e10vq

-----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, WzUhx+UtVQOxU306bNPZFWfCYhI9KFyUNVlyhqgZeOLOfDkW34qtlhz5ULGsnojo NSASul1vklLMXxr1iV5oBg== 0000950134-04-011620.txt : 20040806 0000950134-04-011620.hdr.sgml : 20040806 20040806165731 ACCESSION NUMBER: 0000950134-04-011620 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040806 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: 04958685 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 d17358e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
		THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2004


o		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 (State or other jurisdiction of incorporation or organization)		75-2541756 (I.R.S. Employer Identification No.)


545 E. John Carpenter Freeway, Suite 1300, Irving, Texas (Address of principal executive offices)		75062 (Zip Code)

(972) 444-4900
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x Noo

The number of shares of Common Stock, par value $.01 per share, of FelCor Lodging Trust Incorporated outstanding on August 3, 2004, was 59,399,629.

FELCOR LODGING TRUST INCORPORATED

INDEX


		Page
	PART I. — FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Consolidated Balance Sheets June 30, 2004 (unaudited) and December 31, 2003		3
	Consolidated Statements of Operations – For the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)		4
	Consolidated Statements of Comprehensive Loss – For the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)		5
	Consolidated Statements of Cash Flows – For the Six Months Ended June 30, 2004 and 2003 (unaudited)		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations General		17
	Financial Comparison		17
	Results of Operations		18
	Liquidity and Capital Resources		26
	Inflation		29
	Seasonality		30
	Disclosure Regarding Forward Looking Statements		30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		30
Item 4.	Controls and Procedures		30
	PART II. – OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders		31
Item 6.	Exhibits and Reports on Form 8-K		31
SIGNATURE			35
Termination Agreement
Form of Loan Agreement
Form of Mortgages, Deeds, and Security Agreement
Form of Nine Separate Promissory Notes
Form of Guaranty of Recourse Obligations of Borrower
Loan Agreement
Form of Mortgages, Deeds, and Security Agreement
Promissory Note
Guaranty of Recourse Obligations of Borrower
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)


	June 30,			December 31,
	2004			2003
ASSETS
Investment in hotels, net of accumulated depreciation of $936,781 at June 30, 2004 and $886,168 at December 31, 2003	$	3,084,113		$	3,103,796
Investment in unconsolidated entities		116,973			116,553
Hotels held for sale		3,169			21,838
Cash and cash equivalents		148,146			246,036
Accounts receivable, net of allowance for doubtful accounts of $831 at June 30, 2004 and $1,104 at December 31, 2003		59,887			45,385
Deferred expenses, net of accumulated amortization of $18,450 at June 30, 2004 and $16,080 at December 31, 2003		19,955			24,278
Other assets		28,559			33,007

Total assets	$	3,460,802		$	3,590,893

LIABILITIES AND STOCKHOLDERS’ EQUITY
Debt, net of discount of $4,610 at June 30, 2004 and $4,253 at December 31, 2003	$	1,872,795		$	2,037,355
Distributions payable		7,849			5,504
Accrued expenses and other liabilities		154,727			151,423
Minority interest in FelCor LP, 3,033 and 3,034 units issued and outstanding at June 30, 2004 and December 31, 2003, respectively		46,339			50,142
Minority interest in other partnerships		45,954			50,197

Total liabilities		2,127,664			2,294,621

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 20,000 shares authorized:
Series A Cumulative Convertible Preferred Stock, 10,580 and 5,980 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively		256,600			149,512
Series B Cumulative Redeemable Preferred Stock, 68 shares issued and outstanding at June 30, 2004 and December 31, 2003		169,395			169,395
Common stock, $.01 par value, 200,000 shares authorized, 69,436 and 69,429 shares issued, including shares in treasury, at June 30, 2004 and December 31, 2003, respectively		694			694
Additional paid-in capital		2,088,396			2,095,356
Accumulated other comprehensive income		8,508			9,478
Accumulated deficit		(998,955	)		(930,886	)
Less: Common stock in treasury, at cost, 10,013 and 10,309 shares at June 30, 2004 and December 31, 2003, respectively		(191,500	)		(197,277	)

Total stockholders’ equity		1,333,138			1,296,272

Total liabilities and stockholders’ equity	$	3,460,802		$	3,590,893

The accompanying notes are an integral part of these consolidated financial statements.

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Six Months June 30, 2004 and 2003
(unaudited, in thousands, except for per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Revenues:
Hotel operating revenue	$	329,566		$	301,943		$	635,850		$	584,258
Retail space rental and other revenue		180			236			425			618

Total revenues		329,746			302,179			636,275			584,876

Expenses:
Hotel departmental expenses		118,694			104,487			229,307			203,321
Other property operating costs		92,549			84,355			183,841			168,048
Management and franchise fees		17,184			15,347			32,751			30,398
Taxes, insurance and lease expense		30,967			31,254			62,154			61,534
Corporate expenses		4,393			3,737			7,779			7,160
Depreciation		30,148			34,317			60,797			67,993

Total operating expenses		293,935			273,497			576,629			538,454

Operating income		35,811			28,682			59,646			46,422
Interest expense, net		(39,737	)		(41,007	)		(80,857	)		(80,826	)
Charge-off of deferred financing costs		(3,944	)		(2,834	)		(4,174	)		(2,834	)
Loss on early extinguishment of debt		(28,246	)		—			(28,246	)		—
Gain on swap termination		1,005			—			1,005			—

Loss before equity in income of unconsolidated entities, minority interests and gain on sales of assets		(35,111	)		(15,159	)		(52,626	)		(37,238	)
Equity in income from unconsolidated entities		2,691			726			3,673			578
Gain on sale of assets		—			153			—			153
Minority interests		2,312			1,384			3,381			2,511

Loss from continuing operations		(30,108	)		(12,896	)		(45,572	)		(33,996	)
Discontinued operations		(1,565	)		(7,307	)		(6,800	)		(7,298	)

Net loss		(31,673	)		(20,203	)		(52,372	)		(41,294	)
Preferred dividends		(8,970	)		(6,728	)		(15,696	)		(13,454	)

Net loss applicable to common stockholders	$	(40,643	)	$	(26,931	)	$	(68,068	)	$	(54,748	)

Basic and diluted loss per common share data:
Net loss from continuing operations	$	(0.66	)	$	(0.34	)	$	(1.04	)	$	(0.81	)

Net loss	$	(0.69	)	$	(0.46	)	$	(1.15	)	$	(0.93	)

Weighted average common shares outstanding		58,950			58,591			58,952			58,562

The accompanying notes are an integral part of these consolidated financial statements.

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Three and Six Months Ended June 30, 2004 and 2003
(unaudited, in thousands)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Net loss	$	(31,673	)	$	(20,203	)	$	(52,372	)	$	(41,294	)
Foreign currency translation adjustment		(509	)		6,216			(970	)		11,035

Comprehensive loss	$	(32,182	)	$	(13,987	)	$	(53,342	)	$	(30,259	)

The accompanying notes are an integral part of these consolidated financial statements.

FELCOR LODGING TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2004 and 2003
(unaudited, in thousands)


	Six Months Ended
	June 30,
	2004			2003
Cash flows from operating activities:
Net loss	$	(52,372	)	$	(41,294	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		61,065			73,191
Loss on sale of assets		941			330
Amortization of deferred financing fees		2,370			2,375
Accretion of debt, net of discount		310			207
Amortization of unearned compensation		1,101			1,080
Equity in income from unconsolidated entities		(3,673	)		(578	)
Distributions of income from unconsolidated entities		403			780
Loss (gain) on early extinguishment of debt		28,246			(1,260	)
Impairment loss		—			7,824
Charge-off of deferred financing costs		4,174			2,834
Minority interests		(3,728	)		(2,912	)
Changes in assets and liabilities:
Accounts receivable		(13,238	)		(4,058	)
Other assets		3,748			(4,316	)
Accrued expenses and other liabilities		172			2,556

Net cash flow provided by operating activities		29,519			36,759

Cash flows (used in) provided by investing activities:
Acquisition of hotel		(27,759	)		—
Improvements and additions to hotels		(34,005	)		(42,279	)
Proceeds from sale of assets		40,863			12,292
Cash from purchase of percentage interest in Interstate Joint Venture		—			2,705
Distributions of capital from unconsolidated entities		2,726			2,133

Net cash flow used in investing activities		(18,175	)		(25,149	)

Cash flows (used in) provided by financing activities:
Proceeds from borrowings		344,490			321,119
Repayment of borrowings		(537,606	)		(190,367	)
Payment of deferred financing fees		(2,221	)		(3,654	)
Net proceeds from sale of preferred stock		104,461			—
Distributions paid to minority interest holders		(4,000	)		—
Distributions paid to preferred stockholders		(13,351	)		(13,455	)
Distributions paid to common stockholders		—			(9,307	)

Net cash flow provided by (used in) financing activities		(108,227	)		104,336

Effect of exchange rate changes on cash		(1,007	)		181
Net change in cash and cash equivalents		(97,890	)		116,127
Cash and cash equivalents at beginning of periods		246,036			66,542

Cash and cash equivalents at end of periods	$	148,146		$	182,669

Supplemental cash flow information — Interest paid	$	89,538		$	80,937

The accompanying notes are an integral part of these consolidated financial statements.

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, or REIT, with six hotels and a market capitalization of $120 million. We are now the nation’s second largest lodging REIT and the largest owner of full service, all-suite hotels in the nation. At June 30, 2004, our portfolio of hotels in continuing operations included 71 upscale, all-suite hotels, and we are the owner of the largest number of Embassy Suites Hotels^®, Crowne Plaza^®, Holiday Inn^® and independently-owned Doubletree^® hotels in North America. Our portfolio also includes 72 hotels in the upscale and full service segments.

FelCor is the sole general partner of, and the owner of an approximately 95% limited partnership interest in, FelCor Lodging Limited Partnership, or FelCor LP. All of our operations are conducted solely through FelCor LP, or its subsidiaries.

At June 30, 2004, we had ownership interests in 159 hotels. We owned a 100% real estate interest in 122 hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels, a 51% interest in an entity owning eight hotels and 50% interests in unconsolidated entities that own 20 hotels. As a result of our ownership interests in the operating lessees of 154 of these hotels, we reflect their operating revenues and expenses in our consolidated statements of operations. The operations of 153 of the 154 hotels were included in continuing operations at June 30, 2004. The remaining one hotel was held for sale as of June 30, 2004, and its operations are included in discontinued operations. The operating revenues and expenses of the remaining five hotels are unconsolidated.

At June 30, 2004, we had an aggregate of 59,422,529 shares of FelCor common stock and 3,032,910 units of FelCor LP limited partnership interest outstanding.

The following table reflects the distribution, by brand, of the 153 hotels included in our consolidated hotel continuing operations at June 30, 2004:


Brand	Hotels		Rooms
Embassy Suites Hotels		56		14,279
Doubletree and Doubletree Guest Suites^®		10		2,206
Holiday Inn — branded		43		13,751
Crowne Plaza and Crowne Plaza Suites^®		15		5,108
Sheraton^® and Sheraton Suites^®		10		3,269
Other brands		19		4,117

Total hotels		153

The hotels shown in the above table are located in the United States (33 states) and Canada (two hotels), with concentrations in Texas (35 hotels), California (19 hotels), Florida (16 hotels) and Georgia (14 hotels). Approximately 55% of our hotel room revenues were generated from hotels in these four states during the six months ended June 30, 2004.

At June 30, 2004, of the 153 consolidated hotels included in continuing operations, (i) subsidiaries of InterContinental Hotels Group, or IHG, managed 64, (ii) subsidiaries of Hilton Hotels Corporation, or Hilton, managed 66, (iii) subsidiaries of Starwood Hotels & Resorts Worldwide, Inc., or Starwood, managed 11, (iv) subsidiaries of Interstate Hotels & Resorts, or Interstate, managed 10, 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 loss or stockholders’ equity.

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization – (continued)

The financial information for the three and six months ended June 30, 2004, and 2003, 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 and six months ended June 30, 2004, and 2003, include adjustments based on management’s estimates (consisting of normal and recurring accruals), which we consider 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, 2003, included in our Annual Report on Form 10-K for the year ended December 31, 2003 (“Form 10-K”). Operating results for the three and six months ended June 30, 2004, are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2004.

2. Acquisition of Hotels

Our hotel acquisitions consist almost exclusively of land, building, furniture, fixtures and equipment, and inventory. We allocate the purchase price among these asset classes based upon their respective values determined in accordance with Statement of Financial Accounting Standards, or SFAS 141, “Business Combinations.” When we acquire properties, we acquire them for use. The only intangible assets typically acquired consist of miscellaneous operating agreements, all of which are of short duration and at market rates. We do not acquire any significant in-place leases or other intangible assets (e.g., management agreements, franchise agreements or trademarks) when we acquire hotels. In conjunction with the acquisition of a hotel, we typically negotiate new franchise and management agreements with the selected brand owner and manager.

3. Investment in Unconsolidated Entities

We owned 50% interests in joint venture entities that owned 20 hotels at June 30, 2004, and December 31, 2003. 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 four hotels. We account for our investments in these unconsolidated entities under the equity method. We do not have any majority-owned subsidiaries that are not consolidated in our financial statements.

Summarized unaudited combined financial information for 100% of these unconsolidated entities is as follows (in thousands):


	June 30,		December 31,
	2004		2003
Balance sheet information:
Investment in hotels, net of accumulated depreciation	$	359,460	$	326,835
Total assets	$	386,415	$	366,046
Debt	$	292,721	$	275,209
Total liabilities	$	293,391	$	276,773
Equity	$	93,024	$	89,273

Debt of our unconsolidated entities at June 30, 2004, included $210.2 million of non-recourse mortgage debt, of which our pro rata share is $105.1 million.

Debt of our unconsolidated entities at June 30, 2004, also included $41.3 million of mortgage debt guaranteed by us and $41.2 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 $82.4 million was outstanding as of June 30, 2004. 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 third quarter 2004.

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Investment in Unconsolidated Entities – (continued)

Our guarantee is a payment guarantee and will become payable 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 June 30, 2004, we had not established any liability related to our guarantees of debt because it was not probable that we would be required to perform under these guarantees.

Summarized combined statement of operations information for 100% of our unconsolidated entities is as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Total revenues	$	18,093	$	21,720	$	32,411	$	42,868
Net income	$	6,076	$	2,806	$	8,782	$	3,717

4. Debt

Debt at June 30, 2004 and December 31, 2003, consists of the following (in thousands):


						Balance Outstanding
	Encumbered	Interest Rate at			Maturity	June 30,		December 31,
	Hotels	June 30, 2004			Date	2004		2003
Promissory note	none		3.13	%^(a)	June 2016	$	650	$	650
Senior unsecured term notes	none		—		Oct. 2004		—		174,888
Senior unsecured term notes	none		5.84	^(a)	June 2011		175,000		—
Senior unsecured term notes	none		7.63		Oct. 2007		122,375		124,617
Senior unsecured term notes	none		10.00		Sept. 2008		273,386		596,865
Senior unsecured term notes	none		9.00		June 2011		298,283		298,158

Total unsecured debt ^(e)			8.48				869,694		1,195,178

Mortgage debt	1 hotel		7.23		Sept. 2005		10,934		11,286
Mortgage debt	14 hotels		5.01	^(b)	July 2009 – 2014		169,490		—
Mortgage debt	10 hotels		3.63	^(c)	May 2006		146,393		148,080
Mortgage debt	15 hotels		5.92	^(d)	Nov. 2007		130,143		131,721
Mortgage debt	1 hotel		4.00	^(a)	August 2008		15,500		15,500
Mortgage debt	7 hotels		7.54		April 2009		91,470		92,445
Mortgage debt	6 hotels		7.55		June 2009		68,841		69,566
Mortgage debt	8 hotels		8.70		May 2010		176,840		178,118
Mortgage debt	7 hotels		8.73		May 2010		137,071		138,200
Mortgage debt	8 hotels		7.48		April 2011		49,898		50,305
Other	1 hotel		9.17		August 2011		6,521		6,956

Total secured debt ^(e)	78 hotels		6.96				1,003,101		842,177

Total^(e)			7.45	%		$	1,872,795	$	2,037,355

(a) Variable interest rate based on LIBOR, which was 1.1% at June 30, 2004.

(b) $99 million of this debt had a variable interest rate based on LIBOR, which was 1.1% at June 30, 2004.

(c) Variable interest rate based on LIBOR. This debt may be extended at our option for up to two, one-year periods.

(d) $100 million of this note was matched with interest rate swap agreements that effectively converted the fixed interest rate of 7.46% on this note to a variable interest rate based on LIBOR.

(e) Interest rates are calculated based on the weighted average outstanding debt at June 30, 2004.

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Debt — (continued)

We reported interest expense of $39.7 million (net of interest income of $0.6 million, and capitalized interest of $0.2 million), and $41.0 million (net of interest income of $0.6 million and capitalized interest of $0.1 million) for the three months ended June 30, 2004 and 2003, respectively. For the six months ended June 30, 2004 and 2003, respectively, we reported interest expense of $80.9 million (net of interest income of $1.3 million and capitalized interest of $0.2 million) and $80.8 million (net of interest income of $0.9 million and capitalized interest of $0.5 million). Ratings downgrades in 2003 on our senior unsecured debt resulted in a 50 basis point step-up in interest rates on our senior unsecured debt due in September 2008 ($275 million outstanding par value as of June 30, 2004) and our senior unsecured debt due in June 2011 ($300 million outstanding par value as of June 30, 2004).

In March 2004, we elected to terminate our line of credit, which resulted in the first quarter charge-off of unamortized loan costs of $0.2 million.

In May 2004, we issued $175 million in aggregate principal amount of Senior Floating Notes due 2011, the 2011 Notes. We received net proceeds of $174.1 million. The 2011 Notes will mature on June 1, 2011. The 2011 Notes bear interest, adjusted semi annually, at the six-month LIBOR rate plus 4.25% and rank equally with our other existing senior unsecured debt. The Notes are callable on or after December 1, 2006, at an initial redemption price of 102%. In July 2004, we issued an additional $115 million of the 2011 Notes with identical terms and conditions as the original $175 million.

On June 9, 2004, we redeemed all $175 million in principal amount of our outstanding 7.375% Senior Notes due 2004. The redemption price was $1,018.14 per $1,000 of the principal amount plus accrued interest. With the retirement of this debt we recorded a loss on redemption of $3.2 million and wrote off $0.3 million of debt issue costs. We also recorded a $1 million gain on the unwinding of the swaps tied to this debt.

During the second quarter of 2004, we purchased $325.3 million principal amount of our 9.5% Senior Notes due 2008 (which currently bear interest at 10% as a result of the 2003 downgrades of the credit ratings on our senior notes) through a tender offer and by purchases on the open market at an average price of 107.21. With the partial retirement of this debt we recorded a loss on early extinguishment of debt of $25 million ($23.4 million related to the premium paid in excess of par and $1.6 million related to the unamortized discount) and wrote off debt issue costs of $3.7 million. In July 2004, we purchased an additional $115 million of these notes and recorded a $7.6 million loss on early extinguishment of debt and wrote off debt issue costs of $1.2 million. After the July 2004 purchases, $160 million of par value remained outstanding on these notes.

In June 2003, we entered into a new secured delayed draw facility with JPMorgan Chase Bank for up to $200 million. At June 30, 2004, we had drawn down $169 million on this facility (collateralized by 14 hotels) and in July 2004, an additional $25 million was funded under the facility and an additional hotel was added to the collateral. The amount drawn under the facility has been converted into: (1) $107 million of nine separate fixed rate CMBS loans secured by nine hotels and weighted average rate of 6.5% and maturity dates ranging from 2009 to 2014, and (2) $87 million of a cross-collateralized floating rate CMBS loan secured by six hotels at a rate of LIBOR plus 2.11% and a maturity date of 2014. On July 28, 2004 we cancelled the balance of the $200 million facility.

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 liability with regard to non-recourse debt is generally limited to the guarantee of the borrowing entity’s obligations to pay for the lender’s losses caused by misconduct, fraud or misappropriation of funds and other typical exceptions from the non-recourse provisions in the mortgages, such as for environmental liabilities.

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Debt — (continued)

Our publicly-traded senior unsecured notes require that we satisfy total leverage, secured leverage and interest coverage tests in order to: incur additional indebtedness, except 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 capital stock; or merge. As of the date of this filing, we have satisfied all such tests; however, under the terms of two of our indentures, we are prohibited from repurchasing any of our capital stock, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indentures, exceeds 4.85 to 1. Our current debt-to-EBITDA ratio exceeds that ratio and is expected to do so for at least the remainder of 2004. Accordingly, we are prohibited from purchasing any of our capital stock, except as permitted under limited exceptions, such as from the proceeds of a substantially concurrent issuance of other capital stock.

If actual operating results fail to meet our current expectations, as reflected in our public guidance, or if interest rates increase unexpectedly, we may be unable to continue to satisfy the incurrence test under the indentures governing our senior unsecured notes and may be prohibited from, among other things, incurring any additional indebtedness or paying dividends on our preferred or common stock, except to the extent necessary to satisfy the REIT qualification requirement that we distribute currently at least 90% of our taxable income. In the event of our failure of this incurrence test, based upon our current estimates of taxable income for 2004, we would be unable to distribute the full amount of dividends accruing under our outstanding preferred stock in 2004 and, accordingly, could pay no dividends on our common stock.

5. Derivatives

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, through June 30, 2004, we had entered into four interest rate swap agreements with two financial institutions with an aggregate notional value of $100 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.

During June we unwound six interest rate swap agreements with an aggregate notional amount of $175 million that were matched with the $175 million notes due 2004 that were redeemed. A $1 million gain was recorded offsetting the loss on the redemption of the debt. Also during June, five additional swaps with an aggregate amount of $125 million that were matched to the $125 million senior unsecured notes due 2007 were unwound at a cost of $2.3 million. The $2.3 million cost will decrease the value of these notes and will be amortized to interest expense over the life of the debt. During July 2004 the remaining four interest rate swap agreements having a notional value of $100 million, were unwound at a cost of $1.3 million. The $1.3 million cost will decrease the mortgage debt due November 2007 and will be amortized to interest expense over the life of this debt.

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.

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Derivatives — (continued)

The interest rate swap agreements held at June 30, 2004, 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 loss on these interest rate swap agreements was approximately $1.8 million at June 30, 2004, and represents the amount we would pay if the agreements were terminated, based on then current market rates.

The amounts 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, which will have a corresponding effect on our future cash flows. The interest rate swaps decreased interest expense by $1.4 million and $1.7 million during the three months ended June 30, 2004 and 2003, respectively. The swaps decreased interest expense $4.2 million and $3.3 million during the six months ended June 30, 2004 and 2003, respectively. Our interest rate swaps have monthly to semi-annual settlement dates. 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.

To fulfill requirements under a $150 million secured loan facility executed in April 2003, we purchased 6% interest rate caps on LIBOR with a notional amount of $146.4 million. We concurrently sold interest rate caps with identical terms. These interest rate cap agreements, which terminate in May 2006, have not been designated as hedges. The fair value of both the purchased and sold interest rate caps was $0.1 million at June 30, 2004, resulting in no net earnings impact.

6. Preferred Stock

On April 5, 2004, we completed the sale of 4.6 million shares of our $1.95 Series A Cumulative Convertible Preferred Stock. The shares were sold at a price of $23.79 per share, which included accrued dividends of $0.51 per share through April 5, 2004, resulting in net proceeds to FelCor of approximately $104.5 million. The proceeds were used for the retirement of debt.

7. Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs

Hotel operating revenue from continuing operations was comprised of the following (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Room revenue	$	260,699	$	238,347	$	504,218	$	462,613
Food and beverage revenue		51,875		47,553		98,455		90,637
Other operating departments		16,992		16,043		33,177		31,008

Total hotel operating revenues	$	329,566	$	301,943	$	635,850	$	584,258

Approximately 99.9% of our revenue was comprised of hotel operating revenues, which included room revenue, food and beverage revenue, and revenue from other hotel operating departments (such as telephone, parking and business centers), in 2004 and 2003. These revenues are recorded net of any sales or occupancy taxes collected from our guests. All rebates or discounts are recorded, when allowed, as a reduction in revenue, and there are no material contingent obligations with respect to rebates or discounts offered by us. All revenues

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Hotel Operating Revenue, Departmental Expenses and Other Property Operating Costs – (continued)

are recorded on an accrual basis, as earned. Appropriate allowances are made for doubtful accounts and are recorded as a bad debt expense. The remaining 0.1% of our revenue was from retail space rental revenue and other sources in 2004 and 2003.

We do not have any time-share arrangements and do not sponsor any guest frequency programs for which we would have any contingent liability. We participate in guest frequency programs sponsored by the brand owners of our hotels, and we expense the charges associated with those programs (typically consisting of a percentage of the total guest charges incurred by a participating guest), as incurred. When a guest redeems accumulated guest frequency points at one of our hotels, the hotel bills the sponsor for the services provided in redemption of such points and records revenue in the amount of the charges billed to the sponsor. Associated with the guest frequency programs, we have no loss contingencies or ongoing obligation beyond what is paid to the brand owner at the time of the guest’s stay.

Included in total hotel operating revenue was $6.1 million and $2.1 million for the three months ended June 30, 2004 and 2003, respectively, and $13.2 million and $2.1 million for the six months ended June 30, 2004 and 2003, respectively, related to the consolidation of our joint venture with Interstate. This joint venture became consolidated on June 1, 2003 and it was accounted for by the equity method prior to June 2003.

Hotel departmental expenses from continuing operations were comprised of the following (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Room	$	69,322	$	60,801	$	134,285	$	118,354
Food and beverage		40,674		36,511		78,143		71,031
Other operating departments		8,698		7,175		16,879		13,936

Total hotel departmental expenses	$	118,694	$	104,487	$	229,307	$	203,321

Other property operating costs from continuing operations were comprised of the following (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Hotel general and administrative expense	$	30,715	$	28,167	$	60,577	$	56,678
Marketing		28,361		25,371		55,594		50,101
Repair and maintenance		17,901		16,164		35,813		32,276
Utilities		15,572		14,653		31,857		28,993

Total other property operating costs	$	92,549	$	84,355	$	183,841	$	168,048

Included in hotel departmental expenses and other property operating costs are hotel employee compensation and benefit expenses of $108.0 million and $96.6 million for the three months ended June 30, 2004 and 2003, respectively and $210.7 million and $191.0 million for the six months ended June 30, 2004 and 2003, respectively.

Included in total hotel departmental expenses and other property operating costs was $4.9 million and $1.4 million for the three months ended June 30, 2004 and 2003, respectively, and $9.9 million and $1.4 million for the six months ended June 30, 2004 and 2003, respectively, related to the consolidation of our joint venture with Interstate which became effective June 1, 2003.

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Taxes, Insurance and Lease Expense

Taxes, insurance and lease expense from continuing operations is comprised of the following (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Operating lease expense ^(a)	$	16,636	$	15,077	$	31,009	$	27,910
Real estate and other taxes		11,042		12,030		24,013		24,911
Property and general liability insurance		3,289		4,147		7,132		8,713

Total taxes, insurance and lease expense	$	30,967	$	31,254	$	62,154	$	61,534

(a) Includes lease expense associated with 15 hotels owned by unconsolidated entities. Included in lease expense are $7.4 million and $5.6 million in percentage rent for the three months ended June 30, 2004 and 2003, respectively, and $12.1 million and $9.1 million in percentage rent for the six months ended June 30, 2004 and 2003, respectively.

9. Discontinued Operations

Included in discontinued operations are the results of operations of the eight hotels sold or otherwise disposed of in 2004, one hotel designated as held for sale at June 30, 2004, and 16 hotels sold in 2003. Condensed financial information for the hotels included in discontinued operations is as follows:


	Three Months Ended						Six Months Ended
	June 30,						June,
	2004			2003			2004			2003
Hotel operating revenue	$	5,690		$	26,377		$	14,776		$	51,026
Hotel operating expenses		6,121			25,842			16,082			51,000

Operating income (loss)		(431	)		535			(1,306	)		26
Direct interest costs		—			(244	)					(678	)
Gain on the early extinguishment of debt		—			307						1,260
Impairment		—			(7,824	)		—			(7,824	)
Lease termination expense		—			—			(4,900	)		—
Loss on sale of assets		(1,214	)		(483	)		(941	)		(483	)
Minority interest		80			402			347			401

Loss from discontinued operations	$	(1,565	)	$	(7,307	)	$	(6,800	)	$	(7,298	)

In the first quarter of 2004 we sold four hotels for net proceeds of $28.8 million. In the second quarter of 2004 we sold three hotels for net proceeds of $12.0 million and transferred our interest in one hotel to the ground lessor. From the sale of these hotels we recognized a loss of $0.9 million and recorded a lease termination expense of $4.9 million.

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Loss Per Share

The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share data):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Numerator:
Loss from continuing operations	$	(30,108	)	$	(12,896	)	$	(45,572	)	$	(33,996	)
Less: Preferred dividends		(8,970	)		(6,728	)		(15,696	)		(13,454	)

Loss from continuing operations applicable to common stockholders		(39,078	)		(19,624	)		(61,268	)		(47,450	)
Discontinued operations		(1,565	)		(7,307	)		(6,800	)		(7,298	)

Net loss applicable to common stockholders	$	(40,643	)	$	(26,931	)	$	(68,068	)	$	(54,748	)

Denominator:
Denominator for basic earnings per share		58,950			58,591			58,952			58,562

Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions		58,950			58,591			58,952			58,562

Earnings (loss) per share data:
Basic:
Loss from continuing operations	$	(0.66	)	$	(0.34	)	$	(1.04	)	$	(0.81	)
Discontinued operations		(0.03	)		(0.12	)		(0.11	)		(0.12	)

Net loss	$	(0.69	)	$	(0.46	)	$	(1.15	)	$	(0.93	)

Diluted:
Loss from continuing operations	$	(0.66	)	$	(0.34	)	$	(1.04	)	$	(0.81	)
Discontinued operations		(0.03	)		(0.12	)		(0.11	)		(0.12	)

Net loss	$	(0.69	)	$	(0.46	)	$	(1.15	)	$	(0.93	)

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				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Restricted shares granted but not vested		382		309		255		309
Series A convertible preferred shares		8,202		4,636		8,202		4,636

Series A preferred dividends that would be excluded from net loss applicable to common stockholders, if these Series A preferred shares were dilutive, were $5.2 million and $2.9 million for the three months and $8.1 million and $5.8 million for the six months ended June 30, 2004 and 2003, respectively.

FELCOR LODGING TRUST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Stock Based Compensation Plans

We apply Accounting Principles Board, or 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, “Accounting for Stock-Based Compensation – Transition and Disclosure,” we began recognizing compensation expense in accordance with SFAS 123 for all new awards issued after December 31, 2002. Had the compensation cost for our stock-based compensation plans been determined in accordance with SFAS 123 prior to January 1, 2003, our net income or loss and net income or loss per common share for the periods presented would approximate the pro forma amounts below (in thousands, except per share data):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Loss from continuing operations, as reported	$	(30,108	)	$	(12,896	)	$	(45,572	)	$	(33,996	)
Add stock based compensation included in the net loss, as reported		519			565			1,022			1,080
Less stock based compensation expense that would have been included in the determination of net loss if the fair value method had been applied to all awards		(597	)		(589	)		(1,107	)		(1,177	)

Loss from continuing operations, pro forma	$	(30,186	)	$	(12,920	)	$	(45,657	)	$	(34,093	)

Basic and diluted net loss per common share:
As reported	$	(0.66	)	$	(0.34	)	$	(1.04	)	$	(0.81	)
Pro forma	$	(0.66	)	$	(0.34	)	$	(1.04	)	$	(0.81	)

The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts.

12. Lease Termination Costs

We leased the San Francisco Holiday Inn Select Downtown & Spa hotel under a lease that expired at June 30, 2004. In May 2003, the lessor asserted that we were in default of our obligations for maintenance, repair and replacement under the lease, and asserted that the cost of correcting the alleged deficiencies was approximately $13.9 million. The lessor subsequently asserted that we were also in default of our capital expenditure obligations under the lease in the approximate amount of $3 million. In October 2003, we reached a partial settlement with the lessor, pursuant to which we paid the lessor $296,000 in full satisfaction and discharge of certain maintenance obligations that the lessor had valued in its original claim at $470,300. On May 3, 2004, we executed a settlement agreement. Under the terms of the settlement, we have paid the lessor $5 million which has been recorded as lease termination expense in the accompanying financial statements. We transferred our interest in the hotel to the lessor as of June 30, 2004, and have been relieved of the obligation to make any additional capital improvements to the hotel and have received a full release of all known and unknown claims and further obligations under the lease. We have also received a release of termination liability to IHG under their management agreement with respect to this hotel upon its termination in connection with the above settlement. The operations of this hotel are included in discontinued operations for the three and six months ended June 30, 2004 and 2003.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

In the second quarter of 2004, revenue per available room, or RevPAR, for our consolidated hotel portfolio in continuing operations, increased 7.3% compared to the same period last year, which surpassed our original expectations of a 5% to 6% increase. Through June 30, 2004, we will have had seven consecutive months with year-over-year RevPAR increases and our first quarterly year-over-year increase in average daily rates, or ADR, since the first quarter of 2001. Occupied rooms at our hotels, or occupancy, increased 5.5% for the quarter, compared to the same quarter last year, while the ADR of our hotel portfolio increased 1.7%. Hotel demand continues to get stronger and, similar to past lodging cycles, as our hotel occupancy increases, ADR should improve. As a result of the increased ADR, in June 2004 we experienced our first improvement in hotel operating margins since December of 2002.

We continue to invest in our core hotels to maintain their competitive position and to take advantage of the current recovery phase of the lodging cycle. During the first six months of 2004, we have spent $34 million for capital improvements and replacements, and anticipate capital spending on our hotels to approximate $75 million to $100 million for the full year.

At June 30, 2004, we had 26 hotels that we had previously designated as non-strategic and intend to sell by the end of 2005, with expected proceeds of approximately $200 million. We expect to complete hotel sales in 2004 of approximately $125 million. In 2004, through June 30, we have disposed of eight non-strategic hotels, receiving aggregate net proceeds of $41 million.

Financial Comparison (in thousands of dollars, except RevPAR and operating margin)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
RevPAR	$	67.04		$	62.47		$	64.96		$	61.38
Operating Margin(1)		30.7	%		31.4	%		29.9			30.3	%
Funds From Operations (“FFO”)⁽¹⁾⁽²⁾	$	(9.5	)	$	11.8		$	(1.0	)	$	21.4
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)⁽¹⁾⁽²⁾.	$	41.7		$	63.0		$	100.6		$	122.8
Net loss(3)	$	(31.7	)	$	(20.2	)	$	(52.4	)	$	(41.3	)

(1)		Included in the Financial Comparison are non-GAAP financial measures, including operating margin, FFO and EBITDA. Further discussion, and a detailed reconciliation, of these non-GAAP financial measures to our financial statements are found elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2)		Included in FFO and EBITDA are the following amounts (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Charge off of deferred debt costs	$	3,944		$	2,834		$	4,174		$	2,834
Loss (gain) on early extinguishment of debt		28,246			(307	)		28,246			(1,260	)
Gain from swap termination		(1,005	)		—			(1,005	)		—
Impairment		—			7,824			—			7,824

	$	31,185		$	10,351		$	31,415		$	9,398

(3) Included in net loss are the following amounts (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Lease termination costs	$	—		$	—		$	4,900		$	—
Charge off of deferred debt costs		3,944			2,834			4,174			2,834
Loss (gain) on early extinguishment of debt		28,246			(307	)		28,246			(1,260	)
Gain from swap termination		(1,005	)		—			(1,005	)		—
Impairment		—			7,824			—			7,824

	$	31,185		$	10,351		$	36,315		$	9,398

Results of Operations

Comparison of the Three Months Ended June 30, 2004 and 2003

At June 30, 2004, we had 153 hotels included in our consolidated continuing operations, of which 26 hotels had been identified as non-strategic. The 26 non-strategic hotels included in continuing operations at June 2004, represented 16% of the rooms in our hotel portfolio, but only 8% of our 2003 consolidated hotel operating profit. The operating margin for these 26 hotels was 21.2%, compared to 30.9% for the remainder of our portfolio.

