-----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, B8TxA+K65F2stdxA1TlWYHOS1NpkOJZOV/YuFkWJYDcuO23JssOjkYeYUL/dnpSW hTmwoHFz0fc+bX15z/j6Jg== 0000950134-99-004420.txt : 19990518 0000950134-99-004420.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950134-99-004420 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14236 FILM NUMBER: 99628034 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 FORM 10-Q FOR PERIOD ENDING MARCH 31, 1999 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ COMMISSION FILE NUMBER 1-14236 FELCOR LODGING TRUST INCORPORATED (Exact name of registrant as specified in its charter) MARYLAND 72-2541756 (State or other jurisdiction of (I.R.S. Employer incorporation or Identification No.) organization) 545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062 (Address of principal executive offices) (Zip Code) (972) 444-4900 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Common Stock, par value $.01 per share, of FelCor Lodging Trust Incorporated outstanding on May 11, 1999 was 68,064,892. - -------------------------------------------------------------------------------- 2 FELCOR LODGING TRUST INCORPORATED INDEX
Page ---- PART I. -- FINANCIAL INFORMATION Item 1. Financial Statements....................................................................... 3 FELCOR LODGING TRUST INCORPORATED Consolidated Balance Sheets - March 31, 1999 (Unaudited) and December 31, 1998.................................................................... 3 Consolidated Statements of Operations -- For the Three Months Ended March 31, 1999 and 1998 (Unaudited)................................................ 4 Consolidated Statements of Cash Flows -- For the Three Months Ended March 31, 1999 and 1998 (Unaudited)................................................ 5 Notes to Consolidated Financial Statements................................................ 6 DJONT OPERATIONS, L.L.C. Consolidated Balance Sheets - March 31, 1999 (Unaudited) and December 31, 1998.................................................................... 14 Consolidated Statements of Operations -- For the Three Months Ended March 31, 1999 and 1998 (Unaudited)................................................ 15 Consolidated Statements of Cash Flows -- For the Three Months Ended March 31, 1999 and 1998 (Unaudited)................................................ 16 Notes to Consolidated Financial Statements................................................ 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 19 General/First Quarter Highlights.......................................................... 19 Results of Operations..................................................................... 20 Liquidity and Capital Resources........................................................... 24 PART II. -- OTHER INFORMATION Item 2. Changes in Securities...................................................................... 29 Item 5. Other Information.......................................................................... 29 Item 6. Exhibits and Reports on Form 8-K........................................................... 29 SIGNATURE............................................................................................ 30
2 3 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FELCOR LODGING TRUST INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1999 1998 ----------- ----------- (UNAUDITED) ASSETS Investment in hotels, net of accumulated depreciation of $214,333 in 1999 and $178,072 in 1998 .................................................. $ 4,010,960 $ 3,955,582 Investment in unconsolidated entities .......................................... 138,987 148,065 Cash and cash equivalents ...................................................... 26,644 34,692 Due from Lessees ............................................................... 31,513 18,968 Deferred expenses, net of accumulated amortization of $2,704 in 1999 and $2,096 in 1998 .................................................... 15,982 10,041 Other assets ................................................................... 7,685 8,035 ----------- ----------- Total assets ........................................................ $ 4,231,771 $ 4,175,383 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Debt, net of discount of $1,571 in 1999 and $1,628 in 1998 ..................... $ 1,671,191 $ 1,594,734 Distributions payable .......................................................... 42,547 67,262 Accrued expenses and other liabilities ......................................... 68,318 57,312 Minority interest in Operating Partnership, 2,988 and 2,939 units issued and outstanding at March 31, 1999 and December 31, 1998, respectively ............. 88,528 87,353 Minority interest in other partnerships ........................................ 51,911 51,105 ----------- ----------- Total liabilities ................................................... 1,922,495 1,857,766 ----------- ----------- Commitments and contingencies (Notes 3 and 5) Shareholders' equity: Preferred stock, $.01 par value, 20,000 shares authorized: Series A Cumulative Preferred Stock, 6,050 shares issued and outstanding ...... 151,250 151,250 Series B Redeemable Preferred Stock, 58 shares issued and outstanding ......... 143,750 143,750 Common stock, $.01 par value, 200,000 shares authorized, 69,289 and 69,284 shares issued, including shares in treasury, at March 31, 1999 and December 31, 1998, respectively ........................................... 693 693 Additional paid-in capital ..................................................... 2,141,866 2,142,250 Distributions in excess of earnings ............................................ (86,796) (78,839) Common stock in treasury, at cost, 1,213 shares ................................ (41,487) (41,487) ----------- ----------- Total shareholders' equity .......................................... 2,309,276 2,317,617 ----------- ----------- Total liabilities and shareholders' equity .......................... $ 4,231,771 $ 4,175,383 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 ----------- ----------- Revenues: Percentage lease revenue ............................................. $ 124,991 $ 56,060 Equity in income from unconsolidated entities ........................ 1,246 1,293 Other revenue ........................................................ 680 175 ----------- ----------- Total revenues ............................................. 126,917 57,528 ----------- ----------- Expenses: General and administrative ........................................... 2,244 1,199 Depreciation ......................................................... 36,425 15,887 Taxes, insurance, and other .......................................... 20,953 7,270 interest expense ..................................................... 28,422 9,731 Minority interest in Operating Partnership ........................... 1,320 1,751 Minority interest in other partnerships .............................. 806 190 ----------- ----------- Total expenses ............................................. 90,170 36,028 ----------- ----------- Income before extraordinary charge .................................... 36,747 21,500 Extraordinary charge from write off of deferred financing fees ........ 556 ----------- ----------- Net income ............................................................ 36,747 20,944 Preferred dividends ................................................... 6,184 2,949 ----------- ----------- Income applicable to common shareholders .............................. $ 30,563 $ 17,995 =========== =========== Per common share data: Basic: Income applicable to common shareholders before extraordinary charge ............................................................ $ 0.45 $ 0.51 Extraordinary charge ................................................. (0.02) ----------- ----------- Net income applicable to common shareholders ......................... $ 0.45 $ 0.49 =========== =========== Weighted average common shares outstanding ........................... 68,009 36,539 Diluted: Income applicable to common shareholders before extraordinary charge ............................................................ $ 0.45 $ 0.51 Extraordinary charge ................................................. (0.02) ----------- ----------- Net income applicable to common shareholders ......................... $ 0.45 $ 0.49 =========== =========== Weighted average common shares outstanding ........................... 68,344 36,905
The accompanying notes are an integral part of these consolidated financial statements. 4 5 FELCOR LODGING TRUST INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net income ......................................................... $ 36,747 $ 20,944 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation .................................................... 36,425 15,887 Amortization of deferred financing fees ......................... 608 628 Accretion of debt ............................................... (262) Amortization of unearned officers' and directors' compensation .. 173 191 Equity in income from unconsolidated entities ................... (1,246) (1,293) Extraordinary charge for write off of deferred financing fees ... 556 Minority interest in Operating Partnership ...................... 1,320 1,751 Minority interest in other partnerships ......................... 806 190 Changes in assets and liabilities: Due from Lessees ................................................ (12,545) (14,907) Deferred financing fees ......................................... (6,549) (84) Other assets .................................................... 306 (2,898) Accrued expenses and other liabilities .......................... 5,677 12,212 ----------- ----------- Net cash flow provided by operating activities ................. 61,460 33,177 ----------- ----------- Cash flows used in investing activities: Acquisition of hotels .............................................. (10,802) (26,516) Acquisition of unconsolidated entities ............................. (10) Sale of hotels ..................................................... 9,916 Improvements and additions to hotels ............................... (81,781) (5,227) Cash distributions from unconsolidated entities .................... 10,180 14,510 ----------- ----------- Net cash flow used in investing activities ..................... (72,487) (17,243) ----------- ----------- Cash flows from financing activities: Proceeds from borrowings ........................................... 153,000 30,000 Repayment of borrowings ............................................ (79,041) (13,078) Distributions paid to limited partners ............................. (2,630) (1,667) Distributions paid to preferred shareholders ....................... (7,436) (2,949) Distributions paid to common shareholders .......................... (60,914) (20,050) ----------- ----------- Net cash flow provided by (used in) financing activities ....... 2,979 (7,744) ----------- ----------- Net change in cash and cash equivalents ............................. (8,048) 8,190 Cash and cash equivalents at beginning of periods ................... 34,692 17,543 ----------- ----------- Cash and cash equivalents at end of periods ......................... $ 26,644 $ 25,733 =========== =========== Supplemental cash flow information -- Interest paid ...................................................... $ 22,347 $ 9,320 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND FIRST QUARTER HIGHLIGHTS FelCor Lodging Trust Incorporated ("FelCor") is one of the nation's largest hotel real estate investment trusts ("REIT") which, at March 31, 1999, owned interests in 189 hotels with nearly 50,000 rooms and suites (collectively the "Hotels") through its greater than 95% equity interest in FelCor Lodging Limited Partnership (the "Operating Partnership"). FelCor, the Operating Partnership, and their subsidiaries are herein referred to, collectively, as the "Company". The Company owns 100% interests in 165 of the Hotels, a 90% or greater interest in entities owning seven hotels, a 60% interest in an entity owning two hotels and 50% interests in separate entities that own 15 hotels. FelCor strives to be the premier full-service lodging REIT partnered with leading brands and management companies to create shareholder value. The Company is the owner of the largest number of Embassy Suites(R), Crowne Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels in the world. The following table presents the Hotels by brand operated by each of the Company's Lessees at March 31, 1999:
BRAND DJONT BRISTOL TOTAL ----- ----- ------- ----- Embassy Suites 59 59 Holiday Inn 47 47 Doubletree and Doubletree Guest Suites(R) 16 16 Crowne Plaza and Crowne Plaza Suites(R) 14 14 Holiday Inn Select(R) 11 11 Sheraton(R)and Sheraton Suites(R) 9 9 Hampton Inn(R) 9 9 Holiday Inn Express(R) 6 6 Fairfield Inn(R) 5 5 Harvey Hotel(R) 4 4 Independents 3 3 Courtyard by Marriott(R) 2 2 Four Points by Sheraton(R) 1 1 Hilton Suites(R) 1 1 Homewood Suites(R) 1 1 Westin(R) 1 1 --- ---- ---- Total Hotels 86 103 189 === ==== ====
The Hotels are located in the United States (34 states) and Canada, with 79 hotels in California, Florida and Texas. The following table provides information regarding the net acquisition of hotels through March 31, 1999:
NET HOTELS ACQUIRED/(DISPOSED) ------------------- 1994 7 1995 13 1996 23 1997 30 1998 120 FIRST QUARTER 1999 (4) ---- 189 ====
6 7 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND FIRST QUARTER HIGHLIGHTS -- (CONTINUED) At March 31, 1999 the Company leased 86 of the Hotels to DJONT Operations, L.L.C., a Delaware limited liability company, or a consolidated subsidiary thereof (collectively "DJONT"), 102 of the Hotels to Bristol Hotels & Resorts or a consolidated subsidiary thereof ("Bristol" and, together with DJONT, the "Lessees"). One hotel, managed by Bristol, was not leased. Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT. The remaining 50% nonvoting common equity interest is beneficially owned by the children of Charles N. Mathewson, a director of FelCor and major initial investor in the Company. DJONT has entered into management agreements pursuant to which 73 of the Hotels leased by it are managed by subsidiaries of Promus Hotel Corporation ("Promus"), ten are managed by subsidiaries of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"), and three are managed by two independent management companies. Bristol leases and manages 102 Hotels and manages one hotel which operated without a lease. Bristol is one of the largest independent hotel operating companies in North America and operates the largest number of Bass Hotels & Resorts-branded hotels in the world. A brief discussion of the first quarter 1999 highlights follows: o Completed renovations at six hotels at a total project cost of $23.8 million. o Twenty-four additional hotels undergoing renovation. o Capital expenditures to the Hotel portfolio per the Company's renovation and redevelopment program totaled $73 million in addition to $9 million of routine capital replacements and improvements. o Four of the hotels acquired in the merger with Bristol Hotel Company in 1998 (the "Bristol Merger") were sold during the quarter - two in Colorado Springs, Colorado, and one each in Columbia, South Carolina and Flagstaff, Arizona - for an aggregate sales price of $10.5 million ($9.9 million net proceeds). One additional hotel was sold in April 1999 for $2.1 million and FelCor has a pending sales contract on one hotel for $3.3 million which is expected to close within the next couple of months. One additional hotel acquired in the Bristol Merger is being actively offered for sale. No significant gain or loss has occurred or is expected to occur with respect to the sale of these hotels. o Declared first quarter dividends of $0.55 per common share, $0.4875 per $1.95 Series A Cumulative Convertible Preferred Share and $0.5625 per depositary share evidencing the 9% Series B Cumulative Redeemable Preferred Stock. Certain reclassifications have been made to prior period financial information to conform to the current period's presentation with no effect to previously reported net income or shareholders' equity. These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the financial statements and notes thereto of the Company and DJONT included in FelCor's Annual Report on Form 10-K for the year ended December 31, 1998 (the "10-K"). The notes to the financial statements included herein highlight significant changes to the notes included in the 10-K and present interim disclosures required by the SEC. The financial statements for the three months ended March 31, 1999 and 1998 are unaudited; however, in the opinion of management, all adjustments (which include only normal recurring accruals) have been made which are considered necessary to present fairly the operating results and financial position of the Company for the unaudited periods. 7 8 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. INVESTMENT IN UNCONSOLIDATED ENTITIES At March 31, 1999, the Company owned 50% interests in separate entities owning 15 hotels, a parcel of undeveloped land, and a condominium management company. The Company also owned a 97% nonvoting interest in an entity that is developing condominiums for sale and owns a recently completed hotel annex. The Company is accounting for its investments in these unconsolidated entities under the equity method. Summarized combined financial information for 100% of these unconsolidated entities is as follows (in thousands):
MARCH 31, DECEMBER 31, 1999 1998 -------- -------- Balance sheet information: Investment in hotels, net of accumulated depreciation........ $267,734 $269,881 Non-recourse mortgage debt................................... $191,664 $176,755 Equity....................................................... $ 95,980 $105,347
THREE MONTHS ENDED MARCH 31, 1999 1998 ----------- ----------- Statements of operations information: Percentage lease revenue ........................... $ 12,571 $ 12,347 Other income ....................................... 1,589 160 ----------- ----------- Total revenue ............................. 14,160 12,507 ----------- ----------- Expenses: Depreciation ....................................... 4,879 4,263 Taxes, insurance, and other ........................ 2,342 1,567 Interest expense ................................... 3,219 3,259 ----------- ----------- Total expenses ............................ 10,440 9,089 ----------- ----------- Net income ......................................... $ 3,720 $ 3,418 =========== =========== Net income attributable to the Company ............. $ 1,781 $ 1,709 Amortization of cost in excess of book value ....... (535) (416) ----------- ----------- Equity in income from unconsolidated entities ...... $ 1,246 $ 1,293 =========== ===========
3. DEBT On March 4, 1999 the Company completed a $63 million first mortgage term loan ("Mortgage Loan"). The Mortgage Loan is collateralized by three hotels, bears interest at 200 basis points over LIBOR (30 day LIBOR at March 31, 1999, was 4.94%), matures in February 2003 and amortizes over 25 years. The proceeds from this loan were used to pay off a $44 million mortgage loan due December 2002 and to acquire ownership of land previously held under ground lease. 8 9 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. DEBT -- (CONTINUED) Debt at March 31, 1999 and December 31, 1998 consists of the following (in thousands): (see "Subsequent Events" Note 8)
OUTSTANDING BALANCE -------------------------------------- INTEREST RATE MATURITY DATE MARCH 31, 1999 DECEMBER 31, 1998 ------------- ------------- -------------- ----------------- FLOATING RATE DEBT: Line of Credit LIBOR + 150bp June 2001 $ 480,000 $ 411,000 Term Loan LIBOR + 150bp December 1999 250,000 250,000 Mortgage debt LIBOR + 200bp February 2003 63,000 Other Up to LIBOR + 150bp Various 25,650 34,750 ---------- ---------- Total floating rate debt 818,650 695,750 ---------- ---------- FIXED RATE DEBT: Line of credit - swapped 7.24% June 2001 325,000 325,000 Publicly-traded term notes 7.38% October 2004 174,279 174,249 Publicly-traded term notes 7.63% October 2007 124,150 124,122 Mortgage debt 7.24% November 2007 144,212 145,062 Mortgage debt 6.97% December 2002 43,836 Other 6.96% - 7.23% 2000 - 2005 84,900 86,715 ---------- ---------- Total fixed rate debt 852,541 898,984 ---------- ---------- Total debt $1,671,191 $1,594,734 ========== ==========
A portion of the Company's Line of Credit is matched with interest rate swap agreements which effectively convert the variable rate on the Line of Credit to a fixed rate. The Line of Credit and the Term Loan contain various affirmative and negative covenants including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At March 31, 1999, the Company was in compliance with all such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit and Term Loan. Most of the collateralized borrowings are nonrecourse to the Company (with certain exceptions) and contain provisions allowing for the substitution of collateral upon satisfaction of certain conditions. Most of the collateralized borrowings are prepayable; however they are subject to various prepayment penalties, yield maintenance, or defeasance obligations. 9 10 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. TAXES, INSURANCE, AND OTHER Taxes, insurance, and other is comprised of the following for the three months ended March 31, 1999 and 1998 (in thousands):
THREE MONTHS ENDED MARCH 31, 1999 1998 ----------- ----------- Real estate and personal property taxes ........ $ 14,636 $ 6,566 Property insurance ............................. 853 252 Land lease expense ............................. 4,006 227 State franchise taxes .......................... 1,074 225 Other .......................................... 384 ----------- ----------- Total taxes, insurance, and other ..... $ 20,953 $ 7,270 =========== ===========
5. COMMITMENTS AND RELATED PARTY TRANSACTIONS The Company is to receive rental income from the Lessees under the Percentage Leases which expire in 2002 (six hotels), 2003 (four hotels), 2004 (12 hotels), 2005 (19 hotels), 2006 (26 hotels), 2007 (37 hotels), 2008 (54 hotels), and thereafter (16 hotels). The rental income under the Percentage Leases between 14 of the unconsolidated entities, of which the Company owns 50%, is payable by the Lessee to the respective entities and is not included in the following schedule of future lease commitments to the Company. Minimum future rental income (i.e., base rents) payable to the Company under these noncancellable operating leases at March 31, 1999 is as follows (in thousands):
