii) except as expressly permitted under the Loan Documents, amend, modify, waive or terminate the certificate of incorporation, bylaws or similar organizational documents of Principal, in each case, without obtaining the prior written consent of Lender, which consent (with respect to (d)(ii) only) shall not be unreasonably withheld or delayed.. 86 (b) Borrower shall not permit Operating Lessee to (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Operating Lessee except to the extent expressly permitted by the Loan Documents, (c) except as expressly permitted under the Loan Documents, modify, amend, waive or terminate its organizational documents or its qualification and good standing in any jurisdiction or (d) cause the Operating Lessee Principal to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which Operating Lessee Principal would be dissolved, wound up or liquidated in whole or in part, or (ii) except as expressly permitted under the Loan Documents, amend, modify, waive or terminate the certificate of incorporation, bylaws or similar organizational documents of Operating Lessee Principal, in each case, without obtaining the prior written consent of Lender, which consent (with respect to (d)(ii) only) shall not be unreasonably withheld or delayed. 5.2.3 Change In Business. Borrower shall not enter into any line of business other than the ownership, acquisition, development, operation, leasing and management of the Properties (including providing services in connection therewith), or make any material change in the scope or nature of its business objectives, purposes or operations or undertake or participate in activities other than the continuance of its present business. 5.2.4 Debt Cancellation. Borrower shall not cancel or otherwise forgive or release any material claim or debt (other than termination of Leases in accordance herewith) owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower's business. 5.2.5 Zoning. Borrower shall not initiate or consent to any zoning reclassification of any portion of any Individual Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any Individual Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other Applicable Law, without the prior written consent of Lender. 5.2.6 No Joint Assessment. Borrower shall not suffer, permit or initiate the joint assessment of any Individual Property with (a) any other real property constituting a tax lot separate from such Individual Property, or (b) any portion of such Individual Property which may be deemed to constitute personal property, or any other procedure whereby the Lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such Individual Property. 5.2.7 Name, Identity, Structure, or Principal Place of Business. Borrower shall not change its name, identity (including its trade name or names), or principal place of business set forth in the introductory paragraph of this Agreement, without, in 87 each case, first giving Lender thirty (30) days prior written notice. Borrower shall not change its corporate, partnership or other structure, or the place of its organization as set forth in Section 4.1.34, without, in each case, the consent of Lender. Upon Lender's request, Borrower shall 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 Collateral as a result of such change of principal place of business or place of organization. 5.2.8 ERISA. (a) During the term of the Loan or of any obligation or right hereunder, Borrower shall not be a Plan and none of the assets of Borrower shall constitute Plan Assets. (b) Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its sole discretion, and represents and covenants that (A) Borrower is not and does not maintain an "employee benefit plan" as defined in Section 3(32) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (B) Borrower is not subject to State statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) one or more of the following circumstances is true: (i) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. ss.2510.3-101(b)(2); (ii) Less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. ss.2510.3-101(f)(2); or (iii) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. ss.2510.3-101(c) or (e). 5.2.9 Affiliate Transactions. Borrower shall not enter into, or be a party to, any transaction with an Affiliate of Borrower, Principal, the Operating Lessee SPE Entities or any of the partners of Borrower, Principal or the Operating Lessee SPE Entities except in the ordinary course of business and on terms which are fully disclosed to Lender in advance and are no less favorable to Borrower or such Affiliate than would be obtained in a comparable arm's-length transaction with an unrelated third party. 5.2.10 Transfers. (a) Neither Borrower nor Operating Lessee shall sell, convey, mortgage, grant, bargain, encumber, pledge, assign, grant options with respect to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) any Individual Property or any part thereof or any legal or beneficial interest therein (other than in connection with a Condemnation) or permit or suffer a Sale or Pledge of an interest in any Restricted Party (other than with respect to the Mezzanine Loan and the Junior Mezzanine Loan) (collectively, 88 a "Transfer"), other than pursuant to Leases of space in the Improvements to tenants in accordance with the provisions of Section 5.1.17 hereof or a release of an Individual Property in accordance with the provisions of Section 2.5 or 2.6 hereof, without (i) the prior written consent of Lender and (ii) if a Securitization has occurred, delivery to Lender of written confirmation from the Rating Agencies that the Transfer will not result in the downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or the proposed rating of any Securities. (b) A Transfer shall include, but not be limited to: (i) an installment sales agreement wherein Borrower agrees to sell one or more Individual Properties or any part thereof for a price to be paid in installments; (ii) an agreement by Borrower leasing all or a substantial part of any Individual Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower's right, title and interest in and to any Leases or any Rents; (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 or the change, removal, resignation or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge (other than in connection with the Mezzanine Loan and the Junior Mezzanine Loan) of the membership interest of a managing member (or if no managing member, any member) or any profits or proceeds relating to such membership interest, or the Sale or Pledge of non-managing membership interests or the creation or issuance of new non-managing membership interests; or (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. (c) Notwithstanding the provisions of Sections 5.2.10(a) and (b), the following transfers shall not be deemed to be a Transfer: (i) a transfer by devise or descent or by operation of law upon the death of a member, partner or shareholder of a Restricted Party or a Restricted Party itself; (ii) the Sale or Pledge, in one or a series of transactions, of not more than forty nine percent (49%) of the stock in a Restricted Party (other than Borrower, Mezzanine Borrower or Junior Mezzanine Borrower); provided, however, no such transfers shall result in the change of voting control in the Restricted Party, and as a condition to each such transfer, Lender shall receive not less than thirty (30) days prior written notice of such proposed transfer and (iii) the Sale or Pledge, in one or a series of transactions, of not more than forty nine percent (49%) of the limited partnership interests or non managing membership interests (as the case may be) in a Restricted Party (other than Borrower, Mezzanine Borrower or Junior Mezzanine Borrower); 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. 89 (d) 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 in violation of this Section 5.2.2. 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 Section 5.2.10, (a) no transfer (whether or not such transfer shall constitute a Transfer) shall be made to any Prohibited Person and (b) in the event any transfer (whether or not such transfer shall constitute a Transfer) results in any Person owning in excess of forty-nine percent (49%) of the ownership interest in a Restricted Party, Borrower shall, prior to such transfer, deliver an updated Insolvency Opinion to Lender, which opinion shall be in form, scope and substance acceptable in all respects to Lender and the Rating Agencies. (e) Notwithstanding anything to the contrary contained in this Section 5.2.10, Lender's consent shall not be required for the financing or leasing of personal property, including, without limitation, furniture, fixtures and equipment owned or to be purchased by Borrower that is used in connection with the operation of the any Individual Property ("Equipment"), provided Lender has received prior written notification of Borrower's intent to finance such Equipment, and provided, further, that (i) any such financing or leasing is subject to commercially prudent terms and conditions and at a market rate of interest, (ii) the Equipment financed or leased is readily replaceable without material interference or interruption to the operation of any Individual Property, and (iii) the aggregate principal amount of such financing and leasing for Equipment located on or used in connection with each Individual Property is at all times less than $250,000 ("Permitted FF&E Financing") and (iv) the financing does not create a Lien on any Individual Property other than on the Equipment financed or leased thereunder. (f) Notwithstanding anything to the contrary contained in this Section 5.2.10, a transfer of direct or indirect limited partnership interests and/or non-managing membership interests in a Restricted Party (other than Borrower, Principal, Mezzanine Borrower, Mezzanine Principal, Junior Mezzanine Borrower, Junior Mezzanine Principal, the Operating Lessee SPE Entities or any Affiliated Manager) shall be permitted provided that (i) FelCor Lodging Limited Partnership shall, at all times, own, directly or indirectly, at least fifty-one percent (51%) of the equity interests in, and Control, all Restricted Parties and (ii) FelCor Lodging Trust Incorporated must at all times be the sole general partner of FelCor Lodging Limited Partnership. VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS SECTION 6.1 Insurance. (a) Borrower shall obtain and maintain, or cause to be maintained, Policies for Borrower and the Properties providing at least the following coverages: (i) so called "All Risk" or Special Form insurance on the Improvements and the Personal Property, in each case (ii) in an amount equal to 100% of the "Full Replacement Cost," which for purposes of this Agreement shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation, (iii) containing an agreed amount endorsement or its 90 equivalent with respect to the Improvements, business income, rent loss and Personal Property waiving all co-insurance provisions; (iv) providing for no deductible in excess of $100,000; and (v) 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 if any of the Improvements or the use of each Individual Property shall at any time constitute legal non-conforming structures or uses. The Full Replacement Cost shall be redetermined from time to time (but not more frequently than once in any twenty-four (24) 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 claims for personal injury, bodily injury, death or property damage occurring upon, in or about each Individual Property, including "Dram Shop" or other liquor liability coverage if alcoholic beverages are sold from or may be consumed at the Individual Property such insurance (A) to be on the so-called "occurrence" form with a combined single limit of not less than $5,000,000.00; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; 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 10 of the Security Instruments to the extent the same is available; (iii) business interruption/loss of rents insurance (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in Section 6.1(a)(i); (C) in an amount equal to 100% of the projected gross income from each Individual Property (on an actual loss sustained basis) for a period continuing until the Restoration of the Individual Property is completed; the amount of such business interruption/loss of rents insurance shall be determined prior to the Closing Date and at least once each year thereafter based on the greatest of: (x) Borrower's reasonable estimate of the gross income from each Individual Property and (y) the highest gross income received during the term of the Note for any full calendar year prior to the date the amount of such insurance is being determined, in each case for the succeeding twenty-four (24) month period 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 either returns to the same level it was at prior to the loss, or the expiration of twelve (12) months from the date that the applicable Individual Property is repaired or replaced and operations are resumed, 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 Section 6.1(a)(iii) shall be held by Lender and shall be applied to the obligations secured hereunder from time to time due and payable hereunder and under 91 the Note and this Agreement; 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 and this Agreement except to the extent such amounts are actually paid out of the proceeds of such business interruption/loss of rents 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 insurance provided for in Section 6.1(c)(ii); and (B) the insurance provided for in Section 6.1(a)(i) shall be 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 Section 6.1(a)(i), (3) shall include permission to occupy each Individual Property, and (4) shall contain an agreed amount endorsement waiving co-insurance provisions; provided, however, the insurance required pursuant to this Section 6.1(a)(iv) may be obtained by the Manager for the benefit of Borrower and the applicable Individual Property. (v) workers' compensation, subject to the statutory limits of the State in which each Individual Property is located, and employer's liability insurance with a limit of at least $1,000,000.00 per accident and per disease per employee, and $1,000,000.00 for disease aggregate in respect of any work or operations on or about each Individual Property, or in connection with such Individual Property or its operation (if applicable); (vi) comprehensive boiler and machinery insurance covering all mechanical and electrical equipment and boilers and pressure valves, if applicable, in amounts as shall be reasonably required by Lender on terms consistent with the commercial property insurance policy required under Section 6.1(a)(i); (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 of the following types and in the following amounts (A) coverage under Policies issued pursuant to the Flood Insurance Acts (the "Flood Insurance Policies") in an amount equal to the maximum limit of coverage available for the applicable Individual Property under the Flood Insurance Acts, subject only to customary deductibles under such Policies and (B) coverage under supplemental private Policies in an amount, which when added to the coverage provided under the Flood Act Policies with respect to an Individual Property, is not less than the Allocated Loan Amount for such Individual Property; (viii) if required by Lender, earthquake, sinkhole and mine subsidence insurance in amounts as determined by Lender in its sole discretion and in form and substance satisfactory to Lender, provided that the insurance pursuant to this Section 6.1(a)(viii) hereof shall be on terms consistent with the all risk insurance policy required under Section 6.1(a)(i) hereof; 92 (ix) umbrella liability insurance in an amount not less than Two Hundred Million and No/100 Dollars ($200,000,000.00) per occurrence on terms consistent with the commercial general liability insurance policy required under Section 6.1(a)(ii) hereof; (x) insurance against terrorism, terrorist acts or similar acts of sabotage ("Terrorism Insurance") pursuant to a (A) blanket insurance policy with aggregate limits of not less than $50,000,000.00 or (B) a stand-alone insurance policy covering only the Properties with coverage of not less than $50,000,000.00, and, in either case with a deductible of not more than $250,000.00 (the "Terrorism Insurance Required Amount"). Notwithstanding the foregoing sentence, in the event Borrower has obtained a stand-alone insurance policy pursuant to subsection (B) above, Borrower shall not be obligated to expend more than $400,000.00 in any fiscal year on Insurance Premiums for Terrorism Insurance (the "Terrorism Insurance Cap") and if the cost of the Terrorism Insurance Required Amount exceeds the Terrorism Insurance Cap, Borrower shall purchase the maximum amount of Terrorism Insurance available with funds equal to the Terrorism Insurance Cap; provided, however, in the event it is customary among owners of Class A hotel properties in the United States to have "All Risk" coverage without any exclusion (a "Terrorism Exclusion") from coverage under such Policy for loss or damage incurred as a result of an act of terrorism, terrorist acts or similar acts of sabotage, Borrower shall (provided the same does not add any material cost to Borrower's Insurance Premiums) obtain a Policy without any such Terrorism Exclusion. After the occurrence of any event which reduces the amount of insurance available under the Terrorism Insurance required hereunder (whether due to a claim or otherwise), Borrower shall be obligated to immediately increase the coverage of such Terrorism Insurance so that at least $50,000,000.00 of coverage is available thereunder at all times. (xi) a blanket fidelity bond and errors and omissions insurance coverage insuring against losses resulting from dishonest or fraudulent acts committed by (A) Borrower's personnel; (B) any employees of outside firms that provide appraisal, legal, data processing or other services for Borrower or (C) temporary contract employees or student interns; provided, however, the insurance required pursuant to this Section 6.1(a)(xi) may be obtained by the Manager for the benefit of Borrower and the applicable Individual Property and (xii) such other insurance and in such amounts as are required pursuant to the Franchise Agreement 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 each Individual Property located in or around the region in which the each Individual Property is located. (b) All insurance provided for in Section 6.1(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 to do business in the State in which each Individual Property is located and approved by Lender. The initial $30,000,000 of insurance required pursuant to Section 6.1(a)(i), (iii) and (vi) hereof (the "Initial Tier") may be with (1) one or more primary insurers having (or a syndicate of insurers 93 through which at least 75% of the coverage (if there are 4 or fewer members of the syndicate) or at least 60% of the coverage (if there are 5 or more members of the syndicate) is with carriers having), a claims paying ability rating by S&P not lower than "AA-" and an A.M. Best rating of at least "A:IX" (a "Initial Tier Insurer") and (2) the balance of the coverage is with one or more carriers having a claims paying ability rating by S&P not lower than "BBB-" and an A.M. Best rating of at least "A:IX"; provided, however, Endurance Specialty Insurance, Ltd. shall be deemed a Initial Tier Insurer so long as it (x) maintains an A.M. Best rating of at least "A-:IX" and (y) does not provide in excess of $2,000,000 of the insurance coverage required pursuant to the Initial Tier. The remaining portions of the insurance required pursuant to Section 6.1(a)(i), (iii) and (vi) hereof (the "Second Tier") may be with (1) one or more primary insurers having (or a syndicate of insurers through which at least 75% of the coverage (if there are 4 or fewer members of the syndicate) or at least 60% of the coverage (if there are 5 or more members of the syndicate) is with carriers having), a claims paying ability rating by S&P not lower than "A" and an A.M. Best rating of at least "A-:IX" (a "Second Tier Insurer") and (2) the balance of the coverage is with one or more carriers having a claims paying ability rating by S&P not lower than "BBB-" and an A.M. Best rating of at least "A-:IX"; provided, however, Allied World Assurance Co. shall be deemed a Second Tier Insurer so long as it (x) maintains an A.M. Best rating of at least "A-:IX" and (y) does not provide in excess of $4,500,000 of the insurance coverage required pursuant to the Second Tier. All other insurance companies must have a claims paying ability/financial strength rating of "A" (or its equivalent) or better by all of the Rating Agencies and have an A.M. Best rating of "A:IX" or greater (each such insurer shall be referred to below as a "Qualified Insurer"). Not less than thirty (30) days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to Section 6.1(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"). In the event Borrower desires to obtain the insurance required hereunder from an insurer not meeting the requirements of this Section 6.1(b), Borrower may request, in writing, Lender's approval of such insurer, which approval may be given or withheld in Lender's sole discretion. (c) Borrower shall not obtain (i) any umbrella or blanket liability or casualty Policy unless, in each case, such Policy is at least equal in scope of coverage as if a "stand-alone" Policy meeting all of the requirement noted above is provided as such Policy is approved in advance in writing by Lender and Lender's interest is included therein as provided in this Agreement 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 Section 6.1(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 Section 6.1(a). Any blanket insurance Policy shall specifically allocate to the Individual 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 Individual Property in compliance with the provisions of Section 6.1(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 6.1. 94 (d) All Policies provided for or contemplated by Section 6.1(a) hereof, except for the Policy referenced in Section 6.1(a)(v), shall name Lender and Borrower as the insured or additional insured, as their respective interests may appear, and in the case of property damage, boiler and machinery, and flood insurance, shall contain a so-called New York standard non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be payable to Lender. (e) All Policies provided for in Section 6.1(a) hereof shall contain clauses or endorsements to the effect that: (i) no act or negligence of Borrower, or anyone acting for Borrower, or failure to comply with the provisions of any Policy which might otherwise result in a forfeiture of the insurance or any part thereof, shall in any way affect the validity or enforceability of the insurance insofar as Lender is concerned; (ii) the Policy shall not be materially changed (other than to increase the coverage provided thereby) or cancelled without at least 30 days' written notice to Lender and any other party named therein as an insured; (iii) each Policy shall provide that the issuers thereof shall give written notice to Lender if the Policy has not been renewed thirty (30) days prior to its expiration; and (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder. (f) Borrower shall furnish to Lender, 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, with prior notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Properties, including, without limitation, the obtaining of such 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 the Security Instruments and shall bear interest at the Default Rate. (h) In the event of a foreclosure of any of the Security Instruments, or other transfer of title to any Individual Property in extinguishment in whole or in part of the Debt all right, title and interest of Borrower in and to the Policies then in force and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or Lender or other transferee in the event of such other transfer of title. 95 SECTION 6.2 Casualty. If an Individual Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a "Casualty"), Borrower shall give prompt notice of such damage to Lender and shall promptly commence and diligently prosecute the completion of the Restoration of the Individual Property as nearly as possible to the condition the Individual Property was in immediately prior to such Casualty, with such alterations as may be reasonably approved by Lender and otherwise in accordance with Section 6.4. Borrower shall pay all costs of such Restoration whether or not such costs are covered by insurance. Lender may, but shall not be obligated to make proof of loss if not made promptly by Borrower. SECTION 6.3 Condemnation. Borrower shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the Condemnation of all or any part of any Individual Property and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings, and Borrower shall from time to time deliver to Lender all instruments requested by it to permit such participation. Borrower shall, at its expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including, but not limited to, any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement 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. If any Individual Property or any portion thereof is taken by a condemning authority, Borrower shall, promptly commence and diligently prosecute the Restoration of the applicable Individual Property and otherwise comply with the provisions of Section 6.4. If any Individual 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 6.4 Restoration. The following provisions shall apply in connection with the Restoration of any Individual Property: (a) If the Net Proceeds shall be less than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) and the costs of completing the Restoration shall be less than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00), the Net Proceeds will be disbursed by Lender to Borrower upon receipt, provided that all of the conditions set forth in Section 6.4(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 Agreement. 96 (b) If the Net Proceeds are equal to or greater than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) or the costs of completing the Restoration is equal to or greater than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) Lender shall make the Net Proceeds available for the Restoration in accordance with the provisions of this Section 6.4. The term "Net Proceeds" shall mean: (i) the net amount of all insurance proceeds received by Lender pursuant to Section 6.1(a)(i), (iv), (vi), (vii) and (viii) as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("Insurance Proceeds"), or (ii) the net amount of the Award, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("Condemnation Proceeds"), whichever the case may be. (i) The Net Proceeds shall be made available to Borrower for Restoration provided that each of the following conditions are met: (A) no Default or Event of Default (unless caused solely by the Condemnation or Casualty) shall have occurred and be continuing; (B) (1) in the event the Net Proceeds are Insurance Proceeds, less than thirty percent (30%) of the total floor area of the Improvements on the Individual Property has been damaged, destroyed or rendered unusable as a result of such Casualty or (2) in the event the Net Proceeds are Condemnation Proceeds, less than ten percent (10%) of the land constituting the Individual Property is taken, and such land is located along the perimeter or periphery of the Individual Property, and no portion of the Improvements is located on such land; (C) The Operating Lease shall remain in full force and effect during and after the completion of the Restoration; (D) Borrower shall commence the Restoration as soon as reasonably practicable (but in no event later than thirty (30) days after such Casualty or Condemnation, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion in compliance with all Applicable Laws, including, without limitation, all applicable Environmental Laws and in accordance with the terms and conditions of the Franchise Agreement; (E) Lender shall be satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note, which will be incurred with respect to the Individual Property as a result of the occurrence of any such Casualty or Condemnation, whichever the case may be, will be covered out of (1) the Net Proceeds, (2) the insurance coverage referred to in Section 6.1(a)(iii), if applicable, or (3) by other funds of Borrower; (F) 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, (2) six (6) months after the occurrence of such Casualty or Condemnation, or (3) the earliest date required for such completion under the terms of any Leases which 97 are required in accordance with the provisions of this Section 6.4(b) to remain in effect subsequent to the occurrence of such Casualty or Condemnation and the completion of the Restoration, or (4) the date required for such completion pursuant to the Franchise Agreement, (5) such time as may be required under Applicable Law, in order to repair and restore the applicable Individual Property to the condition it was in immediately prior to such Casualty or Condemnation or (6) the expiration of the insurance coverage referred to in Section 6.1(a)(iii); (G) the Individual Property and the use thereof after the Restoration will be in compliance with and permitted under all Applicable Laws; (H) Lender shall be satisfied that the Debt Service Coverage Ratio for the twelve (12) month period immediately succeeding the completion of the Restoration shall be equal to or greater than 1.30 to 1; (I) such Casualty or Condemnation, as applicable, does not result in the loss of access in any material respect to the Individual Property or the related Improvements; (J) Borrower shall deliver, or cause to be delivered, to Lender a signed detailed budget approved in writing by Borrower's architect or engineer stating the entire cost of completing the Restoration, which budget shall be acceptable to Lender; (K) the Net Proceeds together with any Cash or Cash equivalent deposited by Borrower with Lender are sufficient in Lender's discretion to cover the cost of the Restoration; (L) the Management Agreement in effect as of the date of the occurrence of such Casualty or Condemnation, whichever the case may be, shall (1) remain in full force and effect during the Restoration and shall not otherwise terminate as a result of the Casualty or Condemnation or the Restoration or (2) if terminated, shall have been replaced with a Replacement Management Agreement with a Qualified Manager, prior to the opening or reopening of the applicable Individual Property or any portion thereof for business with the public; and (M) the Franchise Agreement is not terminated as a result of such Casualty or Condemnation. (ii) The Net Proceeds shall be held by Lender in an interest-bearing account and, until disbursed in accordance with the provisions of this Section 6.4(b), shall constitute additional security for the Debt and other obligations under the Loan Documents. 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 98 intention to file same, or any other Liens or encumbrances of any nature whatsoever on the Individual Property 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 issuing the Title Insurance Policy. (iii) All plans and specifications required in connection with the Restoration, the cost of which is greater than $250,000.00, shall be subject to prior review and acceptance in all respects by Lender and by an independent consulting engineer selected by Lender (the "Casualty Consultant"). Lender shall have the use of 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 the cost of which is greater than $250,000.00, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender and the Casualty Consultant. All costs and expenses incurred by Lender in connection with making the Net Proceeds available for the Restoration including, without limitation, reasonable counsel fees and disbursements and the Casualty 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 Casualty Consultant, minus the Casualty Retainage. The term "Casualty Retainage" shall mean an amount equal to ten percent (10%), of the costs actually incurred for work in place as part of the Restoration, as certified by the Casualty Consultant, until the Restoration has been completed. The Casualty Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Section 6.4(b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Casualty Retainage shall not be released until the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(b) and that all approvals necessary for the re-occupancy and use of the Individual Property have been obtained from all appropriate Governmental Authorities, and Lender receives evidence satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Casualty Retainage; provided, however, that Lender will release the portion of the Casualty Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Casualty 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, 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 issuing the Title Insurance Policy for the related Individual Property, and Lender receives an endorsement to such Title Insurance Policy insuring the continued priority of the Lien of the related Security Instrument and evidence of payment of any premium payable for such endorsement. If required by Lender, the release of any such portion of the Casualty Retainage shall be approved by the surety company, if any, which 99 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 opinion of Lender in consultation with the Casualty Consultant, if any, be sufficient to pay in full the balance of the costs which are estimated by the Casualty Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the "Net Proceeds Deficiency") 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 Section 6.4(b) shall constitute additional security for the Debt and other obligations under the Loan Documents. (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 Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(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 Agreement or any of the other Loan 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 Section 6.4(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 sole 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 approve, in its discretion. If Lender shall receive and retain Net Proceeds, the Lien of the Security Instruments shall be reduced only by the amount thereof received and retained by Lender and actually applied by Lender in reduction of the Debt. VII. RESERVE FUNDS SECTION 7.1 Required Repair Funds. 7.1.1 Deposits. On the Closing Date, Borrower shall deposit into an escrow account with Lender (the "Required Repair Account") the amount for each Individual Property set forth on such Schedule III hereto to perform the Required Repairs for such Individual Property. Amounts so deposited with Lender shall be held by Lender in accordance with Section 7.7 hereof. Amounts so deposited shall hereinafter be referred to as Borrower's "Required Repair Fund." Borrower shall 100 perform the repairs at the Properties, as more particularly set forth on Schedule III hereto (such repairs hereinafter referred to as "Required Repairs"). Borrower shall complete the Required Repairs on or before the date which is three hundred sixty five (365) days from the date hereof. It shall be an Event of Default under this Agreement if (a) Borrower does not complete the Required Repairs at each Individual Property within three hundred sixty five (365) days from the date hereof, or (b) Borrower does not satisfy each condition contained in Section 7.1.2 hereof. Upon the occurrence of an Event of Default, Lender, at its option, may withdraw all Required Repair Funds from the Required Repair Account and Lender may apply such funds either to completion of the Required Repairs at one or more of the Properties or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply Required Repair Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. 7.1.2 Release of Required Repair Funds. Lender shall disburse to Borrower the Required Repair Funds from the Required Repair Account from time to time upon satisfaction by Borrower of each of the following conditions: (a) Borrower shall submit a written request for payment to Lender at least fifteen (15) days prior to the date on which Borrower requests such payment be made and specifies the Required Repairs to be paid, (b) on the date such request is received by Lender and on the date such payment is to be made, no Event of Default shall exist and remain uncured, (c) Lender shall have received an Officers' Certificate (i) stating that all Required Repairs at the applicable Individual Property to be funded by the requested disbursement have been completed in good and workmanlike manner and, to the best of Borrower's knowledge, in accordance with all Legal Requirements and Environmental Laws, such certificate to be accompanied by a copy of any license, permit or other approval by any Governmental Authority required to commence and/or complete the Required Repairs, (ii) identifying each Person that supplied materials or labor in connection with the Required Repairs performed at such Individual Property with respect to the reimbursement to be funded by the requested disbursement, and (iii) stating that each such Person has been paid in full upon such disbursement, such Officers' Certificate to be accompanied by lien waivers or other evidence of payment satisfactory to Lender, (d) at Lender's option, a title search for such Individual Property indicating that such Individual Property is free from all Liens, claims and other encumbrances not previously approved by Lender, and (e) Lender shall have received such other evidence as Lender shall reasonably request that the Required Repairs at such Individual Property to be funded by the requested disbursement have been completed and are paid for upon such disbursement to Borrower. Lender shall not be required to make disbursements from the Required Repair Account with respect to any Individual Property unless such requested disbursement is in an amount greater than $25,000 (or a lesser amount if the total amount in the Required Repair Account is less than $25,000, in which case only one disbursement of the amount remaining in the account shall be made). Lender shall not be obligated to make disbursements from the Required Repair Account with respect to an Individual Property in excess of the amount allocated for such Individual Property as set forth on Schedule III hereof. Upon Lender's receipt of evidence of completion of all Required Repairs in accordance with the terms hereof, any remaining Required Repair Funds shall be disbursed to (i) provided no Mezzanine Event of Default or Junior Mezzanine Event of Default has occurred and is continuing, Borrower or during an Excess Cash Flow Sweep Period, the Excess Cash Flow Account or (ii) after the occurrence and during the continuance of a 101 Mezzanine Event of Default or Junior Mezzanine Event of Default, Mezzanine Lender or Junior Mezzanine Lender, as applicable. SECTION 7.2 Tax and Insurance Escrow Fund. Borrower shall pay to Lender on each Payment Date (a) one-twelfth of the Taxes (the "Monthly Tax Deposit") that Lender estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates; and (b) at the option of Lender, if the liability or casualty Policy maintained by Borrower covering the Properties shall not constitute an approved blanket or umbrella Policy pursuant to Section 6.1(c) hereof, or Lender shall require Borrower to obtain a separate Policy pursuant to Section 6.1(c) hereof, one-twelfth of the Insurance Premiums (the "Monthly Insurance Premium Deposit") that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies (said amounts in (a) and (b) above hereinafter called the "Tax and Insurance Escrow Fund"). In the event Lender shall elect to collect payments in escrow for Insurance Premiums pursuant to clause (b) above, Borrower shall pay to Lender an initial deposit to be determined by Lender, in its sole discretion, to increase the amounts in the Tax and Insurance Escrow Fund to an amount which, together with anticipated Monthly Insurance Premium Deposits, shall be sufficient to pay all Insurance Premiums as they become due. The Tax and Insurance Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note and this Agreement, shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Section 5.1.2 hereof. In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Section 5.1.2 hereof, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. In allocating such excess, Lender may deal with the Person shown on the records of Lender to be the owner of the Properties. Any amount remaining in the Tax and Insurance Escrow Fund after the Debt has been paid in full shall be returned to Borrower. If at any time Lender reasonably determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay Taxes and Insurance Premiums by the dates set forth in (a) and (b) above, Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes and/or thirty (30) days prior to expiration of the Policies, as the case may be. 102 SECTION 7.3 Replacements and Replacement Reserve. 7.3.1 Replacement Reserve Fund. Borrower shall pay to Lender on each Payment Date, the Replacement Reserve Monthly Deposit for Capital Expenditures required to be made to the Properties during the calendar year, as may be necessary to maintain and operate first class, reputable hotels in the manner and quality of the hotels operated at the Properties on the date hereof (collectively, the "Replacements"). Amounts so deposited shall hereinafter be referred to as Borrower's "Replacement Reserve Fund". 7.3.2 Disbursements from Replacement Reserve Account. (a) Lender shall make disbursements from the Replacement Reserve Account to reimburse Borrower only for the costs of the Replacements. Lender shall not be obligated to make disbursements from the Replacement Reserve Account to reimburse Borrower for the costs of routine maintenance (other than Replacements) to an Individual Property or for costs which are to be reimbursed from the Required Repair Fund. (b) Lender shall, upon written request from Borrower and satisfaction of the requirements set forth in this Section 7.3.2, disburse to Borrower amounts from the Replacement Reserve Account necessary to reimburse Borrower for the actual costs of Replacements. In no event shall Lender be obligated to disburse funds from the Replacement Reserve Account if an Event of Default exists. (c) Each request for disbursement from the Replacement Reserve Account shall be in a form reasonably acceptable to Lender and shall specify (i) the specific Replacements for which the disbursement is requested, (ii) the quantity and price of each item purchased, if the Replacement includes the purchase or replacement of specific items, (iii) the price of all materials (grouped by type or category) used in any Replacement other than the purchase or replacement of specific items, and (iv) the cost of all contracted labor or other services applicable to each Replacement for which the disbursement is requested. With each request Borrower shall certify that, to the best of Borrower's knowledge, all Replacements have been made in accordance with all applicable Legal Requirements of any Governmental Authority having jurisdiction over the applicable Individual Property to which the Replacements are being provided. Upon request of Lender in connection with each request for disbursement in excess of $200,000, Borrower shall provide Lender with copies of invoices for amounts in excess of $100,000 for items or materials purchased or contracted labor or services. Borrower shall provide Lender evidence of completion satisfactory to Lender in its reasonable judgment. (d) Borrower shall pay all invoices in connection with the Replacements with respect to each request for disbursement prior to submitting such request for disbursement from the Replacement Reserve Account or, at the request of Borrower, Lender will issue joint checks, payable to Borrower and the contractor, supplier, materialman, mechanic, subcontractor or other party to whom payment is due in connection with a Replacement. In the case of payments made by joint check, Lender may require a waiver of lien from each Person receiving payment prior to Lender's disbursement from the Replacement Reserve 103 Account. In addition, as a condition to any disbursement, Lender may require Borrower to obtain lien waivers from each contractor, supplier, materialman, mechanic or subcontractor who receives payment in an amount equal to or greater than $100,000 for completion of its work or delivery of its materials. Any lien waiver delivered hereunder shall conform to the requirements of Applicable Law and shall cover all work performed and materials supplied (including equipment and fixtures) for the applicable Individual Property by that contractor, supplier, subcontractor, mechanic or materialman through the date covered by the current reimbursement request (or, in the event that payment to such contractor, supplier, subcontractor, mechanic or materialmen is to be made by a joint check, the release of lien shall be effective through the date covered by the previous release of funds request). (e) Borrower shall not make a request for disbursement from the Replacement Reserve Account more frequently than once in any calendar month and (except in connection with the final disbursement) the total cost of all Replacements in any request shall not be less than $25,000. 7.3.3 Performance of Replacements. (a) Borrower shall make Replacements when required in order to keep each Individual Property in condition and repair consistent with other first class, full service hotels in the same market segment and under the same franchisor in the metropolitan area in which the respective Individual Property is located, and to keep each Individual Property or any portion thereof from deteriorating. Borrower shall complete all Replacements in a good and workmanlike manner as soon as practicable following the commencement of making each such Replacement. (b) Intentionally Omitted. (c) Upon the occurrence and during the continuance of an Event of Default, in the event Lender determines in its reasonable discretion that any Replacement is not being performed in a workmanlike or timely manner or that any Replacement has not been completed in a workmanlike or timely manner, Lender shall have the option, without providing any prior notice to Borrower, to withhold disbursement for such unsatisfactory Replacement and to proceed under existing contracts or, upon five (5) Business Days prior written notice to Borrower, to contract with third parties to complete such Replacement and to apply the Replacement Reserve Fund toward the labor and materials necessary to complete such Replacement and to exercise any and all other remedies available to Lender upon an Event of Default hereunder. (d) In order to facilitate Lender's completion or making of the Replacements pursuant to Section 7.3.3(c) above, upon the occurrence and during the continuance of an Event of Default, Borrower grants Lender the right to enter onto any Individual Property and perform any and all work and labor necessary to complete or make the Replacements and/or employ watchmen to protect such Individual Property from damage. All sums so expended by Lender, to the extent not from the Replacement Reserve Fund, shall be deemed to have been advanced under the Loan to Borrower and secured by the Security Instruments. For this purpose, Borrower constitutes and appoints Lender its true and lawful attorney-in-fact with 104 full power of substitution to complete or undertake the Replacements in the name of Borrower. Such power of attorney shall be deemed to be a power coupled with an interest and cannot be revoked. Borrower empowers said attorney-in-fact as follows: (i) to use any funds in the Replacement Reserve Account for the purpose of making or completing the Replacements; (ii) to make such additions, changes and corrections to the Replacements as shall be necessary or desirable to complete the Replacements; (iii) to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for such purposes; (iv) to pay, settle or compromise all existing bills and claims which are or may become Liens against any Individual Property, or as may be necessary or desirable for the completion of the Replacements, or for clearance of title; (v) to execute all applications and certificates in the name of Borrower which may be required by any of the contract documents; (vi) to prosecute and defend all actions or proceedings in connection with any Individual Property or the rehabilitation and repair of any Individual Property; and (vii) to do any and every act which Borrower might do in its own behalf to fulfill the terms of this Agreement. (e) Nothing in this Section 7.3.3 shall: (i) make Lender responsible for making or completing the Replacements; (ii) require Lender to expend funds in addition to the Replacement Reserve Fund to make or complete any Replacement; (iii) obligate Lender to proceed with the Replacements; or (iv) obligate Lender to demand from Borrower additional sums to make or complete any Replacement. (f) Borrower shall permit Lender and Lender's agents and representatives (including, without limitation, Lender's engineer, architect, or inspector) or third parties making Replacements pursuant to this Section 7.3.3 to enter onto each Individual Property during normal business hours (subject to the rights of tenants under their Leases) to inspect the progress of any Replacements and all materials being used in connection therewith, to examine all plans and shop drawings relating to such Replacements which are or may be kept at each Individual Property, and to complete any Replacements made pursuant to this Section 7.3.3. Borrower shall cause all contractors and subcontractors to cooperate with Lender or Lender's representatives or such other persons described above in connection with inspections described in this Section 7.3.3(f) or the completion of Replacements pursuant to this Section 7.3.3. (g) Upon the occurrence and during the continuance of an Event of Default, Lender may require an inspection of an Individual Property at Borrower's expense prior to making a monthly disbursement from the Replacement Reserve Account, with respect to each Individual Property, in order to verify completion of the Replacements for which reimbursement is sought. Lender may require that such inspection be conducted by an appropriate independent qualified professional selected by Lender and/or may require a copy of a certificate of completion by an independent qualified professional acceptable to Lender prior to the disbursement of any amounts from the Replacement Reserve Account. Borrower shall pay the expense of the inspection as required hereunder, whether such inspection is conducted by Lender or by an independent qualified professional. (h) The Replacements and all materials, equipment, fixtures, or any other item comprising a part of any Replacement shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialmen's or other Liens. 105 (i) Before each disbursement from the Replacement Reserve Account relating to actual physical work on the Improvements in excess of $200,000 with respect to each Individual Property, Lender may require Borrower to provide Lender with a search of title to the applicable Individual Property effective to the date of the disbursement, which search shows that no mechanic's or materialmen's Liens or other Liens of any nature have been placed against the applicable Individual Property since the date of recordation of the related Security Instrument and that title to such Individual Property is free and clear of all Liens (other than the Lien of the related Security Instrument and other Permitted Encumbrances). (j) All Replacements shall comply with all applicable Legal Requirements of all Governmental Authorities having jurisdiction over the applicable Individual Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (k) In addition to any insurance required under the Loan Documents, Borrower shall provide or cause to be provided workmen's compensation insurance, builder's risk, and public liability insurance and other insurance to the extent required under Applicable Law in connection with a particular Replacement. All such policies shall be in form and amount reasonably satisfactory to Lender. All such policies which can be endorsed with standard mortgagee clauses making loss payable to Lender or its assigns shall be so endorsed. Certified copies of such policies shall be delivered to Lender 7.3.4 Failure to Make Replacements. (a) It shall be an Event of Default under this Agreement if Borrower fails to comply with any provision of this Section 7.3 and such failure is not cured within thirty (30) days after written notice from Lender. Upon the occurrence of an Event of Default, Lender may use the Replacement Reserve Fund (or any portion thereof) for any purpose, including but not limited to completion of the Replacements as provided in Sections 7.3.3(c) and 7.3.3(d), or for any other repair or replacement to any Individual Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply the Replacement Reserve Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. (b) Nothing in this Agreement shall obligate Lender to apply all or any portion of the Replacement Reserve Fund on account of an Event of Default to payment of the Debt or in any specific order or priority. 7.3.5 Balance in the Replacement Reserve Account. The insufficiency of any balance in the Replacement Reserve Account shall not relieve Borrower from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents. 106 SECTION 7.4 Ground Lease Escrow Fund. In the event that the annual Ground Rent due pursuant to a Ground Lease is in excess of $100.00, Borrower shall pay to Lender on each Payment Date an amount (the "Monthly Ground Rent Deposit") that is estimated by Lender to be due and payable by Borrower under the Ground Lease for all rent and any and all other charges (the "Ground Rent") which may be due by Borrower under the Ground Lease in order to accumulate with Lender sufficient funds to pay all sums payable under the Ground Lease at least fifteen (15) Business Days prior to the dates due (said amounts, hereinafter called the "Ground Lease Escrow Fund"). The Ground Lease Escrow Fund is for the purpose of paying all sums due under the Ground Lease. Upon Borrower's failure to pay any Ground Rents pursuant to the Ground Lease, Lender may, in its discretion, apply any amounts held in the Ground Lease Escrow Fund to the payment of such Ground Rent; provided however, that the provisions of this Section 7.4 shall not be deemed to create any obligation on the part of Lender to pay any such Ground Rent from amounts on deposit in the Ground Lease Escrow Fund. Such deposit may be increased by Lender in the amount Lender deems is necessary in its reasonable discretion based on any increases in the Ground Rent due under the Ground Lease. SECTION 7.5 UST Reserve Funds. 7.5.1 Deposits. On the Closing Date, Borrower shall deposit with Lender $62,500.00 to perform any Required Remediation for the Omaha Property. Amounts so deposited with Lender shall be held by Lender in accordance with this Section. Amounts so deposited shall hereinafter be referred to as Borrower's "UST Reserve Fund." Borrower shall complete such Required Remediation within one hundred eighty (180) days of the Closing Date. It shall be an Event of Default under this Agreement if Borrower does not complete the Required Remediation in accordance with the terms hereof within such one hundred eighty (180) day period. Upon the occurrence of an Event of Default, Lender, at its option, may withdraw all UST Reserve Funds from the UST Reserve Account and Lender may apply such funds either to the completion of the Required Remediation or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply UST Reserve Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. 7.5.2 Release of UST Reserve Funds. Lender shall disburse to Borrower the UST Reserve Funds from the UST Reserve Account upon satisfaction by Borrower of each of the following conditions: (a) No Event of Default shall then exist, (b) Borrower shall have delivered evidence reasonably satisfactory to Lender that the Required Remediation has been completed in accordance with all applicable Environmental Laws (including, without limitation, obtaining any necessary permits, licenses, approvals or letters from the applicable Governmental Authority having jurisdiction over monitoring and compliance of the Required Remediation evidencing that the Required Remediation has been completed in accordance with all applicable Environmental Laws (including a so-called "No Further Action Letter")), and (c) at Lender's option, a title search for 107 such Individual Property indicating that such Individual Property is free from all environmental Liens, claims and other encumbrances other than the Permitted Encumbrances. Upon the earlier of (1) Borrower's completion of all Required Remediation and the satisfaction of all of the requirements set forth in this Section 7.5.2 with respect to such Required Remediation or (2) payment in full by Borrower of all sums evidenced by the Note and secured by the Security Instruments, Lender shall disburse to Borrower all of the UST Reserve Funds. SECTION 7.6 Reserve Funds, Generally. (a) Borrower grants to Lender a first-priority perfected security interest in each of the Reserve Funds and the related Accounts and any and all monies now or hereafter deposited in each Reserve Fund and related Account as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds and the related Accounts shall constitute additional security for the Debt. (b) Upon the occurrence of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, apply any sums then present in any or all of the Reserve Funds to the payment of the Debt in any order in its sole discretion. (c) The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender. (d) The Reserve Funds shall be held in interest bearing accounts and all earnings or interest on a Reserve Fund shall be added to and become a part of such Reserve Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Fund, except that earnings or interest on the Tax and Insurance Escrow Fund shall not be added to or become a part thereof and shall be the sole property of and shall be paid to Lender. (e) Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or related Account or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. (f) Borrower shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, claims, demands, liabilities, losses, damages, obligations and costs and expenses (including litigation costs and reasonable attorneys fees and expenses) arising from or in any way connected with the Reserve Funds or the related Accounts or the performance of the obligations for which the Reserve Funds or the related Accounts were established, except to the extent arising from the fraud, illegal acts, gross negligence or willful misconduct of Lender, its agents or employees. Borrower shall assign to Lender all rights and claims Borrower may have against all Persons supplying labor, materials or other services which are to be paid from or secured by the Reserve Funds or the related Accounts; provided, however, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured. 108 VIII. DEFAULTS SECTION 8.1 Event of Default. (a) Each of the following events shall constitute an event of default hereunder (an "Event of Default"): (i) if any portion of the Debt is not paid on or before the date the same is due and payable; (ii) if any of the Taxes or Other Charges are not paid on or before the date when the same are due and payable; (iii) if the Policies are not kept in full force and effect or if certified copies of the Policies are not delivered to Lender promptly on request; (iv) if a Transfer occurs in violation of the provisions of Section 5.2.10 hereof or Article 7 of the Security Instruments; (v) if any representation or warranty made by Borrower, an Operating Lessee SPE Entity, Principal, Ground Lessor, Indemnitor or Guarantor herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender shall have been false or misleading in any material respect as of the date the representation or warranty was made; (vi) if Borrower, an Operating Lessee SPE Entity, Principal, Ground Lessor, Indemnitor, Guarantor or any other guarantor under any guaranty issued in connection with the Loan shall make an assignment for the benefit of creditors; (vii) if a receiver, liquidator or trustee shall be appointed for Borrower, Principal, an Operating Lessee SPE Entity, Ground Lessor, Indemnitor, Guarantor or any other guarantor under any guarantee issued in connection with the Loan or if Borrower, Principal, an Operating Lessee SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to the Bankruptcy Code, or any similar federal or State law, shall be filed by or against, consented to, or acquiesced in by, Borrower, Principal, an Operating Lessee SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor, or if any proceeding for the dissolution or liquidation of Borrower, Principal, an Operating Lessee SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower, Principal, an Operating Lessee SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor, upon the same not being discharged, stayed or dismissed within sixty (60) days; (viii) if Borrower or Operating Lessee attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents; 109 (ix) other than for with respect to a default which is expressly contemplated by another subsection of this Section 8.1(a), if Borrower breaches any of its respective negative covenants contained in Section 5.2; (x) if Borrower violates or does not comply in any material respect with any of the provisions of Section 5.1.17 hereof; (xi) if a (a) default has occurred and continues beyond any applicable cure period under the Management Agreement (or any Replacement Management Agreement) if such default permits the Manager thereunder to terminate or cancel the Management Agreement (or any Replacement Management Agreement) or (b) any Management Agreement (or Replacement Management Agreement) expires or otherwise terminates and is not replaced with a Replacement Management Agreement or (c) if any Individual Property operates for any time without the Management Agreement or a Replacement Management Agreement; (xii) if Borrower or Principal violates or does not comply in all material respects with the provisions of Section 4.1.35 hereof; (xiii) if any Individual Property becomes subject to any mechanic's, materialman's or other Lien other than a Lien for local real estate taxes and assessments not then due and payable and the Lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of sixty (60) days; (xiv) if any federal tax Lien or state or local income tax Lien is filed against Borrower, Principal, an Operating Lessee SPE Entity, any Guarantor, Indemnitor or any Individual Property and same is not discharged of record within thirty (30) days after same is filed; (xv) (A) Borrower fails to timely provide Lender with the written certification and evidence referred to in Section 5.2.8 hereof, (B) Borrower or Operating Lessee is a Plan or its assets constitute Plan Asset; or (C) Borrower or Operating Lessee consummates a transaction which would cause the Security Instruments or Lender's exercise of its rights under the Security Instruments, the Note, this Agreement or the other Loan Documents to constitute a nonexempt prohibited transaction under ERISA or result in a violation of a State statute regulating governmental plans, subjecting Lender to liability for a violation of ERISA, the Code, a State statute or other similar law; (xvi) if Borrower shall fail to deliver to Lender, within fifteen (15) Business Days after request by Lender, the estoppel certificates required pursuant to the terms of Section 5.1.13(a) hereof; (xvii) if any default occurs under any guaranty or indemnity executed in connection herewith (including, without limitation, the Guaranty and the Environmental Indemnity) and such default continues after the expiration of applicable grace periods, if any; 110 (xviii) other than in connection with the Permitted FF&E Financing, if Borrower 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 any Individual Property whether it be superior or junior in lien to the related Security Instrument; (xix) if (i) the Interest Rate Cap Agreement is terminated for any reason by Borrower or the Counterparty, or (ii) the Counterparty defaults in the performance of its monetary obligations under the Interest Rate Cap Agreement or (iii) the rating of the Counterparty is subject to any downgrade, withdrawal or qualification by an Rating Agency, and Borrower does not within ten (10) Business Days (A) replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement in accordance with Section 2.4 hereof, and (B) deliver to Lender, in form and substance reasonably satisfactory to Lender (x) an Assignment of Interest Rate Cap (y) a recognition letter from the Counterparty thereto acknowledging the assignment of the Replacement Interest Rate Cap Agreement and (z) any other opinions or documents required pursuant to Section 2.4 hereof; (xx) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period; (xxi) if any default occurs under the Operating Lease Subordination Agreement, and such default continues after the expiration of applicable grace or cure periods, if any; (xxii) if there shall occur any material default under the Operating Lease, in the observance or performance of any term, covenant or condition of the Operating Lease to be observed or performed and said default is not cured following the expiration of any applicable grace and notice periods therein provided or if the leasehold estate created by the Operating Lease shall be surrendered or if the Operating Lease shall cease to be in full force and effect or the Operating Lease shall be terminated or canceled for any reason or under any circumstances whatsoever, or if any of the terms, covenants or conditions of the Operating Lease shall in any manner be modified, changed, supplemented, altered, or amended in any material respect without the consent of Lender; (xxiii) if any of the assumptions contained in the Insolvency Opinion, or in any other "non-consolidation" opinion delivered to Lender in connection with the Loan, or in any other "non-consolidation" opinion delivered subsequent to the closing of the Loan, is or shall become untrue in any material respect; (xxiv) if (a) a material default has occurred and continues beyond any applicable cure period under the Franchise Agreement, and such default permits a party to terminate or cancel the Franchise Agreement or (b) any Franchise Agreement expires or otherwise terminates and is not replaced with a replacement Franchise Agreement reasonably acceptable to Lender; 111 (xxv) if Borrower ceases to operate a hotel on any Individual Property or terminates such business for any reason whatsoever (other than temporary cessation in connection with any renovations to an Individual Property or restoration of the Individual Property after Casualty or Condemnation); (xxvi) if Borrower terminates or cancels the Franchise Agreement, without Lender's prior written consent; (xxvii) if Borrower shall fail to pay the Ground Rent or any additional rent or other charge mentioned in or made payable by the Ground Lease when said rent or other charge is due and payable after the expiration of all applicable notice and grace periods contained in such Ground Lease; (xxviii) if there shall occur any default by Borrower, as tenant under the Ground Lease, in the observance or performance of any term, covenant or condition of the Ground Lease on the part of Borrower to be observed or performed and said default is not cured following the expiration of any applicable grace and notice periods therein provided, or if the leasehold estate created by the Ground Lease shall be surrendered or if the Ground Lease shall cease to be in full force and effect or the Ground Lease shall be terminated or canceled for any reason or under any circumstances whatsoever, or if any of the terms, covenants or conditions of the Ground Lease shall in any manner be modified, changed, supplemented, altered, or amended without the consent of Lender; (xxix) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in subsections (i) to (xxviii) above, for ten (10) days after written notice to Borrower 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 written notice from Lender in the case of any other Default; provided, however, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such 30-day period and provided further that Borrower 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 such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed sixty (60) days; or (xxx) if there shall be default under the Security Instruments or any of the other Loan Documents beyond any applicable notice and cure periods contained in such documents, whether as to Borrower or any Individual Property, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt. (b) Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (vi) or (vii) above) and at any time thereafter, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in and to all or any Individual 112 Property, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and any or all of the Properties, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi) or (vii) above, the Debt and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. SECTION 8.2 Remedies. (a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to all or any Individual Property or any other Collateral. 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 Applicable Law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by Applicable Law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing (i) Lender is not subject to any "one action" or "election of remedies" law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Properties and the other Collateral and each Security Instrument has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. (b) With respect to Borrower and the Properties, nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to any Individual Property or Collateral for the satisfaction of any of the Debt in preference or priority to any other Individual Property or Collateral, and Lender may seek satisfaction out of all of the Properties or any other Collateral or any part thereof, in its absolute discretion in respect of the Debt. In addition, Lender shall have the right from time to time to partially foreclose the Security Instruments in any manner and for any amounts secured by the Security Instruments then due and payable as determined by Lender in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal and interest, Lender may foreclose one or more of the Security Instruments to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loan, Lender may foreclose one or more of the Security Instruments to recover so much of the principal balance of the Loan as Lender may accelerate and such other sums secured by one or more of the Security Instruments as Lender may elect. Notwithstanding one or more partial foreclosures, the Properties shall remain subject to the 113 Security Instruments to secure payment of sums secured by the Security Instruments and not previously recovered. (c) Lender shall have the right, from time to time, to sever the Note and the other Loan Documents into one or more separate notes, Security Instruments and other security documents (the "Severed Loan Documents") in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof; provided, however, Lender shall not make or execute any such documents under such power until three (3) days after notice has been given to Borrower by Lender of Lender's intent to exercise its rights under such power. The Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents and any such representations and warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing Date. SECTION 8.3 Remedies Cumulative; Waivers. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one or more Defaults or Events of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon. IX. SPECIAL PROVISIONS SECTION 9.1 Sale of Notes and Securitization Lender may, at any time, sell, pledge, transfer or assign the Note, this Agreement, the Security Instruments and the other Loan Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities (the "Securities") evidencing a beneficial interest in a rated or unrated public offering or private placement (a "Securitization"). At the request of the holder of the Note and, to the extent not already required to be provided by Borrower under this Agreement, Borrower (subject to the limitations set forth at the end of this Section 9.1) shall use its best efforts to satisfy the market standards to which Lender customarily adheres or which may be reasonably 114 required in the marketplace or by the Rating Agencies in connection with a Securitization or the sale of the Note or the participations or Securities, including, without limitation, to: (a) (i) provide such financial and other information with respect to the Properties, Borrower and the Manager, (ii) provide budgets relating to the Properties and (iii) permit Lender or Lender's designees to perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I's and, if appropriate, Phase II's), engineering reports and other due diligence investigations of the Properties, as may be reasonably requested by the holder of the Note or the Rating Agencies or as may be necessary or appropriate in connection with the Securitization (the "Provided Information"), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of accountants or opinions of counsel of independent attorneys acceptable to Lender and the Rating Agencies; (b) if required by the Rating Agencies, deliver (i) a revised Insolvency Opinion, (ii) revised opinions of counsel as to due execution and enforceability with respect to the Properties, Borrower, Guarantor, Indemnitor, Principal, the Operating Lessee SPE Entities and their respective Affiliates and the Loan Documents, and (iii) revised organizational documents for Borrower, Guarantor, Indemnitor, Principal the Operating Lessee SPE Entities and their respective Affiliates (including, without limitation, such revisions as are necessary to comply with the provisions of Section 4.1.35 hereof), which counsel, opinions and organizational documents shall be satisfactory to Lender and the Rating Agencies; (c) if required by the Rating Agencies, deliver such additional tenant estoppel letters, subordination agreements or other agreements from parties to agreements that affect the Properties, reasonably requested by Lender and the Rating Agencies (d) execute such amendments to the Loan Documents and organizational documents as may be reasonably requested by the holder of the Note or the Rating Agencies or otherwise to effect the Securitization; provided, however, that Borrower shall not be required to modify or amend any Loan Document if such modification or amendment would (i) materially increase Borrower's obligations or out-of-pocket costs related to compliance with this Agreement, (except for modifications and amendments required to be made pursuant to Section 9.1 (e) below), (ii) change the interest rate, the stated maturity or the amortization of principal set forth in the Note or (iii) modify or amend any other economic, financial or payment term (or otherwise modify or amend in any material respect any of the terms) of the Loan. (e) if Lender elects, in its sole discretion, prior to or upon a Securitization, to split the Loan into two or more parts, or the Note into multiple component notes or tranches which may have different interest rates, amortization payments and principal amounts, Borrower agrees to cooperate with Lender in connection with the foregoing and to execute the required modifications and amendments to the Note, this Agreement and the Loan Documents and to provide opinions necessary to effectuate the same. Such Notes or components may be assigned different interest rates, so long as the initial weighted average of such interest rates does not exceed the Applicable Interest Rate and the scheduled amortization payments do not exceed the Scheduled Amortization Payment; and 115 (f) make such representations and warranties as of the closing date of the Securitization with respect to the Properties, Borrower, and the Loan Documents as are customarily provided in securitization transactions and as may be reasonably requested by the holder of the Note or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof, including the representations and warranties made in the Loan Documents. Other than costs and expenses which are otherwise the responsible of Borrower pursuant to the terms of the Loan Documents, in connection with Borrower's complying with requests made under this Section 9.1, Borrower shall only be responsible for the payment of (i) Borrower's legal counsel and accountants and (ii) any internal, administrative or clerical cost and expenses incurred by Borrower. SECTION 9.2 Securitization Indemnification. (a) Borrower understands that certain of the Provided Information may be included in disclosure documents in connection with the Securitization, including, without limitation, a prospectus supplement, private placement memorandum, offering circular or other offering document (each a "Disclosure Document") and may also be included in filings (an "Exchange Act Filing") with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or provided or made available to Investors or prospective Investors in the Securities, the Rating Agencies, and service providers relating to the Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, Borrower will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects. (b) Borrower agrees to provide in connection with each of (i) a preliminary and a final private placement memorandum or (ii) a preliminary and final prospectus or prospectus supplement, as applicable, or (iii) collateral and structured term sheets or similar materials, an indemnification certificate (A) certifying that Borrower has carefully examined such memorandum or prospectus or term sheets, as applicable, including without limitation, the sections entitled "Special Considerations," "Description of the Mortgages," "Description of the Mortgage Loans and Mortgaged Property," "The Manager," "The Borrower" and "Certain Legal Aspects of the Mortgage Loan," and such sections (and any other sections reasonably requested) do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading in any material respect, (B) indemnifying Lender (and for purposes of this Section 9.2, Lender hereunder shall include its officers and directors), the Affiliate of JPMorgan Chase Bank ("JPMorgan Chase") that has filed the registration statement relating to the Securitization (the "Registration Statement"), each of its directors, each of its officers who have signed the Registration Statement and each Person who controls the Affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the "JPMorgan Chase Group"), and JPMorgan Chase, each of its directors and each Person who controls JPMorgan Chase within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act (collectively, the "Underwriter Group") 116 for any losses, claims, damages or liabilities (collectively, the "Liabilities") to which Lender, the JPMorgan Chase Group or the Underwriter Group may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such sections described in clause (A) above, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated in such sections or necessary in order to make the statements in such sections or in light of the circumstances under which they were made, not misleading in any material respect and (C) agreeing to reimburse Lender, the JPMorgan Chase Group and the Underwriter Group for any legal or other expenses reasonably incurred by Lender the JPMorgan Chase Group and the Underwriter Group in connection with investigating or defending the Liabilities; provided, however, that Borrower will be liable in any such case under clauses (B) or (C) above only to the extent that any such Liability arises out of or is based upon any such untrue statement or omission made therein in reliance upon and in conformity with information furnished to Lender by or on behalf of Borrower in connection with the preparation of the memorandum or prospectus or in connection with the underwriting of the debt, including, without limitation, financial statements of Borrower, operating statements, rent rolls, environmental site assessment reports and property condition reports with respect to the Properties. This indemnification will be in addition to any liability which Borrower may otherwise have. Moreover, the indemnification provided for in Clauses (B) and (C) above shall be effective whether or not an indemnification certificate described in (A) above is provided and shall be applicable based on information previously provided by Borrower or its Affiliates if Borrower does not provide the indemnification certificate. (c) In connection with filings under the Exchange Act, Borrower agrees to indemnify (i) Lender, the JPMorgan Chase Group and the Underwriter Group for Liabilities to which Lender, the JPMorgan Chase Group or the Underwriter Group may become subject insofar as the Liabilities arise out of or are based upon the omission or alleged omission to state in the Provided Information a material fact required to be stated in the Provided Information in order to make the statements in the Provided Information, in light of the circumstances under which they were made not misleading in any material respect and (ii) reimburse Lender, the JPMorgan Chase Group or the Underwriter Group for any legal or other expenses reasonably incurred by Lender, the JPMorgan Chase Group or the Underwriter Group in connection with defending or investigating the Liabilities. (d) Promptly after receipt by an indemnified party under this Section 9.2 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9.2, notify the indemnifying party in writing of the commencement thereof, but the omission to so notify the indemnifying party will not relieve the indemnifying party from any liability which the indemnifying party may have to any indemnified party hereunder except to the extent that failure to notify causes prejudice to the indemnifying party. In the event that any action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled, jointly with any other indemnifying party, to participate therein and, to the extent that it (or they) may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party under this Section 9.2 the 117 indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there are any legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party to parties. The indemnifying party shall not be liable for the expenses of more than one such separate counsel unless an indemnified party shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to another indemnified party. (e) In order to provide for just and equitable contribution in circumstances in which the indemnifications provided for in Section 9.2(b) or (c) is or are for any reason held to be unenforceable by an indemnified party in respect of any Liabilities (or action in respect thereof) referred to therein which would otherwise be indemnifiable under Section 9.2(b) or (c), the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Liabilities (or action in respect thereof); provided, however, that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. In determining the amount of contribution to which the respective parties are entitled, the following factors shall be considered: (i) JPMorgan Chase's and Borrower's relative knowledge and access to information concerning the matter with respect to which claim was asserted; (ii) the opportunity to correct and prevent any statement or omission; and (iii) any other equitable considerations appropriate in the circumstances. Lender and Borrower hereby agree that it would not be equitable if the amount of such contribution were determined solely by pro rata or per capita allocation. (f) The liabilities and obligations of both Borrower and Lender under this Section 9.2 shall survive the termination of this Agreement and the satisfaction and discharge of the Debt. SECTION 9.3 Servicer. At the option of Lender or Agent, the Loan may be serviced by a servicer/trustee (the "Servicer") selected by Lender or Agent and Lender or Agent may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "Servicing Agreement") between Lender or Agent and Servicer. SECTION 9.4 Exculpation. (a) Except as otherwise provided in this Section 9.4 and comparable provisions in the Security Instruments or in the other Loan Documents, Lender shall not enforce the liability and obligation of Borrower or any of Borrower's Affiliates to perform and observe the obligations contained in this Agreement, the Note or the Security Instruments by any action or 118 proceeding wherein a money judgment shall be sought against Borrower or any of Borrower's Affiliates, 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 Agreement, the Note, the Security Instruments, the other Loan Documents, and the interest in the Properties, the Rents and any other Collateral created by this Agreement, the Note, the Security Instruments and the other Loan 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 Properties, in the Rents and in any other Collateral. Lender, by accepting this Agreement, the Note and the Security Instruments, agrees that it shall not, except as otherwise provided in this Section 9.4 and comparable provisions in the Security Instruments, sue for, seek or demand any deficiency judgment against Borrower or any of Borrower's Affiliates in any such action or proceeding, under or by reason of or under or in connection with this Agreement, the Note, the Security Instruments or the other Loan Documents. The provisions of this Section shall not, however, (i) constitute a waiver, release or impairment of any obligation evidenced or secured by this Agreement, the Note, the Security Instruments or the other Loan Documents; (ii) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under the Security Instruments; (iii) except as set forth in this Section 9.4, affect the validity or enforceability of any indemnity (including, without limitation, the Environmental Indemnity), guaranty (including, without limitation, the Guaranty), master lease or similar instrument made in connection with this Agreement, the Note, the Security Instruments, or the other Loan Documents; (iv) impair the right of Lender to obtain the appointment of a receiver; (v) except as set forth in this Section 9.4, impair the enforcement of the Assignment of Leases; (vi) impair the right of Lender to enforce the provisions of Sections 10.2 of the Security Instruments or Sections 4.1.8, 4.1.28, 5.1.9 and 5.2.8 hereof; or (vii) impair the right of Lender to obtain a deficiency judgment or other judgment on the Note against Borrower to the extent necessary to (A) preserve or enforce its rights and remedies against any Individual Property or (B) obtain any Insurance Proceeds or Awards to which Lender would otherwise be entitled under the terms of this Agreement or the Security Instruments; provided however, Lender shall only enforce such judgment to the extent of the Insurance Proceeds and/or Awards. (b) Notwithstanding the provisions of this Section 9.4 to the contrary, Borrower shall be personally liable to Lender for the Losses Lender incurs to the extent due to: (i) fraud or material misrepresentation in connection with the execution and the delivery of this Agreement, the Note, the Security Instrument, or the other Loan Documents; (ii) Borrower's or Operating Lessee's misapplication or misappropriation of Rents received by Borrower or Operating Lessee after the occurrence of an Event of Default; (iii) Borrower's or Operating Lessee's misapplication or misappropriation of Security Deposits or Rents collected more than thirty (30) days in advance; (iv) Borrower's or Operating Lessee's misapplication or the misappropriation of Insurance Proceeds or Awards; (v) Borrower's or Operating Lessee's failure to pay Taxes, Other Charges (except to the extent that sums sufficient to pay such amounts have been deposited in escrow with Lender pursuant to the terms of Section 7.2 hereof), charges for labor or materials or other charges that can create Liens on the Properties; (vi) Borrower's or Operating Lessee's failure to return or to reimburse Lender for all Personal Property taken from any Properties by or on behalf of Borrower or Operating Lessee and not replaced with Personal Property of comparable utility and value; (vii) any act of intentional waste or arson to the Collateral by Borrower, Principal, the Operating Lessee SPE Entities or 119 any Affiliate or thereof or by any Indemnitor or Guarantor; (viii) any fees or commissions paid by Borrower to Principal, the Operating Lessee SPE Entities or any Affiliate of Borrower, Principal, the Operating Lessee SPE Entities, Indemnitor, or Guarantor in violation of the terms of this Agreement, the Note, the Security Instruments or the other Loan Documents; (ix) Borrower's failure to comply with the provisions of Sections 4.1.39 and 5.1.19 of this Agreement; (x) any Loss resulting from a Casualty due to Borrower's failure to obtain the insurance required pursuant to Section 6.1; (xi) Borrower's default under Section 5.1.10 hereof (after ten (10) Business Days prior written notice to Borrower), (xii) if any Ground Lease is modified or terminated other than in accordance with the terms hereof, (xiii) any Loss resulting from the Jacksonville Property's failure to comply with applicable zoning ordinances relating to density or number of hotel rooms and (xiv) any Loss paid to Hilton Inns, Inc. or any Affiliate thereof (including, without limitation, any termination or similar fees by, or on behalf of, Operating Lessee) resulting from a termination of the franchise license agreement(s) relating to the Hilton Franchised Properties. (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 and the obligation to repay the Debt shall become a personal recourse obligation of Borrower (i) in the event of Borrower's or Principal's default under Section 4.1.35 hereof or Operating Lessee's default under Section 12 of the Operating Lease Subordination Agreement (such that such failure was considered by a court as a factor in the court's finding for a consolidation of the assets of Borrower, Principal and/or Operating Lessee with the assets of another Person) or any Transfer in violation of the provisions of Section 5.2.10 hereof or Article 7 of the Security Instruments, (ii) if any Individual Property or any part thereof shall become an asset, or if Borrower, Principal, Ground Lessor, an Operating Lessee SPE Entity, Mezzanine Borrower, Mezzanine Principal, Junior Mezzanine Borrower or Junior Mezzanine Principal shall be a debtor, in (A) a voluntary bankruptcy or insolvency proceeding or (B) an involuntary bankruptcy or insolvency proceeding commenced by any Person (other than Lender, Mezzanine Lender or Junior Mezzanine Lender) and, with respect to such involuntary proceeding, Borrower consents or fails to object to such proceedings) or if Borrower, Principal, Ground Lessor, an Operating Lessee SPE Entity, Mezzanine Borrower, Mezzanine Principal, Junior Mezzanine Borrower or Junior Mezzanine Principal has acted in concert with, colluded or conspired with the party to cause the filing of such involuntary proceeding or (iii) an Event of Default contemplated by Section 8.1(xi)(b), 8.1(xi)(c) or 8.1(xxiv)(b) hereof has occurred (unless caused by, or at the request of Lender, Mezzanine Lender or Junior Mezzanine Lender); provided, however, with respect to this Section 9.4(c)(iii) only, Borrower shall only be liable on a recourse basis for the Allocated Loan Amounts (plus interest thereon and costs and expenses relating thereto) of the Individual Properties that were the cause of such Event of Default. (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 Bankruptcy Code to file a claim against Borrower or Principal for the full amount of the indebtedness secured by the Security Instruments or to require that all Collateral shall continue to secure all of the indebtedness owing to Lender in accordance with this Agreement, the Note, the Security Instruments and the other Loan Documents. 120 X. MISCELLANEOUS SECTION 10.1 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender, and all covenants, promises and agreements in this Agreement, by or on behalf of Lender, shall be binding upon the legal representatives successors and assigns of Lender. SECTION 10.2 Lender's Discretion. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. SECTION 10.3 Governing Law. (a) THIS AGREEMENT 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 (OTHER THAN THOSE CONFLICT OF LAW PROVISIONS THAT WOULD DEFER TO THE SUBSTANTIVE LAWS OF ANOTHER JURISDICTION). WITHOUT IN ANY WAY LIMITING THE PRECEDING CHOICE OF LAW, THE PARTIES ELECT TO BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK; PROVIDED HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED BY THIS AGREEMENT, THE SECURITY INSTRUMENTS AND THE OTHER LOAN DOCUMENTS, AND THE DETERMINATION OF DEFICIENCY JUDGMENTS, THE LAWS OF THE STATE WHERE EACH INDIVIDUAL PROPERTY IS LOCATED SHALL APPLY. (b) WITH RESPECT TO ANY CLAIM OR ACTION ARISING HEREUNDER OR UNDER THIS AGREEMENT, THE NOTE, OR THE OTHER LOAN DOCUMENTS, BORROWER (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 121 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 AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS 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 AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS INSTRUMENT WILL BE DEEMED TO PRECLUDE LENDER FROM BRINGING AN ACTION OR PROCEEDING WITH RESPECT HERETO IN ANY OTHER JURISDICTION. WITHOUT IN ANY WAY LIMITING THE PRECEDING CONSENTS TO JURISDICTION AND VENUE, THE PARTIES AGREE TO SUBMIT TO THE JURISDICTION OF SUCH NEW YORK COURTS IN ACCORDANCE WITH SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK OR ANY CORRESPONDING OR SUCCEEDING PROVISIONS THEREOF. SECTION 10.4 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, the Note, or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on Borrower, shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. SECTION 10.5 Delay Not a Waiver. Neither any failure nor any delay on the part of Lender or Borrower in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. SECTION 10.6 Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day after having been deposited for overnight delivery with any reputable overnight 122 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: c/o FelCor Lodging Trust Incorporated 545 E. John Carpenter Freeway, Suite 1300 Irving, Texas 75062 Attention: General Counsel Facsimile No.: (972) 444-4949 With a copy to: Jenkens & Gilchrist 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attention: Tom E. Davis, Esq. Facsimile No.: (214) 855-4300 If to Lender: JPMorgan Chase Bank c/o J.P. Morgan Mortgage Capital, Inc. 400 Perimeter Center Terrace Suite 575 Atlanta, Georgia 30346 Attention: Loan Servicing Facsimile No.: (351) 770-8399 and With a copy to: Thacher Proffitt & Wood 11 West 42nd Street New York, New York 10036 Attention: David S. Hall, Esq. Facsimile No.: (212) 789-3500 or addressed as such party may from time to time designate by written notice to the other parties. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. SECTION 10.7 Trial by Jury. BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY 123 BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BORROWER AND LENDER ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER AND LENDER, AS APPLICABLE. SECTION 10.8 Headings. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 10.9 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement shall be prohibited by or invalid under Applicable Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. SECTION 10.10 Preferences. Except as otherwise expressly provided herein, Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, State or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. SECTION 10.11 Waiver of Notice. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Lender to Borrower. SECTION 10.12 Remedies of Borrower. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement 124 or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. SECTION 10.13 Expenses; Indemnity. (a) Except as otherwise expressly provided herein, Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender within five (5) days of receipt of written notice from Lender for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrower (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Properties); (ii) Borrower's ongoing performance of and compliance with Borrower's respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental and insurance requirements; (iii) Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date; (iv) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by Lender; (v) securing Borrower's compliance with any requests made pursuant to the provisions of this Agreement; (vi) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents, the Properties, or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Properties or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any cost and expenses due and payable to Lender may be paid from any amounts in the Lockbox Account. (b) Borrower shall indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for Lender in connection 125 with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents, or (ii) the use or intended use of the proceeds of the Loan (collectively, the "Indemnified Liabilities"); provided, however, that Borrower shall not have any obligation to Lender hereunder to the extent that such Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion that it is permitted to pay and satisfy under Applicable Law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. (c) Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless Lender and the Indemnified Parties from and against any and all losses (including, without limitation, reasonable attorneys' fees and costs incurred in the investigation, defense, and settlement of losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA, the Code, any State statute or other similar law that may be required, in Lender's sole discretion) that Lender may incur, directly or indirectly, as a result of a default under Sections 4.1.8 or 5.2.8 hereof. (d) Other than in connection with a Securitization, Borrower covenants and agrees to pay for or, if Borrower fails to pay, to reimburse Lender for, (i) any fees and expenses incurred by any Rating Agency in connection with any Rating Agency review of the Loan, the Loan Documents or any transaction contemplated thereby or (ii) any consent, approval, waiver or confirmation obtained from such Rating Agency pursuant to the terms and conditions of this Agreement or any other Loan Document and Lender shall be entitled to require payment of such fees and expenses as a condition precedent to the obtaining of any such consent, approval, waiver or confirmation. SECTION 10.14 Schedules and Exhibits Incorporated. The Schedules and Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. SECTION 10.15 Offsets, Counterclaims and Defenses. Any assignee of Lender's interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to the Loan Documents which Borrower may otherwise have against any assignor of the Loan Documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. 126 SECTION 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries. (a) Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor to grant Lender any interest in the Properties other than that of mortgagee, beneficiary or lender. (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower (or an Affiliate of either of the foregoing acting on behalf of Borrower or Lender, as applicable) any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. SECTION 10.17 Publicity. All news releases, publicity or advertising by Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents, to Lender, JPMorgan Chase, or any of their Affiliates shall be subject to the prior written approval of Lender, which shall not be unreasonably withheld. Notwithstanding the foregoing, disclosure required by any federal or State securities laws, rules or regulations, as determined by Borrower's counsel, shall not be subject to the prior written approval of Lender. SECTION 10.18 Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets. (a) Borrower acknowledges that Lender has made the Loan to Borrower upon the security of its collective interest in the Properties and in reliance upon the aggregate of the Properties taken together being of greater value as collateral security than the sum of each Individual Property taken separately. Borrower agrees that the Security Instruments are and will be cross-collateralized and cross-defaulted with each other so that (i) an Event of Default under any of the Security Instruments shall constitute an Event of Default under each of the other Security Instruments which secure the Note; (ii) an Event of Default under the Note or this Agreement shall constitute an Event of Default under each Security Instrument; (iii) each Security Instrument shall constitute security for the Note as if a single blanket lien were placed on all of the Properties as security for the Note; and (iv) such cross-collateralization shall in no event be deemed to constitute a fraudulent conveyance. (b) To the fullest extent permitted by Applicable Law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Mezzanine 127 Borrower and of the Properties, or to a sale in inverse order of alienation in the event of foreclosure of all or any of the Security Instruments, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Properties for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Properties in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Security Instruments, any equitable right otherwise available to Borrower which would require the separate sale of the Properties or require Lender to exhaust its remedies against any Individual Property or any combination of the Properties before proceeding against any other Individual Property or combination of Properties; and further in the event of such foreclosure Borrower does hereby expressly consent to and authorize, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Properties. SECTION 10.19 Waiver of Counterclaim. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents. SECTION 10.20 Conflict; Construction of Documents; Reliance. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender's exercise of any such rights or remedies. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates. SECTION 10.21 Brokers and Financial Advisors. Borrower and Lender hereby represent that they have dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind 128 (including Lender's reasonable attorneys' fees and expenses) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower in connection with the transactions contemplated herein. The provisions of this Section 10.21 shall survive the expiration and termination of this Agreement and the payment of the Debt. SECTION 10.22 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, between Borrower and/or its Affiliates and Lender are superseded by the terms of this Agreement and the other Loan Documents. SECTION 10.23 Counterparts. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. SECTION 10.24 Liability. This Agreement shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns forever. [NO FURTHER TEXT ON THIS PAGE] 129 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ------------------------------ Name: Joel M. Eastman Title: Vice President JPMORGAN CHASE BANK, a New York banking corporation By: /s/ Michael Mesard -------------------------------------- Name: Michael Mesard Title: Vice President Acknowledged and agreed to with respect to its obligations set forth in Article 9 hereof: FELCOR LODGING LIMITED PARTNERSHIP By: FelCor Lodging Trust Incorporated, a Maryland Corporation, its general partner By: /s/ Joel M. Eastman -------------------------------------- Name: Joel M. Eastman Title: Vice President SCHEDULE I