For the three months ended June 30, 2004, we recorded a loss applicable to common shareholders of $41 million, or a loss per share of $0.69. Included in the loss for the quarter was $31 million ($0.50 per share) of net expenses associated with the early retirement of $500 million of senior notes. For the same period in 2003, we recorded a loss of $27 million, or a loss per share of $0.46. Results of operations for the second quarter of 2003 included $10 million ($0.17 per share) of expenses related to impairment losses and the charge-off of deferred financing costs, net of gain on early extinguishment of debt.

Revenues from continuing operations for the second quarter were $330 million, reflecting an increase of $28 million, or 9%, compared to the same quarter in 2003. The increase in revenues was primarily related to a 7.3% increase in our hotel portfolio’s RevPAR, compared to the same quarter in 2003. Occupancy increased 5.5%, to 68.6%, and ADR increased 1.7% to $97.78, compared to the same quarter of 2003. The increases in occupancy and ADR are attributable to the strengthening lodging market.

Included in total hotel operating revenue was $6.1 million and $2.1 million for the three months ended June 30, 2004 and 2003, respectively, related to the consolidation of our joint venture with Interstate Hotels & Resorts. This joint venture became consolidated on June 1, 2003 and it was accounted for by the equity method prior to June 2003.

Our second quarter 2004 hotel operating profit from continuing operations increased by $3 million over the same period in 2003. Operating margin, which is hotel operating profit divided by hotel revenue, decreased from 32.4% to 30.7%. We attribute the decrease in operating margin principally to increased hotel occupancy of 5.5% with only a 1.7% increase in average rate, coupled with increases in labor related costs.

Discontinued operations for the quarter represent the operating income, direct interest costs and gains or losses on sale of eight hotels disposed during 2004, one hotel that was designated as held for sale at June 30, 2004, and 16 hotels disposed of in 2003.

Comparison of the Six Months Ended June 30, 2004 and 2003

For the six months ended June 30, 2004, we recorded a loss applicable to common shareholders of $68 million ($1.15 per share) compared to a loss in 2003 of $55 million ($0.93 per share). Results of operations for the six months ended June 30, 2004, included $31 million ($0.51 per share) of net expenses principally associated with the early retirement of $500 million of senior notes and a nonrecurring lease termination cost of $5 million ($0.08 per share). Included in the prior year loss was $9 million ($0.15 per share) of expenses related to impairment losses and the charge-off of deferred financing costs, net of a gain on early extinguishment of debt.

Revenues from continuing operations for the six months 2004 were $636 million, reflecting an increase of $51 million, or 9% compared to the same period in 2003. The increase in revenues was primarily related to the 5.8% increase in our hotel portfolio’s RevPAR, compared to the same period in 2003. Occupancy increased 5.3% to 66.5% and ADR increased 0.5% to $97.62, compared to the same quarter of 2003. The increases in occupancy and ADR are attributed to the strengthening lodging market.

Included in total hotel operating revenue was $13.2 million and $2.1 million for the six months ended June 30, 2004 and 2003, respectively, related to the consolidation of our joint venture with Interstate Hotels & Resorts. This joint venture became consolidated on June 1, 2003 and it was accounted for by the equity method prior to June 2003.

Our six month 2004 hotel operating profit from continuing operations increased by $7 million over the same period in 2003. Operating margin decreased from 31.3% to 29.9%. We attribute the decrease in operating margin principally to the 5.3% increase in occupied rooms with only a 0.5% increase in average room rate, coupled with increases in labor related costs, compared to the same period in 2003.

Non-GAAP Financial Measures

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, or FFO, and Earnings Before Interest, Taxes, Depreciation, and Amortization, or EBITDA, to be supplemental measures of a REIT’s performance and should be considered along with, but not as an alternative to, net income as a measure of our operating performance.

The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts, or 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. FFO and EBITDA are not measures of operating performance under generally accepted accounting principles in the U.S., or GAAP. However, we believe that FFO and EBITDA are helpful to management and investors as supplemental measures 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 NAREIT definition differently than we do.

FFO and EBITDA should not be considered as alternatives to net income, operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. Neither should FFO, FFO per share and EBITDA be considered as measures of our liquidity or indicative of funds available for our cash needs, including our ability to make cash distributions. FFO per share does not measure, and should not be used as a measure of amounts that accrue directly to the benefit of stockholders.

The following tables detail our computation of FFO and EBITDA (in thousands):

Reconciliation of Net Loss to FFO
(in thousands, except per share and unit data)


	Three Months Ended June 30,
	2004								2003
						Per Share								Per Share
	Dollars			Shares		Amount			Dollars			Shares		Amount
Net loss	$	(31,673	)						$	(20,203	)
Preferred dividends		(8,970	)							(6,728	)

Net loss applicable to common stockholders	$	(40,643	)		58,950	$	(0.69	)	$	(26,931	)		58,591	$	(0.46	)
Depreciation from continuing operations		30,148			—		0.51			34,317			—		0.59
Depreciation from unconsolidated entities and discontinued operations		1,870			—		0.03			5,609			—		0.10
Loss on sale of assets		1,214			—		0.02			330			—		0.01
Minority interest in FelCor LP		(2,078	)		3,033		(0.02	)		(1,493	)		3,254		(0.05	)
Conversion of options and unvested restricted stock		—			—		—			—			309		—

FFO	$	(9,489	)		61,983	$	(0.15	)	$	11,832			62,154	$	0.19

The following tables detail our computation of FFO and EBITDA (in thousands):


	Six Months Ended June 30,
	2004								2003
						Per Share								Per Share
	Dollars			Shares		Amount			Dollars			Shares		Amount
Net loss	$	(52,372	)						$	(41,294	)
Preferred dividends		(15,696	)							(13,454	)

Net loss applicable to common stockholders	$	(68,068	)		58,952	$	(1.15	)	$	(54,748	)		58,562	$	(0.93	)
Depreciation from continuing operations		60,797			—		1.03			67,993			—		1.16
Depreciation from unconsolidated entities and discontinued operations		3,888			—		0.07			10,899			—		0.19
Loss on sale of assets		941			—		0.02			330			—		0.01
Lease termination costs(a)		4,900			—		0.08						—
Minority interest in FelCor LP		(3,485	)		3,033		(0.07	)		(3,050	)		3,271		(0.09	)
Conversion of options and unvested restricted stock					—		—			—			309		—

FFO	$	(1,027	)		61,985	$	(0.02	)	$	21,424			62,142	$	0.34

(a) We consider this lease termination cost, associated with the early termination of a lease, to be unusual or nonrecurring in accordance with Item 10 of Regulation S-K.

Consistent with SEC guidance on non-GAAP financial measures, FFO has not been adjusted for the following amounts included in net loss (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Charge off of deferred debt costs	$	3,944		$	2,834		$	4,174		$	2,834
Loss (gain) on early extinguishment of debt		28,246			(307	)		28,246			(1,260	)
Gain from swap termination		(1,005	)		—			(1,005	)		—
Impairment		—			7,824			—			7,824

	$	31,185		$	10,351		$	31,415		$	9,398

Per share amounts	$	0.50		$	0.17		$	0.51		$	0.15

Reconciliation of Net Loss to EBITDA
(in thousands)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Net loss	$	(31,673	)	$	(20,203	)	$	(52,372	)	$	(41,294	)
Depreciation from continuing operations		30,148			34,317			60,797			67,993
Depreciation from unconsolidated entities and discontinued operations		1,870			5,609			3,888			10,899
Loss on sale of assets		1,214			330			941			330
Minority interest in FelCor LP		(2,078	)		(1,493	)		(3,485	)		(3,050	)
Lease termination costs		—			—			4,900			—
Interest expense		40,334			41,561			82,178			81,751
Interest expense from unconsolidated entities and discontinued operations		1,407			2,296			2,727			5,073
Amortization expense		519			564			1,022			1,080

EBITDA	$	41,741		$	62,981		$	100,596		$	122,782

Consistent with SEC guidance on non-GAAP financial measures, EBITDA has not been adjusted for the following amounts included in net loss (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30
	2004			2003			2004			2003
Charge off of deferred debt costs	$	3,944		$	2,834		$	4,174		$	2,834
Loss (gain) on early extinguishment of debt		28,246			(307	)		28,246			(1,260	)
Gain on swap termination		(1,005	)		—			(1,005	)		—
Impairment		—			7,824			—			7,824

	$	31,185		$	10,351		$	31,415		$	9,398

Hotel Operating Profit and Operating Margin

Hotel operating profit and operating margin are commonly used non-GAAP measures of performance that we utilize to measure the relative performance of our individual hotels and groups of hotels and give investors a more complete understanding of the operating results over which our individual hotels and operating managers have direct control. We believe that hotel operating profit and operating margin are useful to investors by providing greater transparency with respect to significant measures used by management in its financial and operational decision-making.

Hotel Operating Profit
(dollars in thousands)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Total revenue	$	329,746		$	302,179		$	636,275		$	584,876
Retail space rental and other revenue		(180	)		(236	)		(425	)		(618	)

Hotel revenue		329,566			301,943			635,850			584,258
Hotel operating expenses		(228,427	)		(204,189	)		(445,899	)		(401,767	)

Hotel operating profit	$	101,139		$	97,754		$	189,951		$	182,491

Operating margin		30.7	%		32.4	%		29.9	%		31.2	%

Hotel Operating Expense Composition
(dollars in thousands)


	Three Months Ended June 30,										Six Months Ended June 30,
	2004					2003					2004					2003
			% of					% of					% of					% of
			Hotel					Hotel					Hotel					Hotel
			Revenue					Revenue					Revenue					Revenue
Hotel departmental expenses:
Room	$	69,322		21.0	%	$	60,801		20.1	%	$	134,285		21.1	%	$	118,354		20.2	%
Food and beverage		40,674		12.4			36,511		12.1			78,143		12.3			71,031		12.2
Other operating departments		8,698		2.6			7,175		2.4			16,879		2.7			13,936		2.4

Total hotel departmental expenses.		118,694		36.0			104,487		34.6			229,307		36.1			203,321		34.8

Other property related costs:
Administrative and general		30,715		9.3			28,167		9.3			60,577		9.5			56,678		9.7
Marketing and advertising		28,361		8.6			25,371		8.4			55,594		8.8			50,101		8.6
Repairs and maintenance		17,901		5.5			16,164		5.3			35,813		5.6			32,276		5.5
Energy		15,572		4.7			14,653		4.9			31,857		5.0			28,993		5.0

Total other property related costs		92,549		28.1			84,355		27.9			183,841		28.9			168,048		28.8
Management and franchise fees		17,184		5.2			15,347		5.1			32,751		5.1			30,398		5.2

Hotel operating expenses	$	228,427		69.3	%	$	204,189		67.6	%	$	445,899		70.1	%	$	401,767		68.8	%


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Reconciliation of total operating expenses to hotel operating expenses:
Total operating expenses	$	293,935		$	273,497		$	576,629		$	538,454
Taxes, insurance and lease expense		(30,967	)		(31,254	)		(62,154	)		(61,534	)
Corporate expenses		(4,393	)		(3,737	)		(7,779	)		(7,160	)
Depreciation		(30,148	)		(34,317	)		(60,797	)		(67,993	)

Hotel operating expenses	$	228,427		$	204,189		$	445,899		$	401,767

Hotel Portfolio Composition

The following tables set forth, as of June 30, 2004, for our consolidated hotel portfolio of 153 hotels included in continuing operations, distribution by brand, by our top metropolitan markets, by selected states, by type of location, and by market segment.


					% of			% of 2003 Hotel
Brand	Hotels		Rooms		Total Rooms			Operating Profit(b)
Embassy Suites^®		56		14,279		33	%		48	%
Holiday Inn®-branded		43		13,751		32			24
Sheraton®-branded		10		3,269		8			8
Crowne Plaza^®		15		5,108		12			7
Doubletree®-branded		10		2,206		5			6
Other		19		4,117		10			7


					% of			% of 2003 Hotel
Top Markets	Hotels		Rooms		Total Rooms			Operating Profit(b)
Atlanta		12		3,514		8	%		7	%
Dallas		15		4,724		11			6
San Francisco Bay Area		8		2,690		6			6
Los Angeles Area		6		1,492		3			4
Boca Raton/Ft. Lauderdale		4		1,118		3			4
Orlando		6		2,219		5			4
Chicago		4		1,239		3			4
New Orleans		2		746		2			3
San Diego		1		600		1			3
Minneapolis		4		955		2			3
Houston		8		1,969		5			3
Phoenix		4		1,016		2			3
Philadelphia		3		1,174		3			3


					% of			% of 2003 Hotel
Top Four States	Hotels		Rooms		Total Rooms			Operating Profit(b)
California		19		5,593		13	%		17	%
Texas		35		9,659		23			15
Florida		16		5,343		13			11
Georgia		14		3,868		9			8


					% of			% of 2003 Hotel
Location	Hotels		Rooms		Total Rooms			Operating Profit(b)
Suburban		69		17,649		41	%		40	%
Urban		32		9,978		23			27
Airport		30		9,206		22			22
Resort		12		3,677		9			9
Highway		10		2,220		5			2


Categories as defined by					% of			% of 2003 Hotel
Smith Travel Research	Hotels		Rooms		Total Rooms			Operating Profit(b)
Upscale all-suite		71		17,324		40	%		56	%
Full service		45		14,492		34			26
Upscale		27		9,232		22			17
Limited service		10		1,682		4			1


					% of			% of 2003 Hotel
	Hotels		Rooms		Total Rooms			Operating Profit(b)
Core Hotels		127		35,734		84	%		92	%
Non-Strategic Hotels^(a)		26		6,996		16			8

(a) Excludes one hotel that met the “held for sale” accounting requirements, and was included in discontinued operations.

(b) A detailed description of Hotel Operating Profit is contained in the “Non-GAAP Financial Measures” section found elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Hotel Operating Statistics

The following tables set forth historical occupancy, ADR and RevPAR at June 30, 2004 and 2003, and the percentage changes therein between the periods presented, for our 153 consolidated hotels included in continuing operations:

Operating Statistics by Brand


	Occupancy (%)
	Three Months Ended June 30,						Six Months Ended June 30,
	2004		2003		% Variance		2004		2003		% Variance
Embassy Suites Hotels		72.3		69.3		4.3		70.7		68.0		4.1
Holiday Inn-branded hotels		67.9		65.1		4.4		64.7		62.5		3.5
Crowne Plaza hotels		65.4		59.5		9.9		63.2		57.3		10.3
Doubletree-branded hotels		70.1		68.9		1.7		69.4		66.4		4.4
Sheraton-branded hotels		66.0		60.3		9.5		65.0		59.6		9.1
Other hotels		63.0		58.1		8.5		62.1		57.5		8.1
Total hotels		68.6		65.0		5.5		66.5		63.2		5.3


	ADR ($)
	Three Months Ended June 30,						Six Months Ended June 30,
	2004		2003		% Variance		2004		2003		% Variance
Embassy Suites Hotels		117.60		115.67		1.7		118.43		117.64		0.7
Holiday Inn-branded hotels		80.50		78.98		1.9		79.60		78.79		1.0
Crowne Plaza hotels		93.95		93.69		0.3		90.87		92.77		(2.0	)
Doubletree-branded hotels		105.10		102.83		2.2		104.45		103.40		1.0
Sheraton-branded hotels		96.82		94.26		2.7		97.19		96.30		0.9
Other hotels		82.53		80.30		2.8		82.83		81.90		1.1
Total hotels		97.78		96.17		1.7		97.62		97.13		0.5


	RevPAR ($)
	Three Months Ended June 30,						Six Months Ended June 30,
	2004		2003		% Variance		2004		2003		% Variance
Embassy Suites Hotels		84.99		80.15		6.0		83.78		79.96		4.8
Holiday Inn-branded hotels		54.69		51.38		6.4		51.48		49.21		4.6
Crowne Plaza hotels		61.42		55.72		10.2		57.43		53.17		8.0
Doubletree-branded hotels		73.65		70.85		4.0		51.44		47.07		9.3
Sheraton-branded hotels		63.89		56.82		12.4		63.22		57.40		10.1
Other hotels		52.03		46.67		11.5		51.44		47.07		9.3
Total hotels		67.04		62.47		7.3		64.96		61.38		5.8

Operating Statistics for Our Top Markets


					Occupancy (%)
	Three Months Ended June 30,							Six Months Ended June 30,
	2004		2003		% Variance			2004		2003		% Variance
Atlanta		66.9		63.7		5.0			66.9		65.0		2.8
Dallas		55.1		49.7		10.8			55.4		49.9		11.0
San Francisco Bay Area		67.5		64.5		4.7			64.6		62.7		3.1
Los Angeles Area		69.1		71.0		(2.6	)		69.6		70.9		(1.7	)
Boca Raton/Ft. Lauderdale		77.0		72.1		6.9			82.0		77.5		5.9
Orlando		79.3		74.4		6.6			77.6		70.1		10.8
Chicago		76.4		72.4		5.5			69.3		65.4		6.0
New Orleans		75.5		73.0		3.5			70.8		67.6		4.8
San Diego		83.3		76.9		8.3			84.8		77.5		9.5
Minneapolis		69.4		64.1		8.2			66.0		61.9		6.7
Houston		69.4		65.6		5.8			70.7		65.4		8.0
Phoenix		67.1		67.3		(0.3	)		73.3		73.6		(0.4	)
Philadelphia		72.8		67.0		8.7			64.5		59.8		7.8


					ADR ($)
	Three Months Ended June 30,							Six Months Ended June 30,
	2004		2003		% Variance			2004		2003		% Variance
Atlanta		86.23		84.00		2.7			87.38		86.73		0.8
Dallas		84.12		83.36		0.9			84.05		85.30		(1.5	)
San Francisco Bay Area		114.24		113.08		1.0			111.28		112.65		(1.2	)
Los Angeles Area		111.17		101.87		9.1			109.28		101.66		7.5
Boca Raton/Ft. Lauderdale		107.17		107.19		0.0			124.07		125.84		(1.4	)
Orlando		75.20		73.96		1.7			79.41		78.40		1.3
Chicago		108.45		113.98		(4.8	)		102.09		108.36		(5.8	)
New Orleans		144.35		130.99		10.2			145.94		142.51		2.4
San Diego		124.69		115.84		7.6			119.72		118.99		0.6
Minneapolis		123.37		123.53		(0.1	)		121.97		121.77		0.2
Houston		68.61		71.49		(4.0	)		71.76		71.96		(0.3	)
Phoenix		94.36		88.72		6.4			112.19		105.22		6.6
Philadelphia		110.20		109.51		0.6			104.08		105.12		(1.0	)


					RevPAR ($)
	Three Months Ended June 30,						Six Months Ended June 30,
	2004		2003		% Variance		2004		2003		% Variance
Atlanta		57.70		53.52		7.8		58.42		56.40		3.6
Dallas		46.35		41.46		11.8		46.56		42.56		9.4
San Francisco Bay Area		77.10		72.90		5.8		71.91		70.59		1.9
Los Angeles Area		76.83		72.28		6.3		76.10		72.04		5.6
Boca Raton/Ft. Lauderdale		82.54		77.24		6.9		101.72		97.47		4.4
Orlando		59.65		55.01		8.4		61.64		54.94		12.2
Chicago		82.91		82.57		0.4		70.77		70.89		(0.2	)
New Orleans		109.04		95.61		14.1		103.39		96.36		7.3
San Diego		103.87		89.14		16.5		101.58		92.19		10.2
Minneapolis		85.62		79.21		8.1		80.52		75.34		6.9
Houston		47.60		46.87		1.6		50.72		47.07		7.7
Phoenix		63.29		59.68		6.0		82.26		77.43		6.2
Philadelphia		80.25		73.36		9.4		67.13		62.91		6.7

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 six months ended June 30, 2004, net cash flow provided by operating activities, consisting primarily of hotel operations, was $30 million. At June 30, 2004, we had cash on hand of approximately $148 million. Included in cash on hand are approximately $33 million held under our hotel management agreements to meet our hotel minimum working capital requirements and $21 million held in escrow under certain of our debt agreements.

We currently expect that our cash flow provided by operating activities for 2004 will be approximately $98 million to $103 million (full year 2003 cash flow from operating activities was $48 million). Included in our projection of cash flow from operating activities is a third quarter $8 million gain from our joint venture interest in the development and sale of the Margate condominium project in Myrtle Beach, South Carolina. Our cash flow forecasts assume a full year RevPAR increase of 4% to 5% and operating margin of approximately 29% to 30%. For 2004, our current operating plan contemplates preferred dividend payments of $34 million, capital expenditures of approximately $75 to $100 million ($34 million had been spent at June 30, 2004), debt maturities of $175 million (which was prepaid in June 2004), $17 million in normal recurring principal payments and sales of approximately $125 million in non-strategic hotels. We expect cash necessary to fund cash flow shortfalls and distributions, if any, will be funded from our cash balances and proceeds from the sale of hotels. We currently anticipate that our board of directors will defer the resumption of common dividends until the anticipated recovery in our business is more firmly established, and to determine the amount of preferred dividends, if any, for each quarterly period, based upon the actual operating results of that quarter, economic conditions, other operating trends, our financial condition and capital requirements, as well as the minimum REIT distribution requirements.

In March 2004, we elected to terminate our line of credit, which resulted in the first quarter charge-off of unamortized loan costs of $0.2 million.

On April 5, 2004, we completed the sale of 4,600,000 shares of our $1.95 Series A Cumulative Convertible Preferred Stock. The shares were sold at a price of $23.79 per share, which included accrued dividends of $0.51 per share through April 5, 2004, resulting in net proceeds to FelCor of approximately $104 million. The proceeds were used to retire senior unsecured debt.

In May 2004, we issued $175 million in aggregate principal amount of Senior Floating Notes due 2011, the 2011 Notes. We received net proceeds of $174.1 million. The 2011 Notes will mature on June 1, 2011. The 2011 Notes bear interest, adjusted semi annually, at the six-month LIBOR rate plus 4.25%. The Notes are callable on or after December 1, 2006, and will rank equally with our other existing senior unsecured debt. In July 2004, we issued an additional $115 million of the 2011 Notes.

On June 9, 2004, we redeemed all $175 million in principal amount of our outstanding 7.375% Senior Notes due 2004. The redemption price was $1,018.14 per $1,000 of the principal amount plus accrued interest. With the retirement of this debt we recorded a loss on redemption of $3.2 million and wrote off $0.3 million of debt issue costs. The loss was offset by a $1 million gain on the unwinding of the swaps tied to this debt.

During the second quarter of 2004 we purchased $325.3 million principal amount of our 9.5% Senior Notes due 2008 (which currently bear interest at 10% as a result of the 2003 downgrades of the credit ratings on our senior notes) through a tender offer and by purchases on the open market. With the partial retirement of this debt we recorded a loss on early extinguishment of debt of $25 million ($23.4 million related to the premium paid in excess of par and $1.6 million related to the unamortized discount) and wrote off debt issue costs of $3.6 million. In July 2004, we purchased an additional $115 million of these notes and recorded a $7.6 million loss on early extinguishment of debt and wrote off debt issue costs of $1.2 million. We expect to retire the remaining $160 million of these senior notes during 2004 or 2005 using cash on hand, proceeds from asset sales or proceeds from capital transactions.

Our publicly-traded senior unsecured notes require that we satisfy total leverage, secured leverage and interest coverage tests in order to: incur additional indebtedness except 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 capital stock; or merge. As of the date of this filing, we have satisfied all such tests; however, under the terms of two of our indentures, we are prohibited from repurchasing any of our capital stock, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indentures, exceeds 4.85 to 1. Our current debt-to-EBITDA ratio exceeds that ratio and is expected to do so for the foreseeable future. Accordingly, we are prohibited from purchasing any of our capital stock, except as permitted under limited exceptions, such as from the proceeds of a substantially concurrent issuance of other capital stock.

If actual operating results fail to meet our current expectations, as reflected in our current public guidance, or if interest rates increase unexpectedly, we may be unable to continue to satisfy the incurrence test under the indentures governing our senior unsecured notes. In such an event, we may be prohibited from utilizing the undrawn amounts currently available to us under our secured debt facility, except to repay or refinance maturing debt with similar priority in the capital structure, and may be prohibited from, among other things, incurring any additional indebtedness or paying dividends on our preferred or common stock, except to the extent necessary to satisfy the REIT qualification requirement that we distribute currently at least 90% of our taxable income. In the event of our failure of this incurrence test, based upon our current estimates of taxable income for 2004, we would be unable to distribute the full amount of dividends accruing under our outstanding preferred stock in 2004 and, accordingly, could pay no dividends on our common stock.

We currently anticipate that we will continue to meet our financial covenant and incurrence tests under the RevPAR guidance provided by us at our second quarter earnings conference call on July 29, 2004. For the third quarter of 2004, we currently anticipate that our portfolio RevPAR will be 4% to 6% above the comparable period of the prior year. The RevPAR increase for the first 27 days of July 2004, compared to the same period in 2003, was approximately 4.9%. We currently anticipate that full year 2004 hotel portfolio RevPAR will increase approximately 5% to 6%. For 2004 we expect to make capital expenditures of $75 to $100 million, and we anticipate selling approximately $125 million in non-strategic hotels. We estimate that our net loss applicable to common stockholders for 2004 will be in the range of $109 to $104 million or $1.85 to $1.77 per share. The estimated losses include $40 million ($0.64 per share) of costs associated with the early retirement of senior debt. FFO per share, for the year 2004, is anticipated to be within the range of $0.34 to $0.41, and EBITDA is expected to be within the range of $218 to $223 million. Our FFO and EBITDA estimates include an $8 million gain expected on the sale of a 251-unit residential condominium development expected to be completed and sold in 2004. No other transaction gains or losses are included in these earnings estimates.

Reconciliation of Estimated Net Loss to Estimated FFO and EBITDA
(in millions, except per share and unit data)


	Third Quarter 2004 Guidance
	Low Guidance						High Guidance
				Per Share						Per Share
	Dollars			Amount^(a)			Dollars			Amount^(a)
Net loss	$	(6	)				$	(4	)
Preferred dividends		(9	)					(9	)

Net loss applicable to common stockholders		(15	)	$	(0.25	)		(13	)	$	(0.22	)
Depreciation		31						31
Minority interest in FelCor LP		1						1

FFO^(b)	$	17		$	0.27		$	19		$	0.31

Net loss	$	(6	)				$	(4	)
Depreciation		31						31
Interest expense		38						38
Amortization expense		1						1
Minority interest in FelCor LP		1						1

EBITDA^(b)	$	65					$	67


	Full Year 2004 Guidance
	Low Guidance						High Guidance
				Per Share						Per Share
	Dollars			Amount^(a)			Dollars			Amount^(a)
Net loss^(b)	$	(75	)				$	(70	)
Preferred dividends		(34	)					(34	)

Net loss applicable to common stockholders		(109	)	$	(1.85	)		(104	)	$	(1.77	)
Lease termination costs		5						5
Depreciation		129						129
Minority interest in FelCor LP		(4	)					(4	)

FFO^(b)	$	21		$	0.34		$	26		$	0.41

Net loss	$	(75	)				$	(70	)
Lease termination costs		5						5
Depreciation		129						129
Interest expense		161						161
Amortization expense		2						2
Minority interest in FelCor LP		(4	)					(4	)

EBITDA^(b)	$	218					$	223

(a) Weighted average shares are 58.9 million, plus minority interest and unvested restricted stock of 3.4 million, provide the 62.3 million weighted average shares and units, used to compute FFO per share.

(b) Included in Net Loss, FFO and EBITDA guidance are the following charges:


	Third Quarter 2004				Full Year 2004
	Dollars		Per Share Amount		Dollars			Per Share Amount
Loss on extinguishment of debt	$	8			$	36
Write off of debt costs		1				5
Gain on swap termination		—				(1	)

Total	$	9	$	0.14	$	40		$	0.64

Quantitative and Qualitative Disclosures About Market Risk

At June 30, 2004, approximately 71% 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.

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, 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 date. 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 the date presented, at then current market interest rates. The fair value of our fixed to variable interest rate swaps indicates the estimated amount that would have been received or paid by us had the swaps been terminated at the date presented.

Expected Maturity Date
at June 30, 2004
(dollars in thousands)


																						Fair
	2004			2005			2006			2007			2008			Thereafter			Total			Value
Liabilities
Fixed rate:
Debt	$	7,841		$	25,770		$	16,561		$	260,220		$	289,996		$	840,765		$	1,441,153		$	1,499,956
Average interest rate		7.77	%		7.62	%		7.89	%		7.47	%		9.90	%		8.39	%		8.51	%
Floating rate:
Debt		2,868			5,927			143,559			2,561			18,168			263,169			436,252			436,252
Average interest rate^(a)		3.72	%		3.72	%		3.63	%		3.88	%		3.98	%		5.18	%		4.58	%
Interest rate swaps (fixed to floating)^(b)
Notional amount		—			—			—			100,000	^(c)		—			—			100,000			(1,647	)
Pay rate^(b)		—			—			—			5.58	%		—			—			5.58	%
Receive rate		—			—			—			7.46	%		—			—			7.46	%
Total debt	$	10,709		$	31,697		$	160,120		$	262,781		$	308,164		$	1,103,934			1,877,405
Average interest rate		6.69	%		6.89	%		4.07	%		6.76	%		9.55	%		7.63	%		7.45	%
Net discount																				(4,610	)
Total debt																			$	1,872,795

(a) The average floating rate of interest represents the implied forward rate in the yield curve at June 30, 2004.

(b) The interest rate swaps decreased our interest expense by $4.2 million during the six months ended June 30, 2004.

(c) All interest rate swaps were unwound in July 2004.

Swap contracts, 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 Standard & Poor’s credit ratings for the financial institutions that are counterparties to the 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. We are also subject to the risk that inflation will cause increases in hotel operating expenses disproportionately to revenues.

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. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we may utilize cash on hand or borrowings to satisfy our obligations or make distributions to our equity holders.

Disclosure Regarding Forward Looking Statements

Portions of this Quarterly Report on Form 10-Q include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 impact on the travel industry of increased security precautions; the availability of capital; the impact of U.S. military involvement in the Middle East and elsewhere; the ability to effect sales of non-strategic hotels at anticipated prices 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 us 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 – Quantitative and Qualitative Disclosures About Market Risks” contained elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our chief executive officer and principal accounting officer who, in the absence of a chief financial officer, is acting as our principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, in accordance with Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and acting principal financial officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were effective, such that the information relating to us required to be disclosed in our reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(a) Changes in internal controls.

Not applicable.

PART II. — OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

FelCor held its 2004 Annual Meeting of Stockholders on May 18, 2004 (the “Annual Meeting”). At the Annual Meeting, the stockholders of FelCor elected Melinda J. Bush, Charles A. Ledsinger, Jr., Robert H Lutz, Jr., and Michael D. Rose to serve as Class I Directors until the Annual Meeting of Stockholders to be held in 2007.

The total number of shares entitled to vote at the 2004 Annual Meeting was 59,124,954 shares of Common Stock. A total of 45,644,484 shares of Common Stock were represented in person or by proxy at the Annual Meeting. The following table sets forth, with respect to each of the directors elected, the number of votes cast for, and the number of votes withheld, with respect to his election:


Nominee	Votes For		Votes Withheld
Melinda J. Bush		38,690,898		6,953,586
Charles A. Ledsinger, Jr.		42,800,007		2,844,477
Robert H. Lutz, Jr.		38,687,215		6,957,269
Michael D. Rose		38,689,425		6,955,059

In addition, at the 2004 Annual Meeting, the stockholders of FelCor ratified the selection of PricewaterhouseCoopers LLP as our independent auditor. There were 41,496,355 votes cast for ratification, 4,110,965 votes against and 37,164 shares abstained from voting.

There were no broker non-votes.

Item 6. Exhibits and Reports on Form 8-K.

(a) The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K:


Exhibit Number		Description of Exhibit
10.31.6		Termination Agreement, dated July 28, 2004, by and among FCH/DT BWI Hotel, L.L.C., FCH/DT BWI Holdings, L.P., FelCor Hotel Asset Company, L.L.C., FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin HI Holdings, L.P., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM BWI Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM LBV Hotel, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C., FelCor/JPM Nashville Hotel, L.L.C., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Orlando I-Drive Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., BHR Operations, L.L.C., DJONT Leasing, L.L.C., DJONT Operations, L.L.C., DJONT/JPM Atlanta CP Leasing, L.L.C., DJONT/JPM Atlanta ES Leasing, L.L.C., DJONT/JPM Austin HI Leasing, L.P., DJONT/JPM Austin Leasing, L.P., DJONT/JPM Boca Raton Leasing, L.L.C., DJONT/JPM BWI Leasing, L.L.C., DJONT/JPM Denver Leasing, L.L.C., DJONT/JPM LBV Leasing, L.L.C., DJONT/JPM Mandalay Leasing, L.L.C., DJONT/JPM Orlando I-Drive Leasing, L.L.C., DJONT/JPM Orlando Leasing, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., DJONT/JPM Troy Leasing, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., FCH/DT Leasing, L.L.C., FCH/DT Leasing II, L.L.C., FelCor TRS Holdings, L.P., FelCor Lodging Limited Partnership and JPMorgan Chase Bank.


Exhibit Number		Description of Exhibit
10.34		Form of Loan Agreement, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, between JPMorgan Chase Bank, as lender, and each of FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C. and FelCor/JPM BWI Hotel, L.L.C. and FCH/DT BWI Hotel, L.L.C., as borrowers, and acknowledged and agreed by FelCor Lodging Limited Partnership.

10.34.1		Form of Mortgage, Renewal Mortgage, Deed of Trust, Deed to Secure Debt, Indemnity Deed of Trust and Assignment of Leases and Rents, Security Agreement and Fixture Filing, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, from FelCor/JPM Wilmington Hotel, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., DJONT/JPM Boca Raton Leasing, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., DJONT/JPM Atlanta ES Leasing, L.L.C., FelCor/JPM Austin Holdings, L.P., DJONT/JPM Austin Leasing, L.P., FelCor/JPM Orlando Hotel, L.L.C., DJONT/JPM Orlando Leasing, L.L.C., FelCor/JPM Denver Hotel, L.L.C., DJONT/JPM Denver Leasing, L.L.C., FelCor/JPM Troy Hotel, L.L.C., DJONT/JPM Troy Leasing, L.L.C., FCH/DT BWI Holdings, L.P., FCH/DT BWI Hotel, L.L.C. and DJONT/JPM BWI Leasing, L.L.C., to, and for the benefit of, JPMorgan Chase Bank, as mortgagee or beneficiary.