DJONT BRISTOL TOTAL ---------- ---------- ---------- Remainder of 1999.................................... $ 104,392 $ 117,108 $ 221,500 2000................................................. 140,749 180,626 321,375 2001................................................. 144,123 180,647 324,770 2002................................................. 144,480 180,620 325,100 2003................................................. 130,445 177,873 308,318 2004 and thereafter.................................. 519,383 822,832 1,342,215 ---------- ---------- ---------- $1,183,572 $1,659,706 $2,843,278 ========== ========== ==========
Certain entities owning interests in DJONT and managers for certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 34 of the Hotels. No loans were outstanding under such agreements at March 31, 1999. DJONT engages third-party managers to operate the Hotels leased by it and generally pays such managers a base management fee based on a percentage of room and suite revenue and an incentive management fee based on DJONT's income before overhead expenses for each hotel. In certain instances, the hotel managers have subordinated fees and committed to make subordinated loans to DJONT, if needed, to meet its rental and other obligations under the Percentage Leases. Bristol serves as both the lessee and manager of 102 Hotels leased to it by the Company at March 31, 1999 and, as such, is compensated for both roles through the profitability of the Hotels, after meeting their operating expenses and rental obligations under the Percentage Leases. 10 11 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) Bristol has entered into an absolute and unconditional guarantee of the obligations of the Bristol Lessees under the Percentage Leases. As an additional credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter of Credit") issued by Bankers Trust Company for the benefit of the Company in the original amount of $20 million that is required to be maintained until July 27, 1999. This Letter of Credit is subject to periodic reductions upon satisfaction of certain conditions and at March 31, 1999, was in the amount of $15.9 million. According to Bristol's financial statements filed with the SEC, for the three months ended March 31, 1999, Bristol earned $1.1 million of net income and at March 31, 1999, had stockholders' equity of $36.6 million. The Company has a Renovation and Redevelopment Program for the Hotels and presently expects approximately $160 million to be invested during 1999 under this program, which may be funded from cash on hand or borrowings under its Line of Credit. Through the three months ending March 31, 1999 the Company has spent approximately $73 million under the Renovation and Redevelopment program. Bristol is a public company whose common stock is listed on the New York Stock Exchange under the symbol BH and that files its financial statements with the SEC in accordance with the Securities and Exchange Act of 1934. 6. SUPPLEMENTAL CASH FLOW INFORMATION During the first three months of 1999, the Company purchased the land related to three hotels which were previously leased under long term land leases for an aggregate purchase price of $19.8 million as follows (in thousands): Assets acquired................................................. $ 19,776 Debt assumed.................................................... (7,800) Operating Partnership units issued.............................. (1,174) ------- Net cash paid by the Company............................... $10,802 ========
The debt assumed was paid off immediately after the purchase. 7. SEGMENT INFORMATION The Company has determined that its reportable segments are those that are consistent with the Company's method of internal reporting, which segments its business by Lessee. The Company's Lessees at March 31, 1999 were DJONT and Bristol. Prior to July 28, 1998 (the date of the Bristol Merger) the Company had only one Lessee, DJONT. Accordingly, segment information is not disclosed for the three months ended March 31, 1998. 11 12 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. SEGMENT INFORMATION -- (CONTINUED) The following table presents information for the reportable segments for the three months ended March 31, 1999 (in thousands):
CORPORATE SEGMENT NOT ALLOCABLE CONSOLIDATED DJONT BRISTOL TOTAL TO SEGMENTS TOTAL ------- ------- -------- ------------- ------------- Statement of Operations Information: Revenues: Percentage lease revenue...................... $73,072 $51,919 $124,991 $124,991 Equity in income from unconsolidated entities.................................... 960 286 1,246 1,246 Other revenue................................. 24 433 457 $ 223 680 ------- ------- -------- -------- -------- Total revenues............................ 74,056 52,638 126,694 223 126,917 ------- ------- -------- -------- -------- Expenses: General and administrative.................... 2,244 2,244 Depreciation.................................. 20,090 16,335 36,425 36,425 Taxes, insurance, and other................... 9,212 11,741 20,953 20,953 Interest expense.............................. 28,422 28,422 Minority interest in Operating Partnership................................... 1,320 1,320 Minority interest in other partnerships....... 806 806 806 ------- ------- -------- -------- -------- Total expenses............................ 30,108 28,076 58,184 31,986 90,170 ------- ------- -------- -------- -------- Net income .................................... $43,948 $24,562 $ 68,510 $(31,763) $ 36,747 ======= ======= ======== ========= ======== Funds from operations: Net income .................................... $43,948 $24,562 $ 68,510 $(31,763) $ 36,747 Series B preferred dividends................... (3,234) (3,234) Depreciation................................... 20,090 16,335 36,425 36,425 Depreciation for unconsolidated entities....... 2,404 187 2,591 2,591 Minority interest in Operating Partnership..... 1,320 1,320 ------- ------- -------- -------- -------- Funds from operations.......................... $66,442 $41,084 $107,526 $(33,677) $ 73,849 ======= ======= ======== ========= ======== Weighted average common shares and units outstanding (1)......................... 75,988
(1) Weighted average common shares and units outstanding are computed including dilutive options and unvested stock grants, and assuming conversion of Series A Preferred Stock to Common Stock. 8. SUBSEQUENT EVENTS On April 1, 1999, the Company closed a five-year, $375 million term loan (the "Senior Term Loan"). The Senior Term Loan is collateralized by stock and partnership interests in certain subsidiaries of the Company and bears interest at 250 basis points over LIBOR (30-day LIBOR at March 31, 1999, was 4.94%). The financial covenants in the Senior Term Loan are consistent with those in the Company's existing Line of Credit. In connection with this transaction, the Company's $850 million Line of Credit and existing seven and 10-year publicly-traded term 12 13 FELCOR LODGING TRUST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. SUBSEQUENT EVENTS -- (CONTINUED) notes were equally and ratably collateralized by the same collateral securing the Senior Term Loan. Upon the Company achieving investment grade credit ratings from the applicable rating agencies, the stock and partnership interest collateral will be released. The proceeds of the Senior Term Loan were used to immediately pay off the $250 million term loan which was to mature on December 31, 1999 and to reduce borrowings under the Company's Line of Credit. On April 1, 1999, the Company also closed a 10-year, $100 million mortgage loan (the "April 1999 First Mortgage Term Loan"). The April 1999 First Mortgage Term Loan is non-recourse (with certain exceptions), is secured by seven Embassy Suites hotels, carries a fixed rate coupon of 7.54%, matures in April 2009 and amortizes over 25 years. The proceeds from this loan were used to reduce outstanding borrowings under the Company's Line of Credit. On May 13, 1999, the Company closed a 10-year, $75 million mortgage loan (the "May 1999 First Mortgage Term Loan"). This loan is non-recourse (with certain exceptions), is collateralized by six Embassy Suites hotels, carries a fixed rate coupon of 7.55%, matures in May 2009 and amortizes over 25 years. The proceeds from this loan were used to reduce outstanding borrowings under the Company's Line of Credit. The Company presently intends to issue approximately $200 million of seven year senior notes during the second quarter of 1999, subject to market conditions. The net proceeds from the sale of such notes, if completed, will be used to reduce outstanding borrowings under the Company's Line of Credit. 13 14 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS (in thousands)
MARCH 31, DECEMBER 31, 1999 1998 ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents ................................................... $ 30,932 $ 28,538 Accounts receivable, net .................................................... 39,142 27,561 Inventories ................................................................. 4,172 4,381 Prepaid expenses ............................................................ 4,477 471 Other assets ................................................................ 2,908 3,021 Investment in real estate ................................................... 12,281 ------------ ------------ Total assets ........................................................... $ 93,912 $ 63,972 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, trade ..................................................... $ 6,560 $ 6,514 Accounts payable, other ..................................................... 14,241 6,994 Due to FelCor Lodging Trust Incorporated .................................... 28,678 16,875 Accrued expenses and other liabilities ...................................... 43,301 41,820 Minority interest ........................................................... 4,364 Debt ........................................................................ 7,765 ------------ ------------ Total liabilities ...................................................... 104,909 72,203 ------------ ------------ Commitments and contingencies (Note 2) Shareholders' equity (deficit): Capital ..................................................................... 1 1 Accumulated deficit ......................................................... (10,998) (8,232) ------------ ------------ Total shareholders' deficit ............................................ (10,997) (8,231) ------------ ------------ Total liabilities and shareholders' equity ................................. $ 93,912 $ 63,972 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 14 15 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1999 1998 ----------- ----------- Revenue: Room and suite revenue ..................... $ 167,731 $ 143,284 Food and beverage revenue .................. 21,187 15,264 Food and beverage rent ..................... 1,265 1,173 Other revenue .............................. 14,012 11,368 ----------- ----------- Total revenues .................... 204,195 171,089 ----------- ----------- Expenses: Property operating costs ................... 46,228 38,605 General and administrative ................. 14,946 12,308 Advertising and promotion .................. 13,907 11,839 Repair and maintenance ..................... 9,558 7,987 Utilities .................................. 7,153 6,097 Management and incentive fees .............. 6,393 5,548 Franchise fees ............................. 4,918 4,087 Food and beverage expenses ................. 15,525 13,513 Percentage lease expenses .................. 85,844 68,438 Lessee overhead expenses ................... 266 359 Liability insurance ........................ 565 266 Interest expense ........................... 216 Other ...................................... 1,442 1,267 ----------- ----------- Total expenses .................... 206,961 170,314 ----------- ----------- Net income (loss) ........................... $ (2,766) $ 775 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 15 16 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net income (loss) ................................................... $ (2,766) $ 775 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Changes in assets and liabilities: Accounts receivable ............................................... (11,581) (6,958) Inventories ....................................................... 209 9 Prepaid expenses .................................................. (4,006) 333 Other assets ...................................................... 281 842 Due to FelCor Lodging Trust Incorporated .......................... 11,803 14,907 Accounts payable, accrued expenses and other liabilities .......... 8,454 4,661 ----------- ----------- Net cash flow provided by operating activities .................... 2,394 14,569 ----------- ----------- Net change in cash and cash equivalents .............................. 2,394 14,569 Cash and cash equivalents at beginning of periods .................... 28,538 25,684 ----------- ----------- Cash and cash equivalents at end of periods .......................... $ 30,932 $ 40,253 =========== ===========
The accompany notes are an integral part of these consolidated financial statements. 16 17 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Thomas J. Corcoran, Jr, the President, Chief Executive Officer and a Director of FelCor Lodging Trust Incorporated ("FelCor"), and Hervey A. Feldman, Chairman Emeritus of FelCor, beneficially own a 50% voting common equity interest in DJONT Operations, L.L.C., a Delaware limited liability company. The remaining 50% nonvoting common equity interest is beneficially owned by the children of Charles N. Mathewson, a Director of FelCor. Eighty-six of the hotels in which FelCor Lodging Limited Partnership (the "Operating Partnership") had an ownership interest at March 31, 1999 (the "DJONT Hotels"), are leased to DJONT Operations L.L.C. or a consolidated subsidiary thereof ("DJONT") pursuant to percentage leases ("Percentage Leases"). Certain entities owning interests in DJONT and the managers of certain DJONT Hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations due under the respective Percentage Leases relating to a total of 34 of the Hotels. No loans were outstanding under such agreements at March 31, 1999. Fifty-nine of the Hotels are operated as Embassy Suites(R) hotels, 16 are operated as Doubletree(R) or Doubletree Guest Suites(R) hotels, nine are operated as Sheraton(R) or Sheraton Suites(R) hotels, one is operated as a Westin(R) hotel, and one is operated as a Hilton Suites(R) hotel. Seventy-three of the Hotels are managed by subsidiaries of Promus Hotel Corporation ("Promus"). Promus is the largest operator of all-suite, full-service hotels in the United States. Of the remaining Hotels, 10 are managed by subsidiaries of Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") and three are managed by two independent management companies. 2. COMMITMENTS AND RELATED PARTY TRANSACTIONS DJONT has future lease commitments under the Percentage Leases which expire in 2002 (six hotels), 2004 (seven hotels), 2005 (12 hotels), 2006 (18 hotels), 2007 (23 hotels), 2008 (12 hotels) and 2012 (eight hotels). Minimum future rental payments (i.e., base rents) under these noncancellable operating leases at March 31, 1999 is as follows (in thousands):
YEAR AMOUNT - ---- ---------- Remainder of 1999................................................... $ 124,792 2000................................................................ 167,949 2001................................................................ 171,324 2002................................................................ 171,681 2003................................................................ 157,646 2004 and thereafter................................................. 599,173 ---------- $1,392,565 ==========
3. INVESTMENT IN REAL ESTATE DJONT acquired thirty shares of the Class A Voting Common Stock, $0.01 par value per share of Kingston Plantation Development Corporation ("KPDC") which represents 3% of the equity and 100% of the voting interest in that entity. 17 18 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. INVESTMENT IN KINGSTON PLANTATION DEVELOPMENT CORPORATION -- (CONTINUED) The investment is recorded on a consolidated basis in DJONT's financial statements. A summary of the fair values of the assets and liabilities recorded from the acquisition of DJONT's consolidated interest in KPDC at the date of the acquisition is as follows (in thousands): Investment in hotel................................. $12,450 ======= Debt................................................ $ 7,766 Minority interest................................... 4,677 Accrued expenses and other liabilities.............. 7 ------- $12,450 =======
DJONT has reflected as a liability a mortgage note, dated November 24, 1998, from a wholly-owned subsidiary of KPDC, to FelCor Lodging Limited Partnership. The note bears a fixed interest rate of 8.0% per annum with a 30 year amortization and matures on December 31, 2004. The indebtedness is collateralized by a Mortgage and Assignment of Leases and Rents with respect to the New Orleans Embassy Suites Hotel Annex. Future scheduled principal payments on the debt are as follows (in thousands):
YEAR - ---- Remainder of 1999................................... $ 5 2000................................................ 65 2001................................................ 71 2002................................................ 77 2003................................................ 83 2004 and thereafter................................. 7,465 ------ $7,766 ======
18 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL For background information relating to the Company and the definitions of certain capitalized terms used herein, reference is made to Note 1 of Notes to Consolidated Financial Statements of FelCor Lodging Trust Incorporated appearing elsewhere herein. FIRST QUARTER HIGHLIGHTS: o Revenues increased 121% for the quarter from $57.5 million to $126.9 million. o Net income applicable to common shareholders increased 70% for the quarter from $18.0 million to $30.6 million. Diluted net income per share applicable to common shareholders decreased 8% from $0.49 to $0.45 per share. o Funds From Operations ("FFO") increased 77% from $41.7 million to $73.8 million. FFO per share and unit increased 3.2% from $0.94 to $0.97 per share. o Revenue per available room ("RevPAR") for the Company's comparable hotel portfolio (128 hotels) increased 2.2% for the quarter. Comparable hotel RevPAR increases for the quarter by brand are as follows: Doubletree (12 hotels) 6.8% Embassy Suites (48 hotels) 1.9% Holiday branded hotels (36 hotels) 3.5% Sheraton (4 hotels) 3.9%
However, the nine recently renovated and rebranded Crowne Plaza hotels (which are not included in the comparable hotel portfolio) produced a 23.3% average RevPAR increase for the current quarter, over the prior year quarter. The average daily rate (ADR) at these hotels increased 15.4% for the current quarter, over the prior year quarter. ADR at the Bristol non-comparable hotels (34 hotels including the nine Crowne Plaza hotels) increased 12.6% in the quarter. o Thirty hotels (19 of which are Bristol operated hotels) were undergoing renovation, redevelopment, or rebranding during the quarter, resulting in approximately 157,000 room nights out-of-service, or approximately 3.5% of available room nights. Included in this number were 18 Holiday Inn or Holiday Inn Select hotels, six Embassy Suites, three Doubletree, two Sheraton, and one independent hotel. Two of these hotels were closed during the quarter for redevelopment; the Allerton Hotel-Chicago, that is expected to re- open in May 1999 (to be rebranded as a Crowne Plaza), and the Holiday Inn-Tampa Busch Gardens, re- opened in late February, 1999. On April 1, 1999, two hotels were rebranded, the Dallas (DFW Airport South) hotel to an Embassy Suites and the Wilmington, Delaware hotel to a Doubletree hotel. o FelCor spent $73 million (out of a planned $160 million during 1999) on renovations, redevelopment, and rebranding at 30 hotels and $9 million of additional capital expenditures to maintain the remaining hotels in a competitive condition. Approximately $20 million of the first quarter 1999 renovation expenditures related to the Allerton Hotel-Chicago. o Four of the hotels acquired in the merger with Bristol Hotel Company in 1998 were sold during the quarter - two in Colorado Springs, Colorado, and one each in Columbia, South Carolina and Flagstaff, Arizona - for an aggregate sales price of $10.5 million. One additional hotel was sold in April 1999 for $2.1 million and FelCor has a pending sales contract on one hotel for $3.3 million which is expected to close within the next couple of months. One additional hotel acquired in the Bristol Merger is being actively offered for sale. No significant gain a loss has occurred or is expected to occur with respect to the sale of these hotels. 19 20 o Declared first quarter dividends of $0.55 per common share, $0.4875 per $1.95 Series A Cumulative Convertible Preferred share and $0.5625 per depositary share relating to the 9% Series B Cumulative Redeemable Preferred Stock. The current annual dividend on Common Stock of $2.20 results in a current FFO payout ratio of approximately 54% and a dividend yield of approximately 8.9%, based on the May 11, 1999, closing price for FelCor Common Stock on the NYSE. o Following the end of the first quarter, FelCor has completed a five-year, $375 million Senior Term Loan, a 10-year, $100 million first mortgage term loan and a 10-year, $75 million first mortgage term loan. The proceeds from these loans were used to immediately pay off FelCor's $250 million unsecured term loan, which was to mature on December 31, 1999, and to reduce outstanding borrowings under its existing $850 million Line of Credit. RESULTS OF OPERATIONS The Company Three Months Ended March 31, 1999 and 1998 For the three months ended March 31, 1999 and 1998, the Company had revenues of $126.9 million and $57.5 million, respectively, consisting primarily of Percentage Lease revenues of $125.0 million and $56.1 million, respectively. The increase in total revenue is primarily attributable to the Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of interests in 114 additional hotels since March 31, 1998, including 103 hotels (net of hotels subsequently sold) that were acquired through the Bristol Merger on July 28, 1998. Additionally, those hotels owned at both March 31, 1999 and 1998 recorded an increase in Percentage Lease revenues of $7.4 million or 13.2%. The Company generally seeks to acquire hotels that management believes can achieve increases in room and suite revenue and RevPAR as a result of renovation, redevelopment and rebranding, or a change in management. However, during the course of such improvements hotel revenue performance is often adversely affected by such temporary factors as rooms and suites out of service and disruptions of hotel operations. (A more detailed discussion of hotel room and suite revenue is contained in "The Hotels" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.) Total expenses increased $54.2 million in the three months ended March 31, 1999, from $36.0 million to $90.2 million, compared to the same period in 1998. This increase resulted primarily from the additional hotels acquired in 1998. Total expenses as a percentage of total revenue increased to 71% for the three months ended March 31, 1999, from 63% in the same period of 1998. The major components of the increase in expenses, as a percentage of total revenue, are: taxes, insurance, and other; and interest expense. Taxes, insurance, and other increased $13.7 million primarily as a result of the increased number of hotels owned. As a percentage of total revenue, taxes, insurance, and other increased from 12.6% to 16.5%. The majority of the increase, as a percentage of total revenue, is attributed to land leases, which represent 3.2% of total revenue in 1999 but only 0.4% in 1998. Land leases as a percentage of total revenue increased because of the greater number of hotels subject to land leases acquired through the Bristol Merger. Interest expense increased as a percentage of total revenue to 22.4% in the three months ended March 31, 1999, from 16.9% in the three months ended March 31, 1998. This increase in interest expense is attributed to the increased use of debt to finance acquisitions and renovations and the assumption of debt related to the more highly leveraged Bristol assets. Debt, as a percentage of investment in hotels at cost, increased from 28% at March 31, 1998 to 38% at March 31, 1999. Funds From Operations The Company considers Funds From Operations to be a key measure of a REIT's performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance and liquidity. 20 21 The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines Funds From Operations as net income or loss (computed in accordance with GAAP), excluding gains or losses from debt restructuring and sales of properties, plus; real estate related depreciation and amortization and after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company believes that Funds From Operations is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures and to fund other cash needs. The Company computes Funds From Operations in accordance with standards established by NAREIT which may not be comparable to Funds From Operations 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 the Company. Funds From Operations does not represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company 's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. Funds From Operations may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. The following table details the computation of Funds From Operations (in thousands):