LOCATION ADDRESS ALLOCATED LOAN AMOUNT -------- ------- --------------------- Omaha, Nebraska 655 North 108th Avenue $5,905.000 Charleston Mills, South Carolina 115 Meeting Street $17,250,000 San Antonio, Texas 77 NE Loop 410 $13,320,000 Tampa, Florida 3050 N. Rocky Point Dr. W $11,557,000 Raleigh/Durham, North Carolina 2515 Meridian Parkway $11,557,000 Tulsa, Oklahoma 3332 S. 79th East Avenue $8,318,000 Jacksonville, Florida 9300 Baymeadows Road $11,845,000 Lexington, Kentucky 245 Lexington Green Circle $13,321,000 Bloomington, Minnesota 2800 W. 80th Street $9,162,000 Dallas/Fort Worth, Texas 4650 West Airport Freeway $12,765,000
REMAINDER OF SCHEDULES AND EXHIBITS INTENTIONALLY OMITTED. EX-10.28.01 4 d05903exv10w28w01.txt FORM OF MORTGAGE, DEED OF TRUST & SECURITY AGRMT. EXHIBIT 10.28.01 - -------------------------------------------------------------------------------- FELCOR/JPM HOTELS, L.L.C., as mortgagor and DJONT/JPM LEASING, L.L.C., as mortgagor (Mortgagor) to JPMORGAN CHASE BANK, as mortgagee (Lender) ------------------------------ MORTGAGE AND SECURITY AGREEMENT ------------------------------ Dated: As of April 24, 2003 Location: County: PREPARED BY AND UPON RECORDATION RETURN TO: Messrs. Thacher Proffitt & Wood 11 West 42nd Street New York, New York 10036 Attention: David S. Hall, Esq. File No.: 86000-00822 - -------------------------------------------------------------------------------- THIS MORTGAGE AND SECURITY AGREEMENT (this "Security Instrument") is made as of the 24th day of April, 2003 by FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company having its principal place of business c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062, as mortgagor ("Owner") and DJONT/JPM LEASING, L.L.C., a Delaware limited liability company its principal place of business c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062, as mortgagor ("Operating Lessee") (Owner and Operating Lessee being hereinafter collectively referred to as "Mortgagor") to JPMORGAN CHASE BANK, a New York banking corporation, as mortgagee, having its principal place of business at 270 Park Avenue, New York, New York 10017 ("Lender"). RECITALS: Owner is the fee owner of the Land (hereinafter defined). Operating Lessee is the owner of the leasehold estate in said real property pursuant to that certain lease by and between Owner, as landlord, and Operating Lessee, as tenant, dated as of the date hereof (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "Operating Lease"). This Security Instrument is given to secure a loan (the "Loan") in the principal sum of ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00) made pursuant to that certain Loan Agreement, dated as of the date hereof, between Mortgagor and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "Loan Agreement") and evidenced by that certain Promissory Note, dated the date hereof, made by Mortgagor in favor of Lender (such Promissory Note, together with all extensions, renewals, replacements, restatements, amendments, supplements, severances or modifications thereof being hereinafter referred to as the "Note"). Mortgagor desires to secure the payment of the Debt (as defined in the Loan Agreement) and the performance of all of Owner's obligations under the Note, the Loan Agreement and the other Loan Documents (as herein defined). This Security Instrument is given pursuant to the Loan Agreement, and payment, fulfillment, and performance by Mortgagor of its obligations thereunder and under the other Loan Documents are secured hereby, and each and every term and provision of the Loan Agreement, the Note, and that certain Assignment of Leases and Rents dated the date hereof made by Mortgagor in favor of Lender delivered in connection with this Security Instrument (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "Assignment of Leases"), including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties therein, are hereby incorporated by reference herein as though set forth in full and shall be considered a part of this Security Instrument (the Loan Agreement, the Note, this Security Instrument, the Assignment of Leases and all other documents evidencing or securing the Debt (including all additional mortgages, deeds to secure debt and assignments of leases and rents) or executed or delivered in connection therewith, are hereinafter referred to collectively as the "Loan Documents"). All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Loan Agreement. ARTICLE 1 - GRANTS OF SECURITY Section 1.1 PROPERTY MORTGAGED. Mortgagor does hereby irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to and grant a security interest to Lender and its successors and assigns in, the following property, rights, interests and estates now owned, or hereafter acquired by Mortgagor (collectively, the "Property"): (a) Land. The real property described in Exhibit A attached hereto and made a part hereof (the "Land"); (b) Operating Lease. The Operating Lease and the leasehold estate created thereby, including all assignments, modifications, extensions and renewals of the Operating Lease and all credits, deposits, options, privileges and rights of Operating Lessee 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 Lessee 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)(l) 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 lessor thereunder, and (ii) the rejection of the Operating Lease by the lessor thereunder, as debtor in possession, or by a trustee for the lessor thereunder, pursuant to Section 365 of the Bankruptcy Code; (c) Additional Land. All additional lands, estates and development rights hereafter acquired by Mortgagor 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 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 Mortgagor of, in and to the Land and the Improvements, including, but not limited to, those arising under and 2 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 and elevator 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 Mortgagor, or in which Mortgagor has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, and usable in connection with the present or future operation and occupancy of the Land and the Improvements and all building equipment, materials and supplies of any nature whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, or usable in connection with the present or future operation and occupancy of the Land and the Improvements (collectively, the "Personal Property"), and the right, title and interest of Mortgagor 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 the above; (g) Leases and Rents. All 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 Mortgagor of any petition for relief under the Bankruptcy Code (the "Leases") and all right, title and interest of Mortgagor, its 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, 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, 3 meeting rooms, banquet rooms and recreational facilities and otherwise, all receivables, customer obligations, installment payment obligations and other 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 Mortgagor 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 Mortgagor of any petition for relief under the Bankruptcy Code (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) Condemnation Awards. All awards or payments, including interest thereon, which may heretofore and hereafter be made with respect to the Property, whether from the exercise of the right of eminent domain (including but not limited to any transfer made in lieu of or in anticipation of the exercise of the right), or for a change of grade, or for any other injury to or decrease in the value of the Property; (i) Insurance Proceeds. All proceeds of and any unearned premiums on any insurance policies covering the Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Property; (j) Tax Certiorari. All refunds, rebates or credits in connection with a reduction in real estate taxes and assessments charged against the Property as a result of tax certiorari or any applications or proceedings for reduction; (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 Mortgagor, 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 Property; (m) Agreements. 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 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 and all right, title and interest of Mortgagor therein and thereunder, including, without limitation, the right, upon the 4 happening of any default hereunder, to receive and collect any sums payable to Mortgagor 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 Property; (o) Accounts. All Accounts, Account Collateral, reserves, escrows and deposit accounts maintained by Mortgagor with respect to the Property including, without limitation, the Lockbox Account and the Property Accounts, and all complete securities, investments, property and financial assets held therein from time to time and all proceeds, products, distributions or dividends or substitutions thereon and thereof; (p) Causes of Action. All causes of action and claims (including, without limitation, all causes of action or claims arising in tort, by contract, by fraud or by concealment of material fact) against any Person for damages or injury to the Property or in connection with any transactions financed in whole or in part by the proceeds of the Loan ("Cause of Action"); (q) Interest Rate Cap Agreement. All right, title, interest and claim of Mortgagor in, to, under or pursuant to any interest rate cap confirmation purchased by Mortgagor pursuant to the terms of the Loan Documents (the "Confirmation") together with the corresponding interest rate cap agreement relating thereto (the "Rate Agreement"), and in, to, under or pursuant to any and all amendments, supplements and additions thereto (the Confirmation and the Rate Agreement, together with any amendments, additions or supplements thereto being hereinafter collectively referred to as the "Cap Agreement"), all claims of Mortgagor for breach by any counterparty of any covenant, agreement, representation or warranty contained in the Cap Agreement; (r) Accounts Receivables. All right, title and interest of Mortgagor 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) Mortgagor's 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) Mortgagor's rights in, to and under all purchase orders for goods, services or other property, (iv) Mortgagor's rights to any goods, services or other property represented by any of the foregoing, (v) monies due to or to become due to Mortgagor 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 Mortgagor) 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 5 sale, exchange, transfer, collection or other disposition or substitution thereof and any and all of the foregoing and proceeds therefrom; and (s) Security Interests. All right, title and interest of lessor under the Operating Lease as secured party in the personal property and collateral pursuant to the security interest granted by Operating Lessee to the lessor thereunder in the Operating Lease (the "Operating Lease Security Agreement"); (t) Other Rights. Any and all other rights of Mortgagor in and to the items set forth in Subsections (a) through (r) above. Section 1.2 ASSIGNMENT OF LEASES AND RENTS. Mortgagor hereby absolutely and unconditionally assigns to Lender Mortgagor's right, title and interest in and to all current and future Leases and Rents and the Operating Lease Security Agreement; it being intended by Mortgagor that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Nevertheless, subject to the terms of this Section 1.2, Section 9.1(h) and the Loan Agreement, Lender grants to Mortgagor a revocable license to collect and receive the Rents. Mortgagor shall hold the Rents, or a portion thereof sufficient to discharge all current sums due on the Debt, for use in the payment of such sums. Section 1.3 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 Mortgagor in the Property. By executing and delivering this Security Instrument, Mortgagor hereby grants to Lender, as security for the Obligations, (as herein defined) a security interest in the Personal Property, the Accounts, and the Account Collateral to the full extent that the Personal Property, the Accounts and the Account Collateral may be subject to the Uniform Commercial Code and in the Operating Lease Security Agreement. Section 1.4 PLEDGE OF MONIES HELD. Mortgagor hereby pledges to Lender any and all monies now or hereafter held by Lender, including, without limitation, any sums deposited in the Reserve Funds, the Accounts, Net Proceeds and Awards, as additional security for the Obligations until expended or applied as provided in the Loan Agreement or this Security Instrument. CONDITIONS TO GRANT TO HAVE AND TO HOLD the above granted and described Property unto and to the use and benefit of Lender and its successors and assigns, forever; PROVIDED, HOWEVER, these presents are upon the express condition that, if Mortgagor shall well and truly pay to Lender the Debt at the time and in the manner provided in the Note and this Security Instrument, shall well and truly perform the Other Obligations (as herein defined) as set forth in this Security Instrument and shall well and truly abide by and comply with each and every covenant and condition set forth herein, in the Note and in the Loan Agreement, these presents and the estate hereby granted shall cease, terminate and be void. 6 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 Debt, including without limitation, (a) the payment of the indebtedness evidenced by the Note in lawful money of the United States of America; (b) the payment of interest, default interest, late charges and other sums, as provided in the Note, the Loan Agreement, this Security Instrument or the other Loan Documents; (c) the payment of the Breakage Costs, if any; (d) the payment of all other moneys agreed or provided to be paid by Mortgagor in the Note, the Loan Agreement, this Security Instrument or the other Loan Documents; (e) the payment of all sums advanced pursuant to the Loan Agreement or this Security Instrument to protect and preserve the Property and the lien and the security interest created hereby; and (f) the payment of all sums advanced and costs and expenses incurred by Lender in connection with the Debt or any part thereof, any modification, amendment, 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 Mortgagor or Lender. Section 2.2 OTHER OBLIGATIONS. This Security Instrument and the grants, assignments and transfers made in Article 1 are also given for the purpose of securing the following (the "Other Obligations"): (a) the performance of all other obligations of Mortgagor contained herein; (b) the performance of each obligation of Mortgagor contained in any other agreement given by Mortgagor to Lender which is for the purpose of further securing the obligations secured hereby, and any renewals, extensions, substitutions, replacements, amendments, modifications and changes thereto; and (c) the performance of each obligation of Mortgagor contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of the Note, the Loan Agreement, this Security Instrument or the other Loan Documents. Section 2.3 DEBT AND OTHER OBLIGATIONS. Mortgagor's obligations for the payment of the Debt and the performance of the Other Obligations shall be referred to collectively below as the "Obligations." 7 ARTICLE 3 - MORTGAGOR COVENANTS Mortgagor covenants and agrees that: Section 3.1 PAYMENT OF DEBT. Mortgagor will pay the Debt at the time and in the manner provided in the Note, the Loan Agreement and in this Security Instrument. Section 3.2 INCORPORATION BY REFERENCE. All the covenants, conditions and agreements contained in the Loan Agreement, the Note and all and any of the other Loan Documents, are hereby made a part of this Security Instrument to the same extent and with the same force as if fully set forth herein. Section 3.3 INSURANCE. Mortgagor shall obtain and maintain, or cause to be maintained, insurance in full force and effect at all times with respect to Mortgagor and the Property as required pursuant to the Loan Agreement. Section 3.4 PAYMENT OF TAXES, ETC. Mortgagor shall promptly pay all Taxes and Other Charges in accordance with the terms of the Loan Agreement. Section 3.5 MAINTENANCE AND USE OF PROPERTY. Mortgagor shall cause the Property to be maintained in a good and safe condition and repair in accordance with the terms of the Loan Agreement. Subject to the terms of the Loan Agreement, the Improvements and the Personal Property shall not be removed, demolished or materially altered or expanded (except for normal replacement of the Personal Property) without the consent of Lender. Subject to the terms of the Loan Agreement, Mortgagor 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 Condemnation and shall complete and pay for any structure at any time in the process of construction or repair on the Land. Subject to the terms of the Loan Agreement, Mortgagor shall not initiate, join in, acquiesce in, or consent to any change in any private restrictive covenant, zoning law or other public or private restriction, limiting or defining the uses which may be made of the Property or any part thereof. If under applicable zoning provisions the use of all or any portion of the Property is or shall become a nonconforming use, Mortgagor 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 3.6 WASTE. Mortgagor 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 impair the value of the Property or the security of this Security Instrument. Mortgagor will not, without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, regardless of the depth thereof or the method of mining or extraction thereof. Section 3.7 PAYMENT FOR LABOR AND MATERIALS. Except as may be permitted under the Loan Agreement, Mortgagor will promptly pay when due all bills and costs for labor, materials, and specifically fabricated materials incurred in connection with the Property and 8 never permit 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 to be created or exist in respect of the Property or any part thereof any other or additional lien or security interest other than the liens or security interests hereof, except for the Permitted Encumbrances. Section 3.8 PERFORMANCE OF OTHER AGREEMENTS. Mortgagor shall observe and perform each and every term to be observed or performed by Mortgagor pursuant to the terms of the Loan Agreement, any other Loan Documents and any agreement or recorded instrument affecting or pertaining to the Property, including but not limited to the Operating Lease and any franchise agreements, or given by Mortgagor to Lender for the purpose of further securing the Obligations and any amendments, modifications or changes thereto. Section 3.9 CHANGE OF NAME, IDENTITY OR STRUCTURE. Except as may be permitted under the Loan Agreement, Mortgagor will not change Mortgagor's name, identity (including its trade name or names) or corporate, partnership or other structure without first obtaining the prior written consent of Lender. Mortgagor shall execute and deliver to Lender, prior to or contemporaneously with the effective date of any such change, any financing statement or financing statement change required by Lender to establish or maintain the validity, perfection and priority of the security interest granted herein. At the request of Lender, Mortgagor shall execute a certificate in form satisfactory to Lender listing the trade names under which Mortgagor intends to operate the Property, and representing and warranting that Mortgagor does business under no other trade name with respect to the Property. Section 3.10 PROPERTY USE. The Property shall be used only for a hotel and any ancillary uses relating thereto, and for no other uses without the prior written consent of Lender, which consent may be withheld in Lender's sole and absolute discretion. ARTICLE 4 - REPRESENTATIONS AND WARRANTIES Mortgagor represents and warrants to Lender that: Section 4.1 WARRANTY OF TITLE. Mortgagor has good title to the Property and has the right to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the same. Owner possesses an unencumbered fee simple absolute estate and Operating Lessee possesses an unencumbered leasehold estate (created by and pursuant to the terms of the Operating Lease) in the Land and the Improvements. Owner owns the Property free and clear of all liens, encumbrances and charges whatsoever except for the Permitted Encumbrances. The Permitted Encumbrances do not and will not materially adversely affect or interfere with the value, or materially adversely affect or interfere with the current use or operation, of the Property, or the security intended to be provided by this Security Instrument or the ability of Mortgagor to repay the Note or any other amount owing under the Note, this Security Instrument, the Loan Agreement, or the other Loan Documents or to perform its obligations thereunder in accordance with the terms of the Loan Agreement, the Note, this Security Instrument or the other Loan Documents. This Security Instrument, when properly recorded in the appropriate records, together with the Assignment of Leases and any Uniform Commercial Code financing statements required to be filed in connection therewith, will create (i) a valid, 9 perfected first priority lien on the Property, subject only to Permitted Encumbrances and (ii) perfected security interests in and to, and perfected collateral assignments of, all personalty (including the Leases), all in accordance with the terms thereof, subject only to Permitted Encumbrances. The Assignment of Leases, when properly recorded in the appropriate records, creates a valid first priority assignment of, or a valid first priority security interest in, certain rights under the related Leases, subject only to a license granted to Mortgagor to exercise certain rights and to perform certain obligations of the lessor under such Leases, including the right to operate the Property. No Person other than Mortgagor owns any interest in any payments due under such Leases that is superior to or of equal priority with the Lender's interest therein. Mortgagor shall forever warrant, defend and preserve the title and the validity and priority of the lien of this Security Instrument and shall forever warrant and defend the same to Lender against the claims of all persons whomsoever. ARTICLE 5 - OBLIGATIONS AND RELIANCES Section 5.1 RELATIONSHIP OF MORTGAGOR AND LENDER. The relationship between Mortgagor and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Mortgagor, and no term or condition of any of the Loan Agreement, the Note, this Security Instrument and the other Loan Documents shall be construed so as to deem the relationship between Mortgagor and Lender to be other than that of debtor and creditor. Section 5.2 NO RELIANCE ON LENDER. The members, general partners, principals and (if Mortgagor is a trust) beneficial owners of Mortgagor are experienced in the ownership and operation of properties similar to the Property, and Mortgagor and Lender are relying solely upon such expertise and business plan in connection with the ownership and operation of the Property. Mortgagor is not relying on Lender's expertise, business acumen or advice in connection with the Property. Section 5.3 NO LENDER OBLIGATIONS. (a) Notwithstanding the provisions of Section 1.1(g), (l) and (m) 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. (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 Loan Agreement, the Note or the other Loan Documents, including without limitation, any officer's certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, Lender shall not be deemed to have warranted, consented to, or affirmed the sufficiency, 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 5.4 RELIANCE. Mortgagor recognizes and acknowledges that in accepting the Note, the Loan Agreement, this Security Instrument and the other Loan Documents, (i) Lender is expressly and primarily relying on the truth and accuracy of the warranties and representations set forth in Article 4 of the Loan Agreement and Articles 3 and 4 hereof without any obligation to investigate the Property and notwithstanding any investigation of the Property 10 by Lender; (ii) that such reliance existed on the part of Lender prior to the date hereof; (iii) that the warranties and representations are a material inducement to Lender in accepting the Note, the Loan Agreement, this Security Instrument and the other Loan 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 4 of the Loan Agreement and Articles 3 and 4 hereof. ARTICLE 6 - FURTHER ASSURANCES Section 6.1 RECORDING OF SECURITY INSTRUMENT, ETC. Mortgagor 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 Loan 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. Mortgagor will pay all taxes, filing, registration or recording fees, and all expenses incident to the preparation, execution, acknowledgment and/or recording of the Note, the Loan Agreement, this Security Instrument, the other Loan Documents, 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, the other Loan Documents, or any instrument of further assurance, and any modification or amendment of the foregoing documents, except where prohibited by law so to do. Section 6.2 FURTHER ACTS, ETC. Mortgagor will, at the cost of Mortgagor, 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 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 Mortgagor may be or may hereafter become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument, or for complying with all Legal Requirements. Mortgagor, on demand, will execute and deliver and hereby authorizes Lender, following ten (10) days' notice to Mortgagor, to execute in the name of Mortgagor or without the signature of Mortgagor to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or other instruments, to evidence more effectively the security interest of Lender in the Property or any Collateral. Mortgagor grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender at law and in equity, including without limitation such rights and remedies available to Lender pursuant to this Section 6.2. Section 6.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS. 11 (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, Mortgagor will pay the tax, with interest and penalties thereon, if any. If Lender is advised by counsel chosen by it that the payment of tax by Mortgagor 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) Mortgagor 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, the Loan Agreement, this Security Instrument, or any of the other Loan Documents or impose any other tax or charge on the same, Mortgagor will pay for the same, with interest and penalties thereon, if any. Section 6.4 REPLACEMENT DOCUMENTS. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any other Loan Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or other Loan Documents, Mortgagor will issue, in lieu thereof, a replacement Note or other Loan Documents, dated the date of such lost, stolen, destroyed or mutilated Note or other Loan Documents in the same principal amount thereof and containing substantially identical terms. Section 6.5 PERFORMANCE AT MORTGAGOR'S EXPENSE. Mortgagor acknowledges and confirms that Lender shall impose certain administrative processing and/or commitment fees in connection with (a) the extension, renewal, modification, amendment and termination of the Loan, (b) the release or substitution 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"). Mortgagor 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 required by law, regulation, Lender or any governmental or quasi-governmental authority. Mortgagor 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. Wherever it is provided for herein that Mortgagor pay any costs and expenses, such costs and expenses shall include, but not be limited to, all legal fees and disbursements of Lender (excluding legal fees for in-house staff), whether with respect to retained firms or otherwise. 12 Section 6.6 LEGAL FEES FOR ENFORCEMENT. (a) Mortgagor shall pay all reasonable legal fees incurred by Lender in connection with the preparation of the Loan Agreement, the Note, this Security Instrument and the other Loan Documents and (b) Mortgagor shall pay to Lender on demand any and all expenses, including legal expenses and attorneys' fees, incurred or paid by Lender in protecting its interest in the Property or in collecting any amount payable hereunder or in enforcing its rights hereunder with respect to the Property (including commencing any foreclosure action), 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 Mortgagor. ARTICLE 7 - DUE ON SALE/ENCUMBRANCE Section 7.1 LENDER RELIANCE. Mortgagor acknowledges that Lender has examined and relied on the experience of Mortgagor and its partners, members, principals and (if Mortgagor is a trust) beneficial owners in owning and operating properties such as the Property in agreeing to make the Loan, and will continue to rely on Mortgagor's ownership of the Property as a means of maintaining the value of the Property as security for repayment of the Debt and the performance of the Other Obligations. Mortgagor acknowledges that Lender has a valid interest in maintaining the value of the Property so as to ensure that, should Mortgagor default in the repayment of the Debt or the performance of the Other Obligations, Lender can recover the Debt by a sale of the Property. Section 7.2 NO SALE/ENCUMBRANCE. Neither Mortgagor nor any Restricted Party shall Transfer the Property or any part thereof or any interest therein or permit or suffer the Property or any part thereof or any interest therein to be Transferred other than as expressly permitted pursuant to the terms of the Loan Agreement. ARTICLE 8 - PREPAYMENT Section 8.1 PREPAYMENT. The Debt may not be prepaid in whole or in part except in accordance with the express terms and conditions of the Loan Agreement. ARTICLE 9 - RIGHTS AND REMEDIES Section 9.1 REMEDIES. Upon the occurrence of any Event of Default (as defined in the Loan Agreement), Mortgagor agrees that Lender may, take such action, without notice or demand, as it deems advisable to protect and enforce its rights against Mortgagor and in and to the Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Lender may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Lender: (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 provision of 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; 13 (c) with or without entry, to the extent permitted and pursuant to the procedures provided by Applicable 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 Mortgagor 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) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, in the Note, the Loan Agreement, or in the other Loan Documents; (f) recover judgment on the Note either before, during or after any proceedings for the enforcement of this Security Instrument or the other Loan 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 Mortgagor, any Guarantor or of any person, firm or other entity liable for the payment of the Debt; (h) subject to any Applicable Law, the license granted to Mortgagor under Section 1.2 hereof shall automatically be revoked and Lender may enter into or upon the Property, either personally or by its agents, nominees or attorneys and dispossess Mortgagor and its agents and servants therefrom, without liability for trespass, damages or otherwise and exclude Mortgagor and its agents or servants wholly therefrom, and take possession of all books, records and accounts relating thereto and Mortgagor agrees to surrender possession of the Property and of such books, records and accounts 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 business thereon; (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 Mortgagor with respect to the Property, whether in the name of Mortgagor 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 of the Property and every part thereof; (v) require Mortgagor 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 Mortgagor; (vi) require Mortgagor to vacate and surrender possession of the Property to Lender or to such receiver and, in default thereof, Mortgagor may be evicted by summary proceedings or otherwise; and (vii) except as otherwise expressly provided for in the Loan Agreement, 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 attorneys' 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 14 as just and reasonable compensation for the services of Lender, its outside 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 any Collateral (including, without limitation, the Personal Property) or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Collateral (including without limitation, the Personal Property), and (ii) request Mortgagor at its expense to assemble the Collateral, including without limitation, the Personal Property, and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender with respect to the Collateral, including without limitation, the Personal Property, sent to Mortgagor in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Mortgagor; (j) apply any sums then deposited in the Accounts and any other sums held in escrow or otherwise by Lender in accordance with the terms of this Security Instrument, the Loan Agreement, or any other Loan Documents 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; or (v) all other sums payable pursuant to the Note, the Loan Agreement, this Security Instrument and the other Loan Documents, including without limitation advances made by Lender pursuant to the terms of this Security Instrument; (k) surrender the Policies, 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, Mortgagor hereby appoints Lender as agent and attorney-in-fact (which is coupled with an interest and is therefore irrevocable) for Mortgagor to collect such Insurance Premiums; (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; (m) foreclose by power of sale or otherwise and apply the proceeds of any recovery to the Debt in accordance with Section 9.2 or to any deficiency under this Security Instrument; (n) exercise all rights and remedies under any Causes of Action, whether before or after any sale of the Property by foreclosure, power of sale, or otherwise and apply the proceeds 15 of any recovery to the Debt in accordance with Section 9.2 or to any deficiency under this Security Instrument; or (o) pursue such other remedies as Lender may have under Applicable 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. Section 9.2 APPLICATION OF PROCEEDS. Except as otherwise expressly set forth in the Loan Agreement, 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, the Loan Agreement, or the other Loan Documents, may be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper. Section 9.3 RIGHT TO CURE DEFAULTS. Upon the occurrence and during the continuance of any Default or Event of Default Lender may, but without any obligation to do so and without notice to or demand on Mortgagor and without releasing Mortgagor 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 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 attorneys' fees to the extent permitted by law), with interest as provided below, 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 in remedying such Default or Event of Default 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 and shall be deemed to constitute a portion of the Debt and be secured by this Security Instrument and the other Loan Documents and shall be immediately due and payable upon demand by Lender therefor. Section 9.4 ACTIONS AND PROCEEDINGS. Lender 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 Mortgagor, which Lender, in its discretion, decides should be brought to protect its interest in the Property. Section 9.5 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 thereafter to bring an action of foreclosure, or any other action, for a Default or Defaults by Mortgagor existing at the time such earlier action was commenced. Section 9.6 OTHER RIGHTS, ETC. (a) The failure of Lender to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Security 16 Instrument. Mortgagor shall not be relieved of Mortgagor's obligations hereunder by reason of (i) the failure of Lender to comply with any request of Mortgagor to take any action to foreclose this Security Instrument or otherwise enforce any of the provisions hereof or of the Note or the other Loan 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 or otherwise modifying or supplementing the terms of the Note, the Loan Agreement, this Security Instrument or the other Loan Documents. (b) It is agreed that the risk of loss or damage to the Property is on Mortgagor, 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 the Property or any other 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 may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Lender thereafter to foreclose this Security Instrument. The rights of Lender 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 shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Lender shall not 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. Section 9.7 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 9.8 VIOLATION OF LAWS. If the Property is not in compliance with Legal Requirements, Lender may impose reasonable additional requirements upon Mortgagor in connection herewith including, without limitation, monetary reserves or financial equivalents. Section 9.9 RIGHT OF ENTRY. Subject to the terms of the Loan Agreement, Lender and its agents shall have the right to enter and inspect the Property at all reasonable times. Section 9.10 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 17 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, and the performance and discharge of the Obligations. ARTICLE 10 - INDEMNIFICATIONS Section 10.1 GENERAL INDEMNIFICATION. Mortgagor 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 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 Legal Requirements; (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 10.1 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. Section 10.2 MORTGAGE AND/OR INTANGIBLE TAX. Mortgagor 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 Loan Agreement, the Note or any other Loan Document. Section 10.3 ENVIRONMENTAL INDEMNITY. Simultaneously with this Security Instrument, Mortgagor and Indemnitor have executed and delivered the Environmental Indemnity. ARTICLE 11 - WAIVERS Section 11.1 WAIVER OF COUNTERCLAIM. Mortgagor hereby waives 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, the Loan Agreement, any of the other Loan Documents, or the Obligations. Section 11.2 MARSHALLING AND OTHER MATTERS. Mortgagor hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the 18 event of any sale hereunder of the Property or any part thereof or any interest therein. Further, Mortgagor hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Security Instrument on behalf of Mortgagor, and on behalf of each 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 Legal Requirements. Section 11.3 WAIVER OF NOTICE. Mortgagor shall not be entitled to any notices of any nature whatsoever from Lender except (a) with respect to matters for which this Security Instrument, the Loan Agreement or any other Loan Document, specifically and expressly provides for the giving of notice by Lender to Mortgagor, and (b) with respect to matters for which Lender is required by any Applicable Law to give notice, and Mortgagor hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Lender to Mortgagor. Section 11.4 WAIVER OF STATUTE OF LIMITATIONS. Mortgagor hereby expressly waives and releases 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 11.5 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 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 or in any of the other Loan Documents. ARTICLE 12 - EXCULPATION Section 12.1 EXCULPATION. Notwithstanding anything to the contrary contained in this Security Instrument, the liability of any party to this Security Instrument to pay the Debt and for the performance of the other agreements, covenants and obligations contained herein and in the Note, the Loan Agreement and the other Loan Documents shall be limited as set forth in Section 9.4 of the Loan Agreement. ARTICLE 13 - SUBMISSION TO JURISDICTION Section 13.1 SUBMISSION TO JURISDICTION. With respect to any claim or action arising hereunder or under the Note or the other Loan Documents, Mortgagor (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 Security Instrument 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. 19 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 14 - APPLICABLE LAW Section 14.1 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 14.2 PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers and remedies provided in this Security Instrument may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Security Instrument invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any Legal Requirements. ARTICLE 15 - DEFINITIONS Section 15.1 GENERAL DEFINITIONS. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Security Instrument may be used interchangeably in singular or plural form and the word "Mortgagor" shall mean "each Mortgagor and any subsequent owner or owners of the Property or any part thereof or any interest therein," the word "Lender" shall mean "Lender and any subsequent holder of the Note," the word "Note," shall mean "the Note and any other evidence of indebtedness secured by this Security Instrument," the word "Property" shall include any portion of the Property and any interest of Mortgagor therein, and the phrases "legal fees", "attorneys' fees" and "counsel fees" shall include any and all attorneys', paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Property, the Leases and the Rents and enforcing its rights hereunder. Section 15.2 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 16 - MISCELLANEOUS PROVISIONS Section 16.1 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 of Mortgagor 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. 20 Section 16.2 LIABILITY. If Mortgagor consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. This Security Instrument shall be binding upon and inure to the benefit of Mortgagor and Lender and their respective successors and assigns forever. Section 16.3 INAPPLICABLE PROVISIONS. If any term, covenant or condition of this Security Instrument or any other Loan Document, is held to be invalid, illegal or unenforceable in any respect, the Note and this Security Instrument or the other Loan Documents, as the case may be, shall be construed without such provision. Section 16.4 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 16.5 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 16.6 NOTICE. All notices required or permitted under this Security Instrument shall be given and be effective in accordance with Section 10.6 of the Loan Agreement. ARTICLE 17 - CROSS-COLLATERALIZATION Section 17.1 CROSS-COLLATERALIZATION. Mortgagor acknowledges that the Debt is secured by this Security Instrument together with those additional Security Instruments given by Mortgagor and/or certain Affiliates of Mortgagor to Lender, together with their respective Assignments of Leases and other Loan Documents securing or evidencing the Debt, and encumbering the other Individual Properties, all as more specifically set forth in the Loan Agreement. Upon the occurrence of an Event of Default, Lender shall have the right to institute a proceeding or proceedings for the total or partial foreclosure of this Security Instrument and any or all of the other Security Instruments whether by court action, power of sale or otherwise, under any applicable provision of law, for all of the Debt or the portion of the Debt allocated to the Property in the Loan Agreement, and the lien and the security interest created by the other Security Instruments shall continue in full force and effect without loss of priority as a lien and security interest securing the payment of that portion of the Debt then due and payable but still outstanding. Mortgagor acknowledges and agrees that the Property and the other Individual Properties are located in one or more States and counties, and therefore Lender shall be permitted to enforce payment of the Debt and the performance of any term, covenant or condition of the Note, this Security Instrument, the Loan Documents or the other Security Instruments and exercise any and all rights and remedies under the Note, this Security Instrument, the other Loan Documents or the other Security Instruments, or as provided by law or at equity, by one or more proceedings, whether contemporaneous, consecutive or both, to be determined by Lender, in its 21 sole discretion, in any one or more of the States or counties in which the Property or any other Individual Property is located. Neither the acceptance of this Security Instrument, the other Loan Documents or the other Security Instruments nor the enforcement thereof in any one State or county, whether by court action, foreclosure, power of sale or otherwise, shall prejudice or in any way limit or preclude enforcement by court action, foreclosure, power of sale or otherwise, of the Note, this Security Instrument, the other Loan Documents, or any other Security Instruments through one or more additional proceedings in that State or county or in any other State or county. Any and all sums received by Lender under the Note, this Security Instrument, and the other Loan Documents shall be applied to the Debt in such order and priority as Lender shall determine, in its sole discretion, without regard to the Allocated Loan Amount for the Property or any other Individual Property or the appraised value of the Property or any Individual Property. ARTICLE 18 - INTENTIONALLY OMITTED ARTICLE 19 - INTENTIONALLY OMITTED ARTICLE 20 - INTENTIONALLY OMITTED ARTICLE 21 - OPERATING LEASE PROVISIONS Section 21.1 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 under the Operating Lease shall not merge but shall always be kept separate and distinct, notwithstanding the union of such estates in Operating Lessee, the lessor thereunder, 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 Loan Documents and any such release shall not affect Lender's rights in connection with the portion of the Property not so released. Section 21.2 OWNER JOINING. Operating Lessee hereby joins in the execution and delivery of this Security Instrument for the purpose of mortgaging its interest in the Land and the Property as set forth in Article I of this Security Instrument. ARTICLE 22 - STATE SPECIFIC PROVISIONS STATE SPECIFIC PROVISIONS INTENTIONALLY OMITTED. 22 IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Mortgagor the day and year first above written. FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company By: ----------------------------------- Joel M. Eastman Vice President DJONT/JPM LEASING, L.L.C., a Delaware limited liability company By: ----------------------------------- Joel M. Eastman Vice President ACKNOWLEDGMENTS EXHIBIT A (Description of Land) EX-10.28.02 5 d05903exv10w28w02.txt PROMISSORY NOTE - PRINCIPLE AMOUNT OF $115 MILLION EXHIBIT 10.28.02 COPY PROMISSORY NOTE $115,000,0000.00 New York, New York April 24, 2003 FOR VALUE RECEIVED FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company, as maker, having its principal place of business c/o Felcor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower"), hereby unconditionally promises to pay to the order of JPMORGAN CHASE BANK, a New York banking corporation, having its principal place of business at 270 Park Avenue, 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 ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00), 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, and to be paid in accordance with the terms of this Note and that certain Loan Agreement, dated the date hereof, between Borrower and Lender (the "Loan Agreement"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1 - PAYMENT TERMS Borrower agrees to pay the principal sum of this Note and interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE 2 - DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default and in addition, Lender shall be entitled to receive interest on the entire unpaid principal sum at the Default Rate pursuant to the terms of the Loan Agreement. This Article 2, 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 3 - LOAN DOCUMENTS This Note is secured by each Security Instrument and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, each Security Instrument and the other Loan 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. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4 - SAVINGS CLAUSE This Note and the Loan Agreement are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate in excess of the Maximum Legal Rate. If, by the terms of this Note, the Loan Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal 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 sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. ARTICLE 5 - 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 6 - 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, notice of intention to accelerate, notice of acceleration, 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 Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan 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 Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, 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 their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable 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 alternative 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 force and be applicable, notwithstanding any changes in the members 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 their members shall not thereby be released from any liability. (Nothing in the foregoing sentence -2- 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 Loan Agreement, each Security Instrument or any other Loan Document.) If Borrower consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. ARTICLE 7 - 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 Loan 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 upon assumption of Lender's obligations under the Loan Documents, 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 8 - EXCULPATION Notwithstanding anything to the contrary contained in this Note, the liability of Borrower to pay the Debt and for the performance of the other agreements, covenants and obligations contained herein and in the Security Instrument, the Loan Agreement and the other Loan Documents shall be limited as set forth in Section 9.4 of the Loan Agreement. ARTICLE 9 - GOVERNING LAW This Note shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE 10 - NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. [NO FURTHER TEXT ON THIS PAGE] -3- COPY IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman --------------- Joel M. Eastman Vice President EX-10.29 6 d05903exv10w29.txt MEZZANINE LOAN AGREEMENT EXHIBIT 10.29 - -------------------------------------------------------------------------------- MEZZANINE LOAN AGREEMENT Dated as of April 24, 2003 Between FELCOR/JPM HOLDINGS, L.LC., as Borrower and JPMORGAN CHASE BANK, as Lender - -------------------------------------------------------------------------------- I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION............................................................... 1 SECTION 1.1 Definitions..................................................................... 1 SECTION 1.2 Principles of Construction...................................................... 24 II. GENERAL TERMS......................................................................................... 25 SECTION 2.1 Loan Commitment; Disbursement to Borrower....................................... 25 SECTION 2.2 Interest; Loan Payments; Late Payment Charge.................................... 25 SECTION 2.3 Prepayments..................................................................... 31 SECTION 2.4 Interest Rate Cap Agreement..................................................... 33 SECTION 2.5 Release of Property............................................................. 35 SECTION 2.6 Substitution of Properties...................................................... 36 III. CASH MANAGEMENT....................................................................................... 39 SECTION 3.1 Property Account................................................................ 39 SECTION 3.2 Lockbox Account................................................................. 39 IV. REPRESENTATIONS AND WARRANTIES........................................................................ 39 SECTION 4.1 Borrower Representations........................................................ 39 SECTION 4.2 Survival of Representations..................................................... 55 V. BORROWER COVENANTS.................................................................................... 55 SECTION 5.1 Affirmative Covenants........................................................... 55 SECTION 5.2 Negative Covenants.............................................................. 69 VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS................................................... 76 SECTION 6.1 Insurance....................................................................... 76 SECTION 6.2 Casualty........................................................................ 77 SECTION 6.3 Condemnation.................................................................... 78 SECTION 6.4 Restoration..................................................................... 78 SECTION 6.5 Rights of Lender................................................................ 78 VII. RESERVE FUNDS......................................................................................... 79 SECTION 7.1 Required Repairs................................................................ 79 SECTION 7.2 Tax and Insurance Escrow Fund................................................... 79 SECTION 7.3 Replacements and Replacement Reserve............................................ 80 SECTION 7.4 Ground Lease Escrow Fund........................................................ 84 SECTION 7.5 UST Reserve Funds............................................................... 85 SECTION 7.6 Reserve Funds, Generally........................................................ 85 SECTION 7.7 Transfer of Reserve Funds under Mortgage Loan................................... 86
VIII. DEFAULTS.............................................................................................. 86 SECTION 8.1 Event of Default................................................................ 86 SECTION 8.2 Remedies........................................................................ 90 SECTION 8.3 Right to Cure Defaults.......................................................... 91 SECTION 8.4 Remedies Cumulative; Waivers.................................................... 92 SECTION 8.5 Power of Attorney............................................................... 92 IX. SPECIAL PROVISIONS.................................................................................... 93 SECTION 9.2 Securitization.................................................................. 94 SECTION 9.3 Servicer........................................................................ 94 SECTION 9.4 Exculpation..................................................................... 94 SECTION 9.5 Mortgage Loan Defaults.......................................................... 97 SECTION 9.6 Intercreditor Agreement......................................................... 98 SECTION 9.7 Discussions with Mortgage Lender................................................ 98 SECTION 9.8 Independent Approval Rights..................................................... 98 SECTION 9.9 Reinstatement................................................................... 99 X. MISCELLANEOUS......................................................................................... 99 SECTION 10.1 Survival........................................................................ 99 SECTION 10.2 Lender's Discretion............................................................. 99 SECTION 10.3 Governing Law................................................................... 99 SECTION 10.4 Modification, Waiver in Writing................................................. 100 SECTION 10.5 Delay Not a Waiver.............................................................. 100 SECTION 10.6 Notices......................................................................... 101 SECTION 10.7 Trial by Jury................................................................... 102 SECTION 10.8 Headings........................................................................ 102 SECTION 10.9 Severability.................................................................... 102 SECTION 10.10 Preferences..................................................................... 102 SECTION 10.11 Waiver of Notice................................................................ 103 SECTION 10.12 Remedies of Borrower............................................................ 103 SECTION 10.13 Expenses; Indemnity............................................................. 103 SECTION 10.14 Schedules and Exhibits Incorporated............................................. 104 SECTION 10.15 Offsets, Counterclaims and Defenses............................................. 105 SECTION 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries................... 105 SECTION 10.17 Publicity....................................................................... 105
ii SECTION 10.18 Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets......... 105 SECTION 10.19 Waiver of Counterclaim.......................................................... 106 SECTION 10.20 Conflict; Construction of Documents; Reliance................................... 106 SECTION 10.21 Brokers and Financial Advisors.................................................. 107 SECTION 10.22 Prior Agreements................................................................ 107 SECTION 10.23 Certain Additional Rights of Lender............................................. 107 SECTION 10.24 Counterparts.................................................................... 108
iii MEZZANINE LOAN AGREEMENT THIS MEZZANINE LOAN AGREEMENT, dated as of April 24, 2003 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "Agreement"), between JPMORGAN CHASE BANK, a New York banking corporation, having an address at 270 Park Avenue, New York, New York 10017 ("Lender") and FELCOR/JPM HOLDINGS, L.L.C., a Delaware limited liability company, having its principal place of business at c/o FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower"). W I T N E S S E T H: WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender; and WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined). NOW THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION SECTION 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "Acceptable Counterparty" means any Counterparty to the Interest Rate Cap Agreement that has and shall maintain, until the expiration of the applicable Interest Rate Cap Agreement, a long-term unsecured debt rating of not less than "AA-" (or the equivalent) by the Rating Agencies. "Accounts" shall have the meaning as set forth in the Mortgage Loan Agreement. "Act" shall have the meaning set forth in Section 4.1.35 hereof. "Adjusted Prime Rate" shall mean an interest rate per annum equal to the Prime Rate in effect from time to time plus one percent (1%). "Affiliate" shall mean, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person or of an Affiliate of such Person. "Affiliate Agreements" shall have the meaning set forth in Section 5.2.8 hereof. "Affiliated Manager" shall mean any property manager which is an Affiliate of, or in which Borrower, Mortgage Borrower, Principal, Junior Mezzanine Borrower, Junior Mezzanine Principal, any Operating Lessee SPE Entity, a Pledgor SPE Entity, or any Guarantor or Indemnitor has, directly or indirectly, any legal, beneficial or economic equity interest. "Allocated Loan Amount" shall mean, for an Individual Property, the amount set forth on Schedule I hereto. "Annual Budget" shall mean the operating budget, including all planned capital expenditures, for each Individual Property prepared by Manager and approved by Borrower for the applicable Fiscal Year or other period. "Applicable Laws" shall mean all existing and future U.S. federal, state and local laws, orders, ordinances, governmental rules and regulations and court orders. "Applicable Interest Rate" shall mean (A) from and including the date of this Agreement through the first Payment Date, an interest rate per annum equal to 6.375%; and (B) from and including the first Payment Date and for each successive Interest Period through and including the date on which the Debt is paid in full, an interest rate per annum equal to (I) the Eurodollar Rate or (II) the Adjusted Prime Rate, if the Loan begins bearing interest at the Adjusted Prime Rate in accordance with the provisions of Section 2.2.3 hereof. "Appraisal" shall mean an appraisal prepared in accordance with the requirements of FIRREA, prepared by an independent third party appraiser holding an MAI designation, who is State licensed or State certified if required under the laws of the State where the applicable Individual Property is located, who meets the requirements of FIRREA and who is otherwise satisfactory to Lender. "Approved Annual Budget" shall have the meaning set forth in Section 5.1.10(d) hereof. "Assignment of Interest Rate Cap" shall mean that certain Collateral Assignment of Interest Rate Cap Agreement made by Borrower to Lender dated as of the date hereof required by this Agreement as security for the Loan, consented to by the Counterparty, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Award" shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect of all or any part of any Individual Property. "Bankruptcy Code" shall mean Title 11 U.S.C. Section 101 et seq., and the regulations adopted and promulgated pursuant thereto (as the same may be amended from time to time). "Borrower" shall have the meaning set forth in the introductory paragraph hereto, together with its successors and assigns. "Breakage Costs" shall have the meaning set forth in Section 2.2.3(d) hereof. "Budget Approval Period" shall have the meaning set forth in Section 5.1.10(d) hereof. -2- "Business Day" shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. "Business Party" shall have the meaning set forth in Section 4.1.36(aa) hereof. "Capital Expenditures" shall mean, for any period, the amount expended for items capitalized under GAAP (including, but not limited to, expenditures for building improvements or major repairs, leasing commissions and tenant improvements). "Cash" shall mean coin or currency of the United States of America or immediately available federal funds, including such fund delivered by wire transfer. "Cash Flow Threshold" shall mean $17,900,000.00; provided, however, in connection with a release and/or substitution of an Individual Property in accordance with the terms hereof, Cash Flow Threshold shall be recalculated so as to equal the aggregate of (i) with respect to Individual Properties that were subject to the Lien of a Security Instrument on the Closing Date eight-five percent (85%) of the Adjusted Net Operating Income (as defined in the Mortgage Loan Agreement) of each such Individual Property for the twelve (12) month period preceding the Closing Date as indicated on Schedule XIII attached to the Mortgage Loan Agreement and (ii) with respect to Individual Properties that were not subject to the Lien of a Security Instrument on the Closing Date, eight-five percent (85%) of the Adjusted Net Operating Income of each such Individual Property for the most recently available twelve (12) month period preceding the date of the calculation.. "Casualty" shall mean the occurrence of any casualty, damage or injury, by fire or otherwise, to any Individual Property or any part thereof. "Closing Date" shall mean the date of the funding of the Loan. "Code" shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and all applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "Collateral" shall mean (i) the Collateral as defined in the Pledge Agreement, and (ii) all other collateral for the Loan granted in the Loan Documents. "Concentration Account" shall have the meaning set forth in the Mortgage Loan Agreement. "Condemnation" shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Individual Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Individual Property or any part thereof. "Control" (and the correlative terms "controlled by" and "controlling") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management -3- and policies of the business and affairs of the entity in question by reason of the ownership of beneficial interests, by contract or otherwise. "Counterparty" shall mean JPMorgan Chase Bank or any other Person which is the issuer of the Interest Rate Cap Agreement. "Creditors Rights Laws" shall mean with respect to any Person, 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. "Debt" shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums due to Lender in respect of the Loan under the Note, this Agreement, the Pledge Agreement or any other Loan Document, including, without limitation, all Reserve Fund Deposits, if any are required pursuant to the terms hereof. "Debt Service" shall mean, with respect to any particular period of time, interest and principal payments due under the Note and the Mortgage Note for such period. "Debt Service Coverage Ratio" shall mean a ratio in which: (a) the numerator is the Net Operating Income for the most recently available 12 full calendar month period preceding the date of calculation as set forth in the financial statements required hereunder, without deduction for (i) actual management fees incurred in connection with the operation of the Properties, (ii) actual franchise fees incurred in connection with the operation of the Properties, or (iii) amounts paid to the Mortgage Reserve Funds less (A) management fees equal to the greater of (1) assumed management fees of four percent (4%) of Gross Income from Operations or (2) the actual management fees incurred, (B) the actual franchise fees incurred and (C) the greater of (1) actual Replacement Reserve Fund contributions equal to 4% of Gross Income from Operations or (2) contributions for Replacements required pursuant to the Management Agreements and the Franchise Agreements; and (b) the denominator is all the aggregate interest and principal payments that would be due and payable for such 12 full calendar month period on the Loan, the Mortgage Loan and the Junior Mezzanine Loan assuming a principal and interest constant equal to 10.90%. "Default" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would constitute an Event of Default. "Default Rate" shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the Maximum Legal Rate, or (b) five percent (5%) above the Applicable Interest Rate. "Distributions" shall have the meaning set forth in Section 5.2.12. -4- "Dow Jones Market Service Page 3750" means the display designated as page 3750 on the Dow Jones Market Service (formerly Telerate) Page 3750 (or such other page as may replace page 3750 on that service or such other service as may be nominated by the British Bankers-Association as the information vendor for the purposes of displaying British Bankers-Association Interest Settlement Rates for U.S. dollar deposits). "Eligible Account" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or State-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or State chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a State chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. Section 9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and State authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. "Eligible Institution" shall mean a depository institution or trust company, insured by the Federal Deposit Insurance Corporation, (a) the short term unsecured debt obligations or commercial paper of which are rated at least A-1 by S&P, P-1 by Moody's and F-1 by Fitch in the case of accounts in which funds are held for thirty (30) days or less, or (b) the long term unsecured debt obligations of which are rated at least AA by Fitch and S&P and Aa2 by Moody's in the case of accounts in which funds are held for more than thirty (30) days. "Environmental Indemnity" shall mean that certain Environmental Indemnity Agreement executed by Borrower and Indemnitor in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Environmental Law" shall mean any federal, State and local laws, statutes, ordinances, rules, regulations, standards, policies and other government directives or requirements, as well as common law, that, at any time, apply to Borrower and/or Indemnitor or any Property and relate to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act. "Environmental Liens" shall have the meaning set forth in Section 5.1.19(a) hereof. "Environmental Reports" shall have the meaning set forth in Section 4.1.40 hereof. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "Eurodollar Rate" shall mean, with respect to any Interest Period, an interest rate per annum equal to LIBOR plus five percent (5%) per annum. "Event of Default" shall have the meaning set forth in Section 8.1(a) hereof. "Excess Cash Flow" shall have the meaning set forth in the Mortgage Loan Agreement. -5- "Excess Cash Flow Application Date" shall have the meaning set forth in the Mortgage Loan Agreement. "Excess Cash Flow Sweep Period" shall have the meaning set forth in the Mortgage Loan Agreement. "Expiring Franchise Agreement Property" shall mean the Individual Property located in Lexington, Kentucky. "Expiring Management Agreement Properties" shall mean the Individual Properties located in (i) Jacksonville, Florida, (ii) Lexington, Kentucky, (iii) Tulsa, Oklahoma and (iv) Dallas, Texas. "Extension Additional Interest Payment" shall mean a fee equal to (i) with respect to the first Extension Term, 0.125% of the outstanding principal balance of the Loan at the time of Lender's receipt of the applicable Extension Notice and (ii) with respect to the second Extension Term, 0.25% of the outstanding principal balance of the Loan at the time of Lender's receipt of the applicable Extension Notice. "Extension Criteria" shall mean, with respect to each extension of the Maturity Date as provided herein, (i) no Event of Default has occurred and is continuing under the Loan, (ii) Borrower sends Lender written request at least sixty (60) days, but not more than one hundred twenty (120) days, prior to the expiration of the initial or Extension Term, as applicable, (an "Extension Notice") (iii) Borrower shall obtain and deliver to Lender prior to exercise of such Extension Term, one or more Replacement Interest Rate Cap Agreements, which Replacement Interest Rate Cap Agreements shall be effective commencing on the first day of such Extension Term and shall have a maturity date not earlier than the Maturity Date, (iv) Borrower pays to Lender the applicable Extension Additional Interest Payment (v) Lender has determined that the applicable Extension DSCR Test has been satisfied, (vi) the Mortgage Loan is simultaneously extended pursuant to the terms thereof and (vii) unless a Junior Mezzanine Event of Default has occurred and is continuing, the Junior Mezzanine Loan is simultaneously extended pursuant to the terms thereof. "Extension DSCR Test" shall mean the Debt Service Coverage Ratio for the twelve (12) full calendar months immediately preceding (i) Lender's receipt of the Extension Notice and (ii) the first day of the applicable Extension Term, for the Properties remaining subject to the Lien of the Security Instruments shall be equal to or greater (A) with respect to the first Extension Term, 1.30:1.00 and (B) with respect to the second Extension Term, 1.35:1.00. The Extension DSCR Test may be obtained by prepaying a portion of the Loan and no prepayment consideration shall be due in connection therewith. "FIRREA" shall mean the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as the same may be amended from time to time. "Failure To Respond Notice" shall have the meaning set forth in Section 5.1.10(d) hereof. "Fiscal Year" shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during the term of the Loan. -6- "Fitch" shall mean Fitch, Inc. "Florida Properties" shall mean the Individual Properties located in Tampa, Florida and Jacksonville, Florida. "Foreign Taxes" shall mean any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority. "Franchise Agreement" shall mean those certain franchise agreements more specifically identified on Schedule VII attached hereto. "Franchisor" shall mean each franchisor with respect to the applicable Franchise Agreement, as same is identified on Schedule VII attached hereto. "GAAP" shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "Governmental Authority" shall mean any court, board, agency, commission, office, central bank or other authority of any nature whatsoever for any governmental unit (federal, State, county, district, municipal, city, country or otherwise) or quasi-governmental unit whether now or hereafter in existence. "Gross Income from Operations" shall mean all income, room revenues, food and beverage revenue, telephone revenue, computed in accordance with GAAP derived from the ownership and operation of the Properties from whatever source, including, but not limited to, the Rents, utility charges, service fees or charges, license fees, parking fees, rent concessions or credits, and other required pass-throughs, but excluding sales, use and occupancy or other taxes on receipts required to be accounted for by Mortgage Borrower or Operating Lessee to any Governmental Authority, interest on the Mortgage Reserve Funds, interest on credit accounts, refunds and uncollectible accounts, sales of furniture, fixtures and equipment, Insurance Proceeds (other than business interruption or other loss of income insurance), Awards, payments received on the Interest Rate Cap Agreement or the Mortgage Interest Rate Cap Agreement, unforfeited security deposits, utility and other similar deposits, escalations, forfeited security deposits and any disbursements to Mortgage Borrower from the Mortgage Reserve Funds. Gross income shall not be diminished as a result of the Security Instruments or the creation of any intervening estate or interest in a Property or any part thereof. "Ground Lease" shall mean, individually and collectively, as the context may require, each ground lease described on Schedule XII attached hereto and made a part hereof. "Ground Lease Escrow Fund" shall have the meaning set forth in Section 7.4 hereof. "Ground Lessor" shall mean the fee owner, as landlord, under each Ground Lease. "Ground Rent" shall have the meaning set forth in Section 7.4 hereof. -7- "Guarantor" shall mean FelCor Lodging Limited Partnership and any other entity guaranteeing any payment or performance obligation of Borrower. "Guaranty" shall mean that certain Guaranty of Recourse Obligations of Borrower, dated as of the date hereof, from Guarantor to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time for the benefit of Lender. "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 ("PCBs") 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; toxic mold; any substance the presence of which on any Property is prohibited by any federal, State or local authority; any substance that requires special handling and/or disposal; 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. "Hilton Franchised Properties" shall mean the Individual Properties located at (i) Bloomington, Minnesota, (ii) Dallas, Texas, (iii) Jacksonville, Florida, (iv) Lexington, Kentucky and (v) Tulsa, Oklahoma. "Improvements" shall have the meaning set forth in Article 1 of the related Security Instrument with respect to each Individual Property. "Indemnified Liabilities" shall have the meaning set forth in Section 10.13(b) hereof. "Indemnified Parties" shall mean Lender, any Affiliate of Lender who is or will have been involved in the origination of the Loan, any Person who is or will have been involved in the servicing of the Loan, any Person in whose name the encumbrance created by the Pledge Agreement is or will have been recorded, Persons who may hold or acquire or will have held a full or partial interest in the Loan, as well as custodians, trustees and other fiduciaries (who hold or have held a full or partial interest in the Loan for the benefit of another Indemnified Party) as well as the respective directors, officers, shareholders, partners, members, employees, agents, servants, representatives, contractors, subcontractors, Affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including but not limited to any other Person who holds or acquires or will have held a participation or other full or partial interest in the Loan or any Property, whether during the term of the Loan or as a part of or following a foreclosure of the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Lender's assets and business). "Indemnitor" shall mean FelCor Lodging Limited Partnership. "Independent Director" shall have the meaning set forth in Section 4.1.36(aa) hereof. "Individual Property" shall mean each parcel of real property (including, without limitation, any interest created pursuant to a Ground Lease), the Improvements thereon and all Personal Property owned by Mortgage Borrower, Operating Lessee and Ground Lessor and -8- encumbered by a Security Instrument, together with all rights pertaining to such Property and Improvements, as more particularly described in Article 1 of each Security Instrument and referred to therein as the "Property", including any Release Property prior to its release or Substitute Property upon substitution. "Initial Replacement Reserve Monthly Deposit" shall mean $257,300.00. "Insolvency Opinion" shall mean, that certain bankruptcy non-consolidation opinion letter delivered by counsel for Borrower in connection with the Loan and approved by Lender or the Rating Agencies, as the case may be. "Insurance Premiums" shall have the meaning set forth in the Mortgage Loan Agreement. "Insurance Proceeds" shall have the meaning set forth in the Mortgage Loan Agreement. "Intercreditor Agreement" shall have the meaning set forth in Section 9.6 hereof. "Interest Period" shall mean the period from the ninth (9th) day of each month through and including the eighth (8th) day of the following month, provided that, notwithstanding the foregoing, Lender shall have the one (1) time right to change the Interest Period by giving notice of such change to Borrower. "Interest Rate Cap Agreement" shall mean the Interest Rate Cap Agreement (together with the confirmation and schedules relating thereto), between an Acceptable Counterparty and Borrower obtained by Borrower and dated as of the date hereof. The Interest Rate Cap Agreement shall be written on the then current standard ISDA documentation, and shall provide for interest periods and calculations consistent with the payment terms of this Agreement. After delivery of a Replacement Interest Rate Cap Agreement to Lender, the term "Interest Rate Cap Agreement" shall be deemed to mean such Replacement Interest Rate Cap Agreement. "Interest Shortfall" shall have the meaning set forth in Section 2.3.1(b) hereof. "Investor" shall have the meaning set forth in Section 5.1.10(g) hereof. "Jacksonville Property" shall mean the Individual Property located at 9300 Baymeadows Road, Jacksonville, Florida. "Junior Mezzanine Borrower" shall mean DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company, together with its successors and permitted assigns. "Junior Mezzanine Event of Default" shall have the meaning ascribed to the term "Event of Default" in the Junior Mezzanine Loan Agreement. "Junior Mezzanine Lender" shall mean JPMorgan Chase Bank, together with its successors and permitted assigns. -9- "Junior Mezzanine Loan" shall mean that certain loan in the original principal amount of TWENTY-FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00) of even date herewith made by Junior Mezzanine Lender to Junior Mezzanine Borrower. "Junior Mezzanine Loan Agreement" shall mean that certain Junior Mezzanine Loan Agreement dated as of the date hereof among Junior Mezzanine Borrower, Junior Mezzanine Lender and other parties set forth therein, if any. "Junior Mezzanine Loan Documents" shall have the meaning ascribed to the term "Loan Documents" in the Junior Mezzanine Loan Agreement. "Junior Mezzanine Principal" shall have the meaning ascribed to the term "Principal" in the Junior Mezzanine Loan Agreement. "Leases" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property, including, without limitation , the Operating Lease. "Legal Requirements" shall mean, with respect to each Individual Property, all federal, State, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, the Collateral, Ground Lessor with respect to the Florida Properties, Mortgage Borrower or any Individual Property or any part thereof, or the zoning, construction, use, alteration, occupancy or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting such Individual Property or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations in or to such Individual Property or any part thereof, or (b) in any way limit the use and enjoyment thereof. "Lender" shall have the meaning set forth in the introductory paragraph hereto, together with its successors and assigns. "Lender Transaction" shall have the meaning set forth in Section 9.1 hereof. "LIBOR" shall mean the rate per annum calculated as set forth below: (i) With respect to each Interest Period, the rate for deposits in U.S. Dollars, for a period equal to one month, which appears on the Dow Jones Market Service (formerly Telerate) Page 3750 as of 11:00 a.m., London time, on the related LIBOR Determination Date (rounded upwards to the nearest 1/16 of 1%). If such rate does not appear on Dow Jones Market Service Page 3750, the rate for that Interest Period shall be determined on the basis of the rates at which deposits in Dollars are offered by any four major reference banks in the London interbank market selected by Lender to provide such bank's offered quotation of such rates at approximately 11:00 a.m., London time, on the related LIBOR Determination Date to prime banks in the London interbank market for a period of one month, commencing on the first day of such Interest Period and in an amount that is representative for a single such transaction in the relevant market at the -10- relevant time. Lender shall request the principal London office of any four major reference banks in the London interbank market selected by Lender to provide a quotation of such rates, as offered by each such bank. If at least two such quotations are provided, the rate for that Interest Period shall be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that Interest Period shall be the arithmetic mean of the rates quoted by major banks in New York City selected by Lender, at approximately 11:00 a.m., New York City time, on the LIBOR Determination Date with respect to such Interest Period for loans in Dollars to leading European banks for a period equal to one month, commencing on the first day of such Interest Period and in an amount that is representative for a single transaction in the relevant market at the relevant time. Lender shall determine LIBOR for each Interest Period and the determination of LIBOR by Lender shall be binding upon Borrower absent manifest error. (ii) In the event that Lender shall have determined in its reasonable discretion that none of the methods set forth in the definition of "LIBOR" herein are available, then Lender shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) day prior to the last day of the related Interest Period. If such notice is given, LIBOR, commencing with such related Interest Period, shall be LIBOR in effect for the most recent Interest Period. "LIBOR Business Day" shall mean any day on which banks are open for dealing in foreign currency and exchange in London, England. "LIBOR Determination Date" shall mean, with respect to any Interest Period, two (2) LIBOR Business Days prior to the fifteenth (15th) day of the calendar month in which the applicable Interest Period commences; provided that, notwithstanding the foregoing, Lender shall have the one (1) time right to change the LIBOR Determination Date by giving notice of such change to Borrower. "Lien" shall mean any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, Mortgage Borrower, Ground Lessor with respect to the Florida Properties, the Collateral or any related Individual Property, any portion thereof or any interest therein, 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, and mechanic's, materialmen's and other similar liens and encumbrances. "Liquidation Event" shall have the meaning set forth in Section 2.3.2 hereof. "Loan" shall mean the loan made by Lender to Borrower pursuant to this Agreement and the other Loan Documents. "Loan Documents" shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the Environmental Indemnity, the Subordination of Management Agreement, the Guaranty, the Assignment of Interest Rate Cap Agreement, the Operating Lease Subordination -11- Agreement, and all other documents executed and/or delivered in connection with the Loan now existing or hereinafter executed. "Loan Party" shall mean individually and collectively, as the context requires, Borrower, Pledgor, Mortgage Borrower or any other Restricted Party that is a subsidiary of FelCor Lodging Limited Partnership. "Lockbox Account" shall have the meaning set forth in Section 3.1 hereof. "Lockout Period" shall have the meaning set forth in Section 2.3.1 hereof. "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, expenses, judgments, awards, amounts paid in settlement of whatever kind or nature (including but not limited to attorneys' fees and other costs of defense). "Major Lease" shall mean (i) the Operating Lease, (ii) any Lease for sit-down restaurant facilities at any Individual Property, (iii) any Lease which together with all other Leases to the same tenant and to all Affiliates of such tenant, (A) provides for ten percent (10%) or more of the total gross income for any Individual Property, (B) covers five percent (5%) or more of the total space at any Individual Property, in the aggregate, (C) provides for a lease term of more than ten (10) years including options to renew or (D) is with an Affiliate of Borrower and (iv) any instrument guaranteeing or providing credit support for any Major Lease. "Management Agreement" shall mean, with respect to any Individual Property, the management agreement entered into by and between Mortgage Borrower or Operating Lessee and Manager, pursuant to which the Manager is to provide management and other services with respect to such Individual Property, or, if the context requires, the Replacement Management Agreement executed in accordance with the terms and provisions of this Agreement. "Manager" shall mean for each Individual Property, that certain property manager set forth on Schedule IX or, if the context requires, a Qualified Manager who is managing the Properties or any Individual Property in accordance with the terms and provisions of this Agreement. "Maturity Date" shall mean May 9, 2006, or such other date on which the final payment of the principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise; provided, however, upon compliance with the Extension Criteria, Borrower shall have the right to extend the Maturity Date for two (2) additional periods of one (1) year each (each, an "Extension Term"). "Maximum Legal Rate" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or in the other Loan Documents, under the laws of such State or States whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "Member" shall have the meaning set forth in Section 4.1.35 hereof. -12- "Monthly Debt Service Payment Amount" shall mean the amount of interest and the Scheduled Amortization Payment due and payable on each Payment Date, pursuant to the Note and Section 2.2 hereof. "Monthly Ground Rent Deposit" shall have the meaning set forth in Section 7.4 hereof. "Monthly Insurance Premium Deposit" shall have the meaning set forth in Section 7.2 hereof. "Monthly Tax Deposit" shall have the meaning set forth in Section 7.2 hereof. "Moody's" shall mean Moody's Investors Service, Inc. "Mortgage Borrower" shall mean FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company, together with its successors and permitted assigns. "Mortgage Interest Rate Cap Agreement" shall mean the "Interest Rate Cap Agreement" under and as defined in the Mortgage Loan Agreement. "Mortgage Lender" shall mean JPMorgan Chase Bank together with its successors and assigns. "Mortgage Loan" shall mean that certain loan made by Mortgage Lender to Mortgage Borrower in the principal amount of $115,000,000.00. "Mortgage Loan Agreement" shall mean that certain Loan Agreement between Mortgage Borrower and Mortgage Lender in connection with the Mortgage Loan, dated as of the date hereof, as amended, restated, supplemented or otherwise modified from time to time. "Mortgage Loan Documents" shall mean, collectively, the Mortgage Note, the Mortgage Loan Agreement, the Security Instruments, and any and all other documents defined as "Loan Documents" in the Mortgage Loan Agreement, as amended, restated, replaced, supplemented or otherwise modified from time to time. "Mortgage Loan Event of Default" shall mean an "Event of Default" under and as defined in the Mortgage Loan Agreement. "Mortgage Loan Extension Option" shall mean each and every option of Mortgage Borrower to extend the term of the Mortgage Loan in accordance with the terms of the Mortgage Loan Agreement. "Mortgage Loan Extension Notice" shall have the meaning set forth in Section 2.2.9 hereof. "Mortgage Loan Extension Request" shall have the meaning set forth in Section 2.2.9 hereof. -13- "Mortgage Note" shall mean that certain promissory note of even date herewith in the original principal amount of ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00), made by Mortgage Borrower in favor of Mortgage Lender, as the same may be amended, restated, replaced, extended, renewed, supplemented, severed, split, or otherwise modified from time to time. "Mortgage Reserve Funds" shall mean the "Reserve Funds" as defined in the Mortgage Loan Agreement. "Mortgage Securities" shall mean the "Securities" as defined in the Mortgage Loan Agreement. "Net Liquidation Proceeds After Debt Service" shall mean, with respect to any Liquidation Event, all amounts paid to or received by or on behalf of Mortgage Borrower in connection with such Liquidation Event, including, without limitation, proceeds of any sale, refinancing or other disposition or liquidation, less (i) in the event of a Liquidation Event consisting of a Casualty or Condemnation, Lender's and/or Mortgage Lender's reasonable costs incurred in connection with the recovery thereof, (ii) in the event of a Liquidation Event consisting of a Casualty or Condemnation, the costs incurred by Mortgage Borrower in connection with a restoration of all or any portion of the applicable Property made in accordance with the Mortgage Loan Documents, (iii) in the event of a Liquidation Event consisting of a Casualty or Condemnation or a Transfer, amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Mortgage Loan Documents to Mortgage Lender, (iv) in the event of a Liquidation Event consisting of a Casualty or Condemnation, those proceeds paid to Mortgage Borrower pursuant to Section 6.4(b)(vii) of the Mortgage Loan Agreement, (v) in the case of a foreclosure sale, disposition or transfer of a Property in connection with realization thereon following an Event of Default under the Mortgage Loan, such reasonable and customary costs and expenses of sale or other disposition (including attorneys' fees and brokerage commissions), (vi) in the case of a foreclosure sale, such costs and expenses incurred by Mortgage Lender under the Mortgage Loan Documents as Mortgage Lender shall be entitled to receive reimbursement for under the terms of the Mortgage Loan Documents and (vii) in the case of a refinancing of the Mortgage Loan, such costs and expenses (including attorneys' fees) of such refinancing, and (vii) the amount of any prepayments required pursuant to the Mortgage Loan Documents in connection with any such Liquidation Event. "Net Cash Flow" for any period shall mean the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period. "Net Cash Flow Schedule" shall have the meaning set forth in 5.1.10(b) hereof. "Net Operating Income" means the amount obtained by subtracting Operating Expenses from Gross Income from Operations. "Net Proceeds" shall have the meaning set forth in the Mortgage Loan Agreement. "Note" shall mean that certain promissory note of even date herewith in the original principal amount of TEN MILLION AND 00/100 DOLLARS ($10,000,000.00), made by -14- Borrower in favor of Lender, as the same may be amended, restated, replaced, extended, renewed, supplemented, severed, split, or otherwise modified from time to time. "O&M Program" shall have the meaning as set forth in the Mortgage Loan Agreement. "Obligations" shall mean Borrower's obligation to pay the Debt and perform its obligations under the Note, this Agreement and the other Loan Documents. "Officers' Certificate" shall mean a certificate delivered to Lender by Borrower which is signed by a Responsible Officer of Borrower. "Open Date" shall have the meaning set forth in Section 2.3.1(b) hereof. "Operating Expenses" shall mean the total of all expenditures, computed in accordance with GAAP, of whatever kind relating to the operation, maintenance and management of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs and maintenance, insurance premiums, license fees, property taxes and assessments, advertising expenses, management fees, franchise fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation, Debt Service, Capital Expenditures and contributions to the Reserve Funds or the Mortgage Reserve Funds. "Operating Lease" shall mean those certain Operating Leases described on Schedule VIII attached hereto. "Operating Lease Subordination Agreement" shall mean that certain Operating Lease Subordination Agreement with respect to the Properties. "Operating Lessee" shall mean DJONT/JPM LEASING, L.L.C., a Delaware limited liability company. "Operating Lessee Principal" shall have the meaning set forth in the Operating Lease Subordination Agreement. "Operating Lessee SPE Entities" shall mean individually and collectively, Operating Lessee and Operating Lessee Principal. "Organizational Documents" shall mean (i) with respect to a corporation, such Person's certificate of incorporation and by laws, and any shareholder agreement, voting trust or similar arrangement applicable to any of such Person's authorized shares of capital stock, (ii) with respect to a partnership, such Person's certificate of limited partnership, partnership agreement, voting trusts or similar arrangements applicable to any of its partnership interests, (iii) with respect to a limited liability company, such Person's certificate of formation, limited liability company agreement or other document affecting the rights of holders of limited liability company interests, and (iv) any and all agreements between any constituent member, partner or shareholder of the Person in question, including any contribution agreement or indemnification agreements. In each case, with respect to a Loan Party, "Organizational Documents" shall -15- include any indemnity, contribution, shareholders or other agreement among any of the owners of the entity in question. "Other Charges" shall mean all personal property taxes, Ground Rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any Individual Property, now or hereafter levied or assessed or imposed against such Individual Property or any part thereof. "Owner's Title Policy" shall mean that certain ALTA extended coverage owner's policy of title insurance issued in connection with the closing of the Mortgage Loan insuring the Mortgage Borrower as the owner of the Property. "Ownership Interest" means (i) any interest in the Property or (ii) in the case of any Loan Party, any ownership interest in such Loan Party, direct or indirect, contingent or fixed, at any level or any tier, of any nature whatsoever, whether in the form of a partnership interest, stock interest, membership interest, equitable interest, beneficial interests, profit interest, loss interest, voting rights, control rights, management rights or otherwise. "Payment Date" shall mean the ninth (9th) day of each month, or if such day is not a Business Day, the immediately succeeding Business Day. Notwithstanding the foregoing, Lender shall have the one (1) time right to change the Payment Date by giving at least thirty (30) days prior written notice of such change to Borrower. "Permitted Encumbrances" shall mean, with respect to an Individual Property, collectively, (a) the Liens and security interests created by the Mortgage Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policy relating to such Individual Property or any part thereof, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet delinquent, (d) Liens securing Permitted FF&E Financing, and (e) such other title and survey exceptions as Lender has approved or may approve in writing in Lender's sole discretion. "Permitted Investments" shall mean any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by Servicer, or any of its Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior to the date it is anticipated such funds will be needed to meet Borrower's obligations hereunder and meeting one of the appropriate standards set forth below: (i) obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of: the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the -16- Washington Metropolitan Area Transit Authority (guaranteed transit bonds); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (ii) Federal Housing Administration debentures; (iii) obligations of the following United States government sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (iv) federal funds, unsecured certificates of deposit, time deposits, bankers' acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (v) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers' acceptances with maturities of not more than 365 days and issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread -17- (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vi) debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency) in its highest long-term unsecured rating category; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vii) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency) in its highest short-term unsecured debt rating; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (viii) units of taxable money market funds, with maturities of not more than 365 days and which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have the highest rating available from each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency) for money market funds; and (ix) any other security, obligation or investment which has been approved as a Permitted Investment in writing by (a) Lender and (b) each Rating Agency; provided, however, that no obligation or security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments or (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. "Person" shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, State, county or -18- municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "Personal Property" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property. "Physical Conditions Report" shall mean, with respect to each Individual Property, a structural engineering report prepared by a company satisfactory to Lender and Mortgage Lender regarding the physical condition of such Individual Property, satisfactory in form and substance to Lender and Mortgage Lender in their respective sole discretion, which report shall, among other things, (a) confirm that such Individual Property and its use complies, in all material respects, with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building laws) and (b) include a copy of a final certificate of occupancy with respect to all Improvements on such Individual Property. "Plan" shall mean an employee benefit plan (as defined in section 3(3) of ERISA) whether or not subject to ERISA or a plan or other arrangement within the meaning of section 4975 of the Code. "Plan Assets" shall mean assets of a Plan within the meaning of section 29 C.F.R. section 2510.3-101 or similar law. "Pledge Agreement" shall mean those certain Pledge and Security Agreements together with all exhibits attached thereto dated as of the date hereof, executed and delivered by Borrower and Pledgor to Lender as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Pledged Member Interests" shall mean all membership interests in Mortgage Borrower and Operating Lessee, as more particularly defined in the Pledge Agreement. "Pledgor" shall mean DJONT/JPM HOLDINGS, L.L.C., a Delaware limited liability company. "Pledgor Documents" shall mean the Pledge Agreement, the Environmental Indemnity, and all other documents executed and/or delivered by Pledgor in connection with the Loan. "Pledgor SPE Entities" shall mean individually and collectively, Pledgor and Principal. "Policies" shall have the meaning specified in the Mortgage Loan Agreement. "Prepayment Date" shall have the meaning set forth in Section 2.3.1 hereof. "Prime Rate" shall mean, on a particular date, a rate per annum equal to the rate of interest published in The Wall Street Journal as the "prime rate", as in effect on such day, with any change in the prime rate resulting from a change in said prime rate to be effective as of the date of the relevant change in said prime rate; provided, however, that if more than one prime rate is published in The Wall Street Journal for a day, the average of the prime rates shall be used; provided, further, however, that the Prime Rate (or the average of the prime rates) will be -19- rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. In the event that The Wall Street Journal should cease or temporarily interrupt publication, then the Prime Rate shall mean the daily average prime rate published in another business newspaper, or business section of a newspaper, of national standing chosen by Lender. If The Wall Street Journal resumes publication, the substitute index will immediately be replaced by the prime rate published in The Wall Street Journal. In the event that a prime rate is no longer generally published or is limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall select a comparable interest rate index which is readily available to Borrower and verifiable by Borrower but is beyond the control of Lender. Lender shall give Borrower prompt written notice of its choice of a substitute index and when the change became effective. Such substitute index will also be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. The determination of the Prime Rate by Lender shall be conclusive and binding absent manifest error. "Principal" shall have the meaning set forth in Section 4.1.36 hereof, together with its successors and assigns. "Prohibited Person" shall mean any Person: (a) listed in the Annex to, or otherwise subject to the provisions of, the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (the "Executive Order"); (b) that is owned or controlled by, or acting for or on behalf of, any person or entity that is listed to the Annex to, or is otherwise subject to the provisions of, the Executive Order; (c) with whom Lender is prohibited from dealing or otherwise engaging in any transaction by any terrorism or money laundering law, including the Executive Order; (d) who commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order; (e) that is named as a "specially designated national and blocked person" on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov.ofac/t11sdn.pdf or at any replacement website or other replacement official publication of such list; or (f) who is an Affiliate of or affiliated with a Person listed above. "Properties" shall mean, collectively, each and every Individual Property. "Property" shall mean, as the context may require, the Properties or an Individual Property. "Property Account" shall have the meaning set forth in Section 3.1(a) hereof. -20- "Property Account Bank" shall mean for each Individual Property, that certain property account bank set forth on Schedule X, provided that such bank remains an Eligible Institution, and any successor Eligible Institution or other Eligible Institution selected by Borrower, subject to Lender's approval. "Provided Information" shall have the meaning set forth in Section 9.1(a) hereof. "Qualified Manager" shall mean a reputable and experienced professional management organization (a) which manages, together with its Affiliates, one hundred fifty (150) properties of a type, quality and size similar to the Properties, totaling in the aggregate no less than 30,000 guest rooms and (b) prior to whose employment as manager of the Properties, such employment shall have been approved by Lender, which approval shall not be unreasonably withheld or delayed. "Quality Assurance Reports" shall mean any quality assurance reports of inspection or compliance from a Franchisor under a Franchise Agreement with respect to any Individual Property. "Rating Agencies" shall mean each of S&P, Moody's, and Fitch, and any other nationally-recognized statistical rating agency which has been approved by Lender. "Release" of any Hazardous Materials shall mean any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. "Release Price" shall mean, for each Individual Property, one hundred twenty-five percent (125%) of the Allocated Loan Amount for such Individual Property. "Release Property" shall have the meaning set forth in Section 2.6 hereof. "Rents" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property. "Replacement Interest Rate Cap Agreement" means an interest rate cap agreement from an Acceptable Counterparty with terms identical to the Interest Rate Cap Agreement. "Replacement Management Agreement" shall mean, collectively, (a) either (i) a management agreement with a Qualified Manager substantially in the same form and substance as the Management Agreement, or (ii) a management agreement with a Qualified Manager, which management agreement shall be acceptable to Lender in form and substance, provided, with respect to this subclause (ii), Lender, at its option, may require that Borrower obtain confirmation from the applicable Rating Agencies that such management agreement will not result in a downgrade, withdrawal or qualification of the initial, or if higher, then current rating of the Mortgage Securities or any class thereof; and (b) a subordination of management agreement substantially in the form of the Assignment of Management Agreement (or such other form acceptable to Lender), executed and delivered to Lender by Operating Lessee and such Qualified Manager at Borrower's expense; provided, however, with respect to the Expiring Management Agreement Properties only, Borrower shall not be required to obtain Lender's -21- consent or such a confirmation for the Rating Agencies in the event that the Management Agreements in effect on the date hereof are extended on the same or more favorable terms to Mortgagor Borrower and/or Operating Lessee, as applicable, prior to the expiration thereof. "Replacement Reserve Account" shall have the meaning set forth in Section 3.1 of the Mortgage Loan Agreement. "Replacement Reserve Fund" shall have the meaning set forth in Section 7.3.1 hereof. "Replacement Reserve Monthly Deposit" shall mean the greater of (i) such amounts as are required under the Franchise Agreements to be reserved for furniture, fixtures and equipment, (ii) such amounts as are required under the Management Agreements to be reserved for furniture, fixtures and equipment and (iii)(1) until the end of the calendar year in which the Closing Date occurs, the amount of the Initial Replacement Reserve Monthly Deposit, and (2) thereafter, the quotient obtained by dividing (A) the aggregate Gross Income from Operations for the Properties still subject to the Lien of a Security Instrument for the preceding calendar year (as reflected in Borrower's annual operating statements as approved and accepted by Lender) multiplied by four percent (4%) by (B) twelve (12). The Replacement Reserve Monthly Deposit shall be adjusted annually and shall be effective for the Replacement Reserve Monthly Deposit due on the Payment Date first occurring after the appropriate financial statements have been delivered to Lender as required herein. "Replacements" shall have the meaning set forth in Section 7.3.1 hereof. "Required Remediation" shall have the meaning set forth in the Mortgage Loan Agreement. "Required Repairs" shall have the meaning set forth in the Mortgage Loan Agreement. "Reserve Fund Deposits" shall mean the amounts to be deposited into the Reserve Funds for any given month or at any other time as provided in this Agreement or in the other Loan Documents. "Reserve Funds" shall mean all escrow or reserve funds established by the Loan Documents. "Responsible Officer" means with respect to a Person, the president, chief financial officer or treasurer of such Person. "Restoration" shall have the meaning set forth in the Mortgage Loan Agreement. "Restricted Party" shall mean Mortgage Borrower, Borrower, Principal, Junior Mezzanine Borrower, Junior Mezzanine Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities or any Affiliated Manager or any shareholder, partner or member, or any direct or indirect legal or beneficial owner of, Mortgage Borrower, Borrower, Principal, Junior Mezzanine Borrower, Junior Mezzanine Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities or any Affiliated Manager provided, however, that in no event shall FelCor -22- Lodging Limited Partnership or FelCor Lodging Trust Incorporated be deemed a Restricted Party. "S&P" shall mean Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. "Sale or Pledge" shall mean a voluntary or involuntary sale, conveyance, transfer or pledge of a direct or indirect legal or beneficial interest. "Scheduled Amortization Payments" shall mean the amount of principal set forth on Schedule VI hereto to be paid on each Payment Date. "Security Instrument" shall mean, with respect to each Individual Property, that certain first priority Mortgage (or Deed of Trust or Deed to Secure Debt, as applicable) and Security Agreement, executed and delivered by Mortgage Borrower and Operating Lessee as security for the Mortgage Loan and encumbering such Individual Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Servicer" shall have the meaning set forth in Section 9.3 hereof. "Servicing Agreement" shall have the meaning set forth in Section 9.3 hereof. "Severed Loan Documents" shall have the meaning set forth in Section 8.2(c) hereof. "Special Member" shall have the meaning set forth in Section 4.1.35 hereof. "State" shall mean, with respect to an Individual Property, the State or Commonwealth in which such Individual Property or any part thereof is located. "Strike Rate" shall mean 6.0%. "Subordination of Management Agreement" shall mean that certain Subordination of Management Agreement, dated as of the date hereof, among Lender, Borrower, Mortgage Borrower and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Substitute Allocated Loan Amount" shall have the meaning set forth in Section 2.6(i) hereof. "Substitute Property" shall have the meaning set forth in Section 2.6 hereof. "Survey" shall mean, with respect to an Individual Property, a survey prepared by a surveyor licensed in the State where such Individual Property is located and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender. "Tax and Insurance Escrow Fund" shall have the meaning set forth in Section 7.2 hereof. "Taxes" shall mean all real estate taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Individual Property or part thereof. -23- "Terrorism Exclusion" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Terrorism Insurance" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Terrorism Insurance Cap" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Terrorism Insurance Required Amount" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Title Insurance Policy" shall have the meaning set forth in the Mortgage Loan Agreement. "Transfer" shall have the meaning set forth in Section 5.2.10(a) hereof. "Triggering Event" shall mean the earlier to occur of: (i) an Event of Default or (ii) the date the Debt Service Coverage Ratio for the twelve (12) full calendar months immediately preceding the date of such calculation is not in excess of 1.15 to 1.00. "UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in the state of New York. "UCC Financing Statements" shall mean the UCC financing statement executed in connection with the Pledge Agreement and the other Loan Documents and filed in the applicable filing offices. SECTION 1.2 Principles of Construction. (a) All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All uses of the word "including" shall mean "including, without limitation" unless the context shall indicate otherwise. Unless otherwise specified, the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. With respect to any provisions incorporated by reference herein from the Mortgage Loan Agreement, such provisions shall be deemed a part of this Agreement notwithstanding the fact that the Mortgage Loan shall no longer be effective for any reason. (b) All covenants, representations, terms and conditions contained in this Agreement applicable to Borrower or Mortgage Borrower shall be deemed to apply to each Borrower or Mortgage Borrower, as applicable, individually. (c) With respect to terms defined by cross-reference to the Mortgage Loan Documents, such defined terms shall have the definitions set forth in the Mortgage Loan Documents as of the date hereof, and no modifications to the Mortgage Loan Documents shall have the effect of changing such definitions for the purposes of this Agreement unless Lender expressly agrees that such definitions as used in this Agreement have been revised. -24- II. GENERAL TERMS SECTION 2.1 Loan Commitment; Disbursement to Borrower. 