10.34.2		Form of nine separate Promissory Notes, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C. and FelCor/JPM BWI Hotel, L.L.C., each separately payable to the order of JPMorgan Chase Bank in the respective original principal amounts of $11,000,000 (Wilmington, Delaware), $21,368,000 (Phoenix, Arizona), $5,500,000 (Boca Raton, Florida), $13,500,000 (Atlanta, Georgia), $9,616,000 (Austin, Texas), $9,798,000 (Orlando, Florida), $5,000,000 (Aurora, Colorado), $6,900,000 (Troy, Michigan) and $24,120,000 (Linthicum, Maryland).

10.34.3		Form of Guaranty of Recourse Obligations of Borrower, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor Lodging Limited Partnership in favor of JPMorgan Chase Bank.

10.35		Loan Agreement, dated July 28, 2004, by and among FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Austin HI Holdings, L.P., FelCor/JPM Brunswick Hotel, L.L.C., FelCor/JPM LBV Hotel, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C. and FelCor/JPM Orlando I-Drive Hotel, L.L.C., as borrowers, and JPMorgan Chase Bank, as lender, and acknowledged and agreed to by FelCor Lodging Limited Partnership.


Exhibit Number		Description of Exhibit
10.35.1		Form of Mortgage, Leasehold Mortgage, Deed of Trust, Deed to Secure Debt and Assignment of Leases and Rents, Security Agreement and Fixture Filing, each dated July 28, 2004, from FelCor/JPM Atlanta CP Hotel, L.L.C., DJONT/JPM Atlanta CP Leasing, L.L.C., FelCor/JPM Austin HI Holdings, L.P., DJONT/JPM Austin HI Leasing, L.P., FelCor/JPM Brunswick Hotel, L.L.C., DJONT/JPM Brunswick Leasing, L.L.C., FelCor/JPM LBV Hotel, L.L.C., DJONT/JPM LBV Leasing, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C., DJONT/JPM Mandalay Leasing, L.L.C., FelCor/JPM Orlando I-Drive Hotel, L.L.C. and DJONT/JPM Orlando I-Drive Leasing, L.L.C., to, and for the benefit of, JPMorgan Chase Bank, as mortgagee or beneficiary.

10.35.2		Promissory Note, dated July 28, 2004, in the original principal amount of $87,000,000 made by FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Austin HI Holdings, L.P., FelCor/JPM Brunswick Hotel, L.L.C., FelCor/JPM LBV Hotel, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C. and FelCor/JPM Orlando I-Drive Hotel, L.L.C., payable to the order of JPMorgan Chase Bank.

10.35.3		Guaranty of Recourse Obligations of Borrower, dated July 28, 2004, made by FelCor Lodging Limited Partnership in favor of JPMorgan Chase Bank.

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 32.1		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.2		Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

(b) Since March 31, 2004, the Company has filed the following Current Reports on Form 8-K:

A Current Report on Form 8-K, dated March 30, 2004, was filed by the Company on April 6, 2004. This filing, under Item 5, announced the issuance of shares of Company $1.95 Series A Cumulative Convertible Preferred Stock. Attached as an exhibit to this filing was an Underwriting Agreement among the Company, Citigroup Global Markets Inc., Bear, Stearns & Co. Inc., Deutsche Bank Securities Inc. and Legg Mason Wood Walker, Incorporated. Pursuant to the Underwriting Agreement, the Company issued an aggregate of 4,600,000 shares of $1.95 Series A Cumulative Convertible Preferred Stock.

A Current Report on Form 8-K, dated April 28, 2004, was filed by the Company on April 29, 2004. This filing, under Item 12, disclosed that on April 28, 2004, the Company issued a press release announcing its results of operations for the three months ended March 31, 2004 and published its Supplemental Information for the three months ended March 31, 2004, which provides additional corporate data, financial highlights and portfolio statistical data. Copies of the press release and Supplemental Information were furnished as Exhibits 99.1 and 99.2, respectively.

A Current Report on Form 8-K, dated May 3, 2004, was filed by the Company on May 3, 2004. This filing, under Item 5, provided additional information at the request of Institutional Shareholder Services about fees that the Company paid to its independent auditors, PricewaterhouseCoopers, LLC and reported in its proxy statement for its 2004 Annual Meeting of Shareholders.

A Current Report on Form 8-K, dated May 11, 2004, was filed by the Company on May 14, 2004. This filing, under Item 5, disclosed that the Company issued press releases announcing the redemption of the 7 3/8% senior notes due 2004 of FelCor Lodging Limited Partnership, FelCor Lodging Limited Partnership’s proposed senior unsecured notes offering and the commencement by FelCor Lodging Limited Partnership of a tender offer for its outstanding 9 1/2% senior notes due 2008. Copies of the press releases were filed as Exhibits 99.1, 99.2 and 99.3, respectively.

A Current Report on Form 8-K, dated May 17, 2004, was filed by the Company on May 21, 2004. This filing, under Item 5, disclosed that the Company issued press releases announcing the pricing of FelCor Lodging Limited Partnership’s senior unsecured notes being offered and an amendment to FelCor Lodging Limited Partnership’s tender offer for its outstanding 9 1/2% senior notes due 2008. Copies of the press releases were filed as Exhibits 99.1 and 99.2, respectively.

A Current Report on Form 8-K, dated June 24, 2004, was filed by the Company on June 29, 2004. This filing, under Item 5, disclosed that the Company issued press releases announcing the pricing of FelCor Lodging Limited Partnership’s senior unsecured notes being offered and the commencement by FelCor Lodging Limited Partnership of a tender offer for its outstanding 9 1/2% senior notes due 2008. Copies of the press releases were filed as Exhibits 99.1 and 99.2, respectively.

A Current Report on Form 8-K, dated July 22, 2004, was filed by the Company on July 22, 2004. This filing, under Item 5, updates Items 6, 7 and 8 of the Company’s annual report on Form 10-K for the year ended December 31, 2003, to reflect the hotels sold during the first quarter of 2004 and the hotels held for sale at March 31, 2004 as discontinued operations, pursuant to the requirements of Statement of Financial Accounting Standards 144 “Accounting for the Impairment or Disposal of Long Lived Assets,” for the three years ended December 31, 2003, 2002 and 2001, and to reflect the effect of this reclassification on Management’s Discussion and Analysis of Financial Condition and Results of Operations and Selected Financial Data. These updated items were filed as Exhibit 99.1.

A Current Report on Form 8-K, dated July 28, 2004, was filed by the Company on July 28, 2004. This filing, under Item 12, disclosed that on July 28, 2004, the Company issued a press release announcing its results of operations for the three and six months ended June 30, 2004 and published its Supplemental Information for the three and six months ended June 30, 2004, which provides additional corporate data, financial highlights and portfolio statistical data. Copies of the press release and Supplemental Information were furnished as Exhibits 99.1 and 99.2, respectively.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 6, 2004


		FELCOR LODGING TRUST INCORPORATED

		By:		/s/ Lester C. Johnson

				Lester C. Johnson
				Senior Vice President and
				Principal Accounting Officer

INDEX TO EXHIBITS


Exhibit Number		Description of Exhibit
10.31.6		Termination Agreement, dated July 28, 2004, by and among FCH/DT BWI Hotel, L.L.C., FCH/DT BWI Holdings, L.P., FelCor Hotel Asset Company, L.L.C., FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin HI Holdings, L.P., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM BWI Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM LBV Hotel, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C., FelCor/JPM Nashville Hotel, L.L.C., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Orlando I-Drive Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., BHR Operations, L.L.C., DJONT Leasing, L.L.C., DJONT Operations, L.L.C., DJONT/JPM Atlanta CP Leasing, L.L.C., DJONT/JPM Atlanta ES Leasing, L.L.C., DJONT/JPM Austin HI Leasing, L.P., DJONT/JPM Austin Leasing, L.P., DJONT/JPM Boca Raton Leasing, L.L.C., DJONT/JPM BWI Leasing, L.L.C., DJONT/JPM Denver Leasing, L.L.C., DJONT/JPM LBV Leasing, L.L.C., DJONT/JPM Mandalay Leasing, L.L.C., DJONT/JPM Orlando I-Drive Leasing, L.L.C., DJONT/JPM Orlando Leasing, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., DJONT/JPM Troy Leasing, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., FCH/DT Leasing, L.L.C., FCH/DT Leasing II, L.L.C., FelCor TRS Holdings, L.P., FelCor Lodging Limited Partnership and JPMorgan Chase Bank.

10.34		Form of Loan Agreement, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, between JPMorgan Chase Bank, as lender, and each of FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C. and FelCor/JPM BWI Hotel, L.L.C. and FCH/DT BWI Hotel, L.L.C., as borrowers, and acknowledged and agreed by FelCor Lodging Limited Partnership.

10.34.1		Form of Mortgage, Renewal Mortgage, Deed of Trust, Deed to Secure Debt, Indemnity Deed of Trust and Assignment of Leases and Rents, Security Agreement and Fixture Filing, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, from FelCor/JPM Wilmington Hotel, L.L.C., DJONT/JPM Wilmington Leasing, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., DJONT/JPM Phoenix Leasing, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., DJONT/JPM Boca Raton Leasing, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., DJONT/JPM Atlanta ES Leasing, L.L.C., FelCor/JPM Austin Holdings, L.P., DJONT/JPM Austin Leasing, L.P., FelCor/JPM Orlando Hotel, L.L.C., DJONT/JPM Orlando Leasing, L.L.C., FelCor/JPM Denver Hotel, L.L.C., DJONT/JPM Denver Leasing, L.L.C., FelCor/JPM Troy Hotel, L.L.C., DJONT/JPM Troy Leasing, L.L.C., FCH/DT BWI Holdings, L.P., FCH/DT BWI Hotel, L.L.C. and DJONT/JPM BWI Leasing, L.L.C., to, and for the benefit of, JPMorgan Chase Bank, as mortgagee or beneficiary.


Exhibit Number		Description of Exhibit
10.34.2		Form of nine separate Promissory Notes, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor/JPM Wilmington Hotel, L.L.C., FelCor/JPM Phoenix Hotel, L.L.C., FelCor/JPM Boca Raton Hotel, L.L.C., FelCor/JPM Atlanta ES Hotel, L.L.C., FelCor/JPM Austin Holdings, L.P., FelCor/JPM Orlando Hotel, L.L.C., FelCor/JPM Denver Hotel, L.L.C., FelCor/JPM Troy Hotel, L.L.C. and FelCor/JPM BWI Hotel, L.L.C., each separately payable to the order of JPMorgan Chase Bank in the respective original principal amounts of $11,000,000 (Wilmington, Delaware), $21,368,000 (Phoenix, Arizona), $5,500,000 (Boca Raton, Florida), $13,500,000 (Atlanta, Georgia), $9,616,000 (Austin, Texas), $9,798,000 (Orlando, Florida), $5,000,000 (Aurora, Colorado), $6,900,000 (Troy, Michigan) and $24,120,000 (Linthicum, Maryland).

10.34.3		Form of Guaranty of Recourse Obligations of Borrower, each dated either May 26, 2004, June 10, 2004 or July 19, 2004, made by FelCor Lodging Limited Partnership in favor of JPMorgan Chase Bank.

10.35		Loan Agreement, dated July 28, 2004, by and among FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Austin HI Holdings, L.P., FelCor/JPM Brunswick Hotel, L.L.C., FelCor/JPM LBV Hotel, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C. and FelCor/JPM Orlando I-Drive Hotel, L.L.C., as borrowers, and JPMorgan Chase Bank, as lender, and acknowledged and agreed to by FelCor Lodging Limited Partnership.

10.35.1		Form of Mortgage, Leasehold Mortgage, Deed of Trust, Deed to Secure Debt and Assignment of Leases and Rents, Security Agreement and Fixture Filing, each dated July 28, 2004, from FelCor/JPM Atlanta CP Hotel, L.L.C., DJONT/JPM Atlanta CP Leasing, L.L.C., FelCor/JPM Austin HI Holdings, L.P., DJONT/JPM Austin HI Leasing, L.P., FelCor/JPM Brunswick Hotel, L.L.C., DJONT/JPM Brunswick Leasing, L.L.C., FelCor/JPM LBV Hotel, L.L.C., DJONT/JPM LBV Leasing, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C., DJONT/JPM Mandalay Leasing, L.L.C., FelCor/JPM Orlando I-Drive Hotel, L.L.C. and DJONT/JPM Orlando I-Drive Leasing, L.L.C., to, and for the benefit of, JPMorgan Chase Bank, as mortgagee or beneficiary.

10.35.2		Promissory Note, dated July 28, 2004, in the original principal amount of $87,000,000 made by FelCor/JPM Atlanta CP Hotel, L.L.C., FelCor/JPM Austin HI Holdings, L.P., FelCor/JPM Brunswick Hotel, L.L.C., FelCor/JPM LBV Hotel, L.L.C., FelCor/JPM Mandalay Hotel, L.L.C. and FelCor/JPM Orlando I-Drive Hotel, L.L.C., payable to the order of JPMorgan Chase Bank.

10.35.3		Guaranty of Recourse Obligations of Borrower, dated July 28, 2004, made by FelCor Lodging Limited Partnership in favor of JPMorgan Chase Bank.

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.2		Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

EX-10.31.6 2 d17358exv10w31w6.txt TERMINATION AGREEMENT EXHIBIT 10.31.6 TERMINATION AGREEMENT THIS TERMINATION AGREEMENT is made this 28th day of July, 2004 by and among each of the entities identified on Schedule I attached hereto, each having its principal place of business at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (individually and collectively, as the context may require, "Original Parties"), FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership, having its principal place of business at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("FelCor Lodging"), and JPMORGAN CHASE BANK, a New York banking corporation, having its principal place of business at 270 Park Avenue, New York, New York 10017 ("Lender"). WITNESSETH: WHEREAS, Lender has made a loan (the "Loan") in the principal amount of $200,000,000.00, or so much thereof as may have been advanced pursuant to that certain Loan Facility Agreement, dated June 18, 2003 (the "Original Loan Agreement"), as amended by that certain First Amendment to Note, Loan Agreement, Environmental Indemnity Agreement and Other Loan Documents, dated July 31, 2003 (the "First Amendment"), as further amended by that certain Second Amendment to Note, Loan Agreement, Environmental Indemnity Agreement and Other Loan Documents, dated October 23, 2003, (the "Second Amendment"), as further amended by that certain Third Amendment to Note, Loan Agreement, Environmental Indemnity Agreement and Other Loan Documents, dated February 18, 2004 (the "Third Amendment"; the Original Loan Agreement, together with the First Amendment, Second Amendment and Third Amendment, the "Loan Agreement"), which Loan is evidenced by the Note (as defined in the Loan Agreement) and secured by, among other things, the Security Instruments (as defined in the Loan Agreement); WHEREAS, Lender has converted the Loan into various Fixed Rate CMBS Loans (as defined in the Loan Agreement) and a Floating Rate CMBS Loan (as defined in the Loan Agreement) (collectively, the "Converted Loans") pursuant to the terms of the Loan Agreement; and WHEREAS, Original Parties, FelCor Lodging and Lender desire to terminate the Loan Agreement, the Note, the Security Instruments and all other agreements (other than with respect to the Converted Loans) relating to the Loan (the "Agreements"), upon and subject to the terms and conditions set forth in this instrument; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged the parties to this instrument hereby agree as follows: 1. Termination of Agreements. The Agreements are hereby terminated, effective as of the date hereof. FelCor Lodging and Original Parties hereby agree and acknowledge that, as of the date hereof, (i) Lender has no obligations or liabilities with respect to the Agreements including, without limitation, the obligation to make any Advances (as defined in the Loan Agreement) and (ii) FelCor Lodging and Original Parties have no rights to Advances under the Agreements. 2. Assumption of Obligations. FelCor Lodging hereby assumes the duties and obligations of Original Parties under Section 9.1.4 of the Loan Agreement (the "Troy Obligations"). 3. Release. Lender does hereby relieve and release Original Parties from any and all liability or obligation to observe, comply with or perform any of the terms, covenants or conditions of the Loan Documents. Lender does hereby relieve and release FelCor Lodging from any and all liability or obligation to observe, comply with or perform any of the terms, covenants or conditions of the Loan Documents other than FelCor Lodging's liabilities and obligations with respect to the Troy Obligations. 4. Original Note. Lender shall promptly deliver the original Note to FelCor Lodging upon Lender's receipt of a fully executed copy of this instrument. 5. Further Assurances. Original Parties, FelCor Lodging and Lender agree that at any time and from time to time, at the expense of FelCor Lodging, the parties hereto will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Original Parties, FelCor Lodging or Lender may request, in order to evidence the termination of the Agreements. 6. Miscellaneous. (a) The terms hereof may not be waived, changed, modified, terminated or discharged orally, but only by an instrument in writing signed by the party against whom enforcement of any such waiver, change, modification, termination or discharge is sought. (b) This instrument shall bind, and inure to the benefit of, the parties hereto, their respective successors and permitted assigns. The provisions of this instrument shall survive the termination of the Agreements effected pursuant hereto. (c) This instrument may be executed in any number of counterparts and by different parties hereto in separate counterparts, and at such time as each party shall have executed at least one counterpart, each such counterpart shall be deemed to be an original, but all of which counterparts taken together shall constitute one and the same agreement. (d) No binding agreement shall exist among the parties hereto with respect to the transactions contemplated hereby unless and until this instrument has been duly executed and delivered by all of such parties. (e) FELCOR LODGING, ORIGINAL PARTIES AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, UNCONDITIONALLY, IRREVOCABLY AND INTENTIONALLY FOREVER WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER ARISING IN TORT OR CONTRACT) BROUGHT BY SUCH PARTY AGAINST ANY OTHER PARTY HERETO BASED ON ANY MATTER ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS INSTRUMENT OR ANY OTHER DOCUMENT EXECUTED AND DELIVERED BY ANY PARTY HERETO IN CONNECTION HEREWITH (INCLUDING ANY ACTION TO RESCIND OR CANCEL THIS INSTRUMENT ON GROUNDS THAT EXECUTION AND DELIVERY HEREOF WAS FRAUDULENTLY INDUCED OR OTHERWISE VOID OR VOIDABLE). (f) THIS 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. WITHOUT IN ANY WAY LIMITING THE PRECEDING CHOICE OF LAW, THE PARTIES HERETO 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. (g) WITH RESPECT TO ANY CLAIM OR ACTION ARISING HEREUNDER, FELCOR LODGING AND ORIGINAL PARTIES (A) IRREVOCABLY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK, NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF, AND (B) IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING ON VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS 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. NOTHING IN THIS INSTRUMENT OR THE AGREEMENTS 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. IN WITNESS WHEREOF, this Termination Agreement has been executed by the parties hereto as of the date and year first above written. ORIGINAL PARTIES: FCH/DT BWI HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------- Joel M. Eastman Vice President FCH/DT BWI HOLDINGS, L.P., a Delaware limited partnership By: FCH/DT HOTELS, L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ------------------------------- Joel M. Eastman Vice President FELCOR HOTEL ASSET COMPANY, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM ATLANTA CP HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM ATLANTA ES HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM AUSTIN HI HOLDINGS, L.P., a Delaware limited partnership By: FELCOR/JPM AUSTIN HI HOTEL, L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ------------------------------- Joel M. Eastman Vice President FELCOR/JPM AUSTIN HOLDINGS, L.P., a Delaware limited partnership By: FELCOR/JPM AUSTIN HOTEL, L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ------------------------------- Joel M. Eastman Vice President FELCOR/JPM BOCA RATON HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM BWI HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM DENVER HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM LBV HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM MANDALAY HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM NASHVILLE HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM ORLANDO HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM ORLANDO I-DRIVE HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM PHOENIX HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/JPM TROY HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ---------------------------------- Joel M. Eastman Vice President FELCOR/JPM WILMINGTON HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President BHR OPERATIONS, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT OPERATIONS, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM ATLANTA CP LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM ATLANTA ES LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM AUSTIN HI LEASING, L.P., a Delaware limited partnership By: DJONT/JPM AUSTIN HI TENANT CO., L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ------------------------------- Joel M. Eastman Vice President DJONT/JPM AUSTIN LEASING, L.P., a Delaware limited partnership By: DJONT/JPM AUSTIN TENANT CO., L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ------------------------------- Joel M. Eastman Vice President DJONT/JPM BOCA RATON LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM BWI LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM DENVER LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM LBV LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM MANDALAY LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM ORLANDO I-DRIVE LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM ORLANDO LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM PHOENIX LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM TROY LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President DJONT/JPM WILMINGTON LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FCH/DT LEASING, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FCH/DT LEASING II, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------- Joel M. Eastman Vice President FELCOR/TRS HOLDINGS, L.P., a Delaware limited partnership By: FELCOR TRS I, L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ------------------------------- Joel M. Eastman Vice President FELCOR LODGING: FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership By: FELCOR LODGING TRUST INCORPORATED, a Maryland corporation, its general partner By: /s/ Joel M. Eastman ------------------------------- Joel M. Eastman Vice President LENDER: JPMORGAN CHASE BANK, a New York banking corporation By: /s/ Michael Mesard ----------------------------------- Name: Michael Mesard Title: Vice President SCHEDULE I 1. FCH/DT BWI Hotel, L.L.C., a Delaware limited liability company 2. FCH/DT BWI Holdings, L.P., a Delaware limited partnership 3. FelCor Hotel Asset Company, L.L.C., a Delaware limited liability company 4. FelCor/JPM Atlanta CP Hotel, L.L.C., a Delaware limited liability company 5. FelCor/JPM Atlanta ES Hotel, L.L.C., a Delaware limited liability company 6. FelCor/JPM Austin HI Holdings, L.P., a Delaware limited partnership 7. FelCor/JPM Austin Holdings, L.P., a Delaware limited partnership 8. FelCor/JPM Boca Raton Hotel, L.L.C., a Delaware limited liability company 9. FelCor/JPM BWI Hotel, L.L.C., a Delaware limited liability company 10. FelCor/JPM Denver Hotel, L.L.C., a Delaware limited liability company 11. FelCor/JPM LBV Hotel, L.L.C., a Delaware limited liability company 12. FelCor/JPM Mandalay Hotel, L.L.C., a Delaware limited liability company 13. FelCor/JPM Nashville Hotel, L.L.C., a Delaware limited liability company 14. FelCor/JPM Orlando Hotel, L.L.C., a Delaware limited liability company 15. FelCor/JPM Orlando I-Drive Hotel, L.L.C., a Delaware limited liability company 16. FelCor/JPM Phoenix Hotel, L.L.C., a Delaware limited liability company 17. FelCor/JPM Troy Hotel, L.L.C., a Delaware limited liability company 18. FelCor/JPM Wilmington Hotel, L.L.C., a Delaware limited liability company 19. FCH/DT BWI Hotel, L.L.C., a Delaware limited liability company 20. BHR Operations, L.L.C., a Delaware limited liability company 21. DJONT Leasing, L.L.C., a Delaware limited liability company 22. DJONT Operations, L.L.C., a Delaware limited liability company 23. DJONT/JPM Atlanta CP Leasing, L.L.C., a Delaware limited liability company 24. DJONT/JPM Atlanta ES Leasing, L.L.C., a Delaware limited liability company 25. DJONT/JPM Austin HI Leasing, L.P., a Delaware limited partnership 26. DJONT/JPM Austin Leasing, L.P., a Delaware limited partnership 27. DJONT/JPM Boca Raton Leasing, L.L.C., a Delaware limited liability company 28. DJONT/JPM BWI Leasing, L.L.C., a Delaware limited liability company 29. DJONT/JPM Denver Leasing, L.L.C., a Delaware limited liability company 30. DJONT/JPM LBV Leasing, L.L.C., a Delaware limited liability company 31. DJONT/JPM Mandalay Leasing, L.L.C., a Delaware limited liability company 32. DJONT/JPM Orlando I-Drive Leasing, L.L.C., a Delaware limited liability company 33. DJONT/JPM Orlando Leasing, L.L.C., a Delaware limited liability company 34. DJONT/JPM Phoenix Leasing, L.L.C., a Delaware limited liability company 35. DJONT/JPM Troy Leasing, L.L.C., a Delaware limited liability company 36. DJONT/JPM Wilmington Leasing, L.L.C., a Delaware limited liability company 37. FCH/DT Leasing II, L.L.C., a Delaware limited liability company 38. FCH/DT Leasing, L.L.C., a Delaware limited liability company 39. FelCor/TRS Holdings, L.P., a Delaware limited partnership EX-10.34 3 d17358exv10w34.txt FORM OF LOAN AGREEMENT EXHIBIT 10.34 ================================================================================ LOAN AGREEMENT Dated as of _____, 2004 Between _____________, 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............................................. 21 II. GENERAL TERMS................................................................................ 22 Section 2.1 Loan Commitment; Disbursement to Borrower.............................. 22 2.1.1 Agreement to Lend and Borrow............................................... 22 2.1.2 Single Disbursement to Borrower............................................ 22 2.1.3 The Note, Security Instrument and Loan Documents........................... 22 2.1.4 Intentionally Deleted...................................................... 22 Section 2.2 Interest; Loan Payments; Late Payment Charge........................... 22 2.2.1 Payments................................................................... 22 2.2.2 Interest Calculation....................................................... 22 2.2.3 Payment on Maturity Date................................................... 22 2.2.4 Payments after Default..................................................... 23 2.2.5 Late Payment Charge........................................................ 23 2.2.6 Usury Savings.............................................................. 23 Section 2.3 Prepayments............................................................ 24 2.3.1 Voluntary Prepayments...................................................... 24 2.3.2 Mandatory Prepayments...................................................... 24 2.3.3 Prepayments After Default.................................................. 24 2.3.4 Making of Payments......................................................... 24 2.3.5 Application of Principal Prepayments....................................... 25 Section 2.4 Defeasance............................................................. 25 2.4.1 Voluntary Defeasance....................................................... 25 2.4.2 Successor Borrower......................................................... 26 2.4.3 Release of Property........................................................ 27 Section 2.5 Release on Payment in Full............................................. 27 III. CASH MANAGEMENT.............................................................................. 27 Section 3.1 Establishment of Accounts.............................................. 27 Section 3.2 Deposits into Lockbox Account.......................................... 28 Section 3.3 Account Name........................................................... 29 Section 3.4 Eligible Accounts...................................................... 29 Section 3.5 Permitted Investments.................................................. 29

Section 3.6 The Initial Deposits................................................... 30 Section 3.7 Transfer To and Disbursements from the Lockbox Account................. 30 Section 3.8 Withdrawals From the Tax Account and the Insurance Premium Account..... 31 Section 3.9 Withdrawals from the Replacement Reserve Account....................... 31 Section 3.10 Withdrawals from the Required Repair Account........................... 31 Section 3.11 Withdrawals from the Debt Service Account.............................. 31 Section 3.12 Intentionally Deleted.................................................. 31 Section 3.13 Intentionally Deleted.................................................. 31 Section 3.14 Sole Dominion and Control.............................................. 31 Section 3.15 Security Interest...................................................... 31 Section 3.16 Rights on Default...................................................... 31 Section 3.17 Financing Statement; Further Assurances................................ 32 Section 3.18 Borrower's Obligation Not Affected..................................... 32 Section 3.19 Payments Received Under this Agreement................................. 32 IV. REPRESENTATIONS AND WARRANTIES............................................................... 33 Section 4.1 Borrower Representations............................................... 33 4.1.1 Organization............................................................... 33 4.1.2 Proceedings................................................................ 33 4.1.3 No Conflicts............................................................... 34 4.1.4 Litigation................................................................. 34 4.1.5 Agreements................................................................. 34 4.1.6 Solvency................................................................... 35 4.1.7 Full and Accurate Disclosure............................................... 35 4.1.8 No Plan Assets............................................................. 36 4.1.9 Compliance................................................................. 36 4.1.10 Financial Information...................................................... 36 4.1.11 Condemnation............................................................... 37 4.1.12 Federal Reserve Regulations................................................ 37 4.1.13 Utilities and Public Access................................................ 37 4.1.14 Not a Foreign Person....................................................... 37 4.1.15 Separate Lots.............................................................. 37 4.1.16 Assessments................................................................ 37

ii 4.1.17 Enforceability............................................................. 37 4.1.18 No Prior Assignment........................................................ 38 4.1.19 Insurance.................................................................. 38 4.1.20 Use of Property............................................................ 38 4.1.21 Certificate of Occupancy; Licenses......................................... 38 4.1.22 Flood Zone................................................................. 38 4.1.23 Physical Condition......................................................... 38 4.1.24 Boundaries................................................................. 39 4.1.25 Leases..................................................................... 39 4.1.26 Survey..................................................................... 39 4.1.27 Intentionally Deleted...................................................... 40 4.1.28 Filing and Recording Taxes................................................. 40 4.1.29 Franchise Agreement........................................................ 40 4.1.30 Management Agreement/Operating Lease....................................... 40 4.1.31 Illegal Activity........................................................... 40 4.1.32 No Change in Facts or Circumstances; Disclosure............................ 40 4.1.33 Investment Company Act..................................................... 41 4.1.34 Principal Place of Business; State of Organization......................... 41 4.1.35 Single Purpose Entity...................................................... 41 4.1.36 Business Purposes.......................................................... 45 4.1.37 Taxes...................................................................... 45 4.1.38 Intentionally Deleted...................................................... 46 4.1.39 Environmental Representations and Warranties............................... 46 4.1.40 Taxpayer Identification Number............................................. 46 4.1.41 OFAC....................................................................... 46 4.1.42 Intentionally Deleted...................................................... 46 4.1.43 Deposit Accounts........................................................... 46 Section 4.2 Survival of Representations............................................ 47 V. BORROWER COVENANTS........................................................................... 47 Section 5.1 Affirmative Covenants.................................................. 47 5.1.1 Existence; Compliance with Legal Requirements.............................. 47 5.1.2 Taxes and Other Charges.................................................... 48 5.1.3 Litigation................................................................. 49

iii 5.1.4 Access to the Property..................................................... 49 5.1.5 Notice of Default.......................................................... 49 5.1.6 Cooperate in Legal Proceedings............................................. 49 5.1.7 Award and Insurance Benefits............................................... 49 5.1.8 Further Assurances......................................................... 50 5.1.9 Mortgage and Intangible Taxes.............................................. 50 5.1.10 Financial Reporting........................................................ 50 5.1.11 Business and Operations.................................................... 53 5.1.12 Costs of Enforcement....................................................... 53 5.1.13 Estoppel Statement......................................................... 53 5.1.14 Intentionally Deleted...................................................... 54 5.1.15 Performance by Borrower.................................................... 54 5.1.16 Confirmation of Representations............................................ 54 5.1.17 Leasing Matters............................................................ 54 5.1.18 Management Agreement....................................................... 56 5.1.19 Environmental Covenants.................................................... 58 5.1.20 Alterations................................................................ 59 5.1.21 Franchise Agreement........................................................ 59 5.1.22 Operating Lease............................................................ 61 5.1.23 OFAC....................................................................... 61 5.1.24 Intentionally Deleted...................................................... 61 Section 5.2 Negative Covenants..................................................... 61 5.2.1 Liens...................................................................... 62 5.2.2 Dissolution................................................................ 62 5.2.3 Change In Business......................................................... 62 5.2.4 Debt Cancellation.......................................................... 63 5.2.5 Zoning..................................................................... 63 5.2.6 No Joint Assessment........................................................ 63 5.2.7 Name, Identity, Structure, or Principal Place of Business.................. 63 5.2.8 ERISA...................................................................... 64 5.2.9 Affiliate Transactions..................................................... 64 5.2.10 Transfers.................................................................. 64 5.2.11 Permitted Transfer......................................................... 66

iv VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS.......................................... 68 Section 6.1 Insurance.............................................................. 68 Section 6.2 Casualty............................................................... 73 Section 6.3 Condemnation........................................................... 73 Section 6.4 Restoration............................................................ 74 VII. RESERVE FUNDS................................................................................ 78 Section 7.1 Required Repair Funds.................................................. 78 7.1.1 Deposits................................................................... 78 7.1.2 Release of Required Repair Funds........................................... 78 Section 7.2 Tax and Insurance Escrow Fund.......................................... 79 Section 7.3 Replacements and Replacement Reserve................................... 80 7.3.1 Replacement Reserve Fund................................................... 80 7.3.2 Disbursements from Replacement Reserve Account............................. 80 7.3.3 Performance of Replacements................................................ 81 7.3.4 Failure to Make Replacements............................................... 83 7.3.5 Balance in the Replacement Reserve Account................................. 83 Section 7.4 Intentionally Deleted.................................................. 84 Section 7.5 Intentionally Deleted.................................................. 84 Section 7.6 Intentionally Deleted.................................................. 84 Section 7.7 Reserve Funds, Generally............................................... 84 VIII.DEFAULTS..................................................................................... 85 Section 8.1 Event of Default....................................................... 85 Section 8.2 Remedies............................................................... 88 Section 8.3 Remedies Cumulative; Waivers........................................... 89 IX. SPECIAL PROVISIONS........................................................................... 90 Section 9.1 Sale of Notes and Securitization....................................... 90 Section 9.2 Securitization Indemnification......................................... 91 Section 9.3 Servicer............................................................... 93 Section 9.4 Exculpation............................................................ 94 X. MISCELLANEOUS................................................................................ 95 Section 10.1 Survival............................................................... 95 Section 10.2 Lender's Discretion.................................................... 96 Section 10.3 Governing Law.......................................................... 96

v Section 10.4 Modification, Waiver in Writing........................................ 97 Section 10.5 Delay Not a Waiver..................................................... 97 Section 10.6 Notices................................................................ 97 Section 10.7 Trial by Jury.......................................................... 98 Section 10.8 Headings............................................................... 99 Section 10.9 Severability........................................................... 99 Section 10.10 Preferences............................................................ 99 Section 10.11 Waiver of Notice....................................................... 99 Section 10.12 Remedies of Borrower................................................... 99 Section 10.13 Expenses; Indemnity.................................................... 100 Section 10.14 Schedules and Exhibits Incorporated.................................... 101 Section 10.15 Offsets, Counterclaims and Defenses.................................... 101 Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries.......... 101 Section 10.17 Publicity.............................................................. 102 Section 10.18 Waiver of Marshalling of Assets........................................ 102 Section 10.19 Waiver of Counterclaim................................................. 103 Section 10.20 Conflict; Construction of Documents; Reliance.......................... 103 Section 10.21 Brokers and Financial Advisors......................................... 103 Section 10.22 Prior Agreements....................................................... 103 Section 10.23 Counterparts........................................................... 103 Section 10.24 Liability.............................................................. 104