THREE MONTHS ENDED MARCH 31, ------------------------ 1999 1998 --------- --------- Funds From Operations (FFO): Net income ......................................................... $ 36,747 $ 20,944 Series B redeemable preferred dividends ......................... (3,234) Extraordinary charge from write off of deferred financing fees .. 556 Depreciation .................................................... 36,425 15,887 Depreciation for unconsolidated entities ........................ 2,591 2,547 Minority interest in Operating Partnership ...................... 1,320 1,751 --------- --------- FFO ................................................................ $ 73,849 $ 41,685 ========= ========= Weighted average common shares and units outstanding ............... 75,988 44,575 ========= =========
Included in the FFO previously described is the Company's share of FFO from its interest in separate entities owning 15 hotels, a condominium management company and an entity that develops condominiums for sale and owns a recently completed hotel annex. The FFO contribution from these unconsolidated entities was derived as follows (in thousands):
THREE MONTHS ENDED MARCH 31, ---------------------- 1999 1998 -------- -------- Statements of operations information: Percentage Lease revenue ............................. $ 12,571 $ 12,347 Depreciation ......................................... $ 4,879 $ 4,263 Taxes, insurance and other ........................... $ 2,342 $ 1,567 Interest expense ..................................... $ 3,219 $ 3,259 Net income ........................................... $ 3,720 $ 3,418 Percentage of net income attributable to the Company . $ 1,781 $ 1,709 Amortization of cost in excess of book value ......... (535) (416) -------- -------- Equity in income from unconsolidated entities ........ 1,246 1,293 Depreciation ......................................... 2,056 2,132 Amortization of cost in excess of book value ......... 535 416 -------- -------- FFO from unconsolidated entities ..................... $ 3,837 $ 3,841 ======== ========
21 22 The Hotels Upscale and full service hotels like Embassy Suites, Crowne Plaza, Holiday Inn, and Holiday Inn Select, Doubletree and Doubletree Guest Suites, and Sheraton, Sheraton Suites and Westin are expected to account for approximately 97% of Percentage Lease revenue in 1999. The following tables set forth historical occupancy, ADR and RevPAR at March 31, 1999 and 1998, and the percentage changes therein between the years presented for the Hotels in which the Company had an ownership interest at March 31, 1999. This information is presented regardless of the date of acquisition. COMPARABLE HOTELS (A)
FIRST QUARTER 1999 ------------------------------------- OCCUPANCY ADR REVPAR -------- -------- -------- DJONT Comparable Hotels: Original Hotels (11 hotels) ..................... 71.2% $ 119.10 $ 84.79 CSS Hotels (18 hotels) .......................... 76.0 135.96 103.27 1996 Acquisitions (12 hotels) ................... 72.0 131.38 94.62 1997 Acquisitions (22 hotels) ................... 72.1 120.78 87.02 1998 Acquisitions (2 hotels) .................... 80.7 111.30 89.86 Total DJONT Comparable Hotels (65 hotels) ....... 73.3 126.75 92.92 Total Bristol Comparable Hotels (63 hotels) ...... 65.1 81.90 53.36 Total Comparable Hotels (128 hotels) .... 69.2% $ 105.76 $ 73.24
FIRST QUARTER 1998 ------------------------------------- OCCUPANCY ADR REVPAR -------- -------- -------- Original Hotels ................................. 72.9% $ 116.79 $ 85.12 CSS Hotels ...................................... 74.8 132.94 99.48 1996 Acquisitions ............................... 72.1 128.56 92.66 1997 Acquisitions ............................... 71.2 118.86 84.59 1998 Acquisitions ............................... 77.5 107.12 82.99 Total DJONT Comparable Hotels ................... 72.9 124.22 90.53 Total Bristol Comparable Hotels .................. 67.0 78.72 52.76 Total Comparable Hotels ................. 70.0% $ 102.48 $ 71.69
CHANGE FROM PRIOR PERIOD 1ST QTR. 1999 VS. 1ST QTR. 1998 ------------------------------------- OCCUPANCY ADR REVPAR -------- -------- -------- DJONT Comparable Hotels: Original Hotels ................................. (1.7)pts. 2.0% (0.4)% CSS Hotels ...................................... 1.1 2.3 3.8 1996 Acquisitions ............................... (0.1) 2.2 2.1 1997 Acquisitions ............................... 0.9 1.6 2.9 1998 Acquisitions ............................... 3.3 3.9 8.3 Total DJONT Comparable Hotels ................... 0.4 2.0 2.6 Total Bristol Comparable Hotels .................. (1.9) 4.0 1.1 Total Comparable Hotels ................. (0.7)pts. 3.2% 2.2%
(A) DJONT Comparable Hotels excludes 21 hotels undergoing redevelopment in either the first quarter of 1999 or 1998. Bristol Comparable Hotels excludes 34 hotels undergoing redevelopment in either the first quarter of 1999 or 1998, three individual hotel acquisitions and three hotels targeted for sale. 22 23 NON-COMPARABLE HOTELS
FIRST QUARTER 1999 ---------------------------------------- OCCUPANCY ADR REVPAR --------- ------- ------ DJONT Non-comparable Hotels 64.3% $111.77 $71.91 Bristol Non-comparable Hotels (B) 61.8 94.45 58.32
FIRST QUARTER 1998 ---------------------------------------- OCCUPANCY ADR REVPAR --------- ------- ------ DJONT Non-comparable Hotels 71.3% $107.64 $76.72 Bristol Non-comparable Hotels (B) 65.9 83.90 55.26
CHANGE FROM PRIOR PERIOD 1ST QTR. 1999 VS. 1ST QTR. 1998 ------------------------------------- OCCUPANCY ADR REVPAR --------- ------- ------- DJONT Non-comparable Hotels (7.0)pts. 3.8% (6.3)% Bristol Non-comparable Hotels (B) (4.1) 12.6 5.5
(B) Excludes three closed hotels under renovation and three hotels targeted for sale. In aggregate, the three hotels targeted for sale had a 17.9% decline in RevPAR for the first quarter 1999. Comparison of The Hotels' Operating Statistics for the Three Months Ended March 31, 1999 and 1998 Revenue per available room ("RevPAR") for total Comparable hotels increased 2.2% for the three months ended March 31, 1999 compared to the same period in 1998. This increase was due to increases in RevPAR by state for hotels in Florida (increases of 5.5% in RevPAR which represents 16% of comparable room and suite revenue), and California (increases of 3.8% representing 14% of comparable room and suite revenue). These increases were offset by RevPAR decreases in Texas of 2.5% (representing 18% of comparable room and suite revenue) and Georgia of 0.4% (representing 9% of comparable room and suite revenue). These decreases were principally due to the absorption of new supply. Bristol non-comparable hotels (34) average daily room rates ("ADR") increased 12.6% and RevPAR increased 5.5%. Contributing to these increases were the nine recently renovated and rebranded Crowne Plaza hotels whose RevPAR increased 23.3% derived from a 15.4% increase in ADR. These nine hotels are in Philadelphia; Pleasanton, California; San Francisco Union Square, three in and around Dallas, Houston, Powers Ferry (Atlanta) and Meadowlands. DJONT The Three Months Ended March 31, 1999 and 1998 Total revenues increased to $204.2 million in the first quarter of 1999 from $171.1 million in the first quarter of 1998, an increase of 19.3%. Total revenues consisted primarily of room and suite revenue of $167.7 million and $143.3 million in the first quarter of 1999 and 1998, respectively. The increase in total revenues is primarily a result of the increase in the number of hotels leased to 86 hotels at March 31, 1999 from 75 hotels at March 31, 1998. Room and suite revenues from the 65 comparable hotels for the three months ended March 31, 1999 and 1998 increased 3.2% or $4.1 million. The increase in revenues at these hotels is due primarily to improvements in the percentage of occupied rooms ("Occupancy") and in average daily room rates ("ADR") of 73.3% and $126.75, respectively, for the three months ended March 31, 1999, as compared to the 72.9% and $124.22 for the three months ended March 31, 1998. Twenty-one hotels were 23 24 undergoing renovation or rebranding during the quarter which resulted in a decrease in their combined occupancy and revenue per available room ("RevPAR") to 64.3% and $71.91, respectively for the three months ended March 31, 1999, as compared to the 71.3% and $76.72 for the three months ended March 31, 1998. DJONT's income before Percentage Lease expense decreased as a percentage of total revenues from 40.8% in the first quarter of 1998 to 40.7% in the first quarter of 1999 primarily as a result of increased food and beverage revenues as a percentage of total revenues of 10.4% in the first quarter of 1999 compared to 8.9% in the first quarter of 1998. Bristol Bristol is a public company whose common stock is listed on the New York Stock Exchange under the symbol BH. Bristol files financial statements in accordance with the Securities and Exchange Act of 1934. RENOVATION, REDEVELOPMENT, AND REBRANDING The Company spent $73 million on thirty hotels (19 of which are Bristol operated hotels) undergoing renovation, redevelopment, or rebranding during the quarter, resulting in approximately 157,000 room nights out- of-service, or approximately 3.5% of available room nights. This included 18 Holiday Inn or Holiday Inn Select hotels, six Embassy Suites, three Doubletree, two Sheraton, and one independent hotel. Included are two hotels, which were closed during the quarter for redevelopment, the Allerton Hotel-Chicago, expected to re-open in May 1999 (to be rebranded as a Crowne Plaza) and the Holiday Inn-Tampa Busch Gardens, re-opened in late February, 1999. In addition, $9 million was spent on normal capital expenditures to hotels. Included in the thirty hotels undergoing renovation are six hotels where renovations, totaling $23.8 million were completed and containing approximately 1,900 rooms, during the quarter as follows: 266-room Embassy Suites ($1.8 million) Kansas City, Missouri 140-room Hampton Inn(R)($1.9 million) Marietta, Georgia 167-room Holiday Inn ($2.4 million) Kansas City, Missouri 565-room Holiday Inn ($2.5 million) San Francisco, California 408-room Holiday Inn ($12.0 million) Tampa (Busch Gardens), Florida 395-room Sheraton Gateway ($3.2 million) Atlanta (Airport), Georgia
The Company expects to spend approximately $160 million for capital expenditures in which may be funded from cash on hand or borrowings under its Line of Credit. Through the three months ending March 31, 1999, the Company has spent approximately $73 million (of the $160 million) under the Renovation and Redevelopment program. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including distributions to shareholders and repayments of indebtedness, is its share of the Operating Partnership's cash flow from the Percentage Leases. For the three months ended March 31, 1999, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $61.5 million and Funds From Operations was $73.8 million. The Lessees' obligations under the Percentage Leases are largely unsecured. The Lessees have limited capital resources, and, accordingly, their ability to make lease payments under the Percentage Leases is substantially dependent on the ability of the Lessees to generate sufficient cash flow from the operation of the Hotels. 24 25 During the three months ended March 31, 1999, DJONT realized a net loss of $2.8 million and at March 31, 1999, had a cumulative shareholders' deficit of $11.0 million. The shareholders' deficit results primarily from losses incurred during 1997 and 1996, as a consequence of the one-time costs of converting the CSS Hotels to the Embassy Suites and Doubletree Guest Suites brands and the substantial number of room and suite nights lost during those years due to renovation. It is anticipated that a substantial portion of any future profits of DJONT will be retained until a positive shareholders' equity is restored. It is anticipated that DJONT's future earnings will be sufficient to enable it to continue to make its lease payments under the Percentage Leases. Certain entities owning interests in DJONT and the managers of certain hotels have agreed to make loans to DJONT of up to an aggregate of approximately $17.3 million to the extent necessary to enable DJONT to pay rent and other obligations when due under the respective Percentage Leases relating to a total of 34 of the Hotels. No such loans were outstanding under such agreements at March 31, 1999. Bristol has entered into an absolute and unconditional guarantee of the obligations of the Bristol Lessees under the Percentage Leases. As an additional credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter of Credit") issued by Bankers Trust Company for the benefit of the Company in the original amount of $20 million that is required to be maintained until July 27, 1999. This Letter of Credit is subject to periodic reductions upon satisfaction of certain conditions and at March 31, 1999, was in the amount of $15.9 million. According to Bristol's financial statements filed with the SEC, for the three months ended March 31, 1999, Bristol earned $1.1 million of net income and at March 31, 1999, had stockholders' equity of $36.6 million. The Company may acquire additional hotels and may incur indebtedness to make such acquisitions or to meet distribution requirements imposed on a REIT under the Internal Revenue Code, to the extent that working capital and cash flow from the Company's investments are insufficient to make such distributions. On April 1, 1999, the Company closed a five-year, $375 million term loan (the "Senior Term Loan"). The Senior Term Loan is collateralized by stock and partnership interests in certain subsidiaries of the Company and bears interest at 250 basis points over LIBOR (30-day LIBOR at March 31, 1999, was 4.94%). The financial covenants in the Senior Term Loan are consistent with those in the Company's existing Line of Credit. In connection with this transaction, the Company's $850 million Line of Credit and existing seven and 10-year publicly-traded term notes were equally and ratably secured by the same collateral securing the Senior Term Loan. Upon the Company achieving investment grade credit ratings from the applicable rating agencies, the stock and partnership interest collateral will be released. The proceeds of the Senior Term Loan were used to immediately pay off the $250 million term loan which was to mature on December 31, 1999 and to reduce borrowings under the Company's Line of Credit. On April 1, 1999, the Company also closed a 10-year, $100 million mortgage loan (the "April 1999 First Mortgage Term Loan"). The April 1999 First Mortgage Term Loan is non-recourse (with certain exceptions), is collateralized by seven Embassy Suites hotels, carries a fixed rate coupon of 7.54%, matures in April 2009 and amortizes over 25 years. The proceeds from this loan were used to reduce outstanding borrowings under Company's Line of Credit. On May 13, 1999, the Company closed a 10-year, $75 million mortgage loan (the "May 1999 First Mortgage Term Loan"). This loan is non-recourse (with certain exceptions), is collateralized by six Embassy Suites hotels, carries a fixed rate coupon of 7.55%, matures in May 2009 and amortizes over 25 years. The proceeds from this loan were used to reduce outstanding borrowings under the Company's Line of Credit. 25 26 FelCor's debt outstanding as of March 31, 1999, both on a historical and pro forma basis for the previously described transactions, consists of the following (in thousands):
HISTORICAL Pro Forma OUTSTANDING Outstanding INTEREST RATE BALANCE Balance MATURITY DATE ------------- ----------- ----------- -------------- FLOATING RATE DEBT: Line of Credit LIBOR + 150bp $480,000 $305,000 June 2001 Term Loan LIBOR + 150bp 250,000 - December 1999 Senior Term Loan LIBOR + 250bp - 250,000 March 2004 Mortgage debt LIBOR + 200bp 63,000 63,000 February 2003 Other Up to LIBOR + 150bp 25,650 25,650 Various ---------- ---------- Total Floating Rate Debt 818,650 643,650 ---------- ---------- FIXED RATE DEBT: Line of Credit-swapped 7.24% 325,000 200,000 June 2001 Publicly-traded term notes 7.38% 174,279 174,279 October 2004 Publicly-traded term notes 7.63% 124,150 124,150 October 2007 Mortgage debt 7.24% 144,212 144,212 November 2007 Senior Term Loan-swapped 8.30% - 125,000 March 2004 Mortgage debt 7.54% - 100,000 April 2009 Mortgage debt 7.55% - 75,000 April 2009 Other 6.96%-7.23% 84,900 84,900 2000-2005 ---------- ---------- Total Fixed Rate Debt 852,541 1,027,541 ---------- ---------- Total Debt $1,671,191 $1,671,191 ========== ==========
FelCor's future scheduled debt principal payments at March 31, 1999, pro forma for the previously described transactions, are as follows (in thousands):
YEAR ---- Remainder of 1999 $ 10,585 2000 31,240 2001 524,330 2002 9,520 2003 91,211 2004 and thereafter 1,005,877 ----------- 1,672,763 Discount accretion over term (1,572) ----------- $ 1,671,191 ===========
The Company presently intends to issue approximately $200 million of seven year senior notes during the second quarter of 1999, subject to market conditions. The net proceeds from the sale of such notes, if completed, will be used to reduce outstanding borrowings under the Company's Line of Credit. The Line of Credit and the Term Loan contain various affirmative and negative covenants including limitations on total indebtedness, total secured indebtedness, and cash distributions, as well as the obligation to maintain certain minimum tangible net worth and certain minimum interest and debt service coverage ratios. At March 31, 1999, the Company was in compliance with all such covenants. The Company's other borrowings contain affirmative and negative covenants that are generally equal to or less restrictive than the Line of Credit and Term Loan. Most of the collateralized borrowings are nonrecourse to the Company (with certain exceptions) and contain provisions allowing for the substitution of collateral upon 26 27 satisfaction of certain conditions. Most of the collateralized borrowings are prepayable; however they are subject to various prepayment penalties, yield maintenance, or defeasance obligations. At March 31, 1999, the Company had $26.6 million of cash and cash equivalents and had utilized $805 million of the amount available under the Line of Credit. Significant debt statistics at March 31, 1999, after applying the previously described financing transactions are as follows: o Interest coverage ratio of 3.5x o Total debt to annualized EBITDA of 4.2x o Borrowing capacity of $345 million under the Line of Credit o Consolidated debt equal to 38% of investment in hotels at cost o Fixed interest rate debt comprising 62% of total debt o Weighted average maturity of fixed interest rate debt of approximately 6 years o Mortgage debt to total assets of 11% o Debt of less than $11 million and $32 million maturing in the remainder of 1999 and 2000, respectively. To manage the relative mix of its debt between fixed and variable rate instruments, the Company has entered into interest rate swap agreements with six financial institutions. These interest rate swap agreements modify a portion of the interest characteristics of the Company's outstanding debt under its Line of Credit without an exchange of the underlying principal amount and effectively convert variable rate debt to a fixed rate. The fixed rates to be paid, the effective fixed rate, and the variable rate to be received by the Company at March 31, 1999, are summarized in the following table:
SWAP RATE RECEIVED SWAP RATE EFFECTIVE (VARIABLE) AT SWAP NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 3/31/99 MATURITY --------------- ------------ ---------- ------------- -------------- $ 50 million 6.11125% 7.61125% 4.97000% October 1999 $ 25 million 5.95500% 7.45500% 4.97094% November 1999 $ 25 million 5.55800% 7.05800% 4.96344% July 2001 $ 25 million 5.54800% 7.04800% 4.96344% July 2001 $ 75 million 5.55500% 7.05500% 4.96344% July 2001 $100 million 5.79600% 7.29600% 4.96344% July 2003 $ 25 million 5.82600% 7.32600% 4.96344% July 2003 ------------ $325 million ============