2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date. 2.1.2 Single Disbursement to Borrower. Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed. 2.1.3 The Note, Pledge Agreement and Loan Documents. The Loan shall be evidenced by the Note and secured by the Pledge Agreement and the other Loan Documents. Borrower and Pledgor hereby authorize Lender to file a financing statement or statements under the UCC in connection with the Collateral in the form required to properly perfect Lender's security interest therein. 2.1.4 Use of Proceeds. Borrower may distribute the proceeds of the Loan to any Affiliate. All of the Mortgage Loan proceeds advanced to Mortgage Borrower have been and will be used solely in accordance with the Mortgage Loan Documents. SECTION 2.2 Interest; Loan Payments; Late Payment Charge. 2.2.1 Payments. (a) Interest. Interest on the outstanding principal balance of the Loan shall accrue from the Closing Date to the end of the Interest Period in which the Maturity Date occurs at the Applicable Interest Rate. Monthly installments of interest only shall be paid on each Payment Date commencing on June 9, 2003 and on each subsequent Payment Date thereafter up to and including the Maturity Date for the Interest Period in which such Payment Date or Maturity Date occurs. Interest on the outstanding principal amount of the Loan for the period through and including May 8, 2003 shall be paid by Borrower on the Closing Date. The outstanding principal balance of the Loan together with all accrued and unpaid interest thereon shall be due and payable on the Maturity Date (including, without limitation, all interest that would accrue on the outstanding principal balance of the Loan through the end of the Interest Period during which the Maturity Date occurs (even if such period extends beyond the Maturity Date)). (b) Principal. The Scheduled Amortization Payments shall be paid on June 9, 2003 and on each subsequent Payment Date thereafter. (c) Excess Cash Flow. Beginning on an Excess Cash Flow Application Date and on each Payment Date thereafter, Borrower shall cause Mortgage Borrower to make payments -25- of Excess Cash Flow shall be payable in accordance with the provisions of Section 3.1 of the Mortgage Loan Agreement. (d) All payments and other amounts due under the Note, this Agreement and the other Loan Documents shall be made without any setoff, defense or irrespective of, and without deduction for, counterclaims. 2.2.2 Interest Calculation. Interest on the outstanding principal balance of the Loan shall be calculated by multiplying (a) the actual number of days elapsed in the period for which the calculation is being made by (b) a daily rate equal to the Applicable Interest Rate divided by three hundred sixty (360) by (c) the outstanding principal balance. 2.2.3 Eurodollar Rate Unascertainable; Illegality; Increased Costs. (a) (i) In the event that Lender shall have determined (which determination shall be conclusive and binding upon Borrower absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Lender shall forthwith give notice by telephone of such determination, to Borrower at least one (1) Business Day prior to the last day of the related Interest Period, with a written confirmation of such determination promptly thereafter. If such notice is given, the Loan shall bear interest at the Adjusted Prime Rate beginning on the first day of the next succeeding Interest Period. (ii) If, pursuant to the terms of this Section 2.2.3(a), the Loan is bearing interest at the Adjusted Prime Rate and Lender shall determine (which determination shall be conclusive and binding upon Borrower absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Lender shall give notice thereof to Borrower by telephone of such determination, confirmed in writing, to Borrower as soon as reasonably practical, but in no event later than one (1) Business Day prior to the last day of the then current Interest Period. If such notice is given, the Loan shall bear interest at the Eurodollar Rate beginning on the first day of the next succeeding Interest Period. Notwithstanding any provision of this Agreement to the contrary, in no event shall Borrower have the right to elect to have the Loan bear interest at either the Eurodollar Rate or the Adjusted Prime Rate. (b) If any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for Lender in good faith to make or maintain the portion of the Loan bearing interest at the Eurodollar Rate, (I) the obligation of Lender hereunder to make the Loan bearing interest at the Eurodollar Rate shall be canceled forthwith and (II) the Loan shall automatically bear interest at the Adjusted Prime Rate on the next succeeding Payment Date or within such earlier period as required by Applicable Law. Borrower hereby agrees promptly to pay Lender (within ten (10) days of Lender's written demand therefor), any additional amounts necessary to compensate Lender for any reasonable costs incurred by Lender in making any conversion in accordance with this Agreement, including, without limitation, any interest or fees payable by Lender to lenders of funds obtained by it in order to make or maintain the Loan hereunder. Upon written demand from Borrower, Lender shall demonstrate in reasonable detail the circumstances giving rise to -26- Lender's determination and the calculation substantiating the Adjusted Prime Rate and any additional costs incurred by Lender in making the conversion. Lender's written notice of such costs, as certified to Borrower, shall be conclusive absent manifest error. (c) In the event that any change in any requirement of any Applicable Law or in the interpretation or application thereof, or compliance in good faith by Lender with any request or directive (whether or not having the force of law) hereafter issued from any Governmental Authority, in each such case, which is generally applicable to all Lenders subject to such Governmental Authority's jurisdiction: (i) shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any U.S. office of Lender which is not otherwise included in the determination of LIBOR hereunder; (ii) shall, if the Loan is then bearing interest at the Eurodollar Rate, hereafter have the effect of reducing the rate of return on Lender's capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender's policies with respect to capital adequacy) by any amount deemed by Lender to be material; or (iii) shall, if the Loan is then bearing interest at the Eurodollar Rate, hereafter impose on Lender any other condition, the result of which is to increase the cost to Lender of making, renewing or maintaining loans or extensions of credit or to reduce any amount receivable hereunder by any amount deemed by Lender to be material; then, in any such case, Borrower shall promptly pay Lender (within ten (10) days of Lender's written demand therefor), any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable which Lender deems to be material. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.3(c), Lender shall provide Borrower with written notice specifying in reasonable detail the event or circumstance by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount. A certificate as to any additional costs or amounts payable pursuant to the foregoing sentence submitted by Lender to Borrower shall be conclusive absent manifest error. This provision shall survive payment of the Note and the satisfaction of all other obligations of Borrower under the Note, this Agreement and the other Loan Documents. (d) Borrower agrees to indemnify Lender and to hold Lender harmless from any loss or expense which Lender sustains or incurs to the extent it is a consequence of (I) any default by Borrower in payment of the principal of or interest on the Loan while bearing interest at the Eurodollar Rate, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Eurodollar Rate, (II) any prepayment (whether voluntary or mandatory) of the Loan on a day that (A) is not the Payment Date immediately following the last day of an Interest Period with respect thereto or (B) is the Payment Date immediately following the last day of an Interest Period with respect -27- thereto if Borrower did not give the prior written notice of such prepayment required pursuant to the terms of this Agreement, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Eurodollar Rate hereunder and (III) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest Rate from the Eurodollar Rate to the Adjusted Prime Rate with respect to any portion of the outstanding principal amount of the Loan then bearing interest at the Eurodollar Rate on a date other than the Payment Date immediately following the last day of an Interest Period, including, without limitation, such loss or expenses arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Eurodollar Rate hereunder (the amounts referred to in clauses (I), (II) and (III) are herein referred to collectively as the "Breakage Costs"). This provision shall survive payment of the Note and the satisfaction of all other obligations of Borrower under this Agreement and the other Loan Documents. 2.2.4 Payment on Maturity Date. Borrower shall pay to Lender on (or, to the extent permitted herein, before) the Maturity Date the outstanding principal balance, all accrued and unpaid interest thereon, and all other amounts due hereunder and under the Note, the Pledge Agreement and the other Loan Documents, including, without limitation, all interest that would accrue on the outstanding principal balance of the Loan through and including the end of the Interest Period in which the Maturity Date occurs (even if such Interest Period extends beyond the Maturity Date). 2.2.5 Payments after Default. Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by Applicable Law, overdue interest and other amounts due in respect of the Loan, shall accrue at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein. Interest at the Default Rate shall be computed from the occurrence of the default until the actual receipt and collection of the Debt (or that portion thereof that is then due). To the extent permitted by Applicable Law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Pledge Agreement. This paragraph 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. 2.2.6 Late Payment Charge. If any principal, interest or any other sums due under the Loan Documents is not paid by Borrower on 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 such unpaid sum or the maximum amount permitted by Applicable Law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Pledge Agreement and the other Loan Documents to the extent permitted by Applicable Law; provided, however, Borrower shall have the option, not to be exercised more than three (3) times during the term of the Loan, to not pay -28- the late payment charge contemplated by this Section 2.2.6 in the event any Monthly Debt Service Payment Amount is paid within one (1) Business Day after the date the same was due. 2.2.7 Usury Savings. This Agreement and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal 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 sums due under the Loan, shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. 2.2.8 Foreign Taxes. If the Loan is bearing interest at the Eurodollar Rate, all payments made by Borrower hereunder shall be made free and clear of, and without reduction for or on account of, Foreign Taxes, excluding, in the case of Lender, Foreign Taxes measured by its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which Lender is resident or organized, or any political subdivision thereof and, in the case of Lender, taxes measured by its overall net income, and franchise taxes imposed on it, by the jurisdiction of Lender's lending office or any political subdivision thereof or in which Lender is resident or engaged in business. If any non-excluded Foreign Taxes are required to be withheld from any amounts payable to Lender hereunder, the amounts so payable to Lender shall be increased to the extent necessary to yield to Lender (after payment of all non-excluded Foreign Taxes) interest or any such other amounts payable hereunder at the rate or in the amounts specified hereunder. Whenever any non-excluded Foreign Tax is payable pursuant to Applicable Law by Borrower, Borrower shall send to Lender an original official receipt showing payment of such non-excluded Foreign Tax or other evidence of payment reasonably satisfactory to Lender. Borrower hereby indemnifies Lender for any incremental taxes, interest or penalties that may become payable by Lender which may result from any failure by Borrower to pay any such non-excluded Foreign Tax when due to the appropriate taxing authority or any failure by Borrower to remit to Lender the required receipts or other required documentary evidence, provided, however, in the event that Lender or any successor and/or assign of Lender is not incorporated under the laws of the United States of America or a state thereof Lender agrees that, prior to the first date on which any payment is due such entity hereunder, it will deliver to Borrower (i) two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI or successor applicable form, as the case may be, certifying in each case that such entity is entitled to receive payments under the Note, without deduction or withholding of any United States federal income taxes, or (ii) an Internal Revenue Service Form W-9 or successor applicable form, as the case may be, to establish an -29- exemption from United States backup withholding tax. Each entity required to deliver to Borrower a Form W-8BEN or W-8ECI or Form W-9 pursuant to the preceding sentence further undertakes to deliver to Borrower two further copies of the said letter and W-8BEN or W-8ECI or Form W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires (which, in the case of the Form W-8ECI, is the last day of each U.S. taxable year of the non-U.S. entity) or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to Borrower, and such other extensions or renewals thereof as may reasonably be requested by Borrower, certifying in the case of a Form W-8BEN or W-8ECI that such entity is entitled to receive payments under the Note without deduction or withholding of any United States federal income taxes, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such entity from duly completing and delivering any such letter or form with respect to it and such entity advises Borrower that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-9, establishing an exemption from United States backup withholding tax. Notwithstanding the foregoing, if such entity fails to provide a duly completed Form W-8BEN or W-8ECI or other applicable form and, under Applicable Law, in order to avoid liability for Foreign Taxes, Borrower is required to withhold on payments made to such entity that has failed to provide the applicable form, Borrower shall be entitled to withhold the appropriate amount of Foreign Taxes. In such event, Borrower shall promptly provide to such entity evidence of payment of such Foreign Taxes to the appropriate taxing authority and shall promptly forward to such entity any official tax receipts or other documentation with respect to the payment of the Foreign Taxes as may be issued by the taxing authority. 2.2.9 Extension of Mortgage Loan. Upon Lender's written request to Borrower ("Mortgage Loan Extension Request"), Borrower shall be required to take all steps necessary to cause Mortgage Borrower to extend the Mortgage Loan in accordance with the Mortgage Loan Agreement. If Lender shall have given the Mortgage Loan Extension Request, not later than ten (10) days before the latest date that Mortgage Borrower may effectively give the notice of its exercise of the Mortgage Loan Extension Option under the Mortgage Loan Agreement, Borrower shall cause Mortgage Borrower to notify Mortgage Lender ("Mortgage Loan Extension Notice") that Mortgage Borrower has elected to exercise the Mortgage Loan Extension Option (with a simultaneous copy to Lender) and Borrower shall cause Mortgage Borrower to take all other steps (and make all other payments) necessary in order to exercise the Mortgage Loan Extension Option. If Lender shall have given the Mortgage Loan Extension Request, the failure of Borrower to cause Mortgage Borrower to give the Mortgage Loan Extension Notice and take all other steps necessary to exercise the Mortgage Loan Extension Option Loan in accordance with this Section and the Mortgage Loan Documents shall be an automatic Event of Default (with no notice, cure or grace period). If Borrower fails to give the Mortgage Loan Extension Notice within such time, Borrower hereby authorizes Lender, and grants Lender an irrevocable power of attorney coupled with an interest, to give such Mortgage Loan Extension Notice on behalf of and in the name of Mortgage Borrower, and take all other steps as may be necessary to exercise the Mortgage Loan Extension Option. -30- SECTION 2.3 Prepayments. 2.3.1 Voluntary Prepayments. Except as otherwise provided herein, Borrower shall not have the right to prepay the Loan in whole or in part prior to the Payment Date occurring in November, 2003 (the "Lockout Period"). On any Payment Date occurring after the expiration of the Lockout Period, Borrower may, at its option, prepay the Loan in whole, but not in part, upon satisfaction of the following conditions: (a) Borrower shall provide prior written notice to Lender specifying the date (the "Prepayment Date") upon which the prepayment is to be made, which notice shall be delivered to Lender not less than thirty (30) Business Days prior to such payment; (b) Borrower shall pay to Lender, simultaneously with such prepayment, (i) if such prepayment occurs prior to the Payment Date occurring in May, 2004 (the "Open Date"), a prepayment premium equal to one percent (1%) of the original principal amount of the Loan, (ii) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date together with an amount equal to the interest that would have accrued at the Applicable Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment, (the "Interest Shortfall"), (iii) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (ii); and (iv) all other sums then due under this Agreement, the Note or the other Loan Documents; (c) Mortgage Borrower simultaneously prepays the Mortgage Loan in accordance with the provisions of Mortgage Loan Agreement; and (d) Junior Mezzanine Borrower simultaneously prepays the Junior Mezzanine Loan in accordance with the provisions of the Junior Mezzanine Loan Agreement. This Section 2.3.1 shall not apply to prepayments made in accordance with the provisions of Section 2.5 hereof. 2.3.2 Liquidation Events. (a) In the event of (i) any Casualty to all or any portion of any Individual Property, (ii) any Condemnation of all or any portion of any Individual Property, (iii) a Transfer of any Individual Property in connection with realization thereon by the Mortgage Lender following an Event of Default under the Mortgage Loan, including without limitation a foreclosure sale, or (iv) any refinancing of any Individual Property or the Mortgage Loan (each, a "Liquidation Event"), Borrower shall cause the related Net Liquidation Proceeds After Debt Service to be deposited directly into an account designated by Lender. On each date on which Lender actually receives a distribution of Net Liquidation Proceeds After Debt Service, if such date is a Payment Date, such Net Liquidation Proceeds After Debt Service shall be applied to the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Liquidation Proceeds After Debt Service, together with interest that would have accrued on such -31- amount through the next Payment Date and all other sums then due. In the event Lender receives a distribution of Net Liquidation Proceeds After Debt Service on a date other than a Payment Date, such amounts shall be held by Lender as collateral security for the Loan in an interest bearing account, with such interest accruing to the benefit of Borrower, and shall be applied by Lender on the next Payment Date. (b) Borrower shall immediately notify Lender of any Liquidation Event once Borrower has knowledge of such event. Borrower shall be deemed to have knowledge of (i) a sale (other than a foreclosure sale) of any Individual Property on the date on which a contract of sale for such sale is entered into, and a foreclosure sale, on the date notice of such foreclosure sale is given, and (ii) a refinancing of any Individual Property, on the date on which a commitment for such refinancing is entered into. The provisions of this Section 2.3.2 shall not be construed to contravene in any manner the restrictions and other provisions regarding refinancing of the Mortgage Loan or Transfer of the Property or the Collateral set forth in this Agreement and the other Loan Documents. 2.3.3 Prepayments After Default. If, following an uncured Event of Default, Borrower tenders payment of all or any part of the Debt, or if all or any portion of the Debt is recovered by Lender after such Event of Default such tender or recovery shall be deemed a voluntary prepayment by Borrower in violation of the prohibition against prepayment of the Loan prior to the expiration of the Lockout Period and Borrower shall pay, in addition to the Debt, (i) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date together with an amount equal to the interest that would have accrued at the Applicable Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment, (ii) if such prepayment occurs prior to the expiration of the Open Period, a prepayment consideration equal to five percent (5%) of the amount being prepaid, (iii) the Interest Shortfall, if applicable, with respect to the amount prepaid, (iv) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (iii); and (v) all other sums due under this Agreement, the Note or the other Loan Documents in connection with a partial or total prepayment. 2.3.4 Making of Payments. Each payment by Borrower hereunder or under the Note shall be made in funds settled through the New York Clearing House Interbank Payments System or other funds immediately available to Lender by 12:00 p.m., New York City time, on or prior to the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. Whenever any payment hereunder or under the Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the first Business Day succeeding such scheduled due date. -32- 2.3.5 Application of Prepayments. All prepayments received pursuant to this Section 2.3 and Section 2.5 shall be applied first, to interest on the outstanding principal balance being prepaid that accrued through and including the Prepayment Date, second, to interest on the outstanding principal balance being prepaid that would have accrued through the end of the Interest Period in which the prepayment occurred, notwithstanding that such Interest Period extends beyond the date of prepayment, and third, to the payments of principal due under the Loan in the inverse order of maturity. SECTION 2.4 Interest Rate Cap Agreement. (a) Borrower shall obtain, or cause to be obtained, and shall thereafter maintain in effect, an Interest Rate Cap Agreement with an Acceptable Counterparty, which shall be coterminous with the Loan, as the same may be extended in accordance with the terms hereof and have a notional amount which shall not at any time be less than the outstanding principal balance of the Loan and which shall at all times have a strike rate equal to the Strike Rate. The Counterparty shall be obligated under the Interest Rate Cap Agreement to make monthly payments equal to the excess of one (1) month LIBOR over the Strike Rate, calculated on the notional amount. The notional amount of the Interest Rate Cap Agreement may be reduced from time to time in amounts equal to any payment of the principal of the Loan in accordance with the terms hereof. (b) Borrower shall collaterally assign to Lender pursuant to an Assignment of Interest Rate Cap Agreement substantially in the form annexed hereto as Exhibit A, all of its right, title and interest to receive any and all payments under the Interest Rate Cap Agreement (and any related guarantee, if any) and shall deliver to Lender an executed counterpart of such Interest Rate Cap Agreement and notify the Counterparty of such collateral assignment (either in such Interest Rate Cap Agreement or by separate instrument). The Counterparty shall agree in writing to make all payments it is required to make under the Interest Rate Cap Agreement directly to an Account specified by Lender. At such time as the Loan is repaid in full, all of Lender's right, title and interest in the Interest Rate Cap Agreement shall terminate and Lender shall promptly execute and deliver at Borrower's sole cost and expense, such documents as may be required to evidence Lender's release of the Interest Rate Cap Agreement and to notify the Counterparty of such release. (c) Borrower shall comply with all of its obligations under the terms and provisions of the Interest Rate Cap Agreement. All amounts paid by the Counterparty under the Interest Rate Cap Agreement shall be deposited immediately into the Lockbox Account or if the Lockbox Account is not then required to be in effect, into such Account as specified by Lender. Borrower shall take all actions reasonably requested by Lender to enforce Borrower's and Lender's rights under the Interest Rate Cap Agreement in the event of a default by the Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder. (d) In the event of any downgrade, withdrawal or qualification of the rating of the Counterparty below "AA-" (or the equivalent) by the Rating Agencies, Borrower shall replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement with an -33- Acceptable Counterparty not later than ten (10) Business Days following receipt of notice from Lender or Servicer of such downgrade, withdrawal or qualification. (e) In the event that Borrower fails to purchase and deliver to Lender the Interest Rate Cap Agreement or any Replacement Interest Cap Agreement as and when required hereunder, Lender may purchase such Interest Rate Cap Agreement and the cost incurred by Lender in purchasing such Interest Rate Cap Agreement shall be paid by Borrower to Lender with interest thereon at the Default Rate from the date such cost was incurred by Lender until such cost is paid by Borrower to Lender. (f) In connection with an Interest Rate Cap Agreement, if requested by Mortgage Lender pursuant to the provisions of Section 2.4 of the Mortgage Loan Agreement, Borrower shall use commercially reasonable efforts to obtain and deliver to Lender an opinion of counsel from counsel for the Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that: (1) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Interest Rate Cap Agreement; (2) the execution and delivery of the Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent Organizational Documents) or any law, regulation or contractual restriction binding on or affecting it or its property; (3) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and (4) the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). -34- SECTION 2.5 Release of Property. 2.5.1 Release of Individual Property. Provided no Event of Default has occurred and is continuing, after the expiration of the Lockout Period, Borrower may cause Mortgage Borrower to obtain a release from the Lien of a Security Instrument pursuant to Section 2.5.1 of the Mortgage Loan Agreement: (a) Borrower shall provide Lender with at least thirty (30) days but no more than ninety (90) days prior written notice of its request to obtain a release of such Security Instrument; (b) Borrower shall have delivered evidence satisfactory to Lender that (i)(A) Mortgage Borrower complied with all of the terms and conditions set forth in Section 2.5.1 of the Mortgage Loan Agreement with respect to a release of the Security Instrument thereunder and Mortgage Lender has delivered (or is simultaneously delivering) such release to Mortgage Borrower and (ii) Junior Mezzanine Borrower complied with all of the terms and conditions set forth in Section 2.5.1 of the Junior Mezzanine Loan Agreement with respect to a release (if any) of the security interest corresponding to the release requested pursuant to this Section 2.5.1 and (B) Junior Mezzanine Lender has granted such release to Junior Mezzanine Borrower; (c) Lender shall have received a wire transfer of immediately available federal funds in an amount equal to the Release Price for the applicable Individual Property, together with (i) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date, (ii) if such release occurs on or prior to the Open Date, a prepayment premium equal to one percent (1%) of the applicable Release Price, (iii) the Interest Shortfall, if applicable, with respect to the amount prepaid, (iv) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (iii); and (v) all other sums due under this Agreement, the Note or the other Loan Documents in connection with a partial prepayment; (d) Borrower shall provide all other documentation Lender reasonably requires to be delivered by Borrower in connection with such release by Mortgage Borrower, together with an Officer's Certificate certifying that the release will not impair or otherwise adversely affect the Liens, security interests and other rights of Lender under the Loan Documents not being released (or as to the parties to the Loan Documents and Collateral); (e) After giving effect to such release, Lender shall have determined that the Debt Service Coverage Ratio for the Properties then remaining subject to the Lien of a Security Instrument (not including the Individual Property to be released) (but for the purpose of this calculation only, assuming a Release Price equal to the Allocated Loan Amount) shall be at least equal to the Debt Service Coverage Ratio for all of the Properties (including the Individual Property to be released) for the twelve (12) full calendar months immediately preceding the release of the Individual Property; and (f) Lender shall have received payment of all Lender's reasonable costs and expenses, including due diligence review costs and reasonable counsel fees and disbursements -35- incurred in connection with the review and approval of the documents and information required to be delivered in connection with this Section 2.5.1. 2.5.2 Release on Payment in Full. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of all principal and interest due on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Agreement, release the Lien of the Pledge Agreement or the Collateral not theretofore released. SECTION 2.6 Substitution of Properties. Subject to the terms of this Section 2.6 and after the expiration of the Lockout Period, Borrower may cause Mortgage Borrower to obtain a release of the Lien of a Security Instrument (and the related Loan Documents) encumbering an Individual Property (a "Release Property") by substituting therefor another hotel property of like kind and quality acquired by Mortgage Borrower (individually, a "Substitute Property" and collectively, the "Substitute Properties"), provided that the following conditions precedent are satisfied: (a) Mortgage Borrower shall not have the right to release and substitute (i) more than one (1) Individual Property in accordance with this Section in any twelve (12) month period and (ii) any Properties after such time as Mortgage Borrower has released and substituted Properties which in the aggregate had an appraised value of more than thirty-five percent (35%) of the aggregate appraised values of the Properties subject to the Lien of the Security Instruments as of the Closing Date. (b) Lender shall have received at least thirty (30) days prior written notice requesting the substitution and identifying the Substitute Property and Release Property. (c) Borrower has delivered to Lender evidence satisfactory to Lender that all of the conditions set forth in the Section 2.6 of the Mortgage Loan Agreement have been satisfied, including, without limitation, all documents and information required to be delivered to Mortgage Lender by Mortgage Borrower, in form and substance acceptable to Lender in its reasonable discretion and if any such documents and information is certified to Mortgage Lender, then such documents and information shall also be certified to Lender. (d) Mortgage Borrower shall own the Substitute Property. (e) Lender shall have received a certificate of Borrower certifying, together with other evidence satisfactory to Lender that, the Debt Service Coverage Ratio for the twelve (12) months immediately preceding the substitution with respect to the Substitute Property is at least equal to the Debt Service Coverage Ratio for the twelve (12) full calendar months immediately preceding the date of the proposed substitution with respect to the Release Property, which Debt Service Coverage Ratio shall be based upon the Allocated Loan Amounts of the Substitute Property and the Release Property. (f) Unless such event or condition relates solely to the Release Property and will be fully cured by the release and substitution, no Event of Default shall have occurred and be -36- continuing and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each other Loan Document on Borrower's part to be observed or performed. Lender shall have received a certificate from Borrower confirming the foregoing, stating that the representations and warranties contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of the release and substitution with respect to Borrower, the Properties and the Substitute Property and containing any other representations and warranties with respect to Borrower, the Properties, the Substitute Property or the Loan as Lender, such certificate to be in form and substance satisfactory to Lender. (g) Borrower shall (A) have executed, acknowledged and delivered to an Environmental Indemnity with respect to the Substitute Property from Indemnitor and (B) have caused Guarantor to acknowledge and confirm its obligations under the Loan Documents. The Environmental Indemnity shall be the same in form and substance as the Environmental Indemnity executed and delivered with respect to the related Release Property subject to modifications reflecting only the Substitute Property as the Individual Property and such modifications reflecting the laws of the State in which the Substitute Property is located. The amount of the Loan allocated to the Substitute Property (such amount being hereinafter referred to as the "Substitute Allocated Loan Amount") shall equal the Allocated Loan Amount of the related Release Property. (h) Mortgage Borrower shall have received and delivered to Lender an Owner's Title Policy (or a marked, signed and redated commitment to issue such Owner's Title Policy) insuring the Substitute Property, issued by the title company that issued the Owner's Title Policy insuring the existing Individual Properties and dated as of the date of the substitution, with reinsurance and direct access agreements that replace such agreements issued in connection with the Owner's Title Policy insuring the Release Property. The Owner's Title Policy issued with respect to the Substitute Property shall (1) provide coverage in the amount of the fair market value of the Substitute Property, (2) insure the title on the Substitute Property, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), and (3) contain such endorsements and affirmative coverages as are then available and are contained in the Owner's Policies insuring the existing Individual Properties, and such other endorsements or affirmative coverage that a prudent institutional property owner would require. Lender also shall have received copies of paid receipts or other evidence showing that all premiums in respect of such endorsements and Title Insurance Policies have been paid. (i) Borrower shall deliver or cause to be delivered to Lender (A) updates certified by Mortgage Borrower of all organizational documentation related to Mortgage Borrower and/or the formation, structure, existence, good standing and/or qualification to do business delivered to Lender on the Closing Date; (B) good standing certificates, certificates of qualification to do business in the jurisdiction in which the Substitute Property is located (if required in such jurisdiction); and (C) resolutions of Mortgage Borrower authorizing the substitution and any actions taken in connection with such substitution. (j) Lender shall have received the following opinions of Borrower's counsel: (A) an opinion of counsel acceptable to stating that the Environmental Indemnity delivered with -37- respect to the Substitute Property pursuant to this Section, among other things, is valid and enforceable in accordance with the terms, subject to the laws applicable to creditors rights and equitable principles and has been duly authorized, executed and delivered by Borrower and that the execution and delivery of such Environmental Indemnity and the performance by Borrower of its obligations thereunder will not cause a breach of, or a default under, any agreement, document or instrument to which Borrower is a party or to which it or its properties are bound; and (C) an update of the Insolvency Opinion indicating that the substitution does not affect the opinions set forth therein. (k) Borrower shall have caused Mortgage Borrower to pay or reimburse Lender for all reasonable costs and expenses incurred by Lender (including, without limitation, reasonable attorneys' fees and disbursements) in connection with the release and substitution and Borrower shall have caused Mortgage Borrower to pay all recording charges, filing fees, taxes or other expenses (including, without limitation, mortgage and intangibles taxes and documentary stamp taxes) payable in connection with the substitution. (l) Lender shall have received a current Appraisal of (i) the Substitute Property and (ii) the Release Property, each prepared within sixty (60) days prior to the release and substitution, showing an appraised value of the Substitute Property equal to or greater than one hundred percent (100%) of (A) the appraised value of the Release Property as of the Closing Date, and (B) the appraised value of the Release Property immediately prior to the date of the proposed substitution. (m) Lender shall have received an estoppel and recognition letter from the franchisor under the Franchise Agreement, if any, for the Substitute Property, in form and substance reasonably satisfactory to Lender (n) Lender shall have received a Replacement Management Agreement for the Substitute Property and the Manager thereunder shall have executed and delivered to Lender a conditional assignment of management agreement with respect to such new Management Agreement on substantially the same terms as used in connection with the Release Property or such other terms as are acceptable Lender; and (o) Borrower shall deliver an Officers Certificate certifying that the requirements set forth in this Section 2.6 have been satisfied. All due diligence required to be delivered to Lender in connection with this Section 2.6 shall be in form, scope and substance satisfactory to Lender. Upon the satisfaction of the foregoing conditions precedent, the Substitute Property shall be deemed to be an Individual Property for purposes of this Agreement and the Substitute Allocated Loan Amount with respect to such Substitute Property shall be deemed to be the Allocated Loan Amount with respect to such Substitute Property for all purposes hereunder. -38- III. CASH MANAGEMENT SECTION 3.1 Property Account. (a) During the term of the Loan, Borrower shall cause Mortgage Borrower to comply with all of its obligations under Section 3.1 of the Mortgage Loan Agreement, whether or not the Mortgage Loan Agreement continues to be in full force and effect between Mortgage Borrower and Mortgage Lender. (b) Borrower hereby grants Lender all of the same rights which Mortgage Lender has with respect to the determination of Debt Service Coverage Ratio and the commencement or termination of an Excess Cash Flow Sweep Period, including, without limitation, the calculation of Cash Flow Threshold and Triggering Event, all such rights to be made by Lender in accordance with the provisions of the Mortgage Loan Agreement. SECTION 3.2 Lockbox Account. During the term of the Loan, Borrower shall cause Mortgage Borrower to establish and maintain a segregated Eligible Account (the "Lockbox Account") for the benefit of Mortgage Lender, which Lockbox Account shall be under the sole dominion and control of Mortgage Lender. Borrower will not cause or permit Mortgage Borrower in any way to alter or modify the Lockbox Account and will notify Lender of the account number thereof. Mortgage Lender and its servicer shall have the sole right to make withdrawals from the Lockbox Account and all costs and expenses for establishing and maintaining the Lockbox Account shall be paid by Mortgage Borrower. Borrower shall direct or cause Mortgage Borrower to direct that all cash distributions from the Lockbox Account to be paid to Mortgage Lender in accordance with the Mortgage Loan Agreement. In the event Mortgage Lender waives the requirement of Mortgage Borrower to maintain the Lockbox Account or the Mortgage Loan has been repaid in full, Lender shall have the right to require Borrower cause Mortgage Borrower to establish and maintain a cash management account that would operate in the same way as the Lockbox Account. IV. REPRESENTATIONS AND WARRANTIES SECTION 4.1 Borrower Representations. Borrower represents and warrants as of the Closing Date that: 4.1.1 Organization. (a) Borrower is duly organized and is validly existing and in good standing in the jurisdiction in which it is organized, with requisite power and authority to own its assets and to transact the businesses in which it is now engaged. Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its assets, its businesses and operations. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its assets and to transact the businesses in which it is now engaged. Attached hereto as Schedule IV is an organizational chart of Borrower. Borrower has delivered to Lender true and correct copies of -39- the Mortgage Borrower Operating Agreement and all other Organizational Documents for the Mortgage Borrower, Borrower and Principal, all of which are in full force and effect. (b) Pledgor is duly organized and is validly existing and in good standing in the jurisdiction in which it is organized, with requisite power and authority to own one hundred percent (100%) of the interests in Operating Lessee and to transact the businesses in which it is now engaged. Pledgor is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its businesses and operations. Pledgor possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to transact the businesses in which it is now engaged. Attached hereto as Schedule V is an organizational chart of Pledgor. (c) Borrower has the power and authority, subject to the terms of the Mortgage Loan Documents, and the requisite Ownership Interests to control the actions of Mortgage Borrower, and upon the realization of the Collateral under the Pledge Agreement, Lender or any other party succeeding to the Borrower's interest in the Collateral described in the Pledge Agreement would have such control. Without limiting the foregoing, Borrower has sufficient control over Mortgage Borrower, subject to the terms of the Mortgage Loan Documents, to cause Mortgage Borrower to (i) take any action on Mortgage Borrower's part required by the Loan Documents and (ii) refrain from taking any action prohibited by the Loan Documents. 4.1.2 Proceedings. (a) Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and the other Loan Documents have been duly executed and delivered by or on behalf of Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (b) Pledgor has taken all necessary action to authorize the execution, delivery and performance of the Pledgor Documents. The Pledgor Documents have been duly executed and delivered by or on behalf of Pledgor and constitutes the legal, valid and binding obligations of Pledgor enforceable against Pledgor in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 4.1.3 No Conflicts. (a) The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan -40- agreement, partnership agreement, management agreement, franchise agreement, or other agreement or instrument to which Borrower is a party or by which any of Borrower's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Borrower or any of Borrower's assets, or any license or other approval required to own and manage its assets, and any consent, approval, authorization, order, registration or qualification of or with any Governmental Agency required for the execution, delivery and performance by Borrower of this Agreement or any other Loan Documents have been obtained and is in full force and effect. (b) The execution, delivery and performance of the Pledgor Documents by Pledgor will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien, charge or encumbrance (other than pursuant to such Loan Documents) upon any of the property or assets of Pledgor pursuant to the terms of any agreement or instrument to which Pledgor is a party or by which any of Pledgor's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Pledgor or any of Pledgor's other assets and any consent, approval, authorization, order, registration or qualification of or with any Governmental Agency required for the execution, delivery and performance by Pledgor of the Pledgor Documents have been obtained and is in full force and effect. 4.1.4 Litigation. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or threatened against or affecting Borrower, Operating Lessee, Mortgage Borrower, Pledgor, Ground Lessor, the Collateral or any Individual Property, which actions, suits or proceedings, if determined against Borrower, Operating Lessee, Mortgage Borrower, Pledgor, Ground Lessor, the Collateral or any Individual Property, would reasonably be expected to materially adversely affect the condition (financial or otherwise) or business of Borrower, Mortgage Borrower, Pledgor, the Collateral, Operating Lessee, Ground Lessor or the condition or ownership of any Individual Property. 4.1.5 Agreements. Neither Borrower nor Pledgor is a party to any agreement or instrument or subject to any restriction which would reasonably be expected to materially and adversely affect Borrower, Mortgage Borrower, Operating Lessee, Pledgor, Ground Lessor, the Collateral or any Individual Property, or Borrower's, Pledgor's, Ground Lessor's, Mortgage Borrower's or Operating Lessee's business, properties or assets, operations or condition, financial or otherwise. Neither Borrower, Mortgage Borrower, Pledgor, Ground Lessor nor Operating Lessee is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which Borrower, Mortgage Borrower, Operating Lessee, Pledgor, Ground Lessor, the Collateral or any of the Properties are bound. Neither Borrower, Mortgage Borrower, Pledgor, Ground Lessor nor Operating Lessee has any material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower, -41- Mortgage Borrower, Pledgor, Ground Lessor or Operating Lessee is a party or by which Borrower, Mortgage Borrower, Pledgor, Ground Lessor, Operating Lessee, the Collateral or any Property is otherwise bound, other than (a) obligations incurred in the ordinary course of the business relating to the operation of the Collateral, (b) obligations incurred in the ordinary course of the business relating to Mortgage Borrower's ownership and operation of the Property and (c) obligations under the Loan Documents and the Mortgage Loan Documents, as applicable. 4.1.6 Title. (a) Each Loan Party purporting to grant a Lien on any Collateral in favor of Lender is the record and beneficial owner of, and has good and marketable title to, the Collateral, free and clear of all Liens whatsoever. The Pledge Agreement, together with the UCC Financing Statements relating to the Collateral when properly filed in the appropriate records, will create a valid, perfected first priority security interests in and to the Collateral, all in accordance with the terms thereof for which a Lien can be perfected by filing a UCC Financing Statement. For so long as the Lien of the Pledge Agreement is outstanding, Borrower and Pledgor shall forever warrant, defend and preserve such title and the validity and priority of the Lien of the Pledge Agreement and shall forever warrant and defend such title, validity and priority to Lender against the claims of all persons whomsoever. (b) Mortgage Borrower has good title to the Properties owns the Properties free and clear of all liens, encumbrances and charges whatsoever except for the Permitted Encumbrances. The Permitted Encumbrances do not and will not materially adversely affect or interfere with the value, or materially adversely affect or interfere with the current use or operation, of the Collateral or the ability of Borrower to repay the Note or any other amount owing under the Note, the Pledge Agreement, the Loan Agreement, or the other Loan Documents or to perform its obligations thereunder in accordance with the terms of the Loan Agreement, the Note, the Pledge Agreement or the other Loan Documents. Other than Mortgage Lender, no Person other than Mortgage Borrower owns any interest in any payments due under such Leases. Borrower shall cause Mortgage Borrower to forever warrant, defend and preserve the title to the Property and to forever warrant and defend the same to Mortgage Borrower for the benefit of Lender against the claims of all persons whomsoever. 4.1.7 Solvency. Neither Borrower nor Pledgor (a) has entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any creditor and (b) has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the Loan, the fair saleable value of Borrower's and Pledgor's assets exceeds and will, immediately following the making of the Loan, exceed Borrower's and Pledgor's total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. Borrower's and Pledgor'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. Neither Borrower nor Pledgor intends to incur debt and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debt and liabilities as they mature (taking into account the timing and amounts of cash to be received by Borrower and Pledgor and the amounts -42- to be payable on or in respect of obligations of Borrower and Pledgor). No petition under the Bankruptcy Code or similar state bankruptcy or insolvency law has been filed against Borrower, Mortgage Borrower, Ground Lessor, Pledgor, Operating Lessee or any constituent Person in the last seven (7) years, and neither Borrower, Pledgor nor any constituent Person 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. Neither Borrower, Pledgor nor any of its constituent Persons are contemplating either the filing of a petition by it under the Bankruptcy Code or similar state bankruptcy or insolvency law or the liquidation of all or a major portion of Borrower's or Pledgor's assets or property, and neither Borrower nor Pledgor has any knowledge of any Person contemplating the filing of any such petition against it or such constituent Persons. 4.1.8 Full and Accurate Disclosure. No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading in any material respects. No statement of fact made by Pledgor in the Pledgor Documents contain any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading in any material respect. There is no fact presently known to Borrower or Pledgor which has not been disclosed to Lender which materially and adversely affects, or would reasonably be expected to materially and adversely affect, the Collateral, any Individual Property or the business, operations or condition (financial or otherwise) of Borrower, Mortgage Borrower, Pledgor or Operating Lessee. 4.1.9 No Plan Assets. Neither Borrower nor Pledgor is a Plan and none of the assets of Borrower or Pledgor constitute or will constitute "Plan Assets" of one or more Plans. In addition, (a) neither Borrower nor Pledgor is a "governmental plan" within the meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower and Pledgor are not subject to State statutes regulating investment of, and fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Agreement. 4.1.10 Compliance. Borrower, Mortgage Borrower, Ground Lessor with respect to the Florida Properties, Pledgor, Operating Lessee and the Properties and the use thereof comply in all material respects with all applicable Legal Requirements, including, without limitation, to the best of Borrower's knowledge, all Environmental Laws, building and zoning ordinances and codes. Neither Borrower, Mortgage Borrower, Ground Lessor, Pledgor nor Operating Lessee is in default or violation in any material respect of any order, writ, injunction, decree or demand of any Governmental Authority. There has not been committed by Borrower, Mortgage Borrower, Pledgor, Operating Lessee or any other Person in occupancy of or involved with the operation or use of the Properties any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against any Individual Property or any part -43- thereof or any monies paid in performance of Borrower's or Pledgor's obligations under any of the Loan Documents. 4.1.11 Financial Information. All financial data, including, without limitation, the statements of cash flow and income and operating expense, that have been delivered to Lender by or on behalf of Borrower, Mortgage Borrower, Pledgor, Operating Lessee, the Collateral and the Properties (i) considered in the aggregate, are true, complete and correct in all material respects, (ii) fairly present the financial condition of Borrower, Mortgage Borrower, Pledgor, Operating Lessee, the Collateral and the Properties, as applicable, as of the date of such reports, and (iii) have been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein (but subject to normal year-end adjustments). Except for Permitted Encumbrances, neither Borrower nor Pledgor have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower or Pledgor and reasonably likely to have a materially adverse effect on the Collateral or any Individual Property or the operation of any Individual Property as hotels except as referred to or reflected in said financial statements. Since the date of the most recent such financial statements, there has been no materially adverse change in the financial condition, operations or business of Borrower, Mortgage Borrower, Pledgor or Operating Lessee from that set forth in said financial statements. 4.1.12 Condemnation. Except as provided on Schedule E attached hereto, no Condemnation or other similar proceeding has been commenced or, to the best of Borrower's and Pledgor's knowledge, is threatened or contemplated with respect to all or any portion of any Individual Property or for the relocation of roadways providing access to any Individual Property. 4.1.13 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 Agreement or the other Loan Documents. 4.1.14 Utilities and Public Access. Each Individual Property has rights of access to public ways and is served by public water, sewer, sanitary sewer and storm drain facilities adequate to service such Individual Property for its respective intended uses. All public utilities necessary or convenient to the full use and enjoyment of each Individual Property are located either in the public right-of-way abutting each Individual Property (which are connected so as to serve each Individual Property without passing over other property) or in recorded easements serving each Individual Property and such easements are set forth in and insured by the Owner's Title Policy. All roads necessary for the use of each Individual Property for their current respective purposes have been -44- completed, are physically open and, except as disclosed on the Surveys, are dedicated to public use and have been accepted by all Governmental Authorities. 4.1.15 Not a Foreign Person. Neither Borrower nor Pledgor is a "foreign person" within the meaning of Section 1445(f)(3) of the Code. 4.1.16 Separate Lots. Each Individual Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of such Individual Property. 4.1.17 Assessments. To the best of Borrower's knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting any Individual Property, nor are there any contemplated improvements to any Individual Property that may result in such special or other assessments. 4.1.18 Enforceability. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower or Pledgor, including the defense of usury, and neither Borrower nor Pledgor has asserted any right of rescission, set-off, counterclaim or defense with respect thereto. 4.1.19 No Prior Assignment. Other than under the Mortgage Loan Documents, there are no prior assignments of the Leases or any portion of the Rents due and payable or to become due and payable which are presently outstanding. There are no prior assignments of the Collateral which are presently outstanding except in accordance with the Loan Documents. 4.1.20 Insurance. Mortgage Borrower has obtained and Borrower has delivered to Lender certified copies of all insurance policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. To the best of Borrower's knowledge, no Person, including Borrower and Pledgor, has done, by act or omission, anything which would impair the coverage of any such policy. -45- 4.1.21 Intentionally Omitted. 4.1.22 Intentionally Omitted. 4.1.23 Intentionally Omitted. 4.1.24 Intentionally Omitted. 4.1.25 Intentionally Omitted. 4.1.26 Intentionally Omitted. 4.1.27 Intentionally Omitted. 4.1.28 Intentionally Omitted. 4.1.29 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Collateral to Borrower, the making of the Mortgage Loan, the Loan or the other transactions contemplated by this Agreement have been paid. All recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Pledge Agreement, have been paid. 4.1.30 Intentionally Omitted. 4.1.31 Intentionally Omitted. 4.1.32 Illegal Activity. No portion of any Individual Property or the Collateral has been or will be purchased by Mortgage Borrower or Operating Lessee with proceeds of any illegal activity and to the best of Borrower's knowledge, there are no illegal activities or activities relating to any controlled substances at any Individual Property. 4.1.33 No Change in Facts or Circumstances; Disclosure. All information submitted by Borrower and Pledgor to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by Borrower and Pledgor in this Agreement or in any other Loan Document, considered in the aggregate, are accurate, complete and correct in all material respects. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects or would reasonably be expected to materially and adversely -46- affect the use, operation or value of the Properties or the business operations or the financial condition of Borrower, Mortgage Borrower, Pledgor or Operating Lessee. 4.1.34 Investment Company Act. Neither Borrower nor Pledgor 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. 4.1.35 Principal Place of Business; State of Organization. Borrower's principal place of business as of the date hereof is the address set forth in the introductory paragraph of this Agreement. Borrower is organized under the laws of the State of Delaware and its organizational identification number is 3643667. 4.1.36 Single Purpose Entity. Borrower covenants and agrees that its Organizational Documents shall provide that it has not, and shall not, and that the Organizational Documents of its general partner(s), if Borrower is a partnership, or its managing member(s), if Borrower is a limited liability company (in each case, "Principal") shall provide that it has not and shall not: (a) with respect to Borrower, engage in any business or activity other than the acquisition, ownership, and managing of the Collateral, and entering into 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 Borrower, and activities incidental thereto; (b) with respect to Borrower, acquire or own any material assets other than (i) the Collateral, and (ii) such incidental personal property as may be necessary for the ownership of the Collateral, and with respect to Principal, acquire or own any material asset other than its interest in Borrower; (c) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure; (d) (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 or (ii) without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of Borrower's Partnership Agreement, Articles of Organization or similar Organizational Documents, as the case may be, or of Principal's Certificate of Incorporation, Articles of Organization or similar Organizational Documents, as the case may be, whichever is applicable; -47- (e) own any subsidiary or make any investment in, any Person (other than Mortgage Borrower) without the prior written consent of Lender; (f) 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 (other than pursuant to the Mortgage Loan Agreement) with any other entity or Person or fail to use its own separate stationery, invoices and checks; (g) with respect to Borrower, incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Debt, except for liabilities incurred in the ordinary course of business relating to the ownership of the Collateral and the routine administration of Borrower, in amounts not to exceed $50,000 which liabilities are not more than sixty (60) days past due and are not evidenced by a note, and with respect to Principal, incur any debt secured or unsecured, direct or contingent (including guaranteeing any obligations), except for liabilities incurred in the ordinary course of business relating to the ownership of its interest in Borrower and the routine administration of Principal, in amounts not to exceed $50,000 which liabilities are not more than sixty (60) days past due and are not evidenced by a note; (h) 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; (i) (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 Principal, as the case may be, the Affiliates of a member, general partner or principal of Borrower or of Principal, as the case may be, and any other Person, (ii) permit its assets or liabilities to be listed as assets or liabilities on the financial statement of any other Person or (iii) include the assets or liabilities of any other Person on its financial statements; except for consolidated financial statements which contain a note indicating that Borrower's and Principal's separate assets and liabilities are neither available to pay the debts of the consolidated entity nor constitute obligations of the consolidated entity; (j) other than as required pursuant to the Loan Documents, enter into any contract or agreement with any member, general partner, principal or Affiliate of Borrower or of Principal, as the case may be, Guarantor, Indemnitor, or any member, general partner, principal or Affiliate thereof (other than a 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 Borrower and (iii) the agreement meets the standards set forth in this subsection (j) 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 Borrower or of Principal, as the case may be, Guarantor, Indemnitor or any member, general partner, principal or Affiliate thereof; -48- (k) seek the dissolution or winding up in whole, or in part, of Borrower or of Principal, as the case may be; (l) fail to correct any known misunderstandings regarding the separate identity of Borrower, or of Principal, as the case may be, or any member, general partner, principal or Affiliate thereof or any other Person; (m) guarantee or become obligated for the debts of any other Person or hold itself out to be responsible for the debts of another Person; (n) make any loans or advances to any third party, including any member, general partner, principal or Affiliate of Borrower or of 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 Borrower or Principal, as the case may be, or any member, general partner, or Affiliate thereof; (o) fail to file its own tax returns or be included on the tax returns of any other Person except as required by Applicable Law; (p) fail either to hold itself out to the public as a legal entity separate and distinct from any other 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 Borrower or of 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 Borrower or Principal, as the case may be, is responsible for the debts of any third party (including any member, general partner, principal or Affiliate of Borrower, or of Principal, as the case may be, or any member, general partner, principal or Affiliate thereof); (q) 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; (r) share any common logo (other than a name franchised or licensed to it by an entity other than an Affiliate of Borrower or of Principal) with or hold itself out as or be considered as a department or division of (i) any general partner, principal, member or Affiliate of Borrower or of Principal, as the case may be, (ii) any Affiliate of a general partner, principal or member of Borrower or of Principal, as the case may be, or (iii) any other Person; (s) 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; (t) pledge its assets for the benefit of any other Person, and (i) with respect to Borrower, other than with respect to the Loan and (ii) with respect to Principal, other than with respect to the Junior Mezzanine Loan; (u) fail to maintain a sufficient number of employees in light of its contemplated business operations; -49- (v) fail to provide in its (i) Articles of Organization, 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, this Agreement and the other Loan Documents, 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 Director and of all other general partners/managing members/directors; (w) fail to hold its assets in its own name; (x) if Borrower or Principal is a corporation, fail to consider the interests of its creditors in connection with all corporate actions to the extent required by Applicable Law; (y) have any of its obligations guaranteed by an Affiliate; (z) violate or cause to be violated the assumptions made with respect to Borrower and Principal in the Insolvency Opinion; (aa) with respect to Principal, or if Borrower is a single member limited liability company that complies with the requirements of Section 4.1.35(cc) below, fail at any time to have at least one independent director/manager (an "Independent Director") that is not and has not been for at least five (5) years: (a) a stockholder, director (other than an independent director of an Affiliate of Borrower), officer, employee, partner, member, attorney or counsel of Mortgage Borrower, Borrower or of Principal or any Affiliate of either of them; (b) a customer, supplier or other Person who derives its purchases or revenues (other than any fee paid to such director as compensation for such director to serve as an Independent Director) from its activities with Mortgage Borrower, Borrower, Principal or any Affiliate of either of them (a "Business Party"); (c) a person or other entity controlling or under 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. Notwithstanding the foregoing, no Independent Director shall also serve as an Independent Director (as such term is defined in the Mortgage Loan Agreement) for Mortgage Borrower; or (bb) with respect to Principal, or if Borrower is a single member limited liability company that complies with the requirements of Section 4.1.35(cc) below, permit its board of directors/managers to take any action which, under the terms of any certificate of incorporation, by-laws, voting trust agreement with respect to any common stock or other applicable Organizational Documents, requires the unanimous vote of one hundred percent (100%) of the members of the board without the vote of the Independent Director. (cc) In the event Borrower is a Delaware limited liability company that does not have a managing member (other than a sole member) which complies with the requirements for a Principal under this Section 4.1.35, the limited liability company agreement of Borrower (the "LLC Agreement") shall provide that (A) upon the occurrence of any event that causes the last -50- remaining member of Borrower ("Member") to cease to be the member of Borrower (other than (1) upon an assignment by Member of all of its limited liability company interest in Borrower and the admission of the transferee in accordance with the Loan Documents and the LLC Agreement, or (2) the resignation of Member and the admission of an additional member of Borrower in accordance with the terms of the Loan Documents and the LLC Agreement), any person designated by Borrower shall, without any action of any other Person and simultaneously with the Member ceasing to be the member of Borrower, automatically be admitted to Borrower ("Special Member") and shall continue Borrower without dissolution and (B) Special Member may not resign from Borrower or transfer its rights as Special Member unless a successor Special Member has been admitted to Borrower as Special Member in accordance with requirements of Delaware law. The LLC Agreement shall further provide that (v) Special Member shall automatically cease to be a member of Borrower upon the admission to Borrower of a substitute Member, (w) Special Member shall be a member of Borrower that has no interest in the profits, losses and capital of Borrower and has no right to receive any distributions of Borrower assets, (x) pursuant to Section 18-301 of the Delaware Limited Liability Company Act (the "Act"), Special Member shall not be required to make any capital contributions to Borrower and shall not receive a limited liability company interest in Borrower, (y) Special Member, in its capacity as Special Member, may not bind Borrower and (z) except as required by any mandatory provision of the Act, Special Member, in its capacity as Special Member, shall have no right to vote on, approve or otherwise consent to any action by, or matter relating to, Borrower, including, without limitation, the merger, consolidation or conversion of Borrower. In order to implement the admission to Borrower of Special Member, Special Member shall execute a counterpart to the LLC Agreement. Prior to its admission to Borrower as Special Member, Special Member shall not be a member of Borrower. Upon the occurrence of any event that causes the Member to cease to be a member of Borrower, to the fullest extent permitted by law, the personal representative of Member shall, within ninety (90) days after the occurrence of the event that terminated the continued membership of Member in Borrower, agree in writing (A) to continue Borrower and (B) to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of Borrower, effective as of the occurrence of the event that terminated the continued membership of Member of Borrower in Borrower. Any action initiated by or brought against Member or Special Member under any Creditors Rights Laws shall not cause Member or Special Member to cease to be a member of Borrower and upon the occurrence of such an event, the business of Borrower shall continue without dissolution. The LLC Agreement shall provide that each of Member and Special Member waives any right it might have to agree in writing to dissolve Borrower upon the occurrence of any action initiated by or brought against Member or Special Member under any Creditors Rights Laws, or the occurrence of an event that causes Member or Special Member to cease to be a member of Borrower. (dd) Mortgage Borrower is, shall be and shall continue to comply with the provisions of Section 4.1.35 of the Mortgage Loan Agreement. 4.1.37 Business Purposes. The Loan is solely for the business purpose of Borrower, and is not for personal, family, household, or agricultural purposes. -51- 4.1.38 Taxes. Borrower and Pledgor have filed all federal, State, county, municipal, and city income and other tax returns required to have been filed by it and has paid, prior to delinquency thereof, all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by it. Borrower and Pledgor know of no basis for any additional assessment in respect of any such taxes and related liabilities for prior years. 4.1.39 Intentionally Omitted. 4.1.40 Environmental Representations and Warranties. Borrower represents and warrants, except as disclosed on those certain written reports identified on Schedule XI attached hereto and made a part hereof (collectively, the "Environmental Report") of each Individual Property that: (a) there are no Hazardous Materials or underground storage tanks in, on, or under any of the Properties, except those that are both (i) in compliance with current 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, clean, repair and maintain the applicable Individual Property or each tenant's respective business at such Individual Property as set forth in their respective Leases, or (B) held by a tenant for sale to the public in its ordinary course of business, (b) there are no past, present or threatened Releases of Hazardous Materials in violation of any Environmental Law and which would require remediation by a Governmental Authority in, on, under or from any of the Properties; (c) there is no threat of any Release of Hazardous Materials migrating to any of the Properties; (d) there is no present or, to Borrower's knowledge prior non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with any of the Properties except as described in the Environmental Reports; (e) Borrower and Pledgor do not know of, and has not received and Mortgage Borrower has not received, any written or oral notice or other communication from any Person (including but not limited to a Governmental Authority) relating to Hazardous Materials in, on, under or from any of the Properties; and (f) Borrower and Pledgor have truthfully and fully provided to Lender, in writing, any and all information relating to environmental conditions in, on, under or from any of the Properties known to Borrower, Mortgage Borrower, Pledgor or Operating Lessee or contained in Borrower's, Mortgage Borrower's, Pledgor's or Operating Lessee's files and records, including but not limited to any reports relating to Hazardous Materials in, on, under or migrating to or from any of the Properties and/or to the environmental condition of the Properties. 4.1.41 Taxpayer Identification Number. Borrower's United States taxpayer identification number is 51-0456728. 4.1.42 OFAC. Borrower represents and warrants that neither Borrower, Mortgage Borrower, Pledgor, Operating Lessee, Guarantor, Indemnitor or any of their respective Affiliates is a Prohibited Person, and Borrower, Mortgage Borrower, Pledgor, Operating Lessee, Guarantor, Indemnitor and their respective Affiliates are in compliance in all material respects with all applicable -52- orders, rules, regulations and recommendations of The Office of Foreign Assets Control of the U.S. Department of the Treasury. 4.1.43 Ground Lease Representations. (a) (i) Each Ground Lease is in full force and effect and has not been modified or amended in any manner whatsoever, (ii) there are no defaults under any Ground Lease by Mortgage Borrower or Ground Lessor, and no event has occurred which but for the passage of time, or notice, or both would constitute a default under such Ground Lease, (iii) all rents, additional rents and other sums due and payable under each Ground Lease have been paid in full, and (iv) neither Mortgage Borrower nor the Ground Lessor has commenced any action or given or received any notice for the purpose of terminating such Ground Lease; (b) Each Security Instrument which is secured by Mortgage Borrower's interest in a Ground Lease is also secured by the related fee interest in the applicable Property, and the fee interest is subject and subordinate of record to the applicable Security Instrument, and such Security Instrument does not by its terms provide that it will be subordinated to the Lien of any other mortgage or other Lien upon such fee interest, and upon the occurrence of a Mortgage Loan Event of Default, Mortgage Lender has the right to foreclose or otherwise exercise its rights with respect to the fee interest within a commercially reasonable time; (c) The Ground Leases or a memorandum thereof have been duly recorded, the Ground Leases permit the interest of the lessee thereunder to be encumbered by the applicable Security Instrument, and there has not been any change in the terms of the Ground Leases since their recordation. The Ground Leases cannot be cancelled, terminated, surrendered or amended without the prior written consent of Lender; (d) Mortgage Borrower's interest in the Ground Leases are not subject to any Liens superior to, or of equal priority with, the applicable Security Instrument; (e) Mortgage Borrower's interest in the Ground Leases are assignable upon notice to, but without the consent of, the lessor thereunder and, in the event that it is so assigned, it is further assignable upon notice to, but without the need to obtain the consent of, such lessor; (f) The Ground Leases require the lessor thereunder to give notice of any default by Mortgage Borrower to Lender and the Ground Leases further provide that notice of termination given under the Ground Leases are not effective against Lender unless a copy of the notice has been delivered to Lender in the manner described in the applicable Ground Lease; (g) Lender is permitted a reasonable opportunity (including, where necessary, sufficient time to gain possession of the interest of Mortgage Borrower under the Ground Leases) to cure any default under the Ground Leases, which is curable after the receipt of notice of any default before the lessor thereunder may terminate such Ground Lease; (h) The Ground Leases have a term which extends not less than twenty (20) years beyond the Maturity Date; -53- (i) The Ground Leases require the Ground Lessor to enter into a new lease upon termination of the applicable Ground Lease for any reason, including rejection of such Ground Lease in a bankruptcy proceeding; (j) Under the terms of each Ground Lease and the applicable Loan Documents, taken together, any Net Proceeds will be applied either to the Restoration of all or part of the Properties, with Mortgage Lender or a trustee appointed by Mortgage Lender having the right to hold and disburse such Net Proceeds as the Restoration progresses, or to the payment of the outstanding principal balance of the Mortgage Loan together with any accrued interest thereon; and (k) The Ground Leases do not impose restrictions on subletting. 4.1.44 Intentionally Omitted. 4.1.45 Operating Company Status. Pledgor qualifies as an "operating company," as such term is defined in the regulation issued by the U.S. Department of Labor known as the "plan assets regulation," 29 C.F.R. Section 2510.3-101 and, as long as the Loan is outstanding, Pledgor will remain at all times an operating company, as so defined. 4.1.46 Affiliates. Neither Borrower nor Pledgor owns any equity interests in any other Person other than the related Pledged Member Interests. 4.1.47 Mortgage Borrower/Loan Representations. (a) Borrower has reviewed the representations and warranties made by, and covenants of, Mortgage Borrower to and for the benefit of Mortgage Lender contained in the Mortgage Loan Documents and such representations and warranties are true, correct and complete with respect to Mortgage Borrower and Borrower in all material respects. (b) All of the representations and warranties contained in the Mortgage Loan Documents are hereby incorporated into this Agreement and deemed made hereunder as and when made thereunder and shall remain incorporated without regard to any waiver, amendment or other modification thereof by Mortgage Lender or to whether the Mortgage Loan has been repaid or otherwise terminated, unless otherwise consented to in writing by Lender. 4.1.48 List of Mortgage Loan Documents. There are no Mortgage Loan Documents other than those set forth on Schedule XIII attached hereto. Borrower has or has caused to be delivered to Lender true, complete and correct copies of all Mortgage Loan Documents, and none of the Mortgage Loan Documents has been amended or modified as of the date thereof. -54- 4.1.49 Mortgage Loan Event of Default. No Mortgage Loan Event of Default or an event or circumstance has occurred which with the giving of notice or the passage of time, or both, would constitute a Mortgage Loan Event of Default exists as of the date hereof. 4.1.50 Affiliation. Neither Borrower, Principal, Pledgor nor the Manager is Affiliate of Capital Trust, Inc. or Citigroup, Inc. SECTION 4.2 Survival of Representations. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. V. BORROWER COVENANTS SECTION 5.1 Affirmative Covenants. From the date hereof and until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release in full of Lender's Liens encumbering the Collateral (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender that: 5.1.1 Existence; Compliance with Legal Requirements. (a) Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises, and comply, or cause Mortgage Borrower to comply, in all material respects, with all Legal Requirements applicable to it, the Collateral and the Properties. There shall never be committed by Borrower, and Borrower shall not permit or cause Mortgage Borrower to permit any other Person in occupancy of or involved with the operation or use of the Properties any act or omission affording the federal government or any State or local government the right of forfeiture against any Individual Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to permit or cause Mortgage Borrower to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall, or shall cause Pledgor to cause Operating Lessee to, at all times cause Mortgage Borrower to keep, maintain, preserve and protect all franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and shall keep the Properties in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Loan Documents. Borrower shall cause Mortgage Borrower to keep, the Properties insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain -55- liability and such other insurance, as is more fully provided in this Agreement. Borrower shall cause Mortgage Borrower or Pledgor shall cause Operating Lessee to operate any Individual Property that is the subject of any O&M Program in accordance with the terms and provisions thereof in all material respects. (b) After prior written notice to Lender, Borrower, at its own expense, may, or cause Mortgage Borrower to contest by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to Borrower, Mortgage Borrower or any Individual Property or any alleged violation of any Legal Requirement, provided that (i) no Event of Default has occurred and remains uncured; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all Applicable Laws; (iii) neither any Individual Property nor the Collateral, nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) Borrower shall, and shall cause Mortgage Borrower to, promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any such Legal Requirement; (v) such proceeding shall suspend the enforcement of the contested Legal Requirement against Borrower, Mortgage Borrower, the Collateral or any Individual Property; and (vi) Borrower shall furnish to Lender or cause Mortgage Borrower to furnish to Mortgage Lender such security as may be required in the proceeding, or as may be reasonably requested by Mortgage Lender or Lender, as the case may be, to insure compliance with such Legal Requirement, together with all interest and penalties payable in connection therewith. Lender may apply any such security or part thereof, furnished to it by Borrower, as necessary to cause compliance with such Legal Requirement at any time when, in the judgment of Lender, the validity, applicability or violation of such Legal Requirement is finally established or any Individual Property or the Collateral (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost. 5.1.2 Taxes and Other Charges. Borrower shall cause Mortgage Borrower to pay, all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Properties or any part thereof prior to delinquency thereof. Borrower shall furnish, or cause to be furnished, to Lender receipts, or other evidence for the payment of the Taxes and the Other Charges prior to the date the same shall become delinquent (provided, however, that Borrower is not required to furnish such receipts for payment of Taxes in the event that such Taxes are being paid by Mortgage Lender pursuant to Section 7.2 of the Mortgage Loan Agreement). Borrower shall not suffer and shall not permit Mortgage Borrower to suffer and shall promptly cause Mortgage Borrower to promptly pay and discharge any Lien or charge whatsoever which may be or become a Lien or charge against the Properties, and shall promptly pay for all utility services provided to the Properties. After prior written notice to Lender, Borrower may, or may cause Mortgage Borrower to, 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 Taxes or Other Charges, provided that (i) no Event of Default has occurred and remains uncured; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions -56- of any other instrument to which Borrower and Mortgage Borrower are subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all Applicable Laws; (iii) neither the Collateral nor any Individual Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) Borrower shall cause Mortgage Borrower to, promptly upon final determination thereof pay the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (v) such proceeding shall suspend the collection of such contested Taxes or Other Charges from the applicable Individual Property; and (vi) Borrower shall cause Mortgage Borrower to furnish such security as may be required in the proceeding, or as may be requested by Mortgage Lender, or Borrower shall furnish such security as may be required in the proceeding, or as may be requested by Lender, in each case, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon. Lender may apply such security or part thereof held by Lender at any time when, in the judgment of Lender, (i) any asset of Borrower (or part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any danger of the Lien or the Pledge Agreement being primed by any related Lien, or (ii) the validity or applicability of such Taxes or Other Charges are established or any Individual Property (or part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any danger of the Lien of any Security Instrument being primed by any related Lien. 5.1.3 Litigation. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened against Borrower, Mortgage Borrower, Pledgor, Operating Lessee or Ground Lessor which might materially adversely affect Borrower's, Mortgage Borrower's, Pledgor's, Operating Lessee's or Ground Lessor's condition (financial or otherwise) or business or any Individual Property. 5.1.4 Access to Properties. Borrower shall cause Mortgage Borrower (and Pledgor shall cause Operating Lessee) to permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice. 5.1.5 Notice of Default. Borrower shall promptly advise Lender of any material adverse change in Borrower's or Mortgage Borrower's condition, financial or otherwise, or of the occurrence of any Default or Event of Default of which Borrower has knowledge. 5.1.6 Cooperate in Legal Proceedings. Borrower shall cooperate, and shall cause each Loan Party to cooperate, fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way adversely affect the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings. -57- 5.1.7 Award and Insurance Benefits. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Awards or Insurance Proceeds lawfully or equitably payable in connection with any Individual Property, and Lender shall be reimbursed for any expenses incurred in connection therewith (including attorneys' fees and disbursements, and the payment by Borrower of the expense of an appraisal on behalf of Lender in case of Casualty or Condemnation affecting any Individual Property or any part thereof) out of such Award or Insurance Proceeds. 5.1.8 Further Assurances. Borrower shall and shall cause each Loan Party, at Borrower's sole cost and expense: (a) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or reasonably requested by Lender in connection therewith; (b) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the obligations of Borrower under the Loan Documents, as Lender may reasonably require including, without limitation, the authorization of Lender to execute and/or the execution by Borrower of UCC financing statements and the execution and delivery of all such writings necessary to transfer any liquor licenses into the name of Lender or its designee after the occurrence of any Event of Default; and (c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time. 5.1.9 Mortgage and Intangible Taxes. Borrower shall pay (to the extent permitted by Applicable Law) all State, county and municipal recording, intangible, and all other taxes imposed upon the execution and recordation of the UCC Financing Statements and/or upon the execution and delivery of the Note. 5.1.10 Financial Reporting. (a) Borrower and Pledgor will keep and maintain on a Fiscal Year basis, in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and Peldgor and all items of income and expense with respect to the Collateral. Borrower will cause Mortgage Borrower and Pledgor shall cause Operating Lessee to keep and maintain on a Fiscal Year basis, in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs -58- of Mortgage Borrower and Operating Lessee and all items of income and expense in connection with the operation on an individual basis of the Properties. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower, Mortgage Borrower or any other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. Upon the occurrence and during the continuance of an Event of Default, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower's accounting records with respect to the Collateral and Mortgage Borrower's accounting records with respect to the Properties, as Lender shall determine to be necessary or appropriate. (b) Borrower will furnish, and cause to be furnished, to Lender annually, within ninety (90) days following the end of each Fiscal Year, a complete copy of Borrower's unaudited annual financial statements prepared in accordance with GAAP (or such other accounting basis acceptable to Lender) covering the Collateral owned by Borrower for such Fiscal Year and containing statements of profit and loss for Borrower and the balance sheet for Borrower. In addition, upon written request of Lender, Borrower shall cause Mortgage Borrower to provide Lender with pace/advance booking reports for each Individual Property. (c) Borrower will furnish, or cause Mortgage Borrower to furnish, to Lender a copy of the financial statements and all other materials Mortgage Borrower is required to provide Mortgage Lender under Section 5.1.10 of the Mortgage Loan Agreement within the time periods required under such Section; provided, however, Borrower will cause Mortgage Borrower to furnish to Lender all of the items required pursuant to Section 5.1.10(c) of the Mortgage Loan Agreement (other than 5.1.10(c) (iii) thereof) on a monthly basis (within twenty (20) days after the end of each calendar month) notwithstanding any other delivery requirement contained in such Section 5.1.10(c) of the Mortgage Loan Agreement. (d) Beginning in Fiscal Year 2004 and for each Fiscal Year thereafter, (I) Borrower shall cause Mortgage Borrower to submit to Lender a preliminary Annual Budget for each Individual Property not later than thirty (30) days prior to the commencement of such Fiscal Year and (II) Borrower shall cause Mortgage Borrower to submit to Lender a final proposed Annual Budget for each Individual Property not later than sixty (60) days after to the commencement of such Fiscal Year, each in form reasonably satisfactory to Lender, and shall be subject to Lender's written approval (each such Annual Budget after it has been approved in writing by Lender shall be hereinafter referred to as an "Approved Annual Budget") . In the event that Lender objects to either the preliminary or final proposed Annual Budget submitted by Borrower, Lender shall advise Mortgage Borrower and Borrower of such objections within fifteen (15) days after receipt respectively thereof (and deliver to Mortgage Borrower and Borrower a reasonably detailed description of such objections) and Borrower shall cause Mortgage Borrower to promptly revise such Annual Budget and resubmit the same to Lender. Lender shall advise Borrower of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall cause Mortgage Borrower to promptly revise the same in accordance with the process described in this subsection until Lender approves the Annual Budget. Until such time that Lender approves a proposed Annual Budget, the most recently Approved Annual Budget shall apply; provided that, such Approved Annual Budget shall be adjusted to reflect actual increases in Taxes, Insurance Premiums and utilities expenses. Any -59- such preliminary or final proposed Annual Budget submitted to Lender for Lender's approval shall be deemed approved if (i) Lender shall have failed to notify Borrower of its approval or disapproval within fifteen (15) Business Days (the "Budget Approval Period") following Lender's receipt of Borrower's written request together with such preliminary or final proposed Annual Budget, as the case may be, and any and all required information and documentation required by Lender to reach a decision (ii) Borrower shall have delivered to Lender a written notice of Lender's failure to respond to Borrower's request within the Approval Period (the "Failure to Respond Notice") , and (iii) Lender shall have failed to notify Borrower of its approval or disapproval within five (5) Business Days following Lender's receipt of the Failure to Respond Notice, provided, such request to Lender is marked in bold lettering with the following language: "LENDER'S RESPONSE IS REQUIRED WITHIN FIFTEEN (15) \FIVE (5) BUSINESS DAYS OF RECEIPT OF THIS NOTICE PURSUANT TO THE TERMS OF A LOAN AGREEMENT BETWEEN THE UNDERSIGNED AND LENDER" and the envelope containing the request must be marked "PRIORITY". (e) Borrower shall furnish or cause Mortgage Borrower to furnish to Lender, within ten (10) Business Days after written request such further detailed information with respect to the operation of the Properties and the financial affairs of Borrower or Mortgage Borrower as may be reasonably requested by Lender. (f) Any reports, statements or other information required to be delivered under this Agreement shall be delivered (i) in paper form, (ii) if requested by Lender, on a diskette or via email, and (iii) if requested by Lender and within the capabilities of Borrower's or Mortgage Borrower's, as applicable, data systems without change or modification thereto, in electronic form and prepared using a Microsoft Excel, Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files) . (g) Borrower agrees that Lender may forward to each purchaser, transferee, assignee, servicer, participant, or investor in all or any portion of the Loan (collectively, the "Investor") or any Rating Agency rating such participations and 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 Borrower, Mortgage Borrower, any Guarantor, any Indemnitor, the Collateral and the Properties, whether furnished by Borrower, Mortgage Borrower, any Guarantor, any Indemnitor or otherwise, as Lender determines necessary or desirable. To the fullest extent permitted by Applicable Laws, Borrower irrevocably waives any and all rights it may have under any Applicable Laws to prohibit such disclosure, including, but not limited, to any right of privacy. (h) Borrower shall promptly deliver to Lender true, correct an complete copies of any franchise inspection reports received by Mortgage Borrower or Operating Lessee from any Franchisor. -60- 5.1.11 Business and Operations. Borrower will cause Mortgage Borrower and Pledgor will cause Operating Lessee to continue to be engaged in the businesses presently conducted by them as and to the extent the same are necessary for the ownership, maintenance, management and operation of the Properties. Borrower will and shall cause Mortgage Borrower and Pledgor will cause Operating Lessee to remain in good standing under the laws of each jurisdiction to the extent required for the ownership, maintenance, management and operation of the Properties. 5.1.12 Costs of Enforcement. In the event (a) that Lender exercises any of its rights or remedies under the Pledge Agreement or any other Loan Document as and when permitted thereby, or (b) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Mortgage Borrower, Borrower, Ground Lessor, Pledgor, Operating Lessee or any of its constituent Persons or an assignment by Borrower or any of their constituent Persons for the benefit of its creditors or (c) Lender incurs any costs or expenses in connection with any refinancing or restructuring of the Loan in the nature of a workout, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense and all other expenses, including attorneys' fees and costs, incurred by Lender in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes. 5.1.13 Estoppel Statement. (a) After written request by Lender, Borrower shall within ten (10) Business Days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the Applicable Interest Rate of the Note, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, and (vi) that the Note, this Agreement, the Pledge Agreement and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (a) Borrower shall cause Mortgage Borrower to deliver to Lender upon request, tenant estoppel certificates from each commercial tenant leasing space at the Properties in form and substance reasonably satisfactory to Lender. (c) Borrower shall use commercially reasonable efforts, promptly upon request of Lender, to cause Mortgage Borrower to 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 Lessee 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 Lessee 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. -61- (d) Borrower shall, promptly upon request of Lender, cause Mortgage Borrower to deliver to Lender an estoppel certificate from Operating Lessee stating that (i) the Operating Lease is in full force and effect and has not been modified, amended or assigned, (ii) neither Operating Lessee nor Mortgage Borrower is in default under any of the terms, covenants or provisions of the Operating Lease and Operating Lessee 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 Operating Lease, (iii) neither Operating Lessee nor Mortgage Borrower has commenced any action or given or received any notice for the purpose of terminating the Operating Lease and (iv) all sums due and payable under the Operating Lease have been paid in full. (e) Borrower shall, promptly upon request of Lender, cause Mortgage Borrower to deliver to Lender an estoppel certificate from each Ground Lessor stating that (i) the applicable Ground Lease is in full force and effect and has not been modified, amended or assigned, (ii) neither Ground Lessor nor Mortgage Borrower is in default under any of the terms, covenants or provisions of the Ground Lease and Ground Lessor 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 Ground Lease, (iii) neither Ground Lessor nor Mortgage Borrower has commenced any action or given or received any notice for the purpose of terminating the Ground Lease and (iv) all sums due and payable under the Ground Lease have been paid in full. 5.1.14 Loan Proceeds. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the purposes set forth in Section 2.1.4. 5.1.15 Performance by Borrower. (a) Borrower shall in a timely manner observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior written consent of Lender. (b) Borrower shall not cause or permit Mortgage Borrower to enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Mortgage Loan Document executed and delivered by, or applicable to, Mortgage Borrower as of the date hereof without the prior written consent of Lender. Borrower shall cause Mortgage Borrower to provide Lender with a copy of any amendment, waiver, supplement, termination or other modification to the Mortgage Loan Documents within five (5) days after the execution thereof. Borrower shall not, and shall not permit any Loan Party to, amend or modify the Organizational Documents of any Loan Party in any respect which would (i) limit distributions to be made to Borrower, (ii) limit cure rights of Borrower, (iii) modify the special purpose entity requirements set forth therein or (iv) would in any other respect have any adverse effect on Lender without Lender's consent. -62- 5.1.16 Confirmation of Representations. Borrower shall deliver, in connection with any Lender Transaction, (a) one or more Officer's Certificates certifying as to the accuracy of all representations made by Borrower in the Loan Documents as of the date of the closing of such Lender Transaction in all relevant jurisdictions, and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of Borrower, Principal and the Pledgor SPE Entities as of the date of the closing of such Lender Transaction. 5.1.17 Leasing Matters. (a) Borrower shall cause Mortgage Borrower to comply with the provisions of Section 5.1.17 of the Mortgage Loan Agreement. All proposed Leases which do not satisfy the requirements set forth in this Section 5.1.17(a) shall be subject to the prior approval of Lender, which approval shall not be unreasonably withheld. At Lender's request, Borrower shall cause Mortgage Borrower to promptly deliver to Lender copies of all Leases which are entered into pursuant to this Subsection together with Borrower's certification that it has satisfied or caused Mortgage Borrower to have satisfied all of the conditions of this Section. (b) Borrower may cause Mortgage Borrower or Pledgor may cause Operating Lessee, without the consent of Lender, to amend, modify or waive the provisions of any Lease or terminate, reduce rents under, accept a surrender of space under, or shorten the term of, any Lease (including any guaranty, letter of credit or other credit support with respect thereto) provided that such Lease is not a Major Lease and that such action (taking into account, in the case of a termination, reduction in rent, surrender of space or shortening of term, the planned alternative use of the affected space) does not have a material adverse effect on the value of the applicable Individual Property taken as a whole, and provided that such Lease, as amended, modified or waived, is otherwise in compliance with the requirements of this Agreement. A termination of a Lease (other than a Major Lease) with a tenant who is in default beyond applicable notice and grace periods shall not be considered an action which has a material adverse effect on the value of the applicable Individual Property taken as a whole. Any amendment, modification, waiver, termination, rent reduction, space surrender or term shortening which does not satisfy the requirements set forth in this Subsection shall be subject to the prior written approval of Lender and its counsel, at Borrower's expense. At Lender's request, Borrower shall cause Mortgage Borrower to promptly deliver to Lender copies of all Leases, amendments, modifications and waivers which are entered into pursuant to this Section 5.1.17(b) together with Borrower's certification that it has satisfied or caused to be satisfied all of the conditions of this Section 5.1.17(b). (c) Notwithstanding anything contained herein to the contrary, with respect to any Individual Property, Borrower shall cause Mortgage Borrower to not (and Pledgor shall cause Operating Lessee to not) without the prior written consent of Lender, enter into, materially amend, materially modify, waive any material provisions of, terminate, reduce rents under, accept a surrender of space under, or shorten the term of, or renew or extend upon terms and conditions less favorable to Operating Lessee, any Major Lease or any instrument guaranteeing or providing credit support for any Major Lease. -63- 5.1.18 Management Agreement. (a) The Improvements on the Properties are operated under the terms and conditions of the Management Agreement. In no event shall the base management fees under the Management Agreement exceed (I) with respect to the Properties managed by Six Continents Hotels, the sum of (x) five percent (5%) of total room revenue and (y) two percent (2%) of total revenue; provided, however, Six Continents Hotels shall not charge any additional franchise fees in connection with such Properties and (II) with respect to the Properties managed by any Person other than Six Continents Hotels, four percent (4%) of the gross income derived from the Property (excluding any incentive management fees which are subordinate to the Loan). Borrower shall cause Mortgage Borrower (or Pledgor shall cause Operating Lessee to) (i) diligently perform and observe all of the terms, covenants and conditions of the Management Agreement, on the part of Operating Lessee to be performed and observed to the end that all things shall be done which are necessary to keep unimpaired the rights of Operating Lessee under the Management Agreement and (ii) promptly notify Lender of the giving of any notice by Manager to Operating Lessee of any default by Operating Lessee in the performance or observance of any of the terms, covenants or conditions of the Management Agreement on the part of Operating Lessee to be performed and observed and deliver to Lender a true copy of each such notice. Borrower shall cause Mortgage Borrower and/or Pledgor shall cause Operating Lessee to not surrender the Management Agreement, consent to the assignment by the Manager 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. Subject to the rights of Mortgage Lender, if Operating Lessee shall default in the performance or observance of any material term, covenant or condition of the Management Agreement on the part of Operating Lessee to be performed or observed, then, without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrower from any of its obligations hereunder, Borrower shall cause Mortgage Borrower to permit Lender 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 Lessee to be performed or observed to be promptly performed or observed on behalf of Operating Lessee, to the end that the rights of Mortgage Borrower in, to and under the Management Agreement shall be kept unimpaired and free from default; provided, however, that Lender shall have no such obligation to perform any such action. Borrower shall cause Lender and any Person designated by Lender by written notice to Borrower to have the right to enter upon the applicable Individual Property at any time and from time to time for the purpose of taking any such action. If the Manager shall deliver to Lender a copy of any notice sent to Borrower or Mortgage Borrower and/or Pledgor or Operating Lessee 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. Borrower shall cause Mortgage Borrower and/or Pledgor shall cause Operating Lessee to not, and shall not permit the Manager to, sub-contract all or any material portion of its management responsibilities under the Management Agreement to a third-party without the prior written consent of Lender. Pledgor shall cause Operating Lessee to request of Manager and deliver to Lender upon receipt such certificates of estoppel with respect to compliance by Operating Lessee with the terms of the Management Agreement as may be requested by Lender. Borrower shall cause Mortgage Borrower and/or Pledgor shall cause Operating Lessee to exercise each individual option, if any, to extend or renew the term of the Management Agreement to the extent required to continue it -64- in full force and effect until after the Maturity Date. Any sums expended by Lender pursuant to this paragraph (i) shall bear interest at the Default Rate from the date such cost is incurred to the date of payment to Lender, (ii) shall be deemed to constitute a portion of the Debt, (iii) shall be secured by the lien of the Pledge Agreement and the other Loan Documents and (iv) shall be immediately due and payable upon demand by Lender therefor. (b) Without limitation of the foregoing, Pledgor shall cause Operating Lessee, upon the request of Lender and in accordance with the provisions of the applicable Subordination of Management Agreement, to terminate the Management Agreement and replace the Manager, without penalty or fee, if at any time during the Loan: (a) the Manager shall become insolvent or a debtor in any bankruptcy or insolvency proceeding, (b) there exists an Event of Default or (c) there exists an event of default by Manager under the Management Agreement. At such time as the Manager may be removed, provided no Event of Default has occurred, a Qualified Manager may be selected by Mortgage Borrower and/or Operating Lessee to assume management of the applicable Individual Property pursuant to a Replacement Management Agreement. 5.1.19 Environmental Covenants. (a) Borrower covenants and agrees that so long as the Loan is outstanding (i) all uses and operations on or of the Properties, whether by Mortgage Borrower or any other Person, shall be in compliance in all material respects with all Environmental Laws and permits issued pursuant thereto; (ii) there shall be no Releases of Hazardous Materials in, on, under or from any of the Properties; (iii) there shall be no Hazardous Materials in, on, or under any of the Properties, except those that are both (A) in compliance with all Environmental Laws and with permits issued pursuant thereto, if and to the extent required, and (B) (1) in amounts not in excess of that necessary to operate the applicable Individual Property or (2) fully disclosed to and approved by Lender in writing; (iv) Borrower shall cause Mortgage Borrower to keep the Properties free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Mortgage Borrower or any other Person (the "Environmental Liens"); (v) Borrower shall cause Mortgage Borrower, at Borrower's sole cost and expense, to fully and expeditiously cooperate in all activities pursuant to paragraph (b) below, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (vi) Borrower shall cause Mortgage Borrower, at Borrower's sole cost and expense, to perform any environmental site assessment or other investigation of environmental conditions in connection with any of the Properties, pursuant to any reasonable written request of Lender, upon Lender's reasonable belief that an Individual 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 shall be entitled to rely on such reports and other results thereof; (vii) Borrower shall cause Mortgage Borrower, at Borrower's sole cost and expense, to comply with all reasonable written requests of Lender to (A) reasonably effectuate remediation of any Hazardous Materials in, on, under or from any Individual Property; and (B) comply with any Environmental Law; (viii) Borrower shall cause Mortgage Borrower to not allow any tenant or other user of any of the Properties to violate any Environmental Law; and (ix) Borrower shall immediately notify Lender in writing after it has become aware of (A) any presence or Release or threatened Releases of Hazardous Materials in, on, under, from or migrating towards any of the Properties; (B) any non-compliance -65- with any Environmental Laws related in any way to any of the Properties; (C) any actual or potential Environmental Lien; (D) any required or proposed remediation of environmental conditions relating to any of the Properties; and (E) any written or oral notice or other communication of which Borrower becomes aware from any source whatsoever (including but not limited to a Governmental Authority) relating in any way to Hazardous Materials in connection with the Properties. (b) Lender and any other Person designated by Lender by written notice to Borrower, including but not limited to any representative of a Governmental Authority, 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 any Individual Property at all reasonable times to assess any and all aspects of the environmental condition of any Individual 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. Borrower shall cause Mortgage Borrower to cooperate with and provide access to Lender and any such Person or entity designated by Lender by written notice to Borrower. 5.1.20 Alterations. Borrower shall obtain Lender's prior written consent prior to allowing Mortgage Borrower to perform any structural or other material alterations to any Improvements, which consent shall not be unreasonably withheld except with respect to alterations that may have a material adverse effect on Borrower's or Mortgage Borrower's financial condition, the value of the related Individual Property, the Collateral or the Net Operating Income thereof. 5.1.21 Franchise Agreement. (a) Subject to the provisions of Section 5.1.21(b), the Improvements on the Properties shall be operated under the terms and conditions of the Franchise Agreements, if applicable. Borrower shall cause Mortgage Borrower or Pledgor shall cause Operating Lessee to (i) pay all sums required to be paid by Operating Lessee 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 Lessee to be performed, observed and enforced to the end that all things shall be done which are necessary to keep unimpaired the rights of Mortgage Borrower and/or Operating Lessee under the Franchise Agreement, (iii) promptly notify Lender of the giving of any notice to Mortgage Borrower and/or Operating Lessee of any default by Operating Lessee in the performance or observance of any of the terms, covenants or conditions of the Franchise Agreement on the part of Operating Lessee 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, notice, report and estimate received by it under the Franchise Agreement. Subject to the provisions of Section 5.1.21(b), Borrower shall cause Mortgage Borrower and/or Pledgor shall cause Operating Lessee to not, without the prior consent of Lender, surrender the Franchise Agreement or terminate or cancel the Franchise Agreement or modify, change, supplement, alter or amend the Franchise Agreement, in any material respect, either orally or in writing. -66- Subject to the rights of Mortgage Lender, if Operating Lessee shall default in the performance or observance of any material term, covenant or condition of the Franchise Agreement on the part of Operating Lessee to be performed or observed, then, without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrower from any of its obligations hereunder, Borrower shall permit Lender 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 Lessee to be performed or observed to be promptly performed or observed on behalf of Operating Lessee, to the end that the rights of Mortgage Borrower and/or Operating Lessee in, to and under the Franchise Agreement shall be kept unimpaired and free from default; provided, however, that Lender shall have no such obligation to perform any such action. Borrower shall cause Lender and any Person designated by Lender by written notice to Borrower shall have, and are hereby granted, the right to enter upon the Properties 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 Borrower and Mortgage Borrower and/or Pledgor or Operating Lessee 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. Borrower shall cause Mortgage Borrower and/or Pledgor shall cause Operating Lessee, from time to time, use its best efforts to obtain from Franchisor such certificates of estoppel with respect to compliance by Operating Lessee with the terms of the Franchise Agreement as may be requested by Lender. Borrower shall cause Mortgage Borrower and/or Pledgor shall cause Operating Lessee to exercise each individual option, if any, to extend or renew the term of the Franchise Agreement to the extent required to continue it in full force and effect until after the Maturity Date. 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 the Pledge Agreement and the other Loan Documents and shall be immediately due and payable upon demand by Lender therefor. (b) With respect to the Expiring Franchise Agreement Property only, Borrower shall not be required to cause Mortgage Borrower to obtain Lender's consent or a confirmation from the Rating Agencies in the event that the Franchise Agreement in effect on the date hereof is extended on the same or more favorable terms to Mortgage Borrower and/or Operating Lessee, as applicable, prior to the expiration thereof. 5.1.22 Operating Lease. Borrower shall cause Mortgage Borrower to promptly notify Lender of any event of default under the Operating Lease. 5.1.23 OFAC. At all times throughout the term of the Loan, Borrower, Mortgage Borrower, Guarantor, Indemnitor and their respective Affiliates shall be in compliance in all material respects with all applicable orders, rules, regulations and recommendations of The Office of Foreign Assets Control of the U.S. Department of the Treasury. -67- 5.1.24 The Ground Lease. With respect to each Ground Lease, Borrower shall cause Mortgage Borrower to (i) pay all rents, additional rents and other sums required to be paid by Mortgage Borrower, as tenant under and pursuant to the provisions of each Ground Lease, (ii) diligently perform and observe all of the terms, covenants and conditions of each Ground Lease on the part of Mortgage Borrower, as tenant thereunder, (iii) promptly notify Lender of the giving of any notice by the landlord under the applicable Ground Lease to Mortgage Borrower of any default by Mortgage Borrower, as tenant thereunder, and deliver to Lender a true copy of each such notice within five (5) days of receipt and (iv) promptly notify Lender of any bankruptcy, reorganization or insolvency of the landlord under the applicable Ground Lease or of any notice thereof, and deliver to Lender a true copy of such notice within five (5) days of Borrower's receipt. Borrower shall not, without the prior consent of Lender, cause Mortgage Borrower to surrender the leasehold estate created by the applicable Ground Lease or terminate or cancel any Ground Lease or modify, change, supplement, alter, amend or waive any material term of any Ground Lease, either orally or in writing, and if Mortgage Borrower shall default in the performance or observance of any term, covenant or condition of any Ground Lease on the part of Mortgage Borrower, as tenant thereunder, and shall fail to cure the same prior to the expiration of any applicable cure period provided thereunder, Borrower shall cause Mortgage Borrower to (or cause Operating Lessee to) permit Lender to, but Lender shall not have the 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 such Ground Lease on the part of Mortgage Borrower to be performed or observed on behalf of Borrower, to the end that the rights of Mortgage Borrower in, to and under such Ground Lease shall be kept unimpaired and free from default; provided, however, that Lender shall have no such obligation to perform any such actions. If the landlord under the applicable Ground Lease shall deliver to Lender a copy of any notice of default under such Ground 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. Borrower shall cause Mortgage Borrower to exercise each individual option, if any, to extend or renew the term of each Ground 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. 5.1.25 Capital Budget Borrower shall cause Mortgage Borrower to comply in all material respects with Mortgage Borrower's 2003 capital budget (as delivered to Lender in connection with the underwriting of the Loan), unless otherwise agreed to by Lender. 5.1.26 Notices. Borrower shall give notice, or cause notice to be given, to Lender promptly upon the occurrence of any Mortgage Loan Event of Default. 5.1.27 Special Distributions. On each date on which amounts are required to be disbursed to Lender pursuant to Article III of the Mortgage Loan Agreement, Borrower shall exercise its rights under the -68- Organizational Documents of Mortgage Borrower to cause Mortgage Borrower to make to Borrower (to the extent permitted by Applicable Law) a distribution in an aggregate amount such that Lender shall receive the amount required to be disbursed pursuant to Article III of the Mortgage Loan Agreement. 5.1.28 Mortgage Borrower Covenants. Borrower shall cause Mortgage Borrower to comply with all obligations with which Mortgage Borrower has covenanted to comply under the Mortgage Loan Agreement and all other Mortgage Loan Documents (including, without limitation, those certain covenants regarding the maintenance of the Mortgage Interest Rate Cap Agreement and affirmative and negative covenants set forth in the Mortgage Loan Agreement) whether the Mortgage Loan has been repaid or the related Mortgage Loan Document has been otherwise terminated, unless otherwise consented to in writing by Lender. Borrower shall cause Mortgage Borrower to promptly notify Lender of all notices received by Mortgage Borrower under or in connection with the Mortgage Loan, including, without limitation, any notice by the Mortgage Lender to Mortgage Borrower of any default by Mortgage Borrower in the performance or observance of any of the terms, covenants or conditions of the Mortgage Loan Documents on the part of Mortgage Borrower to be performed or observed, and deliver to Lender a true copy of each such notice, together with any other consents, notices, requests or other written correspondence between Mortgage Borrower and Mortgage Lender. 5.1.29 Mortgage Loan Estoppels. Borrower shall, or shall cause Mortgage Borrower to, use commercially reasonable efforts from time to time, to obtain from the Mortgage Lender such certificates of estoppel with respect to compliance by Mortgage Borrower with the terms of the Mortgage Loan Documents as may be reasonably requested by Lender. In the event or to the extent that Mortgage Lender is not legally obligated to deliver such certificates of estoppel and is unwilling to deliver the same, or is legally obligated to deliver such certificates of estoppel but breaches such obligation, then Borrower shall not be in breach of this provision so long as Borrower furnishes to Lender an estoppel executed by Borrower and Mortgage Borrower and expressly representing to Lender the information requested by Lender regarding compliance by Mortgage Borrower with the terms of the Mortgage Loan Documents. Borrower hereby indemnify Lender from and against all out-of-pocket liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including, without limitation, reasonable attorneys' and other professional fees, whether or not suit is brought and settlement costs) and disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition, or circumstances relating to the Mortgage Loan which was misrepresented in any material respect in, or which warrants disclosure and was omitted from such estoppel executed by Borrower and Mortgage Borrower. SECTION 5.2 Negative Covenants. From the date hereof until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release in full of Lender's Lien on the Collateral in -69- accordance with the terms of this Agreement and the other Loan Documents, Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following: 5.2.1 Liens. Borrower shall not permit or cause Mortgage Borrower to create, incur, assume or suffer to exist any Lien on any portion of any Individual Property or permit any such action to be taken, except (i) Permitted Encumbrances; (ii) Liens created by or permitted pursuant to the Mortgage Loan Documents and the Junior Mezzanine Loan Documents, and (iii) Liens for Taxes or Other Charges (as defined in the Mortgage Loan Agreement) not yet due. Borrower shall not create, incur, assume or suffer to exist any Lien on any portion of the Collateral or permit any such action to be taken. 5.2.2 Dissolution. (a) Borrower shall not (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Borrower except to the extent expressly permitted by the Loan Documents, (c) except as expressly permitted under the Loan Documents, modify, amend, waive or terminate its Organizational Documents or its qualification and good standing in any jurisdiction or (d) cause Principal, Mortgage Borrower or Ground Lessor to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which Principal or Mortgage Borrower would be dissolved, wound up or liquidated in whole or in part, or (ii) except as expressly permitted under the Loan Documents, amend, modify, waive or terminate the certificate of incorporation, bylaws or similar Organizational Documents of Principal or the Organizational Documents of Mortgage Borrower, in each case, without obtaining the prior written consent of Lender, which consent (with respect to (d)(ii) only) shall not be unreasonably withheld or delayed. (b) Borrower shall not permit Mortgage Borrower and Pledgor shall not permit Operating Lessee to (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Mortgage Borrower or Operating Lessee, as applicable, except to the extent expressly permitted by the Loan Documents, (c) except as expressly permitted under the Loan Documents, modify, amend, waive or terminate its organizational documents or its qualification and good standing in any jurisdiction or (d) cause the Operating Lessee Principal or Pledge Principal, as applicable, to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which Operating Lessee Principal or Pledgor Principal, as applicable, would be dissolved, wound up or liquidated in whole or in part, or (ii) except as expressly permitted under the Loan Documents, amend, modify, waive or terminate the certificate of incorporation, bylaws or similar organizational documents of Operating Lessee Principal or Pledgor Principal, as applicable, in each case, without obtaining the prior written consent of Lender, which consent (with respect to (d)(ii) only) shall not be unreasonably withheld or delayed. -70- 5.2.3 Change In Business. (a) Borrower shall not enter into any line of business other than the ownership of the Collateral, or make any material change in the scope or nature of its business purposes or undertake or participate in activities other than the continuance of its present business. (b) Borrower shall not cause Mortgage Borrower to enter into any line of business other than the ownership and operation of the Properties (including providing services in connection therewith), or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business. 5.2.4 Debt Cancellation. Borrower shall not cancel or otherwise forgive or release any material claim or debt (other than termination of Leases in accordance herewith) owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower's business. In addition, Borrower shall not permit or cause Mortgage Borrower to cancel or otherwise forgive or release any material claim or debt (other than termination of Leases in accordance with the Mortgage Loan Agreement) owed to Mortgage Borrower by any Person, except for adequate consideration and in the ordinary course of Mortgage Borrower's business. 5.2.5 Intentionally Omitted. 5.2.6 Intentionally Omitted. 5.2.7 Name, Identity, Structure, or Principal Place of Business. Borrower shall not, and shall not permit any Loan Party to, change its name, identity (including its trade name or names), or principal place of business set forth in the introductory paragraph of this Agreement, without, in each case, first giving Lender thirty (30) days prior written notice. Borrower shall not change its corporate, partnership or other structure, or the place of its organization as set forth in Section 4.1.35, without, in each case, the consent of Lender. Upon Lender's request, Borrower shall 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 Collateral as a result of such change of principal place of business or place of organization. 5.2.8 ERISA. (a) During the term of the Loan or of any obligation or right hereunder, no Loan Party shall be a Plan and none of the assets of Borrower or any Loan Party shall constitute Plan Assets. (b) Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its sole discretion, and represents and covenants that (A) no Loan Party is, and no Loan Party maintains an "employee benefit plan" as defined in Section 3(32) of ERISA, which is subject to -71- Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (B) no Loan Party is subject to State statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) one or more of the following circumstances is true: (i) Equity interests in such Loan Party are publicly offered securities, within the meaning of 29 C. F. R. Section 2510.3-101(b)(2); (ii) Less than twenty-five percent (25%) of each outstanding class of equity interests in such Loan Party are held by "benefit plan investors" within the meaning of 29 C. F. R. Section 2510.3-101(f)(2); or (iii) Such Loan Party qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C. F. R. Section 2510.3-101(c) or (e). 5.2.9 Affiliate Transactions. (a) Borrower shall not enter into, or be a party to, any transaction with an Affiliate of Borrower, Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities, or any of the partners of Borrower, Principal, the Operating Lessee SPE Entities or the Pledgor SPE Entities, except in the ordinary course of business and on terms which are fully disclosed to Lender in advance and are no less favorable to Borrower or such Affiliate than would be obtained in a comparable arm's-length transaction with an unrelated third party. (b) Except in connection with payments made to Manager pursuant to and in accordance with the Subordination of Management Agreement, no Loan Party shall pay, or permit the payment of, development fees, management fees, brokerage or leasing fees or commissions or any other compensation of any form whatsoever to any Loan Party or any direct or indirect partner, member, shareholder or Affiliate thereof, or request disbursement of funds from Lender or Mortgage Lender for such purpose, without the prior written consent of Lender. Any contracts or agreements relating to the Property in any manner between or among any Loan Party and any other Loan Party or their respective direct or indirect partners, members, shareholders or Affiliates, including the Management Agreement and any other agreement specifically related to the Property, the Collateral or any Loan Party (collectively, the "Affiliate Agreements") shall be made on an arm's-length basis and shall be subject to the prior written approval of Lender; and the parties to each Affiliate Agreement shall acknowledge and agree that such agreement is terminable by Mortgage Borrower or Lender immediately upon notice, without the payment of any fee, penalty, premium or liability for future or accrued liabilities or obligations, if an Event of Default shall have occurred and be continuing. Following an Event of Default, if requested by Lender in writing, Borrower shall, or shall cause the applicable Loan Party to, terminate any existing Affiliate Agreement specified by Lender within five (5) days after delivery of Lender's request without payment of any penalty, premium, termination fee or any other amount which might be due and payable under such Affiliate Agreement. If such Affiliate Agreement is not terminated in accordance with the immediately preceding sentence, Lender shall have the right, and Borrower hereby irrevocably authorizes Lender and irrevocably appoints Lender as Borrower's attorney-in-fact coupled with an interest, at Lender's sole option, to terminate such Affiliate Agreement on behalf of and in -72- the name of the applicable Loan Party, and Borrower hereby releases and waives any claims against Lender arising out of Lender's exercise of such authority. 5.2.10 Transfers. (a) Neither Borrower nor Pledgor shall sell, convey, mortgage, grant, bargain, encumber, pledge, assign, grant options with respect to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) any Individual Property, the Collateral or any part thereof or any legal or beneficial interest therein (other than in connection with a Condemnation) or permit or suffer a Sale or Pledge of an interest in any Restricted Party (other than with respect to the Mortgage Loan and the Junior Mezzanine Loan) (collectively, a "Transfer"), without the prior written consent of Lender. (b) A Transfer shall include, but not be limited to: (i) an installment sales agreement wherein Borrower agrees to sell one or more Individual Properties, the Collateral or any part thereof for a price to be paid in installments; (ii) an agreement by Mortgage Borrower leasing all or a substantial part of any Individual Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Mortgage Borrower'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 or the change, removal, resignation or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge (other than, in connection with the Junior Mezzanine Loan) of the membership interest of a managing member (or if no managing member, any member) or any profits or proceeds relating to such membership interest, or the Sale or Pledge of non-managing membership interests or the creation or issuance of new non-managing membership interests; (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) any deed-in-lieu or consensual foreclosure relating to any Individual Property with or for the benefit of Mortgage Lender or any Affiliate thereof. (c) Notwithstanding the provisions of Sections 5.2.10(a) and (b), the following transfers shall not be deemed to be a Transfer: (i) a transfer by devise or descent or by operation of law upon the death of a member, partner or shareholder of a Restricted Party (other than Mortgage Borrower or Borrower) or a Restricted Party (other than Mortgage Borrower, Borrower or Junior Mezzanine Borrower) itself; (ii) the Sale or Pledge, in one or a series of transactions, of not more than forty nine percent (49%) of the stock in a Restricted Party (other than Mortgage Borrower, Borrower or Junior Mezzanine Borrower ); provided, however, no such transfers shall result in the change of voting control in the Restricted Party, and as a -73- condition to each such transfer, Lender shall receive not less than thirty (30) days prior written notice of such proposed transfer and (iii) the Sale or Pledge, in one or a series of transactions, of not more than forty-nine percent (49%) of the limited partnership interests or non-managing membership interests (as the case may be) in a Restricted Party (other than Mortgage Borrower, Borrower or Junior Mezzanine Borrower); 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. (d) 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 in violation of this Section 5.2.2. 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 Section 5.2.10, (a) no transfer (whether or not such transfer shall constitute a Transfer) shall be made to any Prohibited Person and (b) in the event any transfer (whether or not such transfer shall constitute a Transfer) results in any Person owning in excess of forty-nine percent (49%) of the ownership interest in a Restricted Party, Borrower shall, prior to such transfer, deliver an updated Insolvency Opinion to Lender, which opinion shall be in form, scope and substance acceptable in all respects to Lender and the Rating Agencies. (e) Notwithstanding anything to the contrary contained in this Section 5.2.10, a transfer of direct or indirect limited partnership interests and/or non-managing membership interests in a Restricted Party (other than Mortgage Borrower, Mortgage Principal, Borrower, Principal, Junior Mezzanine Borrower, Junior Mezzanine Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities or any Affiliated Manager) shall be permitted provided that (i) FelCor Lodging Limited Partnership shall at all times own, directly or indirectly, at least fifty-one percent (51%) of the equity interests in, and Control, all Restricted Parties and (ii) FelCor Lodging Trust Incorporated must at all times be the sole general partner of FelCor Lodging Limited Partnership. 5.2.11 Limitation on Securities Issuances. Borrower shall not issue any limited liability membership interests or other securities other than those that have been issued as of the date hereof. 5.2.12 Distributions. (a) Any and all dividends, including capital dividends, stock or liquidating dividends, distributions of property, redemptions or other distributions made by Mortgage Borrower on or in respect of any interests in Mortgage Borrower, and any and all cash and other property received in payment of the principal of or in redemption of or in exchange for any such interests (collectively, the "Distributions"), shall become part of the Collateral. Notwithstanding anything to contrary contained herein, Lender expressly agrees that Borrower shall be permitted to distribute to its members any Distributions Borrower receives only upon the express condition that no Event of Default has occurred and is continuing under the Loan. -74- (b) If any Distributions shall be received by Borrower or any Affiliate of Borrower after the occurrence and during the continuance of an Event of Default, Borrower shall hold, or shall cause the same to be held, in trust for the benefit of Lender. Any and all revenue derived from the Properties paid directly by tenants, subtenants or occupants of the Properties shall be held and applied in accordance with the terms and provisions of the Mortgage Loan Agreement. 5.2.13 Refinancing or Prepayment of the Mortgage Loan. Neither Borrower nor Mortgage Borrower shall be required to obtain the consent of Lender to refinance the Mortgage Loan, provided that the Loan shall have (or shall simultaneously be) been paid in full in accordance with the terms of this Agreement (including any prepayment premiums and other amounts due and payable to Lender under the Loan Documents). Borrower shall cause Mortgage Borrower to obtain the prior written consent of Lender to enter into any other refinancing of the Mortgage Loan. 5.2.14 Acquisition of the Mortgage Loan. (a) No Loan Party, Guarantor or any Affiliate of any of them or any Person acting at any such Person's request or direction, shall acquire or agree to acquire Mortgage Lender's interest in the Mortgage Loan, or any portion thereof or any interest therein, or any direct or indirect ownership interest in the holder of the Mortgage Loan, via purchase, transfer, exchange or otherwise, and any breach or attempted breach of this provision shall constitute an Event of Default hereunder. If, solely by operation of applicable subrogation law, Borrower shall have failed to comply with the foregoing, then Borrower: (i) shall immediately notify Lender of such failure; (ii) shall cause any and all such prohibited parties acquiring any interest in the Mortgage Loan Documents: (A) not to enforce the Mortgage Loan Documents; and (B) upon the request of Lender, to the extent any of such prohibited parties has or have the power or authority to do so, to promptly: (1) cancel the promissory note evidencing the Mortgage Loan, (2) reconvey and release the Lien securing the Mortgage Loan and any other collateral under the Mortgage Loan Documents, and (3) discontinue and terminate any enforcement proceeding(s) under the Mortgage Loan Documents. (b) Lender shall have the right at any time to acquire all or any portion of the Mortgage Loan or any interest in any holder of, or participant in, the Mortgage Loan without notice or consent of Borrower or any other Loan Party, in which event Lender shall have and may exercise all rights of Mortgage Lender thereunder (to the extent of its interest), including the right (i) to declare that the Mortgage Loan is in default in accordance with the terms thereof and (ii) to accelerate the Mortgage Loan indebtedness, in accordance with the terms thereof and (iii) to pursue all remedies against any obligor under the Mortgage Loan Documents. In addition, Borrower hereby expressly agree that any claims, counterclaims, defenses, offsets, deductions or reductions of any kind which Mortgage Borrower or any other Person may have against Mortgage Lender relating to or arising out of the Mortgage Loan shall be the personal obligation of Mortgage Lender, and in no event shall Mortgage Borrower be entitled to bring, pursue or raise any such claims, counterclaims, defenses, offsets, deductions or reductions against Lender or any Affiliate of Lender or any other Person as the successor holder of the Mortgage Loan or any interest therein, provided that Mortgage Borrower may seek specific performance of its contractual rights under the Mortgage Loan Documents. -75- 5.2.15 Other Limitations. (a) Prior to the payment in full of the Debt, neither Borrower nor any of its Affiliates shall, without the prior written consent of Lender (which may be furnished or withheld at its reasonable discretion), give its consent or approval to any of the following actions or items: (i) except as permitted by Lender herein (i) any prepayment in full of the Mortgage Loan, except as permitted by Section 2.3 of the Mortgage Loan Agreement, or (ii) any action in connection with or in furtherance of the foregoing; (ii) approve the terms of any Annual Budget; (iii) the distribution to the partners, members or shareholders of Mortgage Borrower of property other than cash; or (iv) except as permitted by the Mortgage Loan Documents, any determination to restore any Individual Property after a Casualty or Condemnation. (b) Prior to the payment in full of the Debt, and unless otherwise required pursuant to the Mortgage Loan Agreement, neither Borrower nor any of its Affiliates shall, without the prior written consent of Lender (which may be furnished or withheld at its sole and absolute discretion), give its consent or approval to any modification or amendment in any material respect or a consolidation, interest rate, restatement, waiver or termination of any of the Mortgage Loan Documents. VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS SECTION 6.1 Insurance. (a) Borrower shall cause Mortgage Borrower to maintain at all times during the term of the Loan the insurance required under Section 6.1 of the Mortgage Loan Agreement, including, without limitation, meeting all insurer requirements thereunder. In addition, Borrower shall cause Lender to be named as an additional named insured under each of the insurance policies described in Section 6.1(a)(ii), (iii), (v), (ix), (xi) and (xii) of the Mortgage Loan Agreement. In addition, Borrower shall cause Lender to be named as a named insured together with Mortgage Lender, as their interest may appear, under the insurance policies required under Section 6.1(a)(i), (iv), (vi), (vii), (viii) and (x) of the Mortgage Loan Agreement. Borrower shall also cause all insurance policies required under this Section 6.1 to provide for at least thirty (30) days prior notice to Lender in the event of policy cancellation or material changes. Not less than thirty (30) days prior to the expiration dates of the Policies (as such term is defined in the Mortgage Loan Agreement) theretofore furnished to Lender pursuant to the terms hereof, certified copies of the Policies marked "premium paid" or accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder shall be delivered by Borrower to Lender; provided, however, that in the case of renewal Policies, Borrower may furnish Lender with binders therefor to be followed by copies of the original Policies when issued. -76- (b) 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, with prior notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Collateral, including, without limitation, the obtaining of such 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 the Pledge Agreement and shall bear interest at the Default Rate. (c) For purposes of this Agreement, Lender shall have the same approval rights over the insurance referred to above (including, without limitation, the insurers, deductibles and coverages thereunder, as well as the right to require other reasonable insurance pursuant to Section 6.1(a)(xii)) as are provided in favor of the Mortgage Lender in the Mortgage Loan Agreement. All liability insurance provided for in the Mortgage Loan Agreement shall provide insurance with respect to the liabilities of both the Mortgage Borrower and the Borrower. The insurance policies delivered pursuant to the Mortgage Loan Agreement shall include endorsements of the type described in Section 6.1(e) thereof, but pursuant to which Lender shall have the same rights as the Mortgage Lender as referred to in such Section 6.1(e). (d) In the event that the Mortgage Loan has been paid in full, except upon the occurrence and continuance of an Event of Default, Borrower shall permit Mortgage Borrower to settle any insurance or condemnation claims with respect to the insurance proceeds or condemnation awards which in the aggregate are less than or equal to $250,000.00 for the applicable Individual Property. Lender shall have the right to participate in and reasonably approve any settlement for insurance or condemnation claims with respect to the insurance proceeds or condemnation awards which in the aggregate are equal to or greater than the $250,000 for the applicable Individual Property. If an Event of Default shall have occurred and be continuing, Borrower shall cause Mortgage Borrower to empower Lender, in the name of Mortgage Borrower as its true and lawful attorney-in-fact, to file and prosecute such claim and to collect and to make receipt for any such payment. (e) On the first Payment Date of each Fiscal Year, Borrower shall pay to Lender the sum of $1,500.00 to compensate Lender for administrative costs associated with Lender's review of Borrower's required insurance. SECTION 6.2 Casualty. If any Individual Property shall sustain a Casualty, Borrower shall cause Mortgage Borrower to give prompt notice of such Casualty to Lender and shall cause Mortgage Borrower to promptly commence and diligently prosecute to completion the repair and restoration of such Individual Property as nearly as possible to the condition such Individual Property was in immediately prior to such Casualty and otherwise in accordance with Section 6.4 of the Mortgage Loan Agreement. -77- SECTION 6.3 Condemnation. Borrower shall cause Mortgage Borrower to give Lender prompt notice of any actual or threatened Condemnation by any Governmental Authority of all or any part of any Individual Property and shall cause Mortgage Borrower to deliver to Lender a copy of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings, and Borrower shall from time to time cause Mortgage Borrower to deliver to Lender all instruments requested by Lender to permit such participation. Borrower shall cause Mortgage Borrower, at Borrower's expense, to diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any Condemnation, Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement. SECTION 6.4 Restoration. (a) Borrower shall, or shall cause Mortgage Borrower to, deliver to Lender all reports, plans, specifications, documents and other materials that are delivered to Mortgage Lender under Section 6.4 of the Mortgage Loan Agreement in connection with a restoration of the Property after a Casualty or Condemnation. If any Insurance Proceeds or Condemnation Awards are to be disbursed by Mortgage Lender for restoration, Borrower shall deliver or cause to be delivered to Lender copies of all written correspondence delivered to and received from Mortgage Lender that relates to the restoration and release of the Insurance Proceeds or Condemnation Awards. (b) Notwithstanding any provision in this Agreement to the contrary, all Insurance Proceeds and Condemnation Award will be made available to Mortgage Borrower in accordance with the Mortgage Loan Agreement. In the event the Mortgage Loan has been paid in full and Lender receives any Insurance Proceeds or Condemnation Awards, Lender shall either apply such proceeds to the Debt or for the restoration of the applicable Individual Property in accordance with the same terms and conditions contained in Section 6.4 of the Mortgage Loan Agreement. SECTION 6.5 Rights of Lender. For purposes of this Article 6, Borrower shall obtain the approval (which approval shall be granted or withheld by Lender subject to the same standards contained in Section 6.4 of the Mortgage Loan Agreement) of Lender for each matter requiring the approval of Mortgage Lender under the provisions of Sections 6.4 of the Mortgage Loan Agreement, with each reference in any such provisions to the "Loan" to include the Mortgage Loan and the Loan, and the reference in any such provisions to the "Maturity Date" to mean the Maturity Date, as defined herein. If the Mortgage Lender does not require the deposit by the Mortgage Borrower of the "Net Proceeds Deficiency" pursuant to Section 6.4(b)(vi) of the Mortgage Loan Agreement, Lender shall have the right to demand that Borrower make a deposit of said "Net Proceeds Deficiency" in accordance with the terms of such Section (as if each reference therein to "Borrower" and "Lender" referred to Borrower and Lender, respectively). -78- VII. RESERVE FUNDS SECTION 7.1 Required Repairs. Borrower shall, or shall cause Mortgage Borrower to, perform the Required Repairs in accordance with all of the terms and conditions set forth in Section 7.1 of the Mortgage Loan Agreement. SECTION 7.2 Tax and Insurance Escrow Fund. (a) Borrower shall pay to Lender on each Payment Date (a) one-twelfth of the Taxes (the "Monthly Tax Deposit") that Lender estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates; and (b) at the option of Lender, if the liability or casualty Policy maintained by Mortgage Borrower covering the Properties shall not constitute an approved blanket or umbrella Policy pursuant to Section 6.1(c) of the Mortgage Loan Agreement, or Lender shall require Borrower to cause Mortgage Borrower to obtain a separate Policy pursuant to Section 6.1(c) of the Mortgage Loan Agreement, one-twelfth of the Insurance Premiums (the "Monthly Insurance Premium Deposit") that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies (said amounts in (a) and (b) above hereinafter called the "Tax and Insurance Escrow Fund"). In the event Lender shall elect to collect payments in escrow for Insurance Premiums pursuant to clause (b) above, Borrower shall pay to Lender an initial deposit to be determined by Lender, in its sole discretion, to increase the amounts in the Tax and Insurance Escrow Fund to an amount which, together with anticipated Monthly Insurance Premium Deposits, shall be sufficient to pay all Insurance Premiums as they become due. The Tax and Insurance Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note and this Agreement, shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Section 5.1.2 hereof. In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Section 5.1.2 hereof, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. In allocating such excess, Lender may deal with the Person shown on the records of Lender to be the owner of the Properties. Any amount remaining in the Tax and Insurance Escrow Fund after the Debt has been paid in full shall be returned to Borrower. If at any time Lender reasonably determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay Taxes and Insurance Premiums by the dates set forth in (a) and (b) above, Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes and/or -79- thirty (30) days prior to expiration of the Policies, as the case may be. Any Taxes, Other Charges and Insurance Premiums paid by Lender from the Tax and Insurance Escrow Fund shall be deemed to be a capital contribution from Borrower to Mortgage Borrower. (b) Borrower shall be relieved of its obligation under Section 7.2(a) above provided that Mortgage Borrower is required to and does make monthly deposits to the Tax and Insurance Escrow Fund under the Mortgage Loan and Lender receives evidence acceptable to Lender of the making of such deposits and the payment of such Taxes, Insurance and Other Charges. SECTION 7.3 Replacements and Replacement Reserve. 7.3.1 Replacement Reserve Fund. Borrower shall pay to Lender on each Payment Date, the Replacement Reserve Monthly Deposit for Capital Expenditures required to be made to the Properties during the calendar year as may be necessary to maintain and operate first class, reputable hotels in the manner and quality of the hotels operated at the Properties on the date hereof (collectively, the "Replacements"). Amounts so deposited shall hereinafter be referred to as Borrower's "Replacement Reserve Fund". 7.3.2 Disbursements from Replacement Reserve Account. (a) Lender shall make disbursements from the Replacement Reserve Account to reimburse Borrower only for the costs of the Replacements. Lender shall not be obligated to make disbursements from the Replacement Reserve Account to reimburse Borrower for the costs of routine maintenance (other than Replacements) to an Individual Property or for costs which are to be reimbursed from the Required Repair Fund. (b) Lender shall, upon written request from Borrower and satisfaction of the requirements set forth in this Section 7.3.2, disburse to Borrower amounts from the Replacement Reserve Account necessary to reimburse Borrower for the actual costs of Replacements. In no event shall Lender be obligated to disburse funds from the Replacement Reserve Account if an Event of Default exists. (c) Each request for disbursement from the Replacement Reserve Account shall be in a form reasonably acceptable to Lender and shall specify (i) the specific Replacements for which the disbursement is requested, (ii) the quantity and price of each item purchased, if the Replacement includes the purchase or replacement of specific items, (iii) the price of all materials (grouped by type or category) used in any Replacement other than the purchase or replacement of specific items, and (iv) the cost of all contracted labor or other services applicable to each Replacement for which the disbursement is requested. With each request Borrower shall certify that, to the best of Borrower's knowledge, all Replacements have been made in accordance with all applicable Legal Requirements of any Governmental Authority having jurisdiction over the applicable Individual Property to which the Replacements are being provided. Upon request of Lender in connection with each request for disbursement in excess of $200,000, Borrower shall provide Lender with copies of invoices for amounts in excess of $100,000 for items or materials purchased or contracted labor or services. Borrower shall provide Lender evidence of completion satisfactory to Lender in its reasonable judgment. -80- (d) Borrower shall pay all invoices in connection with the Replacements with respect to each request for disbursement prior to submitting such request for disbursement from the Replacement Reserve Account or, at the request of Borrower, Lender will issue joint checks, payable to Borrower and the contractor, supplier, materialman, mechanic, subcontractor or other party to whom payment is due in connection with a Replacement. In the case of payments made by joint check, Lender may require a waiver of lien from each Person receiving payment prior to Lender's disbursement from the Replacement Reserve Account. In addition, as a condition to any disbursement, Lender may require Borrower to obtain lien waivers from each contractor, supplier, materialman, mechanic or subcontractor who receives payment in an amount equal to or greater than $100,000 for completion of its work or delivery of its materials. Any lien waiver delivered hereunder shall conform to the requirements of Applicable Law and shall cover all work performed and materials supplied (including equipment and fixtures) for the applicable Individual Property by that contractor, supplier, subcontractor, mechanic or materialman through the date covered by the current reimbursement request (or, in the event that payment to such contractor, supplier, subcontractor, mechanic or materialmen is to be made by a joint check, the release of lien shall be effective through the date covered by the previous release of funds request). (e) Borrower shall not make a request for disbursement from the Replacement Reserve Account more frequently than once in any calendar month and (except in connection with the final disbursement) the total cost of all Replacements in any request shall not be less than $25,000. (f) If the Replacement Reserve Funds are disbursed to the Borrower, then Borrower shall make a capital contribution to Mortgage Borrower in an amount equal to such Replacement Reserve Funds disbursed to Borrower as and when such disbursements are made pursuant to this Section 7.3.2 and Borrower shall cause Mortgage Borrower to pay for the related Replacement. 7.3.3 Performance of Replacements. (a) Borrower shall cause Mortgage Borrower to make Replacements when required in order to keep each Individual Property in condition and repair consistent with other first class, full service hotels in the same market segment and under the same franchisor in the metropolitan area in which the respective Individual Property is located, and to keep each Individual Property or any portion thereof from deteriorating. Borrower shall cause Mortgage Borrower to complete all Replacements in a good and workmanlike manner as soon as practicable following the commencement of making each such Replacement. (b) Intentionally Omitted. (c) If the Mortgage Loan is paid in full and the Loan remains outstanding, then, upon the occurrence and during the continuance of an Event of Default, in the event Lender determines in its reasonable discretion that any Replacement is not being performed in a workmanlike or timely manner or that any Replacement has not been completed in a workmanlike or timely manner, Lender shall have the option, without providing any prior notice to Borrower, to withhold disbursement for such unsatisfactory Replacement and to -81- proceed under existing contracts or, upon five (5) Business Days prior written notice to Borrower, to contract with third parties to complete such Replacement and to apply the Replacement Reserve Fund toward the labor and materials necessary to complete such Replacement and to exercise any and all other remedies available to Lender upon an Event of Default hereunder. (d) In order to facilitate Lender's completion or making of the Replacements pursuant to Section 7.3.3(c) above, Borrower shall cause Mortgage Borrower to grant Lender the right, upon the occurrence and during the continuance of an Event of Default, to enter onto any Individual Property and perform any and all work and labor necessary to complete or make the Replacements and/or employ watchmen to protect such Individual Property from damage. All sums so expended by Lender, to the extent not from the Replacement Reserve Fund, shall be deemed to have been advanced under the Loan to Borrower and secured by the Pledge Agreement. For this purpose, Borrower shall cause Mortgage Borrower to constitute and appoint Lender its true and lawful attorney-in-fact with full power of substitution to complete or undertake the Replacements in the name of Mortgage Borrower. Such power of attorney shall be deemed to be a power coupled with an interest and cannot be revoked. Borrower shall cause Mortgage Borrower to empower said attorney-in-fact as follows: (i) to use any funds in the Replacement Reserve Account for the purpose of making or completing the Replacements; (ii) to make such additions, changes and corrections to the Replacements as shall be necessary or desirable to complete the Replacements; (iii) to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for such purposes; (iv) to pay, settle or compromise all existing bills and claims which are or may become Liens against any Individual Property, or as may be necessary or desirable for the completion of the Replacements, or for clearance of title; (v) to execute all applications and certificates in the name of Mortgage Borrower which may be required by any of the contract documents; (vi) to prosecute and defend all actions or proceedings in connection with any Individual Property or the rehabilitation and repair of any Individual Property; and (vii) to do any and every act which Borrower might do in its own behalf to fulfill the terms of this Agreement. (e) Nothing in this Section 7.3.3 shall: (i) make Lender responsible for making or completing the Replacements; (ii) require Lender to expend funds in addition to the Replacement Reserve Fund to make or complete any Replacement; (iii) obligate Lender to proceed with the Replacements; or (iv) obligate Lender to demand from Borrower additional sums to make or complete any Replacement. (f) Borrower shall cause Mortgage Borrower to permit Lender and Lender's agents and representatives (including, without limitation, Lender's engineer, architect, or inspector) or third parties making Replacements pursuant to this Section 7.3.3 to enter onto each Individual Property during normal business hours (subject to the rights of tenants under their Leases) to inspect the progress of any Replacements and all materials being used in connection therewith, to examine all plans and shop drawings relating to such Replacements which are or may be kept at each Individual Property, and to complete any Replacements made pursuant to this Section 7.3.3. Borrower shall cause Mortgage Borrower to cause all contractors and subcontractors to cooperate with Lender or Lender's representatives or such other persons described above in connection with inspections described in this Section 7.3.3(f) or the completion of Replacements pursuant to this Section 7.3.3. -82- (g) Upon the occurrence and during the continuance of an Event of Default, Lender may require an inspection of an Individual Property at Borrower's expense prior to making a monthly disbursement from the Replacement Reserve Account, with respect to each Individual Property, in order to verify completion of the Replacements for which reimbursement is sought. Lender may require that such inspection be conducted by an appropriate independent qualified professional selected by Lender and/or may require a copy of a certificate of completion by an independent qualified professional acceptable to Lender prior to the disbursement of any amounts from the Replacement Reserve Account. Borrower shall pay or cause Mortgage Borrower to pay the expense of the inspection as required hereunder, whether such inspection is conducted by Lender or by an independent qualified professional. (h) The Replacements and all materials, equipment, fixtures, or any other item comprising a part of any Replacement shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialmen's or other Liens. (i) Before each disbursement from the Replacement Reserve Account relating to actual physical work on the Improvements in excess of $200,000 with respect to each Individual Property, Lender may require Borrower to provide Lender with a search of title to the applicable Individual Property effective to the date of the disbursement, which search shows that no mechanic's or materialmen's Liens or other Liens of any nature have been placed against the applicable Individual Property since the date of recordation of the related Security Instrument and that title to such Individual Property is free and clear of all Liens (other than the Lien of the related Security Instrument and other Permitted Encumbrances). (j) All Replacements shall comply with all applicable Legal Requirements of all Governmental Authorities having jurisdiction over the applicable Individual Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (k) If the Mortgage Loan is paid in full and the Loan remains outstanding, in addition to any insurance required under the Loan Documents, Borrower shall cause to be provided workmen's compensation insurance, builder's risk, and public liability insurance and other insurance to the extent required under Applicable Law in connection with a particular Replacement. All such policies shall be in form and amount reasonably satisfactory to Lender. All such policies which can be endorsed with standard mortgagee clauses making loss payable to Lender or its assigns shall be so endorsed. Certified copies of such policies shall be delivered to Lender. 7.3.4 Failure to Make Replacements. (a) It shall be an Event of Default under this Agreement if Borrower fails to comply with any provision of this Section 7.3 and such failure is not cured within thirty (30) days after written notice from Lender. Upon the occurrence of an Event of Default, Lender may use the Replacement Reserve Fund (or any portion thereof) for any purpose, including but not limited to completion of the Replacements as provided in Sections 7.3.3(c) and 7.3.3(d), or for any other repair or replacement to any Individual Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to -83- withdraw and apply the Replacement Reserve Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. (b) Nothing in this Agreement shall obligate Lender to apply all or any portion of the Replacement Reserve Fund on account of an Event of Default to payment of the Debt or in any specific order or priority. 7.3.5 Balance in the Replacement Reserve Account. The insufficiency of any balance in the Replacement Reserve Account shall not relieve Borrower from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents. 7.3.6 Waiver of Replacement Reserve. Borrower shall be relieved of its obligations under Sections 7.3.1, 7.3.2, 7.3.3, 7.3.4 and 7.3.5 above, provided that Mortgage Borrower is required to and does make the monthly deposits of Replacement Reserve Funds under the Mortgage Loan and provided Lender receives evidence acceptable to Lender of the making of such deposits. SECTION 7.4 Ground Lease Escrow Fund. (a) In the event that the annual Ground Rent due pursuant to a Ground Lease is in excess of $100.00, Borrower shall pay to Lender on each Payment Date an amount (the "Monthly Ground Rent Deposit") that is estimated by Lender to be due and payable by Borrower under the Ground Lease for all rent and any and all other charges (the "Ground Rent") which may be due by Mortgage Borrower under the Ground Lease in order to accumulate with Lender sufficient funds to pay all sums payable under the Ground Lease at least fifteen (15) Business Days prior to the dates due (said amounts, hereinafter called the "Ground Lease Escrow Fund"). The Ground Lease Escrow Fund is for the purpose of paying all sums due under the Ground Lease. Upon Mortgage Borrower's failure to pay any Ground Rents pursuant to the Ground Lease, Lender may, in its discretion, apply any amounts held in the Ground Lease Escrow Fund to the payment of such Ground Rent; provided however, that the provisions of this Section 7.4 shall not be deemed to create any obligation on the part of Lender to pay any such Ground Rent from amounts on deposit in the Ground Lease Escrow Fund. Such deposit may be increased by Lender in the amount Lender deems is necessary in its reasonable discretion based on any increases in the Ground Rent due under the Ground Lease. (b) If Ground Lease Escrow Funds are disbursed to Borrower, then Borrower shall make a capital contribution to Mortgage Borrower in an amount equal to such Ground Lease Escrow Funds disbursed to Borrower as and when such disbursements are made pursuant to this Section 7.4 and Borrower shall cause Mortgage Borrower to pay the related Ground Rent. (c) Borrower shall be relieved of its obligation under Section 7.4(a) and (b) above, provided that Mortgage Borrower is required to and does make the monthly deposits of Ground Lease Escrow Funds under the Mortgage Loan and provided Lender receives evidence acceptable to Lender of the making of such deposits and the payment of such Ground Rent. -84- SECTION 7.5 UST Reserve Funds. Borrower shall, or shall cause Mortgage Borrower to, perform the Required Remediation in accordance with all of the terms and conditions set forth in Section 7.5 of the Mortgage Loan Agreement. SECTION 7.6 Reserve Funds, Generally. (a) Borrower grants to Lender a first-priority perfected security interest in each of the Reserve Funds and the related Accounts and any and all monies now or hereafter deposited in each Reserve Fund and related Account as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds and the related Accounts shall constitute additional security for the Debt. (b) Upon the occurrence of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, withdraw any Reserve Funds and apply any sums then present in any or all of the Reserve Funds to the payment of the Debt in any order in its sole discretion. Lender's right to withdraw and apply the Reserve Funds are in addition to all other rights and remedies provided to Lender pursuant to the Loan Documents (c) The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender. (d) The Reserve Funds shall be held in interest bearing accounts and all earnings or interest on a Reserve Fund shall be added to and become a part of such Reserve Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Fund, except that earnings or interest on the Tax and Insurance Escrow Fund shall not be added to or become a part thereof and shall be the sole property of and shall be paid to Lender. (e) Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or related Account or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. (f) Borrower shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, claims, demands, liabilities, losses, damages, obligations and costs and expenses (including litigation costs and reasonable attorneys fees and expenses) arising from or in any way connected with the Reserve Funds or the related Accounts or the performance of the obligations for which the Reserve Funds or the related Accounts were established, except to the extent arising from the fraud, illegal acts, gross negligence or willful misconduct of Lender, its agents or employees. Borrower shall assign to Lender all rights and claims Borrower may have against all Persons supplying labor, materials or other services which are to be paid from or secured by the Reserve Funds or the related Accounts; provided, however, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured. -85- SECTION 7.7 Transfer of Reserve Funds under Mortgage Loan. If Borrower is required to deposit with Lender reserves pursuant to this Article VII, Borrower shall enter into a cash management and lockbox agreement for the benefit of Lender for the purpose of covering deposits to the required reserve accounts substantially similar to the Article III of the Mortgage Loan Agreement. VIII. DEFAULTS SECTION 8.1 Event of Default. (a) Each of the following events shall constitute an event of default hereunder (an "Event of Default"): (i) if any portion of the Debt is not paid on or before the date the same is due and payable; (ii) if any of the Taxes or Other Charges are not paid on or before the date when the same are due and payable; (iii) if the Policies are not kept in full force and effect or if certified copies of the Policies are not delivered to Lender promptly on request; (iv) if a Transfer occurs in violation of the provisions hereof or the Pledge Agreement or if any other Transfer prohibited under Section 5.2.10 occurs; (v) if any representation or warranty made by Borrower, a Pledgor SPE Entity, an Operating Lessee SPE Entity, Principal, Ground Lessor, Indemnitor, or Guarantor herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender shall have been false or misleading in any material respect as of the date the representation or warranty was made; (vi) if Borrower, Mortgage Borrower, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Principal, Indemnitor, Guarantor or any other guarantor under any guaranty issued in connection with the Loan shall make an assignment for the benefit of creditors; (vii) if a receiver, liquidator or trustee shall be appointed for Borrower, Mortgage Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Indemnitor, Guarantor or any other guarantor under any guarantee issued in connection with the Loan or if Borrower, Mortgage Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to the Bankruptcy Code, or any similar federal or State law, shall be filed by or against, consented to, or acquiesced in by, Borrower, Mortgage Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor, or if any -86- proceeding for the dissolution or liquidation of Borrower, Mortgage Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower, Mortgage Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor, upon the same not being discharged, stayed or dismissed within sixty (60) days; (viii) if Borrower or Pledgor attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents; (ix) other than for with respect to a default which is expressly contemplated by another subsection of this Section 8.1(a), if Borrower breaches any of its respective negative covenants contained in Section 5.2; (x) if Borrower violates or does not comply in any material respect with any of the provisions of Section 5.1.17 hereof; (xi) if a (a) default has occurred and continues beyond any applicable cure period under the Management Agreement (or any Replacement Management Agreement) if such default permits the Manager thereunder to terminate or cancel the Management Agreement (or any Replacement Management Agreement) or (b) any Management Agreement (or Replacement Management Agreement) expires or otherwise terminates and is not replaced with a Replacement Management Agreement or (c) if any Individual Property operates for any time without the Management Agreement or a Replacement Management Agreement; (xii) if Borrower or Principal violates or does not comply in all material respects with the provisions of Section 4.1.36 hereof; (xiii) if any Individual Property becomes subject to any mechanic's, materialman's or other Lien other than a Lien for local real estate taxes and assessments not then due and payable and the Lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of sixty (60) days; (xiv) if any federal tax Lien or state or local income tax Lien is filed against Borrower, Mortgage Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, any Guarantor, Indemnitor, the Collateral or any Individual Property and same is not discharged of record within thirty (30) days after same is filed; (xv) (A) Borrower fails to timely provide Lender with the written certification and evidence referred to in Section 5.2.8 hereof, (B) Borrower or Pledgor is a Plan or its assets constitute Plan Asset; or (C) Borrower or Pledgor consummates a transaction which would cause the Pledge Agreement or Lender's exercise of its rights under the Pledge Agreement, the Note, this Agreement or the other Loan Documents to constitute a nonexempt prohibited transaction under ERISA or result in a violation of a State statute -87- regulating governmental plans, subjecting Lender to liability for a violation of ERISA, the Code, a State statute or other similar law; (xvi) if Borrower shall fail to deliver to Lender, within fifteen (15) Business Days after request by Lender, the estoppel certificates required pursuant to the terms of Section 5.1.13(a) hereof; (xvii) if any default occurs under any guaranty or indemnity executed in connection herewith (including, without limitation, the Guaranty and the Environmental Indemnity) and such default continues after the expiration of applicable grace periods, if any; (xviii) if Borrower or Pledgor shall be in default beyond applicable notice and grace periods under the Pledge Agreement or any other security agreement covering any part of any portion of the Collateral whether it be superior or junior in lien to the Pledge Agreement; (xix) if (i) the Interest Rate Cap Agreement is terminated for any reason by Borrower or the Counterparty, or (ii) the Counterparty defaults in the performance of its monetary obligations under the Interest Rate Cap Agreement or (iii) the rating of the Counterparty is subject to any downgrade, withdrawal or qualification by an Rating Agency, and Borrower does not within ten (10) Business Days (A) replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement in accordance with Section 2.4 hereof, and (B) deliver to Lender, in form and substance reasonably satisfactory to Lender (x) an Assignment of Interest Rate Cap (y) a recognition letter from the Counterparty thereto acknowledging the assignment of the Replacement Interest Rate Cap Agreement and (z) any other opinions or documents required pursuant to Section 2.4 hereof; (xx) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period; (xxi) if any default occurs under the Operating Lease Subordination Agreement, and such default continues after the expiration of applicable grace or cure periods, if any; (xxii) if there shall occur any material default by Mortgage Borrower, as tenant under the Operating Lease, in the observance or performance of any term, covenant or condition of the Operating Lease to be observed or performed and said default is not cured following the expiration of any applicable grace and notice periods therein provided, or if the leasehold estate created by the Operating Lease shall be surrendered or if the Operating Lease shall cease to be in full force and effect or the Operating Lease shall be terminated or canceled for any reason or under any circumstances whatsoever, or if any of the terms, covenants or conditions of the Operating Lease shall in any manner be modified, changed, supplemented, altered, or amended in any material respect without the consent of Lender; -88- (xxiii) if any of the assumptions contained in the Insolvency Opinion, or in any other "non-consolidation" opinion delivered to Lender in connection with the Loan, or in any other "non-consolidation" opinion delivered subsequent to the closing of the Loan, is or shall become untrue in any material respect; (xxiv) if (a) a material default has occurred and continues beyond any applicable cure period under the Franchise Agreement, and such default permits a party to terminate or cancel the Franchise Agreement or (b) any Franchise Agreement expires or otherwise terminates and is not replaced with a replacement Franchise Agreement reasonably acceptable to Lender; (xxv) if Mortgage Borrower or Operating Lessee ceases to operate a hotel on any Individual Property or terminates such business for any reason whatsoever (other than temporary cessation in connection with any renovations to an Individual Property or restoration of the Individual Property after Casualty or Condemnation); (xxvi) if Borrower causes Mortgage Borrower to terminate or cancel the Franchise Agreement, without Lender's prior written consent; (xxvii) if Borrower shall cause Mortgage Borrower to fail to pay any Ground Rent or any additional rent or other charge mentioned in or made payable by any Ground Lease when said rent or other charge is due and payable after the expiration of all applicable notice and grace periods contained in such Ground Lease; (xxviii)if there shall occur any default in the observance or performance of any term, covenant or condition of the Ground Lease on the part of Ground Lessor or Mortgage Borrower to be observed or performed and said default is not cured following the expiration of any applicable grace and notice periods therein provided, or if the leasehold estate created by the Ground Lease shall be surrendered or if the Ground Lease shall cease to be in full force and effect or the Ground Lease shall be terminated or canceled for any reason or under any circumstances whatsoever, or if any of the terms, covenants or conditions of the Ground Lease shall in any manner be modified, changed, supplemented, altered, or amended without the consent of Lender; (xxix) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in subsections (i) to (xxviii) above, for ten (10) days after written notice to Borrower 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 written notice from Lender in the case of any other Default; provided, however, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such 30-day period and provided further that Borrower 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 such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed sixty (60) days; -89- (xxx) if there shall be default under the Pledge Agreement or any of the other Loan Documents beyond any applicable notice and cure periods contained in such documents, whether as to Borrower or the Collateral, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt; (xxxi) the Liens created pursuant to any Loan Document shall cease to be a fully enforceable first priority security interest; or (xxxii) a Mortgage Loan Event of Default shall occur, and shall not have been waived or settled by Mortgage Lender or cured by Mortgage Borrower, or if Mortgage Borrower enters into or otherwise suffers or permits any material amendment, waiver, supplement, termination, extension, renewal, replacement or other modification of any Mortgage Loan Document without the prior written consent of Lender. (b) Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (vi) or (vii) above) and at any time thereafter, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and the Collateral, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents and any or all of the Collateral and may exercise all the rights and remedies of a secured party under the Uniform Commercial Code against Borrower and the Collateral, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi) or (vii) above, the Debt and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. SECTION 8.2 Remedies. (a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to the Collateral. 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 Applicable Law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by Applicable Law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing all Liens and other rights, remedies or privileges provided to Lender shall remain in -90- full force and effect until Lender has exhausted all of its remedies against the Collateral and the Collateral has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. (b) With respect to Borrower and the Collateral, nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to the Collateral for the satisfaction of any of the Debt in preference or priority, and Lender may seek satisfaction out of the Collateral or any other Collateral or any part thereof, in its absolute discretion in respect of the Debt. In addition, Lender shall have the right from time to time to partially foreclose the upon the Collateral in any manner and for any amounts secured by the Pledge Agreement then due and payable as determined by Lender in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal and interest, Lender may foreclose upon the Collateral to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loan, Lender may foreclose upon the Collateral to recover so much of the principal balance of the Loan as Lender may accelerate and such other sums secured by the Pledge Agreement as Lender may elect. Notwithstanding one or more partial foreclosures, the Collateral shall remain subject to the Pledge Agreement to secure payment of sums secured by the Pledge Agreement and not previously recovered. (c) Lender shall have the right, from time to time, to sever the Note and the other Loan Documents into one or more separate notes, pledges and other security documents (the "Severed Loan Documents") in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof; provided, however, Lender shall not make or execute any such documents under such power until three (3) days after notice has been given to Borrower by Lender of Lender's intent to exercise its rights under such power. The Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents and any such representations and warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing Date. (d) Any amounts recovered from the Collateral after an Event of Default may be applied by Lender toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents in such order, priority and proportions as Lender in its sole discretion shall determine. SECTION 8.3 Right to Cure Defaults. (a) Upon the occurrence and during the continuance of any Event of Default, Lender may, but without any obligation to do so and without notice to or demand on Borrower and -91- without releasing Borrower from any obligation hereunder, make any payment or do any act required of Borrower hereunder in such manner and to such extent as Lender may deem necessary to protect the security hereof. Lender 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 for such purposes, and the cost and expense thereof (including reasonable attorneys' fees to the extent permitted by law), with interest as provided in this Section 8.3, 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 in remedying such Event of Default or such failed payment or act or in appearing in, defending, or bringing any 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 the liens, claims and security interests provided to Lender under the Loan Documents and shall be immediately due and payable upon demand by Lender therefor. (b) Lender shall have the right, but shall not have the obligation, to exercise Borrower's rights under the Organizational Documents of Mortgage Borrower (a) to cure a Mortgage Loan Event of Default and (b) to satisfy any Liens, claims or judgments against the Properties (except for Liens permitted by the Mortgage Loan Documents), in the case of either (a) or (b), unless Borrower or Mortgage Borrower shall be diligently pursuing remedies to cure to Lender's sole satisfaction. Borrower shall reimburse Lender on demand for any and all costs incurred by Lender in connection with curing any such Mortgage Loan Event of Default or satisfying any Liens, claims or judgments against any Individual Property. SECTION 8.4 Remedies Cumulative; Waivers. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one or more Defaults or Events of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon. SECTION 8.5 Power of Attorney. For the purpose of carrying out the provisions and exercising the rights, powers and privileges granted in this Section 8, Borrower hereby irrevocably appoints the Lender as its true and lawful attorney-in-fact to execute, acknowledge and deliver any instruments and do and perform any acts such as are referred to in this subsection in the name and on behalf of Borrower. This power of attorney is a power coupled with an interest and cannot be revoked. -92- IX. SPECIAL PROVISIONS SECTION 9.1 Sale of Notes and Lender Transactions. Lender may, at any time, sell, pledge, transfer, pledge or assign the Note, this Agreement, the Pledge Agreement and the other Loan Documents, and any or all servicing rights with respect thereto (a "Lender Transaction"). At the request of the holder of the Note and, to the extent not already required to be provided by Borrower under this Agreement, Borrower (subject to the limitations set forth at the end of this Section 9.1) shall use its best efforts to satisfy the market standards to which Lender customarily adheres or which may be reasonably required in the marketplace in connection the sale, pledge, transfer, pledge or assignment of the Note, including, without limitation, to: (a) (i) provide such financial and other information with respect to the Collateral, the Properties, Borrower, Mortgage Borrower and the Manager, (ii) provide budgets relating to the Properties and (iii) permit Lender or Lender's designees to perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I's and, if appropriate, Phase II's), engineering reports and other due diligence investigations of the Properties, as may be reasonably requested by the holder of the Note or as may be necessary or appropriate in connection with a Lender Transaction (the "Provided Information"), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of accountants or opinions of counsel of independent attorneys acceptable to Lender; (b) if required by Lender, deliver (i) a revised Insolvency Opinion, (ii) revised opinions of counsel as to due execution and enforceability with respect to the Collateral, Borrower, Guarantor, Indemnitor, Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities and their respective Affiliates and the Loan Documents, and (iii) revised Organizational Documents for Borrower, Guarantor, Indemnitor, the Operating Lessee SPE Entities, the Pledgor SPE Entities and Principal and their respective Affiliates (including, without limitation, such revisions as are necessary to comply with the provisions of Section 4.1.36 hereof), which counsel, opinions and Organizational Documents shall be satisfactory to Lender and the Rating Agencies; (c) if required by Lender, cause to be delivered such additional tenant estoppel letters, subordination agreements or other agreements from parties to agreements that affect the Properties reasonably requested by Lender; (d) execute such amendments to the Loan Documents and Organizational Documents as may be reasonably requested by Lender or otherwise to effect a Lender Transaction; provided, however, that Borrower shall not be required to modify or amend any Loan Document if such modification or amendment would (i) materially increase Borrower's obligations or out-of-pocket costs related to compliance with this Agreement (except for modifications and amendments required to be made pursuant to Section 9.1 (e) below), (ii) change the interest rate, the stated maturity or the amortization of principal set forth in the Note, or (iii) modify or amend any other economic, financial or payment term (or otherwise modify or amend in any material respect any of the terms) of the Loan; and -93- (e) make such representations and warranties as of the closing date of the Lender Transaction with respect to the Collateral, the Properties, Borrower, Mortgage Borrower and the Loan Documents as are customarily provided in securitization transactions and as may be reasonably requested by the holder of the Note or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof, including the representations and warranties made in the Loan Documents Other than costs and expenses which are otherwise the responsible of Borrower pursuant to the terms of the Loan Documents, in connection with Borrower's complying with requests made under this Section 9.1, Borrower shall only be responsible for the payment of (i) Borrower's legal counsel and accountants and (ii) any internal, administrative or clerical cost and expenses incurred by Borrower. SECTION 9.2 Securitization. In the event Lender ever desires to issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement, Borrower agrees to (and agrees to cause Mortgage Borrower to) cooperate with Lender to the same extent such cooperation is required of Mortgage Borrower pursuant to the terms of the Mortgage Loan Agreement. SECTION 9.3 Servicer. At the option of Lender or Agent, the Loan may be serviced by a servicer/trustee (the "Servicer") selected by Lender or Agent and Lender or Agent may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "Servicing Agreement") between Lender or Agent and Servicer. SECTION 9.4 Exculpation. (a) Except as otherwise provided in this Section 9.4 and comparable provisions in the Pledge Agreement or in the other Loan Documents, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in this Agreement, the Note or the Pledge Agreement by any action or proceeding wherein a money judgment shall be sought against Borrower or any of Borrower's Affiliates, 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 Agreement, the Note, the Pledge Agreement, the other Loan Documents, and the Collateral, and any other Collateral created by this Agreement, the Note, the Pledge Agreement and the other Loan 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 Collateral and in any other collateral given to Lender. Lender, by accepting this Agreement, the Note and the Pledge Agreement, agrees that it shall not, except as otherwise provided in this Section 9.4 and comparable provisions or in the Pledge Agreement, sue for, seek or demand any deficiency judgment against Borrower or any of Borrower's Affiliates in any such action or proceeding, under or by reason of or under or in connection with this Agreement, the Note, the Pledge Agreement or the other Loan Documents. The provisions of this Section shall not, however, (i) constitute a waiver, release or impairment -94- of any obligation evidenced or secured by this Agreement, the Note, the Pledge Agreement or the other Loan Documents; (ii) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under the Pledge Agreement; (iii) except as set forth in this Section 9.4, affect the validity or enforceability of any indemnity (including, without limitation, the Environmental Indemnity), guaranty (including, without limitation, the Guaranty), master lease or similar instrument made in connection with this Agreement, the Note, the Pledge Agreement, or the other Loan Documents; (iv) impair the right of Lender to obtain the appointment of a receiver; (v) impair the right of Lender to enforce Sections 4.1.9, 4.1.29, 5.1.9 and 5.2.8 hereof; or (vi) impair the right of Lender to obtain a deficiency judgment or other judgment on the Note against Borrower to the extent necessary to (A) preserve or enforce its rights and remedies against the Collateral or (B) obtain any Insurance Proceeds or Awards to which Lender would otherwise be entitled under the terms of this Agreement or the Pledge Agreement; provided however, Lender shall only enforce such judgment to the extent of amounts Lender is entitled to under the terms of this Agreement from such Insurance Proceeds and/or Awards. (b) Notwithstanding the provisions of this Section 9.4 to the contrary, Borrower shall be personally liable to Lender for the Losses Lender incurs to the extent due to: (i) fraud or material misrepresentation in connection with the execution and the delivery of this Agreement, the Note, the Pledge Agreement, the other Loan Documents or any Mortgage Loan Document; (ii) Borrower's or Pledgor's or Operating Lessee's or Mortgage Borrower's misapplication or misappropriation of Rents received by Borrower, Pledgor, Operating Lessee or Mortgage Borrower after the occurrence of an Event of Default; (iii) Borrower's, Pledgor's, Operating Lessee's or Mortgage Borrower's misapplication or misappropriation of Security Deposits or Rents collected more than thirty (30) days in advance; (iv) Borrower's, Pledgor's, Operating Lessee's or Mortgage Borrower's misapplication or the misappropriation of Insurance Proceeds or Awards; (v) Borrower's, Pledgor's, Operating Lessee's or Mortgage Borrower's misapplication or the misappropriation of Net Liquidation Proceeds After Debt Service or any distributions or other payments made in respect of any part of the Property or any part of the Collateral; (vi) Borrower's making a distribution to its equity owners after the occurrence of an Event of Default; (vii) Mortgage Borrower's failure to pay Taxes, Other Charges (except to the extent that sums sufficient to pay such amounts have been deposited in escrow with Mortgage Lender pursuant to the terms of Section 7.2 of the Mortgage Loan Agreement), charges for labor or materials or other charges that can create Liens on the Properties; (viii) Borrower's or Pledgor's failure to return or to reimburse Lender for all Personal Property taken from any Properties by or on behalf of Mortgage Borrower or Operating Lessee and not replaced with Personal Property of comparable utility and value; (ix) any act of intentional waste or arson to the Collateral by Borrower, Mortgage Borrower, the Operating Lessee SPE Entities, the Pledgor SPE Entities or Principal or any Affiliate or thereof or by any Indemnitor or Guarantor; (x) any fees or commissions paid by Borrower to Principal, Mortgage Borrower, the Pledgor SPE Entities, the Operating Lessee SPE Entities or any Affiliate of Borrower, Principal, the Pledgor SPE Entities, the Operating Lessee SPE Entities, Indemnitor, or Guarantor in violation of the terms of this Agreement, the Note, the Pledge Agreement or the other Loan Documents; (xi) Borrower's failure to comply with the provisions of Sections 4.1.40 and 5.1.19 of this Agreement. (xii) any Loss resulting from a Casualty due to Borrower's or Mortgage Borrower's failure to obtain the insurance required pursuant to Section 6.1; (xiii) Borrower's default under Section 5.1.10 hereof (after ten (10) Business Days prior -95- written notice to Borrower); (xiv) if any Ground Lease is modified or terminated by Mortgage Borrower or any Affiliate thereof other than in accordance with the terms hereof and (xv) all amounts contemplated under Section 5.1.12 hereof and any real estate or other transfer tax incurred to transfer title to the Collateral following the occurrence of an Event of Default, including, without limitation, any transfer tax or similar tax incurred by Lender in the exercise of the option to purchase the fee estate contained in a Ground Lease, (xvi) any Loss resulting from the Jacksonville Property's failure to comply with applicable zoning ordinances relating to density or number of hotel rooms and (xvii) any Loss paid to Hilton Inns, Inc. or any Affiliate thereof (including, without limitation, any termination or similar fees by, or on behalf of, Operating Lessee) resulting from a termination of the franchise license agreement(s) relating to the Hilton Franchised Properties. (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 and the obligation to repay the Debt shall become a personal recourse obligation of Borrower (i) in the event of Borrower's or Principal's default under Section 4.1.36 hereof or Pledgor's default under Section 12 of the Operating Lease Subordination Agreement (such that such failure was considered by a court as a factor in the court's finding for a consolidation of the assets of Borrower, Principal and/or Pledgor with the assets of another Person) or any Transfer in violation of the provisions of Section 5.2.10 hereof, (ii) if any Individual Property, the Collateral, or any part thereof shall become an asset, or if Borrower, Principal, Ground Lessor, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Mortgage Borrower, Mortgage Principal, Junior Mezzanine Borrower or Junior Mezzanine Principal shall be a debtor, in (A) a voluntary bankruptcy or insolvency proceeding or (B) an involuntary bankruptcy or insolvency proceeding commenced by any Person (other than Lender, Mortgage Lender or Junior Mezzanine Lender) and, with respect to such involuntary proceeding, Borrower consents or fails to object to such proceedings) or if Borrower, Principal, Ground Lessor, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Mortgage Borrower, Mortgage Principal, Junior Mezzanine Borrower, Junior Mezzanine Principal or any Affiliate of any of the foregoing has acted in concert with, colluded or conspired with the party to cause the filing of such involuntary proceeding, (iii) the event that fee title to any applicable Individual Property is not promptly transferred by Ground Lessor to Mortgage Borrower in accordance with the terms of the option to purchase such fee title contained in each Ground Lease or (iv) an Event of Default contemplated by Section 8.1(xi)(b), 8.1(xi)(c) or 8.1(xxiv)(b) hereof has occurred (unless caused by, or at the request of, Lender, Mortgage Lender of Junior Mezzanine Lender); provided, however, with respect to this Section 9.4(c)(iii) and (iv) only, Borrower shall only be liable on a recourse basis for the Allocated Loan Amounts (plus interest thereon and costs and expenses relating thereto) of the Individual Properties that were the cause of such Event of Default. (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 Bankruptcy Code against Borrower and Principal to file a claim for the full amount of the indebtedness secured by the Pledge Agreement or to require that all Collateral shall continue to secure all of the indebtedness owing to Lender in accordance with this Agreement, the Note, the Pledge Agreement and the other Loan Documents. -96- SECTION 9.5 Mortgage Loan Defaults. (a) Without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrower from any of its obligations hereunder, if there shall occur any Default under the Mortgage Loan Documents or if Mortgage Lender asserts in writing that Mortgage Borrower has defaulted in the performance or observance of any term, covenant or condition of the Mortgage Loan Documents (whether or not the same shall have continued beyond any applicable notice or grace periods, whether or not Mortgage Lender shall have delivered proper notice to Mortgage Borrower, and without regard to any other defenses or offset rights Mortgage Borrower may have against Mortgage Lender), Borrower hereby expressly agrees that Lender shall have the immediate right, without notice to or demand on Borrower or Mortgage Borrower, but shall be under no obligation: (i) to pay all or any part of the Mortgage Loan, and any other sums, that are then due and payable and to perform any act or take any action on behalf of Mortgage Borrower, as may be appropriate, to cause all of the terms, covenants and conditions of the Mortgage Loan Documents on the part of Mortgage Borrower to be performed or observed thereunder to be promptly performed or observed; and (ii) to pay any other amounts and take any other action as Lender, in its sole and absolute discretion, shall deem advisable to protect or preserve the rights and interests of Lender in the Loan and/or the Collateral. Lender shall have no obligation to complete any cure or attempted cure undertaken or commenced by Lender. All sums so paid and the costs and expenses incurred by Lender in exercising rights under this Section (including, without limitation, reasonable attorneys' and other professional fees), with interest at the Default Rate, for the period from the date of demand by Lender to Borrower for such payments to the date of payment to Lender, shall constitute a portion of the Debt, shall be secured by the Pledge Agreement and shall be due and payable to Lender within two (2) Business Days following demand therefor. In the event that Lender makes any payment in respect of the Mortgage Loan, Lender shall be subrogated to all of the rights of Mortgage Lender under the Mortgage Loan Documents against the Property and Mortgage Borrower in addition to all other rights Lender may have under the Loan Documents or applicable law. (b) Subject to the rights of tenants, Borrower hereby grants, and shall cause Mortgage Borrower to grant, Lender and any Person designated by Lender the right to enter upon the Property at any time for the purpose of carrying out the rights granted to Lender under this Section 9.5. Borrower shall not, and shall not cause or permit Mortgage Borrower or any other Person to impede, interfere with, hinder or delay, any effort or action on the part of Lender to cure any default or asserted default under the Mortgage Loan, or to otherwise protect or preserve Lender's interests in the Loan and the Collateral, including the Property in accordance with the provisions of this Agreement and the other Loan Documents. (c) Borrower hereby indemnifies Lender from and against all out-of-pocket liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including, without limitation, reasonable attorneys' and other professional fees, whether or not suit is brought, and settlement costs), and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Lender as a result of the foregoing actions described in Section 9.10(a). Lender shall have no obligation to Borrower, Mortgage Borrower or any other party to make any such payment or performance. -97- (d) If Lender shall receive a copy of any notice of default under the Mortgage Loan Documents sent by Mortgage Lender to Mortgage Borrower, 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. As a material inducement to Lender's making the Loan, Borrower hereby absolutely and unconditionally release and waive all claims against Lender arising out of Lender's exercise of its rights and remedies provided in this Section other than claims arising out of the fraud, illegal acts, gross negligence or willful misconduct of Lender. (e) Any Default under the Mortgage Loan which is cured by Lender, whether or not such cure is prior to the expiration of any applicable grace, notice or cure period under the Mortgage Loan Documents, shall constitute an immediate Event of Default under this Agreement without any notice, grace or cure period otherwise applicable under this Agreement. SECTION 9.6 Intercreditor Agreement. (a) Lender and Mortgage Lender are parties to a certain intercreditor agreement dated as of the date hereof (the "Intercreditor Agreement") memorializing their relative rights and obligations with respect to the Mortgage Loan, the Loan, Mortgage Borrower, Borrower and the Properties. Borrower and Mortgage Borrower hereby acknowledge and agree that (i) such Intercreditor Agreement is intended solely for the benefit of Lender and Mortgage Lender and (ii) Borrower and Mortgagor are not intended third-party beneficiaries of any of the provisions therein and shall not be entitled to rely on any of the provisions contained therein. Lender and Mortgage Lender have not disclosed and shall have no obligation to disclose to Borrower the contents of the Intercreditor Agreement. Borrower's obligations hereunder are independent of such Intercreditor Agreement and remain unmodified by the terms and provisions thereof. (b) In the event Lender is required pursuant to the terms of the Intercreditor Agreement to pay over any payment or distribution of assets, whether in cash, property or securities which is applied to the Debt, including, without limitation, any proceeds of the Properties previously received by Lender on account of the Loan to the Mortgage Lender, then Borrower agrees to indemnify Lender for any amounts so paid, and any amount so paid shall continue to be owing pursuant to the Loan Documents as part of the Debt notwithstanding the prior receipt of such payment by Lender. SECTION 9.7 Discussions with Mortgage Lender. In connection with the exercise of its rights set forth in the Loan Documents, Lender shall have the right at any time to discuss the Properties, the Mortgage Loan, the Loan or any other matter directly with Mortgage Lender or Mortgage Lender's consultants, agents or representatives without notice to or permission from Borrower or any other Loan Party, nor shall Lender have any obligation to disclose such discussions or the contents thereof with Borrower or any other Loan Party. SECTION 9.8 Independent Approval Rights. If any action, proposed action or other decision is consented to or approved by Mortgage Lender, such consent or approval shall not be binding or controlling on Lender. Borrower hereby acknowledges and agrees that (i) the risks of Mortgage Lender in making the Mortgage -98- Loan are different from the risks of Lender in making the Loan, (ii) in determining whether to grant, deny, withhold or condition any requested consent or approval Mortgage Lender and Lender may reasonably reach different conclusions, and (iii) Lender has an absolute independent right to grant, deny, withhold or condition any requested consent or approval based on its own point of view. Further, the denial by Lender of a requested consent or approval shall not create any liability or other obligation of Lender if the denial of such consent or approval results directly or indirectly in a default under the Mortgage Loan, and Borrower hereby waives any claim of liability against Lender arising from any such denial. SECTION 9.9 Reinstatement. This Agreement and each other Loan Document shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Debt or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Borrower, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Debt shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. X. MISCELLANEOUS SECTION 10.1 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender, and all covenants, promises and agreements in this Agreement, by or on behalf of Lender, shall be binding upon the legal representatives successors and assigns of Lender. SECTION 10.2 Lender's Discretion. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. SECTION 10.3 Governing Law. (a) THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE OF NEW YORK AND -99- SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (OTHER THAN THOSE CONFLICT OF LAW PROVISIONS THAT WOULD DEFER TO THE SUBSTANTIVE LAWS OF ANOTHER JURISDICTION). WITHOUT IN ANY WAY LIMITING THE PRECEDING CHOICE OF LAW, THE PARTIES ELECT TO BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK. (b) WITH RESPECT TO ANY CLAIM OR ACTION ARISING HEREUNDER OR UNDER THIS AGREEMENT, THE NOTE, OR THE OTHER LOAN DOCUMENTS, BORROWER (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 AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS 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 AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS INSTRUMENT WILL BE DEEMED TO PRECLUDE LENDER FROM BRINGING AN ACTION OR PROCEEDING WITH RESPECT HERETO IN ANY OTHER JURISDICTION. WITHOUT IN ANY WAY LIMITING THE PRECEDING CONSENTS TO JURISDICTION AND VENUE, THE PARTIES AGREE TO SUBMIT TO THE JURISDICTION OF SUCH NEW YORK COURTS IN ACCORDANCE WITH SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK OR ANY CORRESPONDING OR SUCCEEDING PROVISIONS THEREOF. SECTION 10.4 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, the Note, or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on Borrower, shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. SECTION 10.5 Delay Not a Waiver. Neither any failure nor any delay on the part of Lender or Borrower in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor -100- shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. SECTION 10.6 Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day 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: c/o FelCor Lodging Trust Incorporated 545 E. John Carpenter Freeway, Suite 1300 Irving, Texas 75062 Attention: General Counsel Facsimile No.: (972) 444-4949 With a copy to: Jenkens & Gilchrist 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attention: Tom E. Davis, Esq. Facsimile No.: (214) 855-4300 If to Lender: JPMorgan Chase Bank c/o J.P. Morgan Mortgage Capital, Inc. 400 Perimeter Center Terrace Suite 575 Atlanta, Georgia 30346 Attention: Loan Servicing Facsimile No.: (351) 770-8399 and -101- With a copy to: Thacher Proffitt & Wood 11 West 42nd Street New York, New York 10036 Attention: David S. Hall, Esq. Facsimile No.: (212) 789-3500 or addressed as such party may from time to time designate by written notice to the other parties. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. SECTION 10.7 Trial by Jury. BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BORROWER AND LENDER ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER AND LENDER, AS APPLICABLE. SECTION 10.8 Headings. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 10.9 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement shall be prohibited by or invalid under Applicable Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. SECTION 10.10 Preferences. Except as otherwise expressly provided herein, Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared -102- to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, State or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. SECTION 10.11 Waiver of Notice. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Lender to Borrower. SECTION 10.12 Remedies of Borrower. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. SECTION 10.13 Expenses; Indemnity. (a) Except as otherwise expressly provided herein, Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender within five (5) days of receipt of written notice from Lender for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrower (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Properties); (ii) Borrower's ongoing performance of and compliance with Borrower's respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental and insurance requirements; (iii) Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date; (iv) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by -103- Lender; (v) securing Borrower's compliance with any requests made pursuant to the provisions of this Agreement; (vi) the filing and recording fees and expenses, UCC insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents, the Collateral, or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Collateral or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any cost and expenses due and payable to Lender may, at Lender's option, be payable to Lender's designee. (b) Borrower shall indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents, or (ii) the use or intended use of the proceeds of the Loan (collectively, the "Indemnified Liabilities"); provided, however, that Borrower shall not have any obligation to Lender hereunder to the extent that such Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion that it is permitted to pay and satisfy under Applicable Law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. (c) Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless Lender and the Indemnified Parties from and against any and all losses (including, without limitation, reasonable attorneys' fees and costs incurred in the investigation, defense, and settlement of losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA, the Code, any State statute or other similar law that may be required, in Lender's sole discretion) that Lender may incur, directly or indirectly, as a result of a default under Sections 4.1.9 or 5.2.8 hereof. SECTION 10.14 Schedules and Exhibits Incorporated. The Schedules and Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. -104- SECTION 10.15 Offsets, Counterclaims and Defenses. Any assignee of Lender's interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to the Loan Documents which Borrower may otherwise have against any assignor of the Loan Documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. SECTION 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries. (a) Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender and Lender does not have any fiduciary relationship to Borrower. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender. (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower (or an Affiliate of either of the foregoing acting on behalf of Borrower or Lender, as applicable) any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. SECTION 10.17 Publicity. All news releases, publicity or advertising by Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents, to Lender, or any of their Affiliates shall be subject to the prior written approval of Lender, which shall not be unreasonably withheld. Notwithstanding the foregoing, disclosure required by any federal or State securities laws, rules or regulations, as determined by Borrower's counsel, shall not be subject to the prior written approval of Lender. SECTION 10.18 Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets. (a) Borrower acknowledges that Lender has made the Loan to Borrower upon the security of its collective interest in the Collateral and in reliance upon the aggregate of the Collateral being of greater value as collateral security than the sum of any portion of the Collateral taken separately. Borrower agrees that the Pledge Agreements are and will be cross-collateralized and cross-defaulted with each other so that (i) an Event of Default under any of the Pledge Agreements shall constitute an Event of Default under each of the other Pledge -105- Agreements which secure the Note; (ii) an Event of Default under the Note or this Agreement shall constitute an Event of Default under each Pledge Agreement; (iii) each Pledge Agreement shall constitute security for the Note as if a single blanket lien were placed on all of the Properties as security for the Note; and (iv) such cross-collateralization shall in no event be deemed to constitute a fraudulent conveyance. (b) To the fullest extent permitted by Applicable Law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Junior Mezzanine Borrower, and of the Collateral, or to a sale in inverse order of alienation in the event of foreclosure of all or any of the Pledge Agreement, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Collateral for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Properties in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of the Pledge Agreement, any equitable right otherwise available to Borrower which would require the separate sale of the Collateral or require Lender to exhaust its remedies against any portion of the Collateral before proceeding against any other portion of the Collateral; and further in the event of such foreclosure Borrower does hereby expressly consent to and authorize, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Collateral. SECTION 10.19 Waiver of Counterclaim. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents. SECTION 10.20 Conflict; Construction of Documents; Reliance. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender's exercise of any such rights or remedies. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates. -106- SECTION 10.21 Brokers and Financial Advisors. Borrower and Lender hereby represent that they have dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind (including Lender's reasonable attorneys' fees and expenses) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower in connection with the transactions contemplated herein. The provisions of this Section 10.21 shall survive the expiration and termination of this Agreement and the payment of the Debt. SECTION 10.22 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, between Borrower and/or its Affiliates and Lender are superseded by the terms of this Agreement and the other Loan Documents. SECTION 10.23 Certain Additional Rights of Lender. Notwithstanding anything to the contrary which may be contained in this Agreement to the contrary, but subject to the provisions of Section 9.4 hereof, Lender shall have: (a) the right to routinely consult with and advise Borrower's management regarding the significant business activities and business and financial developments of Borrower, provided, however, that such consultations shall not include discussions of environmental compliance programs or disposal of hazardous substances. Consultation meetings should occur, at Lender's request, on a regular basis at any reasonable times; (b) the right, in accordance with the terms of this Agreement, to examine the books and records of Borrower at any time upon reasonable notice; (c) the right, in accordance with the terms of this Agreement, to receive monthly, quarterly and year-end financial reports, including balance sheets, statements of income, shareholder's equity and cash flow, a management report and schedules of outstanding indebtedness; (d) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to approve any acquisition by Borrower of any other significant property (other than personal property required for the day to day operation of the Properties); (e) the right, without restricting any other rights of Lender under this Agreement (including any similar right), in the event of certain Events of Default, to vote the owners' interests in Borrower pursuant to irrevocable proxies granted, at the request of Borrower in advance for this purpose; and -107- (f) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to restrict the transfer to voting interests in Borrower held by its members, an the right to restrict the transfer of interests in such member, except for any Transfer that is a permitted transfer. After prior written notice to Borrower, the rights described above may be exercised by any entity which owns and controls, directly or indirectly, substantially all of the interests in Lender. SECTION 10.24 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. [NO FURTHER TEXT ON THIS PAGE] -108- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. FELCOR/JPM HOLDINGS, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ------------------------------------ Name: Joel M. Eastman Title: Vice President LENDER: JPMORGAN CHASE BANK, a New York banking corporation By: /s/ Michael Mesard ------------------------------------ Name: Michael Mesard Title: Vice President Acknowledged and agreed to with respect to its obligations set forth in Article 9 hereof: FELCOR LODGING LIMITED PARTNERSHIP a Delaware limited partnership By: FelCor Lodging Trust Incorporated, a Maryland corporation, its general partner By: /s/ Joel M. Eastman ----------------------------- Name: Joel M. Eastman Title: Vice President SCHEDULE I
LOCATION ALLOCATED LOAN AMOUNT -------- --------------------- Omaha, Nebraska $ 510,000 Charleston Mills, South Carolina $1,500,000 San Antonio, Texas $1,159,000 Tampa, Florida $1,005,500 Raleigh/Durham, North Carolina $1,005,500 Tulsa, Oklahoma $ 724,000 Jacksonville, Florida $1,030,000 Lexington, Kentucky $1,159,000 Bloomington, Minnesota $ 797,000 Dallas/Fort Worth, Texas $1,110,000
REMAINDER OF SCHEDULES AND EXHIBITS INTENTIONALLY OMITTED. EX-10.29.01 7 d05903exv10w29w01.txt PLEDGE AND SECURITY AGREEMENT - SENIOR MEZZANINE EXHIBIT 10.29.01 PLEDGE AND SECURITY AGREEMENT This PLEDGE AND SECURITY AGREEMENT (this "Agreement") dated as of April 24, 2003, among FELCOR/JPM HOLDINGS, L.LC., a Delaware limited liability company having its principal place of business c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Pledgor"), and JPMORGAN CHASE BANK, a New York banking corporation, having an address at 270 Park Avenue, New York, New York 10017 ("Lender"). W I T N E S S E T H: WHEREAS, Pledgor is the sole member of, and owner of all of the membership interests in, FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company ("Property Owner"; such membership interests in Property Owner together with all membership interest certificates, shares, claims, powers, privileges, benefits, remedies, options, or rights of any nature whatsoever (including, without limitation, all voting rights) which may currently exist or be issued or granted by Property Owner to Pledgor with respect to or on account of such membership interests are collectively referred to in this Agreement as, the "Pledged Interests"); WHEREAS, Lender pursuant to that Mezzanine Loan Agreement of even date herewith (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), by and between the Pledgor and Lender, has agreed to make a loan to Pledgor in the aggregate principal amount of $10,000,000.00 (the "Loan"), which Loan is evidenced by a certain Secured Promissory Note (Mezzanine Loan) executed by Pledgor (the "Note") and secured by this Agreement and certain other loan documents (collectively, the "Loan Documents"); and WHEREAS, as a condition to making the Loan, Lender has required that Pledgor collaterally pledge and assign to Lender, and grant to Lender a first priority security interest in, the Collateral (as such term is hereinafter defined), as security for Pledgor's due and timely observance and performance of all of its obligations and covenants under the Note. NOW, THEREFORE, in consideration of the Loan, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. COLLATERAL PLEDGE AND GRANT OF SECURITY INTEREST. Subject to the terms and conditions of this Agreement, Pledgor hereby collaterally pledges and assigns to Lender, and grants to Lender a first priority security interest in, all of the Collateral, to secure Pledgor's due and timely observance and performance of all of its obligations and covenants under the Note (all of the foregoing, collectively, the "Obligations"). The term "Collateral" as used in this Agreement means the Pledged Interests and all Proceeds relating thereto. The term "Proceeds" as used in this Agreement means all "proceeds" as such term is defined in Section 9-102(a)(46) of the Uniform Commercial Code (hereinafter defined) and in any event shall include, without limitation, all dividends or other income from the Pledged Interests, collections thereon or distributions with respect thereto. (a) This Agreement shall constitute a security agreement under the Uniform Commercial Code as adopted and enacted in the State of New York, as amended from time to time (the "Uniform Commercial Code"). 2. BOOKS AND RECORDS. (a) Pledgor shall keep or cause to be kept accurate and complete books, records and accounts in accordance with generally accepted accounting principles, consistently applied, with respect to the financial affairs of Pledgor which relate to the Collateral. Pledgor represents and warrants to Lender that: (i) it is a registered organization under the state of Delaware; and (ii) all books and records with respect to the financial affairs of Property Owner which relate to the Collateral are presently kept either at the offices of Pledgor in Dallas County, Texas or at the Properties (as defined in the Loan Agreement). (b) Pledgor shall notify Lender at least 30 days prior to: (i) any change of address of any entity comprising Pledgor; (ii) any change in the location where Property Owner's books and records are kept; (iii) any change of the name under which any entity comprising Pledgor conducts its business. (c) Pledgor shall, from time to time, within five Business Days (as defined in the Loan Agreement) after written request and at its sole cost and expense, deliver to Lender certified copies of any of such books and records of Pledgor as may be reasonably requested by Lender. Lender shall have the right from time to time, upon reasonable prior notice, at all times during normal business hours to examine such books, records and accounts at Pledgor's office and to make copies or extracts therefrom as Lender shall desire. Pledgor shall, from time to time, within five Business Days after written request and at its sole cost and expense, deliver to Lender such information, reports and additional available financial information with respect to the financial affairs of Property Owner and with respect to the Collateral as Lender shall reasonably request. 3. INTENTIONALLY OMITTED. 4. PROTECTION OF SECURITY INTEREST. Pledgor shall take any and all steps necessary or required to preserve and protect the priority of the security interest granted herein, and in furtherance of this obligation Pledgor agrees that: 2 (a) Pledgor shall not sell, assign, pledge, transfer or otherwise dispose of any of the Collateral or any interest therein, or offer to do so, without the prior written consent of Lender, or permit anything to be done that shall impair the value of any of the Collateral; (b) Pledgor hereby authorizes Lender to execute and file (as the case may be) financing statements under the Uniform Commercial Code, and Pledgor shall execute and deliver to Lender, upon Lender's request, any other documents reasonably requested by Lender, describing the Collateral and evidencing and/or perfecting the security interest in the Collateral and to otherwise effectively implement the purposes of this Agreement; (c) Lender may from time to time, at its option, and upon notice to Pledgor, perform any agreement or obligation of Pledgor hereunder which Pledgor fails to perform and take any action which Lender deems reasonably necessary or appropriate for the maintenance or preservation of any of the Collateral or its security interest therein; and (d) Any amounts incurred by Lender for costs and expenses (including, without limitation, reasonable attorney's fees and expenses) in connection with any action taken by Lender during an Event of Default to enforce or protect its rights hereunder, shall, at Lender's option, become part of the principal amount due under the Note and part of the Obligations and Pledgor shall pay any such amount to Lender together with interest thereon at the Default Rate (as such term is defined in the Loan Agreement). 5. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants that: (a) except as expressly permitted by the Loan Agreement, no other security agreement or financing statement covering the Collateral or any part thereof has been made or filed and no security interest, other than the one herein created, has been created, attached or perfected in the Collateral or in any part thereof; (b) no dispute, set-off, counterclaim or defense exists on the part of Pledgor or any other party in respect of any part of the Collateral; (c) all information supplied and statements made to Lender by or on behalf of Pledgor in connection with the identification and description of the Collateral are true and correct; and (d) except for (i) the liens and security interests created pursuant to the Loan Documents or (ii) such other liens and security interests expressly permitted thereby, Pledgor's title to the Collateral is absolute and unencumbered. 6. PLEDGOR COVENANTS. 3 Pledgor shall: (a) promptly furnish Lender with any information or documents which Lender may reasonably request in writing concerning the Collateral; (b) Intentionally Omitted; (c) promptly notify Lender, upon Pledgor becoming aware, of any claim, action or proceeding affecting title, or any other matter relating to the Collateral, or any part thereof, or the security interest created herein, and at Lender's written request, appear in and defend, at Pledgor's expense, any such claim, action or proceeding; (d) promptly make such further assurances as may be reasonably necessary to establish proof of Pledgor's title to the Collateral; (e) promptly furnish Lender with true copies of all notices (including notices of default) sent or received by Pledgor with respect to any material agreements relating to the Collateral; (f) not, without Lender's prior written consent, create any other security interest in, assign, pledge or otherwise encumber the Collateral or any part thereof, or permit any part of the Collateral to be or become subject to any lien (other than as expressly permitted in the Loan Agreement), attachment, execution, sequestration, other legal or equitable process, or encumbrance of any kind or character other than the security interests created by this Agreement; (g) After the occurrence of and during the continuance of an Event of Default (as such term is defined in Section 7 hereof), if Pledgor receives any Proceeds, Pledgor shall accept the same as Lender's agent and hold the same in trust on behalf of and for the benefit of Lender and shall promptly deliver the same forthwith to Lender, together with appropriate forms of assignment, UCC-1 financial statements, and other appropriate instruments indicating the security interest of Lender in such Proceeds, duly executed by Pledgor as additional collateral security for the Obligations. Pledgor authorizes and directs Lender to apply any cash Proceeds received by Lender after the occurrence of and during the continuance of an Event of Default to the payment of the Obligations in accordance with the Loan Agreement; and (h) Lender shall not have any liability whatsoever to Pledgor with respect to any Proceeds so received (except as otherwise provided in the Loan Agreement or this Agreement), nor shall Lender be liable to Pledgor in any manner with respect to the holding by Lender of any Collateral pursuant to and in accordance with this Agreement. Additionally, Lender shall not have any obligations, except as otherwise expressly set forth in this Agreement and for any state of facts determined by a final, judgment of a court of competent jurisdiction, arbitration or mediation to be caused by Lender's gross negligence, bad faith or willful misconduct, to take any action with respect to any Collateral held by it. 4 7. INTENTIONALLY DELETED. 8. REMEDIES. If an Event of Default (as defined in the Loan Agreement) shall occur and be continuing, Lender may exercise, in addition to all other rights and remedies granted in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Uniform Commercial Code in effect in each applicable jurisdiction. Without limiting the generality of the foregoing, Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice or procedure required by the Loan Agreement or applicable law or referred to herein) to or upon Property Owner or any other person or entity (all and each of which demands, presentments, protests, advertisements or notices or other defenses, are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker's board or office of Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Property Owner, which right or equity is hereby waived or released. Lender shall apply any Proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of Lender hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as Lender may elect, and only after such application and after the payment by Lender of any other amount required by any provision of applicable law, including, without limitation, the Uniform Commercial Code in effect in each applicable jurisdiction, need Lender account for the surplus, if any, to Pledgor. To the extent permitted by applicable law, Pledgor waives all claims, damages and demands they may acquire against Lender arising out of the exercise by Lender of any of its rights hereunder, except for any claims, damages and demands they may have against Lender arising from the gross negligence or willful misconduct of Lender. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. Pledgor shall remain liable for any deficiency if the proceeds of any sale or other disposition of Collateral are insufficient to pay the Obligations and the reasonable fees and disbursements of any attorneys employed by Lender to enforce its rights and remedies hereunder. Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance therewith will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. Lender may sell the Collateral without giving any warranties as to the Collateral. Lender may specifically disclaim any warranties of title or the like. The 5 foregoing will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Lender sells any of the Collateral upon credit, Pledgor will be credited only with payments actually made by the purchaser received by Pledgor and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Lender may recall the Collateral and Pledgor shall be credited with the proceeds of the resale. In the event Lender purchases any of the Collateral being sold, Lender may pay for the Collateral by crediting some or all of the Obligations. 9. PRIVATE SALES. Property Owner and Pledgor recognize that Lender may be unable to effect a public sale of any or all the Pledged Interests, by reason of certain prohibitions contained in the Securities Act of 1933, as amended and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Property Owner and Pledgor acknowledge and agree that any such private sale may result in prices and other terms less favorable to Lender than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. Lender shall be under no obligation to delay a sale of any of the Pledged Interests for the period of time necessary to permit Property Owner to register such securities for public sale under the Securities Act of 1933, as amended, or under applicable state securities laws, even if Borrower would agree to do so. (a) Pledgor further agree to do or cause to be done all such other acts as may be reasonably requested to make any sale or sales of all or any portion of the Pledged Interests pursuant to this paragraph 9 valid and binding and in compliance with any and all other applicable requirements of law. Pledgor further agrees that a breach of any of the covenants contained in this paragraph 9 will cause irreparable injury to Lender, that Lender has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this paragraph 9 shall be specifically enforceable against Pledgor, and to the maximum extent permitted by applicable law, Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred under the Loan Agreement. 10. CERTAIN UNDERSTANDINGS OF PARTIES; REGISTRATION OF PLEDGE; CONTROL OF PLEDGED COLLATERAL, ETC. (i) The parties acknowledge and agree that the Pledged Interests constitute "general intangibles" (as defined in Section 9-102 of the Uniform Commercial Code); and (ii) Pledgor therefore covenants and agrees that (A) the Pledged Interests are not and will not be traded, dealt in or traded on securities exchanges or securities markets, (B) the terms of the Property Owner's operating agreement (the "LLC Agreement") does not and will not provide that the Pledged Interests are securities governed by the Uniform Commercial Code as in effect in any jurisdiction and (C) the Pledged Interests are not and will not be investment company securities within the meaning of Section 8-103 of the Uniform Commercial Code as in effect in any jurisdiction. 6 11. REGISTRATION OF PLEDGE; CONTROL OF COLLATERAL. Notwithstanding the foregoing, to better assure the perfection of the security interest of Lender in the Pledged Interests, concurrently with the execution and delivery of this Agreement, Pledgor shall send written instructions in the form of Exhibit A hereto to each issuer thereof (the "Issuer"), and shall cause the Issuer to, and the Issuer shall, deliver to Lender the Confirmation Statement and Instruction Agreement in the form of Exhibit B hereto pursuant to which the Issuer will confirm that it has registered the pledge effected by this Agreement on its books and agrees to comply with the instructions of Lender in respect of the Pledged Interests without further consent of Pledgor or any other Person. Notwithstanding anything in this paragraph neither the written instructions nor the Confirmation Statement and Instruction Agreement shall be construed as expanding the rights of Lender to give instructions with respect to the Collateral beyond such rights set forth in this Agreement. From time to time, Pledgor shall promptly provide replacement written instructions in the form of Exhibit A hereto to each Issuer and shall cause the Issuer to, and the Issuer shall, deliver to Lender the Confirmation Statement and Instruction Agreement in the form of Exhibit B to each assignee or collateral assignee of Lender, as requested by Lender. Pledgor agrees that the foregoing provisions of this Section 11 shall inure to the benefit of Lender's successors and assigns and any collateral assignees of Lender. 12. RIGHTS OF LENDER. (a) subject to the terms of this Pledge, Pledgor authorizes Lender, without notice or demand and without affecting Pledgor's liability or Lender's rights hereunder or with respect to the Obligations, from time to time: (i) to take and hold security other than the Collateral for the payment or performance of the Obligations or any part thereof, and to exchange, enforce, waive and release the Collateral or any part thereof or any such other security; and (ii) to apply the Collateral or any other security and to direct the order or manner of sale thereof as Lender in its discretion may determine. (b) If an Event of Default shall occur and be continuing, Lender shall have the right to receive any and all distributions of property and any and all amounts paid in respect of the Pledged Interests and make application thereof to the Obligations, in such order as Lender, in its sole discretion, may elect. If an Event of Default shall occur and be continuing, then all such Pledged Interests at Lender's option shall be registered in the name of Lender or its nominee, and Lender or its nominee may thereafter exercise (x) all voting and other rights pertaining to such Pledged Interests and (y) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such Pledged Interests as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Interests upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the organizational structure of Property Owner, or upon the exercise by Pledgor or Lender of any right, privilege or option pertaining to such Pledged Interests, and in connection therewith, the right to deposit and deliver any and all of the 7 Pledged Interests with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine), all without liability except to account for property actually received by it, but Lender shall have no duty to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (c) The rights of Lender hereunder shall not be conditioned or contingent upon the pursuit by Lender of any right or remedy against Property Owner or against any other person or entity which may be or become liable in respect of all or any part of the Obligations or against any other collateral security therefor, guarantee thereof or right of offset with respect thereto. Lender shall not be liable for any failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so, nor shall it be under any obligation to sell or otherwise dispose of any Collateral upon the request of Property Owner or any other person or entity or to take any other action whatsoever with regard to the Collateral or any part thereof. Pledgor waives any right it may have to require Lender to pursue any third party for any of the Obligations. Pledgor hereby waives any and all requirements that Lender institute any action or proceeding at law or in equity against Pledgor or exhaust its remedies in respect of any other security for the Loan as a condition precedent to the exercise of Lender's rights and remedies with respect to the Collateral pursuant to the provisions of this Agreement. Pledgor waives any defenses by reason of any disability or other defense of any person, or by reason of the cessation from any cause whatsoever of the liability of any other person. 13. REMEDIES CUMULATIVE. No remedy herein conferred upon or reserved to Lender, whether exercised or not, is intended to be exclusive of any other remedy or remedies including, without limitation, those expressly provided in the Loan Documents and each and every such remedy shall be cumulative and concurrent and shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity. 14. STATUTE OF LIMITATIONS. Except as may be set forth herein to the contrary, until the Loan shall have been paid in full, all rights, powers and remedies granted to Lender under this Agreement shall continue to exist and may be exercised by Lender at any time and from time to time irrespective of the fact that the Loan or any part thereof may have become barred by any applicable Statute of Limitations or that the liability of Pledgor may have ceased. Anything herein to the contrary notwithstanding, upon the payment to Lender of all amounts then payable to Lender under the Loan Documents (including, without limitation, any accrued and unpaid interest and additional interest), Lender shall terminate this Pledge. 15. NOTICE. All notices or other communications required or permitted to be given pursuant hereto shall be given in writing directed to the parties at their respective addresses as provided in the Loan Agreement. 16. MISCELLANEOUS. 8 (a) This Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and their respective successors and assigns. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of New York and the applicable laws of the United States of America. (c) Neither Pledgor nor Lender shall be bound by an undertaking not in writing signed by the parties hereto. (d) If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. (e) It is the express intention, understanding and agreement of the parties hereto that Lender's status with relation to the interests granted and to be granted to it by Pledgor hereunder is only that of a secured creditor of Pledgor, and nothing in this Agreement shall be construed as constituting Lender a mortgagee in possession. (f) This Agreement may be executed in any number of counterparts and each such duplicate original shall be deemed to be an original. (g) Subject to Section 9 above, this Agreement is intended solely for the benefit of Lender and Pledgor and their respective successors and assigns and no third party shall any rights or interest in this Pledge. Nothing contained in this Pledge shall be deemed or construed to create an obligation on the part of Lender or Pledgor to any third party, nor shall any third party have a right to enforce against Lender any right that Pledgor may have under this Pledge or to enforce against Pledgor any right that Lender may have under this Pledge. 17. EXCULPATION. The provisions of Article 8 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. 9 IN WITNESS WHEREOF, Pledgor and Lender have executed this instrument as of the day and year first above written. FELCOR/JPM HOLDINGS, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President JPMORGAN CHASE BANK, a New York banking corporation By: /s/ Michael Mesard ----------------------------------- Name: Michael Mesard Title: Vice President EXHIBIT A Form of Instruction to Register Pledge April 24 , 2003 To: FELCOR/JPM HOTELS, L.L.C. In accordance with the requirements of that certain Pledge and Security Agreement, dated as of April 24, 2003 (as amended, supplemented or otherwise modified from time to time, the "PLEDGE AGREEMENT"), between JPMORGAN CHASE BANK, a national banking corporation ("LENDER") and FELCOR/JPM HOLDINGS, L.L.C., a Delaware limited liability company ("PLEDGOR"), you are hereby instructed, notwithstanding your and our understanding that the equity interests described below are not a securities under the Uniform Commercial Code, as a precaution in the event that such interest was nevertheless held to be a security, to register the pledge of the Pledged Interests and the Proceeds (both as defined in the Pledge Agreement). You are hereby further authorized and instructed to execute and deliver to Lender a Confirmation Statement and Instruction Agreement, substantially in the form of Exhibit B to the Pledge Agreement and, to the extent provided more fully therein, to comply with the instructions of Lender in respect of the Collateral without further consent of, or notice to, the undersigned. Notwithstanding anything in this paragraph, this instruction shall not be construed as expanding the rights of Lender under the Pledge Agreement or the rights of Lender to give instructions with respect to the Collateral beyond such rights set forth in the Pledge Agreement. Very truly yours, FELCOR/JPM HOLDINGS, L.L.C., a Delaware limited liability company By: ----------------------------------- Joel M. Eastman Vice President EXHIBIT B Form of Confirmation Statement and Instruction Agreement April 24, 2003 To: FELCOR/JPM HOTELS, L.L.C. Pursuant to the requirements of that certain Pledge and Security Agreement dated as of April 24, 2003 (as amended, supplements or otherwise modified from time to time, the "PLEDGE AGREEMENT"), between JPMORGAN CHASE BANK, a New York banking corporation ("LENDER") and FELCOR/JPM HOLDINGS, L.LC., a Delaware limited liability company ("PLEDGOR"), this Confirmation Statement and Instruction Agreement relates to the Pledged Interests (as defined in the Pledge Agreement), including, without limitation , those equity interests, as further described on Schedule 1 hereto, issued by FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company ("ISSUER"). The Pledged Interests are not (i) "investment company securities" (within the meaning of Section 8-103 of the Uniform Commercial Code (the "CODE")) or (ii) dealt in or traded on securities exchanges or in securities markets. None of the terms of any Pledged Interest provides that it is a "security" (within the meaning of Sections 8-102(a)(15) and 8-103 of the Code). Nevertheless, in the event that the Pledged Interests should be determined to be "securities" (within the meaning of Sections 8-102(a)(15) and 8-103 of the Code), for purposes of perfecting the security interest of Lender therein, the Issuer agrees as follows: On the date hereof, the registered owner of 100% of the membership interest of FELCOR/JPM HOTELS, L.L.C. is: FELCOR/JPM HOLDINGS, L.L.C. The registered pledgee of the Pledged Interests is: JPMORGAN CHASE BANK There are no liens of Issuer on the Pledged Interests or any adverse claims thereto for which the Issuer has a duty under Section 8-403 of the Code. Issuer has by book-entry registered the Pledged Interests in the name of the registered pledgee on or before April 24, 2003. No other pledge is currently registered on the books and records of Issuer respect to the Pledged Interests. Until the entire outstanding principal and accrued and unpaid interest on the Note is paid in full (exclusive of provisions which shall survive full payment), Issuer agrees to: (i) comply with the instructions of Lender, without any further consent from Pledgor or any other Person, in respect of the Pledged Interests; and (ii) disregard any request made by Pledgor or any other person which contravenes the instructions of Lender with respect to the Pledged Interests. Notwithstanding anything in this paragraph, this confirmation statement and Instruction Agreement shall not be construed as expanding the rights of Lender to give instructions with respect to the Interests beyond such rights set forth in the Pledge Agreement. Dated: April 24, 2003 Very truly yours, FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company By: ---------------------------------- Joel M. Eastman Vice President ACKNOWLEDGED AND AGREED: JPMORGAN CHASE BANK, a New York banking corporation By: ----------------------------------- Name: Title: FELCOR/JPM HOLDINGS, L.L.C., a Delaware limited liability company By: ----------------------------------- Joel M. Eastman Vice President SCHEDULE 1 To Form of Confirmation Statement and Instruction Agreement DESCRIPTION OF PLEDGED INTERESTS A. DESCRIPTION OF PLEDGED INTERESTS
MEMBERS PERCENTAGE INTERESTS - ------- -------------------- 1. FELCOR/JPM HOLDINGS, L.L.C. 100% of the membership interests in FELCOR/JPM HOTELS, L.L.C.
EX-10.29.02 8 d05903exv10w29w02.txt PROMISSORY NOTE - PRINCIPLE AMOUNT OF $10 MILLION EXHIBIT 10.29.02 PROMISSORY NOTE $10,000,000.00 New York, New York April 24, 2003 FOR VALUE RECEIVED FELCOR/JPM HOLDINGS, L.LC., a Delaware limited liability company, as maker, having its principal place of business c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower"), hereby unconditionally promises to pay to the order of JPMORGAN CHASE BANK, a New York banking corporation, having its principal place of business at 270 Park Avenue, 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 TEN MILLION AND 00/100 DOLLARS ($10,000,000.00), 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, and to be paid in accordance with the terms of this Note and that certain Mezzanine Loan Agreement, dated the date hereof, between Borrower and Lender (the "Loan Agreement"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1 - PAYMENT TERMS Borrower agrees to pay the principal sum of this Note and interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE 2 - DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default and in addition, Lender shall be entitled to receive interest on the entire unpaid principal sum at the Default Rate pursuant to the terms of the Loan Agreement. This Article 2, 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 3 - LOAN DOCUMENTS This Note is secured by each Pledge Agreement (as defined in the Loan Agreement) and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, each Pledge Agreement and the other Loan 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. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4 - SAVINGS CLAUSE This Note and the Loan Agreement are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate in excess of the Maxium Legal Rate. If, by the terms of this Note, the Loan Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal 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 sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. ARTICLE 5 - 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 6 - 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, notice of intention to accelerate, notice of acceleration, 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 Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan 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 Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, 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 their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable 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 alternative 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 force and be applicable, notwithstanding any changes in the members 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 their members shall not thereby be released from any liability. (Nothing in the foregoing sentence -2- 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 Loan Agreement, each Security Instrument or any other Loan Document.) If Borrower consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. ARTICLE 7 - 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 Loan 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 upon assumption of Lender's obligations under the Loan Documents, 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 8 - EXCULPATION Notwithstanding anything to the contrary contained in this Note, the liability of Borrower to pay the Debt and for the performance of the other agreements, covenants and obligations contained herein and in the Security Instrument, the Loan Agreement and the other Loan Documents shall be limited as set forth in Section 9.4 of the Loan Agreement. ARTICLE 9 - GOVERNING LAW This Note shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE 10 - NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. [NO FURTHER TEXT ON THIS PAGE] -3- COPY IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. FELCOR/JPM HOLDINGS, L.L.C., a Delaware limited liability company By: s/ Joel M. Eastman ------------------------------------- Joel M. Eastman Vice President EX-10.30 9 d05903exv10w30.txt JUNIOR MEZZANIE LOAN AGREEMENT EXHIBIT 10.30 ================================================================================ JUNIOR MEZZANINE LOAN AGREEMENT Dated as of April 24, 2003 Between DJONT/JPM TENANT CO., L.L.C., as Borrower and JPMORGAN CHASE BANK, as Lender ================================================================================ I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION.......................................... 1 SECTION 1.1 Definitions.................................................... 1 SECTION 1.2 Principles of Construction..................................... 25 II. GENERAL TERMS.................................................................... 25 SECTION 2.1 Loan Commitment; Disbursement to Borrower...................... 25 SECTION 2.2 Interest; Loan Payments; Late Payment Charge................... 26 SECTION 2.3 Prepayments.................................................... 32 SECTION 2.4 Interest Rate Cap Agreement.................................... 34 SECTION 2.5 Release of Property............................................ 36 SECTION 2.6 Substitution of Properties..................................... 37 III. CASH MANAGEMENT.................................................................. 40 SECTION 3.1 Property Account............................................... 40 SECTION 3.2 Lockbox Account................................................ 40 IV. REPRESENTATIONS AND WARRANTIES................................................... 40 SECTION 4.1 Borrower Representations....................................... 40 SECTION 4.2 Survival of Representations.................................... 56 V. BORROWER COVENANTS............................................................... 56 SECTION 5.1 Affirmative Covenants.......................................... 56 SECTION 5.2 Negative Covenants............................................. 71 VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS.............................. 78 SECTION 6.1 Insurance...................................................... 78 SECTION 6.2 Casualty....................................................... 79 SECTION 6.3 Condemnation................................................... 80 SECTION 6.4 Restoration.................................................... 80 SECTION 6.5 Rights of Lender............................................... 80 VII. RESERVE FUNDS.................................................................... 81 SECTION 7.1 Required Repairs............................................... 81 SECTION 7.2 Tax and Insurance Escrow Fund.................................. 81 SECTION 7.3 Replacements and Replacement Reserve........................... 82 SECTION 7.4 Ground Lease Escrow Fund....................................... 86 SECTION 7.5 UST Reserve Funds.............................................. 87 SECTION 7.6 Reserve Funds, Generally....................................... 87 SECTION 7.7 Transfer of Reserve Funds under Mortgage Loan.................. 88
VIII. DEFAULTS......................................................................... 88 SECTION 8.1 Event of Default............................................... 88 SECTION 8.2 Remedies....................................................... 92 SECTION 8.3 Right to Cure Defaults......................................... 94 SECTION 8.4 Remedies Cumulative; Waivers................................... 94 SECTION 8.5 Power of Attorney.............................................. 95 IX. SPECIAL PROVISIONS............................................................... 95 SECTION 9.2 Securitization................................................. 96 SECTION 9.3 Servicer....................................................... 96 SECTION 9.4 Exculpation.................................................... 97 SECTION 9.5 Mortgage Loan Defaults......................................... 99 SECTION 9.6 Intercreditor Agreement........................................ 101 SECTION 9.7 Discussions with Mortgage Lender............................... 101 SECTION 9.8 Independent Approval Rights.................................... 102 SECTION 9.9 Reinstatement.................................................. 102 X. MISCELLANEOUS.................................................................... 102 SECTION 10.1 Survival....................................................... 102 SECTION 10.2 Lender's Discretion............................................ 103 SECTION 10.3 Governing Law.................................................. 103 SECTION 10.4 Modification, Waiver in Writing................................ 103 SECTION 10.5 Delay Not a Waiver............................................. 104 SECTION 10.6 Notices........................................................ 104 SECTION 10.7 Trial by Jury.................................................. 105 SECTION 10.8 Headings....................................................... 105 SECTION 10.9 Severability................................................... 106 SECTION 10.10 Preferences.................................................... 106 SECTION 10.11 Waiver of Notice............................................... 106 SECTION 10.12 Remedies of Borrower........................................... 106 SECTION 10.13 Expenses; Indemnity............................................ 106 SECTION 10.14 Schedules and Exhibits Incorporated............................ 108 SECTION 10.15 Offsets, Counterclaims and Defenses............................ 108 SECTION 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries.. 108 SECTION 10.17 Publicity...................................................... 109
ii SECTION 10.18 Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets.......................................... 109 SECTION 10.19 Waiver of Counterclaim......................................... 109 SECTION 10.20 Conflict; Construction of Documents; Reliance.................. 110 SECTION 10.21 Brokers and Financial Advisors................................. 110 SECTION 10.22 Prior Agreements............................................... 110 SECTION 10.23 Certain Additional Rights of Lender............................ 110 SECTION 10.24 Counterparts................................................... 111
iii JUNIOR MEZZANINE LOAN AGREEMENT THIS JUNIOR MEZZANINE LOAN AGREEMENT, dated as of April 24, 2003 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "Agreement"), between JPMORGAN CHASE BANK, a New York banking corporation, having an address at 270 Park Avenue, New York, New York 10017 ("Lender") and DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company, having its principal place of business at c/o FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower"). W I T N E S S E T H: WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender; and WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined). NOW THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION SECTION 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "Acceptable Counterparty" means any Counterparty to the Interest Rate Cap Agreement that has and shall maintain, until the expiration of the applicable Interest Rate Cap Agreement, a long-term unsecured debt rating of not less than "AA-" (or the equivalent) by the Rating Agencies. "Accounts" shall have the meaning as set forth in the Mortgage Loan Agreement. "Act" shall have the meaning set forth in Section 4.1.35 hereof. "Adjusted Prime Rate" shall mean an interest rate per annum equal to the Prime Rate in effect from time to time plus one percent (1%). "Affiliate" shall mean, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person or of an Affiliate of such Person. "Affiliate Agreements" shall have the meaning set forth in Section 5.2.8 hereof. "Affiliated Manager" shall mean any property manager which is an Affiliate of, or in which Borrower, Mortgage Borrower, Principal, Mezzanine Borrower, Mezzanine Principal, any Operating Lessee SPE Entity, a Pledgor SPE Entity, or any Guarantor or Indemnitor has, directly or indirectly, any legal, beneficial or economic equity interest. "Allocated Loan Amount" shall mean, for an Individual Property, the amount set forth on Schedule I hereto. "Annual Budget" shall mean the operating budget, including all planned capital expenditures, for each Individual Property prepared by Manager and approved by Borrower for the applicable Fiscal Year or other period. "Applicable Laws" shall mean all existing and future U.S. federal, state and local laws, orders, ordinances, governmental rules and regulations and court orders. "Applicable Interest Rate" shall mean (A) from and including the date of this Agreement through the first Payment Date, an interest rate per annum equal to 9.25%; and (B) from and including the first Payment Date and for each successive Interest Period through and including the date on which the Debt is paid in full, an interest rate per annum equal to (I) the Eurodollar Rate or (II) the Adjusted Prime Rate, if the Loan begins bearing interest at the Adjusted Prime Rate in accordance with the provisions of Section 2.2.3 hereof. "Appraisal" shall mean an appraisal prepared in accordance with the requirements of FIRREA, prepared by an independent third party appraiser holding an MAI designation, who is State licensed or State certified if required under the laws of the State where the applicable Individual Property is located, who meets the requirements of FIRREA and who is otherwise satisfactory to Lender. "Approved Annual Budget" shall have the meaning set forth in Section 5.1.10(d) hereof. "Assignment of Interest Rate Cap" shall mean that certain Collateral Assignment of Interest Rate Cap Agreement made by Borrower to Lender dated as of the date hereof required by this Agreement as security for the Loan, consented to by the Counterparty, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Award" shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect of all or any part of any Individual Property. "Bankruptcy Code" shall mean Title 11 U.S.C. Section 101 et seq., and the regulations adopted and promulgated pursuant thereto (as the same may be amended from time to time). "Borrower" shall have the meaning set forth in the introductory paragraph hereto, together with its successors and assigns. "Breakage Costs" shall have the meaning set forth in Section 2.2.3(d) hereof. "Budget Approval Period" shall have the meaning set forth in Section 5.1.10(d) hereof. -2- "Business Day" shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. "Business Party" shall have the meaning set forth in Section 4.1.36(aa) hereof. "Capital Expenditures" shall mean, for any period, the amount expended for items capitalized under GAAP (including, but not limited to, expenditures for building improvements or major repairs, leasing commissions and tenant improvements). "Cash" shall mean coin or currency of the United States of America or immediately available federal funds, including such fund delivered by wire transfer. "Cash Flow Threshold" shall mean $17,900,000.00; provided, however, in connection with a release and/or substitution of an Individual Property in accordance with the terms hereof, Cash Flow Threshold shall be recalculated so as to equal the aggregate of (i) with respect to Individual Properties that were subject to the Lien of a Security Instrument on the Closing Date eight-five percent (85%) of the Adjusted Net Operating Income (as defined in the Mortgage Loan Agreement) of each such Individual Property for the twelve (12) month period preceding the Closing Date as indicated on Schedule XIII attached to the Mortgage Loan Agreement and (ii) with respect to Individual Properties that were not subject to the Lien of a Security Instrument on the Closing Date, eight-five percent (85%) of the Adjusted Net Operating Income of each such Individual Property for the most recently available twelve (12) month period preceding the date of the calculation.. "Casualty" shall mean the occurrence of any casualty, damage or injury, by fire or otherwise, to any Individual Property or any part thereof. "Closing Date" shall mean the date of the funding of the Loan. "Code" shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and all applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "Collateral" shall mean (i) the Collateral as defined in the Pledge Agreement, (ii) the Pledged Loan and (iii) all other collateral for the Loan granted in the Loan Documents. "Concentration Account" shall have the meaning set forth in the Mortgage Loan Agreement. "Condemnation" shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Individual Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Individual Property or any part thereof. "Control" (and the correlative terms "controlled by" and "controlling") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management -3- and policies of the business and affairs of the entity in question by reason of the ownership of beneficial interests, by contract or otherwise. "Counterparty" shall mean JPMorgan Chase Bank or any other Person which is the issuer of the Interest Rate Cap Agreement. "Creditors Rights Laws" shall mean with respect to any Person, 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. "Debt" shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums due to Lender in respect of the Loan under the Note, this Agreement, the Pledge Agreement or any other Loan Document, including, without limitation, all Reserve Fund Deposits, if any are required pursuant to the terms hereof. "Debt Service" shall mean, with respect to any particular period of time, interest and principal payments due under the Note and the Mortgage Note for such period. "Debt Service Coverage Ratio" shall mean a ratio in which: (a) the numerator is the Net Operating Income for the most recently available 12 full calendar month period preceding the date of calculation as set forth in the financial statements required hereunder, without deduction for (i) actual management fees incurred in connection with the operation of the Properties, (ii) actual franchise fees incurred in connection with the operation of the Properties, or (iii) amounts paid to the Mortgage Reserve Funds less (A) management fees equal to the greater of (1) assumed management fees of four percent (4%) of Gross Income from Operations or (2) the actual management fees incurred, (B) the actual franchise fees incurred and (C) the greater of (1) actual Replacement Reserve Fund contributions equal to 4% of Gross Income from Operations or (2) contributions for Replacements required pursuant to the Management Agreements and the Franchise Agreements; and (b) the denominator is all the aggregate interest and principal payments that would be due and payable for such 12 full calendar month period on the Loan, the Mortgage Loan and the Mezzanine Loan assuming a principal and interest constant equal to 10.90%. "Default" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would constitute an Event of Default. "Default Rate" shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the Maximum Legal Rate, or (b) five percent (5%) above the Applicable Interest Rate. "Distributions" shall have the meaning set forth in Section 5.2.12. -4- "Dow Jones Market Service Page 3750" means the display designated as page 3750 on the Dow Jones Market Service (formerly Telerate) Page 3750 (or such other page as may replace page 3750 on that service or such other service as may be nominated by the British Bankers-Association as the information vendor for the purposes of displaying British Bankers-Association Interest Settlement Rates for U.S. dollar deposits). "Eligible Account" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or State-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or State chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a State chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R.Section 9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and State authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. "Eligible Institution" shall mean a depository institution or trust company, insured by the Federal Deposit Insurance Corporation, (a) the short term unsecured debt obligations or commercial paper of which are rated at least A-1 by S&P, P-1 by Moody's and F-1 by Fitch in the case of accounts in which funds are held for thirty (30) days or less, or (b) the long term unsecured debt obligations of which are rated at least AA by Fitch and S&P and Ai by Moody's in the case of accounts in which funds are held for more than thirty (30) days. "Environmental Indemnity" shall mean that certain Environmental Indemnity Agreement executed by Borrower and Indemnitor in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Environmental Law" shall mean any federal, State and local laws, statutes, ordinances, rules, regulations, standards, policies and other government directives or requirements, as well as common law, that, at any time, apply to Borrower and/or Indemnitor or any Property and relate to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act. "Environmental Liens" shall have the meaning set forth in Section 5.1.19(a) hereof. "Environmental Reports" shall have the meaning set forth in Section 4.1.40 hereof. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "Eurodollar Rate" shall mean, with respect to any Interest Period, an interest rate per annum equal to LIBOR plus seven and one-quarter percent (7.25%) per annum. "Event of Default" shall have the meaning set forth in Section 8.1(a) hereof. "Excess Cash Flow" shall have the meaning set forth in the Mortgage Loan Agreement. -5- "Excess Cash Flow Application Date" shall have the meaning set forth in the Mortgage Loan Agreement. "Excess Cash Flow Sweep Period" shall have the meaning set forth in the Mortgage Loan Agreement. "Expiring Franchise Agreement Property" shall mean the Individual Property located in Lexington, Kentucky. "Expiring Management Agreement Properties" shall mean the Individual Properties located in (i) Jacksonville, Florida, (ii) Lexington, Kentucky, (iii) Tulsa, Oklahoma and (iv) Dallas, Texas. "Extension Additional Interest Payment" shall mean a fee equal to (i) with respect to the first Extension Term, 0.70% of the outstanding principal balance of the Loan at the time of Lender's receipt of the applicable Extension Notice and (ii) with respect to the second Extension Term, 1.40% of the outstanding principal balance of the Loan at the time of Lender's receipt of the applicable Extension Notice. "Extension Criteria" shall mean, with respect to each extension of the Maturity Date as provided herein, (i) no Event of Default has occurred and is continuing under the Loan, (ii) Borrower sends Lender written request at least sixty (60) days, but not more than one hundred twenty (120) days, prior to the expiration of the initial or Extension Term, as applicable, (an "Extension Notice") (iii) Borrower shall obtain and deliver to Lender prior to exercise of such Extension Term, one or more Replacement Interest Rate Cap Agreements, which Replacement Interest Rate Cap Agreements shall be effective commencing on the first day of such Extension Term and shall have a maturity date not earlier than the Maturity Date, (iv) Borrower pays to Lender the applicable Extension Additional Interest Payment (v) Lender has determined that the applicable Extension DSCR Test has been satisfied, (vi) the Mortgage Loan is simultaneously extended pursuant to the terms thereof and (vii) the Mezzanine Loan is simultaneously extended pursuant to the terms thereof. "Extension DSCR Test" shall mean the Debt Service Coverage Ratio for the twelve (12) full calendar months immediately preceding (i) Lender's receipt of the Extension Notice and (ii) the first day of the applicable Extension Term, for the Properties remaining subject to the Lien of the Security Instruments shall be equal to or greater (A) with respect to the first Extension Term, 1.30:1.00 and (B) with respect to the second Extension Term, 1.35:1.00. The Extension DSCR Test may be obtained by prepaying a portion of the Loan and no prepayment consideration shall be due in connection therewith. "FIRREA" shall mean the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as the same may be amended from time to time. "Failure To Respond Notice" shall have the meaning set forth in Section 5.1.10(d) hereof. "Fiscal Year" shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during the term of the Loan. -6- "Fitch" shall mean Fitch, Inc. "Florida Properties" shall mean the Individual Properties located in Tampa, Florida and Jacksonville, Florida. "Foreign Taxes" shall mean any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority. "Franchise Agreement" shall mean those certain franchise agreements more specifically identified on Schedule VII attached hereto. "Franchisor" shall mean each franchisor with respect to the applicable Franchise Agreement, as same is identified on Schedule VII attached hereto. "GAAP" shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "Governmental Authority" shall mean any court, board, agency, commission, office, central bank or other authority of any nature whatsoever for any governmental unit (federal, State, county, district, municipal, city, country or otherwise) or quasi-governmental unit whether now or hereafter in existence. "Gross Income from Operations" shall mean all income, room revenues, food and beverage revenue, telephone revenue, computed in accordance with GAAP derived from the ownership and operation of the Properties from whatever source, including, but not limited to, the Rents, utility charges, service fees or charges, license fees, parking fees, rent concessions or credits, and other required pass-throughs, but excluding sales, use and occupancy or other taxes on receipts required to be accounted for by Mortgage Borrower or Operating Lessee to any Governmental Authority, interest on the Mortgage Reserve Funds, interest on credit accounts, refunds and uncollectible accounts, sales of furniture, fixtures and equipment, Insurance Proceeds (other than business interruption or other loss of income insurance), Awards, payments received on the Interest Rate Cap Agreement, the Mezzanine Interest Rate Cap Agreement or the Mortgage Interest Rate Cap Agreement, unforfeited security deposits, utility and other similar deposits, escalations, forfeited security deposits and any disbursements to Mortgage Borrower from the Mortgage Reserve Funds and the Mezzanine Borrower from the Mezzanine Reserve Funds, if any. Gross income shall not be diminished as a result of the Security Instruments or the creation of any intervening estate or interest in a Property or any part thereof. "Ground Lease" shall mean, individually and collectively, as the context may require, each ground lease described on Schedule XII attached hereto and made a part hereof. "Ground Lease Escrow Fund" shall have the meaning set forth in Section 7.4 hereof. "Ground Lessor" shall mean the fee owner, as landlord, under each Ground Lease. "Ground Rent" shall have the meaning set forth in Section 7.4 hereof. -7- "Guarantor" shall mean FelCor Lodging Limited Partnership and any other entity guaranteeing any payment or performance obligation of Borrower. "Guaranty" shall mean that certain Guaranty of Recourse Obligations of Borrower, dated as of the date hereof, from Guarantor to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time for the benefit of Lender. "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 ("PCBs") 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; toxic mold; any substance the presence of which on any Property is prohibited by any federal, State or local authority; any substance that requires special handling and/or disposal; 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. "Hilton Franchised Properties" shall mean the Individual Properties located at (i) Bloomington, Minnesota, (ii) Dallas, Texas, (iii) Jacksonville, Florida, (iv) Lexington, Kentucky and (v) Tulsa, Oklahoma. "Improvements" shall have the meaning set forth in Article 1 of the related Security Instrument with respect to each Individual Property. "Indemnified Liabilities" shall have the meaning set forth in Section 10.13(b) hereof. "Indemnified Parties" shall mean Lender, any Affiliate of Lender who is or will have been involved in the origination of the Loan, any Person who is or will have been involved in the servicing of the Loan, any Person in whose name the encumbrance created by the Pledge Agreement is or will have been recorded, Persons who may hold or acquire or will have held a full or partial interest in the Loan, as well as custodians, trustees and other fiduciaries (who hold or have held a full or partial interest in the Loan for the benefit of another Indemnified Party) as well as the respective directors, officers, shareholders, partners, members, employees, agents, servants, representatives, contractors, subcontractors, Affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including but not limited to any other Person who holds or acquires or will have held a participation or other full or partial interest in the Loan or any Property, whether during the term of the Loan or as a part of or following a foreclosure of the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Lender's assets and business). "Indemnitor" shall mean FelCor Lodging Limited Partnership. "Independent Director" shall have the meaning set forth in Section 4.1.36(aa) hereof. "Individual Property" shall mean each parcel of real property (including, without limitation, any interest created pursuant to a Ground Lease), the Improvements thereon and all Personal Property owned by Mortgage Borrower, Operating Lessee and Ground Lessor and -8- encumbered by a Security Instrument, together with all rights pertaining to such Property and Improvements, as more particularly described in Article 1 of each Security Instrument and referred to therein as the "Property", including any Release Property prior to its release or Substitute Property upon substitution. "Initial Replacement Reserve Monthly Deposit" shall mean $257,300.00. "Insolvency Opinion" shall mean, that certain bankruptcy non-consolidation opinion letter delivered by counsel for Borrower in connection with the Loan and approved by Lender or the Rating Agencies, as the case may be. "Insurance Premiums" shall have the meaning set forth in the Mortgage Loan Agreement. "Insurance Proceeds" shall have the meaning set forth in the Mortgage Loan Agreement. "Intercreditor Agreement" shall have the meaning set forth in Section 9.6 hereof. "Interest Period" shall mean the period from the ninth (9th) day of each month through and including the eighth (8th) day of the following month, provided that, notwithstanding the foregoing, Lender shall have the one (1) time right to change the Interest Period by giving notice of such change to Borrower. "Interest Rate Cap Agreement" shall mean the Interest Rate Cap Agreement (together with the confirmation and schedules relating thereto), between an Acceptable Counterparty and Borrower obtained by Borrower and dated as of the date hereof. The Interest Rate Cap Agreement shall be written on the then current standard ISDA documentation, and shall provide for interest periods and calculations consistent with the payment terms of this Agreement. After delivery of a Replacement Interest Rate Cap Agreement to Lender, the term "Interest Rate Cap Agreement" shall be deemed to mean such Replacement Interest Rate Cap Agreement. "Interest Shortfall" shall have the meaning set forth in Section 2.3.1(b) hereof. "Investor" shall have the meaning set forth in Section 5.1.10(g) hereof. "Jacksonville Property" shall mean the Individual Property located at 9300 Baymeadows Road, Jacksonville, Florida. "Leases" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property, including, without limitation , the Operating Lease. "Legal Requirements" shall mean, with respect to each Individual Property, all federal, State, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, the Collateral, Ground Lessor with respect to the Florida Properties, Mortgage Borrower or any Individual Property or any part thereof, or the zoning, construction, use, alteration, occupancy or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or -9- known to Borrower, at any time in force affecting such Individual Property or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations in or to such Individual Property or any part thereof, or (b) in any way limit the use and enjoyment thereof. "Lender" shall have the meaning set forth in the introductory paragraph hereto, together with its successors and assigns. "Lender Transaction" shall have the meaning set forth in Section 9.1 hereof. "LIBOR" shall mean the greater of (i) two percent (2%) and (ii) the rate per annum calculated as set forth below: (i) With respect to each Interest Period, the rate for deposits in U.S. Dollars, for a period equal to one month, which appears on the Dow Jones Market Service (formerly Telerate) Page 3750 as of 11:00 a.m., London time, on the related LIBOR Determination Date (rounded upwards to the nearest 1/16 of 1%). If such rate does not appear on Dow Jones Market Service Page 3750, the rate for that Interest Period shall be determined on the basis of the rates at which deposits in Dollars are offered by any four major reference banks in the London interbank market selected by Lender to provide such bank's offered quotation of such rates at approximately 11:00 a.m., London time, on the related LIBOR Determination Date to prime banks in the London interbank market for a period of one month, commencing on the first day of such Interest Period and in an amount that is representative for a single such transaction in the relevant market at the relevant time. Lender shall request the principal London office of any four major reference banks in the London interbank market selected by Lender to provide a quotation of such rates, as offered by each such bank. If at least two such quotations are provided, the rate for that Interest Period shall be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that Interest Period shall be the arithmetic mean of the rates quoted by major banks in New York City selected by Lender, at approximately 11:00 a.m., New York City time, on the LIBOR Determination Date with respect to such Interest Period for loans in Dollars to leading European banks for a period equal to one month, commencing on the first day of such Interest Period and in an amount that is representative for a single transaction in the relevant market at the relevant time. Lender shall determine LIBOR for each Interest Period and the determination of LIBOR by Lender shall be binding upon Borrower absent manifest error. (ii) In the event that Lender shall have determined in its reasonable discretion that none of the methods set forth in the definition of "LIBOR" herein are available, then Lender shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) day prior to the last day of the related Interest Period. If such notice is given, LIBOR, commencing with such related Interest Period, shall be LIBOR in effect for the most recent Interest Period. "LIBOR Business Day" shall mean any day on which banks are open for dealing in foreign currency and exchange in London, England. -10- "LIBOR Determination Date" shall mean, with respect to any Interest Period, two (2) LIBOR Business Days prior to the fifteenth (15th) day of the calendar month in which the applicable Interest Period commences; provided that, notwithstanding the foregoing, Lender shall have the one (1) time right to change the LIBOR Determination Date by giving notice of such change to Borrower. "Lien" shall mean any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, Mortgage Borrower, Ground Lessor with respect to the Florida Properties, the Collateral or any related Individual Property, any portion thereof or any interest therein, 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, and mechanic's, materialmen's and other similar liens and encumbrances. "Liquidation Event" shall have the meaning set forth in Section 2.3.2 hereof. "Loan" shall mean the loan made by Lender to Borrower pursuant to this Agreement and the other Loan Documents. "Loan Documents" shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the Security Agreement, the Environmental Indemnity, the Subordination of Management Agreement, the Guaranty, the Assignment of Interest Rate Cap Agreement, the Operating Lease Subordination Agreement, and all other documents executed and/or delivered in connection with the Loan now existing or hereinafter executed. "Loan Party" shall mean individually and collectively, as the context requires, Borrower, Pledgor, Mortgage Borrower or any other Restricted Party that is a subsidiary of FelCor Lodging Limited Partnership. "Lockbox Account" shall have the meaning set forth in Section 3.1 hereof. "Lockout Period" shall have the meaning set forth in Section 2.3.1 hereof. "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, expenses, judgments, awards, amounts paid in settlement of whatever kind or nature (including but not limited to attorneys' fees and other costs of defense). "Major Lease" shall mean (i) the Operating Lease, (ii) any Lease for sit-down restaurant facilities at any Individual Property, (iii) any Lease which together with all other Leases to the same tenant and to all Affiliates of such tenant, (A) provides for ten percent (10%) or more of the total gross income for any Individual Property, (B) covers five percent (5%) or more of the total space at any Individual Property, in the aggregate, (C) provides for a lease term of more than ten (10) years including options to renew or (D) is with an Affiliate of Borrower and (iv) any instrument guaranteeing or providing credit support for any Major Lease. "Management Agreement" shall mean, with respect to any Individual Property, the management agreement entered into by and between Mortgage Borrower or Operating Lessee -11- and Manager, pursuant to which the Manager is to provide management and other services with respect to such Individual Property, or, if the context requires, the Replacement Management Agreement executed in accordance with the terms and provisions of this Agreement. "Manager" shall mean for each Individual Property, that certain property manager set forth on Schedule IX or, if the context requires, a Qualified Manager who is managing the Properties or any Individual Property in accordance with the terms and provisions of this Agreement. "Maturity Date" shall mean May 9, 2006, or such other date on which the final payment of the principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise; provided, however, upon compliance with the Extension Criteria, Borrower shall have the right to extend the Maturity Date for two (2) additional periods of one (1) year each (each, an "Extension Term"). "Maximum Legal Rate" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or in the other Loan Documents, under the laws of such State or States whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "Member" shall have the meaning set forth in Section 4.1.35 hereof. "Mezzanine Borrower" shall mean FELCOR/JPM HOLDINGS, L.L.C., a Delaware limited liability company, together with its successors and permitted assigns. "Mezzanine Event of Default" shall have the meaning ascribed to the term "Event of Default" in the Mezzanine Loan Agreement. "Mezzanine Intercreditor Agreement" shall have the meaning set forth in Section 9.6 hereof. "Mezzanine Interest Rate Cap Agreement" shall have the meaning ascribed to the term "Interest Rate Cap Agreement" in the Mezzanine Loan Agreement. "Mezzanine Lender" shall mean JPMorgan Chase Bank, together with its successors and permitted assigns. "Mezzanine Loan" shall mean that certain loan in the original principal amount of TEN MILLION AND 00/100 DOLLARS ($10,000,000.00) of even date herewith made by Mezzanine Lender to Mezzanine Borrower. "Mezzanine Loan Agreement" shall mean that certain Mezzanine Loan Agreement dated as of the date hereof among Mezzanine Borrower, Mezzanine Lender and other parties set forth therein, if any. "Mezzanine Loan Documents" shall have the meaning ascribed to the term "Loan Documents" in the Mezzanine Loan Agreement. -12- "Mezzanine Loan Extension Notice" shall have the meaning set forth in Section 2.2.9 hereof. "Mezzanine Loan Extension Request" shall have the meaning set forth in Section 2.2.9 hereof. "Mezzanine Principal" shall have the meaning ascribed to the term "Principal" in the Mezzanine Loan Agreement. "Mezzanine Reserve Funds" shall have the meaning ascribed to the term "Reserve Funds" in the Mezzanine Loan Agreement. "Monthly Debt Service Payment Amount" shall mean the amount of interest and the Scheduled Amortization Payment due and payable on each Payment Date, pursuant to the Note and Section 2.2 hereof. "Monthly Ground Rent Deposit" shall have the meaning set forth in Section 7.4 hereof. "Monthly Insurance Premium Deposit" shall have the meaning set forth in Section 7.2 hereof. "Monthly Tax Deposit" shall have the meaning set forth in Section 7.2 hereof. "Moody's" shall mean Moody's Investors Service, Inc. "Mortgage Borrower" shall mean FELCOR/JPM HOTELS, L.L.C., a Delaware limited liability company, together with its successors and permitted assigns. "Mortgage Interest Rate Cap Agreement" shall mean the "Interest Rate Cap Agreement" under and as defined in the Mortgage Loan Agreement. "Mortgage Lender" shall mean JPMorgan Chase Bank together with its successors and assigns. "Mortgage Loan" shall mean that certain loan made by Mortgage Lender to Mortgage Borrower in the principal amount of $115,000,000.00. "Mortgage Loan Agreement" shall mean that certain Loan Agreement between Mortgage Borrower and Mortgage Lender in connection with the Mortgage Loan, dated as of the date hereof, as amended, restated, supplemented or otherwise modified from time to time. "Mortgage Loan Documents" shall mean, collectively, the Mortgage Note, the Mortgage Loan Agreement, the Security Instruments, and any and all other documents defined as "Loan Documents" in the Mortgage Loan Agreement, as amended, restated, replaced, supplemented or otherwise modified from time to time. "Mortgage Loan Event of Default" shall mean an "Event of Default" under and as defined in the Mortgage Loan Agreement. -13- "Mortgage Loan Extension Option" shall mean each and every option of Mortgage Borrower to extend the term of the Mortgage Loan in accordance with the terms of the Mortgage Loan Agreement. "Mortgage Loan Extension Notice" shall have the meaning set forth in Section 2.2.9 hereof. "Mortgage Loan Extension Request" shall have the meaning set forth in Section 2.2.9 hereof. "Mortgage Note" shall mean that certain promissory note of even date herewith in the original principal amount of ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00), made by Mortgage Borrower in favor of Mortgage Lender, as the same may be amended, restated, replaced, extended, renewed, supplemented, severed, split, or otherwise modified from time to time. "Mortgage Reserve Funds" shall mean the "Reserve Funds" as defined in the Mortgage Loan Agreement. "Mortgage Securities" shall mean the "Securities" as defined in the Mortgage Loan Agreement. "Net Liquidation Proceeds After Debt Service" shall mean, with respect to any Liquidation Event, all amounts paid to or received by or on behalf of Mortgage Borrower or Mezzanine Borrower in connection with such Liquidation Event, including, without limitation, proceeds of any sale, refinancing or other disposition or liquidation, less (i) in the event of a Liquidation Event consisting of a Casualty or Condemnation, Lender's, Mortgage Lender's and/or Mezzanine Lender's reasonable costs incurred in connection with the recovery thereof, (ii) in the event of a Liquidation Event consisting of a Casualty or Condemnation, the costs incurred by Mortgage Borrower or Mezzanine Borrower in connection with a restoration of all or any portion of the applicable Property made in accordance with the Mortgage Loan Documents and the Mezzanine Loan Documents, (iii) in the event of a Liquidation Event consisting of a Casualty or Condemnation or a Transfer, amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Mortgage Loan Documents to Mortgage Lender or pursuant to the Mezzanine Loan Documents to Mezzanine Lender , (iv) in the event of a Liquidation Event consisting of a Casualty or Condemnation, those proceeds paid to Mortgage Borrower (or Mezzanine Borrower) pursuant to Section 6.4(b)(vii) of the Mortgage Loan Agreement (or pursuant to the terms of the Mezzanine Loan Agreement), (v) in the case of a foreclosure sale, disposition or transfer of a Property or the collateral under the Mezzanine Loan in connection with realization thereon following an Event of Default under the Mortgage Loan or the Mezzanine Loan, as applicable, such reasonable and customary costs and expenses of sale or other disposition (including attorneys' fees and brokerage commissions), (vi) in the case of a foreclosure sale, such costs and expenses incurred by (A) Mortgage Lender under the Mortgage Loan Documents as Mortgage Lender and (B) Mezzanine Lender under the Mezzanine Loan Documents as Mezzanine Lender, shall be entitled to receive reimbursement for under the terms of the Mortgage Loan Documents