vi LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of ______, 2004 (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 ___________________, a Delaware ______________, 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: "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) of any or all of the foregoing. "Accounts" shall mean, collectively, the Property Account, the Tax Account, the Insurance Premium Account, the Required Repair Account, the Replacement Reserve Account, the Debt Service Account, and the Lockbox Account. "Accounts Receivable" shall have the meaning set forth in Article 1 of the Security Instrument. "Act" shall have the meaning set forth in Section 4.1.35(cc) hereof. "Adjusted Net Operating Income" means the amount obtained by subtracting Adjusted Operating Expenses from Gross Income from Operations. "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 Property 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). "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 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. "ALTA" shall mean American Land Title Association, or any successor thereto. "Annual Budget" shall mean the operating budget, including all planned capital expenditures, for the 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 6.7430%. "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 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 Leases" shall mean 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 the 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 that certain Conditional Assignment of Management Agreement dated the date hereof among Lender, Borrower, 2 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 the 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). "Basic Carrying Costs" shall mean the sum of the following costs associated with the Property for the relevant Fiscal Year or payment period: (i) Taxes and (ii) Insurance Premiums. "Borrower" shall have the meaning set forth in the introductory paragraph hereto, together with its successors and assigns. "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 funds delivered by wire transfer. "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 _____, 2004. "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 Property, 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 Instrument, this Agreement or any other Loan Document. "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 the Property, or any interest therein or right accruing 3 thereto, including any right of access thereto or any change of grade affecting the 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. "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 Instrument 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 and principal payments due under the Note for such period. "Debt Service Account" shall have the meaning set forth in Section 3.1(b)(iii) 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 Property, (ii) actual franchise fees incurred in connection with the operation of the Property, 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 Agreement and the Franchise Agreement; 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 assuming a principal and interest constant equal to 10.00%. "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. 4 "Default Trigger" shall have the meaning set forth in the definition of "Triggering Event" in Section 1.1 hereof. "Defeasance Collateral" shall have the meaning set forth in Section 2.4.1(b) hereof. "Defeasance Date" shall have the meaning set forth in Section 2.4.1(a)(i) hereof. "Defeasance Deposit" shall mean an amount equal to the remaining principal amount of the Note, the Yield Maintenance Premium, any costs and expenses incurred or to be incurred in the purchase of U.S. Obligations necessary to meet the Scheduled Defeasance Payments and any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection with the transfer of the Note or otherwise required to accomplish the agreements of Section 2.4 hereof. "Defeasance Event" shall have the meaning set forth in Section 2.4.1(a) hereof. "Disclosure Document" shall have the meaning set forth in Section 9.2(a) hereof. "Discount Rate" shall mean the rate which, when compounded monthly, is equivalent to the Treasury Rate, when compounded semi-annually. "DSCR Trigger" shall have the meaning set forth in the definition of "Triggering Event" in Section 1.1 hereof. "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. 5 "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 the Property and relate to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act. "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. "Equipment" shall have the meaning set forth in Section 5.2.10(e) hereof. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "Event of Default" shall have the meaning set forth in Section 8.1(a) hereof. "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. "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. "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 that certain franchise agreement more specifically identified on Schedule 1.1(I) attached hereto or, if the context requires, the Replacement Franchise Agreement executed in accordance with the terms and provisions of this Agreement. "Franchisor" shall mean the franchisor with respect to the Franchise Agreement, as same is identified on Schedule 1.1(I) 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. 6 "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 Property 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, 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 Instrument or the creation of any intervening estate or interest in a Property or any part thereof. "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 the 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" shall mean Hilton Hotels Corporation or any Affiliate thereof. "Improvements" shall have the meaning set forth in Article 1 of the Security Instrument. "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. 7 "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 Instrument 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 the 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. "Initial Replacement Reserve Monthly Deposit" shall mean $30,204.64. "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(b)(ii) 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. "Investment Grade" shall mean a rating of BBB- or its equivalent (or higher) by the Rating Agencies. "Investor" shall have the meaning set forth in Section 5.1.10(g) hereof. "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. "Leases" shall have the meaning set forth in Article 1 of the Security Instrument, including, without limitation, the Operating Lease. 8 "Legal Requirements" shall mean all federal, State, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, the 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 material permits, licenses and authorizations and regulations relating thereto, and all material covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting the Property or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations in or to the 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. "Licenses" shall have the meaning set forth in Section 4.1.21 hereof. "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, Operating Lessee, the 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. "LLC Agreement" shall have the meaning set forth in Section 4.1.35(cc) 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 Instrument, the Assignment of Leases, the Environmental Indemnity, the Assignment of Management Agreement, the Guaranty, 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 the Property, (iii) any Lease which together with all other Leases to the same tenant 9 and to all Affiliates of such tenant, (A) provides for ten percent (10%) or more of the total gross income for the Property, (B) covers five percent (5%) or more of the total space at the 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 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 the Property, or, if the context requires, the Replacement Management Agreement executed in accordance with the terms and provisions of this Agreement. "Manager" shall mean ______________., a ______________, or, if the context requires, a Qualified Manager who is managing the 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. "Maturity Date" shall mean June 1, 2014, 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. "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(cc) hereof. "Monthly Debt Service Payment Amount" shall mean a constant monthly payment of principal and interest equal to $147,539.54. "Monthly Insurance Premium Deposit" shall have the meaning set forth in Section 7.2 hereof. "Monthly Operating Expense Amount" shall mean an amount equal to the Operating Expenses (less Taxes and incentive management fees) actually incurred during the then current calendar month by Manager on behalf of Borrower and which such amount does not materially deviate from the corresponding monthly amount for Operating Expenses (less Taxes and incentive management fees) set forth in the Approved Annual Budget (i.e., to the extent by more than fifteen (15%) percent of the quarterly amount for Operating Expenses (less Taxes and incentive management fees) set forth in the Approved Annual Budget for the calendar quarter in which such calendar month occurs). "Monthly Tax Deposit" shall have the meaning set forth in Section 7.2 hereof. 10 "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 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 TWENTY-ONE MILLION THREE HUNDRED SIXTY-EIGHT THOUSAND AND 00/100 DOLLARS ($21,368,000.00), 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. "Obligations" shall mean Borrower's obligation to pay the Debt and perform its obligations under the Note, this Agreement and the other Loan Documents. "Officer's Certificate" shall mean a certificate delivered to Lender by Borrower which is signed by a Responsible Officer of Borrower. "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 Property 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 that certain Operating Lease described on Schedule 1.1(III) attached hereto. "Operating Lease Subordination Agreement" shall mean that certain Operating Lease Subordination Agreement with respect to the Property. "Operating Lessee" shall mean ____________________, a Delaware _____. "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. 11 "Operating Lessee Documents" shall mean the Security Instrument, the Assignment 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, 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 the Property, now or hereafter levied or assessed or imposed against the Property or any part thereof. "Payment Date" shall mean the first (1st) 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 Defeasance Date" shall mean the date that is the earlier of (a) three (3) years from the Closing Date or (b) two (2) years from the "startup day" within the meaning of Section 860G(a)(9) of the Code of the REMIC Trust. "Permitted Encumbrances" shall mean (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 the 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. "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, 12 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 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 13 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 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; 14 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. "Physical Conditions Report" shall mean a structural engineering report prepared by a company satisfactory to Lender regarding the physical condition of the Property, satisfactory in form and substance to Lender in its sole discretion, which report shall, among other things, (a) confirm that the 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 the 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. "Policies" shall have the meaning set forth in Section 6.1(b) hereof. "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; 15 (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. "Property" shall mean each parcel of real property, the Improvements thereon and all Personal Property owned by Borrower, Operating Lessee and encumbered by the Security Instrument, together with all rights pertaining to the Property and Improvements, as more particularly described in Article 1 of the Security Instrument and referred to therein as the "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 Wells Fargo Bank, N.A. and First Tennessee Bank National Association, provided that each 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 Property, totaling in the aggregate no less than 30,000 guest rooms and (b) prior to whose employment as manager of the Property (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. "Qualified Transferee" shall mean either: (A) (i) a pension fund, pension trust or pension account that (a) has total real estate assets of at least $1 Billion and (b) is managed by a Person who controls at least $1 Billion of real estate equity assets; or (ii) a pension fund advisor who (a) immediately prior to such transfer, controls at least $1 Billion of real estate equity assets and (b) is acting on behalf of one or more pension funds that, in the aggregate, satisfy the requirements of clause (i) of this definition; or 16 (iii) an insurance company which is subject to supervision by the insurance commissioner, or a similar official or agency, of a state or territory of the United States (including the District of Columbia) (a) with a net worth, as of a date no more than six (6) months prior to the date of the transfer, of at least $500 Million and (b) who, immediately prior to such transfer, controls real estate equity assets of at least $1 Billion; or (iv) a corporation organized under the banking laws of the United States or any state or territory of the United States (including the District of Columbia) (a) with a combined capital and surplus of at least $500 Million and (b) who, immediately prior to such transfer, controls real estate equity assets of at least $1 Billion; or (v) any Person (a) with a long-term unsecured debt rating from the Rating Agencies of at least Investment Grade or (b) who (i) is, or, simultaneously with the applicable transfer enters into a Management Agreement with, a Qualified Manager, (ii) has a net worth, as of a date no more than six (6) months prior to the date of such transfer, of at least $500 Million and (iii) immediately prior to such transfer, controls real estate equity assets of at least $1 Billion. or (B) any other Person (a) approved by Lender or, (b) if a Securitization shall have occurred, regarding which Lender shall have received written confirmation by the Rating Agencies that the transfer to such Person will not, in and of itself, cause a downgrade, withdrawal or qualification of the ratings then assigned to the Securities. "Quality Assurance Reports" shall mean any quality assurance reports of inspection or compliance from a Franchisor under the Franchise Agreement. "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, to the extent that such rating agency has rated the Securities. "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. "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. "Replacement Franchise Agreement" shall mean, collectively, (a) either (i) a franchise agreement with Franchisor substantially in the same form and substance as the Franchise Agreement, or (ii) a franchise agreement with Franchisor, which franchise 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 franchise agreement will not result in a downgrade, withdrawal or qualification of the 17 initial, or if higher, then current rating of the Securities or any class thereof; and (b) a franchisor estoppel and recognition agreement or other "comfort letter" substantially in the form delivered to Lender on the date hereof (or such other form acceptable to Lender), executed and delivered to Lender by Operating Lessee and Franchisor at Borrower's expense, provided, with respect to this clause (b), if such franchisor estoppel and recognition agreement is in a form that substantially differs from the form delivered to Lender on the date hereof, Lender, at its option, may require that Borrower obtain confirmation from the applicable Rating Agencies that such franchisor estoppel and recognition 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; provided, however, with respect to any expiring Franchise Agreement, 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. "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, with respect to this clause (b), if such conditional assignment of management agreement is in a form that substantially differs from the form delivered to Lender on the date hereof, Lender, at its option, may require that Borrower obtain confirmation from the applicable Rating Agencies that such conditional assignment of 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; provided, however, with respect to any expiring Management Agreement, Borrower shall not be required to obtain Lender's consent or a confirmation from the Rating Agencies in the event that the Management 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. "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 Agreement to be reserved for furniture, fixtures and equipment, (ii) such amounts as are required under the Management Agreement 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 Property for the preceding calendar year (as reflected in Borrower's annual operating statements as 18 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 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 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 the Property after a Casualty or Condemnation as nearly as possible to the condition the 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, 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, the Operating Lessee SPE Entities or any Affiliated Manager; provided, however, that in no event shall FelCor Lodging Limited Partnership, FelCor Lodging Trust Incorporated or ______ 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 Defeasance Payments" shall have the meaning set forth in Section 2.4.1(b) hereof. "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. "Securitization" shall have the meaning set forth in Section 9.1 hereof. 19 "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 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 the 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(cc) hereof. "State" shall mean the State or Commonwealth in which the Property or any part thereof is located. "Survey" shall mean a survey prepared by a surveyor licensed in the State where the Property is located and satisfactory to Lender and the company or companies issuing the Title Insurance Policy, and containing a certification of such surveyor satisfactory to Lender. "Tax Account" shall have the meaning set forth in Section 3.1(b)(i) 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 the 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 mean an ALTA mortgagee title insurance policy in a form acceptable to Lender (or, if the 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 the Property and insuring the lien of the Security Instrument encumbering the Property. 20 "Transfer" shall have the meaning set forth in Section 5.2.10(a) hereof. "Treasury Rate" shall mean the yield calculated by the linear interpolation of the yields, as reported in Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading "U.S. Government Securities/Treasury Constant Maturities" for the week ending prior to the date the payment or such proceeds are received, of U.S. Treasury constant maturities with maturity dates (one longer and one shorter) most nearly approximating the Maturity Date. (In the event Release H.15 is no longer published, Lender shall select a comparable publication to determine the Treasury Rate). "Triggering Event" shall mean the earlier to occur of: (i) an Event of Default (a "Default Trigger") 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 1.10 to 1.00 (a "DSCR Trigger"). "Triggering Event Termination" shall mean the earlier to occur of (i) if the most recent Triggering Event was a Default Trigger (and provided that no other Triggering Event has occurred), Borrower's cure of such Event of Default and Lender's acceptance of such cure, within Lender's sole discretion, prior to Lender accelerating the Debt and exercising its remedies under the Loan Documents and (ii) if the most recent Triggering Event was a DSCR Trigger (and provided that no other Triggering Event has occurred), the Debt Service Coverage Ratio for the Property, as calculated by Lender in its reasonable discretion, for the two (2) consecutive calendar quarters immediately preceding such calculation equals or exceeds 1.10:1.00. "UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in the jurisdiction in which the Property is located or under the laws of which Borrower was organized, as the context may require. "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. "Yield Maintenance Premium" shall mean the amount (if any) which, when added to the remaining principal amount of the Note, will be sufficient to purchase U.S. Obligations providing the required Scheduled Defeasance Payments. 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. 21 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, Security Instrument and Loan Documents. The Loan shall be evidenced by the Note and secured by the Security Instrument, the Assignment 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 Property in the form required to properly perfect Lender's security interest therein. 2.1.4 Intentionally Deleted. Section 2.2 Interest; Loan Payments; Late Payment Charge. 2.2.1 Payments. (a) Interest on the outstanding principal balance of the Loan shall accrue from the Closing Date to but excluding the Maturity Date at the Applicable Interest Rate. The Monthly Debt Service Payment Amount shall be paid on each Payment Date commencing on July 1, 2004 and on each subsequent Payment Date thereafter up to and including the Maturity Date. Interest on the outstanding principal amount of the Loan for the period through and including June 1, 2004 shall be paid by Borrower on the Closing Date. (b) 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 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 22 amounts due hereunder and under the Note, the Security Instrument and the other Loan Documents. 2.2.4 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 Instrument. 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. 2.2.5 Late Payment Charge. If any principal, interest or any other sums due under the Loan Documents (including the sums due on the Maturity Date) is not received by Lender prior to the seventh (7th) calendar day after the same is due (without regard to any applicable cure and/or notice period), 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 expenses 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 Instrument 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 2.2.5 in the event any Monthly Debt Service Payment Amount is paid within one (1) Business Day after the date the same was due. 2.2.6 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 23 interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. 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 on March 1, 2014 (the "Lockout Period"). On any Payment Date thereafter, Borrower may, at its option and upon thirty (30) days prior written notice to Lender, prepay the Debt in whole but not in part without payment of the Yield Maintenance Premium or any other prepayment consideration provided, Borrower pays to Lender, all accrued and unpaid interest on the amount of principal being prepaid through and including the date of prepayment. 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 the Property, Borrower shall prepay the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Proceeds. No Yield Maintenance Premium or any other prepayment consideration shall be due in connection with any prepayment made pursuant to this Section 2.3.2. 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) an amount equal to the greater of (a) one percent (1%) of the outstanding principal amount of the Loan to be prepaid or satisfied, or (b) (x) the present value as of the date such payment or proceeds are received of the remaining scheduled payments of principal and interest from the date such payment or proceeds are received through the Maturity Date (including any balloon payment) determined by discounting such payments at the Discount Rate, less (y) the amount of the payment or proceeds received, and (ii) all accrued and unpaid interest calculated at the Applicable Interest Rate on the amount of principal being prepaid through and including the date of prepayment. Lender shall notify Borrower of the amount and the basis of determination of the required prepayment consideration, which shall be conclusive except in the case of manifest error. 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 24 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 Principal Prepayments. All prepayments received pursuant to this Section 2.3 shall be applied to the payments of principal due under the Loan in the inverse order of maturity. Section 2.4 Defeasance. 2.4.1 Voluntary Defeasance. (a) Provided no Event of Default shall then exist, Borrower shall have the right at any time after the Permitted Defeasance Date to voluntarily defease the entire Loan by and upon satisfaction of the following conditions (such event being a "Defeasance Event"): (i) Borrower shall provide not less than thirty (30) days prior written notice to Lender specifying the Payment Date (the "Defeasance Date") on which the Defeasance Event will occur and the principal amount of the Loan to be defeased; (ii) Borrower shall pay to Lender all accrued and unpaid interest on the principal balance of the Note to and including the Defeasance Date; (iii) Borrower shall pay to Lender all other sums, not including scheduled interest or principal payments, then due under the Note, this Agreement, the Security Instrument, and the other Loan Documents; (iv) Borrower shall deliver to Lender the Defeasance Deposit applicable to the Defeasance Event; (v) Borrower shall execute and deliver a security agreement, in form and substance satisfactory to Lender, creating a first priority lien on the Defeasance Deposit and the U.S. Obligations purchased with the Defeasance Deposit in accordance with the provisions of this Section 2.4 (the "Security Agreement"); (vi) Borrower shall deliver an opinion of counsel for Borrower in form and substance satisfactory to Lender stating, among other things, that Borrower has legally and validly transferred and assigned the U.S. Obligations and all obligations, rights and duties under and to the Note to the Successor Borrower, that Lender has a perfected first priority security interest in the Defeasance Deposit and the U.S. Obligations delivered by Borrower and that any REMIC Trust formed pursuant to a Securitization will not fail to maintain its status as a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code as a result of such Defeasance Event; (vii) Borrower shall deliver confirmation in writing from the applicable Rating Agencies to the effect that such release will not result in a downgrading, withdrawal or qualification of the respective ratings in effect immediately prior to such Defeasance Event for the Securities issued in connection with the Securitization which are then 25 outstanding. If required by the applicable Rating Agencies, Borrower shall also deliver or cause to be delivered a non-consolidation opinion with respect to the Successor Borrower in form and substance satisfactory to Lender and the applicable Rating Agencies; (viii) Borrower shall deliver an Officer's Certificate certifying that the requirements set forth in this Section 2.4.1(a) have been satisfied; (ix) Borrower shall deliver a certificate of Borrower's independent certified public accountant certifying that the U.S. Obligations purchased with the Defeasance Deposit generate monthly amounts equal to or greater than the Scheduled Defeasance Payments; (x) Borrower shall deliver such other certificates, documents or instruments as Lender may reasonably request; and (xi) Borrower shall pay all costs and expenses of Lender incurred in connection with the Defeasance Event, including any costs and expenses associated with a release of the Lien of the Security Instrument as provided in Section 2.4.3 hereof as well as reasonable attorneys' fees and expenses. (b) In connection with a Defeasance Event, Borrower hereby appoints Lender as its agent and attorney-in-fact for the purpose of using the Defeasance Deposit to purchase U.S. Obligations (the "Defeasance Collateral") which provide payments on or prior to, but as close as possible to, all successive scheduled payment dates after the Defeasance Date upon which interest and principal payments are required under the Note and in amounts equal to the scheduled payments due on such dates under this Agreement and the Note (including without limitation scheduled payments of principal, interest, servicing fees (if any) and any other amounts due under the Loan Documents on such dates) and assuming such Note is prepaid in full on the Maturity Date (the "Scheduled Defeasance Payments"). Each of the U.S. Obligations that are part of the Defeasance Collateral shall be duly endorsed by the holder thereof as directed by Lender or accompanied by a written instrument of transfer in form and substance that would be satisfactory to a prudent institutional lender (including, without limitation, such instruments as may be required by the depository institution holding such securities or by the issuer thereof, as the case may be, to effectuate book entry transfers and pledges through the book entry facilities of such institution) in order to perfect upon the delivery of the Defeasance Collateral a first priority security interest therein in favor of Lender in conformity with all applicable state and federal laws governing the granting of such security interests. Borrower, pursuant to the Security Agreement or other appropriate document, shall authorize and direct that the payments received from the U.S. Obligations may be made directly to the Lockbox Account (unless otherwise directed by Lender) and applied to satisfy the obligations of Borrower under the Note. Any portion of the Defeasance Deposit in excess of the amount necessary to purchase the U.S. Obligations required by this Section 2.4 and satisfy Borrower's other obligations under this Section 2.4 and Section 2.5 shall be remitted to Borrower. 2.4.2 Successor Borrower. 26 In connection with any Defeasance Event, Borrower shall establish or designate a successor entity (the "Successor Borrower") which shall be a single purpose bankruptcy remote entity with an Independent Director approved by Lender, and Borrower shall transfer and assign all obligations, rights and duties under and to the Note together with the pledged U.S. Obligations to such Successor Borrower. Such Successor Borrower shall assume the obligations under the Note and the Security Agreement and Borrower shall be relieved of its obligations under such documents. Borrower shall pay $1,000 to any such Successor Borrower as consideration for assuming the obligations under the Note and the Security Agreement. Notwithstanding anything in this Agreement to the contrary, no other assumption fee shall be payable upon a transfer of the Note in accordance with this Section 2.4.2, but Borrower shall pay all costs and expenses incurred by Lender, including Lender's attorneys' fees and expenses, incurred in connection therewith. 2.4.3 Release of Property. Except as set forth in this Section 2.4 or Section 2.5 hereof, no repayment, prepayment or defeasance of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of any Lien of the Security Instrument on the Property. If Borrower has elected to defease the entire Loan and the requirements of this Section 2.4 have been satisfied, the Property shall be released from the Lien of the Security Instrument and the U.S. Obligations, pledged pursuant to the Security Agreement, shall be the sole source of collateral securing the Note. In connection with the release of the Security Instrument, Borrower shall submit to Lender, not less than ten (10) days prior to the Defeasance Date, a release of Lien (and related Loan Documents) for the Property for execution by Lender. Such release shall be in a form appropriate in the jurisdiction in which the Property is located and that would be satisfactory to a prudent 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 such documentation (i) is in compliance with all applicable Legal Requirements, and (ii) will effect such releases in accordance with the terms of this Agreement. Section 2.5 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. 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, as the context may require, 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 and (ii) execute an agreement with Lender and each Property Account Bank providing for the control of each 27 Property Account substantially in the form of Exhibit A attached herewith (individually and collectively, as the context may require, 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 and continuing until the occurrence of a Triggering Event Termination, Borrower and Operating Lessee shall deposit or cause Manager to deposit all sums on deposit in the Property 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 Property 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"); (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"); and (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"). 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 Property 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 the Property directing them to pay all Rents and other sums due under the Lease to which they are a party into the Property Account, (iii) Borrower or Operating Lessee shall instruct Manager to deposit all Accounts Receivable for the Property and all other sums collected by Manager pursuant to the Management Agreement into the Property Account, (iv) Borrower, Operating Lessee or Manager shall deliver a notice substantially in the form of Exhibit C hereto to all credit card companies to pay all Accounts Receivable directly into the Property Account, (v) 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 Property are deposited, and (vi) neither Borrower nor any other Person shall open any other such account with respect to the deposit of income in connection with the Property. Until deposited into the Property Account, any Gross Income from Operations from the Property held by Borrower, Operating Lessee or Manager 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, Operating Lessee or Manager. 28 (b) Borrower, Operating Lessee or Lender on behalf of Borrower or Operating Lessee, shall direct the applicable Property Account Bank to (i) prior to the occurrence of a Triggering Event and after the occurrence of a Triggering Event Termination, such account as shall be specified by Borrower and Operating Lessee in writing, and (ii) following the occurrence of a Triggering Event and prior to the occurrence of a Triggering Event Termination, (1) transfer to the Manager Account, as directed by Manager, amounts necessary to pay (A) the Monthly Operating Expense Amount for the then current calendar month, plus (B) any unpaid Operating Expenses (less Taxes and incentive management fees) attributable to the then prior calendar month and (2) transfer to the Lockbox Account, on the Business Day before the last Business Day of each such current calendar month, all remaining funds on deposit in the Property Account. (c) 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 of 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 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 and Lockbox Bank to maintain each Account as an Eligible Account. Section 3.5 Permitted Investments. Sums on deposit in any Account may be invested in Permitted Investments provided (i) such investments are then regularly offered by Property Account Bank or Lockbox Bank, as applicable, 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 shall be the property of Borrower. Borrower and Operating Lessee hereby irrevocably authorize and direct each Property Account Bank or Lockbox Bank, as applicable, 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 29 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. Any investment of funds in the Property Account shall only be made in Permitted Investments. Notwithstanding anything to the contrary contained herein, Borrower acknowledges that the only Permitted Investment which Lockbox Bank may 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 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 Tax Deposit shall be deposited in the Tax Account; (ii) Second, funds sufficient to pay the Monthly Insurance Premium Deposit, if any, shall be deposited in the Insurance Premium Account; (iii) Third, funds sufficient to pay the Monthly Debt Service Payment Amount shall be deposited into the Debt Service Account; (iv) Fourth, funds sufficient to pay the Replacement Reserve Monthly Deposit shall be deposited in the Replacement Reserve Account; (v) Fifth, 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; (vi) Sixth, to the payment of Lockbox Bank for customary and reasonable fees and expenses incurred in connection with this Agreement and the accounts established hereunder; and (vii) Seventh, provided no Event of Default has occurred and is continuing all amounts remaining in the Lockbox Account after deposits for items (i) through (vi) for the current month and all prior months shall be disbursed to Borrower. 30 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. 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. Subject to Section 3.19 hereof, Lender shall withdraw funds from the Debt Service Account to pay, on or before the date when due, the Monthly Debt Service Payment Amount and any other sums then due and payable under the Loan, including, without limitation, any late payment charges or interest accruing at the Default Rate. Section 3.12 Intentionally Deleted. Section 3.13 Intentionally Deleted. Section 3.14 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 each 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 3.15 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 3.16 Rights on Default. Notwithstanding anything to the contrary in this Article 3, upon the occurrence of an Event of Default, Lender shall promptly notify each Property Account Bank and Lockbox Bank in writing of such Event of Default and, without notice from any Property Account Bank, 31 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 any 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 Instrument, 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 Instrument, 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 3.17 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 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 3.18 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 3.19 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, 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 32 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 Property 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 Property, its businesses and operations. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own the Property and to transact the businesses in which it is now engaged. Attached hereto as Schedule 4.1.1(a) 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 Property and to transact the businesses in 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 Property, 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 4.1.1(b) 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 33 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 Authority having jurisdiction over Borrower or the Property or any of Borrower's other assets, or any license or other approval required to operate the Property, and any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority 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, 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 Authority having jurisdiction over Operating Lessee or the Property or any of Operating Lessee's other assets, or any license or other approval required to operate the Property, and any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority 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 the Property, which actions, suits or proceedings, if determined against Borrower, Operating Lessee or the 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 the Property. 4.1.5 Agreements. 34 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 the 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 the Property 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 the Property is otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Property 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 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 35 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, the 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, and the Property 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 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 Property any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against the 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 Property (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 Property, 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 the 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. 36 4.1.11 Condemnation. 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 the Property or for the relocation of roadways providing access to the 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. The Property has rights of access to public ways and is served by public water, sewer, sanitary sewer and storm drain facilities adequate to service the Property for its intended use. All public utilities necessary or convenient to the full use and enjoyment of the Property are located either in the public right-of-way abutting the Property (which are connected so as to serve the Property without passing over other property) or in recorded easements serving the Property and such easements are set forth in and insured by the Title Insurance Policy. All roads necessary for the use of the Property for its current purposes have been completed, are physically open and except as disclosed on the Survey, 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 Section 1445(f)(3) of the Code. 4.1.15 Separate Lots. The 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 the 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 the Property, nor are there any contemplated improvements to the 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 37 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. 4.1.20 Use of Property. The 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 the 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 the Property as a hotel. The use being made of the Property is in conformity with the certificate of occupancy issued for the Property. 4.1.22 Flood Zone. Except as disclosed on the Survey, none of the Improvements on the 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 the Property. 4.1.23 Physical Condition. The 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 the 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 the Property, or any part thereof, which would adversely affect the insurability of the same or cause 38 the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. The Property is free from damage caused by fire or other casualty. All liquid and solid waste disposal, septic and sewer systems located on the 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 Survey, all of the Improvements which were included in determining the appraised value of the Property lie wholly within the boundaries and building restriction lines of the Property, and no improvements on adjoining properties encroach upon the Property, and no easements or other encumbrances upon the Property encroach upon any of the Improvements. 4.1.25 Leases. Borrower is the owner and lessor of landlord's interest in the Operating Lease. Operating Lessee is the lessor under all other Leases. No Person (other than hotel guests) has any possessory interest in the Property or right to occupy the same except under and pursuant to the provisions of the Leases and Management Agreement. 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 Property or each tenant's respective business at the 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. 39 To the best of Borrower's knowledge, the Survey for the Property delivered to Lender in connection with this Agreement does not fail to reflect any material matter affecting the Property or the title thereto. 4.1.27 Intentionally Deleted. 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 Property to Borrower have been paid. All mortgage, mortgage 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 Security Instrument, have been paid. 4.1.29 Franchise Agreement. The Franchise Agreement, if applicable, for the 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 the 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 the 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 the 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 the 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 40 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 Property 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 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 3667857. 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 Property, 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 Property, and (ii) such incidental Personal Property as may be necessary for the operation of the Property 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 the Property 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, 41 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 (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 Property, 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 Lease, 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; 42 (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) other than Borrower's guaranty of Operating Lessee's obligations under or pursuant to 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, other than with respect to the Loan; (u) fail to maintain a sufficient number of employees in light of its contemplated business operations; 43 (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 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 44 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. 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 45 no basis for any additional assessment in respect of any such taxes and related liabilities for prior years. 4.1.38 Intentionally Deleted. 4.1.39 Environmental Representations and Warranties. Borrower represents and warrants, except as disclosed on those certain written reports identified on Schedule 4.1.39 attached hereto and made a part hereof (collectively, the "Environmental Reports") of the Property that: (a) there are no Hazardous Materials or underground storage tanks in, on, or under the Property, 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 Property or each tenant's respective business at the 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 the Property; (c) there is no threat of any Release of Hazardous Materials migrating to the Property; (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 the Property 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 the Property; 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 the Property 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 the Property and/or to the environmental condition of the Property. 4.1.40 Taxpayer Identification Number. Borrower's United States taxpayer identification number is 72-1565460. 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 Intentionally Deleted. 4.1.43 Deposit Accounts. (a) This Agreement and the Property Account Agreement create valid and continuing security interests (as defined in the UCC) in the Property Account and the Lockbox Account in 46 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 Account and the Lockbox Account each constitute "deposit accounts" within the meaning of the applicable UCC; (c) Borrower owns and has good and marketable title to the Property Account and the Lockbox 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 Account and the Lockbox 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 Agreement, Borrower has not pledged, assigned, or sold, granted a security interest in, or otherwise conveyed the Property Account or the Lockbox Account; and (f) The Property Account and the Lockbox Account are not in the name of any Person other than Borrower (or Manager) or Lender. Borrower has not consented to the banks maintaining, the Lockbox Account or the Property 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 Instrument encumbering the Property (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, in all material respects, with all Legal Requirements applicable to it and the Property. There shall 47 never be committed by Borrower or any other Person in occupancy of or involved with the operation or use of the Property any act or omission affording the federal government or any State or local government the right of forfeiture against the 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 Property 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 this Agreement. Borrower shall keep the Property 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. (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 the 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 Legal Requirements; (iii) neither the 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 the 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 the Property (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 pay all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Property 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 Property, and shall promptly pay for all utility services provided to the Property. 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 48 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 Legal Requirements; (iii) neither the 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 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 the 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 the 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 the Property. 5.1.4 Access to the Property. Borrower shall permit agents, representatives and employees of Lender to inspect the Property 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. 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 the 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 49 Lender in case of Casualty or Condemnation affecting the 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 Instrument and/or upon the execution and delivery of the Note. 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 Property. 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 Property, as Lender shall determine to be necessary or appropriate. 50 (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 certified by a Responsible Officer of Operating Lessee accompanied by a consolidating schedule reflecting the results of operation of the Property, (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 Property 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 the Property which presents the operating results of the Property 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 5.1.10. Such statements referred to in subsection (iii) above shall set forth the financial condition and the results of operations of the Property 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 Property being reported upon and has been prepared in accordance with GAAP, and (iii) 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 August 1, 2003. (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 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 Property: (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) quarterly and year-to-date operating statements (including Capital Expenditures) presented for the Property 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 5.1.10) and prepared for each calendar quarter, 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 Property during such calendar quarter, 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; and (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. 51 (d) Beginning in Fiscal Year 2004 and for each Fiscal Year thereafter, (I) Borrower shall submit to Lender a preliminary Annual Budget for the 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 the 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 proposed preliminary or final proposed Annual Budget submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with such proposed preliminary or final proposed Annual Budget, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. (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 Property 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 52 Indemnitor and the Property, whether furnished by Borrower, any Guarantor, any Indemnitor or otherwise, as Lender determines necessary or desirable. To the fullest extent permitted by Legal Requirements, Borrower irrevocably waives any and all rights it may have under any Legal Requirements to prohibit such disclosure, including, but not limited, to any right of privacy. 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 Property. 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 Property. 5.1.12 Costs of Enforcement. In the event (a) that the Security Instrument encumbering the Property is foreclosed in whole or in part or that the 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 the Security Instrument encumbering the Property in which proceeding Lender is made a party, or (c) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower, Operating Lessee or any of their constituent Persons or an assignment by Borrower, Operating Lessee or any of their constituent Persons for the benefit of its creditors, Borrower, 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, 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 Instrument and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (b) Borrower shall deliver to Lender upon request, tenant estoppel certificates from each commercial tenant leasing space at the Property in form and substance reasonably satisfactory to Lender. (c) 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 53 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. (d) 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. 5.1.14 Intentionally Deleted. 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 in all material respects 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. 5.1.17 Leasing Matters. (a) 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 Property, (iv) is subject and subordinate to the 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, delayed or conditioned. At Lender's request, Borrower shall promptly deliver to Lender copies of all Leases which are entered into pursuant 54 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, which consent shall not be unreasonably withheld, delayed or conditioned. (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 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 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 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, 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; provided, however, Borrower shall not be required to obtain Lender's written consent to any immaterial, non-economic change or beneficial economic change to a Major Lease that is for sit-down restaurant facilities at the Property. 55 (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. (f) To the extent that Lender's consent or approval is required under this Section 5.1.17, any such proposed modification, change, supplement, alteration, amendment, assignment or sublease of a Lease or Major Lease submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with such proposed modification, change, supplement, alteration, amendment, assignment or sublease of a Lease or Major Lease, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. In no event shall Lender be deemed to have approved (1) a surrender, termination or cancellation of a Lease or Major Lease, (2) any change having a material adverse effect on Borrower's or Operating Lessee's costs or obligations, or rent payable to Borrower or Operating Lessee, under a Lease or Major Lease, or (3) a new Lease or Major Lease with a new tenant. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.1.17. 5.1.18 Management Agreement. (a) The Improvements on the Property 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) if the Property is managed by InterContinental Hotels Group, the sum of (x) five percent (5%) of total room revenue and (y) two percent (2%) of total revenue; provided, however, InterContinental Hotels Group shall not charge any additional franchise fees in connection with the Property and (II) if the Property is managed by any Person other than InterContinental Hotels Group, 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 56 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 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. Any such proposed modification, change, supplement, alteration or amendment of the Management Agreement submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with such proposed modification, change, supplement, alteration or amendment of the Management Agreement, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. In no event shall Lender be deemed to have approved (1) a surrender, termination or cancellation of the Management Agreement, (2) any change having a material adverse effect on Borrower's or Operating Lessee's costs or obligations under the Management Agreement, or (3) or a new management agreement with a new property manager. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.1.18. 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 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, delayed or conditioned. 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 57 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 Instrument 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 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 Property, 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 the Property; (iii) there shall be no Hazardous Materials in, on, or under the Property, 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 Property or (2) fully disclosed to and approved by Lender in writing; (iv) Borrower shall keep the Property 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 the Property, pursuant to any reasonable written request of Lender, upon Lender's reasonable belief that the Property is not in full compliance with all Environmental Laws, and share with Lender the reports and other results thereof, and Lender and other Indemnified Parties 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 the Property; and (B) comply with any Environmental Law; (viii) Borrower shall not allow any tenant or other user of the Property to violate any Environmental 58 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 the Property; (B) any non-compliance with any Environmental Laws related in any way to the Property; (C) any actual or potential Environmental Lien; (D) any required or proposed remediation of environmental conditions relating to the Property; 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 Property. (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 the Property at all reasonable times to assess any and all aspects of the environmental condition of the Property and its use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Lender's sole and absolute discretion) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing. Borrower shall 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 to (i) any structural alteration or (ii) any other alteration to any Improvements which is estimated to cost in excess of four (4%) percent of the value of the Property, which consent shall not be unreasonably withheld, delayed or conditioned, except with respect to alterations that may have a material adverse effect on Borrower's financial condition, the value of the Property or the Net Operating Income thereof. Any such proposed alterations to any Improvements submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with a reasonably detailed description of such proposed structural alteration, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. In no event shall Lender be deemed to have approved alterations that may have a material adverse effect on Borrower's financial condition, the value of the Property or the Net Operating Income thereof. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.1.20. 5.1.21 Franchise Agreement. The Improvements on the Property shall be operated under the terms and conditions of the Franchise Agreement, if applicable. Borrower shall (or shall cause Operating Lessee to) (i) 59 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. Any such proposed modification, change, supplement, alteration or amendment of the Franchise Agreement submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with such proposed modification, change, supplement, alteration or amendment of the Franchise Agreement, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. In no event shall Lender be deemed to have approved (1) a surrender, termination or cancellation of the Franchise Agreement, (2) any change having a material adverse effect on Borrower's or Operating Lessee's costs or obligations under the Franchise Agreement, or (3) a new franchise agreement with a new franchisor. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.1.21. 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 60 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 Property at any time and from time to time for the purpose of taking any such action. If Franchisor shall deliver to Lender a copy of any notice sent to Borrower and/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, 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 Instrument and the other Loan Documents and shall be immediately due and payable upon demand by Lender therefor. 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 Intentionally Deleted. Section 5.2 Negative Covenants. 61 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 Instrument encumbering the Property 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 the 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, delayed or conditioned. (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, delayed or conditioned. 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 Property (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. 62 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 the Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of the 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 the Property with (a) any other real property constituting a tax lot separate from the Property, or (b) any portion of the 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 the 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 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. Any such proposed change submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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 is marked "PRIORITY"; (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with a description of the nature of such proposed change, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision; (iii) Borrower delivers to Lender a second written request for such approval marked in bold lettering with the following language: "LENDER'S RESPONSE IS REQUIRED WITHIN TEN (10) BUSINESS DAYS OF RECEIPT OF THIS NOTICE PURSUANT TO THE TERMS OF A LOAN AGREEMENT BETWEEN THE UNDERSIGNED AND LENDER. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY - FINAL NOTICE" and contains the information and documentation required by (ii) above; and (iv) Lender shall have failed to notify Borrower of its approval or disapproval within such ten (10) Business Days following Lender's receipt of the written request referenced in (iii) above. Upon Lender's request, Borrower shall execute and 63 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. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.2.7. 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. Section 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. Section 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. Section 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) the 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 (collectively, 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, without (i) the prior written consent of Lender and (ii) if a Securitization 64 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 the Property or any part thereof for a price to be paid in installments; (ii) an agreement by Borrower leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder 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 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; 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; 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 5.2.10. 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 65 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 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 the Property, and (iii) the aggregate principal amount of such financing and leasing for Equipment located on or used in connection with the Property is at all times less than $250,000 ("Permitted FF&E Financing") and (iv) the financing does not create a Lien on the 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, 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. 5.2.11 Permitted Transfer. Notwithstanding anything to the contrary contained in Section 5.2.10 of this Agreement, Lender shall not unreasonably withhold its consent to a one-time sale, assignment, or other transfer of the Property or the entire ownership interest in Borrower (and, if applicable, Operating Lessee) provided that (a) Lender receives at least sixty (60) days prior written notice of such transfer, (b) no Event of Default has occurred and is continuing under this Agreement, the Security Instrument, the Note or the other Loan Documents and (c) upon the satisfaction (in the reasonable determination of Lender) of the following conditions: (a) Borrower or Transferee (defined below) shall pay any and all costs incurred in connection with the transfer (including, without limitation, Lender's reasonable counsel fees and disbursements and all recording fees, title insurance premiums and mortgage and intangible taxes); (b) Borrower shall pay to Lender a transfer fee not to exceed 0.5% of the then unpaid principal balance of the Loan; (c) The (i) fee estate or ground leasehold estate of Borrower, as applicable, shall be transferred to a transferee (the "Property Transferee") and the operating leasehold estate of Operating Lessee, if any, shall simultaneously be transferred to an entity in control of or controlled by such Property Transferee (the "Operating Lease Transferee") or (ii) entire interest in Borrower (and, if applicable, Operating Lessee) shall be transferred to a transferee (the 66 "Borrower Transferee"; together with the Property Transferee and the Operating Lease Transferee, individually and collectively, as the context may require, the "Transferee"); (d) Each Transferee shall comply with all of the requirements of Section 4.1.35 hereof and the Operating Lease Subordination Agreement, as applicable, or, Borrower and, if applicable, Operating Lessee shall continue to comply with all of the requirements of Section 4.1.35 hereof and the Operating Lease Subordination Agreement, as applicable; (e) Each Transferee shall be a Qualified Transferee or entities wholly owned and controlled by a Qualified Transferee; (f) If the Property, rather than Borrower (and, if applicable, Operating Lessee) is transferred, Transferee shall assume all of the obligations of Borrower and Operating Lessee, as applicable, under the Note, the Security Instrument, this Agreement and the other Loan Documents; (g) The proposed replacement guarantor shall assume all of the obligations of Guarantor under the Guaranty and Environmental Indemnity, in a manner satisfactory to Lender in all respects, including, without limitation, by entering into an assumption agreement in form and substance satisfactory to Lender and delivering such legal opinions as Lender may reasonably require and such proposed replacement guarantor's (i) net worth, as reasonably determined by Lender, shall be at least 150% of the original principal balance of the Loan and (ii) creditworthiness and liquidity shall be satisfactory to Lender in all respects; (h) Unless Transferee delivers the written confirmation from the Rating Agencies required by Section 5.2.11(i) hereof, the Property shall be managed by a Qualified Manager following such transfer; (i) If a Securitization has occurred, Transferee shall deliver to Lender written confirmation from the Rating Agencies that the transfer and the assumption by Transferee shall not result in a downgrade, withdrawal or qualification of the ratings then assigned to the Securities; (j) If the Property, rather than Borrower (and, if applicable, Operating Lessee) is transferred, Transferee shall deliver an endorsement to the existing Title Insurance Policy insuring the Security Instrument as modified by the assumption agreement, as a valid first lien on the Property and naming Transferee as owner of the fee estate, ground leasehold estate or operating leasehold estate in the Property, as applicable, which endorsement shall insure that as of the recording of the assumption agreement, the Property shall not be subject to any additional Permitted Encumbrances other than those contained in the Title Insurance Policy on the Closing Date; (k) Transferee shall deliver to Lender an opinion of counsel from an independent law firm with respect to the substantive non-consolidation of Borrower, Operating Lessee and/or Transferee and its constituent entities (partners, members or shareholders), which law firm and which opinion shall be satisfactory in all respects to (i) Lender, if a Securitization has not occurred, or (ii) Lender and the Rating Agencies, if a Securitization has occurred; and 67 (l) If required by Lender and the Rating Agencies, if a Securitization has occurred, Borrower shall have delivered to Lender an opinion of counsel in form and substance satisfactory to Lender and the Rating Agencies stating that, if the holder of the Note shall at the time of such transfer be a REMIC, the tax qualification and status of the REMIC Trust as a REMIC will not be adversely affected or impaired as a result of such transfer. A consent by Lender with respect to a transfer of the Property in its entirety to, and the related assumption of the Loan by, a Transferee pursuant to this Section 5.2.11 shall not be construed to be a waiver of the right of Lender to consent to any subsequent transfer of the Property. Except as otherwise specifically set forth herein, immediately upon a transfer of the Property to Transferee and the satisfaction of all of the above requirements, the named Borrower herein (unless Borrower is then owned by Transferee) and any then existing Guarantor shall be released from all liability under the Loan Documents accruing after such transfer and which are not the result of any act or omission of Borrower, Operating Lessee SPE Entities, Principal, Guarantor and/or any of its Affiliates. 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 Property 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 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 the 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 the Property, including "Dram Shop" or other liquor liability coverage if alcoholic beverages are sold from or may be consumed at the Property such insurance (A) to be on the so-called 68 "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 Instrument 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 the Property (on an actual loss sustained basis) for a period continuing until the Restoration of the 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 the 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 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 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 the 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 Property. (v) workers' compensation, subject to the statutory limits of the State in which the Property is located, and employer's liability insurance with a limit of at least $1,000,000.00 per accident and per disease per employee, and $1,000,000.00 for disease 69 aggregate in respect of any work or operations on or about the Property, or in connection with the Property or its operation (if applicable); (vi) comprehensive boiler and machinery insurance 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 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 the Property, is not less than the Loan amount; (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; (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, at Borrower's option, either (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 Property with coverage of not less than 110% of the Debt (the "Insured Debt Amount"), 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 1.0% times the Insured Debt Amount 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, 70 Borrower shall (provided the same does not add any material cost to Borrower's Insurance Premiums) obtain a Policy without any such Terrorism Exclusion. In the event that Borrower has obtained a blanket insurance policy pursuant to (A) above and 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 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 the Property located in or around the region in which the 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 the 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 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" 71 (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 Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Property in compliance with the provisions of 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. (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 72 (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 Property, 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 Instrument and shall bear interest at the Default Rate. (h) In the event of a foreclosure of the Security Instrument, or other transfer of title to the Property in extinguishment in whole or in part of the Debt all right, title and interest of 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. Section 6.2 Casualty. If the 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 Property as nearly as possible to the condition the 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 the 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 73 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 the Property or any portion thereof is taken by a condemning authority, Borrower shall, promptly commence and diligently prosecute the Restoration of the Property and otherwise comply with the provisions of Section 6.4. If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt. Section 6.4 Restoration. The following provisions shall apply in connection with the Restoration of the 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. (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 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 74 percent (10%) of the land constituting the Property is taken, and such land is located along the perimeter or periphery of the 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 Legal Requirements, 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 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, (3) the earliest date required for such completion under the terms of any Leases which 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, (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 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 Property and the use thereof after the Restoration will be in compliance with and permitted under all Legal Requirements; (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 Property or the 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; 75 (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 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 intention to file same, or any other Liens or encumbrances of any nature whatsoever on the 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 76 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 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 Property, and Lender receives an endorsement to such Title Insurance Policy insuring the continued priority of the Lien of the 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 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 77 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 Instrument 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 set forth on such Schedule 7.1.1 hereto to perform the Required Repairs. 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 perform the repairs at the Property, as more particularly set forth on Schedule 7.1.1 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 the 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 the 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 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 Officer's Certificate (i) stating that all Required Repairs at the 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 78 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 the 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 Officer's Certificate to be accompanied by lien waivers or other evidence of payment satisfactory to Lender, (d) at Lender's option, a title search for the Property indicating that the 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 the 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 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 in excess of the amount deposited by Borrower. 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 Borrower. 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 Property shall not constitute an approved blanket or umbrella 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 79 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 Property. 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. 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 Property 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 Property 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 the 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 Property to which the Replacements are being provided. Upon request of 80 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 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 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 the 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 Property is located, and to keep the 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 Deleted. (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 81 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 the Property and perform any and all work and labor necessary to complete or make the Replacements and/or employ watchmen to protect the 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 Instrument. For this purpose, Borrower constitutes and appoints Lender its true and lawful attorney-in-fact with 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 the 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 the Property or the rehabilitation and repair of the 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 the 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 the 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 the Property at Borrower's expense prior to making a monthly disbursement from the Replacement Reserve Account 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 82 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. (i) Before each disbursement from the Replacement Reserve Account relating to actual physical work on the Improvements in excess of $200,000, Lender may require Borrower to provide Lender with a search of title to the 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 Property since the date of recordation of the Security Instrument and that title to the Property is free and clear of all Liens (other than the Lien of the Security Instrument and other Permitted Encumbrances). (j) All Replacements shall comply with all applicable Legal Requirements of all Governmental Authorities having jurisdiction over the 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 the 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. 83 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. Section 7.4 Intentionally Deleted. Section 7.5 Intentionally Deleted. Section 7.6 Intentionally Deleted. Section 7.7 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. 84 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 Instrument; (v) if any representation or warranty made by Borrower, an Operating Lessee SPE Entity, Principal, 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, 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, Indemnitor, Guarantor or any other guarantor under any guarantee issued in connection with the Loan or if Borrower, Principal, an Operating Lessee SPE Entity, 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, Indemnitor, Guarantor or such other guarantor, or if any proceeding for the dissolution or liquidation of Borrower, Principal, an Operating Lessee SPE Entity, 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, 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; 85 (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 the 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 the 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 the 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 Instrument or Lender's exercise of its rights under the Security Instrument, 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) 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, 86 deed of trust, deed to secure debt or other security agreement covering any part of the Property whether it be superior or junior in lien to the Security Instrument; (xix) 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; (xx) 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; (xxi) 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; (xxii) 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; (xxiii) 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; (xxiv) if Borrower ceases to operate a hotel on the Property or terminates such business for any reason whatsoever (other than temporary cessation in connection with any renovations to the Property or restoration of the Property after Casualty or Condemnation); (xxv) if Borrower terminates or cancels the Franchise Agreement, without Lender's prior written consent; (xxvi) 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 (xxv) 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 87 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 (xxvii) if there shall be default under the Security Instrument or any of the other Loan Documents beyond any applicable notice and cure periods contained in such documents, whether as to Borrower or the 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 the 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 Property, 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 the 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 Property and the other Collateral and the 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 Property, nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to the Property or 88 Collateral for the satisfaction of any of the Debt in preference or priority to any other Property or Collateral, and Lender may seek satisfaction out of all of the Property 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 Instrument in any manner and for any amounts secured by the Security Instrument 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 Instrument 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 Instrument 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 Instrument as Lender may elect. Notwithstanding one or more partial foreclosures, the Property shall remain subject to the Security Instrument to secure payment of sums secured by the Security Instrument 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, mortgages 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. 89 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 Instrument and the other Loan Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities (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 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 Property, Borrower and the Manager, (ii) provide budgets relating to the Property 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 Property, 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 Property, Borrower, Guarantor, Indemnitor, Principal, the Operating Lessee SPE Entities 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 Property, 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 90 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 aggregate monthly debt service payments do not exceed the Monthly Debt Service Payment Amount; and (f) make such representations and warranties as of the closing date of the Securitization with respect to the Property, 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 91 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") 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 of any material fact contained in such sections described in clause (A) above, or arise out of or are based upon the 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 Property. 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 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. 92 (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 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. 93 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 Instrument 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 Instrument 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 Security Instrument, the other Loan Documents, and the interest in the Property, the Rents and any other Collateral created by this Agreement, the Note, the Security Instrument 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 Property, in the Rents and in any other Collateral. Lender, by accepting this Agreement, the Note and the Security Instrument, agrees that it shall not, except as otherwise provided in this Section 9.4 and comparable provisions in the Security Instrument, 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 Instrument 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 Instrument 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 Instrument; (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 Instrument, 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 Instrument 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 the 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 Instrument; 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 94 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 Property; (vi) Borrower's or Operating Lessee's failure to return or to reimburse Lender for all Personal Property taken from the Property 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 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 Instrument 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; and (xi) Borrower's default under Section 5.1.10 hereof (after ten (10) Business Days prior written notice to Borrower). (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 Instrument, (ii) if the Property or any part thereof shall become an asset, or if Borrower, Principal, or an Operating Lessee SPE Entity 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) and, with respect to such involuntary proceeding, Borrower consents or fails to object to such proceedings) or if Borrower, Principal, or an Operating Lessee SPE Entity 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(a)(xi)(b), 8.1(a)(xi)(c) or 8.1(a)(xxiii)(b) hereof has occurred (unless caused by, or at the request of Lender). (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 Instrument 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 Instrument and the other Loan Documents. X. MISCELLANEOUS Section 10.1 Survival. 95 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 INSTRUMENT AND THE OTHER LOAN DOCUMENTS, AND THE DETERMINATION OF DEFICIENCY JUDGMENTS, THE LAWS OF THE STATE WHERE THE 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 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 96 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 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 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: 97 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 ARCap Servicing, Inc. 5605 N. MacArthur Boulevard Suite 950 Irving, Texas 75038 Attention: Clyde Greenhouse Facsimile No.: (972) 580-3888 and With a copy to: Thacher Proffitt & Wood LLP Two World Financial Center New York, New York 10281 Attention: David S. Hall, Esq. Facsimile No.: (212) 912-7963 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 98 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 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 99 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); (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 Property, 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 Property 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 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 100 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. 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 101 between Borrower and Lender nor to grant Lender any interest in the Property 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 Waiver of Marshalling of Assets. (a) Intentionally Deleted. (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 and of the Property, or to a sale in inverse order of alienation in the event of foreclosure of the Security Instrument, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Property 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 Property in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Security Instrument, any equitable right otherwise available to Borrower which would require the separate sale of the Property or require Lender to exhaust its remedies against the Property or any combination of the Property before proceeding against any other Property or combination of Property; 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 Property. 102 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 (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 103 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] 104 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. BORROWER: ________________________________,a Delaware__________________________ By: ___________________________________ Name: Title: LENDER: JPMORGAN CHASE BANK, a New York banking corporation By: ___________________________________ Name: Title: 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: ___________________________________ Joel M. Eastman Vice President SCHEDULES AND EXHIBITS INTENTIONALLY OMITTED EX-10.34.1 4 d17358exv10w34w1.txt FORM OF MORTGAGES, DEEDS, AND SECURITY AGREEMENT EXHIBIT 10.34.1 PREPARED BY AND UPON RECORDATION RETURN TO: Messrs. Thacher Proffitt & Wood Two World Financial Center New York, New York 10281 Attention: David S. Hall, Esq. ================================================================================ ---------------------------------- and , as trustor ---------------------------------- (Trustor) to , as trustee ----------------------------------- (Trustee) for the benefit of JPMORGAN CHASE BANK, as beneficiary (Lender) ------------------------------------------------ DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING ------------------------------------------------ Dated: As of , 2004 ------- Location: ----------------------- ----------------------- ----------------------- County: ----------------------- File No.: ----------------------- Title No.: ================================================================================ THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this "Security Instrument") is made as of the ___ day of ______ 2004 by _____________________, a Delaware _______________, having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062, as trustor ("Owner") and ____________________, a Delaware ____________________, having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062, as trustor ("Operating Lessee") (Owner and Operating Lessee being hereinafter collectively referred to as "Trustor") to ____________________, a_______________, having its principal place of business at ________________________________, as trustee ("Trustee") for the benefit of JPMORGAN CHASE BANK, a New York banking corporation, having its principal place of business at 270 Park Avenue, New York, New York 10017, as beneficiary ("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 the Operating Lease (as defined in the Loan Agreement (hereinafter defined). This Security Instrument is given to secure a loan (the "Loan") in the principal sum of _________________DOLLARS ($___________) made pursuant to that certain Loan Agreement, dated as of the date hereof, between Owner and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "Loan Agreement") and evidenced by the Note (as defined in the Loan Agreement). Trustor desires to secure the payment of the Debt (as defined in the Loan Agreement) and the performance of all of Trustor'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 Trustor 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 Trustor 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. Trustor does hereby irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to and grant a security interest to Trustee, its successors and assigns, for the benefit of Lender and its successors and assigns in, and grant a security interest to Lender and Trustee, and their respective successors and assigns in, the following property, rights, interests and estates now owned, or hereafter acquired by Trustor (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 the 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 Trustor 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 Trustor of, in and to the Land and the Improvements, including, but not limited to, those arising under and by virtue of the Operating Lease, and every part and parcel thereof, with the appurtenances thereto; 2 (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 Trustor, or in which Trustor 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 Trustor, or in which Trustor 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 Trustor 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 Trustor of any petition for relief under the Bankruptcy Code (the "Leases") and all right, title and interest of Trustor, 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, 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 3 of all or any portion of the Land and/or Improvements, or personalty located thereon, or rendering of services by Trustor 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 Trustor 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 Trustor, 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 Trustor therein and thereunder, including, without limitation, the right, upon the happening of any default hereunder, to receive and collect any sums payable to Trustor thereunder; (n) Intangibles. All trade names, trademarks, servicemarks, logos, copyrights, goodwill, books and records, tenant or guest lists, advertising materials, telephone exchange 4 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 Trustor 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) Accounts Receivables. All right, title and interest of Trustor 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) Trustor'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) Trustor's rights in, to and under all purchase orders for goods, services or other property, (iv) Trustor's rights to any goods, services or other property represented by any of the foregoing, (v) monies due to or to become due to Trustor 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 Trustor) and (vi) all collateral security and guaranties of any kind given by any person or entity with respect to any of the foregoing. Accounts Receivable shall include those now existing or hereafter created, substitutions therefor, proceeds (whether cash or non-cash, movable or immovable, tangible or intangible) received upon the sale, exchange, transfer, collection or other disposition or substitution thereof and any and all of the foregoing and proceeds therefrom; (r) 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"); and (s) Other Rights. Any and all other rights of Trustor in and to the items set forth in Subsections (a) through (r) above. SECTION 1.2 ASSIGNMENT OF LEASES AND RENTS. Trustor hereby absolutely and unconditionally assigns to Lender Trustor'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 Trustor that this assignment constitutes a present, absolute assignment and not an assignment for additional 5 security only. Nevertheless, subject to the terms of this Section 1.2, Section 9.1(h) and the Loan Agreement, Lender grants to Trustor a revocable license to collect and receive the Rents. Trustor 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 Trustor in the Property. By executing and delivering this Security Instrument, Trustor hereby grants to Lender and Trustee, 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. Trustor 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 Trustee, and for their respective successors and assigns, forever; IN TRUST, WITH POWER OF SALE, to secure payment to Lender of the Debt at the time and in the manner provided for its payment in the Note, the Loan Agreement, and in this Security Instrument; PROVIDED, HOWEVER, these presents are upon the express condition that, if Trustor 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. 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; 6 (c) the payment of the Yield Maintenance Premium, if any; (d) the payment of all other moneys agreed or provided to be paid by Trustor 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 Trustor 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 Trustor contained herein; (b) the performance of each obligation of Trustor contained in any other agreement given by Trustor 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 Trustor 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. Trustor's obligations for the payment of the Debt and the performance of the Other Obligations shall be referred to collectively below as the "Obligations." ARTICLE 3 - MORTGAGOR COVENANTS Trustor covenants and agrees that: SECTION 3.1 PAYMENT OF DEBT. Trustor 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. 7 SECTION 3.3 INSURANCE. Trustor shall obtain and maintain, or cause to be maintained, insurance in full force and effect at all times with respect to Trustor and the Property as required pursuant to the Loan Agreement. SECTION 3.4 PAYMENT OF TAXES, ETC. Trustor 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. Trustor 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, Trustor 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, Trustor 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, Trustor 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. Trustor 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. Trustor 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, Trustor will promptly pay when due all bills and costs for labor, materials, and specifically fabricated materials incurred in connection with the Property and never permit to exist 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. Trustor shall observe and perform each and every term to be observed or performed by Trustor 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 8 franchise agreements, or given by Trustor 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, Trustor will not change Trustor's name, identity (including its trade name or names) or corporate, partnership or other structure without first obtaining the prior written consent of Lender. Trustor hereby authorizes Lender, prior to or contemporaneously with the effective date of any such change, to file 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, Trustor shall execute a certificate in form satisfactory to Lender listing the trade names under which Trustor intends to operate the Property, and representing and warranting that Trustor 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 Trustor represents and warrants to Lender that: SECTION 4.1 WARRANTY OF TITLE. Trustor 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. Trustor 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 Trustor 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, 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 Trustor 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 Trustor owns any interest in any payments due under such Leases that is superior to or of equal priority with the Lender's interest therein. Trustor shall forever warrant, defend and preserve the title and the validity and priority of the lien of this Security Instrument and shall forever 9 warrant and defend the same to Lender and/or Trustee against the claims of all persons whomsoever. ARTICLE 5 - OBLIGATIONS AND RELIANCES SECTION 5.1 RELATIONSHIP OF TRUSTOR AND LENDER. The relationship between Trustor and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Trustor, 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 Trustor 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 Trustor is a trust) beneficial owners of Trustor are experienced in the ownership and operation of properties similar to the Property, and Trustor and Lender are relying solely upon such expertise and business plan in connection with the ownership and operation of the Property. Trustor 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), (m) and (n) 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. (a) 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. Trustor 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 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. Trustor 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 10 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. Trustor 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. Trustor will, at the cost of Trustor, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender and Trustee the Property and rights hereby deeded, mortgaged, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Trustor 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. Trustor, on demand, will execute and deliver and hereby authorizes Lender, following ten (10) days' notice to Trustor, to execute in the name of Trustor or without the signature of Trustor to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or other comparable security instruments, to evidence more effectively the security interest of Lender in the Property or any Collateral. Trustor 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. (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, Trustor 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 Trustor 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) Trustor 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 11 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, Trustor 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, Trustor 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 TRUSTOR'S EXPENSE. Trustor 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"). Trustor 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. Trustor 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 Trustor 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. SECTION 6.6 LEGAL FEES FOR ENFORCEMENT. (a) Trustor 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) Trustor 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 Trustor. 12 ARTICLE 7 - DUE ON SALE/ENCUMBRANCE SECTION 7.1 LENDER RELIANCE. Trustor acknowledges that Lender has examined and relied on the experience of Trustor and its partners, members, principals and (if Trustor 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 Trustor'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. Trustor acknowledges that Lender has a valid interest in maintaining the value of the Property so as to ensure that, should Trustor 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 Trustor 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), Trustor agrees that Lender may, or acting through Trustee may, take such action, without notice or demand, as it deems advisable to protect and enforce its rights against Trustor 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 or Trustee: (a) declare the entire unpaid Debt to be immediately due and payable; (b) institute proceedings, judicial or otherwise, for the complete foreclosure of this Security Instrument under any applicable 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; (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 Trustor therein and rights of redemption thereof, pursuant to 13 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 Trustor, 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 Trustor 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 Trustor and its agents and servants therefrom, without liability for trespass, damages or otherwise and exclude Trustor and its agents or servants wholly therefrom, and take possession of all books, records and accounts relating thereto and Trustor 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 Trustor with respect to the Property, whether in the name of Trustor 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 Trustor 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 Trustor; (vi) require Trustor to vacate and surrender possession of the Property to Lender or to such receiver and, in default thereof, Trustor 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 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 or Trustee may deem necessary for the care, protection and preservation of the Collateral (including without limitation, the Personal Property), and (ii) request Trustor at its expense to assemble the Collateral, 14 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 or Trustee with respect to the Collateral, including without limitation, the Personal Property, sent to Trustor in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Trustor; (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, Trustor hereby appoints Lender as agent and attorney-in-fact (which is coupled with an interest and is therefore irrevocable) for Trustor 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 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. 15 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 Trustor and without releasing Trustor from any obligation hereunder, make or do the same in such manner and to such extent as Lender may deem necessary to protect the security hereof. Lender or Trustee is authorized to enter upon the Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Property or to foreclose this Security Instrument or collect the Debt. The cost and expense of any cure hereunder (including reasonable 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 or Trustee 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 or Trustee has the right to appear in and defend any action or proceeding brought with respect to the Property and, after the occurrence and during the continuance of an Event of Default, to bring any action or proceeding, in the name and on behalf of Trustor, 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 or Trustee thereafter to bring an action of foreclosure, or any other action, for a Default or Defaults by Trustor existing at the time such earlier action was commenced. SECTION 9.6 OTHER RIGHTS, ETC. (a) The failure of Lender or Trustee to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Security Instrument. Trustor shall not be relieved of Trustor's obligations hereunder by reason of (i) the failure of Lender or Trustee to comply with any request of Trustor 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 or Trustee 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. 16 (a) It is agreed that the risk of loss or damage to the Property is on Trustor, and neither Lender nor Trustee shall have any 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 or Trustee 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 or Trustee's possession. (b) Lender may resort for the payment of the Debt to any other security held by Lender in such order and manner as Lender, in its discretion, may elect. Lender or Trustee may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Lender or Trustee thereafter to foreclose this Security Instrument. The rights of Lender and Trustee under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender or Trustee shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Neither Lender nor Trustee shall be limited exclusively to the rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity. 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 Trustor 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 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. 17 ARTICLE 10 - INDEMNIFICATIONS SECTION 10.1 GENERAL INDEMNIFICATION. Trustor 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. Trustor 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, Trustor and Indemnitor have executed and delivered the Environmental Indemnity. ARTICLE 11 - WAIVERS SECTION 11.1 WAIVER OF COUNTERCLAIM. Trustor 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. Trustor hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, Trustor 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 Trustor, 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. 18 SECTION 11.3 WAIVER OF NOTICE. Trustor shall not be entitled to any notices of any nature whatsoever from Lender or Trustee except (a) with respect to matters for which this Security Instrument, the Loan Agreement or any other Loan Document, specifically and expressly provides for the giving of notice by Lender or Trustee to Trustor, and (b) with respect to matters for which Lender or Trustee is required by any Applicable Law to give notice, and Trustor hereby expressly waives the right to receive any notice from Lender or Trustee with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Lender or Trustee to Trustor. SECTION 11.4 WAIVER OF STATUTE OF LIMITATIONS. Trustor 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, Trustor (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. 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, 19 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 "Trustor" shall mean "each Trustor 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 "Trustee" shall mean "Trustee and any substitute Trustee of the estates, properties, powers, trusts and rights conferred upon Trustee pursuant to this Security Instrument," the word "Note" shall mean "the Note and any other evidence of indebtedness secured by this Security Instrument," the word "Property" shall include any portion of the Property and any interest of Trustor 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 Trustor or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. SECTION 16.2 LIABILITY. If Trustor 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 Trustor and Lender and their respective successors and assigns forever. 20 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 - INTENTIONALLY DELETED ARTICLE 18 - OPERATING LEASE PROVISIONS SECTION 18.1 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 18.2 OPERATING LESSEE EXECUTION. Operating Lessee hereby joins in the execution and delivery of this Security Instrument for the purpose of mortgaging its interest in the Land, the Improvements, the Operating Lease and the Property as set forth in Article 1 of this Security Instrument. ARTICLE 19 - STATE SPECIFIC PROVISIONS SECTION 19.1 INCONSISTENCIES. In the event of any inconsistencies between the terms and conditions of this Article 19 and the other provisions of this Security Instrument, the terms and conditions of this Article 19 shall control and be binding. [STATE SPECIFIC PROVISIONS] 21 ARTICLE 20 - DEED OF TRUST PROVISIONS SECTION 20.1 CONCERNING THE TRUSTEE. Trustee shall be under no duty to take any action hereunder except as expressly required hereunder or by law, or to perform any act which would involve Trustee in any expense or liability or to institute or defend any suit in respect hereof, unless properly indemnified to Trustee's reasonable satisfaction. Trustee, by acceptance of this Security Instrument, covenants to perform and fulfill the trusts herein created, being liable, however, only for gross negligence or willful misconduct, and hereby waives any statutory fee and agrees to accept reasonable compensation, in lieu thereof, for any services rendered by Trustee in accordance with the terms hereof. Trustee may resign at any time upon giving thirty (30) days' notice to Trustor and to Lender. Lender may remove Trustee at any time or from time to time and select a successor trustee. In the event of the death, removal, resignation, refusal to act, or inability to act of Trustee, or in its sole discretion for any reason whatsoever Lender may, without notice and without specifying any reason therefor and without applying to any court, select and appoint a successor trustee, by an instrument recorded wherever this Security Instrument is recorded and all powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon become vested in such successor. Such substitute trustee shall not be required to give bond for the faithful performance of the duties of Trustee hereunder unless required by Lender. The procedure provided for in this Section 20.1 for substitution of Trustee shall be in addition to and not in exclusion of any other provisions for substitution, by law or otherwise. SECTION 20.2 TRUSTEE'S FEES. Trustor shall pay all reasonable costs, fees and expenses incurred by Trustee and Trustee's agents and counsel in connection with the performance by Trustee of Trustee's duties hereunder and all such costs, fees and expenses shall be secured by this Security Instrument. SECTION 20.3 CERTAIN RIGHTS. With the approval of Lender, Trustee shall have the right to take any and all of the following actions: (i) to select, employ, and advise with counsel (who may be, but need not be, counsel for Lender) upon any matters arising hereunder, including the preparation, execution, and interpretation of the Note, this Security Instrument or the other Loan Documents, and shall be fully protected in relying as to legal matters on the advice of counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through his/her agents or attorneys, (iii) to select and employ, in and about the execution of his/her duties hereunder, suitable accountants, engineers and other experts, agents and attorneys-in-fact, either corporate or individual, not regularly in the employ of Trustee, and Trustee shall not be answerable for any act, default, negligence, or misconduct of any such accountant, engineer or other expert, agent or attorney-in-fact, if selected with reasonable area, or for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee's gross negligence or willful misconduct, and (iv) any and all other lawful action as Lender may instruct Trustee to take to protect or enforce Lender's rights hereunder. Trustee shall not be personally liable in case of entry by Trustee, or anyone entering by virtue of the powers herein granted to Trustee, upon the Property for debts contracted for or liability or damages incurred in the management or operation of the Property. Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting an action taken or proposed to be taken by Trustee hereunder, believed by Trustee in good faith to be genuine. Trustee shall be entitled to 22 reimbursement for actual expenses incurred by Trustee in the performance of Trustee's duties hereunder and to reasonable compensation for such of Trustee's services hereunder as shall be rendered. SECTION 20.4 RETENTION OF MONEY. All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by Applicable Law) and Trustee shall be under no liability for interest on any moneys received by Trustee hereunder. SECTION 20.5 PERFECTION OF APPOINTMENT. Should any deed, conveyance, or instrument of any nature be required from Trustor by any Trustee or substitute trustee to more fully and certainly vest in and confirm to the Trustee or substitute trustee such estates rights, powers, and duties, then, upon request by the Trustee or substitute trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be caused to be recorded and/or filed by Trustor. SECTION 20.6 SUCCESSION INSTRUMENTS. Any substitute trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed, or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its or his/her predecessor in the rights hereunder with like effect as if originally named as Trustee herein; but nevertheless, upon the written request of Lender or of the substitute trustee, the Trustee ceasing to act shall execute and deliver any instrument transferring to such substitute trustee, upon the trusts herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and moneys held by such Trustee to the substitute trustee so appointed in the Trustee's place. [NO FURTHER TEXT ON THIS PAGE] 23 IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Trustor the day and year first above written. OWNER: ------------------------------,a Delaware -------------------- By: ------------------------------ Joel M. Eastman Vice President OPERATING LESSEE: ------------------------------,a Delaware -------------------- By: ------------------------------ Joel M. Eastman Vice President ACKNOWLEDGMENTS State of ) ) ss.: County of ) On _________, 2004, before me, __________________________________, personally appeared Joel M. Eastman, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. -------------------------------- Signature ACKNOWLEDGMENTS State of ) ) ss.: County of ) On __________, 2004, before me, __________________________________, personally appeared Joel M. Eastman, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. -------------------------------- Signature EXHIBIT A (Description of Land) EX-10.34.2 5 d17358exv10w34w2.htm FORM OF NINE SEPARATE PROMISSORY NOTES exv10w34w2