The differences to be paid or received by the Company under the terms of the interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense by the Company pursuant to the terms of its interest rate agreement and will have a corresponding effect on its future cash flows. Agreements such as these contain a credit risk that the counterparties may be unable to meet the terms of the agreement. The Company minimizes that risk by evaluating the creditworthiness of its counterparties, which are limited to major banks and financial institutions, and it does not anticipate nonperformance by the counterparties. To provide for additional financing flexibility, the Company has approximately $946 million of common stock, preferred stock, debt securities, and/or common stock warrants available for offerings under shelf registration statements previously declared effective. INFLATION Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the Lessees' ability to raise room rates. 27 28 SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue, particularly during the fourth quarter, to the extent that it receives Percentage Rent. To the extent the cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in lease revenue, the Company expects to utilize cash on hand or borrowings under the Line of Credit to make distributions to its equity holders. YEAR 2000 The Year 2000 issue relates to computer programs that were written using two digit rather than four to define the applicable year. In those programs the year 2000 may be incorrectly identified as the year 1900, which could result in a system failure or miscalculations causing a disruption of operations, including a temporary inability to process transactions, prepare financial statements, or engage in other normal business activities. The Company believes that its efforts to identify and resolve the Year 2000 issues will avoid a major disruption of its business. The Company has assessed its internal computer systems and believe that they will properly utilize dates beyond December 31, 1999. The Company and its managers have completed the assessment of both computer and noninformation technology systems to determine if the Hotels are Year 2000 compliant. This assessment included embedded systems that operate elevators, phone systems, energy maintenance systems, security systems, and other systems. Most of the upgrades to make a hotel Year 2000 compliant had been anticipated as part of the renovation, redevelopment, and rebranding program that we generally undertake upon acquisition of a hotel. The Company has spent approximately $3 million through the first quarter of 1999 to remediate Year 2000 issues and anticipates spending an additional $7 million to remediate all Year 2000 issues, which amount is included in the Company's 1999 capital plans. The majority of the unspent funds relate to the acquisition and systematic implementation of Year 2000 compliant computer hardware and software for the hotels. The Company has requested and received assurances from the managers of the hotels, the franchisors of the hotels and the lessees, that they have implemented appropriate steps to insure that they will avoid a major disruption of business due to Year 2000 issues. However, the Company cannot assure that such third parties will successfully avoid a disruption due to Year 2000 issues, and such disruptions could have an adverse effect upon the Company's business, financial condition or results of operations. Concurrent with the assessment of the year 2000 issue, the Company and its hotel managers and Lessees are developing contingency plans intended to mitigate the possible disruption in business operations that may result from year 2000 issues, and are developing cost estimates for such plans. Once developed, contingency plans and related cost estimates will be continually refined as additional information becomes available. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS Portions of this Quarterly Report on Form 10-Q include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Important factors that could cause actual results to differ materially from the Company's current expectations are disclosed herein and in the Company's other filings under the 1933 Act and 1934 Act (collectively, "Cautionary Disclosures"). The forward looking statements included herein, and all subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf, are expressly qualified in their entirety by the Cautionary Statements. 28 29 PART II. -- OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES. During the first quarter of 1999, the Company issued 1,245 shares of its common stock in redemption of a like number of outstanding units of limited partner interest in the Operating Partnership. Neither the units, nor the common stock issued in redemption thereof, were registered under the 1933 Act in reliance upon certain exemptions from the registration requirements thereof, including the exemption provided by Section 4(2) of that act. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION. For information relating to asset acquisitions and certain other transactions by the Company through March 31, 1999, see Note 1 of Notes to Consolidated Financial Statements of FelCor Lodging Trust Incorporated contained in Item 1 of Part I of this Quarterly Report on Form 10-Q. Such information is incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Exhibit Number Description ------ ----------- 4.7.3 Third Amendment to Indenture dated as of March 30, 1999 by and among FelCor Lodging Limited Partnership, FelCor Lodging Trust Incorporated, the Subsidiary Guarantors named therein, who are signatories thereto and SunTrust Bank, Atlanta. 10.21 Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated March 1, 1999, by FelCor Hotel Company II, Ltd., as Grantor, to Howard E. Schreiber, Trustee, in trust for the benefit of Bankers Trust Company, as Beneficiary. 10.22.1 Loan Agreement, dated April 1, 1999, among FelCor Lodging Trust Incorporated and FelCor Lodging Limited Partnership as Borrower, and The Lenders Party Thereto and The Chase Manhattan Bank as Administrative Agent and Collateral Agent. 10.22.2 Guaranty, dated April 1, 1999, made by each of the named Guarantors therein, who are signatories thereto. 10.22.3 Pledge and Security Agreement, dated April 1, 1999, made by each of the named Pledgors therein, who are signatories thereto, in favor of The Chase Manhattan Bank, as Collateral Agent. 10.23 Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L.P. as Mortgagor and The Prudential Insurance Company of America as Mortgagee. 27 Financial Data Schedule. (b) Reports on Form 8-K: Registrant did not file any reports on Form 8-K during the first quarter of 1999. 29 30 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 17, 1999 FELCOR LODGING TRUST INCORPORATED By: /s/ Randall L. Churchey ------------------------------------------------- Randall L. Churchey Senior Vice President and Chief Financial Officer (Chief Financial Officer) 30 31 INDEX TO EXHIBITS
Exhibit Number Description ------ ----------- 4.7.3 Third Amendment to Indenture dated as of March 30, 1999 by and among FelCor Lodging Limited Partnership, FelCor Lodging Trust Incorporated, the Subsidiary Guarantors named therein, who are signatories thereto and SunTrust Bank, Atlanta. 10.21 Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated March 1, 1999, by FelCor Hotel Company II, Ltd., as Grantor, to Howard E. Schreiber, Trustee, in trust for the benefit of Bankers Trust Company, as Beneficiary. 10.22.1 Loan Agreement, dated April 1, 1999, among FelCor Lodging Trust Incorporated and FelCor Lodging Limited Partnership as Borrower, and The Lenders Party Thereto and The Chase Manhattan Bank as Administrative Agent and Collateral Agent. 10.22.2 Guaranty, dated April 1, 1999, made by each of the named Guarantors therein, who are signatories thereto. 10.22.3 Pledge and Security Agreement, dated April 1, 1999, made by each of the named Pledgors therein, who are signatories thereto, in favor of The Chase Manhattan Bank, as Collateral Agent. 10.23 Form of Mortgage, Security Agreement and Fixture Filing by and between FelCor/CSS Holdings, L.P. as Mortgagor and The Prudential Insurance Company of America as Mortgagee. 27 Financial Data Schedule.
EX-4.7.3 2 THIRD AMENDMENT TO INDENTURE 1 EXHIBIT 4.7.3 THIRD AMENDMENT TO INDENTURE This Third Amendment to Indenture (this "Agreement") is entered into as of this 30th day of March, 1999, by and among (i) FelCor Lodging Limited Partnership, formerly FelCor Suites Limited Partnership, a Delaware limited partnership ("FelCor LP"), (ii) FelCor Lodging Trust Incorporated, formerly FelCor Suite Hotels, Inc., a Maryland corporation ("FelCor"), (iii) FelCor/CSS Hotels, L.L.C., a Delaware limited liability company, FelCor/LAX Hotels, L.L.C., a Delaware limited liability company, FelCor/CSS Holdings, L.P., a Delaware limited partnership, FelCor/St. Paul Holdings, L.P., a Delaware limited partnership, FelCor/LAX Holdings, L.P., a Delaware limited partnership, FelCor Eight Hotels, L.L.C., a Delaware limited liability company, FelCor Hotel Asset Company, L.L.C., a Delaware limited liability company, FelCor Nevada Holdings, L.L.C., a Nevada limited liability company, FHAC Nevada Holdings, L.L.C., a Nevada limited liability company, and FHAC Texas Holdings, L.P., a Texas limited partnership (collectively, "Subsidiary Guarantors"), and (iv) SunTrust Bank, Atlanta, as Trustee ("Trustee"). WHEREAS, FelCor LP, as Issuer, FelCor and certain of the Subsidiary Guarantors, as Guarantors, and Trustee, as Trustee, entered into that certain Indenture dated as of October 1, 1997, as previously amended by that certain First Amendment to Indenture dated as of February 5, 1998 and that certain Second Amendment to Indenture and First Supplemental Indenture dated as of December 30, 1998 (collectively, the "Indenture"); and WHEREAS, accordingly, the parties to the Indenture desire to amend the Indenture as provided herein in accordance with Section 9.01(5) of the Indenture; and WHEREAS, the Board of Directors of FelCor has determined in its good faith opinion that this Amendment will not materially and adversely affect the rights of any holder of the Notes; NOW, THEREFORE, for and in consideration of the mutual promises and covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. The definition of "Secured Indebtedness" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: "Secured Indebtedness" means any Indebtedness secured by a Lien upon the property of FelCor LP or FelCor or any of their respective Restricted Subsidiaries, other than Indebtedness secured solely by Liens shared equally and ratably with the Holders pursuant to the equal and ratable provisions referred to in Section 4.09. 2. The parties hereto hereby confirm and acknowledge that the Indenture shall continue in full force and effect according to its original terms, except as expressly as amended and supplemented hereby. 2 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. FELCOR LODGING LIMITED PARTNERSHIP (formerly FelCor Suites Limited Partnership), a Delaware limited partnership By: FelCor Lodging Trust Incorporated, a Maryland corporation, its general partner By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President FELCOR LODGING TRUST INCORPORATED (formerly FelCor Suite Hotels, Inc.), a Maryland corporation By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President FELCOR/CSS HOTELS, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President FELCOR/LAX HOTELS, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President 3 FELCOR/CSS HOLDINGS, L.P., a Delaware limited partnership By: FelCor/CSS Hotels, L.L.C., a Delaware limited liability company, its general partner By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President FELCOR/ST. PAUL HOLDINGS, L.P., a Delaware limited partnership By: FelCor/CSS Hotels, L.L.C., a Delaware limited liability company, its general partner By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President FELCOR/LAX HOLDINGS, L.P., a Delaware limited partnership By: FelCor/LAX Hotels, L.L.C., a Delaware limited liability company, its general partner By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President FELCOR EIGHT HOTELS, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President 4 FELCOR HOTEL ASSET COMPANY, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President FELCOR NEVADA HOLDINGS, L.L.C., a Nevada limited liability company By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President FHAC NEVADA HOLDINGS, L.L.C., a Nevada limited liability company By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President FHAC TEXAS HOLDINGS, L.P., a Texas limited partnership By: FelCor Hotel Asset Company, L.L.C., a Delaware limited liability company, its general partner By: /s/ LAWRENCE D. ROBINSON ------------------------------------------- Lawrence D. Robinson, Senior Vice President SUNTRUST BANK, ATLANTA, as Trustee By: /s/ RONALD C. PAINTER --------------------------------------------------- Name: Ronald C. Painter -------------------------------------------------- Title: Group Vice President ------------------------------------------------- By: /s/ OLGA G. WARREN --------------------------------------------------- Name: Olga G. Warren -------------------------------------------------- Title: Vice President ------------------------------------------------- EX-10.21 3 DEED OF TRUST 1 EXHIBIT 10.21 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Howard E. Schreiber, Esq. Jenkens & Gilchrist, P.C. 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Instructions to County Recorder: Index this document as a Deed of Trust, as an Assignment of Leases and Rents, as a Fixture Filing and as a Financing Statement DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS, FIXTURE FILING AND FINANCING STATEMENT This Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement ("Deed of Trust") is executed effective as of the 1st day of March, 1999, by FELCOR HOTEL COMPANY II, LTD., a Texas limited partnership ("Grantor"), whose address is set forth below, as Grantor, to Howard E. Schreiber, Trustee, whose address is set forth below, in trust for the benefit of BANKERS TRUST COMPANY, a New York banking corporation ("BTCo"), whose address is set forth below, as Beneficiary. Article 1 DEFINITIONS 1. Definitions As used herein, the following terms shall have the following meanings: 1.1 Assignment: The assignment, contained in Article 4 of this Deed of Trust, from Grantor to Beneficiary, of all of Grantor's right, title and interest in and to the Leases and the Rents. 1.2 Awards: All awards and payments with respect to the Mortgaged Property made or hereafter to be made by any municipal, township, county, state, Federal or other governmental agencies, authorities or boards or any other entity having the power of eminent domain to Grantor, including any awards and payments for any taking of all or a portion of the Mortgaged Property, as a result of, or by agreement in anticipation of, the exercise of the right of condemnation or eminent domain, or for any change or changes of grade of streets affecting the Mortgaged Property. 1.3 Beneficiary: BTCo and its successors and assigns and the holders, from time to time, of the Note. 2 1.4 Beneficiary's Address: 130 Liberty Street, 25th Floor, MS 2257, York, New York 10006, Attention: Steven Sauer. 1.5 Buildings: All buildings, improvements, alterations or appurtenances now, or at any time hereafter, located upon the Land or any part thereof. 1.6 Default Interest Rate: The lesser of (i) the interest rate of five percent (5%) per annum plus the Applicable Interest Rate (as defined in the Note), or (ii) the Maximum Rate (as defined in Section 9.10 below). 1.7 Event(s) of Default: The happenings and occurrences described in Article 6 of this Deed of Trust. 1.8 Exit Fee: None. 1.9 Fixtures: All fixtures now or hereafter affixed or attached to, or installed in, or used in connection with, the Land or Buildings, whether or not permanently affixed thereto, together with all accessions, replacements and substitutions thereto or therefor and the proceeds thereof. 1.10 Grantor: The entity named as such in the preamble of this Deed of Trust, and its heirs, administrators, executors, successors and assigns and its successors in interest in and to the Mortgaged Property. 1.11 Grantor's Address: 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062, Attn: Joel M. Eastman. 1.12 Guarantor and Guarantor's Address: FelCor Lodging Limited Partnership, whose address for notice hereunder is 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062, Attn: Joel M. Eastman (the "Guarantor"). 1.13 Guaranty: That certain Unconditional Guaranty (Carve-Outs) of even date herewith (the "Guaranty") executed by Guarantor and guaranteeing certain obligations of Grantor under this Deed of Trust, the Note, the Security Documents and the Indemnity Agreement. 1.14 Hazardous Materials: Any flammable explosives, radioactive materials, oil or petroleum, chemical liquids or solids, polychlorinated biphenyls, asbestos, liquid or gaseous products or hazardous wastes, pollutants, toxic pollutants, toxic substances and similar substances and materials defined as hazardous or toxic wastes, substances or materials under any applicable law (excluding cleaning and office supplies customarily found in hotels similar in size and quality to the Mortgaged Property). 1.15 Impositions: All (i) real estate and personal property taxes and other taxes (excluding federal income taxes) and assessments, water and sewer rates and charges, and all other governmental charges and any interest or costs or penalties with respect thereto, and charges for 2 3 an easement or agreement maintained for the benefit of the Mortgaged Property which at any time prior to or after the execution of the Security Documents may be assessed, levied, or imposed upon the Mortgaged Property or the rent or income received therefrom or any use or occupancy thereof, and (ii) other taxes (excluding federal income taxes), assessments, fees and governmental charges levied, imposed or assessed upon or against Grantor or the Mortgaged Property. 1.16 Indebtedness: The principal of and accrued interest on and all other amounts, payments and premiums due under the Note (including any future advances), and all other amounts now existing or hereafter arising of Grantor owing to Beneficiary under and/or secured by the Security Documents, or any amendments, modifications, renewals and extensions of any of the foregoing. 1.17 Indemnity Agreement: The Environmental Indemnity Agreement, dated as of even date herewith, executed by Grantor in favor of Beneficiary. 1.18 Land: The real estate described in Schedule A attached hereto. 1.19 Leases: Any and all leases, subleases, licenses, concessions or grants of other possessory interests now or hereafter in force, oral or written, covering or affecting the Mortgaged Property, or any part thereof, together with all rights, powers, privileges, options and other benefits of Grantor thereunder. 1.20 Loan Documents: The Note, the Indemnity Agreement, this Deed of Trust, the Guaranty and any and all other documents executed in connection herewith. 1.21 Mortgaged Property: The Land, the Buildings, the Fixtures, the Leases, the Rents and the Personalty and all substitutions therefor, replacements and accessions thereto, and proceeds derived therefrom together with: (i) all of the rights, privileges, permits, licenses, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances of the Land and/or the Buildings belonging or in anyway appertaining thereto and all right, title and interest of Grantor in and to any streets, ways, alleys, strips or gores of land adjoining the Land or any part thereof; (ii) all the estate, right, title, interest, claim or demand whatsoever of Grantor, either at law or in equity, in and to the Land (including, without limitation, water, mineral and sewer rights), the Buildings, the Fixtures, the Leases, the Rents and the Personalty; (iii) all the estate, right, title, interest, claim or demand whatsoever of Grantor, either at law or in equity, in and to the Awards, or payments with respect to casualties; and (iv) all other interest of every kind and character which Grantor now has or at any time hereafter acquires in and to the above described real and personal property and all proceeds derived from all of the foregoing. 3 4 1.22 Note: That certain Promissory Note, dated of even date with this Deed of Trust, made by Grantor to the order of Beneficiary, in the original principal amount of $63,000,000.00, due and payable on February 28, 2003, unless earlier accelerated or extended as provided in the Note, secured by this Deed of Trust, together with all future advances, extensions, renewals, modifications and amendments thereof. 1.23 Obligations: Any and all of the covenants, promises and other obligations (other than the Indebtedness) made or owing by Grantor or Guarantor to or due to Beneficiary under and/or as set forth in the Note and/or the Security Documents, and any and all extensions, renewals, modifications and amendments of any of the foregoing. 1.24 Permitted Encumbrances: The encumbrances described with particularity, in Schedule B attached hereto and liens contested in accordance with the terms of this Deed of Trust. 