or the Mezzanine Loan Documents, as applicable, and (vii) in the case of a refinancing of the Mortgage Loan or the Mezzanine Loan, such costs and expenses -14- (including attorneys' fees) of such refinancing, and (vii) the amount of any prepayments required pursuant to the Mortgage Loan Documents, the Mezzanine Loan Documents or the Loan Documents in connection with any such Liquidation Event. "Net Cash Flow" for any period shall mean the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period. "Net Cash Flow Schedule" shall have the meaning set forth in 5.1.10(b) hereof. "Net Operating Income" means the amount obtained by subtracting Operating Expenses from Gross Income from Operations. "Net Proceeds" shall have the meaning set forth in the Mortgage Loan Agreement. "Note" shall mean that certain promissory note of even date herewith in the original principal amount of TWENTY-FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, extended, renewed, supplemented, severed, split, or otherwise modified from time to time. "O&M Program" shall have the meaning as set forth in the Mortgage Loan Agreement. "Obligations" shall mean Borrower's obligation to pay the Debt and perform its obligations under the Note, this Agreement and the other Loan Documents. "Officers' Certificate" shall mean a certificate delivered to Lender by Borrower which is signed by a Responsible Officer of Borrower. "Open Date" shall have the meaning set forth in Section 2.3.1(b) hereof. "Operating Expenses" shall mean the total of all expenditures, computed in accordance with GAAP, of whatever kind relating to the operation, maintenance and management of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs and maintenance, insurance premiums, license fees, property taxes and assessments, advertising expenses, management fees, franchise fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation, Debt Service, Capital Expenditures and contributions to the Reserve Funds or the Mortgage Reserve Funds. "Operating Lease" shall mean those certain Operating Leases described on Schedule VIII attached hereto. "Operating Lease Subordination Agreement" shall mean that certain Operating Lease Subordination Agreement(s) with respect to (i) the Properties for the benefit of Mortgage Lender, (ii) the collateral under the Mezzanine Loan for the benefit of Mezzanine Lender and (iii) the Collateral for the benefit of Lender. -15- "Operating Lessee" shall mean DJONT/JPM LEASING, L.L.C., a Delaware limited liability company. "Operating Lessee Principal" shall have the meaning set forth in the Operating Lease Subordination Agreement. "Operating Lessee SPE Entities" shall mean individually and collectively, Operating Lessee and Operating Lessee Principal. "Organizational Documents" shall mean (i) with respect to a corporation, such Person's certificate of incorporation and by laws, and any shareholder agreement, voting trust or similar arrangement applicable to any of such Person's authorized shares of capital stock, (ii) with respect to a partnership, such Person's certificate of limited partnership, partnership agreement, voting trusts or similar arrangements applicable to any of its partnership interests, (iii) with respect to a limited liability company, such Person's certificate of formation, limited liability company agreement or other document affecting the rights of holders of limited liability company interests, and (iv) any and all agreements between any constituent member, partner or shareholder of the Person in question, including any contribution agreement or indemnification agreements. In each case, with respect to a Loan Party, "Organizational Documents" shall include any indemnity, contribution, shareholders or other agreement among any of the owners of the entity in question. "Other Charges" shall mean all personal property taxes, Ground Rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any Individual Property, now or hereafter levied or assessed or imposed against such Individual Property or any part thereof. "Owner's Title Policy" shall mean that certain ALTA extended coverage owner's policy of title insurance issued in connection with the closing of the Mortgage Loan insuring the Mortgage Borrower as the owner of the Property. "Ownership Interest" means (i) any interest in the Property or (ii) in the case of any Loan Party, any ownership interest in such Loan Party, direct or indirect, contingent or fixed, at any level or any tier, of any nature whatsoever, whether in the form of a partnership interest, stock interest, membership interest, equitable interest, beneficial interests, profit interest, loss interest, voting rights, control rights, management rights or otherwise. "Payment Date" shall mean the ninth (9th) day of each month, or if such day is not a Business Day, the immediately succeeding Business Day. Notwithstanding the foregoing, Lender shall have the one (1) time right to change the Payment Date by giving at least thirty (30) days prior written notice of such change to Borrower. "Permitted Encumbrances" shall mean, with respect to an Individual Property, collectively, (a) the Liens and security interests created by the Mortgage Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policy relating to such Individual Property or any part thereof, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet delinquent, (d) Liens securing Permitted FF&E Financing, and -16- (e) such other title and survey exceptions as Lender has approved or may approve in writing in Lender's sole discretion. "Permitted Investments" shall mean any one or more of the following obligations or securities acquired at a purchase price of not greater than par, including those issued by Servicer, or any of its Affiliates, payable on demand or having a maturity date not later than the Business Day immediately prior to the date it is anticipated such funds will be needed to meet Borrower's obligations hereunder and meeting one of the appropriate standards set forth below: (i) obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of: the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (ii) Federal Housing Administration debentures; (iii) obligations of the following United States government sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal National Mortgage Association (debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp. (debt obligations); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (iv) federal funds, unsecured certificates of deposit, time deposits, bankers' acceptances and repurchase agreements with maturities of not more than 365 days of any bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at -17- maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (v) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or certificates of deposit of, or bankers' acceptances with maturities of not more than 365 days and issued by, any bank or trust company, savings and loan association or savings bank, the short term obligations of which at all times are rated in the highest short term rating category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term rating category and otherwise acceptable to each other Rating Agency); provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vi) debt obligations with maturities of not more than 365 days and at all times rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency) in its highest long-term unsecured rating category; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (vii) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) with maturities of not more than 365 days and that at all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency) in its highest short-term unsecured debt rating; provided, however, that the investments described in this clause must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity; (viii) units of taxable money market funds, with maturities of not more than 365 days and which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and -18- credit of the United States, which funds have the highest rating available from each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency) for money market funds; and (ix) any other security, obligation or investment which has been approved as a Permitted Investment in writing by (a) Lender and (b) each Rating Agency; provided, however, that no obligation or security shall be a Permitted Investment if (A) such obligation or security evidences a right to receive only interest payments or (B) the right to receive principal and interest payments on such obligation or security are derived from an underlying investment that provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. "Person" shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, State, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "Personal Property" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property. "Physical Conditions Report" shall mean, with respect to each Individual Property, a structural engineering report prepared by a company satisfactory to Lender and Mortgage Lender regarding the physical condition of such Individual Property, satisfactory in form and substance to Lender and Mortgage Lender in their respective sole discretion, which report shall, among other things, (a) confirm that such Individual Property and its use complies, in all material respects, with all applicable Legal Requirements (including, without limitation, zoning, subdivision and building laws) and (b) include a copy of a final certificate of occupancy with respect to all Improvements on such Individual Property. "Plan" shall mean an employee benefit plan (as defined in section 3(3) of ERISA) whether or not subject to ERISA or a plan or other arrangement within the meaning of section 4975 of the Code. "Plan Assets" shall mean assets of a Plan within the meaning of section 29 C.F.R. section 2510.3-101 or similar law. "Pledge Agreement" shall mean that certain Pledge and Security Agreement together with all exhibits attached thereto dated as of the date hereof, executed and delivered by Borrower to Lender as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Pledged Member Interests" shall mean all membership interests in (i) DJONT/JPM HOLDINGS, L.L.C., as more particularly defined in the Pledge Agreement and (ii) FELCOR/JPM HOLDINGS, L.L.C. -19- "Pledged Loan" shall mean that certain loan in the original principal amount of $25,000,000 given from Pledgor, as borrower, to Borrower, as lender, which has been pledged to Lender as additional collateral for the Loan. "Pledgor" shall mean FELCOR/JPM LODGING CO., LLC, a Delaware limited liability company. "Pledgor Documents" shall mean, the promissory note evidencing the Pledged Loan, that certain pledge agreement between Pledgor, as pledgor and Borrower, as pledgee, the Security Agreement and all other documents executed and/or delivered by Pledgor in connection with the Pledged Loan. "Pledgor SPE Entities" shall mean individually and collectively, Pledgor and any Principal required pursuant to Section 4.1.36 hereof. "Policies" shall have the meaning specified in the Mortgage Loan Agreement. "Prepayment Date" shall have the meaning set forth in Section 2.3.1 hereof. "Prime Rate" shall mean, on a particular date, a rate per annum equal to the rate of interest published in The Wall Street Journal as the "prime rate", as in effect on such day, with any change in the prime rate resulting from a change in said prime rate to be effective as of the date of the relevant change in said prime rate; provided, however, that if more than one prime rate is published in The Wall Street Journal for a day, the average of the prime rates shall be used; provided, further, however, that the Prime Rate (or the average of the prime rates) will be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. In the event that The Wall Street Journal should cease or temporarily interrupt publication, then the Prime Rate shall mean the daily average prime rate published in another business newspaper, or business section of a newspaper, of national standing chosen by Lender. If The Wall Street Journal resumes publication, the substitute index will immediately be replaced by the prime rate published in The Wall Street Journal. In the event that a prime rate is no longer generally published or is limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall select a comparable interest rate index which is readily available to Borrower and verifiable by Borrower but is beyond the control of Lender. Lender shall give Borrower prompt written notice of its choice of a substitute index and when the change became effective. Such substitute index will also be rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%. The determination of the Prime Rate by Lender shall be conclusive and binding absent manifest error. "Principal" shall have the meaning set forth in Section 4.1.36 hereof, together with its successors and assigns; provided, however, in no event shall FelCor Lodging Limited Partnership or FelCor TRS Holdings, L.P. be deemed to be a Principal hereunder. "Prohibited Person" shall mean any Person: (a) listed in the Annex to, or otherwise subject to the provisions of, the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to -20- Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (the "Executive Order"); (b) that is owned or controlled by, or acting for or on behalf of, any person or entity that is listed to the Annex to, or is otherwise subject to the provisions of, the Executive Order; (c) with whom Lender is prohibited from dealing or otherwise engaging in any transaction by any terrorism or money laundering law, including the Executive Order; (d) who commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order; (e) that is named as a "specially designated national and blocked person" on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov.ofac/t11sdn.pdf or at any replacement website or other replacement official publication of such list; or (f) who is an Affiliate of or affiliated with a Person listed above. "Properties" shall mean, collectively, each and every Individual Property. "Property" shall mean, as the context may require, the Properties or an Individual Property. "Property Account" shall have the meaning set forth in Section 3.1(a) hereof. "Property Account Bank" shall mean for each Individual Property, that certain property account bank set forth on Schedule X, provided that such bank remains an Eligible Institution, and any successor Eligible Institution or other Eligible Institution selected by Borrower, subject to Lender's approval. "Provided Information" shall have the meaning set forth in Section 9.1(a) hereof. "Qualified Manager" shall mean a reputable and experienced professional management organization (a) which manages, together with its Affiliates, one hundred fifty (150) properties of a type, quality and size similar to the Properties, totaling in the aggregate no less than 30,000 guest rooms and (b) prior to whose employment as manager of the Properties, such employment shall have been approved by Lender, which approval shall not be unreasonably withheld or delayed. "Quality Assurance Reports" shall mean any quality assurance reports of inspection or compliance from a Franchisor under a Franchise Agreement with respect to any Individual Property. "Rating Agencies" shall mean each of S&P, Moody's, and Fitch, and any other nationally-recognized statistical rating agency which has been approved by Lender. -21- "Release" of any Hazardous Materials shall mean any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. "Release Price" shall mean, for each Individual Property, one hundred twenty-five percent (125%) of the Allocated Loan Amount for such Individual Property. "Release Property" shall have the meaning set forth in Section 2.6 hereof. "Rents" shall have the meaning set forth in Article 1 of the Security Instrument with respect to each Individual Property. "Replacement Interest Rate Cap Agreement" means an interest rate cap agreement from an Acceptable Counterparty with terms identical to the Interest Rate Cap Agreement. "Replacement Management Agreement" shall mean, collectively, (a) either (i) a management agreement with a Qualified Manager substantially in the same form and substance as the Management Agreement, or (ii) a management agreement with a Qualified Manager, which management agreement shall be acceptable to Lender in form and substance, provided, with respect to this subclause (ii), Lender, at its option, may require that Borrower obtain confirmation from the applicable Rating Agencies that such management agreement will not result in a downgrade, withdrawal or qualification of the initial, or if higher, then current rating of the Mortgage Securities or any class thereof; and (b) a subordination of management agreement substantially in the form of the Assignment of Management Agreement (or such other form acceptable to Lender), executed and delivered to Lender by Operating Lessee and such Qualified Manager at Borrower's expense; provided, however, with respect to the Expiring Management Agreement Properties only, Borrower shall not be required to obtain Lender's consent or such a confirmation for the Rating Agencies in the event that the Management Agreements in effect on the date hereof are extended on the same or more favorable terms to Mortgagor Borrower and/or Operating Lessee, as applicable, prior to the expiration thereof. "Replacement Reserve Account" shall have the meaning set forth in Section 3.1 of the Mortgage Loan Agreement. "Replacement Reserve Fund" shall have the meaning set forth in Section 7.3.1 hereof. "Replacement Reserve Monthly Deposit" shall mean the greater of (i) such amounts as are required under the Franchise Agreements to be reserved for furniture, fixtures and equipment, (ii) such amounts as are required under the Management Agreements to be reserved for furniture, fixtures and equipment and (iii)(1) until the end of the calendar year in which the Closing Date occurs, the amount of the Initial Replacement Reserve Monthly Deposit, and (2) thereafter, the quotient obtained by dividing (A) the aggregate Gross Income from Operations for the Properties still subject to the Lien of a Security Instrument for the preceding calendar year (as reflected in Borrower's annual operating statements as approved and accepted by Lender) multiplied by four percent (4%) by (B) twelve (12). The Replacement Reserve Monthly Deposit shall be adjusted annually and shall be effective for the Replacement Reserve Monthly Deposit due on the Payment Date first occurring after the appropriate financial statements have been delivered to Lender as required herein. -22- "Replacements" shall have the meaning set forth in Section 7.3.1 hereof. "Required Remediation" shall have the meaning set forth in the Mortgage Loan Agreement. "Required Repairs" shall have the meaning set forth in the Mortgage Loan Agreement. "Reserve Fund Deposits" shall mean the amounts to be deposited into the Reserve Funds for any given month or at any other time as provided in this Agreement or in the other Loan Documents. "Reserve Funds" shall mean all escrow or reserve funds established by the Loan Documents. "Responsible Officer" means with respect to a Person, the president, chief financial officer or treasurer of such Person. "Restoration" shall have the meaning set forth in the Mortgage Loan Agreement. "Restricted Party" shall mean Mortgage Borrower, Borrower, Principal, Mezzanine Borrower, Mezzanine Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities or any Affiliated Manager or any shareholder, partner or member, or any direct or indirect legal or beneficial owner of, Mortgage Borrower, Borrower, Principal, Mezzanine Borrower, Mezzanine Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities or any Affiliated Manager provided, however, that in no event shall FelCor Lodging Limited Partnership, FelCor Lodging Trust Incorporated or FelCor TRS Holdings, L.P. be deemed a Restricted Party. "S&P" shall mean Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. "Sale or Pledge" shall mean a voluntary or involuntary sale, conveyance, transfer or pledge of a direct or indirect legal or beneficial interest. "Scheduled Amortization Payments" shall mean the amount of principal set forth on Schedule VI hereto to be paid on each Payment Date. "Security Agreement" shall mean that certain Security Agreement dated as of the date hereof between Borrower and Lender with respect to the Pledged Loan. "Security Instrument" shall mean, with respect to each Individual Property, that certain first priority Mortgage (or Deed of Trust or Deed to Secure Debt, as applicable) and Security Agreement, executed and delivered by Mortgage Borrower and Operating Lessee as security for the Mortgage Loan and encumbering such Individual Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Servicer" shall have the meaning set forth in Section 9.3 hereof. "Servicing Agreement" shall have the meaning set forth in Section 9.3 hereof. -23- "Severed Loan Documents" shall have the meaning set forth in Section 8.2(c) hereof. "Special Member" shall have the meaning set forth in Section 4.1.35 hereof. "State" shall mean, with respect to an Individual Property, the State or Commonwealth in which such Individual Property or any part thereof is located. "Strike Rate" shall mean 6.0%. "Subordination of Management Agreement" shall mean that certain Subordination of Management Agreement, dated as of the date hereof, among Lender, Borrower, Mortgage Borrower and Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Substitute Allocated Loan Amount" shall have the meaning set forth in Section 2.6(i) hereof. "Substitute Property" shall have the meaning set forth in Section 2.6 hereof. "Survey" shall mean, with respect to an Individual Property, a survey prepared by a surveyor licensed in the State where such Individual Property is located and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender. "Tax and Insurance Escrow Fund" shall have the meaning set forth in Section 7.2 hereof. "Taxes" shall mean all real estate taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Individual Property or part thereof. "Terrorism Exclusion" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Terrorism Insurance" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Terrorism Insurance Cap" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Terrorism Insurance Required Amount" shall have the meaning set forth in Section 6.1(a)(x) hereof. "Title Insurance Policy" shall have the meaning set forth in the Mortgage Loan Agreement. "Transfer" shall have the meaning set forth in Section 5.2.10(a) hereof. "Triggering Event" shall mean the earlier to occur of: (i) an Event of Default or (ii) the date the Debt Service Coverage Ratio for the twelve (12) full calendar months immediately preceding the date of such calculation is not in excess of 1.15 to 1.00. "UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in the state of New York. -24- "UCC Financing Statements" shall mean the UCC financing statement executed in connection with the Pledge Agreement and the other Loan Documents and filed in the applicable filing offices. SECTION 1.2 Principles of Construction. (a) All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All uses of the word "including" shall mean "including, without limitation" unless the context shall indicate otherwise. Unless otherwise specified, the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. With respect to any provisions incorporated by reference herein from the Mortgage Loan Agreement, such provisions shall be deemed a part of this Agreement notwithstanding the fact that the Mortgage Loan shall no longer be effective for any reason. Whenever in this Agreement Borrower is required to cause Mortgage Borrower to take an action or forbear from taking an action, it shall be construed to mean Pledgor shall cause Mezzanine Borrower to cause Mortgage Borrower to take such action or forbear from taking such action. (b) All covenants, representations, terms and conditions contained in this Agreement applicable to Borrower or Mortgage Borrower shall be deemed to apply to each Borrower or Mortgage Borrower, as applicable, individually. (c) With respect to terms defined by cross-reference to the Mortgage Loan Documents, such defined terms shall have the definitions set forth in the Mortgage Loan Documents as of the date hereof, and no modifications to the Mortgage Loan Documents shall have the effect of changing such definitions for the purposes of this Agreement unless Lender expressly agrees that such definitions as used in this Agreement have been revised. II. GENERAL TERMS SECTION 2.1 Loan Commitment; Disbursement to Borrower. 2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date. 2.1.2 Single Disbursement to Borrower. Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed. 2.1.3 The Note, Pledge Agreement and Loan Documents. The Loan shall be evidenced by the Note and secured by the Pledge Agreement and the other Loan Documents. Borrower and Pledgor hereby authorize Lender to file a financing -25- statement or statements under the UCC in connection with the Collateral in the form required to properly perfect Lender's security interest therein. 2.1.4 Use of Proceeds. Borrower may distribute the proceeds of the Loan to any Affiliate, including, without limitation, making the Pledged Loan to Pledgor. All of the Mortgage Loan proceeds advanced to Mortgage Borrower have been and will be used solely in accordance with the Mortgage Loan Documents. SECTION 2.2 Interest; Loan Payments; Late Payment Charge. 2.2.1 Payments. (a) Interest. Interest on the outstanding principal balance of the Loan shall accrue from the Closing Date to the end of the Interest Period in which the Maturity Date occurs at the Applicable Interest Rate. Monthly installments of interest only shall be paid on each Payment Date commencing on June 9, 2003 and on each subsequent Payment Date thereafter up to and including the Maturity Date for the Interest Period in which such Payment Date or Maturity Date occurs. Interest on the outstanding principal amount of the Loan for the period through and including May 8, 2003 shall be paid by Borrower on the Closing Date. The outstanding principal balance of the Loan together with all accrued and unpaid interest thereon shall be due and payable on the Maturity Date (including, without limitation, all interest that would accrue on the outstanding principal balance of the Loan through the end of the Interest Period during which the Maturity Date occurs (even if such period extends beyond the Maturity Date)). (b) Principal. The Scheduled Amortization Payments shall be paid on June 9, 2003 and on each subsequent Payment Date thereafter. (c) Excess Cash Flow. Beginning on an Excess Cash Flow Application Date and on each Payment Date thereafter, Borrower shall cause Mortgage Borrower to make payments of Excess Cash Flow shall be payable in accordance with the provisions of Section 3.1 of the Mortgage Loan Agreement. (d) All payments and other amounts due under the Note, this Agreement and the other Loan Documents shall be made without any setoff, defense or irrespective of, and without deduction for, counterclaims. 2.2.2 Interest Calculation. Interest on the outstanding principal balance of the Loan shall be calculated by multiplying (a) the actual number of days elapsed in the period for which the calculation is being made by (b) a daily rate equal to the Applicable Interest Rate divided by three hundred sixty (360) by (c) the outstanding principal balance. -26- 2.2.3 Eurodollar Rate Unascertainable; Illegality; Increased Costs. (a) (i) In the event that Lender shall have determined (which determination shall be conclusive and binding upon Borrower absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Lender shall forthwith give notice by telephone of such determination, to Borrower at least one (1) Business Day prior to the last day of the related Interest Period, with a written confirmation of such determination promptly thereafter. If such notice is given, the Loan shall bear interest at the Adjusted Prime Rate beginning on the first day of the next succeeding Interest Period. (ii) If, pursuant to the terms of this Section 2.2.3(a), the Loan is bearing interest at the Adjusted Prime Rate and Lender shall determine (which determination shall be conclusive and binding upon Borrower absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Lender shall give notice thereof to Borrower by telephone of such determination, confirmed in writing, to Borrower as soon as reasonably practical, but in no event later than one (1) Business Day prior to the last day of the then current Interest Period. If such notice is given, the Loan shall bear interest at the Eurodollar Rate beginning on the first day of the next succeeding Interest Period. Notwithstanding any provision of this Agreement to the contrary, in no event shall Borrower have the right to elect to have the Loan bear interest at either the Eurodollar Rate or the Adjusted Prime Rate. (b) If any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for Lender in good faith to make or maintain the portion of the Loan bearing interest at the Eurodollar Rate, (I) the obligation of Lender hereunder to make the Loan bearing interest at the Eurodollar Rate shall be canceled forthwith and (II) the Loan shall automatically bear interest at the Adjusted Prime Rate on the next succeeding Payment Date or within such earlier period as required by Applicable Law. Borrower hereby agrees promptly to pay Lender (within ten (10) days of Lender's written demand therefor), any additional amounts necessary to compensate Lender for any reasonable costs incurred by Lender in making any conversion in accordance with this Agreement, including, without limitation, any interest or fees payable by Lender to lenders of funds obtained by it in order to make or maintain the Loan hereunder. Upon written demand from Borrower, Lender shall demonstrate in reasonable detail the circumstances giving rise to Lender's determination and the calculation substantiating the Adjusted Prime Rate and any additional costs incurred by Lender in making the conversion. Lender's written notice of such costs, as certified to Borrower, shall be conclusive absent manifest error. (c) In the event that any change in any requirement of any Applicable Law or in the interpretation or application thereof, or compliance in good faith by Lender with any request or directive (whether or not having the force of law) hereafter issued from any Governmental Authority, in each such case, which is generally applicable to all Lenders subject to such Governmental Authority's jurisdiction: (i) shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, -27- or any other acquisition of funds by, any U.S. office of Lender which is not otherwise included in the determination of LIBOR hereunder; (ii) shall, if the Loan is then bearing interest at the Eurodollar Rate, hereafter have the effect of reducing the rate of return on Lender's capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender's policies with respect to capital adequacy) by any amount deemed by Lender to be material; or (iii) shall, if the Loan is then bearing interest at the Eurodollar Rate, hereafter impose on Lender any other condition, the result of which is to increase the cost to Lender of making, renewing or maintaining loans or extensions of credit or to reduce any amount receivable hereunder by any amount deemed by Lender to be material; then, in any such case, Borrower shall promptly pay Lender (within ten (10) days of Lender's written demand therefor), any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable which Lender deems to be material. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.3(c), Lender shall provide Borrower with written notice specifying in reasonable detail the event or circumstance by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount. A certificate as to any additional costs or amounts payable pursuant to the foregoing sentence submitted by Lender to Borrower shall be conclusive absent manifest error. This provision shall survive payment of the Note and the satisfaction of all other obligations of Borrower under the Note, this Agreement and the other Loan Documents. (d) Borrower agrees to indemnify Lender and to hold Lender harmless from any loss or expense which Lender sustains or incurs to the extent it is a consequence of (I) any default by Borrower in payment of the principal of or interest on the Loan while bearing interest at the Eurodollar Rate, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Eurodollar Rate, (II) any prepayment (whether voluntary or mandatory) of the Loan on a day that (A) is not the Payment Date immediately following the last day of an Interest Period with respect thereto or (B) is the Payment Date immediately following the last day of an Interest Period with respect thereto if Borrower did not give the prior written notice of such prepayment required pursuant to the terms of this Agreement, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Eurodollar Rate hereunder and (III) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest Rate from the Eurodollar Rate to the Adjusted Prime Rate with respect to any portion of the outstanding principal amount of the Loan then bearing interest at the Eurodollar Rate on a date other than the Payment Date immediately following the last day of an Interest Period, including, without limitation, such loss or expenses arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Eurodollar Rate hereunder (the amounts referred to in clauses (I), (II) and (III) are herein referred to collectively as the "Breakage Costs"). This provision shall survive payment of the Note and the satisfaction of all other obligations of Borrower under this Agreement and the other Loan Documents. -28- 2.2.4 Payment on Maturity Date. Borrower shall pay to Lender on (or, to the extent permitted herein, before) the Maturity Date the outstanding principal balance, all accrued and unpaid interest thereon, and all other amounts due hereunder and under the Note, the Pledge Agreement and the other Loan Documents, including, without limitation, all interest that would accrue on the outstanding principal balance of the Loan through and including the end of the Interest Period in which the Maturity Date occurs (even if such Interest Period extends beyond the Maturity Date). 2.2.5 Payments after Default. Upon the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by Applicable Law, overdue interest and other amounts due in respect of the Loan, shall accrue at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein. Interest at the Default Rate shall be computed from the occurrence of the default until the actual receipt and collection of the Debt (or that portion thereof that is then due). To the extent permitted by Applicable Law, interest at the Default Rate shall be added to the Debt, shall itself accrue interest at the same rate as the Loan and shall be secured by the Pledge Agreement. This paragraph 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. 2.2.6 Late Payment Charge. If any principal, interest or any other sums due under the Loan Documents is not paid by Borrower on 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 such unpaid sum or the maximum amount permitted by Applicable Law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Pledge Agreement and the other Loan Documents to the extent permitted by Applicable Law; provided, however, Borrower shall have the option, not to be exercised more than three (3) times during the term of the Loan, to not pay the late payment charge contemplated by this Section 2.2.6 in the event any Monthly Debt Service Payment Amount is paid within one (1) Business Day after the date the same was due. 2.2.7 Usury Savings. This Agreement and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal 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 sums -29- due under the Loan, shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. 2.2.8 Foreign Taxes. If the Loan is bearing interest at the Eurodollar Rate, all payments made by Borrower hereunder shall be made free and clear of, and without reduction for or on account of, Foreign Taxes, excluding, in the case of Lender, Foreign Taxes measured by its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which Lender is resident or organized, or any political subdivision thereof and, in the case of Lender, taxes measured by its overall net income, and franchise taxes imposed on it, by the jurisdiction of Lender's lending office or any political subdivision thereof or in which Lender is resident or engaged in business. If any non-excluded Foreign Taxes are required to be withheld from any amounts payable to Lender hereunder, the amounts so payable to Lender shall be increased to the extent necessary to yield to Lender (after payment of all non-excluded Foreign Taxes) interest or any such other amounts payable hereunder at the rate or in the amounts specified hereunder. Whenever any non-excluded Foreign Tax is payable pursuant to Applicable Law by Borrower, Borrower shall send to Lender an original official receipt showing payment of such non-excluded Foreign Tax or other evidence of payment reasonably satisfactory to Lender. Borrower hereby indemnifies Lender for any incremental taxes, interest or penalties that may become payable by Lender which may result from any failure by Borrower to pay any such non-excluded Foreign Tax when due to the appropriate taxing authority or any failure by Borrower to remit to Lender the required receipts or other required documentary evidence, provided, however, in the event that Lender or any successor and/or assign of Lender is not incorporated under the laws of the United States of America or a state thereof Lender agrees that, prior to the first date on which any payment is due such entity hereunder, it will deliver to Borrower (i) two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI or successor applicable form, as the case may be, certifying in each case that such entity is entitled to receive payments under the Note, without deduction or withholding of any United States federal income taxes, or (ii) an Internal Revenue Service Form W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each entity required to deliver to Borrower a Form W-8BEN or W-8ECI or Form W-9 pursuant to the preceding sentence further undertakes to deliver to Borrower two further copies of the said letter and W-8BEN or W-8ECI or Form W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires (which, in the case of the Form W-8ECI, is the last day of each U.S. taxable year of the non-U.S. entity) or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to Borrower, and such other extensions or renewals thereof as may reasonably be requested by Borrower, certifying in the case of a Form W-8BEN or W-8ECI that such entity is entitled to receive payments under the Note without deduction or withholding of any United States federal income taxes, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such entity from duly completing and delivering any such letter or form with respect to it and -30- such entity advises Borrower that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-9, establishing an exemption from United States backup withholding tax. Notwithstanding the foregoing, if such entity fails to provide a duly completed Form W-8BEN or W-8ECI or other applicable form and, under Applicable Law, in order to avoid liability for Foreign Taxes, Borrower is required to withhold on payments made to such entity that has failed to provide the applicable form, Borrower shall be entitled to withhold the appropriate amount of Foreign Taxes. In such event, Borrower shall promptly provide to such entity evidence of payment of such Foreign Taxes to the appropriate taxing authority and shall promptly forward to such entity any official tax receipts or other documentation with respect to the payment of the Foreign Taxes as may be issued by the taxing authority. 2.2.9 Extension of Mortgage/Mezzanine Loan. (a) Upon Lender's written request to Borrower ("Mortgage Loan Extension Request"), Borrower shall be required to take all steps necessary to cause Mortgage Borrower to extend the Mortgage Loan in accordance with the Mortgage Loan Agreement. If Lender shall have given the Mortgage Loan Extension Request, not later than ten (10) days before the latest date that Mortgage Borrower may effectively give the notice of its exercise of the Mortgage Loan Extension Option under the Mortgage Loan Agreement, Borrower shall cause Mortgage Borrower to notify Mortgage Lender ("Mortgage Loan Extension Notice") that Mortgage Borrower has elected to exercise the Mortgage Loan Extension Option (with a simultaneous copy to Lender) and Borrower shall cause Mortgage Borrower to take all other steps (and make all other payments) necessary in order to exercise the Mortgage Loan Extension Option. If Lender shall have given the Mortgage Loan Extension Request, the failure of Borrower to cause Mortgage Borrower to give the Mortgage Loan Extension Notice and take all other steps necessary to exercise the Mortgage Loan Extension Option Loan in accordance with this Section and the Mortgage Loan Documents shall be an automatic Event of Default (with no notice, cure or grace period). If Borrower fails to give the Mortgage Loan Extension Notice within such time, Borrower hereby authorizes Lender, and grants Lender an irrevocable power of attorney coupled with an interest, to give such Mortgage Loan Extension Notice on behalf of and in the name of Mortgage Borrower, and take all other steps as may be necessary to exercise the Mortgage Loan Extension Option. (b) Upon Lender's written request to Borrower ("Mezzanine Loan Extension Request"), Borrower shall be required to take all steps necessary to cause Mezzanine Borrower to extend the Mezzanine Loan in accordance with the Mezzanine Loan Agreement. If Lender shall have given the Mezzanine Loan Extension Request, not later than ten (10) days before the latest date that Mezzanine Borrower may effectively give the notice of its exercise of the Mezzanine Loan Extension Option under the Mezzanine Loan Agreement, Borrower shall cause Mezzanine Borrower to notify Mezzanine Lender ("Mezzanine Loan Extension Notice") that Mezzanine Borrower has elected to exercise the Mezzanine Loan Extension Option (with a simultaneous copy to Lender) and Borrower shall cause Mezzanine Borrower to take all other steps (and make all other payments) necessary in order to exercise the Mezzanine Loan Extension Option. If Lender shall have given the Mezzanine Loan Extension Request, the failure of Borrower to cause Mezzanine Borrower to give the Mezzanine Loan Extension Notice and take all other steps necessary to exercise the Mezzanine Loan Extension Option -31- Loan in accordance with this Section and the Mezzanine Loan Documents shall be an automatic Event of Default (with no notice, cure or grace period). If Borrower fails to give the Mezzanine Loan Extension Notice within such time, Borrower hereby authorizes Lender, and grants Lender an irrevocable power of attorney coupled with an interest, to give such Mezzanine Loan Extension Notice on behalf of and in the name of Mezzanine Borrower, and take all other steps as may be necessary to exercise the Mezzanine Loan Extension Option. SECTION 2.3 Prepayments. 2.3.1 Voluntary Prepayments. Except as otherwise provided herein, Borrower shall not have the right to prepay the Loan in whole or in part prior to the Payment Date occurring in November, 2003 (the "Lockout Period"). On any Payment Date occurring after the expiration of the Lockout Period, Borrower may, at its option, prepay the Loan in whole, but not in part, upon satisfaction of the following conditions: (a) Borrower shall provide prior written notice to Lender specifying the date (the "Prepayment Date") upon which the prepayment is to be made, which notice shall be delivered to Lender not less than thirty (30) Business Days prior to such payment; (b) Borrower shall pay to Lender, simultaneously with such prepayment, (i) if such prepayment occurs prior to the Payment Date occurring in May, 2004 (the "Open Date"), a prepayment premium equal to one percent (1%) of the original principal amount of the Loan, (ii) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date together with an amount equal to the interest that would have accrued at the Applicable Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment, (the "Interest Shortfall"), (iii) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (ii); and (iv) all other sums then due under this Agreement, the Note or the other Loan Documents; (c) Mortgage Borrower simultaneously prepays the Mortgage Loan in accordance with the provisions of Mortgage Loan Agreement; and (d) Mezzanine Borrower simultaneously prepays the Mezzanine Loan in accordance with the provisions of the Mezzanine Loan Agreement. This Section 2.3.1 shall not apply to prepayments made in accordance with the provisions of Section 2.5 hereof. 2.3.2 Liquidation Events. (a) In the event of (i) any Casualty to all or any portion of any Individual Property, (ii) any Condemnation of all or any portion of any Individual Property, (iii) a Transfer of any -32- Individual Property in connection with realization thereon by the Mortgage Lender following an Event of Default under the Mortgage Loan, including without limitation a foreclosure sale, (iv) a Transfer of any Collateral under the Mezzanine Loan in connection with a realization thereon by Mezzanine Lender following an Event of Default under the Mezzanine Loan or (v) any refinancing of any Individual Property, the Mortgage Loan or the Mezzanine Loan (each, a "Liquidation Event"), Borrower shall cause the related Net Liquidation Proceeds After Debt Service to be deposited directly into an account designated by Lender. On each date on which Lender actually receives a distribution of Net Liquidation Proceeds After Debt Service, if such date is a Payment Date, such Net Liquidation Proceeds After Debt Service shall be applied to the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Liquidation Proceeds After Debt Service, together with interest that would have accrued on such amount through the next Payment Date and all other sums then due. In the event Lender receives a distribution of Net Liquidation Proceeds After Debt Service on a date other than a Payment Date, such amounts shall be held by Lender as collateral security for the Loan in an interest bearing account, with such interest accruing to the benefit of Borrower, and shall be applied by Lender on the next Payment Date. (b) Borrower shall immediately notify Lender of any Liquidation Event once Borrower has knowledge of such event. Borrower shall be deemed to have knowledge of (i) a sale (other than a foreclosure sale) of any Individual Property on the date on which a contract of sale for such sale is entered into, and a foreclosure sale, on the date notice of such foreclosure sale is given, and (ii) a refinancing of any Individual Property, on the date on which a commitment for such refinancing is entered into. The provisions of this Section 2.3.2 shall not be construed to contravene in any manner the restrictions and other provisions regarding refinancing of the Mortgage Loan or the Mezzanine Loan, the collateral under the Mezzanine Loan or Transfer of the Property or the Collateral set forth in this Agreement and the other Loan Documents and the Mezzanine Loan Documents. 2.3.3 Prepayments After Default. If, following an uncured Event of Default, Borrower tenders payment of all or any part of the Debt, or if all or any portion of the Debt is recovered by Lender after such Event of Default such tender or recovery shall be deemed a voluntary prepayment by Borrower in violation of the prohibition against prepayment of the Loan prior to the expiration of the Lockout Period and Borrower shall pay, in addition to the Debt, (i) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date together with an amount equal to the interest that would have accrued at the Applicable Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment, (ii) if such prepayment occurs prior to the expiration of the Open Period, a prepayment consideration equal to five percent (5%) of the amount being prepaid, (iii) the Interest Shortfall, if applicable, with respect to the amount prepaid, (iv) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (iii); and (v) all other sums due under this Agreement, the Note or the other Loan Documents in connection with a partial or total prepayment. -33- 2.3.4 Making of Payments. Each payment by Borrower hereunder or under the Note shall be made in funds settled through the New York Clearing House Interbank Payments System or other funds immediately available to Lender by 12:00 p.m., New York City time, on or prior to the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. Whenever any payment hereunder or under the Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the first Business Day succeeding such scheduled due date. 2.3.5 Application of Prepayments. All prepayments received pursuant to this Section 2.3 and Section 2.5 shall be applied first, to interest on the outstanding principal balance being prepaid that accrued through and including the Prepayment Date, second, to interest on the outstanding principal balance being prepaid that would have accrued through the end of the Interest Period in which the prepayment occurred, notwithstanding that such Interest Period extends beyond the date of prepayment, and third, to the payments of principal due under the Loan in the inverse order of maturity. SECTION 2.4 Interest Rate Cap Agreement. (a) Borrower shall obtain, or cause to be obtained, and shall thereafter maintain in effect, an Interest Rate Cap Agreement with an Acceptable Counterparty, which shall be coterminous with the Loan, as the same may be extended in accordance with the terms hereof and have a notional amount which shall not at any time be less than the outstanding principal balance of the Loan and which shall at all times have a strike rate equal to the Strike Rate. The Counterparty shall be obligated under the Interest Rate Cap Agreement to make monthly payments equal to the excess of one (1) month LIBOR over the Strike Rate, calculated on the notional amount. The notional amount of the Interest Rate Cap Agreement may be reduced from time to time in amounts equal to any payment of the principal of the Loan in accordance with the terms hereof. (b) Borrower shall collaterally assign to Lender pursuant to an Assignment of Interest Rate Cap Agreement substantially in the form annexed hereto as Exhibit A, all of its right, title and interest to receive any and all payments under the Interest Rate Cap Agreement (and any related guarantee, if any) and shall deliver to Lender an executed counterpart of such Interest Rate Cap Agreement and notify the Counterparty of such collateral assignment (either in such Interest Rate Cap Agreement or by separate instrument). The Counterparty shall agree in writing to make all payments it is required to make under the Interest Rate Cap Agreement directly to an Account specified by Lender. At such time as the Loan is repaid in full, all of Lender's right, title and interest in the Interest Rate Cap Agreement shall terminate and Lender shall promptly execute and deliver at Borrower's sole cost and expense, such documents as may be required to evidence Lender's release of the Interest Rate Cap Agreement and to notify the Counterparty of such release. (c) Borrower shall comply with all of its obligations under the terms and provisions of the Interest Rate Cap Agreement. All amounts paid by the Counterparty under the Interest -34- Rate Cap Agreement shall be deposited immediately into the Lockbox Account or if the Lockbox Account is not then required to be in effect, into such Account as specified by Lender. Borrower shall take all actions reasonably requested by Lender to enforce Borrower's and Lender's rights under the Interest Rate Cap Agreement in the event of a default by the Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder. (d) In the event of any downgrade, withdrawal or qualification of the rating of the Counterparty below "AA-" (or the equivalent) by the Rating Agencies, Borrower shall replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement with an Acceptable Counterparty not later than ten (10) Business Days following receipt of notice from Lender or Servicer of such downgrade, withdrawal or qualification. (e) In the event that Borrower fails to purchase and deliver to Lender the Interest Rate Cap Agreement or any Replacement Interest Cap Agreement as and when required hereunder, Lender may purchase such Interest Rate Cap Agreement and the cost incurred by Lender in purchasing such Interest Rate Cap Agreement shall be paid by Borrower to Lender with interest thereon at the Default Rate from the date such cost was incurred by Lender until such cost is paid by Borrower to Lender. (f) In connection with an Interest Rate Cap Agreement, if requested by Mortgage Lender pursuant to the provisions of Section 2.4 of the Mortgage Loan Agreement, Borrower shall use commercially reasonable efforts to obtain and deliver to Lender an opinion of counsel from counsel for the Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that: (1) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Interest Rate Cap Agreement; (2) the execution and delivery of the Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent Organizational Documents) or any law, regulation or contractual restriction binding on or affecting it or its property; (3) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and (4) the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, -35- enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). SECTION 2.5 Release of Property. 2.5.1 Release of Individual Property. Provided no Event of Default has occurred and is continuing, after the expiration of the Lockout Period, Borrower agrees that Mortgage Borrower may obtain a release from the Lien of a Security Instrument pursuant to Section 2.5.1 of the Mortgage Loan Agreement: (a) Borrower shall provide Lender with at least thirty (30) days but no more than ninety (90) days prior written notice of its request to obtain a release of such Security Instrument; (b) Borrower shall have delivered evidence satisfactory to Lender that (i)(A) Mortgage Borrower complied with all of the terms and conditions set forth in Section 2.5.1 of the Mortgage Loan Agreement with respect to a release of the Security Instrument thereunder and Mortgage Lender has delivered (or is simultaneously delivering) such release to Mortgage Borrower and (ii) Mezzanine Borrower complied with all of the terms and conditions set forth in Section 2.5.1 of the Mezzanine Loan Agreement with respect to a release (if any) of the security interest corresponding to the release requested pursuant to this Section 2.5.1 and (B) Mezzanine Lender has granted such release to Mezzanine Borrower; (c) Lender shall have received a wire transfer of immediately available federal funds in an amount equal to the Release Price for the applicable Individual Property, together with (i) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date, (ii) if such release occurs on or prior to the Open Date, a prepayment premium equal to one percent (1%) of the applicable Release Price, (iii) the Interest Shortfall, if applicable, with respect to the amount prepaid, (iv) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (iii); and (v) all other sums due under this Agreement, the Note or the other Loan Documents in connection with a partial prepayment; (d) Borrower shall provide all other documentation Lender reasonably requires to be delivered by Borrower in connection with such release by Mortgage Borrower, together with an Officer's Certificate certifying that the release will not impair or otherwise adversely affect the Liens, security interests and other rights of Lender under the Loan Documents not being released (or as to the parties to the Loan Documents and Collateral); (e) After giving effect to such release, Lender shall have determined that the Debt Service Coverage Ratio for the Properties then remaining subject to the Lien of a Security Instrument (not including the Individual Property to be released) (but for the purpose of this calculation only, assuming a Release Price equal to the Allocated Loan Amount) shall be at least equal to the Debt Service Coverage Ratio for all of the Properties (including the Individual -36- Property to be released) for the twelve (12) full calendar months immediately preceding the release of the Individual Property; and (f) Lender shall have received payment of all Lender's reasonable costs and expenses, including due diligence review costs and reasonable counsel fees and disbursements incurred in connection with the review and approval of the documents and information required to be delivered in connection with this Section 2.5.1. 2.5.2 Release on Payment in Full. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of all principal and interest due on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Agreement, release the Lien of the Pledge Agreement or the Collateral not theretofore released. SECTION 2.6 Substitution of Properties. Subject to the terms of this Section 2.6 and after the expiration of the Lockout Period, Borrower agrees that Mortgage Borrower may obtain a release of the Lien of a Security Instrument (and the related Loan Documents) encumbering an Individual Property (a "Release Property") by substituting therefor another hotel property of like kind and quality acquired by Mortgage Borrower (individually, a "Substitute Property" and collectively, the "Substitute Properties"), provided that the following conditions precedent are satisfied: (a) Mortgage Borrower shall not have the right to release and substitute (i) more than one (1) Individual Property in accordance with this Section in any twelve (12) month period and (ii) any Properties after such time as Mortgage Borrower has released and substituted Properties which in the aggregate had an appraised value of more than thirty-five percent (35%) of the aggregate appraised values of the Properties subject to the Lien of the Security Instruments as of the Closing Date. (b) Lender shall have received at least thirty (30) days prior written notice requesting the substitution and identifying the Substitute Property and Release Property. (c) Borrower has delivered to Lender evidence satisfactory to Lender that all of the conditions set forth in the Section 2.6 of the Mortgage Loan Agreement have been satisfied, including, without limitation, all documents and information required to be delivered to Mortgage Lender by Mortgage Borrower, in form and substance acceptable to Lender in its reasonable discretion and if any such documents and information is certified to Mortgage Lender, then such documents and information shall also be certified to Lender. (d) Mortgage Borrower shall own the Substitute Property. (e) Lender shall have received a certificate of Borrower certifying, together with other evidence satisfactory to Lender that, the Debt Service Coverage Ratio for the twelve (12) months immediately preceding the substitution with respect to the Substitute Property is at least equal to the Debt Service Coverage Ratio for the twelve (12) full calendar months immediately preceding the date of the proposed substitution with respect to the Release Property, which -37- Debt Service Coverage Ratio shall be based upon the Allocated Loan Amounts of the Substitute Property and the Release Property. (f) Unless such event or condition relates solely to the Release Property and will be fully cured by the release and substitution, no Event of Default shall have occurred and be continuing and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each other Loan Document on Borrower's part to be observed or performed. Lender shall have received a certificate from Borrower confirming the foregoing, stating that the representations and warranties contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of the release and substitution with respect to Borrower, the Properties and the Substitute Property and containing any other representations and warranties with respect to Borrower, the Properties, the Substitute Property or the Loan as Lender, such certificate to be in form and substance satisfactory to Lender. (g) Borrower shall (A) have executed, acknowledged and delivered to an Environmental Indemnity with respect to the Substitute Property from Indemnitor and (B) have caused Guarantor to acknowledge and confirm its obligations under the Loan Documents. The Environmental Indemnity shall be the same in form and substance as the Environmental Indemnity executed and delivered with respect to the related Release Property subject to modifications reflecting only the Substitute Property as the Individual Property and such modifications reflecting the laws of the State in which the Substitute Property is located. The amount of the Loan allocated to the Substitute Property (such amount being hereinafter referred to as the "Substitute Allocated Loan Amount") shall equal the Allocated Loan Amount of the related Release Property. (h) Mortgage Borrower shall have received and delivered to Lender an Owner's Title Policy (or a marked, signed and redated commitment to issue such Owner's Title Policy) insuring the Substitute Property, issued by the title company that issued the Owner's Title Policy insuring the existing Individual Properties and dated as of the date of the substitution, with reinsurance and direct access agreements that replace such agreements issued in connection with the Owner's Title Policy insuring the Release Property. The Owner's Title Policy issued with respect to the Substitute Property shall (1) provide coverage in the amount of the fair market value of the Substitute Property, (2) insure the title on the Substitute Property, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), and (3) contain such endorsements and affirmative coverages as are then available and are contained in the Owner's Policies insuring the existing Individual Properties, and such other endorsements or affirmative coverage that a prudent institutional property owner would require. Lender also shall have received copies of paid receipts or other evidence showing that all premiums in respect of such endorsements and Title Insurance Policies have been paid. (i) Borrower shall deliver or cause to be delivered to Lender (A) updates certified by Mortgage Borrower of all organizational documentation related to Mortgage Borrower and/or the formation, structure, existence, good standing and/or qualification to do business delivered to Lender on the Closing Date; (B) good standing certificates, certificates of qualification to do business in the jurisdiction in which the Substitute Property is located (if -38- required in such jurisdiction); and (C) resolutions of Mortgage Borrower authorizing the substitution and any actions taken in connection with such substitution. (j) Lender shall have received the following opinions of Borrower's counsel: (A) an opinion of counsel acceptable to stating that the Environmental Indemnity delivered with respect to the Substitute Property pursuant to this Section, among other things, is valid and enforceable in accordance with the terms, subject to the laws applicable to creditors rights and equitable principles and has been duly authorized, executed and delivered by Borrower and that the execution and delivery of such Environmental Indemnity and the performance by Borrower of its obligations thereunder will not cause a breach of, or a default under, any agreement, document or instrument to which Borrower is a party or to which it or its properties are bound; and (C) an update of the Insolvency Opinion indicating that the substitution does not affect the opinions set forth therein. (k) Borrower shall have caused Mortgage Borrower to pay or reimburse Lender for all reasonable costs and expenses incurred by Lender (including, without limitation, reasonable attorneys' fees and disbursements) in connection with the release and substitution and Borrower shall have caused Mortgage Borrower to pay all recording charges, filing fees, taxes or other expenses (including, without limitation, mortgage and intangibles taxes and documentary stamp taxes) payable in connection with the substitution. (l) Lender shall have received a current Appraisal of (i) the Substitute Property and (ii) the Release Property, each prepared within sixty (60) days prior to the release and substitution, showing an appraised value of the Substitute Property equal to or greater than one hundred percent (100%) of (A) the appraised value of the Release Property as of the Closing Date, and (B) the appraised value of the Release Property immediately prior to the date of the proposed substitution. (m) Lender shall have received an estoppel and recognition letter from the franchisor under the Franchise Agreement, if any, for the Substitute Property, in form and substance reasonably satisfactory to Lender (n) Lender shall have received a Replacement Management Agreement for the Substitute Property and the Manager thereunder shall have executed and delivered to Lender a conditional assignment of management agreement with respect to such new Management Agreement on substantially the same terms as used in connection with the Release Property or such other terms as are acceptable Lender; (o) Lender shall have received a subordination of operating lease for the Substitute Property in form and substance reasonably satisfactory to Lender and (p) Borrower shall deliver an Officers Certificate certifying that the requirements set forth in this Section 2.6 have been satisfied. All due diligence required to be delivered to Lender in connection with this Section 2.6 shall be in form, scope and substance satisfactory to Lender. Upon the satisfaction of the foregoing conditions precedent, the Substitute Property shall be deemed to be an Individual Property for purposes of this Agreement and the Substitute Allocated Loan Amount with respect -39- to such Substitute Property shall be deemed to be the Allocated Loan Amount with respect to such Substitute Property for all purposes hereunder. III. CASH MANAGEMENT SECTION 3.1 Property Account. (a) During the term of the Loan, Borrower shall cause Mortgage Borrower to comply with all of its obligations under Section 3.1 of the Mortgage Loan Agreement, whether or not the Mortgage Loan Agreement continues to be in full force and effect between Mortgage Borrower and Mortgage Lender. (b) Borrower hereby grants Lender all of the same rights which Mortgage Lender has with respect to the determination of Debt Service Coverage Ratio and the commencement or termination of an Excess Cash Flow Sweep Period, including, without limitation, the calculation of Cash Flow Threshold and Triggering Event, all such rights to be made by Lender in accordance with the provisions of the Mortgage Loan Agreement. SECTION 3.2 Lockbox Account. During the term of the Loan, Borrower shall cause Mortgage Borrower to establish and maintain a segregated Eligible Account (the "Lockbox Account") for the benefit of Mortgage Lender, which Lockbox Account shall be under the sole dominion and control of Mortgage Lender. Borrower will not cause or permit Mortgage Borrower in any way to alter or modify the Lockbox Account and will notify Lender of the account number thereof. Mortgage Lender and its servicer shall have the sole right to make withdrawals from the Lockbox Account and all costs and expenses for establishing and maintaining the Lockbox Account shall be paid by Mortgage Borrower. Borrower shall direct or cause Mortgage Borrower to direct that all cash distributions from the Lockbox Account to be paid to Mortgage Lender in accordance with the Mortgage Loan Agreement. In the event Mortgage Lender and Mezzanine Lender waive the requirement of Mortgage Borrower to maintain the Lockbox Account or the Mortgage Loan and the Mezzanine Loan has been repaid in full, Lender shall have the right to require Borrower cause Mortgage Borrower to establish and maintain a cash management account that would operate in the same way as the Lockbox Account. IV. REPRESENTATIONS AND WARRANTIES SECTION 4.1 Borrower Representations. Borrower represents and warrants as of the Closing Date that: 4.1.1 Organization. (a) Borrower is duly organized and is validly existing and in good standing in the jurisdiction in which it is organized, with requisite power and authority to own its assets and to transact the businesses in which it is now engaged. Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its assets, its businesses and operations. Borrower possesses all rights, licenses, permits -40- and authorizations, governmental or otherwise, necessary to entitle it to own its assets and to transact the businesses in which it is now engaged. Attached hereto as Schedule IV is an organizational chart of Borrower. Borrower has delivered to Lender true and correct copies of the Operating Lessee's Operating Agreement and all other Organizational Documents for the Operating Lessee, Borrower, Pledgor and Principal, all of which are in full force and effect. (b) Pledgor is duly organized and is validly existing and in good standing in the jurisdiction in which it is organized, with requisite power and authority to own one hundred percent (100%) of the interests in Mezzanine Borrower and to transact the businesses in which it is now engaged. Pledgor is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its businesses and operations. Pledgor possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to transact the businesses in which it is now engaged. Attached hereto as Schedule V is an organizational chart of Pledgor. (c) Pledgor has the power and authority, subject to the terms of the Mortgage Loan Documents, and the requisite Ownership Interests to control the actions of Mortgage Borrower, and upon the realization of the Collateral under the Pledge Agreement, Lender or any other party succeeding to the Borrower's interest in the Collateral described in the Pledge Agreement would have such control. Without limiting the foregoing, Borrower has sufficient control over Mortgage Borrower, subject to the terms of the Mortgage Loan Documents, to cause Mortgage Borrower to (i) take any action on Mortgage Borrower's part required by the Loan Documents and (ii) refrain from taking any action prohibited by the Loan Documents. 4.1.2 Proceedings. (a) Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and the other Loan Documents have been duly executed and delivered by or on behalf of Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (b) Pledgor has taken all necessary action to authorize the execution, delivery and performance of the Pledgor Documents. The Pledgor Documents have been duly executed and delivered by or on behalf of Pledgor and constitutes the legal, valid and binding obligations of Pledgor enforceable against Pledgor in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 4.1.3 No Conflicts. (a) The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms or -41- provisions of, or constitute a default under, or result in the creation or imposition of any Lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement, management agreement, franchise agreement, or other agreement or instrument to which Borrower is a party or by which any of Borrower's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Borrower or any of Borrower's assets, or any license or other approval required to own and manage its assets, and any consent, approval, authorization, order, registration or qualification of or with any Governmental Agency required for the execution, delivery and performance by Borrower of this Agreement or any other Loan Documents have been obtained and is in full force and effect. (b) The execution, delivery and performance of the Pledgor Documents by Pledgor will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien, charge or encumbrance (other than pursuant to such Loan Documents) upon any of the property or assets of Pledgor pursuant to the terms of any agreement or instrument to which Pledgor is a party or by which any of Pledgor's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Pledgor or any of Pledgor's other assets and any consent, approval, authorization, order, registration or qualification of or with any Governmental Agency required for the execution, delivery and performance by Pledgor of the Pledgor Documents have been obtained and is in full force and effect. 4.1.4 Litigation. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or threatened against or affecting Borrower, Operating Lessee, Mortgage Borrower, Mezzanine Borrower, Pledgor, Ground Lessor, the Collateral or any Individual Property, which actions, suits or proceedings, if determined against Borrower, Operating Lessee, Mortgage Borrower, Mezzanine Borrower, Pledgor, Ground Lessor, the Collateral or any Individual Property, would reasonably be expected to materially adversely affect the condition (financial or otherwise) or business of Borrower, Mortgage Borrower, Mezzanine Borrower, Pledgor, the Collateral, Operating Lessee, Ground Lessor or the condition or ownership of any Individual Property. 4.1.5 Agreements. Neither Borrower nor Pledgor is a party to any agreement or instrument or subject to any restriction which would reasonably be expected to materially and adversely affect Borrower, Mortgage Borrower, Mezzanine Borrower, Operating Lessee, Pledgor, Ground Lessor, the Collateral or any Individual Property, or Borrower's, Mezzanine Borrower's, Pledgor's, Ground Lessor's, Mortgage Borrower's or Operating Lessee's business, properties or assets, operations or condition, financial or otherwise. Neither Borrower, Mortgage Borrower, Mezzanine Borrower, Pledgor, Ground Lessor nor Operating Lessee is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions -42- contained in any agreement or instrument to which it is a party or by which Borrower, Mortgage Borrower, Mezzanine Borrower, Operating Lessee, Pledgor, Ground Lessor, the Collateral or any of the Properties are bound. Neither Borrower, Mortgage Borrower, Mezzanine Borrower, Pledgor, Ground Lessor nor Operating Lessee has any material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower, Mortgage Borrower, Mezzanine Borrower, Pledgor, Ground Lessor or Operating Lessee is a party or by which Borrower, Mortgage Borrower, Mezzanine Borrower, Pledgor, Ground Lessor, Operating Lessee, the Collateral or any Property is otherwise bound, other than (a) obligations incurred in the ordinary course of the business relating to the operation of the Collateral, (b) obligations incurred in the ordinary course of the business relating to Mortgage Borrower's ownership and operation of the Property and (c) obligations under the Loan Documents, the Mortgage Loan Documents and the Mezzanine Loan Documents, as applicable. 4.1.6 Title. (a) Each Loan Party purporting to grant a Lien on any Collateral in favor of Lender is the record and beneficial owner of, and has good and marketable title to, the Collateral, free and clear of all Liens whatsoever. The Pledge Agreement, together with the UCC Financing Statements relating to the Collateral when properly filed in the appropriate records, will create a valid, perfected first priority security interests in and to the Collateral, all in accordance with the terms thereof for which a Lien can be perfected by filing a UCC Financing Statement. For so long as the Lien of the Pledge Agreement is outstanding, Borrower and Pledgor shall forever warrant, defend and preserve such title and the validity and priority of the Lien of the Pledge Agreement and shall forever warrant and defend such title, validity and priority to Lender against the claims of all persons whomsoever. (b) Mortgage Borrower has good title to the Properties owns the Properties free and clear of all liens, encumbrances and charges whatsoever except for the Permitted Encumbrances. The Permitted Encumbrances do not and will not materially adversely affect or interfere with the value, or materially adversely affect or interfere with the current use or operation, of the Collateral or the ability of Borrower to repay the Note or any other amount owing under the Note, the Pledge Agreement, the Loan Agreement, or the other Loan Documents or to perform its obligations thereunder in accordance with the terms of the Loan Agreement, the Note, the Pledge Agreement or the other Loan Documents. Other than Mortgage Lender, no Person other than Mortgage Borrower owns any interest in any payments due under such Leases. Borrower shall cause Mortgage Borrower to forever warrant, defend and preserve the title to the Property and to forever warrant and defend the same to Mortgage Borrower for the benefit of Lender against the claims of all persons whomsoever. 4.1.7 Solvency. Neither Borrower nor Pledgor (a) has entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any creditor and (b) has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the Loan, the fair saleable value of Borrower's and Pledgor's assets exceeds and will, immediately following the making of the Loan, exceed Borrower's and Pledgor's total liabilities, including, without limitation, subordinated, -43- unliquidated, disputed and contingent liabilities. Borrower's and Pledgor'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. Neither Borrower nor Pledgor intends to incur debt and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debt and liabilities as they mature (taking into account the timing and amounts of cash to be received by Borrower and Pledgor and the amounts to be payable on or in respect of obligations of Borrower and Pledgor). No petition under the Bankruptcy Code or similar state bankruptcy or insolvency law has been filed against Borrower, Mortgage Borrower, Ground Lessor, Pledgor, Operating Lessee or any constituent Person in the last seven (7) years, and neither Borrower, Pledgor nor any constituent Person 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. Neither Borrower, Pledgor nor any of its constituent Persons are contemplating either the filing of a petition by it under the Bankruptcy Code or similar state bankruptcy or insolvency law or the liquidation of all or a major portion of Borrower's or Pledgor's assets or property, and neither Borrower nor Pledgor has any knowledge of any Person contemplating the filing of any such petition against it or such constituent Persons. 4.1.8 Full and Accurate Disclosure. No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading in any material respects. No statement of fact made by Pledgor in the Pledgor Documents contain any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading in any material respect. There is no fact presently known to Borrower or Pledgor which has not been disclosed to Lender which materially and adversely affects, or would reasonably be expected to materially and adversely affect, the Collateral, any Individual Property or the business, operations or condition (financial or otherwise) of Borrower, Mortgage Borrower, Pledgor or Operating Lessee. 4.1.9 No Plan Assets. Neither Borrower nor Pledgor is a Plan and none of the assets of Borrower or Pledgor constitute or will constitute "Plan Assets" of one or more Plans. In addition, (a) neither Borrower nor Pledgor is a "governmental plan" within the meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower and Pledgor are not subject to State statutes regulating investment of, and fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Agreement. 4.1.10 Compliance. Borrower, Mortgage Borrower, Mezzanine Borrower, Ground Lessor with respect to the Florida Properties, Pledgor, Operating Lessee and the Properties and the use thereof comply in all material respects with all applicable Legal Requirements, including, without limitation, to the best of Borrower's knowledge, all Environmental Laws, building and zoning ordinances and codes. Neither Borrower, Mortgage Borrower, Mezzanine Borrower, Ground Lessor, Pledgor -44- nor Operating Lessee is in default or violation in any material respect of any order, writ, injunction, decree or demand of any Governmental Authority. There has not been committed by Borrower, Mortgage Borrower, Mezzanine Borrower, Pledgor, Operating Lessee or any other Person in occupancy of or involved with the operation or use of the Properties any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against any Individual Property or any part thereof or any monies paid in performance of Borrower's or Pledgor's obligations under any of the Loan Documents. 4.1.11 Financial Information. All financial data, including, without limitation, the statements of cash flow and income and operating expense, that have been delivered to Lender by or on behalf of Borrower, Mortgage Borrower, Mezzanine Borrower, Pledgor, Operating Lessee, the Collateral and the Properties (i) considered in the aggregate, are true, complete and correct in all material respects, (ii) fairly present the financial condition of Borrower, Mortgage Borrower, Mezzanine Borrower, Pledgor, Operating Lessee, the Collateral and the Properties, as applicable, as of the date of such reports, and (iii) have been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein (but subject to normal year-end adjustments). Except for Permitted Encumbrances, neither Borrower nor Pledgor have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower or Pledgor and reasonably likely to have a materially adverse effect on the Collateral or any Individual Property or the operation of any Individual Property as hotels except as referred to or reflected in said financial statements. Since the date of the most recent such financial statements, there has been no materially adverse change in the financial condition, operations or business of Borrower, Mortgage Borrower, Mezzanine Borrower, Pledgor or Operating Lessee from that set forth in said financial statements. 4.1.12 Condemnation. Except as provided on Schedule E attached hereto, no Condemnation or other similar proceeding has been commenced or, to the best of Borrower's and Pledgor's knowledge, is threatened or contemplated with respect to all or any portion of any Individual Property or for the relocation of roadways providing access to any Individual Property. 4.1.13 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 Agreement or the other Loan Documents. 4.1.14 Utilities and Public Access. Each Individual Property has rights of access to public ways and is served by public water, sewer, sanitary sewer and storm drain facilities adequate to service such Individual -45- Property for its respective intended uses. All public utilities necessary or convenient to the full use and enjoyment of each Individual Property are located either in the public right-of-way abutting each Individual Property (which are connected so as to serve each Individual Property without passing over other property) or in recorded easements serving each Individual Property and such easements are set forth in and insured by the Owner's Title Policy. All roads necessary for the use of each Individual Property for their current respective purposes have been completed, are physically open and, except as disclosed on the Surveys, are dedicated to public use and have been accepted by all Governmental Authorities. 4.1.15 Not a Foreign Person. Neither Borrower nor Pledgor is a "foreign person" within the meaning of Section 1445(f)(3) of the Code. 4.1.16 Separate Lots. Each Individual Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of such Individual Property. 4.1.17 Assessments. To the best of Borrower's knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting any Individual Property, nor are there any contemplated improvements to any Individual Property that may result in such special or other assessments. 4.1.18 Enforceability. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower or Pledgor, including the defense of usury, and neither Borrower nor Pledgor has asserted any right of rescission, set-off, counterclaim or defense with respect thereto. 4.1.19 No Prior Assignment. Other than under the Mortgage Loan Documents, there are no prior assignments of the Leases or any portion of the Rents due and payable or to become due and payable which are presently outstanding. There are no prior assignments of the Collateral which are presently outstanding except in accordance with the Loan Documents. 4.1.20 Insurance. Mortgage Borrower has obtained and Borrower has delivered to Lender certified copies of all insurance policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. To the best of Borrower's knowledge, no Person, including Borrower and Pledgor, has done, by act or omission, anything which would impair the coverage of any such policy. -46- 4.1.21 Intentionally Omitted. 4.1.22 Intentionally Omitted. 4.1.23 Intentionally Omitted. 4.1.24 Intentionally Omitted. 4.1.25 Intentionally Omitted. 4.1.26 Intentionally Omitted. 4.1.27 Intentionally Omitted. 4.1.28 Intentionally Omitted. 4.1.29 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Collateral to Borrower, the making of the Mortgage Loan, the Loan or the other transactions contemplated by this Agreement have been paid. All recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Pledge Agreement, have been paid. 4.1.30 Intentionally Omitted. 4.1.31 Intentionally Omitted. 4.1.32 Illegal Activity. No portion of any Individual Property or the Collateral has been or will be purchased by Mortgage Borrower or Operating Lessee with proceeds of any illegal activity and to the best of Borrower's knowledge, there are no illegal activities or activities relating to any controlled substances at any Individual Property. 4.1.33 No Change in Facts or Circumstances; Disclosure. All information submitted by Borrower and Pledgor to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by Borrower and Pledgor in this Agreement or in any other Loan Document, considered in the aggregate, are accurate, complete and correct in all material respects. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects or would reasonably be expected to materially and adversely -47- affect the use, operation or value of the Properties or the business operations or the financial condition of Borrower, Mortgage Borrower, Pledgor or Operating Lessee. 4.1.34 Investment Company Act. Neither Borrower nor Pledgor 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. 4.1.35 Principal Place of Business; State of Organization. Borrower's principal place of business as of the date hereof is the address set forth in the introductory paragraph of this Agreement. Borrower is organized under the laws of the State of Delaware and its organizational identification number is 3645167. 4.1.36 Single Purpose Entity. Borrower covenants and agrees that its Organizational Documents shall provide that it has not, and shall not, and that the Organizational Documents of its general partner(s), if Borrower is a partnership, or its managing member(s), if Borrower is a limited liability company (in each case, "Principal") shall provide that it has not and shall not: (a) with respect to Borrower, engage in any business or activity other than the acquisition, ownership, and managing of the Collateral, entering into the Loan and making the Pledged Loan, and activities incidental thereto and with respect to Principal, engage in any business or activity other than the ownership of its interest in Borrower, and activities incidental thereto; (b) with respect to Borrower, acquire or own any material assets other than (i) the Collateral, and (ii) such incidental personal property as may be necessary for the ownership of the Collateral, and with respect to Principal, acquire or own any material asset other than its interest in Borrower; (c) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure; (d) (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 or (ii) without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of Borrower's Partnership Agreement, Articles of Organization or similar Organizational Documents, as the case may be, or of Principal's Certificate of Incorporation, Articles of Organization or similar Organizational Documents, as the case may be, whichever is applicable; -48- (e) own any subsidiary or make any investment in any Person (other than the Pledged Loan and Mezzanine Borrower) without the prior written consent of Lender; (f) 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 (other than pursuant to the Mortgage Loan Agreement) with any other entity or Person or fail to use its own separate stationery, invoices and checks; (g) with respect to Borrower, incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Debt, except for liabilities incurred in the ordinary course of business relating to the ownership of the Collateral and the routine administration of Borrower, in amounts not to exceed $50,000 which liabilities are not more than sixty (60) days past due and are not evidenced by a note, and with respect to Principal, incur any debt secured or unsecured, direct or contingent (including guaranteeing any obligations), except for liabilities incurred in the ordinary course of business relating to the ownership of its interest in Borrower and the routine administration of Principal, in amounts not to exceed $50,000 which liabilities are not more than sixty (60) days past due and are not evidenced by a note; (h) 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; (i) (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 Principal, as the case may be, the Affiliates of a member, general partner or principal of Borrower or of Principal, as the case may be, and any other Person, (ii) permit its assets or liabilities to be listed as assets or liabilities on the financial statement of any other Person or (iii) include the assets or liabilities of any other Person on its financial statements; except for consolidated financial statements which contain a note indicating that Borrower's and Principal's separate assets and liabilities are neither available to pay the debts of the consolidated entity nor constitute obligations of the consolidated entity; (j) other than as required pursuant to the Loan Documents, enter into any contract or agreement with any member, general partner, principal or Affiliate of Borrower or of Principal, as the case may be, Guarantor, Indemnitor, or any member, general partner, principal or Affiliate thereof (other than (A) the Pledged Loan and (B) a 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 Borrower and (iii) the agreement meets the standards set forth in this subsection (j) 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 Borrower or of Principal, as the case may be, Guarantor, Indemnitor or any member, general partner, principal or Affiliate thereof; -49- (k) seek the dissolution or winding up in whole, or in part, of Borrower or of Principal, as the case may be; (l) fail to correct any known misunderstandings regarding the separate identity of Borrower, or of Principal, as the case may be, or any member, general partner, principal or Affiliate thereof or any other Person; (m) guarantee or become obligated for the debts of any other Person or hold itself out to be responsible for the debts of another Person; (n) other than the Pledged Loan, make any loans or advances to any third party, including any member, general partner, principal or Affiliate of Borrower or of 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 Borrower or Principal, as the case may be, or any member, general partner, or Affiliate thereof; (o) fail to file its own tax returns or be included on the tax returns of any other Person except as required by Applicable Law; (p) fail either to hold itself out to the public as a legal entity separate and distinct from any other 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 Borrower or of 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 Borrower or Principal, as the case may be, is responsible for the debts of any third party (including any member, general partner, principal or Affiliate of Borrower, or of Principal, as the case may be, or any member, general partner, principal or Affiliate thereof); (q) 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; (r) share any common logo (other than a name franchised or licensed to it by an entity other than an Affiliate of Borrower or of Principal) with or hold itself out as or be considered as a department or division of (i) any general partner, principal, member or Affiliate of Borrower or of Principal, as the case may be, (ii) any Affiliate of a general partner, principal or member of Borrower or of Principal, as the case may be, or (iii) any other Person; (s) 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; (t) pledge its assets for the benefit of any other Person, and (i) with respect to Borrower, other than with respect to the Loan and (ii) with respect to Principal, other than with respect to the Mezzanine Loan; (u) fail to maintain a sufficient number of employees in light of its contemplated business operations; -50- (v) fail to provide in its (i) Articles of Organization, 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, this Agreement and the other Loan Documents, 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 Director and of all other general partners/managing members/directors; (w) fail to hold its assets in its own name; (x) if Borrower or Principal is a corporation, fail to consider the interests of its creditors in connection with all corporate actions to the extent required by Applicable Law; (y) have any of its obligations guaranteed by an Affiliate; (z) violate or cause to be violated the assumptions made with respect to Borrower and Principal in the Insolvency Opinion; (aa) with respect to Principal, or if Borrower is a single member limited liability company that complies with the requirements of Section 4.1.35(cc) below, fail at any time to have at least one independent director/manager (an "Independent Director") that is not and has not been for at least five (5) years: (a) a stockholder, director (other than an independent director of an Affiliate of Borrower), officer, employee, partner, member, attorney or counsel of Mortgage Borrower, Borrower or of Principal or any Affiliate of either of them; (b) a customer, supplier or other Person who derives its purchases or revenues (other than any fee paid to such director as compensation for such director to serve as an Independent Director) from its activities with Mortgage Borrower, Borrower, Principal or any Affiliate of either of them (a "Business Party"); (c) a person or other entity controlling or under 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. Notwithstanding the foregoing, no Independent Director shall also serve as an Independent Director (as such term is defined in the Mortgage Loan Agreement) for Mortgage Borrower; or (bb) with respect to Principal, or if Borrower is a single member limited liability company that complies with the requirements of Section 4.1.35(cc) below, permit its board of directors/managers to take any action which, under the terms of any certificate of incorporation, by-laws, voting trust agreement with respect to any common stock or other applicable Organizational Documents, requires the unanimous vote of one hundred percent (100%) of the members of the board without the vote of the Independent Director. (cc) In the event Borrower is a Delaware limited liability company that does not have a managing member (other than a sole member) which complies with the requirements for a Principal under this Section 4.1.35, the limited liability company agreement of Borrower (the "LLC Agreement") shall provide that (A) upon the occurrence of any event that causes the last -51- remaining member of Borrower ("Member") to cease to be the member of Borrower (other than (1) upon an assignment by Member of all of its limited liability company interest in Borrower and the admission of the transferee in accordance with the Loan Documents and the LLC Agreement, or (2) the resignation of Member and the admission of an additional member of Borrower in accordance with the terms of the Loan Documents and the LLC Agreement), any person designated by Borrower shall, without any action of any other Person and simultaneously with the Member ceasing to be the member of Borrower, automatically be admitted to Borrower ("Special Member") and shall continue Borrower without dissolution and (B) Special Member may not resign from Borrower or transfer its rights as Special Member unless a successor Special Member has been admitted to Borrower as Special Member in accordance with requirements of Delaware law. The LLC Agreement shall further provide that (v) Special Member shall automatically cease to be a member of Borrower upon the admission to Borrower of a substitute Member, (w) Special Member shall be a member of Borrower that has no interest in the profits, losses and capital of Borrower and has no right to receive any distributions of Borrower assets, (x) pursuant to Section 18-301 of the Delaware Limited Liability Company Act (the "Act"), Special Member shall not be required to make any capital contributions to Borrower and shall not receive a limited liability company interest in Borrower, (y) Special Member, in its capacity as Special Member, may not bind Borrower and (z) except as required by any mandatory provision of the Act, Special Member, in its capacity as Special Member, shall have no right to vote on, approve or otherwise consent to any action by, or matter relating to, Borrower, including, without limitation, the merger, consolidation or conversion of Borrower. In order to implement the admission to Borrower of Special Member, Special Member shall execute a counterpart to the LLC Agreement. Prior to its admission to Borrower as Special Member, Special Member shall not be a member of Borrower. Upon the occurrence of any event that causes the Member to cease to be a member of Borrower, to the fullest extent permitted by law, the personal representative of Member shall, within ninety (90) days after the occurrence of the event that terminated the continued membership of Member in Borrower, agree in writing (A) to continue Borrower and (B) to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of Borrower, effective as of the occurrence of the event that terminated the continued membership of Member of Borrower in Borrower. Any action initiated by or brought against Member or Special Member under any Creditors Rights Laws shall not cause Member or Special Member to cease to be a member of Borrower and upon the occurrence of such an event, the business of Borrower shall continue without dissolution. The LLC Agreement shall provide that each of Member and Special Member waives any right it might have to agree in writing to dissolve Borrower upon the occurrence of any action initiated by or brought against Member or Special Member under any Creditors Rights Laws, or the occurrence of an event that causes Member or Special Member to cease to be a member of Borrower. (dd) Mortgage Borrower is, shall be and shall continue to comply with the provisions of Section 4.1.35 of the Mortgage Loan Agreement. 4.1.37 Business Purposes. The Loan is solely for the business purpose of Borrower, and is not for personal, family, household, or agricultural purposes. -52- 4.1.38 Taxes. Borrower and Pledgor have filed all federal, State, county, municipal, and city income and other tax returns required to have been filed by it and has paid, prior to delinquency thereof, all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by it. Borrower and Pledgor know of no basis for any additional assessment in respect of any such taxes and related liabilities for prior years. 4.1.39 Intentionally Omitted. 4.1.40 Environmental Representations and Warranties. Borrower represents and warrants, except as disclosed on those certain written reports identified on Schedule XI attached hereto and made a part hereof (collectively, the "Environmental Report") of each Individual Property that: (a) there are no Hazardous Materials or underground storage tanks in, on, or under any of the Properties, except those that are both (i) in compliance with current 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, clean, repair and maintain the applicable Individual Property or each tenant's respective business at such Individual Property as set forth in their respective Leases, or (B) held by a tenant for sale to the public in its ordinary course of business, (b) there are no past, present or threatened Releases of Hazardous Materials in violation of any Environmental Law and which would require remediation by a Governmental Authority in, on, under or from any of the Properties; (c) there is no threat of any Release of Hazardous Materials migrating to any of the Properties; (d) there is no present or, to Borrower's knowledge prior non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with any of the Properties except as described in the Environmental Reports; (e) Borrower and Pledgor do not know of, and has not received and Mortgage Borrower has not received, any written or oral notice or other communication from any Person (including but not limited to a Governmental Authority) relating to Hazardous Materials in, on, under or from any of the Properties; and (f) Borrower and Pledgor have truthfully and fully provided to Lender, in writing, any and all information relating to environmental conditions in, on, under or from any of the Properties known to Borrower, Mortgage Borrower, Pledgor or Operating Lessee or contained in Borrower's, Mortgage Borrower's, Pledgor's or Operating Lessee's files and records, including but not limited to any reports relating to Hazardous Materials in, on, under or migrating to or from any of the Properties and/or to the environmental condition of the Properties. 4.1.41 Taxpayer Identification Number. Borrower's United States taxpayer identification number is 33-1053282. 4.1.42 OFAC. Borrower represents and warrants that neither Borrower, Mortgage Borrower, Pledgor, Operating Lessee, Guarantor, Indemnitor or any of their respective Affiliates is a Prohibited Person, and Borrower, Mortgage Borrower, Pledgor, Operating Lessee, Guarantor, Indemnitor and their respective Affiliates are in compliance in all material respects with all applicable -53- orders, rules, regulations and recommendations of The Office of Foreign Assets Control of the U.S. Department of the Treasury. 