Exhibit 10.34.2
PROMISSORY NOTE

$
New York, New York

   ,2004

     FOR VALUE RECEIVED,    , a Delaware    , as maker, having its principal place of business at 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, as payee, 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    DOLLARS ($   ), 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 (as defined in the Loan Agreement (defined below)), and to be paid in accordance with the terms of this Note and that certain Loan Agreement, dated as of the date hereof, between Borrower and Lender (as the same may be amended, restated, supplemented or otherwise modified from time to time, 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 the Security Instrument and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the 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
-2-

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 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, the 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-

     IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written.

   , a

Delaware

By:

Joel M. Eastman

Vice President

EX-10.34.3 6 d17358exv10w34w3.htm FORM OF GUARANTY OF RECOURSE OBLIGATIONS OF BORROWER exv10w34w3

Exhibit 10.34.3
New York, New York
As of ______, 2004
GUARANTY OF RECOURSE OBLIGATIONS OF BORROWER
     FOR VALUE RECEIVED, and to induce JPMORGAN CHASE BANK, a New York banking corporation, having its principal place of business at 270 Park Avenue, New York, New York 10017 (“Lender”), to lend to    ., a Delaware    , having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (“Borrower”), the principal sum of    DOLLARS ($   ) (the “Loan”), advanced pursuant to that certain Loan Agreement, dated as of the date hereof, between Borrower and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Loan Agreement”) and evidenced by the Note (as defined in the Loan Agreement) and the other Loan Documents (as defined in the Loan Agreement), the undersigned, FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership, having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (hereinafter referred to as “Guarantor”) hereby absolutely and unconditionally guarantees to Lender the prompt and unconditional payment of the Guaranteed Recourse Obligations of Borrower (hereinafter defined). All capitalized words and phrases not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement.
     It is expressly understood and agreed that this is a continuing guaranty and that the obligations of Guarantor hereunder are and shall be absolute under any and all circumstances, without regard to the validity, regularity or enforceability of the Note, the Loan Agreement, or the other Loan Documents, a true copy of each of said documents Guarantor hereby acknowledges having received and reviewed.
     The term “Debt” as used in this Guaranty of Recourse Obligations of Borrower (the “Guaranty”) shall mean the principal sum evidenced by the Note and secured by the Security Instrument, or so much thereof as may be outstanding from time to time, together with interest thereon at the rate of interest specified in the Note and all other sums other than principal or interest which may or shall become due and payable pursuant to the provisions of the Note, the Loan Agreement, or the other Loan Documents.
     The term “Guaranteed Recourse Obligations of Borrower” as used in this Guaranty shall mean all obligations and liabilities of Borrower for which Borrower shall be personally liable pursuant to the Note, the Loan Agreement, or the other Loan Documents. Notwithstanding anything to the contrary contained in this Guaranty, Guarantor shall be released from all liability under this Guaranty as of the earlier of (i) a transfer of the Property by Borrower and related assumption of the Loan by Transferee and transfer of the obligations and liabilities of Guarantor under this Guaranty to a transferee guarantor acceptable to Lender in all respects in accordance with Section 5.2.11 of the Loan Agreement; (ii) payment in full of the Debt; and (iii) the date upon which Lender or a third party acquires title to the Property as a result of the foreclosure, trustee’s sale or delivery of a deed in lieu of foreclosure of the Security Instrument; provided, however, in the event that prior to or at the time Lender or a third party acquires title to the Property pursuant to this item (iii), Lender has commenced an action or other proceeding against

Guarantor with respect to any of the Guaranteed Recourse Obligations of Borrower, or has obtained a deficiency judgment against Borrower or Guarantor with respect to any of the Guaranteed Recourse Obligations of Borrower, Guarantor’s obligations hereunder shall continue notwithstanding the provisions of this item (iii) until such deficiency judgment or such action or other proceeding has been satisfied and/or paid in full.
     Any indebtedness of Borrower to Guarantor now or hereafter existing (including, but not limited to, any rights to subrogation Guarantor may have as a result of any payment by Guarantor under this Guaranty), together with any interest thereon, shall be, and such indebtedness is, hereby deferred, postponed and subordinated to the prior payment in full of the Debt. Until payment in full of the Debt (and including interest accruing on the Note after the commencement of a proceeding by or against Borrower under the Bankruptcy Code and the regulations adopted and promulgated pursuant thereto, which interest the parties agree shall remain a claim that is prior and superior to any claim of Guarantor notwithstanding any contrary practice, custom or ruling in cases under the Bankruptcy Code generally), Guarantor agrees not to accept any payment or satisfaction of any kind of indebtedness of Borrower to Guarantor and hereby assigns such indebtedness to Lender, including the right to file proof of claim and to vote thereon in connection with any such proceeding under the Bankruptcy Code, including the right to vote on any plan of reorganization.
     Guarantor agrees that, with or without notice or demand, Guarantor will reimburse Lender, to the extent that such reimbursement is not made by Borrower, for all expenses (including counsel fees and disbursements) incurred by Lender in connection with the collection of the Guaranteed Recourse Obligations of Borrower or any portion thereof or with the enforcement of this Guaranty.
     Subject to the terms of the Loan Agreement, all moneys available to Lender for application in payment or reduction of the Debt may be applied by Lender in such manner and in such amounts and at such time or times and in such order and priority as Lender may see fit to the payment or reduction of such portion of the Debt as Lender may elect.
     Guarantor hereby waives notice of the acceptance hereof, presentment, demand for payment, protest, notice of protest, or any and all notice of non-payment, non-performance or non-observance, or other proof, or notice or demand, whereby to charge Guarantor therefor.
     Guarantor further agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall in no way be terminated, affected or impaired (a) by reason of the assertion by Lender of any rights or remedies which it may have under or with respect to either the Note, the Loan Agreement, or the other Loan Documents, against any person obligated thereunder or the Property covered under the Loan Agreement, or (b) by reason of any failure to file or record any of such instruments or to take or perfect any security intended to be provided thereby, or (c) by reason of the release of the Property covered under the Loan Agreement or other collateral for the Loan, or (d) by reason of Lender’s failure to exercise, or delay in exercising, any such right or remedy or any right or remedy Lender may have hereunder or in respect to this Guaranty, or (e) by reason of the commencement of a case under the Bankruptcy Code by or against any person obligated under the Note, the Loan Agreement or the other Loan Documents, or the death of any Guarantor, or (f) by reason of any transfer or assignment of the Loan by Lender or (g) by reason of any payment made on the Debt or any other indebtedness
2

arising under the Note, the Loan Agreement, or the other Loan Documents, whether made by Borrower or Guarantor or any other person, which is required to be refunded pursuant to any bankruptcy or insolvency law; it being understood that no payment so refunded shall be considered as a payment of any portion of the Debt, nor shall it have the effect of reducing the liability of Guarantor hereunder. It is further understood, that if Borrower shall have taken advantage of, or be subject to the protection of, any provision in the Bankruptcy Code, the effect of which is to prevent or delay Lender from taking any remedial action against Borrower, including the exercise of any option Lender has to declare the Debt due and payable on the happening of any default or event by which under the terms of the Note, the Loan Agreement, or the other Loan Documents, the Debt shall become due and payable, Lender may, as against Guarantor, nevertheless, declare the Debt due and payable and enforce any or all of its rights and remedies against Guarantor provided for herein.
     Guarantor further covenants that this Guaranty shall remain and continue in full force and effect as to any modification, extension or renewal of the Note, the Loan Agreement, or the other Loan Documents, that Lender shall not be under a duty to protect, secure or insure the Property covered under the Loan Agreement, and that other indulgences or forbearance may be granted under any or all of such documents, all of which may be made, done or suffered without notice to, or further consent of, Guarantor.
     As a further inducement to Lender to make the Loan and in consideration thereof, Guarantor further covenants and agrees (a) that in any action or proceeding brought by Lender against Guarantor on this Guaranty, Guarantor shall and does hereby waive trial by jury, (b) that the Supreme Court of the State of New York for the County of New York, or, in a case involving diversity of citizenship, the United States District Court for the Southern District of New York, shall have exclusive jurisdiction of any such action or proceeding, and (c) that service of any summons and complaint or other process in any such action or proceeding may be made by registered or certified mail directed to Guarantor at Guarantor’s address set forth above, Guarantor waiving personal service thereof. Nothing in this Guaranty will be deemed to preclude Lender from bringing an action or proceeding with respect hereto in any other jurisdiction.
     This is a guaranty of payment and not of collection and upon any default of Borrower under the Note, the Loan Agreement, or the other Loan Documents, Lender may, at its option, proceed directly and at once, without notice, against Guarantor to collect and recover the full amount of the Guaranteed Recourse Obligations of Borrower or any portion thereof, without proceeding against Borrower or any other person, or foreclosing upon, selling, or otherwise disposing of or collecting or applying against any of the mortgaged property or other collateral for the Loan. Guarantor hereby waives the pleading of any statute of limitations as a defense to the obligation hereunder.
     All notices required or permitted hereunder shall be given and shall become effective as provided in the Loan Agreement. Notices to Guarantor shall be addressed as follows:
3

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

     Each reference herein to Lender shall be deemed to include its successors and assigns, to whose favor the provisions of this Guaranty shall also inure. Each reference herein to Guarantor shall be deemed to include the heirs, executors, administrators, legal representatives, successors and assigns of Guarantor, all of whom shall be bound by the provisions of this Guaranty.
     If Guarantor 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 “Guarantor,” 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 Guarantor 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 “Guarantor” as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If Guarantor 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 “Guarantor” 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 this paragraph 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, the Security Instrument or any other Loan Document.)
     Guarantor (and its representative, executing below, if any) has full power, authority and legal right to execute this Guaranty and to perform all its obligations under this Guaranty.
     All understandings, representations and agreements heretofore had with respect to this Guaranty are merged into this Guaranty which alone fully and completely expresses the agreement of Guarantor and Lender.
     This Guaranty may be executed in one or more counterparts by some or all of the parties hereto, each of which counterparts shall be an original and all of which together shall constitute a single agreement of Guaranty. The failure of any party hereto to execute this Guaranty, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder.
4

     This Guaranty may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Lender or Borrower, 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.
     This Guaranty shall be governed, construed and interpreted as to validity, enforcement and in all other respects, in accordance with the laws of the State of New York.
[NO FURTHER TEXT ON THIS PAGE]
5

     IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the date first above set forth.

FELCOR LODGING
LIMITED PARTNERSHIP, a Delaware limited partnership

By:

FELCOR LODGING TRUST
INCORPORATED, a Maryland

corporation, its general partner

By:

Joel M. Eastman

Vice President

EX-10.35 7 d17358exv10w35.txt LOAN AGREEMENT EXHIBIT 10.35 ================================================================================ LOAN AGREEMENT Dated as of July 28, 2004 Between EACH OF THE ENTITIES IDENTIFIED ON SCHEDULE I ATTACHED HERETO, 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...................................................... 27 II. GENERAL TERMS......................................................................................... 27 SECTION 2.1 Loan Commitment; Disbursement to Borrower....................................... 27 2.1.1 Agreement to Lend and Borrow........................................................ 27 2.1.2 Single Disbursement to Borrower..................................................... 27 2.1.3 The Note, Security Instruments and Loan Documents................................... 27 2.1.4 Intentionally Deleted............................................................... 28 SECTION 2.2 Interest; Loan Payments; Late Payment Charge.................................... 28 2.2.1 Payments............................................................................ 28 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................................................................. 31 2.2.7 Usury Savings....................................................................... 31 2.2.8 Foreign Taxes....................................................................... 31 SECTION 2.3 Prepayments..................................................................... 33 2.3.1 Voluntary Prepayments............................................................... 33 2.3.2 Mandatory Prepayments............................................................... 33 2.3.3 Prepayments After Default........................................................... 33 2.3.4 Making of Payments.................................................................. 34 2.3.5 Application of Principal Prepayments................................................ 34 SECTION 2.4 Interest Rate Cap Agreement..................................................... 34 SECTION 2.5 Release of Property............................................................. 36 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........................................................... 46 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................................ 48 SECTION 3.10 Withdrawals from the Required Repair Account.................................... 48 SECTION 3.11 Withdrawals from the Debt Service Account....................................... 48 SECTION 3.12 Withdrawals from the Ground Rent Account........................................ 48 SECTION 3.13 Withdrawals from the Excess Cash Flow Account / Principal Prepayment Account......................................................................... 49 SECTION 3.14 Sole Dominion and Control....................................................... 49 SECTION 3.15 Security Interest............................................................... 49 SECTION 3.16 Rights on Default............................................................... 49 SECTION 3.17 Financing Statement; Further Assurances......................................... 50 SECTION 3.18 Borrower's Obligation Not Affected.............................................. 50 SECTION 3.19 Payments Received Under this Agreement.......................................... 50 IV. REPRESENTATIONS AND WARRANTIES........................................................................ 50 SECTION 4.1 Borrower Representations........................................................ 50 4.1.1 Organization........................................................................ 51 4.1.2 Proceedings......................................................................... 51 4.1.3 No Conflicts........................................................................ 51 4.1.4 Litigation.......................................................................... 52 4.1.5 Agreements.......................................................................... 52 4.1.6 Solvency............................................................................ 53 4.1.7 Full and Accurate Disclosure........................................................ 53 4.1.8 No Plan Assets...................................................................... 53 4.1.9 Compliance.......................................................................... 54 4.1.10 Financial Information............................................................... 54 4.1.11 Condemnation........................................................................ 54 4.1.12 Federal Reserve Regulations......................................................... 55 4.1.13 Utilities and Public Access......................................................... 55

ii 4.1.14 Not a Foreign Person................................................................ 55 4.1.15 Separate Lots....................................................................... 55 4.1.16 Assessments......................................................................... 55 4.1.17 Enforceability...................................................................... 55 4.1.18 No Prior Assignment................................................................. 56 4.1.19 Insurance........................................................................... 56 4.1.20 Use of Property..................................................................... 56 4.1.21 Certificate of Occupancy; Licenses.................................................. 56 4.1.22 Flood Zone.......................................................................... 56 4.1.23 Physical Condition.................................................................. 56 4.1.24 Boundaries.......................................................................... 57 4.1.25 Leases.............................................................................. 57 4.1.26 Survey.............................................................................. 58 4.1.27 Intentionally Deleted............................................................... 58 4.1.28 Filing and Recording Taxes.......................................................... 58 4.1.29 Franchise Agreement................................................................. 58 4.1.30 Management Agreement/Operating Lease................................................ 58 4.1.31 Illegal Activity.................................................................... 58 4.1.32 No Change in Facts or Circumstances; Disclosure..................................... 58 4.1.33 Investment Company Act.............................................................. 59 4.1.34 Principal Place of Business; State of Organization.................................. 59 4.1.35 Single Purpose Entity............................................................... 59 4.1.36 Business Purposes................................................................... 63 4.1.37 Taxes............................................................................... 64 4.1.38 Intentionally Deleted............................................................... 64 4.1.39 Environmental Representations and Warranties........................................ 64 4.1.40 Taxpayer Identification Number...................................................... 64 4.1.41 OFAC................................................................................ 64 4.1.42 Ground Lease / FelCor Ground Lease Representations.................................. 65 4.1.43 Deposit Accounts.................................................................... 66 4.1.44 LBV Property Estoppel Work.......................................................... 67 SECTION 4.2 Survival of Representations..................................................... 67 V. BORROWER COVENANTS.................................................................................... 67

iii SECTION 5.1 Affirmative Covenants........................................................... 67 5.1.1 Existence; Compliance with Legal Requirements....................................... 67 5.1.2 Taxes and Other Charges............................................................. 68 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...................................................... 69 5.1.7 Award and Insurance Benefits........................................................ 69 5.1.8 Further Assurances.................................................................. 69 5.1.9 Mortgage and Intangible Taxes....................................................... 70 5.1.10 Financial Reporting................................................................. 70 5.1.11 Business and Operations............................................................. 75 5.1.12 Costs of Enforcement................................................................ 75 5.1.13 Estoppel Statement.................................................................. 76 5.1.14 Intentionally Deleted............................................................... 77 5.1.15 Performance by Borrower............................................................. 77 5.1.16 Confirmation of Representations..................................................... 77 5.1.17 Leasing Matters..................................................................... 77 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..................................................................... 84 5.1.23 OFAC................................................................................ 84 5.1.24 The Ground Lease / FelCor Ground Lease.............................................. 84 5.1.25 O&M Program......................................................................... 87 SECTION 5.2 Negative Covenants.............................................................. 87 5.2.1 Liens............................................................................... 87 5.2.2 Dissolution......................................................................... 87 5.2.3 Change In Business.................................................................. 88 5.2.4 Debt Cancellation................................................................... 88 5.2.5 Zoning.............................................................................. 88 5.2.6 No Joint Assessment................................................................. 89

iv 5.2.7 Name, Identity, Structure, or Principal Place of Business........................... 89 5.2.8 ERISA............................................................................... 89 5.2.9 Affiliate Transactions.............................................................. 90 5.2.10 Transfers........................................................................... 90 VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS................................................... 92 SECTION 6.1 Insurance....................................................................... 92 SECTION 6.2 Casualty........................................................................ 97 SECTION 6.3 Condemnation.................................................................... 98 SECTION 6.4 Restoration..................................................................... 98 VII. RESERVE FUNDS......................................................................................... 102 SECTION 7.1 Required Repair Funds........................................................... 102 7.1.1 Deposits............................................................................ 102 7.1.2 Release of Required Repair Funds.................................................... 103 SECTION 7.2 Tax and Insurance Escrow Fund................................................... 103 SECTION 7.3 Replacements and Replacement Reserve............................................ 104 7.3.1 Replacement Reserve Fund............................................................ 104 7.3.2 Disbursements from Replacement Reserve Account...................................... 104 7.3.3 Performance of Replacements......................................................... 106 7.3.4 Failure to Make Replacements........................................................ 108 7.3.5 Balance in the Replacement Reserve Account.......................................... 108 SECTION 7.4 Ground Lease Escrow Fund........................................................ 108 SECTION 7.5 LBV Property Estoppel Work...................................................... 109 7.5.1 Deposit............................................................................. 109 7.5.2 Release of Required Repair Funds relating the LBV Property Estoppel Work............ 109 SECTION 7.6 Reserve Funds, Generally........................................................ 110 VIII.DEFAULTS.............................................................................................. 111 SECTION 8.1 Event of Default................................................................ 111 SECTION 8.2 Remedies........................................................................ 115 SECTION 8.3 Remedies Cumulative; Waivers.................................................... 116 IX. SPECIAL PROVISIONS.................................................................................... 117 SECTION 9.1 Sale of Notes and Securitization................................................ 117 SECTION 9.2 Securitization Indemnification.................................................. 118

v SECTION 9.3 Servicer........................................................................ 121 SECTION 9.4 Exculpation..................................................................... 121 SECTION 9.5 Intentionally Deleted........................................................... 123 SECTION 9.6 Contributions and Waivers....................................................... 123 X. MISCELLANEOUS......................................................................................... 127 SECTION 10.1 Survival........................................................................ 127 SECTION 10.2 Lender's Discretion............................................................. 127 SECTION 10.3 Governing Law................................................................... 127 SECTION 10.4 Modification, Waiver in Writing................................................. 128 SECTION 10.5 Delay Not a Waiver.............................................................. 128 SECTION 10.6 Notices......................................................................... 129 SECTION 10.7 Trial by Jury................................................................... 130 SECTION 10.8 Headings........................................................................ 130 SECTION 10.9 Severability.................................................................... 130 SECTION 10.10 Preferences..................................................................... 130 SECTION 10.11 Waiver of Notice................................................................ 131 SECTION 10.12 Remedies of Borrower............................................................ 131 SECTION 10.13 Expenses; Indemnity............................................................. 131 SECTION 10.14 Schedules and Exhibits Incorporated............................................. 133 SECTION 10.15 Offsets, Counterclaims and Defenses............................................. 133 SECTION 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries................... 133 SECTION 10.17 Publicity....................................................................... 133 SECTION 10.18 Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets......... 134 SECTION 10.19 Waiver of Counterclaim.......................................................... 134 SECTION 10.20 Conflict; Construction of Documents; Reliance................................... 134 SECTION 10.21 Brokers and Financial Advisors.................................................. 135 SECTION 10.22 Prior Agreements................................................................ 135 SECTION 10.23 Counterparts.................................................................... 135 SECTION 10.24 Liability....................................................................... 135