1.25 Personalty: (i) All tangible and intangible personal property related to the Mortgaged Property of Grantor (whether now owned or hereafter acquired), including all equipment, inventory, goods, consumer goods, accounts, accounts receivable (including, without limitation, credit card receipts), hotel guest room fees and receipts, hotel facilities fees and receipts (including, without limitation, fees and receipts generated from restaurants, bars, catering, room service, mini-bars, health clubs and gift shops), hotel service fees for the use or occupancy of rooms and other public or commercial facilities, income, issues, profits, chattel paper, instruments, working capital reserves, FF&E/capital improvement reserves (including, without limitation, Account No. 08-80-6238455 at Chase Bank, N.A.), project escrows, money (which are rental, tax or insurance deposits), general intangibles, documents, minerals, crops and timber (as those terms are defined in the Texas Uniform Commercial Code) and all other personal property of Grantor which is attached to, installed on or placed or used on, in connection with or is acquired for such attachment, installation, placement or use, or which arises out of the development, improvement, financing, leasing, operation or use of (1) the Land together with all rights, titles and interests appurtenant thereof, (2) any and all Buildings, structures, open parking areas and other improvements, now or any time hereafter situated, placed or constructed upon the Land or any part thereof, (3) the Fixtures, or (4) other goods located on the Land or Buildings, together with all additions, accessions, accessories, amendments and modifications thereto, extensions, renewals, replacements, enlargements and proceeds thereof, substitutions therefor, and income and profits therefrom. The following are included, without limitation, in the definition of Personalty: accounts receivable, hotel guest room fees and receipts, hotel facilities fees and receipts (including, without limitation, fees and receipts generated from restaurants, bars, catering, room service, mini-bars, health clubs and gift shops), hotel service fees for the use or occupancy of rooms and other public facilities, income, issues, profits, furniture and furnishings (including, without limitation, beds, bureaus, chiffoniers, chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, paintings, couches, televisions and clock radios), building materials, supplies, 4 5 machines, engines, boilers, stokers, pumps, fans, vents, blowers, dynamos, furnaces, elevators, ducts, shafts, pipes, furniture, cabinets, shades, blinds, screens, plumbing, heating, air conditioning, lighting, lifting, ventilating, refrigerating, cooking, medical, laundry and incinerating equipment, partitions, drapes, carpets, rugs and other floor coverings, awnings, call and sprinkler systems, fire prevention and extinguishing apparatus and equipment, water tanks, swimming pools, compressors, vacuum cleaning systems, disposals, dishwashers, washers, dryers, ranges, ovens, kitchen equipment, cafeteria equipment, recreational equipment, loan commitments, financing arrangements, bonds, construction contracts, leases, licenses, permits, sales contracts, insurance policies and the proceeds therefrom, plans and specifications, surveys, rent rolls, books and records, rental, tax and insurance deposits, and all other intangible personal property; and (ii) All materials, supplies, equipment, apparatus and other items of Grantor now or hereafter attached to, installed on or in the Land or the Buildings, or which in some fashion are deemed to be fixtures to the Land or Buildings under the laws of the State of Texas, including the Texas Uniform Commercial Code; and (iii) Any and all leases, subleases, licenses, concessions or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to extract, mine, reside in, sell or use the Mortgaged Property or any portion thereof, and all other agreements, including, but not limited to, utility contracts, management agreements, maintenance agreements and service contracts, which in any way relate to the use, occupancy, operation, maintenance, enjoyment or ownership of the Mortgaged Property, all contracts or agreements relating to the sale of all or any part of the Mortgaged Property, save and except any and all leases, subleases or other agreements pursuant to which Grantor is granted a possessory interest in the Mortgaged Property. 1.26 Rents: All of the rents, revenues, income, profits, deposits, tenders and other benefits payable under the Leases and Grantor's rights, title and interest in and to the rents, revenues, income, profits, deposits, tenders and other benefits payable and/or arising from the use or enjoyment of all or any portion of the Mortgaged Property. 1.27 Security Agreement: Individually and collectively means (i) the Security Agreement contained in this Deed of Trust, wherein and whereby Grantor grants a security interest in the Personalty and the Fixtures to Beneficiary, and (ii) the Security Agreement of even date herewith between Grantor, as debtor, and Beneficiary, as secured party, whereby Grantor grants a security interest in all hotel revenues, fees, accounts and furniture, fixtures and equipment. 1.28 Security Documents: This Deed of Trust, the Assignment, the Security Agreement, the Guaranty, and any and all other documents executed by Grantor now or hereafter securing the payment of the Indebtedness or the observance or performance of the Obligations (but specifically excluding the Indemnity Agreement). 1.29 Trustee: The person, persons or entity named as such in the preamble of this Deed of Trust and, as the case may be, his, their or its successors and assigns. 5 6 1.30 Trustee's Address: 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202. Article 2 GRANT 2.1 Grant. To secure the payment of the Indebtedness and the performance and discharge of the Obligations, Grantor by these presents hereby grants, bargains, sells, assigns, mortgages, transfers, conveys and warrants unto Trustee, in trust for the use and benefit of Beneficiary, with power of sale and right of entry and possession, the Mortgaged Property, to have and to hold the Mortgaged Property unto Trustee, its successors, substitutes and, assigns forever. Grantor hereby binds itself, and Grantor's successors, substitutes and assigns, to warrant and forever defend unto Beneficiary, its successors and assigns, the title to the Mortgaged Property subject to the Permitted Encumbrances. 2.2 Condition of Grant. Provided always, that if Grantor shall pay or cause to be paid the entire Indebtedness as and when the same shall become due and payable and shall observe, perform and discharge the Obligations, then the Security Documents and the estate and rights granted by Grantor shall cease, terminate and become void, and shall be promptly released or reconveyed by Beneficiary, at the cost and expense of Grantor. Article 3 SECURITY AGREEMENT AND FIXTURE FILING With respect to all Personalty and/or Fixtures and/or other collateral constituting a part of the Mortgaged Property, this Deed of Trust shall likewise be a security agreement, and for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the purpose of further securing payment and performance of the Indebtedness and the Obligations, Grantor hereby grants to Beneficiary a security interest and lien in all rights, titles, and interests now owned or hereafter acquired by Grantor in all Personalty and/or Fixtures. As to the Personalty and Fixtures, the grant, transfer, and assignment provisions of this Article 3 shall control over the grant in trust provision of Section 2.1 of this Deed of Trust. Grantor represents and warrants that, except for any financing statement filed by Beneficiary or otherwise described on Schedule "B" hereto, no presently effective financing statement covering the Personalty and/or Fixtures or any part thereof (except notice filings for permitted equipment leases), has been filed with any filing officer, and no other security interest has attached or has been perfected in the Personalty and/or Fixtures or any part thereof. This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all Fixtures included within the definitions of Mortgaged Property and Personalty and/or Fixtures. Beneficiary shall have all the rights with respect to the Fixtures and Personalty afforded to it by the Uniform Commercial Code as adopted by the State of Texas, in addition to, but not in limitation of, the other rights afforded Beneficiary by the Loan Documents. This Deed of Trust shall also be effective as a financing statement covering minerals or the like (including oil and gas) and accounts subject to Subsection (e) of Section 9.103 of the Uniform Commercial Code. A carbon, photographic or other 6 7 reproduction of this Deed of Trust shall be sufficient as a financing statement. Beneficiary shall have the right at any time to file a manually executed counterpart or a carbon, photographic or other reproduction of this Deed of Trust as a financing statement in either the central or local UCC records of any jurisdiction wherein the Mortgaged Property is located, but the failure of Beneficiary to do so shall not impair (i) the effectiveness of this Deed of Trust as both a financing statement covering oil, gas and accounts and as a fixture filing as permitted by Section 9-402 of the Uniform Commercial Code, or (ii) the validity and enforceability of this Deed of Trust in any respect whatsoever. The following information is included for purposes of meeting the requirements of a financing statement: (a) The name of the debtor is FelCor Hotel Company II, Ltd. (b) The name of the secured party is Bankers Trust Company. (c) The address of the secured party is 130 Liberty Street, 25th Floor, MS 2257, New York, New York 10006, Attention: Steven Sauer. (d) The mailing address of the debtor is 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062, Attn: Joel M. Eastman. (e) This financing statement covers all of the debtor's Personalty and/or Fixtures (whether now owned or hereafter acquired). The Personalty and/or Fixtures includes (i) goods which are or are to become fixtures on the Land described in Schedule A, and (ii) minerals or the like (including oil and gas) located on the Land described in Schedule A, and (iii) the Personalty. This financing statement is to be filed for record in the real estate records. Debtor has an interest of record in the Land described in Schedule A, and the names of the additional record owners of the Land described in Schedule A, if any, are listed thereon. (f) Proceeds and products of Personalty and/or Fixtures are also covered. Article 4 ASSIGNMENT OF RENTS AND LEASES 4.1 Assignment of Rents. All of Grantor's right, title and interest in and to the Rents are hereby absolutely and irrevocably assigned to Beneficiary to be applied against the Indebtedness and the Obligations. Grantor hereby appoints Beneficiary its true and lawful attorney-in-fact, with the right, at Beneficiary's option at any time to demand, receive and enforce payment, to give receipts, releases and, satisfactions, and to sue, either in Grantor's or Beneficiary's name, for all Rents. Notwithstanding the foregoing Assignment of Rents, so long as no Event of Default has occurred which remains uncured, (i) Grantor may collect, receive, take, use and enjoy such Rents, as they become due and payable, but not more than one month in advance thereof and (ii) Beneficiary shall not send a demand notice to any tenants. The foregoing assignment shall be fully operative without any further action on the part of either party, and 7 8 specifically Beneficiary shall be entitled at its option, upon the occurrence of an Event of Default hereunder and for so long as such Event of Default is continuing, to collect all Rents from the Mortgaged Property whether or not Beneficiary takes possession of the Mortgaged Property. Upon the occurrence of an Event of Default hereunder, the permission hereby given to Grantor to collect the Rents from the Mortgaged Property shall terminate. The permission given by Beneficiary to Grantor shall be reinstated upon a cure of such Event of Default with Beneficiary's specific consent which shall not be unreasonably withheld. This Assignment shall not be deemed or construed to constitute Beneficiary or Trustee as a mortgagee in possession nor obligate Beneficiary or Trustee to take any action or to incur expenses or perform or discharge any obligation, duty or liability. Exercise of any rights under this Section and the application of the Rents to the Indebtedness or the Obligations shall not cure or waive any Event of Default but shall be cumulative of all other rights and remedies. 4.2 Assignment of Leases. Grantor hereby assigns to Beneficiary all right, title and interest of Grantor in and to all Leases, together with all security therefor and all monies payable thereunder, subject, however, to the conditional permission given to Grantor above to collect the rentals under any such Lease. The foregoing assignment of any Lease shall not be deemed to impose upon Beneficiary any of the obligations or duties of Grantor provided in any such Lease; and Grantor agrees to fully perform all obligations of the lessor under all such Leases. Upon Beneficiary's request, Grantor shall deliver to any new lessee a notice of this assignment in form satisfactory to Beneficiary in its sole discretion. Beneficiary may deliver such a notice to new lessees if Grantor fails to do so within a reasonable time after Beneficiary's request. From time to time, upon request of Beneficiary, Grantor shall specifically assign to Beneficiary, by an assignment in writing in form approved by Beneficiary, all right, title and interest of Grantor in and to any and all Leases, together with all security therefor and all monies payable thereunder, subject to the conditional permission given to Grantor above to collect and use the rentals under any such lease. Grantor shall also execute and deliver to Beneficiary any notification, financing statement, or other document reasonably required by Beneficiary to perfect the foregoing assignment as to any such Lease. 4.3 Effect of Assignments. This instrument constitutes an absolute and present assignment of the rents, royalties, issues, profits, revenue, income and other benefits from the Mortgaged Property; subject, however, to the conditional permission given to Grantor to collect, receive, take, use and enjoy the same as provided above; provided, further, that the existence or exercise of such right of Grantor shall not operate to subordinate this assignment to any subsequent assignment by Grantor, in whole or in part, and any such subsequent assignment by Grantor shall be subject to the rights of Trustee and Beneficiary hereunder. 4.4 No Merger of Leasehold Estates. If both the lessor's and lessee's estate under any Lease, or any portion thereof, becomes vested at any time in one owner, this Deed of Trust and the lien created hereby shall not be adversely affected by the application of the doctrine of merger unless Beneficiary so elects in writing by recording a written declaration so stating. Unless and until Beneficiary so elects, Beneficiary and any lessor and lessee shall continue to have and enjoy all of the rights and privileges to the separate estates. In addition, upon the foreclosure of the lien created by this Deed of Trust on the Mortgaged Property, any Leases then existing and affecting 8 9 all or any portion of the Mortgaged Property shall not be destroyed or terminated by merger or by the foreclosure unless Beneficiary or any purchaser at the sale so elects. No act by or on behalf of Beneficiary or such purchaser shall constitute a termination of any Lease unless Beneficiary gives written notice thereof to the tenant or subtenant affected. 4.5 Assignment to Beneficiary Controlling. The rights of Trustee in the Leases and Rents created under Article 2 shall be subject to the rights of Beneficiary in the Leases and Rents created under this Article 4. Article 5 COVENANTS AND REPRESENTATIONS AND WARRANTIES 5.1 Covenants. Until the entire Indebtedness shall have been paid in full, Grantor hereby covenants and agrees as follows: 5.1.1 Payment of Indebtedness. Grantor will promptly pay or cause to be paid the Indebtedness as and when same shall be due and payable under the Note, the Deed of Trust and the Security Documents. 5.1.2 Compliance with Laws. Grantor will promptly and faithfully comply in all material respects with, conform to and obey all present and future laws, ordinances, rules, regulations and requirements of every duly constituted governmental authority or agency and of every Board of Fire Underwriters having jurisdiction, or similar body exercising similar functions, which may be binding upon Grantor or the Mortgaged Property or any part thereof, or to the use or manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of the Mortgaged Property, or any part thereof, whether or not such law, ordinance, rule, order, regulation or requirement shall necessitate structural changes or improvements or interfere with the use or enjoyment of the Mortgaged Property. Grantor shall have the right to contest such law, ordinance, rule, order, regulation or requirement to the extent contesting same results in a suspension of the enforcement action and any applicable penalties or fines for such non-compliance. 5.1.3 Payment of Impositions. Grantor will duly pay and discharge, or cause to be paid and discharged, the Impositions, such Impositions or installments thereof to be paid prior to the day before any fine, penalty, interest or cost may be added thereto or imposed by law for the non-payment thereof; provided, however, that if, by law, any Imposition may be paid in installments, Grantor may pay the same in such installments; provided, further, Grantor shall have the right to contest any such imposition prior to payment so long as (i) Grantor contests such Imposition in good faith, (ii) Grantor sends advance written notice to Beneficiary that Grantor is contesting such Imposition, (iii) Grantor posts a bond with a party acceptable to Beneficiary which is sufficient to pay the Imposition (or a lower amount acceptable to Beneficiary), and (iv) such contest does not impair the Mortgaged Property in any manner. 9 10 5.1.4 Repair and Alterations. (a) Grantor will keep the Mortgaged Property in good order and condition and make all necessary or appropriate repairs, replacements and renewals thereof and will prevent any act or thing which might impair the value or usefulness of the Mortgaged Property (ordinary wear and tear excepted). (b) Grantor will not commit or knowingly permit any waste of the Mortgaged Property or any part thereof, or make or knowingly permit to be made any alterations or additions to the Mortgaged Property which would have the effect of materially diminishing the value thereof, or make or knowingly permit to be made any other alterations or additions to the Mortgaged Property of a material nature, without the prior written consent of Beneficiary. (c) Grantor will not permit any of the Fixtures or Personalty to be removed at any time from the Land and/or Buildings, without the prior written consent of Beneficiary, unless actually replaced by an article of equal suitability and value and owned by Grantor free and clear of any lien or security interest except such as may be approved in writing by Beneficiary. 5.1.5 Insurance. Grantor will purchase and maintain property insurance on the Mortgaged Property protecting against such hazards, casualties and contingencies as are usually covered by all risk property policies including, but not limited to, fire, windstorms, flood (if the Mortgaged Property is located in a flood plain) and such other risks as specified by Beneficiary. The policies shall be in effect in the locality where the Mortgaged Property is situated, in amounts and with insurers acceptable to Beneficiary having a Best's Insurance Rating of A-/XI or better (or other Standard & Poor's equivalent rating), but in any event not less than the full insurable value of the Buildings, Fixtures, Personalty and all other contents on a replacement cost basis, and which includes riders for increased replacement cost due to inflation and changes in building codes and ordinances and business interruption insurance covering the loss of rents for one year. All property insurance policies shall include a mortgagee clause or loss payee endorsement for the benefit of Beneficiary. No primary deductible or retention greater than $10,000 per Hotel Project (as herein defined) and no coinsurance clauses shall be called for in any such policies, unless agreed to in writing by Beneficiary. Policies shall contain endorsements providing for breach of warranty, adjustment of value for inflation, increased costs of demolition, and such other conditions as may be required by Beneficiary. Policies shall be endorsed with form 438BFUNS, or a similar endorsement acceptable to Beneficiary, showing Beneficiary as an additional insured and loss payee as its interests may appear, such loss payments to be applied to the restoration, repair or replacement of the Mortgaged Property to the extent provided herein under terms and conditions acceptable to Beneficiary; provided, however, that if Beneficiary's security under this Deed of Trust is impaired (i.e., damage in excess of that contemplated in Section 5.1.6 (a) below) or an Event of Default has occurred and is continuing, then such payments shall, at the sole option of Beneficiary, be applied to the payment of the Indebtedness. 10 11 Grantor shall also maintain Commercial General Liability Insurance and Excess/Umbrella Liability Insurance which shall respond to third-party claims involving bodily injury, property damage and personal injury arising out of Grantor's alleged actions or inactions; such policies shall contain endorsements naming Beneficiary as additional insured under the policies as respects its interest as mortgagee/secured party and as a loss payee. Such policies shall provide such combined limits of coverage as Beneficiary shall specify, but in any event for all of the Hotel Projects not less than Five Million Dollars ($5,000,000.00) per occurrence and in the aggregate Five Million Dollars ($5,000,000.00) as to liability for bodily injury, property damage and personal injury. No primary deductible or retention shall be called for in the Commercial General Liability policy. All such insurance policies purchased by Grantor shall be endorsed to be primary and non-contributory to any insurance carried by the Beneficiary. In addition, Grantor shall cause the Beneficiary to be named as an additional insured on any excess or umbrella policy purchased by Grantor. Grantor shall cause the policy or policies evidencing all insurance referred to in this paragraph (and the insurer issuing such policy) to certify to Beneficiary that: (a) the interest of Beneficiary shall be insured regardless of any breach or violation by Grantor of any warranties, declarations or conditions in such policy; (b) if any such insurance policy be subject to cancellation, termination or be endorsed or sought to be endorsed to effect a change in coverage for any reason whatsoever, such insurer will promptly notify Beneficiary and such cancellation, termination or change shall not be effective as to Beneficiary until fifteen (15) days after receipt by Beneficiary of such notice; and (c) Beneficiary may, but shall not be obligated to, make premium payments to prevent such cancellation, and that such payments shall be accepted by such insurer. In addition, Grantor shall furnish to Beneficiary duplicate executed copies of each such policy at the time of execution hereof and copies of each renewal policy not less than fifteen (15) days prior to the expiration of the original policy or the preceding renewal policy (as the case may be), together with receipts or other evidence that the premiums have been paid and furnish to Beneficiary certificates of insurance prepared by Grantor's insurance agent or broker which show evidence of the required coverages and endorsements, and payment of premiums thereon; and furnish to Beneficiary upon Beneficiary's request, on or before sixty (60) days after the close of each fiscal year of Grantor a statement of Grantor of the amounts of insurance maintained in compliance with this Section 5.1.5, of the risks covered by such insurance and of the insurance company or companies which carry such insurance, accompanied by copies of all certificates of insurance evidencing the required coverages and endorsements. 