4.1.43 Ground Lease Representations. (a)(i) Each Ground Lease is in full force and effect and has not been modified or amended in any manner whatsoever, (ii) there are no defaults under any Ground Lease by Mortgage Borrower or Ground Lessor, and no event has occurred which but for the passage of time, or notice, or both would constitute a default under such Ground Lease, (iii) all rents, additional rents and other sums due and payable under each Ground Lease have been paid in full, and (iv) neither Mortgage Borrower nor the Ground Lessor has commenced any action or given or received any notice for the purpose of terminating such Ground Lease; (b) Each Security Instrument which is secured by Mortgage Borrower's interest in a Ground Lease is also secured by the related fee interest in the applicable Property, and the fee interest is subject and subordinate of record to the applicable Security Instrument, and such Security Instrument does not by its terms provide that it will be subordinated to the Lien of any other mortgage or other Lien upon such fee interest, and upon the occurrence of a Mortgage Loan Event of Default, Mortgage Lender has the right to foreclose or otherwise exercise its rights with respect to the fee interest within a commercially reasonable time; (c) The Ground Leases or a memorandum thereof have been duly recorded, the Ground Leases permit the interest of the lessee thereunder to be encumbered by the applicable Security Instrument, and there has not been any change in the terms of the Ground Leases since their recordation. The Ground Leases cannot be cancelled, terminated, surrendered or amended without the prior written consent of Lender; (d) Mortgage Borrower's interest in the Ground Leases are not subject to any Liens superior to, or of equal priority with, the applicable Security Instrument; (e) Mortgage Borrower's interest in the Ground Leases are assignable upon notice to, but without the consent of, the lessor thereunder and, in the event that it is so assigned, it is further assignable upon notice to, but without the need to obtain the consent of, such lessor; (f) The Ground Leases require the lessor thereunder to give notice of any default by Mortgage Borrower to Lender and the Ground Leases further provide that notice of termination given under the Ground Leases are not effective against Lender unless a copy of the notice has been delivered to Lender in the manner described in the applicable Ground Lease; (g) Lender is permitted a reasonable opportunity (including, where necessary, sufficient time to gain possession of the interest of Mortgage Borrower under the Ground Leases) to cure any default under the Ground Leases, which is curable after the receipt of notice of any default before the lessor thereunder may terminate such Ground Lease; (h) The Ground Leases have a term which extends not less than twenty (20) years beyond the Maturity Date; -54- (i) The Ground Leases require the Ground Lessor to enter into a new lease upon termination of the applicable Ground Lease for any reason, including rejection of such Ground Lease in a bankruptcy proceeding; (j) Under the terms of each Ground Lease and the applicable Loan Documents, taken together, any Net Proceeds will be applied either to the Restoration of all or part of the Properties, with Mortgage Lender or a trustee appointed by Mortgage Lender having the right to hold and disburse such Net Proceeds as the Restoration progresses, or to the payment of the outstanding principal balance of the Mortgage Loan together with any accrued interest thereon; and (k) The Ground Leases do not impose restrictions on subletting. 4.1.44 Intentionally Omitted. 4.1.45 Operating Company Status. Borrower qualifies as an "operating company," as such term is defined in the regulation issued by the U.S. Department of Labor known as the "plan assets regulation," 29 C.F.R. Section 2510.3-101 and, as long as the Loan is outstanding, Borrower will remain at all times an operating company, as so defined. 4.1.46 Affiliates. Neither Borrower nor Pledgor owns any equity interests in any other Person other than the related Pledged Member Interests. 4.1.47 Mortgage Borrower/Mezzanine Borrower Loan Representations. (a) Borrower has reviewed the representations and warranties made by, and covenants of, Mortgage Borrower and Mezzanine Borrower to and for the benefit of Mortgage Lender and Mezzanine Lender contained in the Mortgage Loan Documents and the Mezzanine Loan Documents and such representations and warranties are true, correct and complete with respect to Mortgage Borrower, Mezzanine Borrower and Borrower in all material respects. (b) All of the representations and warranties contained in the Mortgage Loan Documents and the Mezzanine Loan Documents are hereby incorporated into this Agreement and deemed made hereunder as and when made thereunder and shall remain incorporated without regard to any waiver, amendment or other modification thereof by Mortgage Lender, Mezzanine Lender or to whether the Mortgage Loan or the Mezzanine Loan has been repaid or otherwise terminated, unless otherwise consented to in writing by Lender. 4.1.48 List of Mezzanine Loan Documents. There are no Mezzanine Loan Documents other than those set forth on Schedule XIII attached hereto. Borrower has or has caused to be delivered to Lender true, complete and correct copies of all Mezzanine Loan Documents, and none of the Mezzanine Loan Documents has been amended or modified as of the date thereof. -55- 4.1.49 Mortgage/Mezzanine Loan Event of Default. No Mortgage Loan Event of Default, Mezzanine Loan Event of Default or an event or circumstance has occurred which with the giving of notice or the passage of time, or both, would constitute a Mortgage Loan Event of Default or Mezzanine Loan Event of Default exists as of the date hereof. 4.1.50 Affiliation. Neither Borrower, Principal, Pledgor nor the Manager is Affiliate of Capital Trust, Inc. or Citigroup, Inc. SECTION 4.2 Survival of Representations. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. V. BORROWER COVENANTS SECTION 5.1 Affirmative Covenants. From the date hereof and until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release in full of Lender's Liens encumbering the Collateral (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender that: 5.1.1 Existence; Compliance with Legal Requirements. (a) Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises, and comply, or cause Mortgage Borrower to comply, in all material respects, with all Legal Requirements applicable to it, the Collateral and the Properties. There shall never be committed by Borrower, and Borrower shall not permit or cause Mortgage Borrower to permit any other Person in occupancy of or involved with the operation or use of the Properties any act or omission affording the federal government or any State or local government the right of forfeiture against any Individual Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to permit or cause Mortgage Borrower to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall, or shall cause Pledgor to cause Operating Lessee to, at all times cause Mortgage Borrower to keep, maintain, preserve and protect all franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and shall keep the Properties in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Loan Documents. Borrower shall cause Mortgage Borrower to keep, the Properties insured at all times by -56- financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in this Agreement. Pledgor shall cause Mortgage Borrower or Borrower shall cause Operating Lessee to operate any Individual Property that is the subject of any O&M Program in accordance with the terms and provisions thereof in all material respects. (b) After prior written notice to Lender, Borrower, at its own expense, may, or cause Mortgage Borrower to contest by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to Borrower, Mortgage Borrower or any Individual Property or any alleged violation of any Legal Requirement, provided that (i) no Event of Default has occurred and remains uncured; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all Applicable Laws; (iii) neither any Individual Property nor the Collateral, nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) Borrower shall, and shall cause Mortgage Borrower to, promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any such Legal Requirement; (v) such proceeding shall suspend the enforcement of the contested Legal Requirement against Borrower, Mortgage Borrower, the Collateral or any Individual Property; and (vi) Borrower shall furnish to Lender or cause Mortgage Borrower to furnish to Mortgage Lender such security as may be required in the proceeding, or as may be reasonably requested by Mortgage Lender or Lender, as the case may be, to insure compliance with such Legal Requirement, together with all interest and penalties payable in connection therewith. Lender may apply any such security or part thereof, furnished to it by Borrower, as necessary to cause compliance with such Legal Requirement at any time when, in the judgment of Lender, the validity, applicability or violation of such Legal Requirement is finally established or any Individual Property or the Collateral (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost. 5.1.2 Taxes and Other Charges. Borrower shall cause Mortgage Borrower to pay, all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Properties or any part thereof prior to delinquency thereof. Borrower shall furnish, or cause to be furnished, to Lender receipts, or other evidence for the payment of the Taxes and the Other Charges prior to the date the same shall become delinquent (provided, however, that Borrower is not required to furnish such receipts for payment of Taxes in the event that such Taxes are being paid by Mortgage Lender pursuant to Section 7.2 of the Mortgage Loan Agreement). Borrower shall not suffer and shall not permit Mortgage Borrower to suffer and shall promptly cause Mortgage Borrower to promptly pay and discharge any Lien or charge whatsoever which may be or become a Lien or charge against the Properties, and shall promptly pay for all utility services provided to the Properties. After prior written notice to Lender, Borrower may, or may cause Mortgage Borrower to, 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 Taxes or Other Charges, provided that (i) no Event of Default has occurred and remains uncured; -57- (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower and Mortgage Borrower are subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all Applicable Laws; (iii) neither the Collateral nor any Individual Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) Borrower shall cause Mortgage Borrower to, promptly upon final determination thereof pay the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (v) such proceeding shall suspend the collection of such contested Taxes or Other Charges from the applicable Individual Property; and (vi) Borrower shall cause Mortgage Borrower to furnish such security as may be required in the proceeding, or as may be requested by Mortgage Lender, or Borrower shall furnish such security as may be required in the proceeding, or as may be requested by Lender, in each case, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon. Lender may apply such security or part thereof held by Lender at any time when, in the judgment of Lender, (i) any asset of Borrower (or part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any danger of the Lien or the Pledge Agreement being primed by any related Lien, or (ii) the validity or applicability of such Taxes or Other Charges are established or any Individual Property (or part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any danger of the Lien of any Security Instrument being primed by any related Lien. 5.1.3 Litigation. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened against Borrower, Mortgage Borrower, Pledgor, Operating Lessee or Ground Lessor which might materially adversely affect Borrower's, Mortgage Borrower's, Pledgor's, Operating Lessee's or Ground Lessor's condition (financial or otherwise) or business or any Individual Property. 5.1.4 Access to Properties. Borrower shall cause Mortgage Borrower and Operating Lessee to permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice. 5.1.5 Notice of Default. Borrower shall promptly advise Lender of any material adverse change in Borrower's or Mortgage Borrower's condition, financial or otherwise, or of the occurrence of any Default or Event of Default of which Borrower has knowledge. 5.1.6 Cooperate in Legal Proceedings. Borrower shall cooperate, and shall cause each Loan Party to cooperate, fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way adversely affect the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings. -58- 5.1.7 Award and Insurance Benefits. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Awards or Insurance Proceeds lawfully or equitably payable in connection with any Individual Property, and Lender shall be reimbursed for any expenses incurred in connection therewith (including attorneys' fees and disbursements, and the payment by Borrower of the expense of an appraisal on behalf of Lender in case of Casualty or Condemnation affecting any Individual Property or any part thereof) out of such Award or Insurance Proceeds. 5.1.8 Further Assurances. Borrower shall and shall cause each Loan Party, at Borrower's sole cost and expense: (a) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or reasonably requested by Lender in connection therewith; (b) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the obligations of Borrower under the Loan Documents, as Lender may reasonably require including, without limitation, the authorization of Lender to execute and/or the execution by Borrower of UCC financing statements and the execution and delivery of all such writings necessary to transfer any liquor licenses into the name of Lender or its designee after the occurrence of any Event of Default; and (c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time. 5.1.9 Mortgage and Intangible Taxes. Borrower shall pay (to the extent permitted by Applicable Law) all State, county and municipal recording, intangible, and all other taxes imposed upon the execution and recordation of the UCC Financing Statements and/or upon the execution and delivery of the Note. 5.1.10 Financial Reporting. (a) Borrower and Pledgor will keep and maintain on a Fiscal Year basis, in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and Pledgor and all items of income and expense with respect to the Collateral. Borrower will cause Mortgage Borrower and Operating Lessee to keep and maintain on a Fiscal Year basis, in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of Mortgage -59- Borrower and Operating Lessee and all items of income and expense in connection with the operation on an individual basis of the Properties. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower, Mortgage Borrower or any other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. Upon the occurrence and during the continuance of an Event of Default, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower's accounting records with respect to the Collateral and Mortgage Borrower's accounting records with respect to the Properties, as Lender shall determine to be necessary or appropriate. (b) Borrower will furnish, and cause to be furnished, to Lender annually, within ninety (90) days following the end of each Fiscal Year, a complete copy of Borrower's unaudited annual financial statements prepared in accordance with GAAP (or such other accounting basis acceptable to Lender) covering the Collateral owned by Borrower for such Fiscal Year and containing statements of profit and loss for Borrower and the balance sheet for Borrower. In addition, upon written request of Lender, Borrower shall cause Mortgage Borrower to provide Lender with pace/advance booking reports for each Individual Property. (c) Borrower will furnish, or cause Mortgage Borrower to furnish, to Lender a copy of the financial statements and all other materials Mortgage Borrower is required to provide Mortgage Lender under Section 5.1.10 of the Mortgage Loan Agreement within the time periods required under such Section; provided, however, Borrower will cause Mortgage Borrower to furnish to Lender all of the items required pursuant to Section 5.1.10(c) of the Mortgage Loan Agreement (other than 5.1.10(c)(iii) thereof) on a monthly basis (within twenty (20) days after the end of each calendar month) notwithstanding any other delivery requirement contained in such Section 5.1.10(c) of the Mortgage Loan Agreement. (d) Beginning in Fiscal Year 2004 and for each Fiscal Year thereafter, (I) Borrower shall cause Mortgage Borrower to submit to Lender a preliminary Annual Budget for each Individual Property not later than thirty (30) days prior to the commencement of such Fiscal Year and (II) Borrower shall cause Mortgage Borrower to submit to Lender a final proposed Annual Budget for each Individual Property not later than sixty (60) days after to the commencement of such Fiscal Year, each in form reasonably satisfactory to Lender, and shall be subject to Lender's written approval (each such Annual Budget after it has been approved in writing by Lender shall be hereinafter referred to as an "Approved Annual Budget"). In the event that Lender objects to either the preliminary or final proposed Annual Budget submitted by Borrower, Lender shall advise Mortgage Borrower and Borrower of such objections within fifteen (15) days after receipt respectively thereof (and deliver to Mortgage Borrower and Borrower a reasonably detailed description of such objections) and Borrower shall cause Mortgage Borrower to promptly revise such Annual Budget and resubmit the same to Lender. Lender shall advise Borrower of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall cause Mortgage Borrower to promptly revise the same in accordance with the process described in this subsection until Lender approves the Annual Budget. Until such time that Lender approves a proposed Annual Budget, the most recently Approved Annual Budget shall apply; provided that, such Approved Annual Budget shall be adjusted to reflect actual increases in Taxes, Insurance Premiums and utilities expenses. Any -60- such preliminary or final proposed Annual Budget submitted to Lender for Lender's approval shall be deemed approved if (i) Lender shall have failed to notify Borrower of its approval or disapproval within fifteen (15) Business Days (the "Budget Approval Period") following Lender's receipt of Borrower's written request together with such preliminary or final proposed Annual Budget, as the case may be, and any and all required information and documentation required by Lender to reach a decision (ii) Borrower shall have delivered to Lender a written notice of Lender's failure to respond to Borrower's request within the Approval Period (the "Failure to Respond Notice"), and (iii) Lender shall have failed to notify Borrower of its approval or disapproval within five (5) Business Days following Lender's receipt of the Failure to Respond Notice, provided, such request to Lender is marked in bold lettering with the following language: "LENDER'S RESPONSE IS REQUIRED WITHIN FIFTEEN (15)\FIVE (5) BUSINESS DAYS OF RECEIPT OF THIS NOTICE PURSUANT TO THE TERMS OF A LOAN AGREEMENT BETWEEN THE UNDERSIGNED AND LENDER" and the envelope containing the request must be marked "PRIORITY". (e) Borrower shall furnish or cause Mortgage Borrower to furnish to Lender, within ten (10) Business Days after written request such further detailed information with respect to the operation of the Properties and the financial affairs of Borrower or Mortgage Borrower as may be reasonably requested by Lender. (f) Any reports, statements or other information required to be delivered under this Agreement shall be delivered (i) in paper form, (ii) if requested by Lender, on a diskette or via email, and (iii) if requested by Lender and within the capabilities of Borrower's or Mortgage Borrower's, as applicable, data systems without change or modification thereto, in electronic form and prepared using a Microsoft Excel, Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). (g) Borrower agrees that Lender may forward to each purchaser, transferee, assignee, servicer, participant, or investor in all or any portion of the Loan (collectively, the "Investor") or any Rating Agency rating such participations and 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 Borrower, Mortgage Borrower, any Guarantor, any Indemnitor, the Collateral and the Properties, whether furnished by Borrower, Mortgage Borrower, any Guarantor, any Indemnitor or otherwise, as Lender determines necessary or desirable. To the fullest extent permitted by Applicable Laws, Borrower irrevocably waives any and all rights it may have under any Applicable Laws to prohibit such disclosure, including, but not limited, to any right of privacy. (h) Borrower shall promptly deliver to Lender true, correct an complete copies of any franchise inspection reports received by Mortgage Borrower or Operating Lessee from any Franchisor. -61- 5.1.11 Business and Operations. Borrower will cause Mortgage Borrower and Operating Lessee to continue to be engaged in the businesses presently conducted by them as and to the extent the same are necessary for the ownership, maintenance, management and operation of the Properties. Borrower will and shall cause Mortgage Borrower and Operating Lessee to remain in good standing under the laws of each jurisdiction to the extent required for the ownership, maintenance, management and operation of the Properties. 5.1.12 Costs of Enforcement. In the event (a) that Lender exercises any of its rights or remedies under the Pledge Agreement or any other Loan Document as and when permitted thereby, or (b) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Mortgage Borrower, Borrower, Ground Lessor, Pledgor, Operating Lessee or any of its constituent Persons or an assignment by Borrower or any of their constituent Persons for the benefit of its creditors or (c) Lender incurs any costs or expenses in connection with any refinancing or restructuring of the Loan in the nature of a workout, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense and all other expenses, including attorneys' fees and costs, incurred by Lender in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes. 5.1.13 Estoppel Statement. (a) After written request by Lender, Borrower shall within ten (10) Business Days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the Applicable Interest Rate of the Note, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, and (vi) that the Note, this Agreement, the Pledge Agreement and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (a) Borrower shall cause Mortgage Borrower to deliver to Lender upon request, tenant estoppel certificates from each commercial tenant leasing space at the Properties in form and substance reasonably satisfactory to Lender. (b) Borrower shall use commercially reasonable efforts, promptly upon request of Lender, to cause Mortgage Borrower to 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 Lessee 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 Lessee 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. -62- (c) Borrower shall, promptly upon request of Lender, cause Mortgage Borrower to deliver to Lender an estoppel certificate from Operating Lessee stating that (i) the Operating Lease is in full force and effect and has not been modified, amended or assigned, (ii) neither Operating Lessee nor Mortgage Borrower is in default under any of the terms, covenants or provisions of the Operating Lease and Operating Lessee 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 Operating Lease, (iii) neither Operating Lessee nor Mortgage Borrower has commenced any action or given or received any notice for the purpose of terminating the Operating Lease and (iv) all sums due and payable under the Operating Lease have been paid in full. (d) Borrower shall, promptly upon request of Lender, cause Mortgage Borrower to deliver to Lender an estoppel certificate from each Ground Lessor stating that (i) the applicable Ground Lease is in full force and effect and has not been modified, amended or assigned, (ii) neither Ground Lessor nor Mortgage Borrower is in default under any of the terms, covenants or provisions of the Ground Lease and Ground Lessor 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 Ground Lease, (iii) neither Ground Lessor nor Mortgage Borrower has commenced any action or given or received any notice for the purpose of terminating the Ground Lease and (iv) all sums due and payable under the Ground Lease have been paid in full. 5.1.14 Loan Proceeds. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the purposes set forth in Section 2.1.4. 5.1.15 Performance by Borrower. (a) Borrower shall in a timely manner observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior written consent of Lender. (b) Borrower shall not cause or permit Mortgage Borrower to enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Mortgage Loan Document executed and delivered by, or applicable to, Mortgage Borrower as of the date hereof without the prior written consent of Lender. Borrower shall cause Mortgage Borrower to provide Lender with a copy of any amendment, waiver, supplement, termination or other modification to the Mortgage Loan Documents within five (5) days after the execution thereof. Borrower shall not, and shall not permit any Loan Party to, amend or modify the Organizational Documents of any Loan Party in any respect which would (i) limit distributions to be made to Borrower, (ii) limit cure rights of Borrower, (iii) modify the special purpose entity requirements set forth therein or (iv) would in any other respect have any adverse effect on Lender without Lender's consent. -63- 5.1.16 Confirmation of Representations. Borrower shall deliver, in connection with any Lender Transaction, (a) one or more Officer's Certificates certifying as to the accuracy of all representations made by Borrower in the Loan Documents as of the date of the closing of such Lender Transaction in all relevant jurisdictions, and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of Borrower, Principal and the Pledgor SPE Entities as of the date of the closing of such Lender Transaction. 5.1.17 Leasing Matters. (a) Borrower shall cause Mortgage Borrower to comply with the provisions of Section 5.1.17 of the Mortgage Loan Agreement. All proposed Leases which do not satisfy the requirements set forth in this Section 5.1.17(a) shall be subject to the prior approval of Lender, which approval shall not be unreasonably withheld. At Lender's request, Borrower shall cause Mortgage Borrower to promptly deliver to Lender copies of all Leases which are entered into pursuant to this Subsection together with Borrower's certification that it has satisfied or caused Mortgage Borrower to have satisfied all of the conditions of this Section. (b) Borrower may cause Mortgage Borrower or Operating Lessee, without the consent of Lender, to amend, modify or waive the provisions of any Lease or terminate, reduce rents under, accept a surrender of space under, or shorten the term of, any Lease (including any guaranty, letter of credit or other credit support with respect thereto) provided that such Lease is not a Major Lease and that such action (taking into account, in the case of a termination, reduction in rent, surrender of space or shortening of term, the planned alternative use of the affected space) does not have a material adverse effect on the value of the applicable Individual Property taken as a whole, and provided that such Lease, as amended, modified or waived, is otherwise in compliance with the requirements of this Agreement. A termination of a Lease (other than a Major Lease) with a tenant who is in default beyond applicable notice and grace periods shall not be considered an action which has a material adverse effect on the value of the applicable Individual Property taken as a whole. Any amendment, modification, waiver, termination, rent reduction, space surrender or term shortening which does not satisfy the requirements set forth in this Subsection shall be subject to the prior written approval of Lender and its counsel, at Borrower's expense. At Lender's request, Borrower shall cause Mortgage Borrower to promptly deliver to Lender copies of all Leases, amendments, modifications and waivers which are entered into pursuant to this Section 5.1.17(b) together with Borrower's certification that it has satisfied or caused to be satisfied all of the conditions of this Section 5.1.17(b). (c) Notwithstanding anything contained herein to the contrary, with respect to any Individual Property, Borrower shall cause Mortgage Borrower Operating Lessee to not without the prior written consent of Lender, enter into, materially amend, materially modify, waive any material provisions of, terminate, reduce rents under, accept a surrender of space under, or shorten the term of, or renew or extend upon terms and conditions less favorable to Operating Lessee, any Major Lease or any instrument guaranteeing or providing credit support for any Major Lease. -64- 5.1.18 Management Agreement. (a) The Improvements on the Properties are operated under the terms and conditions of the Management Agreement. In no event shall the base management fees under the Management Agreement exceed (I) with respect to the Properties managed by Six Continents Hotels, the sum of (x) five percent (5%) of total room revenue and (y) two percent (2%) of total revenue; provided, however, Six Continents Hotels shall not charge any additional franchise fees in connection with such Properties and (II) with respect to the Properties managed by any Person other than Six Continents Hotels, four percent (4%) of the gross income derived from the Property (excluding any incentive management fees which are subordinate to the Loan). Borrower shall cause Mortgage Borrower or Operating Lessee to (i) diligently perform and observe all of the terms, covenants and conditions of the Management Agreement, on the part of Operating Lessee to be performed and observed to the end that all things shall be done which are necessary to keep unimpaired the rights of Operating Lessee under the Management Agreement and (ii) promptly notify Lender of the giving of any notice by Manager to Operating Lessee of any default by Operating Lessee in the performance or observance of any of the terms, covenants or conditions of the Management Agreement on the part of Operating Lessee to be performed and observed and deliver to Lender a true copy of each such notice. Borrower shall cause Mortgage Borrower and/or Operating Lessee to not surrender the Management Agreement, consent to the assignment by the Manager 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. Subject to the rights of Mortgage Lender, if Operating Lessee shall default in the performance or observance of any material term, covenant or condition of the Management Agreement on the part of Operating Lessee to be performed or observed, then, without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrower from any of its obligations hereunder, Borrower shall cause Mortgage Borrower to permit Lender 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 Lessee to be performed or observed to be promptly performed or observed on behalf of Operating Lessee, to the end that the rights of Mortgage Borrower in, to and under the Management Agreement shall be kept unimpaired and free from default; provided, however, that Lender shall have no such obligation to perform any such action. Borrower shall cause Lender and any Person designated by Lender by written notice to Borrower to have the right to enter upon the applicable Individual Property at any time and from time to time for the purpose of taking any such action. If the Manager shall deliver to Lender a copy of any notice sent to Borrower or Mortgage Borrower and/or Operating Lessee 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. Borrower shall cause Mortgage Borrower and/or Operating Lessee to not, and shall not permit the Manager to, sub-contract all or any material portion of its management responsibilities under the Management Agreement to a third-party without the prior written consent of Lender. Borrower shall cause Operating Lessee to request of Manager and deliver to Lender upon receipt such certificates of estoppel with respect to compliance by Operating Lessee with the terms of the Management Agreement as may be requested by Lender. Borrower shall cause Mortgage Borrower and/or Operating Lessee to exercise each individual option, if any, to extend or renew the term of the Management Agreement to the extent required to continue it in full force and effect until after the Maturity Date. Any sums expended by Lender pursuant to this paragraph (i) -65- shall bear interest at the Default Rate from the date such cost is incurred to the date of payment to Lender, (ii) shall be deemed to constitute a portion of the Debt, (iii) shall be secured by the lien of the Pledge Agreement and the other Loan Documents and (iv) shall be immediately due and payable upon demand by Lender therefor. (b) Without limitation of the foregoing, Borrower shall cause Operating Lessee, upon the request of Lender and in accordance with the provisions of the applicable Subordination of Management Agreement, to terminate the Management Agreement and replace the Manager, without penalty or fee, if at any time during the Loan: (a) the Manager shall become insolvent or a debtor in any bankruptcy or insolvency proceeding, (b) there exists an Event of Default or (c) there exists an event of default by Manager under the Management Agreement. At such time as the Manager may be removed, provided no Event of Default has occurred, a Qualified Manager may be selected by Mortgage Borrower and/or Operating Lessee to assume management of the applicable Individual Property pursuant to a Replacement Management Agreement. 5.1.19 Environmental Covenants. (a) Borrower covenants and agrees that so long as the Loan is outstanding (i) all uses and operations on or of the Properties, whether by Mortgage Borrower or any other Person, shall be in compliance in all material respects with all Environmental Laws and permits issued pursuant thereto; (ii) there shall be no Releases of Hazardous Materials in, on, under or from any of the Properties; (iii) there shall be no Hazardous Materials in, on, or under any of the Properties, except those that are both (A) in compliance with all Environmental Laws and with permits issued pursuant thereto, if and to the extent required, and (B) (1) in amounts not in excess of that necessary to operate the applicable Individual Property or (2) fully disclosed to and approved by Lender in writing; (iv) Borrower shall cause Mortgage Borrower to keep the Properties free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Mortgage Borrower or any other Person (the "Environmental Liens"); (v) Borrower shall cause Mortgage Borrower, at Borrower's sole cost and expense, to fully and expeditiously cooperate in all activities pursuant to paragraph (b) below, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (vi) Borrower shall cause Mortgage Borrower, at Borrower's sole cost and expense, to perform any environmental site assessment or other investigation of environmental conditions in connection with any of the Properties, pursuant to any reasonable written request of Lender, upon Lender's reasonable belief that an Individual 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 shall be entitled to rely on such reports and other results thereof; (vii) Borrower shall cause Mortgage Borrower, at Borrower's sole cost and expense, to comply with all reasonable written requests of Lender to (A) reasonably effectuate remediation of any Hazardous Materials in, on, under or from any Individual Property; and (B) comply with any Environmental Law; (viii) Borrower shall cause Mortgage Borrower to not allow any tenant or other user of any of the Properties to violate any Environmental Law; and (ix) Borrower shall immediately notify Lender in writing after it has become aware of (A) any presence or Release or threatened Releases of Hazardous Materials in, on, under, from or migrating towards any of the Properties; (B) any non-compliance with any Environmental Laws related in any way to any of the Properties; (C) any actual or -66- potential Environmental Lien; (D) any required or proposed remediation of environmental conditions relating to any of the Properties; and (E) any written or oral notice or other communication of which Borrower becomes aware from any source whatsoever (including but not limited to a Governmental Authority) relating in any way to Hazardous Materials in connection with the Properties. (a) Lender and any other Person designated by Lender by written notice to Borrower, including but not limited to any representative of a Governmental Authority, 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 any Individual Property at all reasonable times to assess any and all aspects of the environmental condition of any Individual 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. Borrower shall cause Mortgage Borrower to cooperate with and provide access to Lender and any such Person or entity designated by Lender by written notice to Borrower. 5.1.20 Alterations. Borrower shall obtain Lender's prior written consent prior to allowing Mortgage Borrower to perform any structural or other material alterations to any Improvements, which consent shall not be unreasonably withheld except with respect to alterations that may have a material adverse effect on Borrower's, Mortgage Borrower's or Mezzanine Borrower's financial condition, the value of the related Individual Property, the Collateral or the Net Operating Income thereof. 5.1.21 Franchise Agreement. (a) Subject to the provisions of Section 5.1.21(b), the Improvements on the Properties shall be operated under the terms and conditions of the Franchise Agreements, if applicable. Borrower shall cause Mortgage Borrower or Operating Lessee to (i) pay all sums required to be paid by Operating Lessee 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 Lessee to be performed, observed and enforced to the end that all things shall be done which are necessary to keep unimpaired the rights of Mortgage Borrower and/or Operating Lessee under the Franchise Agreement, (iii) promptly notify Lender of the giving of any notice to Mortgage Borrower and/or Operating Lessee of any default by Operating Lessee in the performance or observance of any of the terms, covenants or conditions of the Franchise Agreement on the part of Operating Lessee 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, notice, report and estimate received by it under the Franchise Agreement. Subject to the provisions of Section 5.1.21(b), Borrower shall cause Mortgage Borrower and/or Operating Lessee to not, without the prior consent of Lender, surrender the Franchise Agreement or terminate or cancel the Franchise Agreement or modify, change, supplement, alter or amend the Franchise Agreement, in any material respect, either orally or in writing. Subject to the rights of Mortgage Lender, if Operating Lessee shall default -67- in the performance or observance of any material term, covenant or condition of the Franchise Agreement on the part of Operating Lessee to be performed or observed, then, without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrower from any of its obligations hereunder, Borrower shall permit Lender 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 Lessee to be performed or observed to be promptly performed or observed on behalf of Operating Lessee, to the end that the rights of Mortgage Borrower and/or Operating Lessee in, to and under the Franchise Agreement shall be kept unimpaired and free from default; provided, however, that Lender shall have no such obligation to perform any such action. Borrower shall cause Lender and any Person designated by Lender by written notice to Borrower shall have, and are hereby granted, the right to enter upon the Properties 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 Borrower and Mortgage Borrower and/or Pledgor or Operating Lessee 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. Borrower shall cause Mortgage Borrower and/or Operating Lessee, from time to time, use its best efforts to obtain from Franchisor such certificates of estoppel with respect to compliance by Operating Lessee with the terms of the Franchise Agreement as may be requested by Lender. Borrower shall cause Mortgage Borrower and/or Operating Lessee to exercise each individual option, if any, to extend or renew the term of the Franchise Agreement to the extent required to continue it in full force and effect until after the Maturity Date. 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 the Pledge Agreement and the other Loan Documents and shall be immediately due and payable upon demand by Lender therefor. (b) With respect to the Expiring Franchise Agreement Property only, Borrower shall not be required to cause Mortgage Borrower to obtain Lender's consent or a confirmation from the Rating Agencies in the event that the Franchise Agreement in effect on the date hereof is extended on the same or more favorable terms to Mortgage Borrower and/or Operating Lessee, as applicable, prior to the expiration thereof. 5.1.22 Operating Lease. Borrower shall cause Mortgage Borrower to promptly notify Lender of any event of default under the Operating Lease. 5.1.23 OFAC. At all times throughout the term of the Loan, Borrower, Mortgage Borrower, Guarantor, Indemnitor and their respective Affiliates shall be in compliance in all material respects with all applicable orders, rules, regulations and recommendations of The Office of Foreign Assets Control of the U.S. Department of the Treasury. -68- 5.1.24 The Ground Lease. With respect to each Ground Lease, Borrower shall cause Mortgage Borrower to (i) pay all rents, additional rents and other sums required to be paid by Mortgage Borrower, as tenant under and pursuant to the provisions of each Ground Lease, (ii) diligently perform and observe all of the terms, covenants and conditions of each Ground Lease on the part of Mortgage Borrower, as tenant thereunder, (iii) promptly notify Lender of the giving of any notice by the landlord under the applicable Ground Lease to Mortgage Borrower of any default by Mortgage Borrower, as tenant thereunder, and deliver to Lender a true copy of each such notice within five (5) days of receipt and (iv) promptly notify Lender of any bankruptcy, reorganization or insolvency of the landlord under the applicable Ground Lease or of any notice thereof, and deliver to Lender a true copy of such notice within five (5) days of Borrower's receipt. Borrower shall not, without the prior consent of Lender, cause Mortgage Borrower to surrender the leasehold estate created by the applicable Ground Lease or terminate or cancel any Ground Lease or modify, change, supplement, alter, amend or waive any material term of any Ground Lease, either orally or in writing, and if Mortgage Borrower shall default in the performance or observance of any term, covenant or condition of any Ground Lease on the part of Mortgage Borrower, as tenant thereunder, and shall fail to cure the same prior to the expiration of any applicable cure period provided thereunder, Borrower shall cause Mortgage Borrower to (or cause Operating Lessee to) permit Lender to, but Lender shall not have the 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 such Ground Lease on the part of Mortgage Borrower to be performed or observed on behalf of Borrower, to the end that the rights of Mortgage Borrower in, to and under such Ground Lease shall be kept unimpaired and free from default; provided, however, that Lender shall have no such obligation to perform any such actions. If the landlord under the applicable Ground Lease shall deliver to Lender a copy of any notice of default under such Ground 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. Borrower shall cause Mortgage Borrower to exercise each individual option, if any, to extend or renew the term of each Ground 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. 5.1.25 Capital Budget Borrower shall cause Mortgage Borrower to comply in all material respects with Mortgage Borrower's 2003 capital budget (as delivered to Lender in connection with the underwriting of the Loan), unless otherwise agreed to by Lender. 5.1.26 Notices. Borrower shall give notice, or cause notice to be given, to Lender promptly upon the occurrence of any Mortgage Loan Event of Default. 5.1.27 Special Distributions. On each date on which amounts are required to be disbursed to Lender pursuant to Article III of the Mortgage Loan Agreement, Borrower shall cause Pledgor to exercise its rights, -69- directly or indirectly, under the Organizational Documents of Mortgage Borrower to cause Mortgage Borrower to make to Borrower (to the extent permitted by Applicable Law) a distribution in an aggregate amount such that Lender shall receive the amount required to be disbursed pursuant to Article III of the Mortgage Loan Agreement. 5.1.28 Mortgage Borrower Covenants. (a) Pledgor shall cause Mortgage Borrower to comply with all obligations with which Mortgage Borrower has covenanted to comply under the Mortgage Loan Agreement and all other Mortgage Loan Documents (including, without limitation, those certain covenants regarding the maintenance of the Mortgage Interest Rate Cap Agreement and affirmative and negative covenants set forth in the Mortgage Loan Agreement) whether the Mortgage Loan has been repaid or the related Mortgage Loan Document has been otherwise terminated, unless otherwise consented to in writing by Lender. Borrower shall cause Mortgage Borrower to promptly notify Lender of all notices received by Mortgage Borrower under or in connection with the Mortgage Loan, including, without limitation, any notice by the Mortgage Lender to Mortgage Borrower of any default by Mortgage Borrower in the performance or observance of any of the terms, covenants or conditions of the Mortgage Loan Documents on the part of Mortgage Borrower to be performed or observed, and deliver to Lender a true copy of each such notice, together with any other consents, notices, requests or other written correspondence between Mortgage Borrower and Mortgage Lender. (b) Pledgor shall cause Mezzanine Borrower to comply with all obligations with which Mezzanine Borrower has covenanted to comply under the Mezzanine Loan Agreement and all other Mezzanine Loan Documents (including, without limitation, those certain covenants regarding the maintenance of the Mezzanine Interest Rate Cap Agreement and affirmative and negative covenants set forth in the Mezzanine Loan Agreement) whether the Mezzanine Loan has been repaid or the related Mezzanine Loan Document has been otherwise terminated, unless otherwise consented to in writing by Lender. Pledgor shall cause Mezzanine Borrower to promptly notify Lender of all notices received by Mezzanine Borrower under or in connection with the Mezzanine Loan, including, without limitation, any notice by the Mezzanine Lender to Mezzanine Borrower of any default by Mezzanine Borrower in the performance or observance of any of the terms, covenants or conditions of the Mezzanine Loan Documents on the part of Mezzanine Borrower to be performed or observed, and deliver to Lender a true copy of each such notice, together with any other consents, notices, requests or other written correspondence between Mezzanine Borrower and Mezzanine Lender. 5.1.29 Mortgage/Mezzanine Loan Estoppels. (a) Borrower shall, or Pledgor shall cause Mortgage Borrower to, use commercially reasonable efforts from time to time, to obtain from the Mortgage Lender such certificates of estoppel with respect to compliance by Mortgage Borrower with the terms of the Mortgage Loan Documents as may be reasonably requested by Lender. In the event or to the extent that Mortgage Lender is not legally obligated to deliver such certificates of estoppel and is unwilling to deliver the same, or is legally obligated to deliver such certificates of estoppel but breaches such obligation, then Borrower shall not be in breach of this provision -70- so long as Borrower furnishes to Lender an estoppel executed by Borrower and Mortgage Borrower and expressly representing to Lender the information requested by Lender regarding compliance by Mortgage Borrower with the terms of the Mortgage Loan Documents. Borrower hereby indemnify Lender from and against all out-of-pocket liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including, without limitation, reasonable attorneys' and other professional fees, whether or not suit is brought and settlement costs) and disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition, or circumstances relating to the Mortgage Loan which was misrepresented in any material respect in, or which warrants disclosure and was omitted from such estoppel executed by Borrower and Mortgage Borrower. (b) Borrower shall, or shall cause Mezzanine Borrower to, use commercially reasonable efforts from time to time, to obtain from the Mezzanine Lender such certificates of estoppel with respect to compliance by Mezzanine Borrower with the terms of the Mezzanine Loan Documents as may be reasonably requested by Lender. In the event or to the extent that Mezzanine Lender is not legally obligated to deliver such certificates of estoppel and is unwilling to deliver the same, or is legally obligated to deliver such certificates of estoppel but breaches such obligation, then Borrower shall not be in breach of this provision so long as Borrower furnishes to Lender an estoppel executed by Borrower and Mezzanine Borrower and expressly representing to Lender the information requested by Lender regarding compliance by Mezzanine Borrower with the terms of the Mezzanine Loan Documents. Borrower hereby indemnify Lender from and against all out-of-pocket liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including, without limitation, reasonable attorneys' and other professional fees, whether or not suit is brought and settlement costs) and disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition, or circumstances relating to the Mezzanine Loan which was misrepresented in any material respect in, or which warrants disclosure and was omitted from such estoppel executed by Borrower and Mezzanine Borrower. SECTION 5.2 Negative Covenants. From the date hereof until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release in full of Lender's Lien on the Collateral in accordance with the terms of this Agreement and the other Loan Documents, Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following: 5.2.1 Liens. Borrower shall not permit or cause Mortgage Borrower or Mezzanine Borrower to create, incur, assume or suffer to exist any Lien on any portion of any Individual Property or the collateral under the Mezzanine Loan or permit any such action to be taken, except (i) Permitted Encumbrances; (ii) Liens created by or permitted pursuant to the Mortgage Loan Documents and the Mezzanine Loan Documents, and (iii) Liens for Taxes or Other Charges (as defined in the -71- Mortgage Loan Agreement) not yet due. Borrower shall not create, incur, assume or suffer to exist any Lien on any portion of the Collateral or permit any such action to be taken. 5.2.2 Dissolution. (a) Borrower shall not (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Borrower except to the extent expressly permitted by the Loan Documents, (c) except as expressly permitted under the Loan Documents, modify, amend, waive or terminate its Organizational Documents or its qualification and good standing in any jurisdiction or (d) cause Principal, Mortgage Borrower or Ground Lessor to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which Principal or Mortgage Borrower would be dissolved, wound up or liquidated in whole or in part, or (ii) except as expressly permitted under the Loan Documents, amend, modify, waive or terminate the certificate of incorporation, bylaws or similar Organizational Documents of Principal or the Organizational Documents of Mortgage Borrower, in each case, without obtaining the prior written consent of Lender, which consent (with respect to (d)(ii) only) shall not be unreasonably withheld or delayed. (b) Borrower shall not permit Mezzanine Borrower and Operating Lessee to (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Mortgage Borrower, Mezzanine Borrower or Operating Lessee, as applicable, except to the extent expressly permitted by the Loan Documents, (c) except as expressly permitted under the Loan Documents, modify, amend, waive or terminate its organizational documents or its qualification and good standing in any jurisdiction or (d) cause the Operating Lessee Principal or Pledgor Principal, as applicable, to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which Operating Lessee Principal or Pledgor Principal, as applicable, would be dissolved, wound up or liquidated in whole or in part, or (ii) except as expressly permitted under the Loan Documents, amend, modify, waive or terminate the certificate of incorporation, bylaws or similar organizational documents of Operating Lessee Principal or Pledgor Principal, as applicable, in each case, without obtaining the prior written consent of Lender, which consent (with respect to (d)(ii) only) shall not be unreasonably withheld or delayed. 5.2.3 Change In Business. (a) Borrower shall not enter into any line of business other than the ownership of the Collateral and making the Pledged Loan, or make any material change in the scope or nature of its business purposes or undertake or participate in activities other than the continuance of its present business. (b) Borrower shall not cause Pledgor to cause Mortgage Borrower or Mezzanine Borrower to enter into any line of business other than the ownership and operation of the Properties (including providing services in connection therewith), or make any material change -72- in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business. 5.2.4 Debt Cancellation. Borrower shall not cancel or otherwise forgive or release any material claim or debt (other than termination of Leases in accordance herewith) owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower's business. In addition, Borrower shall not permit or cause Mortgage Borrower or Mezzanine Borrower to cancel or otherwise forgive or release any material claim or debt (other than termination of Leases in accordance with the Mortgage Loan Agreement) owed to Mortgage Borrower or Mezzanine Borrower by any Person, except for adequate consideration and in the ordinary course of Mortgage Borrower's or Mezzanine Borrower's business. 5.2.5 Intentionally Omitted. 5.2.6 Intentionally Omitted. 5.2.7 Name, Identity, Structure, or Principal Place of Business. Borrower shall not, and shall not permit any Loan Party to, change its name, identity (including its trade name or names), or principal place of business set forth in the introductory paragraph of this Agreement, without, in each case, first giving Lender thirty (30) days prior written notice. Borrower shall not change its corporate, partnership or other structure, or the place of its organization as set forth in Section 4.1.35, without, in each case, the consent of Lender. Upon Lender's request, Borrower shall 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 Collateral as a result of such change of principal place of business or place of organization. 5.2.8 ERISA. (a) During the term of the Loan or of any obligation or right hereunder, no Loan Party shall be a Plan and none of the assets of Borrower or any Loan Party shall constitute Plan Assets. (b) Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its sole discretion, and represents and covenants that (A) no Loan Party is, and no Loan Party maintains an "employee benefit plan" as defined in Section 3(32) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (B) no Loan Party is subject to State statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) one or more of the following circumstances is true: (i) Equity interests in such Loan Party are publicly offered securities, within the meaning of 29 C. F. R. Section 2510.3-101(b)(2); -73- (ii) Less than twenty-five percent (25%) of each outstanding class of equity interests in such Loan Party are held by "benefit plan investors" within the meaning of 29 C. F. R. Section 2510.3-101(f)(2); or (iii) Such Loan Party qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C. F. R. Section 2510.3-101(c) or (e). 5.2.9 Affiliate Transactions. (a) Other than with respect to the Pledged Loan, Borrower shall not enter into, or be a party to, any transaction with an Affiliate of Borrower, Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities, or any of the partners of Borrower, Principal, the Operating Lessee SPE Entities or the Pledgor SPE Entities, except in the ordinary course of business and on terms which are fully disclosed to Lender in advance and are no less favorable to Borrower or such Affiliate than would be obtained in a comparable arm's-length transaction with an unrelated third party. (b) Except in connection with payments made to Manager pursuant to and in accordance with the Subordination of Management Agreement, no Loan Party shall pay, or permit the payment of, development fees, management fees, brokerage or leasing fees or commissions or any other compensation of any form whatsoever to any Loan Party or any direct or indirect partner, member, shareholder or Affiliate thereof, or request disbursement of funds from Lender or Mortgage Lender for such purpose, without the prior written consent of Lender. Any contracts or agreements relating to the Property in any manner between or among any Loan Party and any other Loan Party or their respective direct or indirect partners, members, shareholders or Affiliates, including the Management Agreement and any other agreement specifically related to the Property, the Collateral or any Loan Party (collectively, the "Affiliate Agreements") shall be made on an arm's-length basis and shall be subject to the prior written approval of Lender; and the parties to each Affiliate Agreement shall acknowledge and agree that such agreement is terminable by Mortgage Borrower or Lender immediately upon notice, without the payment of any fee, penalty, premium or liability for future or accrued liabilities or obligations, if an Event of Default shall have occurred and be continuing. Following an Event of Default, if requested by Lender in writing, Borrower shall, or shall cause the applicable Loan Party to, terminate any existing Affiliate Agreement specified by Lender within five (5) days after delivery of Lender's request without payment of any penalty, premium, termination fee or any other amount which might be due and payable under such Affiliate Agreement. If such Affiliate Agreement is not terminated in accordance with the immediately preceding sentence, Lender shall have the right, and Borrower hereby irrevocably authorizes Lender and irrevocably appoints Lender as Borrower's attorney-in-fact coupled with an interest, at Lender's sole option, to terminate such Affiliate Agreement on behalf of and in the name of the applicable Loan Party, and Borrower hereby releases and waives any claims against Lender arising out of Lender's exercise of such authority. 5.2.10 Transfers. (a) Neither Borrower nor Pledgor shall sell, convey, mortgage, grant, bargain, encumber, pledge, assign, grant options with respect to, or otherwise transfer or dispose of -74- (directly or indirectly, voluntarily or involuntarily, by operation of law (including, without limitation, a foreclosure under the UCC) or otherwise, and whether or not for consideration or of record) any Individual Property, any Operating Lease, the Collateral or any part thereof or any legal or beneficial interest therein (other than in connection with a Condemnation) or permit or suffer a Sale or Pledge of an interest in any Restricted Party (other than with respect to the Mortgage Loan and the Mezzanine Loan) (collectively, a "Transfer"), without the prior written consent of Lender. (b) A Transfer shall include, but not be limited to: (i) an installment sales agreement wherein Borrower agrees to sell one or more Individual Properties, the Collateral or any part thereof for a price to be paid in installments; (ii) an agreement by Mortgage Borrower leasing all or a substantial part of any Individual Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Mortgage Borrower'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 or the change, removal, resignation or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge (other than, in connection with the Mezzanine Loan) of the membership interest of a managing member (or if no managing member, any member) or any profits or proceeds relating to such membership interest, or the Sale or Pledge of non-managing membership interests or the creation or issuance of new non-managing membership interests; (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) any deed-in-lieu or consensual foreclosure relating to any Individual Property with or for the benefit of Mortgage Lender or any Affiliate thereof. (c) Notwithstanding the provisions of Sections 5.2.10(a) and (b), the following transfers shall not be deemed to be a Transfer: (i) a transfer by devise or descent or by operation of law upon the death of a member, partner or shareholder of a Restricted Party (other than Mortgage Borrower or Borrower) or a Restricted Party (other than Mortgage Borrower, Borrower or Mezzanine Borrower) itself; (ii) the Sale or Pledge, in one or a series of transactions, of not more than forty nine percent (49%) of the stock in a Restricted Party (other than Mortgage Borrower, Borrower or Mezzanine Borrower); provided, however, no such transfers shall result in the change of voting control in the Restricted Party, and as a condition to each such transfer, Lender shall receive not less than thirty (30) days prior written notice of such proposed transfer and (iii) the Sale or Pledge, in one or a series of transactions, of not more than forty-nine percent (49%) of the limited partnership interests or non-managing membership interests (as the case may be) in a Restricted Party (other than Mortgage Borrower, Borrower or Mezzanine Borrower); 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. -75- (d) 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 in violation of this Section 5.2.2. 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 Section 5.2.10, (a) no transfer (whether or not such transfer shall constitute a Transfer) shall be made to any Prohibited Person and (b) in the event any transfer (whether or not such transfer shall constitute a Transfer) results in any Person owning in excess of forty-nine percent (49%) of the ownership interest in a Restricted Party, Borrower shall, prior to such transfer, deliver an updated Insolvency Opinion to Lender, which opinion shall be in form, scope and substance acceptable in all respects to Lender and the Rating Agencies. (e) Notwithstanding anything to the contrary contained in this Section 5.2.10, a transfer of direct or indirect limited partnership interests and/or non-managing membership interests in a Restricted Party (other than Mortgage Borrower, Mortgage Principal, Borrower, Principal, Mezzanine Borrower, Mezzanine Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities or any Affiliated Manager) shall be permitted provided that (i) FelCor Lodging Limited Partnership shall at all times own, directly or indirectly, at least fifty-one percent (51%) of the equity interests in, and Control, all Restricted Parties and (ii) FelCor Lodging Trust Incorporated must at all times be the sole general partner of FelCor Lodging Limited Partnership. 5.2.11 Limitation on Securities Issuances. Borrower shall not issue any limited liability membership interests or other securities other than those that have been issued as of the date hereof. 5.2.12 Distributions. (a) Any and all dividends, including capital dividends, stock or liquidating dividends, distributions of property, redemptions or other distributions made by Mortgage Borrower on or in respect of any interests in Mortgage Borrower, or Mezzanine Borrower in respect of any interests in Mezzanine Borrower, and any and all cash and other property received in payment of the principal of or in redemption of or in exchange for any such interests (collectively, the "Distributions"), shall become part of the Collateral. Notwithstanding anything to contrary contained herein, Lender expressly agrees that Borrower shall be permitted to distribute to its members any Distributions Borrower receives only upon the express condition that no Event of Default has occurred and is continuing under the Loan. (b) If any Distributions shall be received by Borrower or any Affiliate of Borrower after the occurrence and during the continuance of an Event of Default, Borrower shall hold, or shall cause the same to be held, in trust for the benefit of Lender. Any and all revenue derived from the Properties paid directly by tenants, subtenants or occupants of the Properties shall be held and applied in accordance with the terms and provisions of the Mortgage Loan Agreement. -76- 5.2.13 Refinancing or Prepayment of the Mortgage Loan. Neither Borrower, Mezzanine Borrower nor Mortgage Borrower shall be required to obtain the consent of Lender to refinance the Mortgage Loan, provided that the Loan shall have (or shall simultaneously be) been paid in full in accordance with the terms of this Agreement (including any prepayment premiums and other amounts due and payable to Lender under the Loan Documents). Borrower shall cause Mortgage Borrower to obtain the prior written consent of Lender to enter into any other refinancing of the Mortgage Loan. 5.2.14 Acquisition of the Mortgage/Mezzanine Loan. (a) No Loan Party, Guarantor or any Affiliate of any of them or any Person acting at any such Person's request or direction, shall acquire or agree to acquire Mortgage Lender's interest in the Mortgage Loan or Mezzanine Lender's interest in the Mezzanine Loan, or any portion thereof or any interest therein, or any direct or indirect ownership interest in the holder of the Mortgage Loan or Mezzanine Loan, via purchase, transfer, exchange or otherwise, and any breach or attempted breach of this provision shall constitute an Event of Default hereunder. If, solely by operation of applicable subrogation law, Borrower shall have failed to comply with the foregoing, then Borrower: (i) shall immediately notify Lender of such failure; (ii) shall cause any and all such prohibited parties acquiring any interest in the Mortgage Loan Documents or in the Mezzanine Loan Documents: (A) not to enforce the Mortgage Loan Documents or the Mezzanine Loan Documents; and (B) upon the request of Lender, to the extent any of such prohibited parties has or have the power or authority to do so, to promptly: (1) cancel the promissory note evidencing the Mortgage Loan or the Mezzanine Loan, (2) reconvey and release the Lien securing the Mortgage Loan or the Mezzanine Loan and any other collateral under the Mortgage Loan Documents or the Mezzanine Loan Documents, and (3) discontinue and terminate any enforcement proceeding(s) under the Mortgage Loan Documents or the Mezzanine Loan Documents. (b) Lender shall have the right at any time to acquire all or any portion of the Mortgage Loan or the Mezzanine Loan or any interest in any holder of, or participant in, the Mortgage Loan or the Mezzanine Loan without notice or consent of Borrower or any other Loan Party, in which event Lender shall have and may exercise all rights of Mortgage Lender or Mezzanine Lender, as applicable, thereunder (to the extent of its interest), including the right (i) to declare that the Mortgage Loan or the Mezzanine Loan is in default in accordance with the terms thereof and (ii) to accelerate the Mortgage Loan or the Mezzanine Loan indebtedness, in accordance with the terms thereof and (iii) to pursue all remedies against any obligor under the Mortgage Loan Documents or the Mezzanine Loan Documents. In addition, Borrower hereby expressly agree that any claims, counterclaims, defenses, offsets, deductions or reductions of any kind which Mortgage Borrower, Mezzanine Borrower or any other Person may have against Mortgage Lender or Mezzanine Lender relating to or arising out of the Mortgage Loan or the Mezzanine Loan shall be the personal obligation of Mortgage Lender or Mezzanine Lender, as applicable, and in no event shall Mortgage Borrower or Mezzanine Borrower be entitled to bring, pursue or raise any such claims, counterclaims, defenses, offsets, deductions or reductions against Lender or any Affiliate of Lender or any other Person as the successor holder of the Mortgage Loan, the Mezzanine Loan or any interest therein, provided -77- that Mortgage Borrower or Mezzanine Borrower may seek specific performance of its contractual rights under the Mortgage Loan Documents or the Mezzanine Loan Documents. 5.2.15 Other Limitations. (a) Prior to the payment in full of the Debt, neither Borrower nor any of its Affiliates shall, without the prior written consent of Lender (which may be furnished or withheld at its reasonable discretion), give its consent or approval to any of the following actions or items: (i) except as permitted by Lender herein (i) any prepayment in full of the Mortgage Loan or the Mezzanine Loan, except as permitted by Section 2.3 of the Mortgage Loan Agreement or the Mezzanine Loan Agreement, as applicable, or (ii) any action in connection with or in furtherance of the foregoing; (ii) approve the terms of any Annual Budget; (iii) the distribution to the partners, members or shareholders of Mortgage Borrower or Mezzanine Borrower of property other than cash; or (iv) except as permitted by the Mortgage Loan Documents or the Mezzanine Loan Documents, any determination to restore any Individual Property after a Casualty or Condemnation. (b) Prior to the payment in full of the Debt, and unless otherwise required pursuant to the Mortgage Loan Agreement or the Mezzanine Loan Agreement, neither Borrower nor any of its Affiliates shall, without the prior written consent of Lender (which may be furnished or withheld at its sole and absolute discretion), give its consent or approval to any modification or amendment in any material respect or a consolidation, interest rate, restatement, waiver or termination of any of the Mortgage Loan Documents or the Mezzanine Loan Documents. VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS SECTION 6.1 Insurance. (a) Borrower shall cause Mortgage Borrower to maintain at all times during the term of the Loan the insurance required under Section 6.1 of the Mortgage Loan Agreement, including, without limitation, meeting all insurer requirements thereunder. In addition, Borrower shall cause Lender to be named as an additional named insured under each of the insurance policies described in Section 6.1(a)(ii), (iii), (v), (ix), (xi) and (xii) of the Mortgage Loan Agreement. In addition, Borrower shall cause Lender to be named as a named insured together with Mortgage Lender, as their interest may appear, under the insurance policies required under Section 6.1(a)(i), (iv), (vi), (vii), (viii) and (x) of the Mortgage Loan Agreement. Borrower shall also cause all insurance policies required under this Section 6.1 to provide for at least thirty (30) days prior notice to Lender in the event of policy cancellation or material changes. Not less than thirty (30) days prior to the expiration dates of the Policies (as such term is defined in the Mortgage Loan Agreement) theretofore furnished to Lender pursuant to the terms hereof, certified copies of the Policies marked "premium paid" or accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder shall be delivered -78- by Borrower to Lender; provided, however, that in the case of renewal Policies, Borrower may furnish Lender with binders therefor to be followed by copies of the original Policies when issued. (b) 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, with prior notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Collateral, including, without limitation, the obtaining of such 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 the Pledge Agreement and shall bear interest at the Default Rate. (c) For purposes of this Agreement, Lender shall have the same approval rights over the insurance referred to above (including, without limitation, the insurers, deductibles and coverages thereunder, as well as the right to require other reasonable insurance pursuant to Section 6.1(a)(xii)) as are provided in favor of the Mortgage Lender in the Mortgage Loan Agreement. All liability insurance provided for in the Mortgage Loan Agreement shall provide insurance with respect to the liabilities of both the Mortgage Borrower and the Borrower. The insurance policies delivered pursuant to the Mortgage Loan Agreement shall include endorsements of the type described in Section 6.1(e) thereof, but pursuant to which Lender shall have the same rights as the Mortgage Lender as referred to in such Section 6.1(e). (d) In the event that the Mortgage Loan has been paid in full, except upon the occurrence and continuance of an Event of Default, Borrower shall permit Mortgage Borrower to settle any insurance or condemnation claims with respect to the insurance proceeds or condemnation awards which in the aggregate are less than or equal to $250,000.00 for the applicable Individual Property. Lender shall have the right to participate in and reasonably approve any settlement for insurance or condemnation claims with respect to the insurance proceeds or condemnation awards which in the aggregate are equal to or greater than the $250,000 for the applicable Individual Property. If an Event of Default shall have occurred and be continuing, Borrower shall cause Mortgage Borrower to empower Lender, in the name of Mortgage Borrower as its true and lawful attorney-in-fact, to file and prosecute such claim and to collect and to make receipt for any such payment. (e) On the first Payment Date of each Fiscal Year, Borrower shall pay to Lender the sum of $1,500.00 to compensate Lender for administrative costs associated with Lender's review of Borrower's required insurance. SECTION 6.2 Casualty. If any Individual Property shall sustain a Casualty, Borrower shall cause Mortgage Borrower to give prompt notice of such Casualty to Lender and shall cause Mortgage Borrower to promptly commence and diligently prosecute to completion the repair and restoration of such Individual Property as nearly as possible to the condition such Individual Property was in immediately prior to such Casualty and otherwise in accordance with Section 6.4 of the Mortgage Loan Agreement. -79- SECTION 6.3 Condemnation. Borrower shall cause Mortgage Borrower to give Lender prompt notice of any actual or threatened Condemnation by any Governmental Authority of all or any part of any Individual Property and shall cause Mortgage Borrower to deliver to Lender a copy of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings, and Borrower shall from time to time cause Mortgage Borrower to deliver to Lender all instruments requested by Lender to permit such participation. Borrower shall cause Mortgage Borrower, at Borrower's expense, to diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any Condemnation, Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement. SECTION 6.4 Restoration. (a) Borrower shall, or shall cause Mortgage Borrower to, deliver to Lender all reports, plans, specifications, documents and other materials that are delivered to Mortgage Lender under Section 6.4 of the Mortgage Loan Agreement in connection with a restoration of the Property after a Casualty or Condemnation. If any Insurance Proceeds or Condemnation Awards are to be disbursed by Mortgage Lender for restoration, Borrower shall deliver or cause to be delivered to Lender copies of all written correspondence delivered to and received from Mortgage Lender that relates to the restoration and release of the Insurance Proceeds or Condemnation Awards. (b) Notwithstanding any provision in this Agreement to the contrary, all Insurance Proceeds and Condemnation Award will be made available to Mortgage Borrower in accordance with the Mortgage Loan Agreement. In the event the Mortgage Loan has been paid in full and Lender receives any Insurance Proceeds or Condemnation Awards, Lender shall either apply such proceeds to the Debt or for the restoration of the applicable Individual Property in accordance with the same terms and conditions contained in Section 6.4 of the Mortgage Loan Agreement. SECTION 6.5 Rights of Lender. For purposes of this Article 6, Borrower shall obtain the approval (which approval shall be granted or withheld by Lender subject to the same standards contained in Section 6.4 of the Mortgage Loan Agreement) of Lender for each matter requiring the approval of Mortgage Lender under the provisions of Sections 6.4 of the Mortgage Loan Agreement, with each reference in any such provisions to the "Loan" to include the Mortgage Loan and the Loan, and the reference in any such provisions to the "Maturity Date" to mean the Maturity Date, as defined herein. If the Mortgage Lender does not require the deposit by the Mortgage Borrower of the "Net Proceeds Deficiency" pursuant to Section 6.4(b)(vi) of the Mortgage Loan Agreement, Lender shall have the right to demand that Borrower make a deposit of said "Net Proceeds Deficiency" in accordance with the terms of such Section (as if each reference therein to "Borrower" and "Lender" referred to Borrower and Lender, respectively). -80- VII. RESERVE FUNDS SECTION 7.1 Required Repairs. Borrower shall, or shall cause Mortgage Borrower to, perform the Required Repairs in accordance with all of the terms and conditions set forth in Section 7.1 of the Mortgage Loan Agreement. SECTION 7.2 Tax and Insurance Escrow Fund. (a) Borrower shall pay to Lender on each Payment Date (a) one-twelfth of the Taxes (the "Monthly Tax Deposit") that Lender estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates; and (b) at the option of Lender, if the liability or casualty Policy maintained by Mortgage Borrower covering the Properties shall not constitute an approved blanket or umbrella Policy pursuant to Section 6.1(c) of the Mortgage Loan Agreement, or Lender shall require Borrower to cause Mortgage Borrower to obtain a separate Policy pursuant to Section 6.1(c) of the Mortgage Loan Agreement, one-twelfth of the Insurance Premiums (the "Monthly Insurance Premium Deposit") that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies (said amounts in (a) and (b) above hereinafter called the "Tax and Insurance Escrow Fund"). In the event Lender shall elect to collect payments in escrow for Insurance Premiums pursuant to clause (b) above, Borrower shall pay to Lender an initial deposit to be determined by Lender, in its sole discretion, to increase the amounts in the Tax and Insurance Escrow Fund to an amount which, together with anticipated Monthly Insurance Premium Deposits, shall be sufficient to pay all Insurance Premiums as they become due. The Tax and Insurance Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note and this Agreement, shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Section 5.1.2 hereof. In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Section 5.1.2 hereof, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. In allocating such excess, Lender may deal with the Person shown on the records of Lender to be the owner of the Properties. Any amount remaining in the Tax and Insurance Escrow Fund after the Debt has been paid in full shall be returned to Borrower. If at any time Lender reasonably determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay Taxes and Insurance Premiums by the dates set forth in (a) and (b) above, Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes and/or -81- thirty (30) days prior to expiration of the Policies, as the case may be. Any Taxes, Other Charges and Insurance Premiums paid by Lender from the Tax and Insurance Escrow Fund shall be deemed to be a capital contribution from Borrower to Mortgage Borrower. (b) Borrower shall be relieved of its obligation under Section 7.2(a) above provided that Mortgage Borrower or Mezzanine Borrower is required to and does make monthly deposits to the Tax and Insurance Escrow Fund under the Mortgage Loan or the Mezzanine Loan and Lender receives evidence acceptable to Lender of the making of such deposits and the payment of such Taxes, Insurance and Other Charges. SECTION 7.3 Replacements and Replacement Reserve. 7.3.1 Replacement Reserve Fund. Borrower shall pay to Lender on each Payment Date, the Replacement Reserve Monthly Deposit for Capital Expenditures required to be made to the Properties during the calendar year as may be necessary to maintain and operate first class, reputable hotels in the manner and quality of the hotels operated at the Properties on the date hereof (collectively, the "Replacements"). Amounts so deposited shall hereinafter be referred to as Borrower's "Replacement Reserve Fund". 7.3.2 Disbursements from Replacement Reserve Account. (a) Lender shall make disbursements from the Replacement Reserve Account to reimburse Borrower only for the costs of the Replacements. Lender shall not be obligated to make disbursements from the Replacement Reserve Account to reimburse Borrower for the costs of routine maintenance (other than Replacements) to an Individual Property or for costs which are to be reimbursed from the Required Repair Fund. (b) Lender shall, upon written request from Borrower and satisfaction of the requirements set forth in this Section 7.3.2, disburse to Borrower amounts from the Replacement Reserve Account necessary to reimburse Borrower for the actual costs of Replacements. In no event shall Lender be obligated to disburse funds from the Replacement Reserve Account if an Event of Default exists. (c) Each request for disbursement from the Replacement Reserve Account shall be in a form reasonably acceptable to Lender and shall specify (i) the specific Replacements for which the disbursement is requested, (ii) the quantity and price of each item purchased, if the Replacement includes the purchase or replacement of specific items, (iii) the price of all materials (grouped by type or category) used in any Replacement other than the purchase or replacement of specific items, and (iv) the cost of all contracted labor or other services applicable to each Replacement for which the disbursement is requested. With each request Borrower shall certify that, to the best of Borrower's knowledge, all Replacements have been made in accordance with all applicable Legal Requirements of any Governmental Authority having jurisdiction over the applicable Individual Property to which the Replacements are being provided. Upon request of Lender in connection with each request for disbursement in excess of $200,000, Borrower shall provide Lender with copies of invoices for amounts in excess of -82- $100,000 for items or materials purchased or contracted labor or services. Borrower shall provide Lender evidence of completion satisfactory to Lender in its reasonable judgment. (d) Borrower shall pay all invoices in connection with the Replacements with respect to each request for disbursement prior to submitting such request for disbursement from the Replacement Reserve Account or, at the request of Borrower, Lender will issue joint checks, payable to Borrower and the contractor, supplier, materialman, mechanic, subcontractor or other party to whom payment is due in connection with a Replacement. In the case of payments made by joint check, Lender may require a waiver of lien from each Person receiving payment prior to Lender's disbursement from the Replacement Reserve Account. In addition, as a condition to any disbursement, Lender may require Borrower to obtain lien waivers from each contractor, supplier, materialman, mechanic or subcontractor who receives payment in an amount equal to or greater than $100,000 for completion of its work or delivery of its materials. Any lien waiver delivered hereunder shall conform to the requirements of Applicable Law and shall cover all work performed and materials supplied (including equipment and fixtures) for the applicable Individual Property by that contractor, supplier, subcontractor, mechanic or materialman through the date covered by the current reimbursement request (or, in the event that payment to such contractor, supplier, subcontractor, mechanic or materialmen is to be made by a joint check, the release of lien shall be effective through the date covered by the previous release of funds request). (e) Borrower shall not make a request for disbursement from the Replacement Reserve Account more frequently than once in any calendar month and (except in connection with the final disbursement) the total cost of all Replacements in any request shall not be less than $25,000. (f) If the Replacement Reserve Funds are disbursed to the Borrower, then Borrower shall make a capital contribution to Mortgage Borrower in an amount equal to such Replacement Reserve Funds disbursed to Borrower as and when such disbursements are made pursuant to this Section 7.3.2 and Borrower shall cause Mortgage Borrower to pay for the related Replacement. 7.3.3 Performance of Replacements. (a) Borrower shall cause Mortgage Borrower to make Replacements when required in order to keep each Individual Property in condition and repair consistent with other first class, full service hotels in the same market segment and under the same franchisor in the metropolitan area in which the respective Individual Property is located, and to keep each Individual Property or any portion thereof from deteriorating. Borrower shall cause Mortgage Borrower to complete all Replacements in a good and workmanlike manner as soon as practicable following the commencement of making each such Replacement. (b) Intentionally Omitted. (c) If the Mortgage Loan is paid in full and the Loan remains outstanding, then, upon the occurrence and during the continuance of an Event of Default, in the event Lender determines in its reasonable discretion that any Replacement is not being performed in a -83- workmanlike or timely manner or that any Replacement has not been completed in a workmanlike or timely manner, Lender shall have the option, without providing any prior notice to Borrower, to withhold disbursement for such unsatisfactory Replacement and to proceed under existing contracts or, upon five (5) Business Days prior written notice to Borrower, to contract with third parties to complete such Replacement and to apply the Replacement Reserve Fund toward the labor and materials necessary to complete such Replacement and to exercise any and all other remedies available to Lender upon an Event of Default hereunder. (d) In order to facilitate Lender's completion or making of the Replacements pursuant to Section 7.3.3(c) above, Borrower shall cause Mortgage Borrower to grant Lender the right, upon the occurrence and during the continuance of an Event of Default, to enter onto any Individual Property and perform any and all work and labor necessary to complete or make the Replacements and/or employ watchmen to protect such Individual Property from damage. All sums so expended by Lender, to the extent not from the Replacement Reserve Fund, shall be deemed to have been advanced under the Loan to Borrower and secured by the Pledge Agreement. For this purpose, Borrower shall cause Mortgage Borrower to constitute and appoint Lender its true and lawful attorney-in-fact with full power of substitution to complete or undertake the Replacements in the name of Mortgage Borrower. Such power of attorney shall be deemed to be a power coupled with an interest and cannot be revoked. Borrower shall cause Mortgage Borrower to empower said attorney-in-fact as follows: (i) to use any funds in the Replacement Reserve Account for the purpose of making or completing the Replacements; (ii) to make such additions, changes and corrections to the Replacements as shall be necessary or desirable to complete the Replacements; (iii) to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for such purposes; (iv) to pay, settle or compromise all existing bills and claims which are or may become Liens against any Individual Property, or as may be necessary or desirable for the completion of the Replacements, or for clearance of title; (v) to execute all applications and certificates in the name of Mortgage Borrower which may be required by any of the contract documents; (vi) to prosecute and defend all actions or proceedings in connection with any Individual Property or the rehabilitation and repair of any Individual Property; and (vii) to do any and every act which Borrower might do in its own behalf to fulfill the terms of this Agreement. (e) Nothing in this Section 7.3.3 shall: (i) make Lender responsible for making or completing the Replacements; (ii) require Lender to expend funds in addition to the Replacement Reserve Fund to make or complete any Replacement; (iii) obligate Lender to proceed with the Replacements; or (iv) obligate Lender to demand from Borrower additional sums to make or complete any Replacement. (f) Borrower shall cause Mortgage Borrower to permit Lender and Lender's agents and representatives (including, without limitation, Lender's engineer, architect, or inspector) or third parties making Replacements pursuant to this Section 7.3.3 to enter onto each Individual Property during normal business hours (subject to the rights of tenants under their Leases) to inspect the progress of any Replacements and all materials being used in connection therewith, to examine all plans and shop drawings relating to such Replacements which are or may be kept at each Individual Property, and to complete any Replacements made pursuant to this Section 7.3.3. Borrower shall cause Mortgage Borrower to cause all contractors and subcontractors to -84- cooperate with Lender or Lender's representatives or such other persons described above in connection with inspections described in this Section 7.3.3(f) or the completion of Replacements pursuant to this Section 7.3.3. (g) Upon the occurrence and during the continuance of an Event of Default, Lender may require an inspection of an Individual Property at Borrower's expense prior to making a monthly disbursement from the Replacement Reserve Account, with respect to each Individual Property, in order to verify completion of the Replacements for which reimbursement is sought. Lender may require that such inspection be conducted by an appropriate independent qualified professional selected by Lender and/or may require a copy of a certificate of completion by an independent qualified professional acceptable to Lender prior to the disbursement of any amounts from the Replacement Reserve Account. Borrower shall pay or cause Mortgage Borrower to pay the expense of the inspection as required hereunder, whether such inspection is conducted by Lender or by an independent qualified professional. (h) The Replacements and all materials, equipment, fixtures, or any other item comprising a part of any Replacement shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialmen's or other Liens. (i) Before each disbursement from the Replacement Reserve Account relating to actual physical work on the Improvements in excess of $200,000 with respect to each Individual Property, Lender may require Borrower to provide Lender with a search of title to the applicable Individual Property effective to the date of the disbursement, which search shows that no mechanic's or materialmen's Liens or other Liens of any nature have been placed against the applicable Individual Property since the date of recordation of the related Security Instrument and that title to such Individual Property is free and clear of all Liens (other than the Lien of the related Security Instrument and other Permitted Encumbrances). (j) All Replacements shall comply with all applicable Legal Requirements of all Governmental Authorities having jurisdiction over the applicable Individual Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (k) If the Mortgage Loan is paid in full and the Loan remains outstanding, in addition to any insurance required under the Loan Documents, Borrower shall cause to be provided workmen's compensation insurance, builder's risk, and public liability insurance and other insurance to the extent required under Applicable Law in connection with a particular Replacement. All such policies shall be in form and amount reasonably satisfactory to Lender. All such policies which can be endorsed with standard mortgagee clauses making loss payable to Lender or its assigns shall be so endorsed. Certified copies of such policies shall be delivered to Lender. 7.3.4 Failure to Make Replacements. (a) It shall be an Event of Default under this Agreement if Borrower fails to comply with any provision of this Section 7.3 and such failure is not cured within thirty (30) days after written notice from Lender. Upon the occurrence of an Event of Default, Lender may use the -85- Replacement Reserve Fund (or any portion thereof) for any purpose, including but not limited to completion of the Replacements as provided in Sections 7.3.3(c) and 7.3.3(d), or for any other repair or replacement to any Individual Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply the Replacement Reserve Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. (b) Nothing in this Agreement shall obligate Lender to apply all or any portion of the Replacement Reserve Fund on account of an Event of Default to payment of the Debt or in any specific order or priority. 7.3.5 Balance in the Replacement Reserve Account. The insufficiency of any balance in the Replacement Reserve Account shall not relieve Borrower from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents. 7.3.6 Waiver of Replacement Reserve. Borrower shall be relieved of its obligations under Sections 7.3.1, 7.3.2, 7.3.3, 7.3.4 and 7.3.5 above, provided that Mortgage Borrower or Mezzanine Borrower is required to and does make the monthly deposits of Replacement Reserve Funds under the Mortgage Loan or the Mezzanine Loan and provided Lender receives evidence acceptable to Lender of the making of such deposits. SECTION 7.4 Ground Lease Escrow Fund. (a) In the event that the annual Ground Rent due pursuant to a Ground Lease is in excess of $100.00, Borrower shall pay to Lender on each Payment Date an amount (the "Monthly Ground Rent Deposit") that is estimated by Lender to be due and payable by Borrower under the Ground Lease for all rent and any and all other charges (the "Ground Rent") which may be due by Mortgage Borrower under the Ground Lease in order to accumulate with Lender sufficient funds to pay all sums payable under the Ground Lease at least fifteen (15) Business Days prior to the dates due (said amounts, hereinafter called the "Ground Lease Escrow Fund"). The Ground Lease Escrow Fund is for the purpose of paying all sums due under the Ground Lease. Upon Mortgage Borrower's failure to pay any Ground Rents pursuant to the Ground Lease, Lender may, in its discretion, apply any amounts held in the Ground Lease Escrow Fund to the payment of such Ground Rent; provided however, that the provisions of this Section 7.4 shall not be deemed to create any obligation on the part of Lender to pay any such Ground Rent from amounts on deposit in the Ground Lease Escrow Fund. Such deposit may be increased by Lender in the amount Lender deems is necessary in its reasonable discretion based on any increases in the Ground Rent due under the Ground Lease. (b) If Ground Lease Escrow Funds are disbursed to Borrower, then Borrower shall make a capital contribution to Mortgage Borrower in an amount equal to such Ground Lease Escrow Funds disbursed to Borrower as and when such disbursements are made pursuant to this Section 7.4 and Borrower shall cause Mortgage Borrower to pay the related Ground Rent. -86- (c) Borrower shall be relieved of its obligation under Section 7.4(a) and (b) above, provided that Mortgage Borrower or Mezzanine Borrower is required to and does make the monthly deposits of Ground Lease Escrow Funds under the Mortgage Loan or the Mezzanine Loan and provided Lender receives evidence acceptable to Lender of the making of such deposits and the payment of such Ground Rent. SECTION 7.5 UST Reserve Funds. Borrower shall, or shall cause Mortgage Borrower to, perform the Required Remediation in accordance with all of the terms and conditions set forth in Section 7.5 of the Mortgage Loan Agreement. SECTION 7.6 Reserve Funds, Generally. (a) Borrower grants to Lender a first-priority perfected security interest in each of the Reserve Funds and the related Accounts and any and all monies now or hereafter deposited in each Reserve Fund and related Account as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds and the related Accounts shall constitute additional security for the Debt. (b) Upon the occurrence of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, withdraw any Reserve Funds and apply any sums then present in any or all of the Reserve Funds to the payment of the Debt in any order in its sole discretion. Lender's right to withdraw and apply the Reserve Funds are in addition to all other rights and remedies provided to Lender pursuant to the Loan Documents (c) The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender. (d) The Reserve Funds shall be held in interest bearing accounts and all earnings or interest on a Reserve Fund shall be added to and become a part of such Reserve Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Fund, except that earnings or interest on the Tax and Insurance Escrow Fund shall not be added to or become a part thereof and shall be the sole property of and shall be paid to Lender. (e) Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or related Account or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. (f) Borrower shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, claims, demands, liabilities, losses, damages, obligations and costs and expenses (including litigation costs and reasonable attorneys fees and expenses) arising from or in any way connected with the Reserve Funds or the related Accounts or the performance of the obligations for which the Reserve Funds or the related Accounts were established, except to the extent arising from the fraud, illegal acts, gross negligence or willful misconduct of Lender, its agents or employees. Borrower shall assign to Lender all rights and -87- claims Borrower may have against all Persons supplying labor, materials or other services which are to be paid from or secured by the Reserve Funds or the related Accounts; provided, however, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured. SECTION 7.7 Transfer of Reserve Funds under Mortgage Loan. If Borrower is required to deposit with Lender reserves pursuant to this Article VII, Borrower shall enter into a cash management and lockbox agreement for the benefit of Lender for the purpose of covering deposits to the required reserve accounts substantially similar to the Article III of the Mortgage Loan Agreement. VIII. DEFAULTS SECTION 8.1 Event of Default. (a) Each of the following events shall constitute an event of default hereunder (an "Event of Default"): (i) if any portion of the Debt is not paid on or before the date the same is due and payable; (ii) if any of the Taxes or Other Charges are not paid on or before the date when the same are due and payable; (iii) if the Policies are not kept in full force and effect or if certified copies of the Policies are not delivered to Lender promptly on request; (iv) if a Transfer occurs in violation of the provisions hereof or the Pledge Agreement or if any other Transfer prohibited under Section 5.2.10 occurs; (v) if any representation or warranty made by Borrower, a Pledgor SPE Entity, an Operating Lessee SPE Entity, Principal, Ground Lessor, Indemnitor, or Guarantor herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender shall have been false or misleading in any material respect as of the date the representation or warranty was made; (vi) if Borrower, Mortgage Borrower, Mezzanine Borrower, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Principal, Indemnitor, Guarantor or any other guarantor under any guaranty issued in connection with the Loan shall make an assignment for the benefit of creditors; (vii) if a receiver, liquidator or trustee shall be appointed for Borrower, Mortgage Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Indemnitor, Guarantor or any other guarantor under any guarantee issued in connection with the Loan or if Borrower, Mortgage Borrower, Mezzanine Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, -88- Indemnitor, Guarantor or such other guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to the Bankruptcy Code, or any similar federal or State law, shall be filed by or against, consented to, or acquiesced in by, Borrower, Mortgage Borrower, Mezzanine Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor, or if any proceeding for the dissolution or liquidation of Borrower, Mortgage Borrower, Mezzanine Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower, Mortgage Borrower, Mezzanine Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, Indemnitor, Guarantor or such other guarantor, upon the same not being discharged, stayed or dismissed within sixty (60) days; (viii) if Borrower or Pledgor attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents; (ix) other than for with respect to a default which is expressly contemplated by another subsection of this Section 8.1(a), if Borrower breaches any of its respective negative covenants contained in Section 5.2; (x) if Borrower violates or does not comply in any material respect with any of the provisions of Section 5.1.17 hereof; (xi) if a (a) default has occurred and continues beyond any applicable cure period under the Management Agreement (or any Replacement Management Agreement) if such default permits the Manager thereunder to terminate or cancel the Management Agreement (or any Replacement Management Agreement) or (b) any Management Agreement (or Replacement Management Agreement) expires or otherwise terminates and is not replaced with a Replacement Management Agreement or (c) if any Individual Property operates for any time without the Management Agreement or a Replacement Management Agreement; (xii) if Borrower or Principal violates or does not comply in all material respects with the provisions of Section 4.1.36 hereof; (xiii) if any Individual Property becomes subject to any mechanic's, materialman's or other Lien other than a Lien for local real estate taxes and assessments not then due and payable and the Lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of sixty (60) days; (xiv) if any federal tax Lien or state or local income tax Lien is filed against Borrower, Mortgage Borrower, Principal, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Ground Lessor, any Guarantor, Indemnitor, the Collateral or any Individual Property and same is not discharged of record within thirty (30) days after same is filed; -89- (xv) (A) Borrower fails to timely provide Lender with the written certification and evidence referred to in Section 5.2.8 hereof, (B) Borrower or Pledgor is a Plan or its assets constitute Plan Asset; or (C) Borrower or Pledgor consummates a transaction which would cause the Pledge Agreement or Lender's exercise of its rights under the Pledge Agreement, the Note, this Agreement or the other Loan Documents to constitute a nonexempt prohibited transaction under ERISA or result in a violation of a State statute regulating governmental plans, subjecting Lender to liability for a violation of ERISA, the Code, a State statute or other similar law; (xvi) if Borrower shall fail to deliver to Lender, within fifteen (15) Business Days after request by Lender, the estoppel certificates required pursuant to the terms of Section 5.1.13(a) hereof; (xvii) if any default occurs under any guaranty or indemnity executed in connection herewith (including, without limitation, the Guaranty and the Environmental Indemnity) and such default continues after the expiration of applicable grace periods, if any; (xviii) if Borrower or Pledgor shall be in default beyond applicable notice and grace periods under the Pledge Agreement, the Security Agreement or any other security agreement covering any part of any portion of the Collateral whether it be superior or junior in lien to the Pledge Agreement; (xix) if (i) the Interest Rate Cap Agreement is terminated for any reason by Borrower or the Counterparty, or (ii) the Counterparty defaults in the performance of its monetary obligations under the Interest Rate Cap Agreement or (iii) the rating of the Counterparty is subject to any downgrade, withdrawal or qualification by an Rating Agency, and Borrower does not within ten (10) Business Days (A) replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement in accordance with Section 2.4 hereof, and (B) deliver to Lender, in form and substance reasonably satisfactory to Lender (x) an Assignment of Interest Rate Cap (y) a recognition letter from the Counterparty thereto acknowledging the assignment of the Replacement Interest Rate Cap Agreement and (z) any other opinions or documents required pursuant to Section 2.4 hereof; (xx) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period; (xxi) if any default occurs under the Operating Lease Subordination Agreement, and such default continues after the expiration of applicable grace or cure periods, if any; (xxii) if there shall occur any material default by Mortgage Borrower, as tenant under the Operating Lease, in the observance or performance of any term, covenant or condition of the Operating Lease to be observed or performed and said default is not cured following the expiration of any applicable grace and notice periods therein -90- provided, or if the leasehold estate created by the Operating Lease shall be surrendered or if the Operating Lease shall cease to be in full force and effect or the Operating Lease shall be terminated or canceled for any reason or under any circumstances whatsoever, or if any of the terms, covenants or conditions of the Operating Lease shall in any manner be modified, changed, supplemented, altered, or amended in any material respect without the consent of Lender; (xxiii) if any of the assumptions contained in the Insolvency Opinion, or in any other "non-consolidation" opinion delivered to Lender in connection with the Loan, or in any other "non-consolidation" opinion delivered subsequent to the closing of the Loan, is or shall become untrue in any material respect; (xxiv) if (a) a material default has occurred and continues beyond any applicable cure period under the Franchise Agreement, and such default permits a party to terminate or cancel the Franchise Agreement or (b) any Franchise Agreement expires or otherwise terminates and is not replaced with a replacement Franchise Agreement reasonably acceptable to Lender; (xxv) if Mortgage Borrower or Operating Lessee ceases to operate a hotel on any Individual Property or terminates such business for any reason whatsoever (other than temporary cessation in connection with any renovations to an Individual Property or restoration of the Individual Property after Casualty or Condemnation); (xxvi) if Borrower causes Mortgage Borrower to terminate or cancel the Franchise Agreement, without Lender's prior written consent; (xxvii) if Borrower shall cause Mortgage Borrower to fail to pay any Ground Rent or any additional rent or other charge mentioned in or made payable by any Ground Lease when said rent or other charge is due and payable after the expiration of all applicable notice and grace periods contained in such Ground Lease; (xxviii) if there shall occur any default in the observance or performance of any term, covenant or condition of the Ground Lease on the part of Ground Lessor or Mortgage Borrower to be observed or performed and said default is not cured following the expiration of any applicable grace and notice periods therein provided, or if the leasehold estate created by the Ground Lease shall be surrendered or if the Ground Lease shall cease to be in full force and effect or the Ground Lease shall be terminated or canceled for any reason or under any circumstances whatsoever, or if any of the terms, covenants or conditions of the Ground Lease shall in any manner be modified, changed, supplemented, altered, or amended without the consent of Lender; (xxix) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in subsections (i) to (xxviii) above, for ten (10) days after written notice to Borrower 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 written notice from Lender in the case of any other Default; provided, however, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within -91- such 30-day period and provided further that Borrower 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 such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed sixty (60) days; (xxx) if there shall be default under the Pledge Agreement or any of the other Loan Documents beyond any applicable notice and cure periods contained in such documents, whether as to Borrower or the Collateral, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt; (xxxi) the Liens created pursuant to any Loan Document shall cease to be a fully enforceable first priority security interest; (xxxii) a Mortgage Loan Event of Default shall occur, and shall not have been waived or settled by Mortgage Lender or cured by Mortgage Borrower, or if Mortgage Borrower enters into or otherwise suffers or permits any material amendment, waiver, supplement, termination, extension, renewal, replacement or other modification of any Mortgage Loan Document without the prior written consent of Lender; or (xxxiii) a Mezzanine Loan Event of Default shall occur, and shall not have been waived or settled by Mezzanine Lender or cured by Mezzanine Borrower, or if Mezzanine Borrower enters into or otherwise suffers or permits any material amendment, waiver, supplement, termination, extension, renewal, replacement or other modification of any Mezzanine Loan Document without the prior written consent of Lender. (b) Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (vi) or (vii) above) and at any time thereafter, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and the Collateral, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents and any or all of the Collateral and may exercise all the rights and remedies of a secured party under the Uniform Commercial Code against Borrower and the Collateral, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi) or (vii) above, the Debt and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. SECTION 8.2 Remedies. (a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under this -92- Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to the Collateral. 