vi LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of July 28, 2004 (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 each of the entities identified on Schedule I attached hereto, each having its principal place of business at c/o FelCor Lodging Trust Incorporated, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (individually and collectively, as the context may require, "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 "A+" (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) 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 Excess Cash Flow Account, the Principal Prepayment 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(cc) hereof. "Adjusted Net Operating Income" shall have the meaning set forth in the definition of "Debt Service Coverage Ratio". "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 II attached hereto. "ALTA" shall mean American Land Title Association, or any successor thereto. "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 Contribution" shall have the meaning set forth in Section 9.6(f) hereof. "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 3.61%; 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. 2 "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. "Atlanta CP Property" shall mean that certain Property commonly known as Atlanta Airport - Crowne Plaza located in Atlanta, Georgia. "Austin Town Lake Property" shall mean that certain Property commonly known as Austin Town Lake - Holiday Inn located in Austin, Texas. "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). "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. "Benefit Amount" shall have the meaning set forth in Section 9.6(d) hereof. "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. 3 "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 funds delivered by wire transfer. "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 July 28, 2004. "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. "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. "Contribution" shall have the meaning set forth in Section 9.6(a) 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. 4 "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(b)(iii) 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 (the "Adjusted Net Operating Income"); and (b) the denominator is all the aggregate interest and principal payments under the Loan that would be due and payable for such 12 full calendar month period 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. "Default Trigger" shall have the meaning set forth in the definition of "Triggering Event". "Disclosure Document" shall have the meaning set forth in Section 9.2(a) hereof. 5 "Disney" shall mean the Walt Disney World Hospitality & Recreation Corporation, together with its successors and assigns. "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). "DSCR Trigger" shall have the meaning set forth in the definition of "Triggering Event". "ECF Cash Flow Threshold" shall mean $9,787,829.00; provided, however, in connection with a release and/or substitution of an Individual Property in accordance with the terms hereof, the ECF Cash Flow Threshold shall be recalculated by (i) if such Individual Property is subject to the Lien of a Security Instrument on the Closing Date, subtracting the amount set forth on Schedule 1.1(VII) hereof corresponding to such Individual Property being released and (ii) with respect to such Individual Property that was not subject to the Lien of a Security Instrument on the Closing Date, adding an amount equal to eight-five percent (85%) of the Adjusted Net Operating Income of such Individual Property for the most recently available twelve (12) month period preceding the date such Individual Property became subject to the Lien of a Security Instrument; provided, however, in no event shall the ECF Cash Flow Threshold, when recalculated following the release and substitution of an Individual Property, result in an amount lower than the ECF Cash Flow Threshold prior to such release and substitution, it being understood that in the event that the Substitute Property's allocated ECF Cash Flow Threshold amount (as calculated pursuant to clause (ii) above) shall be less than the Release Property's allocated ECF Cash Flow Threshold amount, the Substitute Property's allocated ECF Cash Flow Threshold amount shall be deemed equal to the Release Property's allocated ECF Cash Flow Threshold amount. "ECF Sweep Event Trigger" shall have the meaning set forth in the definition of "Triggering Event". "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 6 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. "Equipment" shall have the meaning set forth in Section 5.2.10(e) 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 2.11% per annum. "Event of Default" shall have the meaning set forth in Section 8.1(a) hereof. "Excess Cash Flow" shall mean the amount remaining after the monthly payments deposited into the accounts as set forth in Sections 3.7(b)(i) through (vii) hereof. "Excess Cash Flow Account" shall have the set forth in Section 3.1(b)(vi) 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 ECF Cash Flow Threshold for three (3) consecutive calendar months. "Excess Cash Flow Sweep Period" shall mean the period commencing upon the occurrence of an 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 ECF Cash Flow Threshold for three (3) consecutive calendar months. Lender shall 7 not be required to determine whether the Excess Cash Flow Sweep Period Termination has occurred more than once in any calendar quarter and such Excess Cash Flow Sweep Period Termination shall be determined based upon the financial reports required to be delivered pursuant to Section 5.1.10 hereof. "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. "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 Fee, and (v) Lender has determined that the applicable Extension DSCR Test has been satisfied. "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 second Extension Term, 1.25:1.00 and (B) with respect to the third Extension Term, 1.25:1.00. The Extension DSCR Test may be obtained by prepaying a portion of the Loan and no prepayment consideration shall be due in connection therewith. There is no Extension DSCR Test for the first Extension Term. "Extension Fee" shall mean a fee equal to (i) with respect to the second 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 third Extension Term, 0.25% of the outstanding principal balance of the Loan at the time of Lender's receipt of the applicable Extension Notice. There is no Extension Fee for the first Extension Term. "Extension Term" shall have the meaning set forth in the definition of "Maturity Date". "FelCor Ground Lease" shall mean, individually and collectively, as the context may require, each ground lease described on Schedule 1.1(II) attached hereto and made a part hereof between Borrower and FelCor Ground Lessor. "FelCor Ground Lessor" shall mean the fee owner (affiliated with Borrower), as landlord, under each FelCor Ground Lease. "FIRREA" shall mean the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as the same may be amended from time to time. 8 "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. "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 1.1(I) attached hereto or, if the context requires, the Replacement Franchise Agreement executed in accordance with the terms and provisions of this Agreement. "Franchisor" shall mean each franchisor with respect to the applicable Franchise Agreement, as same is identified on Schedule 1.1(I) attached hereto. "Funding Borrower" shall have the meaning set forth in Section 9.6(c) hereof. "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 1.1(II) attached hereto and made a part hereof between Borrower and Ground Lessor. "Ground Lease Escrow Fund" shall have the meaning set forth in Section 7.4 hereof. 9 "Ground Lessor" shall mean the fee owner (not affiliated with Borrower), 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(b)(v) 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," "hazardous material," "hazardous waste," "toxic substance," "toxic pollutant," "contaminant," "pollutant" or other words of similar import within the meaning of any Environmental Law. "Hilton" shall mean Hilton Hotels Corporation or any Affiliate thereof. "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 10 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 / FelCor Ground Lease), the Improvements thereon and all Personal Property owned by Borrower, Operating Lessee and FelCor 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. "Initial Replacement Reserve Monthly Deposit" shall mean $184,196.00. "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(b)(ii) 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 11 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. "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. "LBV Property" shall mean that certain Property commonly known as DoubleTree Guest Suites - Walt Disney World Resort located in Lake Buena Vista, Florida. "LBV Property Estoppel" shall mean that certain Ground Lessor Estoppel and Agreement given by Disney, dated October 23, 2003, relating to the LBV Property. "LBV Property Estoppel Work" shall mean the work described on Schedule 7.5.1 hereto. "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, FelCor Ground Lessor or such 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 material permits, licenses and authorizations and regulations relating thereto, and all material 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 12 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. "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, FelCor Ground Lessor, 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 13 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. "LLC Agreement" shall have the meaning set forth in Section 4.1.35(cc) 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 1.1(IV) 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. 14 "Mandalay Beach Property" shall mean that certain Property commonly known as Embassy Suites Mandalay Beach located in Oxnard, California. "Maturity Date" shall mean August 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 three (3) 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(cc) hereof. "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 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) 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 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. 15 "Note" shall mean that certain promissory note of even date herewith in the original principal amount of EIGHTY-SEVEN MILLION AND 00/100 DOLLARS ($87,000,000.00), 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 1.1(V) 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. "Officer's Certificate" shall mean a certificate delivered to Lender by Borrower which is signed by a Responsible Officer of Borrower. "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 1.1(III) attached hereto. "Operating Lease Subordination Agreement" shall mean those certain Operating Lease Subordination Agreements with respect to the Properties. "Operating Lessee" shall mean, individually and collectively, as the context may require, the entities described on Schedule 1.1(III) attached hereto, together with its successors and assigns. "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. 16 "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. "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; 17 (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 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, 18 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 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. 19 "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. "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. 20 "Principal" shall have the meaning set forth in Section 4.1.35 hereof, together with its successors and assigns. "Principal Prepayment Account" shall have the set forth in Section 3.1(b)(vii) hereof. "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 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 1.1(VI), 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. 21 "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, to the extent that such rating agency has rated the Securities. "Registration Statement" shall have the meaning set forth in Section 9.2(b) hereof. "Regulation S-X Reporting Requirements" shall have the meaning set forth in Section 5.1.10(o) hereof. "Reimbursement Contribution" shall have the meaning set forth in Section 9.6(c) 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. "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 Franchise Agreement" shall mean, collectively, (a) either (i) a franchise agreement with Franchisor substantially in the same form and substance as the Franchise Agreement, or (ii) a franchise agreement with Franchisor, which franchise 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 franchise agreement will not result in a downgrade, withdrawal or qualification of the 22 initial, or if higher, then current rating of the Securities or any class thereof; and (b) a franchisor estoppel and recognition agreement or other "comfort letter" substantially in the form delivered to Lender on the date hereof (or such other form acceptable to Lender), executed and delivered to Lender by Operating Lessee and Franchisor at Borrower's expense, provided, with respect to this clause (b), if such franchisor estoppel and recognition agreement is in a form that substantially differs from the form delivered to Lender on the date hereof, Lender, at its option, may require that Borrower obtain confirmation from the applicable Rating Agencies that such franchisor estoppel and recognition 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; provided, however, with respect to any expiring Franchise Agreement, 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. "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, with respect to this clause (b), if such conditional assignment of management agreement is in a form that substantially differs from the form delivered to Lender on the date hereof, Lender, at its option, may require that Borrower obtain confirmation from the applicable Rating Agencies that such conditional assignment of 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; provided, however, with respect to any expiring Management Agreement, Borrower shall not be required to obtain Lender's consent or a confirmation from the Rating Agencies in the event that the Management 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. "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 23 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 Earthquake Insurance Amount" shall mean earthquake insurance equal to (A) the product of (i) 100% of the "Full Replacement Cost" of the Improvements and the Personal Property and (ii) two times (2x) the probable maximum loss (which probable maximum loss for the Mandalay Beach Property is nineteen percent (19%)) plus (B) twelve (12) months of loss of business income derived from the Mandalay Beach Property. "Required Repair Account" shall have the meaning set forth in Section 3.1(b)(viii) 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 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, 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, the Operating Lessee SPE Entities or any Affiliated Manager; provided, however, that in no event shall FelCor Lodging Limited Partnership, FelCor Lodging Trust Incorporated or Hilton be deemed a Restricted Party. "S&P" shall mean Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. 24 "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 III 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. "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(cc) 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 6.5%. "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 25 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(b)(i) 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. "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 earliest to occur of: (i) an Event of Default (a "Default Trigger"), (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 1.12 to 1.00 (a "DSCR Trigger") or (iii) an Excess Cash Flow Sweep Event (an "ECF Sweep Event Trigger"). "Triggering Event Period" shall mean the period commencing upon the occurrence of a Triggering Event and terminating upon the occurrence of a Triggering Event Period Termination. "Triggering Event Period Termination" shall mean the delivery by Borrower of evidence satisfactory to Lender evidencing (i) if the most recent Triggering Event Period was triggered by a Default Trigger (and provided that no other Triggering Event has occurred which has not been cured or remedied in accordance herewith), Borrower's cure of such Event of Default and Lender's acceptance of such cure, within its sole discretion; (ii) if the most recent Triggering Event Period was triggered by a DSCR Trigger (and provided that no other Triggering Event has occurred which has not been cured or remedied in accordance herewith), that the Debt Service Coverage Ratio for the twelve (12) full calendar months immediately preceding the date of such calculation exceeds 1.12 to 1.00; or (iii) if the most recent Triggering Event Period was triggered by an ECF Sweep Event Trigger (and provided that no other Triggering Event has occurred which has not been cured or remedied in accordance herewith), that the Excess Cash Flow Sweep Period Termination has occurred. Lender shall not be required to determine whether the Triggering Event Period Termination has occurred more than once in any calendar quarter and 26 such Triggering Event Period Termination shall be determined based upon the financial reports required to be delivered pursuant to Section 5.1.10 hereof. "UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in the jurisdiction in which an Individual Property is located or under the laws of which Borrower was organized, as the context may require. "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. 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. 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. 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, 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. 27 2.1.4 Intentionally Deleted. 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 September 9, 2004 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 August 8, 2004 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 September 9, 2004 and on each subsequent Payment Date thereafter. (c) Excess Cash Flow. Payments of Excess Cash Flow (whether from the Excess Cash Flow Account or the Principal Prepayment Account) 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. 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 28 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, 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; 29 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. 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, 30 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 (including the sums due on the Maturity Date) 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 expenses 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 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 31 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 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. 32 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 on January 9, 2006 (the "Lockout Period"). On any Payment Date thereafter, 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; and (b) Borrower shall pay to Lender, simultaneously with such prepayment, (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 (the "Interest Shortfall"); (ii) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (i); and (iii) all other sums then due under this Agreement, the Note or the other Loan Documents. 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 33 Applicable Interest Rate on the amount of principal being prepaid through and including the Prepayment Date together with the Interest Shortfall, notwithstanding that such Interest Period extends beyond the date of prepayment; (ii) if such prepayment occurs on or prior to the expiration of the Lockout Period, a prepayment consideration equal to five percent (5%) of the amount being prepaid; (iii) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clause (i); and (iv) 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. 2.3.5 Application of Principal 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 34 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. (d) In the event of any downgrade, withdrawal or qualification of the rating of the Counterparty below "A+" (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 35 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). 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) Intentionally Deleted; (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) [intentionally deleted]; (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 and remit any remaining Reserve Funds to Borrower. 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 Deleted. (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 certificate would be inaccurate, such certificate to be in form and substance satisfactory to Lender or the Rating Agencies, as applicable. 38 (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 Borrower is organized, 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 (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) 39 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. (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 40 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 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 41 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. (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 42 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. (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 43 Release Property is located and shall contain standard provisions, if any, protecting the rights of the releasing lender. (hh) Borrower stall deliver an Officer's 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 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"); (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"); 44 (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 deposit, or cause to be deposited, the Ground Lease Escrow Fund (the "Ground Rent Account"); (vi) An account with Lockbox Bank into which Borrower shall deposit, or cause to be deposited, during an Excess Cash Flow Sweep Period, the Excess Cash Flow (the "Excess Cash Flow Account"); (vii) An account with Lockbox Bank into which Borrower shall deposit, or cause to be deposited, the Principal Prepayment Funds, if any (the "Principal Prepayment Account"); and (viii) An account with Lockbox Bank into which Borrower shall deposit, or cause to be deposited, the Required Repair Fund (the "Required Repair Account"). 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 or Operating Lessee shall instruct Manager to deposit all Accounts Receivable for the Properties and all other sums collected by Manager pursuant to the Management 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 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, Operating Lessee or Manager shall be deemed to be Collateral and shall be held in trust by it for the benefit, and as the property, of Lender and 45 shall not be commingled with any other funds or property of Borrower, Operating Lessee or Manager. (b) 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 and following the occurrence of a Triggering Event Period Termination, such account as shall be specified by Borrower and Operating Lessee in writing and (ii) following the occurrence of a Triggering Event and continuing until the occurrence of a Triggering Event Period Termination, (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. (c) 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 of 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 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. SECTION 3.5 Permitted Investments. Sums on deposit in any Account may be invested in Permitted Investments provided (i) such investments are then regularly offered by Property Account Bank, the Eligible Institution maintaining the Concentration Account or Lockbox Bank, as applicable, 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 46 earned from Permitted Investments shall be the property of Borrower. Borrower and Operating Lessee hereby irrevocably authorize and direct Property Account Bank, the Eligible Institution maintaining the Concentration Account or Lockbox Bank, as applicable, 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. Any investment of funds in any Property Account or Concentration Account shall only be made in Permitted Investments. Notwithstanding anything to the contrary contained herein, Borrower acknowledges that the only Permitted Investment which Lockbox Bank may 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 and the Required Repair 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, to the payment of the Ground Lease Escrow Fund in accordance with Section 7.4 hereof 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 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; 47 (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; and (viii) Eighth, provided no Event of Default has occurred and is continuing all amounts remaining in the Lockbox Account after deposits for items (i) through (vii) for the current month and all prior months shall be (A) during an Excess Cash Flow Sweep Period, deposited into the Excess Cash Flow Account and (B) at all other times, disbursed to Borrower. 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. 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 Sections 7.1 and 7.5 hereof. SECTION 3.11 Withdrawals from the Debt Service Account. Subject to Section 3.19 hereof, Lender shall withdraw funds from the Debt Service Account to pay, on or before the date when due, the Monthly Debt Service Payment Amount and, if sufficient funds are available for the payment of such sums, any other sums then due and payable under the Loan, including, without limitation, any late payment charges or interest accruing at the Default Rate. SECTION 3.12 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. 48 SECTION 3.13 Withdrawals from the Excess Cash Flow Account / Principal Prepayment Account. (a) Lender shall disburse all the funds in the Excess Cash Flow Account to Borrower on the Payment Date immediately following the occurrence of an Excess Cash Flow Sweep Period Termination; provided, however, if on an Excess Cash Flow Application Date and on each Payment Date thereafter occurring following the expiration of the Lockout Period, the Excess Cash Flow Account contains any funds, such funds will be applied to reduce the principal balance of the Loan, until the occurrence of an Excess Cash Flow Sweep Period Termination; further, provided, however, if an Excess Cash Flow Application Date or any Payment Date thereafter occurs prior to the expiration of the Lockout Period, instead of being applied to reduce the principal balance of the Loan as aforesaid, any funds in the Excess Cash Flow Account that would have been applied to reduce the principal balance of the Loan (the "Principal Prepayment Funds") shall be deposited in the Principal Prepayment Account and shall be held and disbursed in accordance with Section 3.13(b) hereof. (b) Lender shall, on the Payment Date occurring immediately after the expiration of the Lockout Period, apply the Principal Prepayment Funds and all other funds in the Principal Prepayment Account to reduce the principal balance of the Loan. Borrower shall not be entitled to any disbursement of the Principal Prepayment Funds or any funds deposited in the Principal Prepayment Account due to the occurrence of an Excess Cash Flow Sweep Period Termination. SECTION 3.14 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 3.15 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 3.16 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 49 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 3.17 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 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 3.18 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 3.19 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: 50 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 4.1.1(a) 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 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 4.1.1(b) 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 51 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 Authority 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 Authority 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, 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 Authority 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 Authority 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 52 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 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, 53 (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, FelCor Ground Lessor 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 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. 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. 54 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 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 Section 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. 55 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. 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 56 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. 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. 57 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 Deleted. 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 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 58 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 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 as set forth on Schedule 4.1.34 attached hereto. 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; 59 (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 (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 60 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; (m) other than Borrower's guaranty of Operating Lessee's obligations under or pursuant to 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; 61 (t) pledge its assets for the benefit of any other Person, other than with respect to the 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 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 62 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 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. 63 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. 4.1.38 Intentionally Deleted. 4.1.39 Environmental Representations and Warranties. Borrower represents and warrants, except as disclosed on those certain written reports identified on Schedule 4.1.39 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 as set forth on Schedule 4.1.40 attached hereto. 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 64 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 / FelCor Ground Lease Representations. (a) (i) Each Ground Lease / FelCor 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 / FelCor Ground Lease by Borrower or, to the best of Borrower's knowledge, the landlord thereunder, and, to the best of Borrower's knowledge, no event has occurred which but for the passage of time, or notice, or both would constitute a default under such Ground Lease / FelCor Ground Lease, (iii) all rents, additional rents and other sums due and payable under each Ground Lease / FelCor Ground Lease have been paid in full, and (iv) neither Borrower nor Ground Lessor / FelCor Ground Lessor under each Ground Lease / FelCor Ground Lease has commenced any action or given or received any notice for the purpose of terminating such Ground Lease / FelCor Ground Lease; (b) Each Security Instrument which is secured by Borrower's interest in a FelCor Ground Lease is also secured by the related fee interest in the applicable Property, and the fee interest is subject 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 / FelCor Ground Leases or a memorandum thereof have been duly recorded, the Ground Leases / FelCor 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 / FelCor Ground Leases since their recordation. The Ground Leases / FelCor Ground Leases cannot be cancelled, terminated, surrendered or amended without the prior written consent of Lender; (d) Borrower's interest in the Ground Leases / FelCor 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 / FelCor 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 / FelCor Ground Leases require the lessor thereunder to give notice of any default by Borrower to Lender and the Ground Leases / FelCor Ground Leases further provide that notice of termination given under the Ground Leases / FelCor 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 / FelCor 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 / FelCor Ground Leases) to cure any default under the Ground Leases / FelCor Ground Leases, which is 65 curable after the receipt of notice of any default before the lessor thereunder may terminate such Ground Lease / FelCor Ground Lease; (h) The Ground Leases / FelCor Ground Leases have a term which extends not less than twenty (20) years beyond the Maturity Date; (i) The Ground Leases / FelCor Ground Leases require the lessor to enter into a new lease upon termination of the applicable Ground Lease / FelCor Ground Lease for any reason, including rejection of such Ground Lease / FelCor Ground Lease in a bankruptcy proceeding; (j) Under the terms of each Ground Lease / FelCor 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 / FelCor Ground Leases do not impose restrictions on subletting.] 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 Manager) 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. 66 4.1.44 LBV Property Estoppel Work. Borrower represents and warrants that the LBV Property Estoppel Work are the only items remaining left to be completed of the items set forth on Exhibit D to the LBV Property Estoppel and that upon satisfactory completion of the LBV Property Estoppel Work, all of the work required to be completed under the LBV Property Estoppel shall have been completed. 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 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. 67 (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 Legal Requirements; (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. 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 Legal Requirements; (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 68 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. 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; 69 (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. 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 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, 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 70 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 5.1.10. 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 2004 only, the statements required pursuant to Section 5.1.10(b)(i) and (ii) hereof shall assume Borrower's operations commenced on August 1, 2004. (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 during a Triggering Event Period, within thirty (30) days after the end of each calendar month during such Triggering Event Period, 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 or month (as the case may be), including an average daily rate, and any and all franchise inspection reports received by Borrower during the subject quarter or month (as the case may be), accompanied by an Officer's Certificate with respect thereto; (ii) quarterly and year-to-date operating statements or monthly and year-to-date operating statements (as the case may be) (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 5.1.10) and prepared for each calendar quarter or month (as the case may be), 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 quarter or month (as the case may be), 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 each calendar quarter or month (as the case may be) accompanied by an Officer's Certificate with respect thereto; and (v) a Smith Travel Research STAR Report or similar report from a similar market benchmarking service. With respect to any of the quarterly financial 71 reports and statements required to be delivered under this Section 5.1.10(c), such quarterly financial reports and statements shall present the relevant information on an aggregate basis for such quarter and on an individual basis for each month during such quarter for each Individual Property and the Properties taken as a whole. (d) Beginning in Fiscal Year 2005 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 proposed preliminary or final proposed Annual Budget submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with such proposed preliminary or final proposed Annual Budget, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. (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). 72 (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 Legal Requirements, Borrower irrevocably waives any and all rights it may have under any Legal Requirements 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 "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 73 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. (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). 74 (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. 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, FelCor Ground Lessor, Operating Lessee or any of their constituent Persons or an assignment by Borrower, FelCor Ground Lessor, Operating Lessee or any of their constituent Persons for the benefit of its creditors, Borrower, FelCor 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 75 Lender, Borrower, FelCor 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. (b) 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. (c) 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 (iv) all sums due and payable to Franchisor under the Franchise Agreement have been paid in full. (d) 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. (e) Borrower shall, promptly upon request of Lender, deliver to Lender an estoppel certificate from each Ground Lessor / FelCor Ground Lessor stating that (i) the applicable Ground Lease / FelCor Ground Lease is in full force and effect and has not been modified, amended or assigned, (ii) neither Ground Lessor / FelCor Ground Lessor nor Borrower is in default under any of the terms, covenants or provisions of the Ground Lease / FelCor Ground Lease and Ground Lessor / FelCor 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 / FelCor Ground Lease, (iii) neither Ground Lessor / FelCor Ground Lessor nor Borrower has commenced any action or given or received any notice for the purpose of terminating the 76 Ground Lease / FelCor Ground Lease and (iv) all sums due and payable under the Ground Lease / FelCor Ground Lease have been paid in full. 5.1.14 Intentionally Deleted. 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 in all material respects 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. 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, delayed or conditioned. 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 77 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, which consent shall not be unreasonably withheld, delayed or conditioned. (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, 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; provided, however, Borrower shall not be required to obtain Lender's written consent to any immaterial, non-economic change or beneficial economic change to a Major Lease that is for sit-down restaurant facilities at any Individual Property. (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. (f) To the extent that Lender's consent or approval is required under this Section 5.1.17, any such proposed modification, change, supplement, alteration, amendment, assignment or sublease of a Lease or Major Lease submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval marked in bold 78 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with such proposed modification, change, supplement, alteration, amendment, assignment or sublease of a Lease or Major Lease, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. In no event shall Lender be deemed to have approved (1) a surrender, termination or cancellation of a Lease or Major Lease, (2) any change having a material adverse effect on Borrower's or Operating Lessee's costs or obligations, or rent payable to Borrower or Operating Lessee, under a Lease or Major Lease, or (3) a new Lease or Major Lease with a new tenant. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.1.17. 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 InterContinental Hotels Group or any of its Affiliates, the sum of (x) five percent (5%) of total room revenue and (y) two percent (2%) of total revenue; provided, however, InterContinental Hotels Group or any of its Affiliates 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 InterContinental Hotels Group or any of its Affiliates, 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 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. Any such proposed modification, change, supplement, alteration or amendment 79 of the Management Agreement submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with such proposed modification, change, supplement, alteration or amendment of the Management Agreement, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. In no event shall Lender be deemed to have approved (1) a surrender, termination or cancellation of the Management Agreement, (2) any change having a material adverse effect on Borrower's or Operating Lessee's costs or obligations under the Management Agreement, or (3) or a new management agreement with a new property manager. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.1.18. 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, delayed or conditioned. 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 80 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. (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 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. 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. 81 (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 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 to (i) any structural alteration or (ii) any other alteration to any Improvements which is estimated to cost in excess of four (4%) percent of the value of the related Individual Property, which consent shall not be unreasonably withheld, delayed or conditioned, 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. Any such proposed alterations to any Improvements submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with a reasonably detailed description of such proposed structural alteration, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. In no event shall Lender be deemed to have approved alterations that may have a material adverse effect on Borrower's financial condition, the value of the Property or the Net Operating Income thereof. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.1.20. Lender hereby approves the alterations currently planned to be made to the Mandalay Beach Property, as more particularly set forth on Schedule 5.1.20 hereto, and Borrower shall make and complete such alterations in accordance with the terms and provisions of this Agreement. Borrower covenants and agrees that Borrower shall complete the balcony alterations and renovations more particularly set forth on Schedule 5.1.20 hereto within twelve (12) months of the date hereof. 5.1.21 Franchise Agreement. 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 82 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. Any such proposed modification, change, supplement, alteration or amendment of the Franchise Agreement submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY"; and (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with such proposed modification, change, supplement, alteration or amendment of the Franchise Agreement, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision. In no event shall Lender be deemed to have approved (1) a surrender, termination or cancellation of the Franchise Agreement, (2) any change having a material adverse effect on Borrower's or Operating Lessee's costs or obligations under the Franchise Agreement, or (3) a new franchise agreement with a new franchisor. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.1.21. 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 83 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 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. 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 / FelCor Ground Lease. (a) With respect to each Ground Lease / FelCor 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 / FelCor Ground Lease, (ii) diligently perform and observe all of the terms, covenants and conditions of each Ground Lease / FelCor 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 / FelCor Ground Lease to 84 Borrower of any default by Borrower, as tenant thereunder, and deliver to Lender a true copy of each such notice within five (5) Business Days of receipt and (iv) promptly notify Lender of any bankruptcy, reorganization or insolvency of the landlord under the applicable Ground Lease / FelCor Ground Lease or of any notice thereof, and deliver to Lender a true copy of such notice within five (5) Business Days of Borrower's receipt. Borrower shall not, without the prior consent of Lender, surrender the leasehold estate created by the applicable Ground Lease / FelCor Ground Lease or terminate or cancel any Ground Lease / FelCor Ground Lease or modify, change, supplement, alter, amend or waive any material term of any Ground Lease / FelCor 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 / FelCor 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 / FelCor 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 / FelCor Ground Lease shall be kept unimpaired and free from default. If the landlord under the applicable Ground Lease / FelCor Ground Lease shall deliver to Lender a copy of any notice of default under such Ground Lease / FelCor 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 / FelCor 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 / FelCor 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 / FelCor 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 / FelCor 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 / FelCor Ground Lease is terminated as aforesaid, the lessee under the sublease shall attorn to the lessor under the Ground Lease / FelCor 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 / FelCor Ground Lease: 85 (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 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 / FelCor Ground Lease; (ii) Borrower shall not, without Lender's written consent, elect to treat a Ground Lease / FelCor 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 / FelCor 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 / FelCor 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 / FelCor 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 / FelCor Ground Lease, the amount of any damages caused by the nonperformance by the applicable Ground Lessor / FelCor Ground Lessor of any of its obligations thereunder after the rejection by such Ground Lessor / FelCor 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 / FelCor Ground Lessor of all or any part any Individual Property subject to a Ground Lease / FelCor 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 86 (vi) Borrower shall promptly, after obtaining knowledge of such filing, notify Lender orally of any filing by or against a Ground Lessor / FelCor 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. 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 1.1(V) hereof (other than with respect to the Austin Town Lake Property, which such Austin Town Lake Property is subject to the O&M Program delivered to Lender on the Closing Date), 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. In the event that the O&M Program delivered to Lender on the Closing Date with respect to the Austin Town Lake Property is not satisfactory to Lender, Borrower shall promptly revise such O&M Program to comply with Lender's requirements until the same shall be approved by Lender. 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 comply with Borrower's 2004 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 87 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, delayed or conditioned. (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, delayed or conditioned. 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. 88 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 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. Any such proposed change submitted to Lender for approval shall be deemed approved if (i) Borrower delivers to Lender a written request for such approval 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 is marked "PRIORITY"; (ii) Lender shall have failed to notify Borrower of its approval or disapproval within such fifteen (15) Business Days following Lender's receipt of Borrower's written request together with a description of the nature of such proposed change, and any and all other information and documentation relating thereto reasonably required by Lender to reach a decision; (iii) Borrower delivers to Lender a second written request for such approval marked in bold lettering with the following language: "LENDER'S RESPONSE IS REQUIRED WITHIN TEN (10) BUSINESS DAYS OF RECEIPT OF THIS NOTICE PURSUANT TO THE TERMS OF A LOAN AGREEMENT BETWEEN THE UNDERSIGNED AND LENDER. FAILURE TO RESPOND SHALL BE DEEMED AN APPROVAL." and the envelope containing the request is marked "PRIORITY - FINAL NOTICE" and contains the information and documentation required by (ii) above; and (iv) Lender shall have failed to notify Borrower of its approval or disapproval within such ten (10) Business Days following Lender's receipt of the written request referenced in (iii) above. 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. Upon Borrower's request, Lender shall deliver to Borrower a reasonably detailed description of the reasons for any disapprovals under this Section 5.2.7. 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 89 "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. Section 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. Section 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. Section 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 (collectively, 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 90 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 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; 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; 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 5.2.10. 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 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, (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 91 times less than $250,000 and (iv) the financing does not create a Lien on any Individual Property other than on the Equipment financed or leased thereunder (the "Permitted FF&E Financing"). (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, 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 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 92 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 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); 93 (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) (A) if required by Lender for each Individual Property (other than the Mandalay Beach Property), 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 and (B) for the Mandalay Beach Property, earthquake insurance equal to the Required Earthquake Insurance Amount and if required by Lender, 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; (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, at Borrower's option, either (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 94 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. In the event that Borrower has obtained a blanket insurance policy pursuant to (A) above and 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; (xii) windstorm coverage with such limits and deductibles as are generally required by institutional lenders for similar properties in the geographic area where the applicable Individual Property is located; and (xiii) 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 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" (an "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 an 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 95 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. (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 96 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. 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. 97 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. (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, 98 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 Legal Requirements, 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, (3) the earliest date required for such completion under the terms of any Leases which 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, (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 Legal Requirements; 99 (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 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 100 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 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 101 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 the Required Repair Account, the amount for each Individual Property set forth on Schedule 7.1.1 hereto to perform the Required Repairs for such Individual Property. Amounts so deposited with Lender shall be held by Lender in accordance with Section 7.6 hereof. Amounts so deposited shall hereinafter be referred to as Borrower's "Required Repair Fund." Borrower shall perform the repairs at the Properties, as more particularly set forth on Schedule 7.1.1 hereto and as more specifically described in the applicable Physical Conditions Report (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 102 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 Officer's Certificate (i) stating that all Required Repairs at the applicable Individual Property to be funded by the requested disbursement have been completed in a 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 Officer's 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 7.1.1 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 Borrower. 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, 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 103 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. 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. 104 (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 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. 105 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 Deleted. (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 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. 106 (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. (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. 107 (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. SECTION 7.4 Ground Lease Escrow Fund. Upon the occurrence of a Triggering Event, Borrower shall deposit with Lender an amount, determined by Lender, which is an estimate of the maximum (i) monthly rent and all other charges (the "Atlanta CP Property Ground Rent") to be due and payable by Borrower under the Ground Lease relating to the Atlanta CP Property and (ii) quarterly rent and all other charges (the "LBV Property Ground Rent"; together with the Atlanta CP Property Ground Rent, individually and collectively, as the context may require, the "Ground Rent") to be due and payable by Borrower under the Ground Lease relating to the LBV Property (collectively, the "Ground Lease Escrow Fund"), and which sum shall be deposited into the Ground Rent Account. Upon Borrower's failure to pay any Ground Rents after the receipt of any notice and at least ten (10) days prior to the expiration of any cure period available to Borrower pursuant to the applicable 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 108 based on any increases in the Ground Rent due under the applicable Ground Lease. Lender shall disburse all the funds in the Ground Rent Account to Borrower following the occurrence of a Triggering Event Period Termination SECTION 7.5 LBV Property Estoppel Work. 7.5.1 Deposit. On the Closing Date, Borrower shall deposit into the Required Repair Account the amount set forth on Schedule 7.5.1 hereto to perform the LBV Property Estoppel Work. Amounts so deposited with Lender shall be held and disbursed by Lender in accordance with Section 7.5 and 7.6 hereof and such amounts shall be deemed a part of the Required Repair Fund. Borrower shall perform the LBV Property Estoppel Work, as more particularly set forth on Schedule 7.5.1 hereto. Borrower shall complete the LBV Property Estoppel Work on or before the expiration of the time frames set forth on Schedule 7.5.1 hereto or such additional time as may be granted by Disney in writing to Borrower and Lender. It shall be an Event of Default under this Agreement if (a) Borrower does not complete the LBV Property Estoppel Work within the time frames set forth on Schedule 7.5.1 hereto or such additional time as may be granted by Disney in writing to Borrower and Lender, or (b) Borrower does not satisfy each condition contained in Section 7.5.2 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, the completion of the LBV Property Estoppel Work 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. 7.5.2 Release of Required Repair Funds relating the LBV Property Estoppel Work. Lender shall disburse to Borrower the Required Repair Funds relating to the LBV Property Estoppel Work from the Required Repair Account from time to time upon satisfaction by Borrower of each of the following conditions, either: (a) In the event that such LBV Property Estoppel Work is required to be completed pursuant to Disney's written request or other statement, (i) 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 portion of the LBV Property Estoppel Work to be paid, (ii) 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, (iii) Lender shall have received an Officer's Certificate (A) stating that the portion of the LBV Property Estoppel Work to be funded by the requested disbursement has been completed in a 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 LBV Property Estoppel Work, (B) identifying each Person that supplied materials or labor in connection with the portion of the LBV Property Estoppel Work performed at the LBV Property with respect to the reimbursement to be funded by the requested disbursement, and (C) stating 109 that each such Person has been paid in full upon such disbursement, such Officer's Certificate to be accompanied by lien waivers or other evidence of payment satisfactory to Lender (it being agreed that a schedule of invoices setting forth each such Person and the amounts due to each such Person may constitute sufficient evidence of payment so long as such schedule contains all relevant information required by Lender), (iv) at Lender's option, a title search for the LBV Property indicating that the LBV Property is free from all Liens, claims and other encumbrances not previously approved by Lender, and (v) Lender shall have received such other evidence as Lender shall reasonably request that the portion of the LBV Property Estoppel Work to be funded by the requested disbursement has been completed and is paid for upon such disbursement to Borrower; or (b) In the event that such LBV Property Estoppel Work is not required to be completed pursuant to Disney's written request or other statement, (i) Borrower shall submit a written request for disbursement to Lender at least fifteen (15) days prior to the date on which Borrower requests such disbursement be made and specifies the LBV Property Estoppel Work to which such disbursement relates, (ii) 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, and (iii) Lender shall have received evidence reasonably acceptable to Lender that Disney no longer requires such LBV Property Estoppel Work to be completed. Lender shall not be required to make the disbursements from the Required Repair Account with respect to the LBV Property Estoppel Work in accordance with Sections 7.5.2(a) or (b) above, unless such requested disbursement is in an amount greater than $150,000 (or a lesser amount if the total amount in the Required Repair Account with respect to the LBV Property Estoppel Work is less than $150,000, in which case only one disbursement of the amount remaining in the account shall be made); provided, however, if a disbursement is requested in accordance with Section 7.5.2(b) above and the terms and provisions thereof have been satisfied, Lender shall disburse the amount set forth on Schedule 7.5.1 hereto specifically allocated to the LBV Property Estoppel Work for which such disbursement is requested. Upon Lender's receipt of evidence of completion of all LBV Property Estoppel Work in accordance with the terms hereof, any remaining Required Repair Funds relating to the LBV Property Estoppel Work shall be disbursed to Borrower. 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. 