5.1.6 Restoration Following Casualty. After the happening of any casualty to the Mortgaged Property or any part thereof, Grantor shall give prompt written notice thereof to Beneficiary. (a) In the event of any damage to or destruction of the Buildings, Beneficiary shall have the option in its sole discretion of applying or paying all or part of the insurance proceeds (i) to any Indebtedness and in such order as Beneficiary may determine or (ii) to the restoration of the Buildings or (iii) to Grantor; provided, however, Beneficiary agrees that if no Event of Default or event or condition which with the giving of notice, the passage of time, or both, could mature into an Event of Default then exists hereunder and if such proceeds do not exceed $500,000 for the Hotel Project so damaged, the same shall be applied to the restoration of the Buildings. 11 12 (b) In the event of such loss or damage, all proceeds of insurance shall be payable to Beneficiary, and Grantor hereby authorizes and directs any affected insurance company to make payment of such proceeds directly to Beneficiary. Beneficiary is hereby authorized and empowered by Grantor to settle, adjust, or compromise any claims for loss, damage, or destruction under any policy or policies of insurance, and provided there is no Event of Default hereunder, Grantor shall be permitted to participate in such negotiations. (c) Except to the extent that insurance proceeds are received by Beneficiary and applied to the Indebtedness, nothing herein contained shall be deemed to excuse Grantor from repairing or maintaining the Mortgaged Property as provided in this Deed of Trust or restoring all damage or destruction to the Mortgaged Property, regardless of whether or not there are insurance proceeds available or whether any such proceeds are sufficient in amount, and the application or release by Beneficiary of any insurance proceeds shall not cure or waive any default or notice of default under this Deed of Trust or invalidate any act done pursuant to such notice. (d) No prepayment penalty shall be applicable to any insurance proceeds received by Beneficiary under this Section 5.1.6. 5.1.7 Performance of Leases and Other Agreements. All Leases entered into by Grantor after the date hereof shall be on Grantor's standard form lease which form has been approved in advance and in writing by Beneficiary. All new Leases or renewals of existing Leases shall be consistent in form and substance with existing Leases and shall be subject to the prior written approval of Beneficiary. Grantor will not, without the prior written consent of Beneficiary, terminate any Leases or modify or amend any Lease (unless such modification or amendment does not materially affect the economics or business terms of the Lease). Grantor will duly and punctually perform all covenants and agreements expressed as binding upon it under the Leases and other agreements to which it is a party with respect to the Mortgaged Property or any part thereof, and will use its diligent good faith efforts to enforce or secure the performance of each and every obligation and undertaking of the respective lessees under the Leases, and Grantor will appear and defend, at its cost and expense, any action or proceeding arising under or in any manner connected with the Leases or the obligations and undertakings of any lessee or other party thereunder. Notwithstanding the foregoing, Beneficiary agrees that the terms of this Section 5.1.7 shall only be applicable to the Master Leases (as defined in Section 6.8) and any third-party restaurant leases at the Mortgaged Property. 5.1.8 Payment of Rents. Grantor hereby agrees that the respective lessees under the Leases, upon notice from Beneficiary of the occurrence of an Event of Default, shall thereafter pay to Beneficiary the Rents due and to become due under the Leases without any obligation to determine whether an Event of Default in fact exists. 5.1.9 Inspection. Grantor will permit Beneficiary, at all reasonable times and with reasonable notice, to inspect the Mortgaged Property. Beneficiary shall have the right, but not the obligation, to enter onto the Mortgaged Property, at all reasonable times and upon reasonable notice (except in the case of an emergency or following an Event of Default for which no notice 12 13 shall be required), to inspect the Mortgaged Property for the existence of Hazardous Materials on the Mortgaged Property and to determine the compliance of the Mortgaged Property and its use with any law, rule or regulation relating to industrial hygiene or environmental conditions, including soil and ground water conditions and the compliance of the Grantor and the Mortgaged Property with the conditions and covenants set forth herein with respect to Hazardous Materials. 5.1.10 Hold Harmless. Grantor will defend and hold Beneficiary harmless from any action, proceeding or claim affecting the Mortgaged Property, the Security Documents or the Guaranty to the extent such action, proceeding or claim arose prior to Beneficiary's possession of the Mortgaged Property and to the extent such action, proceeding or claim did not result primarily from Beneficiary's gross negligence or willful wrongdoing. Grantor shall appear in and defend (or pay the reasonable expenses of Beneficiary to defend, if Beneficiary gives Grantor notice of its election to handle such defense) any action or proceeding purporting to affect the security of this Deed of Trust and/or the rights and/or powers of Beneficiary hereunder, and Grantor shall pay all costs and expenses (including costs of evidence of title and reasonable attorneys' fees) in any action or proceeding in which Beneficiary may so appear and/or any suit by Beneficiary to foreclose this Deed of Trust, to enforce any obligations secured by this Deed of Trust, and/or to prevent the breach hereof. Grantor's obligations under this Section 5.1.10 shall survive payment of the Indebtedness and the release of the lien granted herein, but are subject to the terms of Section 9.24 below. 5.1.11 Books and Records. Grantor will maintain full and complete books of account and other records reflecting the results of its operation of the Mortgaged Property. Grantor will furnish or cause to be furnished to Beneficiary (a) within 30 days after the end of each calendar quarter, detailed statements of income and expenses, balance sheet and statement of cash flow relating to the Mortgaged Property for such period (including a certified rent roll for the Mortgaged Property); (b) within 90 days after the end of each calendar year, detailed statements of income and expenses relating to the Mortgaged Property for such year; (c) within 90 days after the end of each calendar year, separate financial statements for such year of Grantor and Guarantor; (d) within 30 days after the end of each calendar quarter, a report outlining monthly occupancy and average daily rates for the Mortgaged Property; (e) within 30 days after the end of each calendar quarter, a delinquency report and accounts receivable aging for the Mortgaged Property for such months; (f) within 30 days after the end of each calendar quarter a statement of the balance of the working capital reserve described in Section 5.1.21 hereof; (g) no less than 10 days prior to each fiscal year, a budget for the upcoming fiscal year; and (h) at least 10 days prior to the end of each calendar year, a detailed capital improvement budget for the replacement reserve described in Section 5.1.21 below), all in reasonable detail and certified by Grantor (except Guarantor's statements which shall be certified by Guarantor). All such financial statements and reports shall be certified by Grantor as accurate and complete in all material respects. At any time and from time to time, Grantor shall deliver to Beneficiary such other financial data and other information, including, without limitation, copies of all Leases, as Beneficiary shall, from time to time, reasonably request with respect to Grantor and the ownership and operation of the Mortgaged Property, and Beneficiary (or its designee) shall have the right, at reasonable times and upon reasonable notice, to audit Grantor's books of account and records at Grantor's sole cost and expense. 13 14 5.1.12 Awards. Grantor will file and prosecute its claim or claims for any Awards in good faith and with due diligence and cause the same to be collected and paid over to Beneficiary, and hereby irrevocably authorizes and empowers Beneficiary, if it so desires, to file such claim and collect any Awards and agrees that the proceeds of any Awards will be applied by Beneficiary in reduction (without a prepayment premium) of any portion of the Indebtedness as Beneficiary may determine in accordance with Article 8 hereof. 5.1.13 Licenses. Grantor shall keep in full force and effect all licenses, permits and other governmental approvals which are necessary for the operation of the Mortgaged Property and related facilities, and furnish evidence satisfactory to Beneficiary that the Mortgaged Property and the use thereof comply in all material respects with all applicable zoning and building laws, regulations, ordinances and other applicable laws. 5.1.14 Junior Financing. Grantor shall not, without the prior written consent of Beneficiary, such consent to be made in Beneficiary's sole determination, incur any additional indebtedness or create or permit to be created or to remain, any mortgage, pledge, lien, encumbrance or charge on, or conditional sale or other title retention agreement with respect to, the Mortgaged Property or any part thereof or income therefrom, other than the Security Documents and the Permitted Encumbrances. Notwithstanding the foregoing, Mortgagor shall be permitted to incur up to $300,000 (in the aggregate per Hotel Project) of unsecured debt for the financing of equipment and other personal property, which debt may be evidenced by either notes or equipment leases and may be secured by a purchase money security interest(s). 5.1.15 Mechanic's Lien. Grantor shall not permit or suffer any mechanic's, materialmen's or other lien to be created or to remain a lien upon any of the Mortgaged Property; provided however, Grantor shall have the right to contest any such lien prior to payment so long as (i) Grantor contests such lien in good faith, (ii) Grantor sends advance written notice to Beneficiary that Grantor is contesting such lien, (iii) either Grantor posts a bond with a party acceptable to Beneficiary which is sufficient to pay the indebtedness secured by such lien or Grantor delivers other security reasonably satisfactory to Beneficiary, and (iv) such contest does not materially impair the Mortgaged Property. 5.1.16 Hazardous Materials. (a) Without limiting the generality of Section 5.1.2 hereof, Grantor shall not cause or permit the violation of any law relating to industrial hygiene or environmental conditions in connection with the Mortgaged Property, including soil and ground water conditions and underground storage tanks ("USTs"); or use, cause or permit a release (a "Release") of a Hazardous Material, generate, or store any Hazardous Materials in, on, under, over, from or affecting the Mortgaged Property, except in accordance with all applicable laws; manufacture or dispose of any Hazardous Materials in, on, under, over, from or affecting the Mortgaged Property; or transport any Hazardous Materials to or from the Mortgaged Property. Without Beneficiary's prior written consent, which shall not be unreasonably withheld, Grantor shall take no remedial action with respect to any Hazardous Materials in, on, under, over, from or affecting the Mortgaged Property, and 14 15 shall not enter into any settlement agreement, consent decree or other compromise or agreement relating to any such Hazardous Materials. Beneficiary's consent to such action shall not be construed to mean that Beneficiary has the capacity to cause or determine the appropriated Hazardous Materials management practices of Grantor but only is intended for Beneficiary to assure that its collateral hereunder is not being impaired. (b) Grantor shall indemnify and hold Trustee and Beneficiary harmless from any loss, liability, cost, expense and/or claim (including without limitation the cost of any fines, remedial action, damage to the environment and cleanup and the fees of experts and reasonable attorneys fees) of or against Trustee and/or Beneficiary arising from (i) the use, generation, storage, Release or disposal of any Hazardous Materials in, on, under, over, from or affecting the Mortgaged Property or the transport of any Hazardous Materials to or from the Mortgaged Property; and (ii) the violation of any law relating to industrial hygiene or environmental conditions in connection with the Mortgaged Property, including soil and ground water conditions and USTs; and (iii) the breach of any of the representations, warranties and covenants of Grantor with respect to Hazardous Materials set forth in this Section 5.1.16 and in Section 5.2 hereof. This indemnity shall only apply to the extent any loss, liability, cost, expense and/or claim which arose prior to Beneficiary's actual possession of the Mortgaged Property and did not result primarily from Beneficiary's gross negligence or willful wrong doing. Beneficiary shall have the right to approve any counsel selected by Grantor to defend Beneficiary hereunder. Beneficiary shall have the right, but not the obligation, to enter into the Mortgaged Property during the term of the Loan following 24 hours prior notice to Grantor, to inspect the Mortgaged Property and to perform any reasonable testing of the Mortgaged Property for the existence of any Hazardous Materials thereon and to determine the compliance of the Mortgaged Property and its uses with any environmental law. Beneficiary may hire engineers and other consultants of its choice to perform the inspections, and testing required in the foregoing paragraph at Grantor's sole expense. The inspection of the Mortgaged Property by Beneficiary or its agents will not relieve Grantor of its obligation to comply with any environmental laws. Grantor's obligations under this Section 5.1.16 shall survive payment of the Indebtedness and the release of the lien granted herein. Notwithstanding the foregoing, prior to an Event of Default any such testing shall be at Beneficiary's cost as opposed to Grantor's cost. 5.1.17 Management. The Mortgaged Property shall at all times be operated by Grantor or such other management company approved in advance and in writing by Beneficiary under a management contract satisfactory in form and substance to Beneficiary. In the event the Mortgaged Property is managed by an affiliate of Grantor or Guarantor, then the interests of the Grantor and the management company under such contract shall be subordinate to the rights of Beneficiary hereunder, and the management agreement shall provide that Beneficiary may, at its option, terminate such contract upon the occurrence of an Event of Default which remains uncured following the expiration of any applicable cure periods. In addition, any economic or material changes in the franchise agreements/license agreements for the operation of the Mortgaged Property must receive the prior written consent of Beneficiary. In addition, Grantor agrees to immediately forward to Beneficiary copies of any correspondence Grantor receives from any franchisor with regard to a default or potential default by the tenant under the Master Leases. 15 16 5.1.18 Use of Mortgaged Property. Grantor shall not use the Mortgaged Property or any part thereof, or allow the same to be used or occupied, for any purpose other than for the purposes of a hotel or for any unlawful purpose, or in violation of any certificate of occupancy or other permit or certificate, or any law, ordinance or regulation, covering or affecting the use or occupancy thereof. Grantor will not suffer any act to be done or any condition to exist on the Mortgaged Property or any part thereof or any article to be brought thereon, which may be dangerous (unless safeguarded as required by law) or which may constitute a nuisance public or private or which may void or make voidable any insurance then in force with respect thereto. 5.1.19 Use of Beneficiary's Name. Grantor shall not use the names of either Beneficiary or any of Beneficiary's subsidiaries or affiliates in connection with the development and operation of the Mortgaged Property. 5.1.20 No Other Real Estate. At all times during the term of the Note, Grantor shall not own any real estate other than the Mortgaged Property. 5.1.21 Maintenance of Reserves. At all times during the term of the Note and for the exclusive benefit of the Mortgaged Property, Grantor shall maintain a cash working capital replacement reserve with a financial institution acceptable to Beneficiary, in Beneficiary's sole discretion. Grantor shall deposit, on a monthly basis, into such reserve an amount equal to four percent (4%) of the Mortgaged Property's gross revenues. Grantor shall, on a quarterly basis, send to Beneficiary copies of monthly bank statements for the preceding quarter, so that Beneficiary can verify the existence and maintenance of such working capital reserves. Such reserve shall be pledged to Beneficiary as additional security for the Loan (and will not be applied by Beneficiary unless there is an Event of Default). The working capital reserve shall be restricted for the exclusive purpose of funding Beneficiary-approved capital improvements and replacement of furniture, fixtures and equipment for the Mortgaged Property. Beneficiary's approval for disbursements from the reserve may be obtained on an annual basis at the time of the submission of the annual hotel budget to Beneficiary, with such disbursements available on a monthly basis (Beneficiary will permit withdrawals from such reserve up to 10% in excess of a specified line item in such approved budget). Beneficiary agrees that its consent shall not be unreasonably withheld in connection with such budget approval. All other disbursements shall require Beneficiary's specific written approval before such funds are released. 5.2 Representations and Warranties of Grantor. Grantor hereby represents and warrants to Beneficiary as of the date hereof as follows, and agrees to give written notice to Beneficiary of any breach of such representations and warranties: 5.2.1 Good Standing/Licensing. Grantor (and its general partner) is duly organized and validly existing under the laws of its state of organization, is duly licensed or qualified to do business and is in good standing and is authorized to do business in every jurisdiction in which the nature of its businesses or properties makes such licensing or qualification necessary and where a failure to so qualify or be licensed would have a materially adverse effect on the business or operations of the Grantor (and its general partner and Guarantor), and to its knowledge is in compliance with all laws, regulations, ordinances and orders of public authorities applicable to 16 17 Grantor (and its general partner). The execution of the Note, the Security Documents, and the Indemnity Agreement are within Grantor's partnership powers. 5.2.2 No Conflict. The execution, delivery and performance by Grantor of the Note, the Security Documents, the Indemnity Agreement and by Guarantor of the Guaranty will not, to Grantor's knowledge, violate any provision of law (including, but not limited to, any law relating to usury), any order of any court or other agency or government, or any indenture, agreement or other instrument to which Grantor or Guarantor is a party or by which Grantor, Guarantor or any of their property is bound, or be in conflict with, result in a breach of or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or other instrument, or violate the partnership agreement of the Grantor or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of Grantor or Guarantor, except as contemplated by the Note and the Security Documents, and no action with respect thereto by Grantor or Guarantor is required. 5.2.3 Consents. No consent or approval of any regulatory body to the execution, delivery and performance of the Note, the Security Documents, the Indemnity Agreement or the Guaranty or the transactions contemplated thereby is required by law. 5.2.4 Suits. There are no suits, proceedings or investigations pending or, to the best of Grantor's knowledge, threatened against or affecting Grantor or Guarantor, at law or in equity, or before or by any governmental or administrative agency or instrumentality which, if adversely determined, would have a material adverse effect on the business or condition of Grantor or Guarantor. 5.2.5 Judgments. No judgment, decree or order of any court or governmental or administrative agency or instrumentality has been issued against Guarantor or Grantor which has or may have any material adverse effect on the business or condition of Grantor or Guarantor. 5.2.6 Information. To the best of Grantor's knowledge, all information, reports, papers and data given to Beneficiary with respect to Grantor, Guarantor or others obligated under the terms of the Security Documents, and the Guaranty are accurate and correct in all material respects. 5.2.7 Title to Mortgaged Property/Right to Assign Leases. Grantor has good and indefeasible title in fee simple to the Land and good and marketable title to the Buildings, Fixtures and Personalty, and the right to assign the Leases and Rents to Beneficiary free and clear of any prior assignment, liens, charges, encumbrances, security interests and adverse claims whatsoever except the Permitted Encumbrances. 5.2.8 Leases. Grantor has not executed any presently effective prior assignment of the Leases or of its right, title and interest therein or in the Rents to accrue thereunder. 17 18 5.2.9 Permitted Encumbrances. The Permitted Encumbrances have not materially interfered with the operation of the Mortgaged Property, nor does Grantor reasonably foresee any material interference arising from the Permitted Encumbrances during the term of the Note. 5.2.10 Taxes. Grantor, its general partner and Guarantor have filed all Federal, state, county, and municipal income tax returns required to have been filed by them and have paid all taxes which have become due pursuant to any assessments received by them, and Grantor and Guarantor do not know of any basis for additional assessment in respect to such taxes. 5.2.11 Use of Mortgaged Property. The Mortgaged Property is being, and will continue to be, used for the purpose of a Hotel Project and is not now homestead property (business or personal). 