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 Applicable Law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by Applicable Law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing all Liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Collateral and the Collateral has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. (b) With respect to Borrower and the Collateral, nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to the Collateral for the satisfaction of any of the Debt in preference or priority, and Lender may seek satisfaction out of the Collateral or any other Collateral or any part thereof, in its absolute discretion in respect of the Debt. In addition, Lender shall have the right from time to time to partially foreclose the upon the Collateral in any manner and for any amounts secured by the Pledge Agreement then due and payable as determined by Lender in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal and interest, Lender may foreclose upon the Collateral to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loan, Lender may foreclose upon the Collateral to recover so much of the principal balance of the Loan as Lender may accelerate and such other sums secured by the Pledge Agreement as Lender may elect. Notwithstanding one or more partial foreclosures, the Collateral shall remain subject to the Pledge Agreement to secure payment of sums secured by the Pledge Agreement and not previously recovered. (c) Lender shall have the right, from time to time, to sever the Note and the other Loan Documents into one or more separate notes, pledges and other security documents (the "Severed Loan Documents") in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof; provided, however, Lender shall not make or execute any such documents under such power until three (3) days after notice has been given to Borrower by Lender of Lender's intent to exercise its rights under such power. The Severed Loan Documents shall not contain any representations, warranties or covenants not contained in -93- the Loan Documents and any such representations and warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing Date. (d) Any amounts recovered from the Collateral after an Event of Default may be applied by Lender toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents in such order, priority and proportions as Lender in its sole discretion shall determine. SECTION 8.3 Right to Cure Defaults. (a) Upon the occurrence and during the continuance of any Event of Default, Lender may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder, make any payment or do any act required of Borrower hereunder in such manner and to such extent as Lender may deem necessary to protect the security hereof. Lender 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 for such purposes, and the cost and expense thereof (including reasonable attorneys' fees to the extent permitted by law), with interest as provided in this Section 8.3, 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 in remedying such Event of Default or such failed payment or act or in appearing in, defending, or bringing any 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 the liens, claims and security interests provided to Lender under the Loan Documents and shall be immediately due and payable upon demand by Lender therefor. (b) Lender shall have the right, but shall not have the obligation, to exercise Borrower's rights under the Organizational Documents of Mortgage Borrower or Mezzanine Borrower (a) to cure a Mortgage Loan Event of Default or a Mezzanine Loan Event of Default and (b) to satisfy any Liens, claims or judgments against the Properties or the collateral under the Mezzanine Loan (except for Liens permitted by the Mortgage Loan Documents or the Mezzanine Loan Documents), in the case of either (a) or (b), unless Borrower, Mortgage Borrower or Mezzanine Borrower shall be diligently pursuing remedies to cure to Lender's sole satisfaction. Borrower shall reimburse Lender on demand for any and all costs incurred by Lender in connection with curing any such Mortgage Loan Event of Default or any such Mezzanine Loan Event of Default or satisfying any Liens, claims or judgments against any Individual Property or the collateral under the Mezzanine Loan. SECTION 8.4 Remedies Cumulative; Waivers. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion. -94- No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one or more Defaults or Events of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon. SECTION 8.5 Power of Attorney. For the purpose of carrying out the provisions and exercising the rights, powers and privileges granted in this Section 8, Borrower hereby irrevocably appoints the Lender as its true and lawful attorney-in-fact to execute, acknowledge and deliver any instruments and do and perform any acts such as are referred to in this subsection in the name and on behalf of Borrower. This power of attorney is a power coupled with an interest and cannot be revoked. IX. SPECIAL PROVISIONS SECTION 9.1 Sale of Notes and Lender Transactions. Lender may, at any time, sell, pledge, transfer, pledge or assign the Note, this Agreement, the Pledge Agreement and the other Loan Documents, and any or all servicing rights with respect thereto (a "Lender Transaction"). At the request of the holder of the Note and, to the extent not already required to be provided by Borrower under this Agreement, Borrower (subject to the limitations set forth at the end of this Section 9.1) shall use its best efforts to satisfy the market standards to which Lender customarily adheres or which may be reasonably required in the marketplace in connection the sale, pledge, transfer, pledge or assignment of the Note, including, without limitation, to: (a) (i) provide such financial and other information with respect to the Collateral, the Properties, Borrower, Mortgage Borrower and the Manager, (ii) provide budgets relating to the Properties and (iii) permit Lender or Lender's designees to perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I's and, if appropriate, Phase II's), engineering reports and other due diligence investigations of the Properties, as may be reasonably requested by the holder of the Note or as may be necessary or appropriate in connection with a Lender Transaction (the "Provided Information"), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of accountants or opinions of counsel of independent attorneys acceptable to Lender; (b) if required by Lender, deliver (i) a revised Insolvency Opinion, (ii) revised opinions of counsel as to due execution and enforceability with respect to the Collateral, Borrower, Guarantor, Indemnitor, Principal, the Operating Lessee SPE Entities, the Pledgor SPE Entities and their respective Affiliates and the Loan Documents, and (iii) revised Organizational Documents for Borrower, Guarantor, Indemnitor, the Operating Lessee SPE Entities, the Pledgor SPE Entities and Principal and their respective Affiliates (including, without limitation, such revisions as are necessary to comply with the provisions of Section -95- 4.1.36 hereof), which counsel, opinions and Organizational Documents shall be satisfactory to Lender and the Rating Agencies; (c) if required by Lender, cause to be delivered such additional tenant estoppel letters, subordination agreements or other agreements from parties to agreements that affect the Properties reasonably requested by Lender; (d) execute such amendments to the Loan Documents and Organizational Documents as may be reasonably requested by Lender or otherwise to effect a Lender Transaction; provided, however, that Borrower shall not be required to modify or amend any Loan Document if such modification or amendment would (i) materially increase Borrower's obligations or out-of-pocket costs related to compliance with this Agreement (except for modifications and amendments required to be made pursuant to Section 9.1 (e) below), (ii) change the interest rate, the stated maturity or the amortization of principal set forth in the Note, or (iii) modify or amend any other economic, financial or payment term (or otherwise modify or amend in any material respect any of the terms) of the Loan; and (e) make such representations and warranties as of the closing date of the Lender Transaction with respect to the Collateral, the Properties, Borrower, Mortgage Borrower and the Loan Documents as are customarily provided in securitization transactions and as may be reasonably requested by the holder of the Note or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof, including the representations and warranties made in the Loan Documents Other than costs and expenses which are otherwise the responsible of Borrower pursuant to the terms of the Loan Documents, in connection with Borrower's complying with requests made under this Section 9.1, Borrower shall only be responsible for the payment of (i) Borrower's legal counsel and accountants and (ii) any internal, administrative or clerical cost and expenses incurred by Borrower. SECTION 9.2 Securitization. In the event Lender ever desires to issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement, Borrower agrees to (and agrees to cause Mortgage Borrower to) cooperate with Lender to the same extent such cooperation is required of Mortgage Borrower pursuant to the terms of the Mortgage Loan Agreement. SECTION 9.3 Servicer. At the option of Lender or Agent, the Loan may be serviced by a servicer/trustee (the "Servicer") selected by Lender or Agent and Lender or Agent may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "Servicing Agreement") between Lender or Agent and Servicer. -96- SECTION 9.4 Exculpation. (a) Except as otherwise provided in this Section 9.4 and comparable provisions in the Pledge Agreement or in the other Loan Documents, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in this Agreement, the Note or the Pledge Agreement by any action or proceeding wherein a money judgment shall be sought against Borrower or any of Borrower's Affiliates, 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 Agreement, the Note, the Pledge Agreement, the other Loan Documents, and the Collateral, and any other Collateral created by this Agreement, the Note, the Pledge Agreement and the other Loan 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 Collateral and in any other collateral given to Lender. Lender, by accepting this Agreement, the Note and the Pledge Agreement, agrees that it shall not, except as otherwise provided in this Section 9.4 and comparable provisions or in the Pledge Agreement, sue for, seek or demand any deficiency judgment against Borrower or any of Borrower's Affiliates in any such action or proceeding, under or by reason of or under or in connection with this Agreement, the Note, the Pledge Agreement or the other Loan Documents. The provisions of this Section shall not, however, (i) constitute a waiver, release or impairment of any obligation evidenced or secured by this Agreement, the Note, the Pledge Agreement or the other Loan Documents; (ii) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under the Pledge Agreement; (iii) except as set forth in this Section 9.4, affect the validity or enforceability of any indemnity (including, without limitation, the Environmental Indemnity), guaranty (including, without limitation, the Guaranty), master lease or similar instrument made in connection with this Agreement, the Note, the Pledge Agreement, or the other Loan Documents; (iv) impair the right of Lender to obtain the appointment of a receiver; (v) impair the right of Lender to enforce Sections 4.1.9, 4.1.29, 5.1.9 and 5.2.8 hereof; or (vi) impair the right of Lender to obtain a deficiency judgment or other judgment on the Note against Borrower to the extent necessary to (A) preserve or enforce its rights and remedies against the Collateral or (B) obtain any Insurance Proceeds or Awards to which Lender would otherwise be entitled under the terms of this Agreement or the Pledge Agreement; provided however, Lender shall only enforce such judgment to the extent of amounts Lender is entitled to under the terms of this Agreement from such Insurance Proceeds and/or Awards. (b) Notwithstanding the provisions of this Section 9.4 to the contrary, Borrower shall be personally liable to Lender for the Losses Lender incurs to the extent due to: (i) fraud or material misrepresentation in connection with the execution and the delivery of this Agreement, the Note, the Pledge Agreement, the other Loan Documents or any Mortgage Loan Document; (ii) Borrower's or Pledgor's or Operating Lessee's or Mortgage Borrower's or Mezzanine Borrower's misapplication or misappropriation of Rents received by Borrower, Pledgor, Operating Lessee, Mortgage Borrower or Mezzanine Borrower after the occurrence of an Event of Default; (iii) Borrower's, Pledgor's, Operating Lessee's, Mortgage Borrower's or Mezzanine Borrower's misapplication or misappropriation of Security Deposits or Rents collected more than thirty (30) days in advance; (iv) Borrower's, Pledgor's, Operating Lessee's, Mortgage Borrower's or Mezzanine Borrower's misapplication or the misappropriation of Insurance Proceeds or Awards; (v) Borrower's, Pledgor's, Operating Lessee's, Mortgage -97- Borrower's or Mezzanine Borrower's misapplication or the misappropriation of Net Liquidation Proceeds After Debt Service or any distributions or other payments made in respect of any part of the Property or any part of the Collateral; (vi) Borrower's making a distribution to its equity owners after the occurrence of an Event of Default; (vii) Mortgage Borrower's or Mezzanine Borrower's failure to pay Taxes, Other Charges (except to the extent that sums sufficient to pay such amounts have been deposited in escrow with Mortgage Lender or Mezzanine Lender pursuant to the terms of Section 7.2 of the Mortgage Loan Agreement or the Mezzanine Loan Agreement, as applicable), charges for labor or materials or other charges that can create Liens on the Properties; (viii) Borrower's or Pledgor's failure to return or to reimburse Lender for all Personal Property taken from any Properties by or on behalf of Mortgage Borrower or Operating Lessee and not replaced with Personal Property of comparable utility and value; (ix) any act of intentional waste or arson to the Collateral by Borrower, Mortgage Borrower, Mezzanine Borrower, the Operating Lessee SPE Entities, the Pledgor SPE Entities or Principal or any Affiliate or thereof or by any Indemnitor or Guarantor; (x) any fees or commissions paid by Borrower to Principal, Mortgage Borrower, Mezzanine Borrower, the Pledgor SPE Entities, the Operating Lessee SPE Entities or any Affiliate of Borrower, Principal, the Pledgor SPE Entities, the Operating Lessee SPE Entities, Indemnitor, or Guarantor in violation of the terms of this Agreement, the Note, the Pledge Agreement or the other Loan Documents; (xi) Borrower's failure to comply with the provisions of Sections 4.1.40 and 5.1.19 of this Agreement; (xii) any Loss resulting from a Casualty due to Borrower's, Mortgage Borrower's or Mezzanine Borrower's failure to obtain the insurance required pursuant to Section 6.1; (xiii) Borrower's default under Section 5.1.10 hereof (after ten (10) Business Days prior written notice to Borrower); (xiv) if any Ground Lease is modified or terminated by Mortgage Borrower or any Affiliate thereof other than in accordance with the terms hereof and (xv) all amounts contemplated under Section 5.1.12 hereof and any real estate or other transfer tax incurred to transfer title to the Collateral following the occurrence of an Event of Default, including, without limitation, any transfer tax or similar tax incurred by Lender in the exercise of the option to purchase the fee estate contained in a Ground Lease, (xvi) any Loss resulting from the Jacksonville Property's failure to comply with applicable zoning ordinances relating to density or number of hotel rooms and (xvii) any Loss paid to Hilton Inns, Inc. or any Affiliate thereof (including, without limitation, any termination or similar fees by, or on behalf of, Operating Lessee) resulting from a termination of the franchise license agreement(s) relating to the Hilton Franchised Properties. (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 and the obligation to repay the Debt shall become a personal recourse obligation of Borrower (i) in the event of Borrower's or Principal's default under Section 4.1.36 hereof or a default under Section 12 of the Operating Lease Subordination Agreement (such that such failure was considered by a court as a factor in the court's finding for a consolidation of the assets of Borrower, Principal and/or Pledgor with the assets of another Person) or any Transfer in violation of the provisions of Section 5.2.10 hereof, (ii) if any Individual Property, the Collateral, or any part thereof shall become an asset, or if Borrower, Principal, Ground Lessor, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Mortgage Borrower, Mortgage Principal, Mezzanine Borrower or Mezzanine Principal shall be a debtor, in (A) a voluntary bankruptcy or insolvency proceeding or (B) an involuntary bankruptcy or insolvency proceeding commenced by any Person (other than Lender, Mortgage -98- Lender or Mezzanine Lender) and, with respect to such involuntary proceeding, Borrower consents or fails to object to such proceedings) or if Borrower, Principal, Ground Lessor, an Operating Lessee SPE Entity, a Pledgor SPE Entity, Mortgage Borrower, Mortgage Principal, Mezzanine Borrower, Mezzanine Principal or any Affiliate of any of the foregoing has acted in concert with, colluded or conspired with the party to cause the filing of such involuntary proceeding, (iii) the event that fee title to any applicable Individual Property is not promptly transferred by Ground Lessor to Mortgage Borrower in accordance with the terms of the option to purchase such fee title contained in each Ground Lease or (iv) an Event of Default contemplated by Section 8.1(xi)(b), 8.1(xi)(c) or 8.1(xxiv)(b) hereof has occurred (unless caused by, or at the request of, Lender, Mortgage Lender of Mezzanine Lender); provided, however, with respect to this Section 9.4(c)(iii) and (iv) only, Borrower shall only be liable on a recourse basis for the Allocated Loan Amounts (plus interest thereon and costs and expenses relating thereto) of the Individual Properties that were the cause of such Event of Default. (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 Bankruptcy Code against Borrower and Principal to file a claim for the full amount of the indebtedness secured by the Pledge Agreement or to require that all Collateral shall continue to secure all of the indebtedness owing to Lender in accordance with this Agreement, the Note, the Pledge Agreement and the other Loan Documents. SECTION 9.5 Mortgage/Mezzanine Loan Defaults. (a) Without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrower from any of its obligations hereunder, if there shall occur any Default under the Mortgage Loan Documents or the Mezzanine Loan Documents or if Mortgage Lender or Mezzanine Lender asserts in writing that Mortgage Borrower or Mezzanine Borrower, as applicable, has defaulted in the performance or observance of any term, covenant or condition of the Mortgage Loan Documents or the Mezzanine Loan Documents (whether or not the same shall have continued beyond any applicable notice or grace periods, whether or not Mortgage Lender or Mezzanine Lender shall have delivered proper notice to Mortgage Borrower or Mezzanine Borrower, as applicable, and without regard to any other defenses or offset rights Mortgage Borrower or Mezzanine Borrower may have against Mortgage Lender or Mezzanine Lender, as applicable), Borrower hereby expressly agrees that Lender shall have the immediate right, without notice to or demand on Borrower, Mortgage Borrower or Mezzanine Borrower, but shall be under no obligation: (i) to pay all or any part of the Mortgage Loan or the Mezzanine Loan, and any other sums, that are then due and payable and to perform any act or take any action on behalf of Mortgage Borrower or Mezzanine Borrower, as may be appropriate, to cause all of the terms, covenants and conditions of the Mortgage Loan Documents on the part of Mortgage Borrower, or the Mezzanine Loan Documents on the part of Mezzanine Borrower, to be performed or observed thereunder to be promptly performed or observed; and (ii) to pay any other amounts and take any other action as Lender, in its sole and absolute discretion, shall deem advisable to protect or preserve the rights and interests of Lender in the Loan and/or the Collateral. Lender shall have no obligation to complete any cure or attempted cure undertaken or commenced by Lender. All sums so paid and the costs and expenses incurred by Lender in exercising rights under this Section (including, without limitation, reasonable attorneys' and other professional fees), with interest -99- at the Default Rate, for the period from the date of demand by Lender to Borrower for such payments to the date of payment to Lender, shall constitute a portion of the Debt, shall be secured by the Pledge Agreement and shall be due and payable to Lender within two (2) Business Days following demand therefor. In the event that Lender makes any payment in respect of the Mortgage Loan or the Mezzanine Loan, Lender shall be subrogated to all of the rights of Mortgage Lender under the Mortgage Loan Documents (or Mezzanine Lender under the Mezzanine Loan Documents) against the Property and Mortgage Borrower (or the collateral under the Mezzanine Loan and Mezzanine Borrower) in addition to all other rights Lender may have under the Loan Documents or applicable law. (b) Subject to the rights of tenants, Borrower hereby grants, and shall cause Mortgage Borrower to grant, Lender and any Person designated by Lender the right to enter upon the Property at any time for the purpose of carrying out the rights granted to Lender under this Section 9.5. Borrower shall not, and shall not cause or permit Mortgage Borrower, Mezzanine Borrower, or any other Person to impede, interfere with, hinder or delay, any effort or action on the part of Lender to cure any default or asserted default under the Mortgage Loan or the Mezzanine Loan, or to otherwise protect or preserve Lender's interests in the Loan and the Collateral, including the Property in accordance with the provisions of this Agreement and the other Loan Documents. (c) Borrower hereby indemnifies Lender from and against all out-of-pocket liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including, without limitation, reasonable attorneys' and other professional fees, whether or not suit is brought, and settlement costs), and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Lender as a result of the foregoing actions described in Section 9.10(a). Lender shall have no obligation to Borrower, Mortgage Borrower, Mezzanine Borrower or any other party to make any such payment or performance. (d) If Lender shall receive a copy of any notice of default under the Mortgage Loan Documents sent by Mortgage Lender to Mortgage Borrower (or the Mezzanine Loan Documents sent by Mezzanine Lender to Mezzanine Borrower), 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. As a material inducement to Lender's making the Loan, Borrower hereby absolutely and unconditionally release and waive all claims against Lender arising out of Lender's exercise of its rights and remedies provided in this Section other than claims arising out of the fraud, illegal acts, gross negligence or willful misconduct of Lender. (e) Any Default under the Mortgage Loan or the Mezzanine Loan which is cured by Lender, whether or not such cure is prior to the expiration of any applicable grace, notice or cure period under the Mortgage Loan Documents or the Mezzanine Loan Documents, as applicable, shall constitute an immediate Event of Default under this Agreement without any notice, grace or cure period otherwise applicable under this Agreement. -100- SECTION 9.6 Intercreditor Agreements. (a) (i) Lender and Mortgage Lender are parties to a certain intercreditor agreement dated as of the date hereof (the "Intercreditor Agreement") memorializing their relative rights and obligations with respect to the Mortgage Loan, the Loan, Mortgage Borrower, Borrower and the Properties. Borrower and Mortgage Borrower hereby acknowledge and agree that (A) such Intercreditor Agreement is intended solely for the benefit of Lender and Mortgage Lender and (B) Borrower and Mortgagor are not intended third-party beneficiaries of any of the provisions therein and shall not be entitled to rely on any of the provisions contained therein. Lender and Mortgage Lender have not disclosed and shall have no obligation to disclose to Borrower the contents of the Intercreditor Agreement. Borrower's obligations hereunder are independent of such Intercreditor Agreement and remain unmodified by the terms and provisions thereof. (ii) In the event Lender is required pursuant to the terms of the Intercreditor Agreement to pay over any payment or distribution of assets, whether in cash, property or securities which is applied to the Debt, including, without limitation, any proceeds of the Properties previously received by Lender on account of the Loan to the Mortgage Lender, then Borrower agrees to indemnify Lender for any amounts so paid, and any amount so paid shall continue to be owing pursuant to the Loan Documents as part of the Debt notwithstanding the prior receipt of such payment by Lender. (b) (i) Lender and Mezzanine Lender are parties to a certain intercreditor agreement dated as of the date hereof (the "Mezzanine Intercreditor Agreement") memorializing their relative rights and obligations with respect to the Mezzanine Loan, the Loan, Mezzanine Borrower, Borrower and the Collateral. Borrower and Mezzanine Borrower hereby acknowledge and agree that (A) such Mezzanine Intercreditor Agreement is intended solely for the benefit of Lender and Mezzanine Lender and (B) Borrower and Mezzanine Borrower are not intended third-party beneficiaries of any of the provisions therein and shall not be entitled to rely on any of the provisions contained therein. Lender and Mezzanine Lender have not disclosed and shall have no obligation to disclose to Borrower the contents of the Mezzanine Intercreditor Agreement. Borrower's obligations hereunder are independent of such Mezzanine Intercreditor Agreement and remain unmodified by the terms and provisions thereof. (ii) In the event Lender is required pursuant to the terms of the Mezzanine Intercreditor Agreement to pay over any payment or distribution of assets, whether in cash, property or securities which is applied to the Debt, including, without limitation, any proceeds of the Collateral previously received by Lender on account of the Loan to the Mezzanine Lender, then Borrower agrees to indemnify Lender for any amounts so paid, and any amount so paid shall continue to be owing pursuant to the Loan Documents as part of the Debt notwithstanding the prior receipt of such payment by Lender. SECTION 9.7 Discussions with Mortgage Lender. In connection with the exercise of its rights set forth in the Loan Documents, Lender shall have the right at any time to discuss the Properties, the Collateral, the Mortgage Loan, the -101- Mezzanine Loan, the Loan or any other matter directly with Mortgage Lender or Mezzanine Lender or Mortgage Lender's or Mezzanine Lender's consultants, agents or representatives without notice to or permission from Borrower or any other Loan Party, nor shall Lender have any obligation to disclose such discussions or the contents thereof with Borrower or any other Loan Party. SECTION 9.8 Independent Approval Rights. If any action, proposed action or other decision is consented to or approved by Mortgage Lender, such consent or approval shall not be binding or controlling on Lender. Borrower hereby acknowledges and agrees that (i) the risks of Mortgage Lender in making the Mortgage Loan are different from the risks of Lender in making the Loan, (ii) in determining whether to grant, deny, withhold or condition any requested consent or approval Mortgage Lender and Lender may reasonably reach different conclusions, and (iii) Lender has an absolute independent right to grant, deny, withhold or condition any requested consent or approval based on its own point of view. Further, the denial by Lender of a requested consent or approval shall not create any liability or other obligation of Lender if the denial of such consent or approval results directly or indirectly in a default under the Mortgage Loan, and Borrower hereby waives any claim of liability against Lender arising from any such denial. SECTION 9.9 Reinstatement. This Agreement and each other Loan Document shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Debt or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Borrower, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Debt shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. X. MISCELLANEOUS SECTION 10.1 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender, and all covenants, promises and agreements in this Agreement, by or on behalf of Lender, shall be binding upon the legal representatives successors and assigns of Lender. -102- SECTION 10.2 Lender's Discretion. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. SECTION 10.3 Governing Law. (a) THIS AGREEMENT 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 (OTHER THAN THOSE CONFLICT OF LAW PROVISIONS THAT WOULD DEFER TO THE SUBSTANTIVE LAWS OF ANOTHER JURISDICTION). WITHOUT IN ANY WAY LIMITING THE PRECEDING CHOICE OF LAW, THE PARTIES ELECT TO BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK. (b) WITH RESPECT TO ANY CLAIM OR ACTION ARISING HEREUNDER OR UNDER THIS AGREEMENT, THE NOTE, OR THE OTHER LOAN DOCUMENTS, BORROWER (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 AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS 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 AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS INSTRUMENT WILL BE DEEMED TO PRECLUDE LENDER FROM BRINGING AN ACTION OR PROCEEDING WITH RESPECT HERETO IN ANY OTHER JURISDICTION. WITHOUT IN ANY WAY LIMITING THE PRECEDING CONSENTS TO JURISDICTION AND VENUE, THE PARTIES AGREE TO SUBMIT TO THE JURISDICTION OF SUCH NEW YORK COURTS IN ACCORDANCE WITH SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK OR ANY CORRESPONDING OR SUCCEEDING PROVISIONS THEREOF. SECTION 10.4 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, the Note, or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a -103- writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on Borrower, shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. SECTION 10.5 Delay Not a Waiver. Neither any failure nor any delay on the part of Lender or Borrower in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. SECTION 10.6 Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day 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: c/o FelCor Lodging Trust Incorporated 545 E. John Carpenter Freeway, Suite 1300 Irving, Texas 75062 Attention: General Counsel Facsimile No.: (972) 444-4949 With a copy to: Jenkens & Gilchrist 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attention: Tom E. Davis, Esq. Facsimile No.: (214) 855-4300 -104- If to Lender: JPMorgan Chase Bank c/o J.P. Morgan Mortgage Capital, Inc. 400 Perimeter Center Terrace Suite 575 Atlanta, Georgia 30346 Attention: Loan Servicing Facsimile No.: (351) 770-8399 and With a copy to: Thacher Proffitt & Wood 11 West 42nd Street New York, New York 10036 Attention: David S. Hall, Esq. Facsimile No.: (212) 789-3500 or addressed as such party may from time to time designate by written notice to the other parties. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. SECTION 10.7 Trial by Jury. BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BORROWER AND LENDER ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER AND LENDER, AS APPLICABLE. SECTION 10.8 Headings. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. -105- SECTION 10.9 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement shall be prohibited by or invalid under Applicable Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. SECTION 10.10 Preferences. Except as otherwise expressly provided herein, Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, State or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. SECTION 10.11 Waiver of Notice. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Lender to Borrower. SECTION 10.12 Remedies of Borrower. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. SECTION 10.13 Expenses; Indemnity. (a) Except as otherwise expressly provided herein, Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender within five (5) days of receipt of written notice from Lender for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with (i) the preparation, -106- negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrower (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Properties); (ii) Borrower's ongoing performance of and compliance with Borrower's respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental and insurance requirements; (iii) Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date; (iv) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by Lender; (v) securing Borrower's compliance with any requests made pursuant to the provisions of this Agreement; (vi) the filing and recording fees and expenses, UCC insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents, the Collateral, or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Collateral or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any cost and expenses due and payable to Lender may, at Lender's option, be payable to Lender's designee. (b) Borrower shall indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents, or (ii) the use or intended use of the proceeds of the Loan (collectively, the "Indemnified Liabilities"); provided, however, that Borrower shall not have any obligation to Lender hereunder to the extent that such Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion that it is permitted to pay and satisfy under Applicable Law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. -107- (c) Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless Lender and the Indemnified Parties from and against any and all losses (including, without limitation, reasonable attorneys' fees and costs incurred in the investigation, defense, and settlement of losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA, the Code, any State statute or other similar law that may be required, in Lender's sole discretion) that Lender may incur, directly or indirectly, as a result of a default under Sections 4.1.9 or 5.2.8 hereof. SECTION 10.14 Schedules and Exhibits Incorporated. The Schedules and Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. SECTION 10.15 Offsets, Counterclaims and Defenses. Any assignee of Lender's interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to the Loan Documents which Borrower may otherwise have against any assignor of the Loan Documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. SECTION 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries. (a) Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender and Lender does not have any fiduciary relationship to Borrower. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender. (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower (or an Affiliate of either of the foregoing acting on behalf of Borrower or Lender, as applicable) any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. -108- SECTION 10.17 Publicity. All news releases, publicity or advertising by Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents, to Lender, or any of their Affiliates shall be subject to the prior written approval of Lender, which shall not be unreasonably withheld. Notwithstanding the foregoing, disclosure required by any federal or State securities laws, rules or regulations, as determined by Borrower's counsel, shall not be subject to the prior written approval of Lender. SECTION 10.18 Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets. (a) Borrower acknowledges that Lender has made the Loan to Borrower upon the security of its collective interest in the Collateral and in reliance upon the aggregate of the Collateral being of greater value as collateral security than the sum of any portion of the Collateral taken separately. Borrower agrees that the Pledge Agreement is and will be cross-collateralized and cross-defaulted with the Security Agreement other so that (i) an Event of Default under the Pledge Agreement shall constitute an Event of Default under the Security Agreement which secure the Note; (ii) an Event of Default under the Note or this Agreement shall constitute an Event of Default under the Pledge Agreement and the Security Agreement; (iii) the Pledge Agreement and the Security Agreement shall constitute security for the Note as if a single blanket lien were placed on all of the Properties as security for the Note; and (iv) such cross-collateralization shall in no event be deemed to constitute a fraudulent conveyance. (b) To the fullest extent permitted by Applicable Law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Mezzanine Borrower, and of the Collateral, or to a sale in inverse order of alienation in the event of foreclosure of all or any of the Pledge Agreement or the Security Agreement, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Collateral for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Properties in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of the Pledge Agreement or the Security Agreement, any equitable right otherwise available to Borrower which would require the separate sale of the Collateral or require Lender to exhaust its remedies against any portion of the Collateral before proceeding against any other portion of the Collateral; and further in the event of such foreclosure Borrower does hereby expressly consent to and authorize, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Collateral. SECTION 10.19 Waiver of Counterclaim. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents. -109- SECTION 10.20 Conflict; Construction of Documents; Reliance. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender's exercise of any such rights or remedies. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates. SECTION 10.21 Brokers and Financial Advisors. Borrower and Lender hereby represent that they have dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind (including Lender's reasonable attorneys' fees and expenses) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower in connection with the transactions contemplated herein. The provisions of this Section 10.21 shall survive the expiration and termination of this Agreement and the payment of the Debt. SECTION 10.22 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, between Borrower and/or its Affiliates and Lender are superseded by the terms of this Agreement and the other Loan Documents. SECTION 10.23 Certain Additional Rights of Lender. Notwithstanding anything to the contrary which may be contained in this Agreement to the contrary, but subject to the provisions of Section 9.4 hereof, Lender shall have: (a) the right to routinely consult with and advise Borrower's management regarding the significant business activities and business and financial developments of Borrower, provided, however, that such consultations shall not include discussions of environmental -110- compliance programs or disposal of hazardous substances. Consultation meetings should occur, at Lender's request, on a regular basis at any reasonable times; (b) the right, in accordance with the terms of this Agreement, to examine the books and records of Borrower at any time upon reasonable notice; (c) the right, in accordance with the terms of this Agreement, to receive monthly, quarterly and year-end financial reports, including balance sheets, statements of income, shareholder's equity and cash flow, a management report and schedules of outstanding indebtedness; (d) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to approve any acquisition by Borrower of any other significant property (other than personal property required for the day to day operation of the Properties); (e) the right, without restricting any other rights of Lender under this Agreement (including any similar right), in the event of certain Events of Default, to vote the owners' interests in Borrower pursuant to irrevocable proxies granted, at the request of Borrower in advance for this purpose; and (f) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to restrict the transfer to voting interests in Borrower held by its members, an the right to restrict the transfer of interests in such member, except for any Transfer that is a permitted transfer. After prior written notice to Borrower, the rights described above may be exercised by any entity which owns and controls, directly or indirectly, substantially all of the interests in Lender. SECTION 10.24 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. [NO FURTHER TEXT ON THIS PAGE] -111- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ------------------------------------------ Name: Joel M. Eastman Title: Vice President FELCOR/JPM LODGING CO., L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ------------------------------------- Name: Joel M. Eastman Title: Vice President LENDER: JPMORGAN CHASE BANK, a New York banking corporation By: /s/ Michael Mesard ------------------------------------- Name: Michael Mesard Title: Vice President Acknowledged and agreed to with respect to its obligations set forth in Article 9 hereof: FELCOR LODGING LIMITED PARTNERSHIP By: FelCor Lodging Trust Incorporated, a Maryland Corporation, its general partner By: /s/ Joel M. Eastman ----------------------------- Name: Joel M. Eastman Title: Vice President SCHEDULES AND EXHIBITS ARE INTENTIONALLY OMITTED. EX-10.30.01 10 d05903exv10w30w01.txt PLEDGE AND SECURITY AGREEMENT - JUNIOR MEZZANINE EXHIBIT 10.30.01 PLEDGE AND SECURITY AGREEMENT This PLEDGE AND SECURITY AGREEMENT (this "Agreement") dated as of April 24, 2003, among DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company, having its principal place of business c/o Felcor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Pledgor"), and JPMORGAN CHASE BANK, a New York banking corporation, having an address at 270 Park Avenue, New York, New York 10017 ("Lender"). W I T N E S S E T H: WHEREAS, Pledgor is the sole member of, and owner of all of the membership interests in DJONT/JPM HOLDINGS, L.L.C., a Delaware limited liability company ("Holdings"; such membership interests in Holdings together with all membership interest certificates, shares, claims, powers, privileges, benefits, remedies, options, or rights of any nature whatsoever (including, without limitation, all voting rights) which may currently exist or be issued or granted by Holdings to Pledgor with respect to or on account of such membership interests are collectively referred to in this Agreement as, the "Pledged Interests"); WHEREAS, Lender pursuant to that Mezzanine Loan Agreement of even date herewith (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), by and between the Pledgor and Lender, has agreed to make a loan to Pledgor in the aggregate principal amount of $25,000,000.00 (the "Loan"), which Loan is evidenced by a certain Secured Promissory Note (Mezzanine Loan) executed by Pledgor (the "Note") and secured by this Agreement and certain other loan documents (collectively, the "Loan Documents"); and WHEREAS, as a condition to making the Loan, Lender has required that Pledgor collaterally pledge and assign to Lender, and grant to Lender a first priority security interest in, the Collateral (as such term is hereinafter defined), as security for Pledgor's due and timely observance and performance of all of its obligations and covenants under the Note. NOW, THEREFORE, in consideration of the Loan, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. COLLATERAL PLEDGE AND GRANT OF SECURITY INTEREST. Subject to the terms and conditions of this Agreement, Pledgor hereby collaterally pledges and assigns to Lender, and grants to Lender a first priority security interest in, all of the Collateral, to secure Pledgor's due and timely observance and performance of all of its obligations and covenants under the Note (all of the foregoing, collectively, the "Obligations"). The term "Collateral" as used in this Agreement means the Pledged Interests and all Proceeds relating thereto. The term "Proceeds" as used in this Agreement means all "proceeds" as such term is defined in Section 9-102(a)(46) of the Uniform Commercial Code (hereinafter defined) and in any event shall include, without limitation, all dividends or other income from the Pledged Interests, collections thereon or distributions with respect thereto. (a) This Agreement shall constitute a security agreement under the Uniform Commercial Code as adopted and enacted in the State of New York, as amended from time to time (the "Uniform Commercial Code"). 2. BOOKS AND RECORDS. (a) Pledgor shall keep or cause to be kept accurate and complete books, records and accounts in accordance with generally accepted accounting principles, consistently applied, with respect to the financial affairs of Pledgor which relate to the Collateral. Pledgor represents and warrants to Lender that: (i) it is a registered organization under the state of Delaware; and (ii) all books and records with respect to the financial affairs of Holdings which relate to the Collateral are presently kept at either the offices of Pledgor in Dallas County, Texas or at the Properties (as defined in the Loan Agreement). (b) Pledgor shall notify Lender at least 30 days prior to: (i) any change of address of any entity comprising Pledgor; (ii) any change in the location where Holdings's books and records are kept; (iii) any change of the name under which any entity comprising Pledgor conducts its business. (c) Pledgor shall, from time to time, within five Business Days (as defined in the Loan Agreement) after written request and at its sole cost and expense, deliver to Lender certified copies of any of such books and records of Pledgor as may be reasonably requested by Lender. Lender shall have the right from time to time, upon reasonable prior notice, at all times during normal business hours to examine such books, records and accounts at Pledgor's office and to make copies or extracts therefrom as Lender shall desire. Pledgor shall, from time to time, within five Business Days after written request and at its sole cost and expense, deliver to Lender such information, reports and additional available financial information with respect to the financial affairs of Holdings and with respect to the Collateral as Lender shall reasonably request. 3. INTENTIONALLY OMITTED. 4. PROTECTION OF SECURITY INTEREST. Pledgor shall take any and all steps necessary or required to preserve and protect the priority of the security interest granted herein, and in furtherance of this obligation Pledgor agrees that: 2 (a) Pledgor shall not sell, assign, pledge, transfer or otherwise dispose of any of the Collateral or any interest therein, or offer to do so, without the prior written consent of Lender, or permit anything to be done that shall impair the value of any of the Collateral; (b) Pledgor hereby authorizes Lender to execute and file (as the case may be) financing statements under the Uniform Commercial Code, and Pledgor shall execute and deliver to Lender, upon Lender's request, any other documents reasonably requested by Lender, describing the Collateral and evidencing and/or perfecting the security interest in the Collateral and to otherwise effectively implement the purposes of this Agreement; (c) Lender may from time to time, at its option, and upon notice to Pledgor, perform any agreement or obligation of Pledgor hereunder which Pledgor fails to perform and take any action which Lender deems reasonably necessary or appropriate for the maintenance or preservation of any of the Collateral or its security interest therein; and (d) Any amounts incurred by Lender for costs and expenses (including, without limitation, reasonable attorney's fees and expenses) in connection with any action taken by Lender during an Event of Default to enforce or protect its rights hereunder, shall, at Lender's option, become part of the principal amount due under the Note and part of the Obligations and Pledgor shall pay any such amount to Lender together with interest thereon at the Default Rate (as such term is defined in the Loan Agreement). 5. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants that: (a) except as expressly permitted by the Loan Agreement, no other security agreement or financing statement covering the Collateral or any part thereof has been made or filed and no security interest, other than the one herein created, has been created, attached or perfected in the Collateral or in any part thereof; (b) no dispute, set-off, counterclaim or defense exists on the part of Pledgor or any other party in respect of any part of the Collateral; (c) all information supplied and statements made to Lender by or on behalf of Pledgor in connection with the identification and description of the Collateral are true and correct; and (d) except for (i) the liens and security interests created pursuant to the Loan Documents or (ii) such other liens and security interests expressly permitted thereby, Pledgor's title to the Collateral is absolute and unencumbered. 6. PLEDGOR COVENANTS. 3 Pledgor shall: (a) promptly furnish Lender with any information or documents which Lender may reasonably request in writing concerning the Collateral; (b) Intentionally Omitted; (c) promptly notify Lender, upon Pledgor becoming aware, of any claim, action or proceeding affecting title, or any other matter relating to the Collateral, or any part thereof, or the security interest created herein, and at Lender's written request, appear in and defend, at Pledgor's expense, any such claim, action or proceeding; (d) promptly make such further assurances as may be reasonably necessary to establish proof of Pledgor's title to the Collateral; (e) promptly furnish Lender with true copies of all notices (including notices of default) sent or received by Pledgor with respect to any material agreements relating to the Collateral; (f) not, without Lender's prior written consent, create any other security interest in, assign, pledge or otherwise encumber the Collateral or any part thereof, or permit any part of the Collateral to be or become subject to any lien (other than as expressly permitted in the Loan Agreement), attachment, execution, sequestration, other legal or equitable process, or encumbrance of any kind or character other than the security interests created by this Agreement; (g) After the occurrence of and during the continuance of an Event of Default (as such term is defined in Section 7 hereof), if Pledgor receives any Proceeds, Pledgor shall accept the same as Lender's agent and hold the same in trust on behalf of and for the benefit of Lender and shall promptly deliver the same forthwith to Lender, together with appropriate forms of assignment, UCC-1 financial statements, and other appropriate instruments indicating the security interest of Lender in such Proceeds, duly executed by Pledgor as additional collateral security for the Obligations. Pledgor authorizes and directs Lender to apply any cash Proceeds received by Lender after the occurrence of and during the continuance of an Event of Default to the payment of the Obligations in accordance with the Loan Agreement; and (h) Lender shall not have any liability whatsoever to Pledgor with respect to any Proceeds so received (except as otherwise provided in the Loan Agreement or this Agreement), nor shall Lender be liable to Pledgor in any manner with respect to the holding by Lender of any Collateral pursuant to and in accordance with this Agreement. Additionally, Lender shall not have any obligations, except as otherwise expressly set forth in this Agreement and for any state of facts determined by a final, judgment of a court of competent jurisdiction, arbitration or mediation to be caused by Lender's gross negligence, bad faith or willful misconduct, to take any action with respect to any Collateral held by it. 7. INTENTIONALLY DELETED. 4 8. REMEDIES. If an Event of Default (as defined in the Loan Agreement) shall occur and be continuing, Lender may exercise, in addition to all other rights and remedies granted in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Uniform Commercial Code in effect in each applicable jurisdiction. Without limiting the generality of the foregoing, Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice or procedure required by the Loan Agreement or applicable law or referred to herein) to or upon Holdings or any other person or entity (all and each of which demands, presentments, protests, advertisements or notices or other defenses, are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker's board or office of Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Holdings, which right or equity is hereby waived or released. Lender shall apply any Proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of Lender hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as Lender may elect, and only after such application and after the payment by Lender of any other amount required by any provision of applicable law, including, without limitation, the Uniform Commercial Code in effect in each applicable jurisdiction, need Lender account for the surplus, if any, to Pledgor. To the extent permitted by applicable law, Pledgor waives all claims, damages and demands they may acquire against Lender arising out of the exercise by Lender of any of its rights hereunder, except for any claims, damages and demands they may have against Lender arising from the gross negligence or willful misconduct of Lender. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. Pledgor shall remain liable for any deficiency if the proceeds of any sale or other disposition of Collateral are insufficient to pay the Obligations and the reasonable fees and disbursements of any attorneys employed by Lender to enforce its rights and remedies hereunder. Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance therewith will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. Lender may sell the Collateral without giving any warranties as to the Collateral. Lender may specifically disclaim any warranties of title or the like. The foregoing will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Lender sells any of the Collateral upon credit, Pledgor will 5 be credited only with payments actually made by the purchaser received by Pledgor and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Lender may recall the Collateral and Pledgor shall be credited with the proceeds of the resale. In the event Lender purchases any of the Collateral being sold, Lender may pay for the Collateral by crediting some or all of the Obligations. 9. PRIVATE SALES. Holdings and Pledgor recognize that Lender may be unable to effect a public sale of any or all the Pledged Interests, by reason of certain prohibitions contained in the Securities Act of 1933, as amended and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Holdings and Pledgor acknowledge and agree that any such private sale may result in prices and other terms less favorable to Lender than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. Lender shall be under no obligation to delay a sale of any of the Pledged Interests for the period of time necessary to permit Holdings to register such securities for public sale under the Securities Act of 1933, as amended, or under applicable state securities laws, even if Borrower would agree to do so. (a) Pledgor further agree to do or cause to be done all such other acts as may be reasonably requested to make any sale or sales of all or any portion of the Pledged Interests pursuant to this paragraph 9 valid and binding and in compliance with any and all other applicable requirements of law. Pledgor further agrees that a breach of any of the covenants contained in this paragraph 9 will cause irreparable injury to Lender, that Lender has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this paragraph 9 shall be specifically enforceable against Pledgor, and to the maximum extent permitted by applicable law, Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred under the Loan Agreement. 10. CERTAIN UNDERSTANDINGS OF PARTIES; REGISTRATION OF PLEDGE; CONTROL OF PLEDGED COLLATERAL, ETC. (i) The parties acknowledge and agree that the Pledged Interests constitute "general intangibles" (as defined in Section 9-102 of the Uniform Commercial Code); and (ii) Pledgor therefore covenants and agrees that (A) the Pledged Interests are not and will not be traded, dealt in or traded on securities exchanges or securities markets, (B) the terms of the Holdings's operating agreement (the "LLC Agreement") does not and will not provide that the Pledged Interests are securities governed by the Uniform Commercial Code as in effect in any jurisdiction and (C) the Pledged Interests are not and will not be investment company securities within the meaning of Section 8-103 of the Uniform Commercial Code as in effect in any jurisdiction. 11. REGISTRATION OF PLEDGE; CONTROL OF COLLATERAL. Notwithstanding the foregoing, to better assure the perfection of the security interest of Lender in the 6 Pledged Interests, concurrently with the execution and delivery of this Agreement, Pledgor shall send written instructions in the form of Exhibit A hereto to each issuer thereof (the "Issuer"), and shall cause the Issuer to, and the Issuer shall, deliver to Lender the Confirmation Statement and Instruction Agreement in the form of Exhibit B hereto pursuant to which the Issuer will confirm that it has registered the pledge effected by this Agreement on its books and agrees to comply with the instructions of Lender in respect of the Pledged Interests without further consent of Pledgor or any other Person. Notwithstanding anything in this paragraph neither the written instructions nor the Confirmation Statement and Instruction Agreement shall be construed as expanding the rights of Lender to give instructions with respect to the Collateral beyond such rights set forth in this Agreement. From time to time, Pledgor shall promptly provide replacement written instructions in the form of Exhibit A hereto to each Issuer and shall cause the Issuer to, and the Issuer shall, deliver to Lender the Confirmation Statement and Instruction Agreement in the form of Exhibit B to each assignee or collateral assignee of Lender, as requested by Lender. Pledgor agrees that the foregoing provisions of this Section 11 shall inure to the benefit of Lender's successors and assigns and any collateral assignees of Lender. 12. RIGHTS OF LENDER. (a) subject to the terms of this Pledge, Pledgor authorizes Lender, without notice or demand and without affecting Pledgor's liability or Lender's rights hereunder or with respect to the Obligations, from time to time: (i) to take and hold security other than the Collateral for the payment or performance of the Obligations or any part thereof, and to exchange, enforce, waive and release the Collateral or any part thereof or any such other security; and (ii) to apply the Collateral or any other security and to direct the order or manner of sale thereof as Lender in its discretion may determine. (b) If an Event of Default shall occur and be continuing, Lender shall have the right to receive any and all distributions of property and any and all amounts paid in respect of the Pledged Interests and make application thereof to the Obligations, in such order as Lender, in its sole discretion, may elect. If an Event of Default shall occur and be continuing, then all such Pledged Interests at Lender's option shall be registered in the name of Lender or its nominee, and Lender or its nominee may thereafter exercise (x) all voting and other rights pertaining to such Pledged Interests and (y) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such Pledged Interests as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Interests upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the organizational structure of Holdings, or upon the exercise by Pledgor or Lender of any right, privilege or option pertaining to such Pledged Interests, and in connection therewith, the right to deposit and deliver any and all of the Pledged Interests with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine), all without 7 liability except to account for property actually received by it, but Lender shall have no duty to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (c) The rights of Lender hereunder shall not be conditioned or contingent upon the pursuit by Lender of any right or remedy against Holdings or against any other person or entity which may be or become liable in respect of all or any part of the Obligations or against any other collateral security therefor, guarantee thereof or right of offset with respect thereto. Lender shall not be liable for any failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so, nor shall it be under any obligation to sell or otherwise dispose of any Collateral upon the request of Holdings or any other person or entity or to take any other action whatsoever with regard to the Collateral or any part thereof. Pledgor waives any right it may have to require Lender to pursue any third party for any of the Obligations. Pledgor hereby waives any and all requirements that Lender institute any action or proceeding at law or in equity against Pledgor or exhaust its remedies in respect of any other security for the Loan as a condition precedent to the exercise of Lender's rights and remedies with respect to the Collateral pursuant to the provisions of this Agreement. Pledgor waives any defenses by reason of any disability or other defense of any person, or by reason of the cessation from any cause whatsoever of the liability of any other person. 13. REMEDIES CUMULATIVE. No remedy herein conferred upon or reserved to Lender, whether exercised or not, is intended to be exclusive of any other remedy or remedies including, without limitation, those expressly provided in the Loan Documents and each and every such remedy shall be cumulative and concurrent and shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity. 14. STATUTE OF LIMITATIONS. Except as may be set forth herein to the contrary, until the Loan shall have been paid in full, all rights, powers and remedies granted to Lender under this Agreement shall continue to exist and may be exercised by Lender at any time and from time to time irrespective of the fact that the Loan or any part thereof may have become barred by any applicable Statute of Limitations or that the liability of Pledgor may have ceased. Anything herein to the contrary notwithstanding, upon the payment to Lender of all amounts then payable to Lender under the Loan Documents (including, without limitation, any accrued and unpaid interest and additional interest), Lender shall terminate this Pledge. 15. NOTICE. All notices or other communications required or permitted to be given pursuant hereto shall be given in writing directed to the parties at their respective addresses as provided in the Loan Agreement. 16. MISCELLANEOUS. (a) This Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and their respective successors and assigns. 8 (b) This Agreement shall be governed by and construed in accordance with the laws of the State of New York and the applicable laws of the United States of America. (c) Neither Pledgor nor Lender shall be bound by an undertaking not in writing signed by the parties hereto. (d) If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. (e) It is the express intention, understanding and agreement of the parties hereto that Lender's status with relation to the interests granted and to be granted to it by Pledgor hereunder is only that of a secured creditor of Pledgor, and nothing in this Agreement shall be construed as constituting Lender a mortgagee in possession. (f) This Agreement may be executed in any number of counterparts and each such duplicate original shall be deemed to be an original. (g) Subject to Section 9 above, this Agreement is intended solely for the benefit of Lender and Pledgor and their respective successors and assigns and no third party shall any rights or interest in this Pledge. Nothing contained in this Pledge shall be deemed or construed to create an obligation on the part of Lender or Pledgor to any third party, nor shall any third party have a right to enforce against Lender any right that Pledgor may have under this Pledge or to enforce against Pledgor any right that Lender may have under this Pledge. 17. EXCULPATION. The provisions of Article 8 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. 9 IN WITNESS WHEREOF, Pledgor and Lender have executed this instrument as of the day and year first above written. DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President JPMORGAN CHASE BANK, a New York banking corporation By: /s/ Michael Mesard ----------------------------------- Name: Michael Mesard Title: Vice President EXHIBIT A Form of Instruction to Register Pledge April 24, 2003 To: DJONT/JPM HOLDINGS, L.L.C. In accordance with the requirements of that certain Pledge and Security Agreement, dated as of April 24, 2003 (as amended, supplemented or otherwise modified from time to time, the "PLEDGE AGREEMENT"), between JPMORGAN CHASE BANK, a New York banking corporation ("LENDER") and DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company ("PLEDGOR"), you are hereby instructed, notwithstanding your and our understanding that the equity interests described below are not a securities under the Uniform Commercial Code, as a precaution in the event that such interest was nevertheless held to be a security, to register the pledge of the Pledged Interests and the Proceeds (both as defined in the Pledge Agreement). You are hereby further authorized and instructed to execute and deliver to Lender a Confirmation Statement and Instruction Agreement, substantially in the form of Exhibit B to the Pledge Agreement and, to the extent provided more fully therein, to comply with the instructions of Lender in respect of the Collateral without further consent of, or notice to, the undersigned. Notwithstanding anything in this paragraph, this instruction shall not be construed as expanding the rights of Lender under the Pledge Agreement or the rights of Lender to give instructions with respect to the Collateral beyond such rights set forth in the Pledge Agreement. Very truly yours, DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company By: --------------------------------------- Joel M. Eastman Vice President EXHIBIT B Form of Confirmation Statement and Instruction Agreement April 24, 2003 To: DJONT/JPM HOLDINGS, L.L.C. Pursuant to the requirements of that certain Pledge and Security Agreement dated as of April 24, 2003 (as amended, supplements or otherwise modified from time to time, the "PLEDGE AGREEMENT"), between JPMORGAN CHASE BANK, a New York banking corporation ("LENDER") and DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company ("PLEDGOR"), this Confirmation Statement and Instruction Agreement relates to the Pledged Interests (as defined in the Pledge Agreement), including, without limitation , those equity interests, as further described on Schedule 1 hereto, issued by DJONT/JPM HOLDINGS, L.L.C., a Delaware limited liability company ("ISSUER"). The Pledged Interests are not (i) "investment company securities" (within the meaning of Section 8-103 of the Uniform Commercial Code (the "CODE")) or (ii) dealt in or traded on securities exchanges or in securities markets. None of the terms of any Pledged Interest provides that it is a "security" (within the meaning of Sections 8-102(a)(15) and 8-103 of the Code). Nevertheless, in the event that the Pledged Interests should be determined to be "securities" (within the meaning of Sections 8-102(a)(15) and 8-103 of the Code), for purposes of perfecting the security interest of Lender therein, the Issuer agrees as follows: On the date hereof, the registered owner of 100% of the membership interest of DJONT/JPM HOLDINGS, L.L.C. is: DJONT/JPM TENANT CO., L.L.C. The registered pledgee of the Pledged Interests is: JPMORGAN CHASE BANK There are no liens of Issuer on the Pledged Interests or any adverse claims thereto for which the Issuer has a duty under Section 8-403 of the Code. Issuer has by book-entry registered the Pledged Interests in the name of the registered pledgee on or before April 24, 2003. No other pledge is currently registered on the books and records of Issuer respect to the Pledged Interests. Until the entire outstanding principal and accrued and unpaid interest on the Note is paid in full (exclusive of provisions which shall survive full payment), Issuer agrees to: (i) comply with the instructions of Lender, without any further consent from Pledgor or any other Person, in respect of the Pledged Interests; and (ii) disregard any request made by Pledgor or any other person which contravenes the instructions of Lender with respect to the Pledged Interests. Notwithstanding anything in this paragraph, this confirmation statement and Instruction Agreement shall not be construed as expanding the rights of Lender to give instructions with respect to the Interests beyond such rights set forth in the Pledge Agreement. Dated: April 24, 2003 Very truly yours, DJONT/JPM HOLDINGS, L.L.C., a Delaware limited liability company By: ------------------------------------ Joel M. Eastman Vice President ACKNOWLEDGED AND AGREED: JPMORGAN CHASE BANK, a New York banking corporation By: --------------------------- Name: Title: DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company By: --------------------------- Joel M. Eastman Vice President SCHEDULE 1 To Form of Confirmation Statement and Instruction Agreement DESCRIPTION OF PLEDGED INTERESTS A. DESCRIPTION OF PLEDGED INTERESTS
MEMBERS PERCENTAGE INTERESTS ---------------------------- --------------------------------------------------------------- 1. DJONT/JPM TENANT CO., LLC 100% of the membership interests in DJONT/JPM HOLDINGS, L.L.C.
EX-10.30.02 11 d05903exv10w30w02.txt PROMISSORY NOTE - PRINCIPLE AMOUNT OF $25 MILLION EXHIBIT 10.30.02 COPY PROMISSORY NOTE $25,000,000.00 New York, New York April 24, 2003 FOR VALUE RECEIVED DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company, as maker, having its principal place of business c/o Felcor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower"), hereby unconditionally promises to pay to the order of JPMORGAN CHASE BANK, a New York banking corporation, having its principal place of business at 270 Park Avenue, 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 TWENTY-FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00), 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, and to be paid in accordance with the terms of this Note and that certain Loan Agreement, dated the date hereof, between Borrower and Lender (the "Loan Agreement"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1 - PAYMENT TERMS Borrower agrees to pay the principal sum of this Note and interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE 2 - DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default and in addition, Lender shall be entitled to receive interest on the entire unpaid principal sum at the Default Rate pursuant to the terms of the Loan Agreement. This Article 2, 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 3 - LOAN DOCUMENTS This Note is secured by each Security Instrument and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, each Security Instrument and the other Loan 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. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4 - SAVINGS CLAUSE This Note and the Loan Agreement are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate in excess of the Maximum Legal Rate. If, by the terms of this Note, the Loan Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal 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 sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. ARTICLE 5 - 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 6 - 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, notice of intention to accelerate, notice of acceleration, 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 Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan 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 Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, 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 their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable 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 alternative 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 force and be applicable, notwithstanding any changes in the members 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 their members shall not thereby be released from any liability. (Nothing in the foregoing sentence -2- 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 Loan Agreement, each Security Instrument or any other Loan Document.) If Borrower consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. ARTICLE 7 - 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 Loan 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 upon assumption of Lender's obligations under the Loan Documents, 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 8 - EXCULPATION Notwithstanding anything to the contrary contained in this Note, the liability of Borrower to pay the Debt and for the performance of the other agreements, covenants and obligations contained herein and in the Security Instrument, the Loan Agreement and the other Loan Documents shall be limited as set forth in Section 9.4 of the Loan Agreement. ARTICLE 9 - GOVERNING LAW This Note shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE 10 - NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. [NO FURTHER TEXT ON THIS PAGE] -3- COPY IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman --------------------------------------- Joel M. Eastman Vice President EX-10.30.03 12 d05903exv10w30w03.txt SECURITY AGREEMENT - JUNIOR MEZZANINE LOAN Exhibit 10.30.03 ================================================================================ DJONT/JPM TENANT CO., LLC Borrower and JPMORGAN CHASE BANK Lender ------------------------------ SECURITY AGREEMENT ------------------------------ Dated: As of April 24, 2003 PREPARED BY: Messrs. Thacher Proffitt & Wood 11 West 42nd Street New York, New York 10036 Attention: David S. Hall, Esq. File No.: 86000-00822 ================================================================================ SECURITY AGREEMENT THIS SECURITY AGREEMENT made the 24th day of April, 2003, between DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company, having its principal place of business at c/o FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower") and JPMORGAN CHASE BANK, a New York banking corporation, having an address at 270 Park Avenue, New York, New York 10017 ("Lender"); W I T N E S S E T H : WHEREAS Borrower is the present owner and holder of (i) that certain pledge agreement dated as of the date hereof given by FELCOR/JPM LODGING CO., LLC, a Delaware limited liability company ("FelCor Lodging") to Borrower (the "Pledge Agreement") covering all of the equity interests in FELCOR/JPM HOLDINGS, L.L.C., a Delaware limited liability company (the "Pledged Interests") and (ii) that certain note dated as of the date hereof in the principal sum of $25,000,000.00 given by FelCor Lodging to Borrower (the "Note") and secured by the Pledge Agreement; WHEREAS Lender has agreed to make a Loan to Borrower in the principal sum of $25,000,000.00 (the "Loan"), which Loan, together with interest thereon, shall be evidenced by and payable in accordance with the provisions of a certain note dated the date hereof in the principal sum of $25,000,000.00 given by Borrower to Lender (the "Loan Note") and pursuant to that certain Junior Mezzanine Loan Agreement dated as of the date hereof between the Borrower and Lender (the "Loan Agreement"; all capitalized word and phrases not otherwise defined herein shall have the means ascribed to them in the Loan Agreement) (said principal sum, interest and all other sums which may or shall become due under the Loan Note, the Loan Agreement, this Security Agreement or any other Loan Documents being hereinafter collectively referred to as the "Debt"); and WHEREAS Lender is willing to make the Loan to Borrower only if Borrower grants and assigns to Lender, as security for the payment of the Debt and the observance and performance by Borrower of all of the terms, covenants and provisions of the Loan Note, the Loan Agreement and the other Loan Documents on the part of Borrower to be observed and performed, a security interest in the Note and the Pledge Agreement in the manner hereinafter set forth; NOW, THEREFORE, in consideration of the making of the Loan and other good and valuable consideration, the receipt of which is hereby acknowledged, Borrower hereby grants and assigns to Lender, as security for the payment of the Debt and the observance and performance by Borrower of all of the terms, covenants and provisions of the Loan Note, the Loan Agreement, this Security Agreement and the other Loan Documents, on the part of Borrower to be observed or performed, a security interest in all of Borrower's right, title and interest in the Note and the Pledge Agreement, and Borrower hereby represents and warrants to and covenants and agrees with Lender as follows: 1. Borrower represents and warrants to Lender that as of the date hereof and at all times during the term of the Loan Note (i) the obligee under the Note is and shall be FelCor Lodging, and that notices may be sent to FelCor Lodging at c/o FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062, (ii) the Note and the Pledge Agreement are and shall be owned by Borrower free and clear of all liens, pledges, security interests or other encumbrances of any nature whatsoever, (iii) the Pledge Agreement constitutes a valid and enforceable first lien covering the Pledged Interests, (iv) there are no defenses, counterclaims or offsets of any nature whatsoever with respect to the Note, the Pledge Agreement or the indebtedness evidenced and secured thereby or with respect to any other instruments or documents evidencing, securing or guaranteeing payment of the indebtedness and all other sums due under the Note and the Pledge Agreement (all such other instruments and documents being hereinafter collectively referred to as the "Other Security Documents") and all of the provisions of the Note, the Pledge Agreement and the Other Security Documents are in full force and effect, (v) there are no defaults existing under the Note, the Pledge Agreement or the Other Security Documents and Borrower 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 Note, the Pledge Agreement or the Other Security Documents, (vi) interest is and shall be payable on the principal sum evidenced by the Note at the rate set forth therein or in the Pledge Agreement, (vii) the Note, the Pledge Agreement and the Other Security Documents and the provisions thereof have not been amended, modified or altered in any manner whatsoever and (viii) Borrower knows of no fact or circumstance which would affect the enforceability, validity or priority of the Note, the Pledge Agreement or the Other Security Documents. Borrower represents and warrants that (a) the unpaid principal balance of the Note as of the date of this Agreement is $25,000,000.00 and (b) Lender has been provided with true, correct and complete copies of the Note, the Pledge Agreement and the Other Security Documents, which documents constitute all of the documents executed and delivered in connection with the indebtedness evidenced by the Note and secured by the Pledge Agreement. 2. The security interest and the incidents thereof granted and assigned by Borrower to Lender pursuant to this Security Agreement shall, in addition to the security interest in the Note and the Pledge Agreement, be deemed to include for all purposes a security interest in (i) each of the Other Security Documents and (ii) all deposit accounts, credits, moneys, property or other security of any nature whatsoever now or hereafter available to Borrower for application in reduction, in whole or in part, of the indebtedness evidenced and secured by the Note and the Pledge Agreement, letters of credit, certificates of deposit or deposit or escrows of any kind relating to the Note or the Pledge Agreement, and (iii) any other documents, agreements or instruments related to the Note, the Pledge Agreement or the property encumbered thereby under which legal rights or obligations are created or exist (the Note, the Pledge Agreement, the Other Security Documents and all of the property and rights described in this Section 2 together with all substitutions for and all proceeds, replacements, reversions and remainders thereof and all appurtenances and additions thereto, whether now owned or hereafter acquired by Borrower, the "Collateral"). 3. In addition to the requirements contained in the Loan Agreement, Borrower shall keep accurate and complete books, records and accounts in accordance with generally accepted accounting practices consistently applied with respect to the financial affairs of Borrower, including, but not limited to, the financial affairs of Borrower which relate to the Note and the Pledge Agreement and all sums due or which may become due thereunder. Lender shall have the right from time to time at all times during normal business hours to examine such books, records and accounts at the office of Borrower or other person maintaining such books, records and accounts and to make copies or extracts thereof as Lender shall desire. Borrower shall, from time to time, within five (5) days after request deliver to Lender such information, reports and additional financial information with respect to the financial affairs of Borrower as Lender shall request. 4. Lender shall have the unconditional right to notify FelCor Lodging of the security interest granted and assigned by Borrower to Lender pursuant to this Security Agreement. Following an Event of Default (as defined in the Loan Agreement), Lender shall have the unconditional right to direct FelCor Lodging to make all payments of sums due or hereafter becoming due pursuant to the Note and/or the Pledge Agreement directly to Lender. Borrower shall, following an Event of Default and upon request by Lender, sign and consent to all notices and directions given by Lender to FelCor Lodging pursuant to this paragraph. Lender shall have the unconditional right, at its option, to apply all sums received by Lender pursuant to this paragraph against the payment of the Debt in such priority and proportions as Lender, in its discretion, shall deem proper. The balance of any sums held by Lender pursuant to this paragraph, if any, after payment of the Debt in full shall be paid over to Borrower by Lender. 5. Upon the occurrence of an Event of Default, Lender may, in addition to any other rights and remedies which Lender may have, immediately and without demand exercise all of the rights and remedies granted to a secured party under the Uniform Commercial Code. If any public notice is required to be given in connection with any public or private sale of the Note and the Pledge Agreement, or any of them, Borrower agrees that a notice of any such sale published once a week for two consecutive weeks in a paper of general circulation in the county where such sale is to be held shall be deemed to be commercially reasonable within the meaning of the Uniform Commercial Code. 6. Borrower shall not, without the prior consent of Lender, in any manner transfer, convey, assign or further encumber Borrower's interest in the Note, Pledge Agreement or the Other Security Documents or permit anything to be done that shall impair the value of the Collateral. 7. Borrower shall hold all sums received by it pursuant to the Note and the Pledge Agreement, or a portion thereof sufficient to discharge all sums due or to become due on the Debt, in trust for use in payment of the Debt. 8. Borrower shall notify Lender of the occurrence of any default under the Note and/or the Pledge Agreement or of the occurrence of any event, which but for the passage of time or the giving of notice or both, would constitute a default under the Note and/or the Pledge Agreement, on the same day that Borrower shall first be given notice of or shall first become aware of the occurrence of any such default or event and Borrower shall immediately upon request by Lender give any notice which shall be required to cause any such event to constitute a default under the Note and/or the Pledge Agreement (any such default or event being hereinafter referred to as a "Collateral Event of Default"). At the option of Lender and without necessity of demand or notice, the Debt shall immediately become due and payable in full irrespective of any agreed maturity or anything to the contrary contained herein or in the Loan Note upon the occurrence of a Collateral Event of Default. 9. Borrower shall exercise the same degree of care with respect to the indebtedness evidenced and secured by the Note and the Pledge Agreement as would be exercised by reasonable, prudent, institutional lenders with respect to loans of similar nature. 10. Borrower hereby authorizes Lender to execute and file, as the case may be, financing statements under the Uniform Commercial Code, and Borrower shall execute and deliver to Lender, upon Lender's written request, any other documents reasonably requested by Lender, describing the Collateral and evidencing and/or perfecting the security interest in the Collateral and to otherwise effectively implement the purposes of this Security Agreement. 11. Borrower shall not, without the prior consent of Lender, enter into any agreement which shall in any manner whatsoever amend, modify, alter, waive or release the provisions of the Note, the Pledge Agreement or the Other Security Documents or which shall release from the lien of the Pledge Agreement any portion of the Collateral presently covered thereby or which shall release any party, now or hereafter liable or guaranteeing the payment of any portion of the indebtedness evidenced and secured by the Note and the Pledge Agreement or performance of the terms, covenants and provisions of the Note, the Pledge Agreement or the Other Security Documents or which shall release any other security of any nature whatsoever, now or hereafter, held by Borrower for the payment of any portion of the indebtedness evidenced and secured by the Note and the Pledge Agreement. 12. Borrower shall not, without obtaining the prior consent of Lender, (i) accelerate the maturity of any portion of the indebtedness evidenced and secured by the Note and the Pledge Agreement, (ii) take any action or institute any proceeding for the purpose of foreclosing the lien of the Pledge Agreement or (iii) take any action or institute any proceeding for the purpose of enforcing the provisions of the Note or any of the Other Security Documents. 13. Borrower will not consent to, and FelCor Lodging shall not make, any prepayment, in whole or in part, of the principal balance of the Note and the Pledge Agreement without obtaining the prior consent of Lender. No such prepayment made without Lender's prior written consent shall be enforceable against Lender. 14. All sums which shall be paid or made available to Borrower for application in reduction of the principal balance of the Note and the Pledge Agreement of any nature whatsoever, including, but not limited to, all installments of principal, if any, and the final principal payment made pursuant to the Note and/or the Pledge Agreement, prepayments, proceeds of any foreclosure sales and sums paid pursuant to any of the Other Security Documents, and all other moneys, credits and deposit accounts of any nature whatsoever, shall be held by Borrower in trust for Lender for application in reduction of the principal balance of the Loan Note and Borrower shall pay over to Lender all such sums upon receipt of the same for application in reduction of the principal balance of Loan Note. 15. Nothing contained in this Security Agreement shall be construed as preventing Lender, at any time after the date hereof, from selling or transferring the Loan Note and in connection with any such sale or transfer from assigning this Security Agreement and transferring possession of the Note, the Pledge Agreement and those of the Other Security Documents, if any, in Lender's possession, to the purchaser of the Loan Note. Upon any sale or transfer of the Loan Note and upon assignment of this Security Agreement and a transfer in connection therewith of possession of the Note, the Pledge Agreement and those of the Other Security Documents, if any, in Lender's possession to the purchaser of the Loan Note, Lender shall be released and discharged from any liability or responsibility with respect to the Note, the Pledge Agreement and such Other Security Documents and references to "Lender" in this Security Agreement shall, with respect to any matters thereafter occurring, be deemed to be references to the purchaser of the Loan Note. 16. All remedies afforded to Lender by reason of this Security Agreement are separate and cumulative remedies and it is agreed that no one of such remedies shall be deemed to be in exclusion of any other remedies available to Lender and shall not in any manner limit or prejudice any other legal or equitable remedies which Lender may have. 17. Until the Debt shall have been paid in full all rights, powers and remedies granted to Lender under this Security Agreement shall continue to exist and may be exercised by Lender at any time and from time to time irrespective of the fact that the Debt or any part thereof may have become barred by any statute of limitations or that the liability of Borrower therefor may have ceased. 18. No failure or delay on the part of Lender in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder. No notice to or demand on Borrower in any case shall, of itself, entitle Borrower to any other or further notice or demand in similar or other circumstances. No modification or waiver of any provision of this Security Agreement, the Pledge Agreement, the Loan Note or any of the Other Security Documents nor consent to any departure therefrom shall be effective unless the same shall be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 19. The rights, powers and remedies of Lender under this Security Agreement shall be in addition to all rights, powers and remedies given to Lender by virtue of any statute or rule of law. 20. Any notice, request, demand, statement or consent made hereunder shall be made in the manner set forth in Section 10.6 of the Loan Agreement. 21. This Security Agreement may not be waived, modified, amended, changed, discharged or terminated orally, but only by an agreement in writing signed by the party against whom the enforcement of the waiver, modification, amendment, change, discharge or termination is sought. 22. Borrower has full power, authority and legal right to execute this Security Agreement and to grant and assign a security interest in the Note and the Pledge Agreement pursuant to the terms hereof and to keep and observe all of the terms, covenants and provisions of this Security Agreement on Borrower's part to be performed or observed. 23. This Security Agreement shall be binding upon and insure to the benefit of Borrower and Lender and their respective successors and assigns. 24. If any term, covenant or provision of this Security Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Security Agreement shall be construed without such term, covenant or provision. 25. This Security Agreement shall be governed by and construed in accordance with the laws of the State of New York. 26. This Security Agreement may be executed in any number of duplicate originals and each such duplicate original shall be deemed to constitute but one and the same instrument. 27. The provisions of Section 9.4 of the Loan Agreement are hereby incorporated by reference to the fullest extent as if the text of such Section were set forth in its entirety herein. [NO FURTHER TEXT ON THIS PAGE] IN WITNESS WHEREOF, Borrower has duly executed this Security Agreement the day and year first above written. DJONT/JPM TENANT CO., L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Name: Joel M. Eastman Title: Vice President ACKNOWLEDGED AND AGREED TO WITH RESPECT TO ALL OF THE PROVISIONS SET FORTH HEREIN: FELCOR/JPM LODGING CO., LLC, a Delaware limited liability company By: /s/ JOEL M. EASTMAN ----------------------------------- Name: Joel M. Eastman Title: Vice President JPMORGAN CHASE BANK, a New York Banking Corporation By: /s/ MICHAEL MESARD ----------------------------------- Name: Michael Mesard Title: Vice President EX-99.1 13 d05903exv99w1.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of FelCor Lodging Trust Incorporated (the "Registrant") on Form 10-Q for the quarter ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report), the undersigned hereby certifies, in the capacity as indicated below and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. May 15, 2003 /s/ Thomas J. Corcoran, Jr. ------------------------------- Thomas J. Corcoran, Jr. Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to FelCor Lodging Trust Incorporated and will be retained by FelCor Lodging Trust Incorporated and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.2 14 d05903exv99w2.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of FelCor Lodging Trust Incorporated (the "Registrant") on Form 10-Q for the quarter ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report), the undersigned hereby certifies, in the capacity as indicated below and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. May 15, 2003 /s/ Richard J. O'Brien --------------------------------- Richard J. O'Brien Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to FelCor Lodging Trust Incorporated and will be retained by FelCor Lodging Trust Incorporated and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----