110 (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. 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, FelCor 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; 111 (vi) if Borrower, an Operating Lessee SPE Entity, Principal, FelCor 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, FelCor 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, FelCor 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, FelCor 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, FelCor 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, FelCor 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; (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; 112 (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; (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; 113 (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; (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 / FelCor 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 / FelCor Ground Lease; (xxviii) if there shall occur any other material default by Borrower, as tenant under the Ground Lease / FelCor Ground Lease, in the observance or performance of any term, covenant or condition of the Ground Lease / FelCor 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 / FelCor Ground Lease shall be surrendered or if the Ground Lease / FelCor Ground Lease shall cease to be in full force and effect or the Ground Lease / FelCor 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 / FelCor Ground Lease shall in any manner be modified, changed, supplemented, altered, or amended without the consent of Lender; 114 (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 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 115 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 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, mortgages 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 116 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 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 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; 117 (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 aggregate scheduled amortization payments do not exceed the Scheduled Amortization Payment; and (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 responsibility 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. 118 (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") 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 of any material fact contained in such sections described in clause (A) above, or arise out of or are based upon the 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 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 119 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 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. 120 (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 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. 121 (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 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 / FelCor Ground Lease is modified or terminated other than in accordance with the terms hereof; (xiii) any termination or similar fees paid to Franchisor 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 Agreement, Replacement Franchise Agreement, or franchisor estoppel and recognition agreement or other "comfort letter"; and (xiv) any Loss resulting from the Austin Town Lake Property's failure to comply with all applicable zoning laws and ordinances relating to the number of parking spaces; provided, however, Borrower shall have no liability pursuant to this Section 9.4(b)(xiv) from and after the date Borrower has delivered to Lender evidence acceptable to Lender that the Austin Town Lake Property complies with all applicable zoning laws and ordinances relating to the number of parking spaces. (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, FelCor Ground Lessor or an Operating Lessee SPE Entity shall be a debtor, in (A) a voluntary bankruptcy or insolvency proceeding or (B) an 122 involuntary bankruptcy or insolvency proceeding commenced by any Person (other than Lender) and, with respect to such involuntary proceeding, Borrower consents or fails to object to such proceedings) or if Borrower, Principal, FelCor Ground Lessor or an Operating Lessee SPE Entity 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(a)(xi)(b), 8.1(a)(xi)(c) or 8.1(a)(xxiv)(b) hereof has occurred (unless caused by, or at the request of 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. SECTION 9.5 Intentionally Deleted. SECTION 9.6 Contributions and Waivers. (a) As a result of the transactions contemplated by this Agreement, each Borrower will benefit, directly and indirectly, from each other Borrower's obligation to pay the Debt and perform its Obligations and in consideration therefor each Borrower desires to enter into an allocation and contribution agreement among the Borrowers as set forth in this Section 9.6 to allocate such benefits among themselves and to provide a fair and equitable agreement to make contributions among each of Borrowers in the event any payment is made by any individual Borrower hereunder to Lender (such payment being referred to herein as a "Contribution," and for purposes of this Section 9.6, includes any exercise of recourse by Lender against any Collateral of a Borrower and application of proceeds of such Collateral in satisfaction of such Borrower's obligations to Lender under the Loan Documents). (b) Each Borrower shall be liable hereunder with respect to the Obligations only for such total maximum amount (if any) that would not render its Obligations hereunder or under any of the Loan Documents subject to avoidance under Section 548 of the Bankruptcy Code or any comparable provisions of any State law. (c) In order to provide for a fair and equitable contribution among Borrowers in the event that any Contribution is made by an individual Borrower (a "Funding Borrower"), such Funding Borrower shall be entitled to a reimbursement Contribution ("Reimbursement Contribution") from all other Borrowers for all payments, damages and expenses incurred by that Funding Borrower in discharging any of the Obligations, in the manner and to the extent set forth in this Section 9.6. (d) For purposes hereof, the "Benefit Amount" of any individual Borrower as of any date of determination shall be the net value of the benefits to such Borrower and its Affiliates 123 from extensions of credit made by Lender to (a) such Borrower and (b) to the other Borrowers hereunder and the Loan Documents to the extent such other Borrowers have guaranteed or mortgaged their Properties to secure the Obligations of such Borrower to Lender. (e) Each Borrower shall be liable to a Funding Borrower in an amount equal to the greater of (A) the (i) ratio of the Benefit Amount of such Borrower to the total amount of Obligations, multiplied by (ii) the amount of Obligations paid by such Funding Borrower, or (B) ninety-five percent (95%) of the excess of the fair saleable value of the property of such Borrower over the total liabilities of such Borrower (including the maximum amount reasonably expected to become due in respect of contingent liabilities) determined as of the date on which the payment made by a Funding Borrower is deemed made for purposes hereof (giving effect to all payments made by other Funding Borrowers as of such date in a manner to maximize the amount of such Contributions). (f) In the event that at any time there exists more than one Funding Borrower with respect to any Contribution (in any such case, the "Applicable Contribution"), then Reimbursement Contributions from other Borrowers pursuant hereto shall be allocated among such Funding Borrowers in proportion to the total amount of the Contribution made for or on account of the other Borrowers by each such Funding Borrower pursuant to the Applicable Contribution. In the event that at any time any Borrower pays an amount hereunder in excess of the amount calculated pursuant to this Section 9.6 above, that Borrower shall be deemed to be a Funding Borrower to the extent of such excess and shall be entitled to a Reimbursement Contribution from the other Borrowers in accordance with the provisions of this Section. (g) Each Borrower acknowledges that the right to Reimbursement Contribution hereunder shall constitute an asset in favor of Borrower to which such Reimbursement Contribution is owing. (h) No Reimbursement Contribution payments payable by a Borrower pursuant to the terms of this Section 9.6 shall be paid until all amounts then due and payable by all of Borrowers to Lender, pursuant to the terms of the Loan Documents, are paid in full in Cash. Nothing contained in this Section 9.6 shall limit or affect in any way the Obligations of any Borrower to Lender under this Note or any other Loan Documents. (i) Each Borrower waives: (A) any right to require Lender to proceed against any other Borrower or any other person or to proceed against or exhaust any security held by Lender at any time or to pursue any other remedy in Lender's power before proceeding against Borrower; (B) the defense of the statute of limitations in any action against any other Borrower or for the collection of any indebtedness or the performance of any obligation under the Loan; (C) any defense based upon any legal disability or other defense of any other Borrower, any guarantor of any other person or by reason of the cessation or limitation of the liability of any other Borrower or any guarantor from any cause 124 other than full payment of all sums payable under the Note, this Agreement and any of the other Loan Documents; (D) any defense based upon any lack of authority of the officers, directors, partners or agents acting or purporting to act on behalf of any other Borrower or any principal of any other Borrower or any defect in the formation of any other Borrower or any principal of any other Borrower; (E) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal; (F) any defense based upon any failure by Lender to obtain collateral for the indebtedness or failure by Lender to perfect a lien on any collateral; (G) presentment, demand, protest and notice of any kind; (H) any defense based upon any failure of Lender to give notice of sale or other disposition of any collateral to any other Borrower or to any other person or entity or any defect in any notice that may be given in connection with any sale or disposition of any collateral; (I) any defense based upon any failure of Lender to comply with Applicable Laws in connection with the sale or other disposition of any collateral, including, without limitation, any failure of Lender to conduct a commercially reasonable sale or other disposition of any collateral; (J) any defense based upon any election by Lender, in any bankruptcy proceeding, of the application or non-application of Section 1111(6)(2) of the Bankruptcy Code or any successor statute; (K) any defense based upon any use of cash collateral under Section 363 of the Bankruptcy Code; (L) any defense based upon any agreement or stipulation entered into by Lender with respect to the provision of adequate protection in any bankruptcy proceeding; (M) any defense based upon any borrowing or any grant of a security interest under Section 364 of the Bankruptcy Code; (N) any defense based upon the avoidance of any security interest in favor of Lender for any reason; (O) any defense based upon any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding, including any discharge of, or bar or stay against collecting, all or any 125 of the obligations evidenced by the Note or owing under any of the Loan Documents; and (P) any defense or benefit based upon Borrower's, or any other party's, resignation of the portion of any obligation secured by the applicable Security Instruments to be satisfied by any payment from any other Borrower or any such party. (j) Each Borrower waives: (A) all rights and defenses arising out of an election of remedies by Lender even though the election of remedies, such as nonjudicial foreclosure with respect to security for the Loan or any other amounts owing under the Loan Documents, has destroyed Borrower's rights of subrogation and reimbursement against any other Borrower; (B) all rights and defenses that Borrower may have because any of Debt is secured by real property. This means, among other things: (i) Lender may collect from Borrower without first foreclosing on any real or personal property collateral pledged by any other Borrower, (ii) if Lender forecloses on any real property collateral pledged by any other Borrower, (a) the amount of the Debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, (b) Lender may collect from Borrower even if any other Borrower, by foreclosing on the real property collateral, has destroyed any right Borrower may have to collect from any other Borrower. This is an unconditional and irrevocable waiver of any rights and defenses Borrower may have because any of the Debt is secured by real property; (C) any claim or other right which Borrower might now have or hereafter acquire against any other Borrower or any other person that arises from the existence or performance of any obligations under the Note, this Agreement, the Security Instruments or the other Loan Documents, including, without limitation, any of the following: (i) any right of subrogation, reimbursement, exoneration, contribution, or indemnification; or (ii) any right to participate in any claim or remedy of Lender against any other Borrower or any collateral security therefor, whether or not such claim, remedy or right arises in equity or under contract, statute or common law; (D) any rights of Borrowers of subrogation, reimbursement, indemnification, and/or contribution against any other Borrower or any other person or entity, and any other rights and defenses that are or may become available to any Borrower or any other person or entity by reasons of Sections 2787-2855, inclusive of the California Civil Code; (E) any rights or defenses that may be available by reason of any election of remedies by any Borrower (including, without limitation, any such 126 election which in any manner impairs, effects, reduces, releases, destroys or extinguishes any Borrower's subrogation rights, rights to proceed against any other Borrower for reimbursement, or any other rights of Borrowers to proceed against any other person, entity or security, including but not limited to any defense based upon an election of remedies by any Borrower under the provisions of Section 580(d) of the California Code of Civil Procedure or any similar law of California or of any other State or of the United Sates); and (F) Any rights or defenses Borrowers may have because the Obligations are secured by real property or any estate for years. These rights or defenses include, but are not limited to, any rights or defenses that are based upon, directly or indirectly, the application of Section 580(a), Section 580(b), Section 580(d) or Section 726 of the California Code of Civil Procedure to the Obligations. 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 127 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 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 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 128 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 ARCap Servicing, Inc. 5605 N. MacArthur Boulevard Suite 950 Irving, Texas 75038 Attention: Clyde Greenhouse Facsimile No.: (972) 580-3888 and With a copy to: Thacher Proffitt & Wood LLP Two World Financial Center New York, New York 10281 Attention: David S. Hall, Esq. Facsimile No.: (212) 912-7751 129 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 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. 130 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 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, 131 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 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. 132 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. 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. 133 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 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 134 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 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] 135 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 ATLANTA CP HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ------------------------------------ Joel M. Eastman Vice President FELCOR/JPM AUSTIN HI HOLDINGS, L.P., a Delaware limited partnership By: FELCOR/JPM AUSTIN HI HOTEL, L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman -------------------------------- Joel M. Eastman Vice President FELCOR/JPM BRUNSWICK HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ------------------------------------ Joel M. Eastman Vice President FELCOR/JPM LBV HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ------------------------------------ Joel M. Eastman Vice President FELCOR/JPM MANDALAY HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ------------------------------------ Joel M. Eastman Vice President FELCOR/JPM ORLANDO I-DRIVE HOTEL, 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 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 -------------------------------- Joel M. Eastman Vice President SCHEDULE I 1. FelCor/JPM Atlanta CP Hotel, L.L.C., a Delaware limited liability company 2. FelCor/JPM Austin HI Holdings, L.P., a Delaware limited partnership 3. FelCor/JPM Brunswick Hotel, L.L.C., a Delaware limited liability company 4. FelCor/JPM LBV Hotel, L.L.C., a Delaware limited liability company 5. FelCor/JPM Mandalay Hotel, L.L.C., a Delaware limited liability company 6. FelCor/JPM Orlando I-Drive Hotel, L.L.C., a Delaware limited liability company SCHEDULE II Allocated Loan Amounts
LOCATION ADDRESS ALLOCATED LOAN AMOUNT - -------------------------------------------------------------------------------------------------------- Atlanta Airport - Crowne Plaza 1325 Virginia Avenue $15,485,000 Atlanta, Georgia Embassy Suites Mandalay Beach 2101 Mandalay Beach Road $33,760,000 Oxnard, California Doubletree Guest Suites - Walt 2305 Hotel Plaza Boulevard $12,875,000 Disney World Resort Lake Buena Vista, Florida Austin Town Lake - Holiday Inn 20 North Interregional Highway $ 7,965,000 Austin, Texas Holiday Inn Orlando - 6515 International Drive $10,980,000 International Drive Resort Orlando, Florida Embassy Suites Brunswick 500 Mall Boulevard $ 5,935,000 Brunswick, Georgia
REMAINDER OF SCHEDULES AND EXHIBITS INTENTIONALLY OMITTED. 139 EX-10.35.1 8 d17358exv10w35w1.txt FORM OF MORTGAGES, DEEDS, AND SECURITY AGREEMENT EXHIBIT 10.35.1 ================================================================================ --------------------------------. and -------------------------------, as grantor (Trustor) to --------------------, as trustee (Trustee) for the benefit of JPMORGAN CHASE BANK, as beneficiary (Lender) ------------------------------------- DEED OF TRUST AND SECURITY AGREEMENT ------------------------------------- Dated: As of July 28, 2004 Location: ---------------------- ---------------------- ---------------------- County: ---------------------- PREPARED BY AND UPON RECORDATION RETURN TO: Messrs. Thacher Proffitt & Wood Two World Financial Center New York, New York 10281 Attention: David S. Hall, Esq. File No.: -------------- ================================================================================ THIS DEED OF TRUST AND SECURITY AGREEMENT (this "Security Instrument") is made as of the 28th day of July, 2004, by _____________________, a Delaware _____________, having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062, as trustor ("Owner") and _____________________, a Delaware _______________, having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062, as trustor ("Operating Lessee") (Owner and Operating Lessee hereinafter collectively referred to as "Trustor") to _____________, an individual, having an address at _____________________, as trustee ("Trustee") for the benefit of JPMORGAN CHASE BANK, a New York banking corporation, having its principal place of business at 270 Park Avenue, New York, New York 10017, as beneficiary ("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 the Operating Lease (as defined in the Loan Agreement (hereinafter defined)). This Security Instrument is given to secure a loan (the "Loan") in the principal sum of EIGHTY-SEVEN MILLION AND 00/100 DOLLARS ($87,000,000.00) made pursuant to that certain Loan Agreement, dated as of the date hereof, among Owner, certain affiliates of Owner and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "Loan Agreement") and evidenced by the Note (as defined in the Loan Agreement). Trustor desires to secure the payment of the Debt (as defined in the Loan Agreement) and the performance of all of Trustor'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 Trustor 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 Trustor 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. 2 Article 1 - GRANTS OF SECURITY Section 1.1 PROPERTY MORTGAGED. Trustor does hereby irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to and grant a security interest to Trustee, its successors and assigns, for the benefit of Lender and its successors and assigns in, and grant a security interest to Lender and Trustee, and their respective successors and assigns in, the following property, rights, interests and estates now owned, or hereafter acquired by Trustor (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 the 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 Trustor 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 Trustor of, in and to the Land and the Improvements, including, but not limited to, those arising under and by virtue of the Operating Lease, and every part and parcel thereof, with the appurtenances thereto; 3 (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 Trustor, or in which Trustor 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 Trustor, or in which Trustor 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 Trustor 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 Trustor of any petition for relief under the Bankruptcy Code (the "Leases") and all right, title and interest of Trustor, 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, 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 4 of all or any portion of the Land and/or Improvements, or personalty located thereon, or rendering of services by Trustor 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 Trustor 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 Trustor, 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 Trustor therein and thereunder, including, without limitation, the right, upon the happening of any default hereunder, to receive and collect any sums payable to Trustor thereunder; (n) Intangibles. All trade names, trademarks, servicemarks, logos, copyrights, goodwill, books and records, tenant or guest lists, advertising materials, telephone exchange 5 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 Trustor 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) Accounts Receivables. All right, title and interest of Trustor 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) Trustor'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) Trustor's rights in, to and under all purchase orders for goods, services or other property, (iv) Trustor's rights to any goods, services or other property represented by any of the foregoing, (v) monies due to or to become due to Trustor 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 Trustor) and (vi) all collateral security and guaranties of any kind given by any person or entity with respect to any of the foregoing. Accounts Receivable shall include those now existing or hereafter created, substitutions therefor, proceeds (whether cash or non-cash, movable or immovable, tangible or intangible) received upon the sale, exchange, transfer, collection or other disposition or substitution thereof and any and all of the foregoing and proceeds therefrom; (r) 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"); and (s) Other Rights. Any and all other rights of Trustor in and to the items set forth in Subsections (a) through (r) above. Section 1.2 ASSIGNMENT OF LEASES AND RENTS. Trustor hereby absolutely and unconditionally assigns to Lender and Trustee Trustor'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 Trustor that this assignment constitutes a present, absolute assignment and not an 6 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 Trustor a revocable license to collect and receive the Rents. Trustor 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 Trustor in the Property. By executing and delivering this Security Instrument, Trustor hereby grants to Lender and Trustee, 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. Trustor 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 Trustee, and for their respective successors and assigns, forever; IN TRUST, WITH POWER OF SALE, to secure payment to Lender of the Debt at the time and in the manner provided for its payment in the Note, the Loan Agreement, and in this Security Instrument; PROVIDED, HOWEVER, these presents are upon the express condition that, if Trustor 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. 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; 7 (c) the payment of the Breakage Costs, if any; (d) the payment of all other moneys agreed or provided to be paid by Trustor 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 Trustor 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 Trustor contained herein; (b) the performance of each obligation of Trustor contained in any other agreement given by Trustor 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 Trustor 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. Trustor's obligations for the payment of the Debt and the performance of the Other Obligations shall be referred to collectively below as the "Obligations." Article 3 - TRUSTOR COVENANTS Trustor covenants and agrees that: Section 3.1 PAYMENT OF DEBT. Trustor 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. 8 Section 3.3 INSURANCE. Trustor shall obtain and maintain, or cause to be maintained, insurance in full force and effect at all times with respect to Trustor and the Property as required pursuant to the Loan Agreement. Section 3.4 PAYMENT OF TAXES, ETC. Trustor 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. Trustor 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, Trustor 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, Trustor 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, Trustor 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. Trustor 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. Trustor 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, Trustor will promptly pay when due all bills and costs for labor, materials, and specifically fabricated materials incurred in connection with the Property and never permit to exist 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. Trustor shall observe and perform each and every term to be observed or performed by Trustor 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 9 franchise agreements, or given by Trustor 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, Trustor will not change Trustor's name, identity (including its trade name or names) or corporate, partnership or other structure without first obtaining the prior written consent of Lender. Trustor hereby authorizes Lender, prior to or contemporaneously with the effective date of any such change, to file 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, Trustor shall execute a certificate in form satisfactory to Lender listing the trade names under which Trustor intends to operate the Property, and representing and warranting that Trustor 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 Trustor represents and warrants to Lender that: Section 4.1 WARRANTY OF TITLE. Trustor 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. Trustor 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 Trustor 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, 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 Trustor 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 Trustor owns any interest in any payments due under such Leases that is superior to or of equal priority with the Lender's interest therein. Trustor shall forever warrant, defend and preserve the 10 title and the validity and priority of the lien of this Security Instrument and shall forever warrant and defend the same to Lender and/or Trustee against the claims of all persons whomsoever. Article 5 - OBLIGATIONS AND RELIANCES Section 5.1 RELATIONSHIP OF TRUSTOR AND LENDER. The relationship between Trustor and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Trustor, 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 Trustor 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 Trustor is a trust) beneficial owners of Trustor are experienced in the ownership and operation of properties similar to the Property, and Trustor and Lender are relying solely upon such expertise and business plan in connection with the ownership and operation of the Property. Trustor 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), (m) and (n) 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. Trustor 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 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. Trustor 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 11 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. Trustor 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. Trustor will, at the cost of Trustor, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender and Trustee the Property and rights hereby deeded, mortgaged, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Trustor 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. Trustor, on demand, will execute and deliver and hereby authorizes Lender, following ten (10) days' notice to Trustor, to execute in the name of Trustor or without the signature of Trustor to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or other comparable security instruments, to evidence more effectively the security interest of Lender in the Property or any Collateral. Trustor 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. (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, Trustor 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 Trustor 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) Trustor 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 12 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, Trustor 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, Trustor 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 TRUSTOR'S EXPENSE. Trustor 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"). Trustor 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. Trustor 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 Trustor 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. Section 6.6 LEGAL FEES FOR ENFORCEMENT. (a) Trustor 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) Trustor 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 Trustor. 13 Article 7 - DUE ON SALE/ENCUMBRANCE Section 7.1 LENDER RELIANCE. Trustor acknowledges that Lender has examined and relied on the experience of Trustor and its partners, members, principals and (if Trustor 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 Trustor'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. Trustor acknowledges that Lender has a valid interest in maintaining the value of the Property so as to ensure that, should Trustor 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 Trustor 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), Trustor agrees that Lender may, or acting through Trustee may, take such action, without notice or demand, as it deems advisable to protect and enforce its rights against Trustor 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 or Trustee: (a) declare the entire unpaid Debt to be immediately due and payable; (b) institute proceedings, judicial or otherwise, for the complete foreclosure of this Security Instrument under any applicable 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; (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 Trustor therein and rights of redemption thereof, pursuant to 14 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 Trustor, 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 Trustor 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 Trustor and its agents and servants therefrom, without liability for trespass, damages or otherwise and exclude Trustor and its agents or servants wholly therefrom, and take possession of all books, records and accounts relating thereto and Trustor 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 Trustor with respect to the Property, whether in the name of Trustor 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 Trustor 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 Trustor; (vi) require Trustor to vacate and surrender possession of the Property to Lender or to such receiver and, in default thereof, Trustor 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 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 or Trustee may deem necessary for the care, protection and preservation of the Collateral (including without limitation, the Personal Property), and (ii) request Trustor at its expense to assemble the Collateral, 15 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 or Trustee with respect to the Collateral, including without limitation, the Personal Property, sent to Trustor in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Trustor; (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, Trustor hereby appoints Lender as agent and attorney-in-fact (which is coupled with an interest and is therefore irrevocable) for Trustor 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 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. 16 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 Trustor and without releasing Trustor from any obligation hereunder, make or do the same in such manner and to such extent as Lender may deem necessary to protect the security hereof. Lender or Trustee is authorized to enter upon the Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Property or to foreclose this Security Instrument or collect the Debt. The cost and expense of any cure hereunder (including reasonable 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 or Trustee 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 or Trustee has the right to appear in and defend any action or proceeding brought with respect to the Property and, after the occurrence and during the continuance of an Event of Default, to bring any action or proceeding, in the name and on behalf of Trustor, 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 or Trustee thereafter to bring an action of foreclosure, or any other action, for a Default or Defaults by Trustor existing at the time such earlier action was commenced. Section 9.6 OTHER RIGHTS, ETC. (a) The failure of Lender or Trustee to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Security Instrument. Trustor shall not be relieved of Trustor's obligations hereunder by reason of (i) the failure of Lender or Trustee to comply with any request of Trustor 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 or Trustee 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. 17 (b) It is agreed that the risk of loss or damage to the Property is on Trustor, and neither Lender nor Trustee shall have any 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 or Trustee 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 or Trustee's possession. (c) Lender may resort for the payment of the Debt to any other security held by Lender in such order and manner as Lender, in its discretion, may elect. Lender or Trustee may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Lender or Trustee thereafter to foreclose this Security Instrument. The rights of Lender and Trustee under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender or Trustee shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Neither Lender nor Trustee shall be limited exclusively to the rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity. 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 Trustor 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 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. 18 Article 10 - INDEMNIFICATIONS Section 10.1 GENERAL INDEMNIFICATION. Trustor 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. Trustor 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, Trustor and Indemnitor have executed and delivered the Environmental Indemnity. Article 11 - WAIVERS Section 11.1 WAIVER OF COUNTERCLAIM. Trustor 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. Trustor hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, Trustor 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 Trustor, 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. 19 Section 11.3 WAIVER OF NOTICE. Trustor shall not be entitled to any notices of any nature whatsoever from Lender or Trustee except (a) with respect to matters for which this Security Instrument, the Loan Agreement or any other Loan Document, specifically and expressly provides for the giving of notice by Lender or Trustee to Trustor, and (b) with respect to matters for which Lender or Trustee is required by any Applicable Law to give notice, and Trustor hereby expressly waives the right to receive any notice from Lender or Trustee with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Lender or Trustee to Trustor. Section 11.4 WAIVER OF STATUTE OF LIMITATIONS. Trustor 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, Trustor (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. 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, 20 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 "Trustor" shall mean "each Trustor 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 "Trustee" shall mean "Trustee and any substitute Trustee of the estates, properties, powers, trusts and rights conferred upon Trustee pursuant to this Security Instrument," the word "Note" shall mean "the Note and any other evidence of indebtedness secured by this Security Instrument," the word "Property" shall include any portion of the Property and any interest of Trustor 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 Trustor or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. Section 16.2 LIABILITY. If Trustor 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 Trustor and Lender and their respective successors and assigns forever. 21 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. Trustor acknowledges that the Debt is secured by this Security Instrument together with those additional Security Instruments given by Trustor and/or certain Affiliates of Trustor to Lender, together with their respective Assignments of Leases and other Loan Documents securing or evidencing the Debt, and encumbering the other 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. Trustor acknowledges and agrees that the Property and the other 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 sole discretion, in any one or more of the States or counties in which the Property or any other 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 22 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 Property or the appraised value of the Property or any other Property. Article 18 - OPERATING LEASE PROVISIONS Section 18.1 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 18.2 OPERATING LESSEE EXECUTION. Operating Lessee hereby joins in the execution and delivery of this Security Instrument for the purpose of mortgaging its interest in the Land, the Improvements, the Operating Lease and the Property as set forth in Article 1 of this Security Instrument. Article 19 - STATE SPECIFIC PROVISIONS Section 19.1 INCONSISTENCIES. In the event of any inconsistencies between the terms and conditions of this Article 19 and the other provisions of this Security Instrument, the terms and conditions of this Article 19 shall control and be binding. [STATE SPECIFIC PROVISIONS] Article 20 - DEED OF TRUST PROVISIONS Section 20.1 CONCERNING THE TRUSTEE. Trustee shall be under no duty to take any action hereunder except as expressly required hereunder or by law, or to perform any act which would involve Trustee in any expense or liability or to institute or defend any suit in respect hereof, unless properly indemnified to Trustee's reasonable satisfaction. Trustee, by acceptance of this Security Instrument, covenants to perform and fulfill the trusts herein created, being liable, however, only for gross negligence or willful misconduct, and hereby waives any statutory fee and agrees to accept reasonable compensation, in lieu thereof, for any services rendered by Trustee in accordance with the terms hereof. Trustee may resign at any time upon giving thirty (30) days' notice to Trustor and to Lender. Lender may remove Trustee at any time or from time to time and select a successor trustee. In the event of the death, removal, resignation, refusal to act, or inability to act of Trustee, or in its sole discretion for any reason whatsoever Lender may, without notice and without specifying any reason therefor and without applying to any court, select and appoint a successor trustee, by an instrument recorded wherever this Security Instrument is recorded and all powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon become vested in such successor. Such substitute trustee shall not be 23 required to give bond for the faithful performance of the duties of Trustee hereunder unless required by Lender. The procedure provided for in this Section 20.1 for substitution of Trustee shall be in addition to and not in exclusion of any other provisions for substitution, by law or otherwise. Section 20.2 TRUSTEE'S FEES. Trustor shall pay all reasonable costs, fees and expenses incurred by Trustee and Trustee's agents and counsel in connection with the performance by Trustee of Trustee's duties hereunder and all such costs, fees and expenses shall be secured by this Security Instrument. Section 20.3 CERTAIN RIGHTS. With the approval of Lender, Trustee shall have the right to take any and all of the following actions: (i) to select, employ, and advise with counsel (who may be, but need not be, counsel for Lender) upon any matters arising hereunder, including the preparation, execution, and interpretation of the Note, this Security Instrument or the other Loan Documents, and shall be fully protected in relying as to legal matters on the advice of counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through his/her agents or attorneys, (iii) to select and employ, in and about the execution of his/her duties hereunder, suitable accountants, engineers and other experts, agents and attorneys-in-fact, either corporate or individual, not regularly in the employ of Trustee, and Trustee shall not be answerable for any act, default, negligence, or misconduct of any such accountant, engineer or other expert, agent or attorney-in-fact, if selected with reasonable area, or for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee's gross negligence or willful misconduct, and (iv) any and all other lawful action as Lender may instruct Trustee to take to protect or enforce Lender's rights hereunder. Trustee shall not be personally liable in case of entry by Trustee, or anyone entering by virtue of the powers herein granted to Trustee, upon the Property for debts contracted for or liability or damages incurred in the management or operation of the Property. Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting an action taken or proposed to be taken by Trustee hereunder, believed by Trustee in good faith to be genuine. Trustee shall be entitled to reimbursement for actual expenses incurred by Trustee in the performance of Trustee's duties hereunder and to reasonable compensation for such of Trustee's services hereunder as shall be rendered. Section 20.4 RETENTION OF MONEY. All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by Applicable Law) and Trustee shall be under no liability for interest on any moneys received by Trustee hereunder. Section 20.5 PERFECTION OF APPOINTMENT. Should any deed, conveyance, or instrument of any nature be required from Trustor by any Trustee or substitute trustee to more fully and certainly vest in and confirm to the Trustee or substitute trustee such estates rights, powers, and duties, then, upon request by the Trustee or substitute trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be caused to be recorded and/or filed by Trustor. 24 Section 20.6 SUCCESSION INSTRUMENTS. Any substitute trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed, or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its or his/her predecessor in the rights hereunder with like effect as if originally named as Trustee herein; but nevertheless, upon the written request of Lender or of the substitute trustee, the Trustee ceasing to act shall execute and deliver any instrument transferring to such substitute trustee, upon the trusts herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and moneys held by such Trustee to the substitute trustee so appointed in the Trustee's place. [NO FURTHER TEXT ON THIS PAGE] 25 IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Trustor the day and year first above written. --------------------------------, a Delaware ------------------------ By: -------------------------------- Joel M. Eastman Vice President --------------------------------, a Delaware ------------------------ By: -------------------------------- Joel M. Eastman Vice President ACKNOWLEDGMENTS STATE OF ) ) ss. COUNTY OF ) This instrument was acknowledged before me on July _____, 2004, by Joel M. Eastman, Vice President of ________________________, a Delaware ________________________. -------------------------------------------------- Notary Public in and for the State of ------------ (Seal) ACKNOWLEDGMENTS STATE OF ) ) ss. COUNTY OF ) This instrument was acknowledged before me on July _____, 2004, by Joel M. Eastman, Vice President of _____________________________, a Delaware _______________________. -------------------------------------------------- Notary Public in and for the State of ------------ (Seal) EXHIBIT A (Description of Land) EX-10.35.2 9 d17358exv10w35w2.txt PROMISSORY NOTE COPY EXHIBIT 10.35.2 PROMISSORY NOTE $87,000,000.00 New York, New York July 28, 2004 FOR VALUE RECEIVED each of the entities identified on Schedule I attached hereto, as maker, each having its principal place of business at 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 EIGHTY-SEVEN MILLION AND 00/100 DOLLARS ($87,000,000.00), 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 (as defined in the Loan Agreement (defined below)), and to be paid in accordance with the terms of this Note and that certain Loan Agreement, dated as of the date hereof, between Borrower and Lender (as the same may be amended, restated, supplemented or otherwise modified from time to time, 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. COPY 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 -2- COPY 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 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 ATLANTA CP HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------------- Joel M. Eastman Vice President FELCOR/JPM AUSTIN HI HOLDINGS, L.P., a Delaware limited partnership By: FELCOR/JPM AUSTIN HI HOTEL, L.L.C., a Delaware limited liability company, its general partner By: /s/ Joel M. Eastman ----------------------------------------- Joel M. Eastman Vice President FELCOR/JPM BRUNSWICK HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------------- Joel M. Eastman Vice President FELCOR/JPM LBV HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------------- Joel M. Eastman Vice President COPY FELCOR/JPM MANDALAY HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------------- Joel M. Eastman Vice President FELCOR/JPM ORLANDO I-DRIVE HOTEL, L.L.C., a Delaware limited liability company By: /s/ Joel M. Eastman ----------------------------------------- Joel M. Eastman Vice President COPY SCHEDULE I 1. FelCor/JPM Atlanta CP Hotel, L.L.C., a Delaware limited liability company 2. FelCor/JPM Austin HI Holdings, L.P., a Delaware limited partnership 3. FelCor/JPM Brunswick Hotel, L.L.C., a Delaware limited liability company 4. FelCor/JPM LBV Hotel, L.L.C., a Delaware limited liability company 5. FelCor/JPM Mandalay Hotel, L.L.C., a Delaware limited liability company 6. FelCor/JPM Orlando I-Drive Hotel, L.L.C., a Delaware limited liability company EX-10.35.3 10 d17358exv10w35w3.txt GUARANTY OF RECOURSE OBLIGATIONS OF BORROWER EXHIBIT 10.35.3 New York, New York As of July 28, 2004 GUARANTY OF RECOURSE OBLIGATIONS OF BORROWER FOR VALUE RECEIVED, and to induce JPMORGAN CHASE BANK, a New York banking corporation, having its principal place of business at 270 Park Avenue, New York, New York 10017 ("Lender"), to lend to each of the entities identified on Schedule I attached hereto, each having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 ("Borrower"), the principal sum of EIGHTY-SEVEN MILLION AND 00/100 DOLLARS ($87,000,000.00) (the "Loan"), advanced pursuant to that certain Loan Agreement, dated as of the date hereof, between Borrower and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "Loan Agreement") and evidenced by the Note (as defined in the Loan Agreement) and the other Loan Documents (as defined in the Loan Agreement), the undersigned, FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership, having an address at c/o FelCor Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (hereinafter referred to as "Guarantor") hereby absolutely and unconditionally guarantees to Lender the prompt and unconditional payment of the Guaranteed Recourse Obligations of Borrower (hereinafter defined). All capitalized words and phrases not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. It is expressly understood and agreed that this is a continuing guaranty and that the obligations of Guarantor hereunder are and shall be absolute under any and all circumstances, without regard to the validity, regularity or enforceability of the Note, the Loan Agreement, or the other Loan Documents, a true copy of each of said documents Guarantor hereby acknowledges having received and reviewed. The term "Debt" as used in this Guaranty of Recourse Obligations of Borrower (the "Guaranty") shall mean the principal sum evidenced by the Note and secured by the Security Instrument, or so much thereof as may be outstanding from time to time, together with interest thereon at the rate of interest specified in the Note and all other sums other than principal or interest which may or shall become due and payable pursuant to the provisions of the Note, the Loan Agreement, or the other Loan Documents. The term "Guaranteed Recourse Obligations of Borrower" as used in this Guaranty shall mean all obligations and liabilities of Borrower for which Borrower shall be personally liable pursuant to the Note, the Loan Agreement, or the other Loan Documents. Any indebtedness of Borrower to Guarantor now or hereafter existing (including, but not limited to, any rights to subrogation Guarantor may have as a result of any payment by Guarantor under this Guaranty), together with any interest thereon, shall be, and such indebtedness is, hereby deferred, postponed and subordinated to the prior payment in full of the Debt. Until payment in full of the Debt (and including interest accruing on the Note after the commencement of a proceeding by or against Borrower under the Bankruptcy Code and the regulations adopted and promulgated pursuant thereto, which interest the parties agree shall remain a claim that is prior and superior to any claim of Guarantor notwithstanding any contrary practice, custom or ruling in cases under the Bankruptcy Code generally), Guarantor agrees not to accept any payment or satisfaction of any kind of indebtedness of Borrower to Guarantor and hereby assigns such indebtedness to Lender, including the right to file proof of claim and to vote thereon in connection with any such proceeding under the Bankruptcy Code, including the right to vote on any plan of reorganization. Further, if Guarantor shall comprise more than one person, firm or corporation, Guarantor agrees that until such payment in full of the Debt, (a) no one of them shall accept payment from the others by way of contribution on account of any payment made hereunder by such party to Lender, (b) no one of them will take any action to exercise or enforce any rights to such contribution, and (c) if any Guarantor should receive any payment, satisfaction or security for any indebtedness of Borrower to any Guarantor or for any contribution by any other Guarantors for payment made hereunder by the recipient to Lender, the same shall be delivered to Lender in the form received, endorsed or assigned as may be appropriate for application on account of, or as security for, the Debt and until so delivered, shall be held in trust for Lender as security for the Debt. Guarantor agrees that, with or without notice or demand, Guarantor will reimburse Lender, to the extent that such reimbursement is not made by Borrower, for all expenses (including counsel fees and disbursements) incurred by Lender in connection with the collection of the Guaranteed Recourse Obligations of Borrower or any portion thereof or with the enforcement of this Guaranty. Subject to the terms of the Loan Agreement, all moneys available to Lender for application in payment or reduction of the Debt may be applied by Lender in such manner and in such amounts and at such time or times and in such order and priority as Lender may see fit to the payment or reduction of such portion of the Debt as Lender may elect. Guarantor hereby waives notice of the acceptance hereof, presentment, demand for payment, protest, notice of protest, or any and all notice of non-payment, non-performance or non-observance, or other proof, or notice or demand, whereby to charge Guarantor therefor. Guarantor further agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall in no way be terminated, affected or impaired (a) by reason of the assertion by Lender of any rights or remedies which it may have under or with respect to either the Note, the Loan Agreement, or the other Loan Documents, against any person obligated thereunder or the Properties covered under the Loan Agreement, or (b) by reason of any failure to file or record any of such instruments or to take or perfect any security intended to be provided thereby, or (c) by reason of the release of any of the Properties covered under the Loan Agreement or other collateral for the Loan, or (d) by reason of Lender's failure to exercise, or delay in exercising, any such right or remedy or any right or remedy Lender may have hereunder or in respect to this Guaranty, or (e) by reason of the commencement of a case under the Bankruptcy Code by or against any person obligated under the Note, the Loan Agreement or the other Loan Documents, or the death of any Guarantor, or (f) by reason of any transfer or assignment of the Loan by Lender or (g) by reason of any payment made on the Debt or any other indebtedness arising under the Note, the Loan Agreement, or the other Loan Documents, whether made by Borrower or Guarantor or any other person, which is required to be refunded pursuant to any bankruptcy or insolvency law; it being understood that no payment so refunded shall be considered as a payment of any portion of the Debt, nor shall it have the effect of reducing the liability of Guarantor hereunder. It is further understood, that if Borrower shall 2 have taken advantage of, or be subject to the protection of, any provision in the Bankruptcy Code, the effect of which is to prevent or delay Lender from taking any remedial action against Borrower, including the exercise of any option Lender has to declare the Debt due and payable on the happening of any default or event by which under the terms of the Note, the Loan Agreement, or the other Loan Documents, the Debt shall become due and payable, Lender may, as against Guarantor, nevertheless, declare the Debt due and payable and enforce any or all of its rights and remedies against Guarantor provided for herein. Guarantor further covenants that this Guaranty shall remain and continue in full force and effect as to any modification, extension or renewal of the Note, the Loan Agreement, or the other Loan Documents, that Lender shall not be under a duty to protect, secure or insure any Property covered under the Loan Agreement, and that other indulgences or forbearance may be granted under any or all of such documents, all of which may be made, done or suffered without notice to, or further consent of, Guarantor. As a further inducement to Lender to make the Loan and in consideration thereof, Guarantor further covenants and agrees (a) that in any action or proceeding brought by Lender against Guarantor on this Guaranty, Guarantor shall and does hereby waive trial by jury, (b) that the Supreme Court of the State of New York for the County of New York, or, in a case involving diversity of citizenship, the United States District Court for the Southern District of New York, shall have exclusive jurisdiction of any such action or proceeding, and (c) that service of any summons and complaint or other process in any such action or proceeding may be made by registered or certified mail directed to Guarantor at Guarantor's address set forth above, Guarantor waiving personal service thereof. Nothing in this Guaranty will be deemed to preclude Lender from bringing an action or proceeding with respect hereto in any other jurisdiction. This is a guaranty of payment and not of collection and upon any default of Borrower under the Note, the Loan Agreement, or the other Loan Documents, Lender may, at its option, proceed directly and at once, without notice, against Guarantor to collect and recover the full amount of the Guaranteed Recourse Obligations of Borrower or any portion thereof, without proceeding against Borrower or any other person, or foreclosing upon, selling, or otherwise disposing of or collecting or applying against any of the mortgaged properties or other collateral for the Loan. Guarantor hereby waives the pleading of any statute of limitations as a defense to the obligation hereunder. All notices required or permitted hereunder shall be given and shall become effective as provided in the Loan Agreement. Notices to Guarantor shall be addressed as follows: c/o FelCor Lodging Trust Incorporated 545 E. John Carpenter Freeway, Suite 1300 Irving, Texas 75062 Attention: General Counsel Facsimile No.: (972) 444-4949 3 With a copy to: Jenkens & Gilchrist 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attention: Tom E. Davis, Esq. Facsimile No.: (214) 855-4300 Each reference herein to Lender shall be deemed to include its successors and assigns, to whose favor the provisions of this Guaranty shall also inure. Each reference herein to Guarantor shall be deemed to include the heirs, executors, administrators, legal representatives, successors and assigns of Guarantor, all of whom shall be bound by the provisions of this Guaranty. If Guarantor 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 "Guarantor," 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 Guarantor 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 "Guarantor" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If Guarantor 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 "Guarantor" 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 this paragraph 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, the Security Instrument or any other Loan Document.) Guarantor (and its representative, executing below, if any) has full power, authority and legal right to execute this Guaranty and to perform all its obligations under this Guaranty. All understandings, representations and agreements heretofore had with respect to this Guaranty are merged into this Guaranty which alone fully and completely expresses the agreement of Guarantor and Lender. This Guaranty may be executed in one or more counterparts by some or all of the parties hereto, each of which counterparts shall be an original and all of which together shall constitute a single agreement of Guaranty. The failure of any party hereto to execute this Guaranty, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. This Guaranty may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Lender or Borrower, 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. This Guaranty shall be governed, construed and interpreted as to validity, enforcement and in all other respects, in accordance with the laws of the State of New York. 4 [NO FURTHER TEXT ON THIS PAGE] 5 IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the date first above set forth. FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership By: FELCOR LODGING TRUST INCORPORATED, a Maryland corporation, its general partner By: /s/ Joel M. Eastman -------------------------------- Joel M. Eastman Vice President SCHEDULE I 1. FelCor/JPM Atlanta CP Hotel, L.L.C., a Delaware limited liability company 2. FelCor/JPM Austin HI Holdings, L.P., a Delaware limited partnership 3. FelCor/JPM Brunswick Hotel, L.L.C., a Delaware limited liability company 4. FelCor/JPM LBV Hotel, L.L.C., a Delaware limited liability company 5. FelCor/JPM Mandalay Hotel, L.L.C., a Delaware limited liability company 6. FelCor/JPM Orlando I-Drive Hotel, L.L.C., a Delaware limited liability company EX-31.1 11 d17358exv31w1.htm CERTIFICATION PURSUANT TO SECTION 302 exv31w1