5.2.12 Hazardous Materials. To the best of Grantor's knowledge after due inquiry and investigation, no Release of a Hazardous Material has occurred in, on, under, over, from or affecting the Mortgaged Property except to the extent disclosed in the environmental assessments delivered to Beneficiary by Grantor in connection with the closing of the Loan. Grantor has not received any notice from any governmental agency or from any tenant under a Lease or from any other party with respect to such Release. To the best of Grantor's knowledge after due inquiry and investigation, the Mortgaged Property is not in violation of any applicable environmental or industrial hygiene laws, rules or regulations. Grantor has not generated, stored, used, released or disposed of any Hazardous Material in, on, under, over, from or affecting the Mortgaged Property or in, on, under, over, from or affecting any adjoining property. 5.2.13 Plans and Specifications. To the best of Grantor's knowledge after due inquiry and investigation, Grantor warrants that the Buildings and Improvements comply with all applicable laws, codes and other governmental requirements, except to the extent disclosed in the engineering assessments delivered to Beneficiary by Grantor in connection with the closing of the Loan. 5.2.14 Single Purpose Entity/Separateness. Grantor represents, warrants and covenants as follows: (a) Grantor does not own and will not own any asset or property other than (i) the Mortgaged Property and (ii) incidental personal property necessary for the ownership or operation of the Mortgaged Property and Grantor's permitted business operations. (b) Grantor will not engage in any business other than the ownership, management and operation of the Mortgaged Property and Grantor will conduct and operate its business as presently conducted and operated. (c) Grantor will not enter into any contract or agreement with any affiliate of the Grantor, any constituent party of Grantor, any Guarantor of the Indebtedness and/or Obligations or any part thereof or any affiliate of any constituent party or Guarantor, except upon terms and conditions that are intrinsically fair and substantially similar to 18 19 those that would be available on an arms-length basis with third parties other than any such party. (d) Grantor has not incurred and will not incur any indebtedness, secured or unsecured, direct or indirect, absolute or contingent (including guaranteeing any obligation), other than (i) the Indebtedness, (ii) trade and operational debt incurred in the ordinary course of business with trade creditors and in amounts as are normal and reasonable under the circumstances (and expressly consented to by Beneficiary in writing or otherwise permitted hereunder without Beneficiary's further consent), and (iii) debt incurred in the financing of equipment and other personal property used on the premises (and expressly consented to by Beneficiary hereunder). No indebtedness other than the Indebtedness may be secured (subordinate or pari passu) by a lien on the Mortgaged Property. (e) Grantor has not made and will not make any loans or advances (other than distributions of any net profits to Grantor's partners and the repayment of permitted intercompany loans) to any third party (including any affiliate or constituent party, any Guarantor or any affiliate of any constituent party or Guarantor), and shall not acquire obligations or securities of its affiliates. (f) Grantor is and will remain solvent and Grantor will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due. (g) Grantor has done or caused to be done and will do all things necessary to observe organizational formalities and preserve its existence, and Grantor will not, nor will Grantor permit any constituent party to amend, modify or otherwise change the partnership certificate, partnership agreement, articles of incorporation and bylaws, trust or other organizational documents of Grantor or such constituent party without the prior written consent of Beneficiary. (h) Grantor will maintain all of its books, records, financial statements and bank accounts separate from those of its affiliates and any constituent party and Grantor will file its own tax returns unless required otherwise by applicable law. Grantor shall maintain its books, records, resolutions and agreements as official records. (i) Grantor will be, and at all times will hold itself out to the public as, a legal entity separate and distinct from any other entity (including any affiliate of Grantor, any constituent party of Grantor, any Guarantor or any affiliate of any constituent party or Guarantor), shall correct any known misunderstanding regarding its status as a separate entity, shall conduct business in its own name, shall not identify itself or any of its affiliates as a division or part of the other and shall maintain and utilize separate stationery, invoices and checks. 19 20 (j) Grantor will 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. (k) Neither Grantor nor any constituent party will seek the dissolution, winding up, liquidation, consolidation or merger in whole or in part, of the Grantor. (l) Grantor will not commingle the funds and other assets of Grantor with those of any affiliate or constituent party, any Guarantor, or any affiliate of any constituent party of Guarantor, or any other person. (m) Grantor has and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any affiliate or constituent party, any Guarantor, or any affiliate of any constituent party or Guarantor, or any other person. (n) Grantor does not and will not hold itself out to be responsible for the debts or obligations of any other person. (o) If Grantor is a limited partnership or a limited liability company, the general partner or managing member or Guarantor shall be a limited liability company whose sole asset is its interest in Grantor and the general partner or managing member will at all times comply, and will cause Grantor to comply, with each of the representations, warranties, and covenants contained in this Section 5.2.14 as if such representation, warranty or covenant was made directly by such general partner or managing member. (p) The general partner of Grantor shall at all times maintain an independent director/member who has been approved in writing by Beneficiary. Article 6 EVENTS OF DEFAULT 6. Events of Default The term "Event(s) of Default," as used in the Security Documents, the Guaranty and the Note, shall mean the occurrence or happening, from time to time, of any one or more of the following: 6.1 Payment of Indebtedness. If Grantor shall default in the due and punctual payment of all or any portion of any installment of the Indebtedness as and when the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or by acceleration or otherwise and such default shall continue for a period of ten (10) days; provided that failure to pay the final installment due at maturity shall immediately constitute an Event of Default hereunder. 20 21 6.2 Performance of Obligations. If Grantor or Guarantor shall default in the due observance or performance of any of the Obligations other than payment of money and such default shall not be curable, or if curable shall continue for a period of thirty (30) days after written notice thereof from Beneficiary to Grantor (unless such default, if curable, requires work to be performed, acts to be done or conditions to be remedied which by their nature cannot be performed, done or remedied, as the case may be, within such thirty day period and Grantor shall commence to cure such default within such thirty (30) day period and shall thereafter diligently and continuously process the same to completion, but in no event shall the period for cure exceed ninety (90) days unless otherwise agreed in writing by Beneficiary, and in no event shall the period for such cure extend beyond the maturity of the Note). 6.3 Bankruptcy Receivership, Insolvency, Etc. If voluntary or involuntary proceedings under the Federal Bankruptcy Code, as amended, shall be commenced by or against Grantor, any general partner of Grantor, or Guarantor, or bankruptcy, receivership, insolvency, reorganization, dissolution, liquidation or other similar proceedings shall be instituted by or against Grantor, any general partner of Grantor, or Guarantor, with respect to all or any part of Grantor's, or Guarantor's property or the property of any general partner of Grantor under the Federal Bankruptcy Code, as amended, or other law of the United States or of any state or other competent jurisdiction, and if such proceedings are instituted against Grantor, any general partner of Grantor or Guarantor and it shall consent thereto or shall fail to cause the same to be discharged within sixty (60) days. 6.4 Laws Affecting Obligations and Indebtedness. If subsequent to the date of this Deed of Trust, any governmental entity having jurisdiction in which the Mortgaged Property is located passes any law (a) which renders payment of the Indebtedness and/or performance of the material Obligations by Grantor or by Guarantor unlawful, or (b) which prohibits Beneficiary from exercising any of its essential rights and remedies under the Note, the Security Documents, the Indemnity Agreement or the Guaranty. 6.5 False Representation. If any representation or warranty made by Grantor, Guarantor or others in, under or pursuant to the Note, the Guaranty or the Security Documents (including, but not limited to, any representation or warranty made in Section 5.2 hereof) shall prove to have been false or misleading in any material respect as of the date on which such representation or warranty was made. 6.6 Destruction of Improvements. If any of the Buildings is demolished or removed or demolition or removal thereof is imminent, eminent domain proceedings excepted, unless Grantor is diligently repairing or replacing the Mortgaged Property to Beneficiary's satisfaction in accordance with Section 5.1.6 hereof. 6.7 Default Under Other Deed of Trust. If the holder of any junior deed of trust or any other lien on the Mortgaged Property (without hereby implying Beneficiary's consent to any such junior deed of trust or lien) institutes foreclosure or other proceedings for the enforcement of its remedies thereunder, or if a default exists and is continuing beyond any applicable grace or cure period under any other deed of trust or lien (excluding mechanics' and materialmen's liens 21 22 adequately bonded to the sole satisfaction of Beneficiary) on the Mortgaged Property. Notwith standing anything herein to the contrary, the filing of a foreclosure proceeding or suit to collect the debt secured by any such deed of trust or lien shall immediately constitute an Event of Default hereunder. 6.8 Security Documents and Loan Documents. If a default shall occur and be continuing after the expiration of any applicable grace or cure period under any of the Security Documents, the Guaranty, or under any of the other Loan Documents, including, without limitation, the failure of Grantor in connection with the purchase of a renewal Cap (as defined and described in Section 23 of the Note). 6.9 Due on Sale. If, without the prior written consent of Beneficiary, there is directly or indirectly (a) any master lease of an entire Hotel Project comprising the Mortgaged Property [other than the existing master lease agreements (the "Master Leases") between Grantor and Bristol Hotel Tenant Company] or any sale, transfer, assignment, agreement for deed, conveyance, hypothecation or encumbrance, whether voluntary or involuntary, of all or part of the Mortgaged Property or any interest therein, or (b) any sale, assignment, or transfer of the partnership interests, membership interests or of the corporate voting stock in Grantor or its general partner (or the general partner or managing member of such general partner), or (c) a seizure of the Mortgaged Property, or attachment of any lien on the Mortgaged Property, whether voluntary or involuntary, which has not been removed or bonded off to Beneficiary's sole satisfaction within thirty (30) days of such attachment. Promptly following any such transfer, Grantor shall advise Beneficiary in writing of such occurrence. 6.10 Judgment. If a final judgment (i.e., non-appealable and not covered by insurance) for the payment of money in excess of One Hundred Thousand Dollars ($100,000.00) shall be rendered against Grantor or Guarantor and the same shall remain unpaid for a period of sixty (60) consecutive days during which period execution shall not be effectively stayed. 6.11 Other Real Estate. If Grantor owns real estate other than the Mortgaged Property. 6.12 Dissolution and Termination. The dissolution or termination, as may be applicable, of any one or more of Grantor, Grantor's general partner(s) or Guarantor. 6.13 Hotel Franchise Agreements and License Agreement. If there is an uncured event of default by Grantor (or its master tenant or management agent) under any of the franchise agreements and/or license agreements used in connection with the operation of the Mortgaged Property. 6.14 Master Leases. If there is an uncured event of default by Grantor under any of the Master Leases. 22 23 Article 7 DEFAULT AND FORECLOSURE 7.1 Remedies. If an Event of Default shall occur, Beneficiary may, at its option, by or through Trustee or otherwise, exercise one or more or all of the following remedies: 7.1.1 Acceleration. Declare the unpaid portion of the Indebtedness to be immediately due and payable, without further notice or demand (each of which hereby is expressly waived by Grantor), whereupon the same shall become immediately due and payable. 7.1.2 Operation of Mortgaged Property. Hold, lease, operate or otherwise use or permit the use of the Mortgaged Property, or any portion thereof, in such manner, for such time and upon such terms as Beneficiary may deem to be in its best interest (making such repairs, alterations, additions and improvements thereto, from time to time, as Beneficiary shall deem necessary or desirable) and collect and retain all earnings, rents, profits or other amounts payable in connection therewith. 7.1.3 Judicial Proceedings. Institute proceedings for the complete or partial foreclosure of this Deed of Trust or take such steps to protect and enforce its rights whether by action, suit or proceeding in equity or at law for the specific performance of any covenant, condition or agreement in the Note or in this Deed of Trust (without being required to foreclose this Deed of Trust), or in aid of the execution of any power herein granted, or for any foreclosure hereunder, or for the enforcement of any other appropriate legal or equitable remedy or otherwise as Beneficiary shall elect. 7.1.4 Sale of Mortgaged Property. Cause the Mortgaged Property and all estate, right, title and interest, claim and demand therein, or any part thereof to be sold as follows: Upon the occurrence of an Event of Default the Trustee, or his successor or substitute, is authorized and empowered and it shall be his special duty at the request of Beneficiary to sell the Mortgaged Property or any part thereof situated within the State of Texas at the courthouse door of any county in the State of Texas in which any part of the Mortgaged Property is situated, at public vendue to the highest, bidder for cash between the hours of ten o'clock a.m. and four o'clock p.m., but not later than three hours after the earliest time at which sale will begin as set forth in the notice, on the first Tuesday in any month after having given notice of such sale in accordance with the statutes of the State of Texas then in force governing sales of real estate under powers conferred by deed of trust. Any sale made by the Trustee hereunder may be as an entirety or in such parcels as Beneficiary may request, and any sale may be adjourned by announcement at the time and place appointed for such sale without further notice except as may be required by law. The sale by the Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale herein granted, and the Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale of less than the whole of the Mortgaged Property shall be less than the aggregate of the Indebtedness secured hereby and the expense of executing this trust as provided 23 24 herein, this Deed of Trust and the lien hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale had been made; provided, however, that Grantor shall never have any right to require the sale of less than the whole of the Mortgaged Property but Beneficiary shall have the right, at its sole election, to request the Trustee to sell less than the whole of the Mortgaged Property. After each sale, the Trustee shall make to the purchaser or purchasers at such sale good and sufficient conveyances in the name of Grantor, conveying the property so sold to the purchaser or purchasers in fee simple with general warranty of title binding upon the Grantor but not upon the Trustee or Beneficiary, and shall receive the proceeds of said sale or sales and apply the same as herein provided. The power of sale granted herein shall not be exhausted by any sale held hereunder by the Trustee or his substitute or successor, and such power of sale may be exercised from time to time and as many times as Beneficiary may deem necessary until all of the Mortgaged Property has been duly sold and all Indebtedness has been fully paid. In the event any sale hereunder is not completed or is defective in the opinion of Beneficiary, such sale shall not exhaust the power of sale hereunder and Beneficiary shall have the right to cause a subsequent sale or sales to be made hereunder. Any and all statements of fact or other recitals made in any deed or deeds given by the Trustee or any successor or substitute appointed hereunder as to the occurrence of an Event of Default or the nonpayment of the Indebtedness or as to Beneficiary having declared all of said Indebtedness to be due and payable, or as to the request to sell, or as to notice of time, place and terms of sale and the property to be sold having been duly given, or as to the refusal, failure or inability to act of the Trustee, substitute or successor, or of the appointment of a substitute Trustee, shall be taken as prima facie evidence of the truth of the facts so stated and recited. The Trustee or his successor or substitute may appoint or delegate to the extent permitted by law any one or more persons as agent to perform any act or acts necessary or incident to any sale held by the Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of the Trustee, his successor or substitute. If the Trustee or his successor or substitute shall have given notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale. 7.1.5 Receiver. Beneficiary shall be entitled, as a matter of strict right, without notice and ex parte, and without regard to the value or occupancy of the security, or the solvency of the Grantor or of Guarantor, or the adequacy of the Mortgaged Property as security for the Note, to have a receiver appointed to enter upon and take possession of the Mortgaged Property, collect the Rents and profits therefrom and apply the same as the court may direct, such receiver to have all the rights and powers permitted under the laws of the jurisdiction in which the Mortgaged Property is located. Grantor hereby waives any requirements on the receiver or Beneficiary to post any surety or other bond. Beneficiary or the receiver may also take possession of, and for these purposes use, any and all Personalty which is a part of the Mortgaged Property and used by Grantor in the rental or leasing thereof, or any part thereof. The expense, (including the receiver's fees, counsel fees, costs and agent's compensation) incurred pursuant to the powers herein contained shall be secured by this Deed of Trust. Beneficiary shall (after payment of all costs and expenses incurred) apply such Rents, issues and profits received by it on the Indebtedness in the order set forth in Section 7.7 hereof. The right to enter and take possession of the Mortgaged Property, to manage and operate the same, and to collect the Rents, issues and 24 25 profits thereof, whether by receiver or otherwise, shall be cumulative to any other right or remedy hereunder or afforded by law, and may be exercised concurrently therewith or independently thereof. Beneficiary shall be liable to account only for such Rents, issues and profits actually received by Beneficiary. 7.1.6 Additional Rights and Remedies. With or without notice, and without releasing Grantor from the Indebtedness or Obligations, and without becoming a mortgagee in possession, Beneficiary shall have the right to cure any breach or default of Grantor and, in connection therewith, to enter upon the Mortgaged Property and to do such acts and things as Beneficiary or Trustee deem necessary or desirable to protect the security hereof including, but without limitation, to appear in and defend any action or proceedings purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee hereunder; to pay, purchase, contest or compromise any encumbrance, charge, lien or claim of lien which, in the judgment of either Beneficiary or Trustee, is prior or superior hereto, the judgment of Beneficiary or Trustee being conclusive as between the parties hereto; to obtain insurance; to pay any premiums or charges with respect to insurance required to be carried hereunder; and to employ counsel, accountants, contractors and other appropriate persons to assist them. 7.1.7 Beneficiary as Purchaser. Beneficiary shall have the right to become the purchaser at any sale held by the Trustee or by any court, receiver or public officer, and Beneficiary shall have the right to credit upon the amount of the bid made therefor, the amount of Indebtedness payable to it out of the net proceeds of such sale. Beneficiary upon any such purchase, shall acquire good title to the Mortgaged Property so purchased, free from the lien of this Deed of Trust and free of all rights of redemption, if any, in Grantor. Recitals contained in any conveyance made to any purchaser at any sale made hereunder shall presumptively establish the truth and accuracy of the matters therein stated, including, without limiting the generality of the foregoing, nonpayment of the unpaid principal sum of, and the interest accrued on, the Note after the same have become due and payable, advertisement and conduct of such sale in the manner provided herein or appointment of any successor Trustee hereunder; and Grantor does hereby ratify and confirm any and all acts that said Beneficiary or its successors may lawfully do in the premises by virtue of the terms and conditions of this instrument. 7.1.8 Receipt to Purchaser. Upon any sale, whether made under the power of sale herein granted and conferred or by virtue of judicial proceedings, the receipt of the Trustee, or of the officer making sale under judicial proceedings, shall be sufficient discharge to the purchaser or purchasers at any sale for his or their purchase money, and such purchaser or purchasers, his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Trustee or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. 