EXHIBIT 31.1
CERTIFICATIONS
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 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 report;
     3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
     b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     c) disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 4, 2004

/s/Thomas J. Corcoran, Jr.

Thomas J. Corcoran, Jr.

Chief Executive Officer

EX-31.2 12 d17358exv31w2.htm CERTIFICATION PURSUANT TO SECTION 302 exv31w2

EXHIBIT 31.2
CERTIFICATIONS
I, Lester C. Johnson., certify that:
     1. I have reviewed this quarterly report on Form 10-Q of FelCor Lodging Trust Incorporated;
     2. Based on my knowledge, this 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 report;
     3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
     b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     c) disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2004

/s/ Lester C. Johnson

Lester C. Johnson

Principal Financial Officer

EX-32.1 13 d17358exv32w1.htm CERTIFICATION PURSUANT TO SECTION 906 exv32w1

Exhibit 32.1
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 three and six months ended June 30, 2004, 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. § 1350, as adopted pursuant to § 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.

August 4, 2004
/s/ Thomas J. Corcoran, Jr.

Thomas J. Corcoran, Jr.

Chief Executive Officer

EX-32.2 14 d17358exv32w2.htm CERTIFICATION PURSUANT TO SECTION 906 exv32w2

Exhibit 32.2
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 three and six months ended June 30, 2004, 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. § 1350, as adopted pursuant to § 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.

August 5, 2004
/s/ Lester C. Johnson

Lester C. Johnson

Principal Financial Officer

~~-----END PRIVACY-ENHANCED MESSAGE-----~~

(a)		Variable interest rate based on LIBOR, which was 1.1% at June 30, 2004.

(b)		$99 million of this debt had a variable interest rate based on LIBOR, which was 1.1% at June 30, 2004.

(c)		Variable interest rate based on LIBOR. This debt may be extended at our option for up to two, one-year periods.

(d)		$100 million of this note was matched with interest rate swap agreements that effectively converted the fixed interest rate of 7.46% on this note to a variable interest rate based on LIBOR.

(e)		Interest rates are calculated based on the weighted average outstanding debt at June 30, 2004.

(a)		Excludes one hotel that met the “held for sale” accounting requirements, and was included in discontinued operations.

(b)		A detailed description of Hotel Operating Profit is contained in the “Non-GAAP Financial Measures” section found elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(a)		Weighted average shares are 58.9 million, plus minority interest and unvested restricted stock of 3.4 million, provide the 62.3 million weighted average shares and units, used to compute FFO per share.

(b)		Included in Net Loss, FFO and EBITDA guidance are the following charges:

(a)		The average floating rate of interest represents the implied forward rate in the yield curve at June 30, 2004.

(b)		The interest rate swaps decreased our interest expense by $4.2 million during the six months ended June 30, 2004.

(c)		All interest rate swaps were unwound in July 2004.


		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


FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership

By:
	FELCOR LODGING TRUST INCORPORATED, a Maryland
	corporation, its general partner

	By:

		Joel M. Eastman
		Vice President


	/s/ Lester C. Johnson

	Lester C. Johnson
	Principal Financial Officer

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.


August 4, 2004		/s/ Thomas J. Corcoran, Jr.

		Thomas J. Corcoran, Jr.
		Chief Executive Officer


August 5, 2004		/s/ Lester C. Johnson

		Lester C. Johnson
		Principal Financial Officer