7.1.9 Effect of Sale. Any sale or sales of the Mortgaged Property, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim, and demand whatsoever either at law or in equity, of Grantor of, in, and to the premises and the property sold, and shall be a perpetual bar, both at law and in 25 26 equity, against Grantor, Grantor's successors, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under Grantor, or Grantor's successors or assigns; nevertheless, Grantor, if requested by the Trustee so to do, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. 7.1.10 Remedies Under UCC. Upon the occurrence of an Event of Default, Beneficiary may exercise its rights of enforcement, if they can be exercised without a breach of the peace, with respect to the Personalty and/or the Fixtures under the applicable provisions of the Uniform Commercial Code as enacted in the State of Texas, and/or under other applicable Texas law, and in conjunction with, in addition to or in substitution for those rights and remedies: (a) Beneficiary may enter upon Grantor's premises to take possession of, assemble and collect the Personalty and/or Fixtures and any and all books related to the Mortgaged Property; and (b) Beneficiary may require Grantor to assemble the Personalty and/or Fixtures and make same available at a place Beneficiary designates which is mutually convenient to allow Beneficiary to take possession or dispose of the Personalty and/or Fixtures; and (c) Written notice mailed to Grantor as provided herein at least ten (10) days prior to the date of public sale of the Personalty and/or Fixtures or prior to the date after which private sale of the Personalty and/or Fixtures will be made shall constitute reasonable notice; and (d) Any sale made pursuant to the provisions of this Subsection shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Mortgaged Property under power of sale as provided in Subsection 7.1.4 of this Deed of Trust; and (e) In the event of a foreclosure sale, whether made by the Trustee under the terms hereof, or under judgment of a court, the Mortgaged Property may, at the option of Beneficiary, be sold as a whole; and (f) It shall not be necessary that Beneficiary take possession of the Personalty and/or Fixtures or any part thereof prior to the time that any sale pursuant to the provisions of this section is conducted and it shall not be necessary that the Personalty and/or Fixtures or any part thereof be present at the location of such sale; and (g) Prior to application of proceeds of disposition of the Personalty and/or Fixtures to the Indebtedness, such proceeds shall be applied to the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys' fees and legal expenses incurred by Beneficiary; and 26 27 (h) Any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Indebtedness or as to the occurrence of any Event of Default, or to Beneficiary having declared all of such Indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the Mortgaged Property to be sold having been duly done by Beneficiary, shall be taken as prima facie evidence of the truth of the facts so stated and recited; and (i) Beneficiary may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Beneficiary, including the sending of notices and the conduct of the sale, but in the name and on behalf of Beneficiary. 7.1.11 Entry on and Operation of Property by the Trustee. Upon the occurrence of an Event of Default and in addition to all other rights herein conferred on the Trustee, the Trustee (or any person, firm or corporation designated by the Trustee) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Mortgaged Property, and of all books, records, and accounts relating thereto and to exclude Grantor, and Grantor's agents or servants, wholly therefrom, and to hold, lease, operate, use, administer, manage, and operate the same to the extent that Grantor shall be at the time entitled and in his place and stead for such time, and upon such terms as Beneficiary may deem to be in its best interest (making such repairs, alterations, additions, and improvements thereto, from time to time, as Beneficiary shall deem necessary or desirable) and collect and retain all earnings, rents, profits, or other amounts payable in connection therewith. The Trustee, or any person, firm or corporation designated by the Trustee, may operate the same without any liability to Grantor in connection with such operations, except to use ordinary care in the operation of said properties, and the Trustee or any person, firm or corporation designated by them, shall have the right to collect, receive and receipt for all Rents from the Mortgaged Property, to make repairs, purchase machinery and equipment, and to exercise every power, right and privilege of Grantor with respect to the Mortgaged Property. All costs, expenses and liabilities of every character incurred by the Trustee or Beneficiary in managing, operating, maintaining, protecting or preserving the Mortgaged Property, respectively, shall constitute a demand obligation owing by Grantor to Beneficiary and shall bear interest from date of expenditure until paid at the same rate as is provided in the Note for interest on past due principal, all of which shall constitute a portion of the Indebtedness and shall be secured by this Deed of Trust and by any other instrument securing the Indebtedness. If necessary to obtain the possession provided for above, the Trustee or Beneficiary, as the case may be, may invoke any and all remedies to dispossess Grantor including specifically one or more actions for forcible entry and detainer, trespass to try title and restitution. When and if the expenses of such operation have been paid and the Indebtedness paid, the Mortgaged Property shall, if there has been no sale or foreclosure, be returned to Grantor. 7.1.12 Change in Laws. If any statute now applicable in any state in which any of the Mortgaged Property is now located provides, or shall hereafter be amended to provide, a different procedure for the sale of real property under a power of sale in a deed of trust or mortgage, 27 28 Beneficiary may, in its sole discretion, if same be permitted by applicable law, follow the sale procedure set forth in this Article VII or that prescribed in such statute, as amended. 7.1.13 Other. Exercise any other remedy specifically granted under the Security Documents or the Guaranty, or now or hereafter existing in equity, at law, by virtue of statute or otherwise, including the rights described below. 7.2 Separate Sales. Any real estate or any interest or estate therein sold pursuant to any writ of execution issued on a judgment obtained by virtue of the Note, this Deed of Trust or the other Security Documents, or pursuant to any other judicial proceedings under this Deed of Trust, or pursuant to the power of sale granted herein, may be sold in one parcel, as an entirety or in such parcels, and in such manner or order as Beneficiary, in its sole discretion, may elect. 7.3 Remedies Cumulative and Concurrent. The rights and remedies of Beneficiary as provided in the Note, this Deed of Trust, the Guaranty and in the Security Documents shall be cumulative and concurrent and may be pursued separately, successively or together against Grantor or Guarantor or against other obligors or against the Mortgaged Property, or any one or more of them, at the sole discretion of Beneficiary, and may be exercised as often as occasion therefor shall arise. The failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof, nor shall the choice of one remedy be deemed an election of remedies to the exclusion of other remedies. 7.4 No Cure or Waiver. Neither Beneficiary's nor Trustee's nor any receiver's entry upon and taking possession of all or any part of the Mortgaged Property nor any collection of rents, issues, profits, insurance proceeds, condemnation proceeds or damages, other security or proceeds of other security, or other sums, nor the application of any collected sum to any Indebtedness and Obligations, nor the exercise of any other right or remedy by Beneficiary or Trustee or any receiver shall impair the status of the security, or cure or waive any default or notice of default under this Deed of Trust, or nullify the effect of any notice of default or sale (unless all Indebtedness and Obligations which are then due have been paid and performed and Grantor has cured all other defaults), or prejudice Beneficiary or Trustee in the exercise of any right or remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease or option or a subordination of the lien of this Deed of Trust. 7.5 Payment of Costs, Expenses and Attorneys' Fees. Grantor agrees to pay to Beneficiary immediately and without demand all costs and expenses incurred by Trustee and Beneficiary in exercising the remedies under the Note, the Guaranty and the Security Documents (including, but without limitation, court costs and reasonable attorneys' fees, whether incurred in litigation or not) with interest at the Default Interest Rate from the date of expenditure until said sums have been paid. Beneficiary shall be entitled to bid, at the sale of the Mortgaged Property held pursuant to the power of sale granted herein or pursuant to any judicial foreclosure of this instrument, the amount of said costs, expenses and interest in addition to the amount of the other Indebtedness and Obligations as a credit bid, the equivalent of cash. 28 29 7.6 Grantor's Waiver of Appraisement, Marshalling, Other Rights. Grantor agrees, to the full extent that Grantor may lawfully so agree, that Grantor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this instrument or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but Grantor, for Grantor and all who may claim through or under Grantor, so far as Grantor or those claiming through or under Grantor now or hereafter lawfully may, hereby waives the benefit of all such laws. Grantor, for Grantor and all who may claim through or under Grantor, waives to the extent that Grantor may lawfully do so, any and all right to have the Mortgaged Property marshalled upon any foreclosure of the lien hereof, or sold in inverse order of alienation, and agrees that the Trustee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. If any law in this section referred, to and now or hereafter in force, of which Grantor or Grantor's successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to constitute any part of the contract herein contained or to preclude the operation or application of the provisions of this section. 7.7 Application of Proceeds. The proceeds of any sale of all or any portion of the Mortgaged Property and the amounts generated by any holding, leasing, operation or other use of the Mortgaged Property shall be applied by Beneficiary in the following order: (a) first, to the payment of prepayment premiums, if any, owing under the Note or the Security Documents; (b) second, to the payment of late charges, if any, owing under the Note or the Security Documents; (c) third, to the payment of the costs and expenses of taking possession of the Mortgaged Property and of holding, using, leasing, repairing, improving and selling the same (including without limitation payment of any Impositions or other taxes); (d) fourth, to the extent allowed by law, to the payment of attorneys' fees and other legal expenses, including expenses and fees incurred on appeals, and legal expenses and fees of a receiver; (e) fifth, to the payment of accrued and unpaid interest on the Indebtedness; and (f) sixth, to the payment of the balance of the Indebtedness. The balance, if any, shall be paid to the parties entitled to receive it under applicable law. 7.8 Strict Performance. Any failure by Beneficiary to insist upon strict performance by Grantor or Guarantor of any of the terms and provisions of the Security Documents, the Guaranty or of the Note shall not be deemed to be a waiver of any of the terms or provisions of 29 30 the Security Documents, the Guaranty or the Note and Beneficiary shall have the right thereafter to insist upon strict performance by Grantor or Guarantor of any and all of them. 7.9 No Conditions Precedent to Exercise of Remedies. Neither Grantor nor any other person now or hereafter obligated for payment of all or any part of the Indebtedness (including Guarantor) shall be relieved of such obligation by reason of the failure of Beneficiary to comply with any request of Grantor or Guarantor or of any other person so obligated to take action to foreclose on this Deed of Trust or otherwise enforce any provisions of the Security Documents, the Guaranty or the Note, or by reason of the release, regardless of consideration, of all or any part of the security held for the Indebtedness, or by reason of any agreement or stipulation between any subsequent owner of the Mortgaged Property and Beneficiary extending the time of payment or modifying the terms of the Security Documents or Note without first having obtained the consent of Grantor, Guarantor or such other person; and in the latter event Grantor, Guarantor and all such other persons shall continue to be liable to make payment according to the terms of any such extension or modification agreement, unless expressly released and discharged in writing by Beneficiary. 7.10 Release of Collateral. Beneficiary may release, regardless of consideration, any part of the security held for the Indebtedness or Obligations without, as to the remainder of the security, in any way impairing or affecting the liens of the Security Documents or their priority over any subordinate lien. Without affecting the liability of Grantor, Guarantor or any other person (except any person expressly released in writing), for payment of any Indebtedness secured hereby or for performance of any Obligations contained herein, and without affecting the rights of Beneficiary with respect to any security not expressly released in writing, Beneficiary may, at any time and from time to time, either before or after maturity of said Note, and without notice or consent: (a) release any person liable for payment of all or any part of the Indebtedness or for performance of any Obligations; (b) make any agreement extending the time or otherwise altering terms of payment of all or any part of the Indebtedness, or modifying or waiving any Obligation, or subordinating, modifying or otherwise dealing with the lien or charge hereof; (c) exercise or refrain from exercising or waive any right Beneficiary may have; (d) accept additional security of any kind; (e) release or otherwise deal with any property, real or personal, securing the Indebtedness, including all or any part of the Mortgaged Property. 7.11 Other Collateral. For payment of the Indebtedness, Beneficiary may resort to any other security therefor held by Beneficiary in such order and manner as Beneficiary may elect. 7.12 Discontinuance of Proceedings. In the event Beneficiary shall have proceeded to enforce any right under the Note, the Guaranty or the Security Documents and such proceedings shall have been discontinued or abandoned for any reason, then in every such case Grantor, Guarantor and Beneficiary shall be restored to their former positions and the rights, remedies and powers of Beneficiary shall continue as if no such proceedings had been taken. 7.13 Release of Liability or Personalty. Without affecting the liability of any person (other than any person released pursuant to the provisions of this section) for payment of any Indebtedness secured hereby, and without affecting or impairing in any way the priority or extent 30 31 of the liens of the Loan Documents upon any property not specifically released pursuant hereto, Beneficiary may at any time and from time to time (a) release any person liable for payment of any Indebtedness secured hereby; (b) extend the time or agree to alter the terms of payment of any of the Indebtedness; (c) accept additional security of any kind; (d) release any property securing the Indebtedness; or (e) consent to the creation of any easement on or over the Mortgaged Property or any covenants restricting the use or occupancy thereof. 7.14 Prepayment Premium. Grantor shall have no right to voluntarily prepay the principal amount of the Note, in whole or in part, except as set forth in the Note and Section 9.26 below. Article 8 CONDEMNATION 8.1 Condemnation. Grantor hereby assigns, transfers and sets over to Beneficiary all rights of Grantor to any Awards or payment in respect of (a) any taking of all or a portion of the Mortgaged Property as a result of, or by agreement in anticipation of, the exercise of the right of condemnation or eminent domain; (b) any such taking of any appurtenances to the Mortgaged Property or of vaults, areas or projections outside the boundaries of the Mortgaged Property, or rights in, under or above the alleys, streets or avenues adjoining the Mortgaged Property, or rights and benefits of light, air, view or access to said alleys, streets, or avenues or for the taking of space or rights therein, below the level of, or above the Mortgaged Property; and (c) any damage to the Mortgaged Property or any part thereof due to governmental action, but not resulting in, a taking of any portion of the Mortgaged Property, such as, without limitation, the changing of the grade of any street adjacent to the Mortgaged Property. Grantor hereby agrees to file and prosecute its claim or claims for any such award or payment in good faith and with due diligence and cause the same to be collected and paid over to Beneficiary, and hereby irrevocably authorizes and empowers Beneficiary, in the name of Grantor or otherwise, to collect and receipt for any such award or payment and, in the event Grantor fails to act, or in the event that an Event of Default has occurred and is continuing, to file and prosecute such claim or claims. Notwithstanding the foregoing, Grantor shall be permitted to collect and receive any Award less than $10,000 per Hotel Project comprising the Mortgaged Property. 8.2 Application of Proceeds. All proceeds received by Beneficiary with respect to a taking of all or any part of the Mortgaged Property or with respect to damage to all or any part of the Mortgaged Property from governmental action not resulting in a taking of the Mortgaged Property, shall be applied as follows, in the order of priority indicated: (a) first, to the payment of late charges, if any, owing under the Note or the Security Documents; (b) second, to the payment of the costs and expenses including reasonable attorneys' fees incurred in connection with collecting the sale proceeds; 31 32 (c) third, to the extent allowed by law, to the payment of attorneys fees and other legal expenses, including expenses and fees incurred on appeals, and legal expenses and fees of a receiver; (d) fourth, to the payment of accrued and unpaid interest on the Indebtedness; and (e) fifth, to the payment of the balance of the Indebtedness. The balance, if any, shall be paid to the parties entitled to receive it under applicable law. Article 9 MISCELLANEOUS 9.1 Further Assurances. Grantor, upon the reasonable written request of Beneficiary, will execute, acknowledge and deliver, or arrange for the execution, acknowledgment and delivery of, such further reasonable instruments (including, without limitation, financing statements, estoppel certificates and declarations of no set-off, attornment agreements and acknowledgments of the Assignment) and do such further acts as may be reasonably necessary, desirable or proper to carry out more effectively the purpose of the Security Documents, to facilitate the assignment or transfer of the Note, the Security Documents, the Indemnity Agreement and the Guaranty and to subject to the liens of the Security Documents any property intended by the terms thereof to be covered thereby, and any renewals, additions, substitutions, replacements or betterments thereto. Upon any failure of Grantor to execute and deliver such instruments, certificates and other documents on or before fifteen (15) days after receipt of written request therefor, Beneficiary may make, execute and record any and all such instruments, and certificates and Grantor irrevocably appoints Beneficiary the agent and attorney-in-fact of Grantor to do so. 9.2 Recording and Filing. Grantor, at its expense, will cause the Security Documents, all supplements thereto and any financing statements at all times to be recorded and filed and re-recorded and re-filed in such manner and in such places as Beneficiary shall reasonably request, and will pay all such recording, filing, re-recording and re-filing taxes, fees and other charges. 9.3 Notice. All notices, demands, requests and other communications required under the Security Documents and the Note shall be in writing and shall be deemed effective three (3) business days following the mailing of such notice by U.S. certified or registered mail, postage prepaid, addressed to the party, for whom it is intended at the Grantor's Address or the Trustee's Address, as the case may be, or in the case of notices to Beneficiary, to Beneficiary at the Beneficiary's Address. Any party may designate a change of address by written notice to the other, given at least ten (10) business days before such change of address is to become effective and provided that such address is located within the continental United States. Grantor may, from time to time, change the address to which notice of default and notice of sale hereunder shall be sent by both recording a request therefor and sending a copy of such request to Beneficiary. 32 33 9.4 Beneficiary's Right to Perform the Obligations. If Grantor shall fail to make any payment or perform any act required by the Note or the Security Documents following the expiration of any applicable cure periods, then, at any time thereafter, without notice to or demand upon Grantor and without waiving or releasing any obligation or default, Beneficiary may make such payment or perform such act for the account of and at the expense of Grantor, and shall have the right to enter the Mortgaged Property for such purpose and to take all such action thereon and with respect to the Mortgaged Property as may be necessary or appropriate for such purpose. All sums so paid by Beneficiary, and all costs, and expenses, including, without limitation, reasonable attorneys' fees and expenses so incurred together with interest thereon at the Default Interest Rate, from the date of payment or incurring, shall constitute additions to the Indebtedness secured by the Security Documents, and shall be paid by Grantor to Beneficiary, on demand. If Beneficiary shall elect to pay any Imposition, Beneficiary may do so in reliance on any bill, statement or assessment procured from the appropriate public office, without inquiring into the accuracy thereof or into the validity of such Imposition. Grantor shall indemnify Beneficiary for all losses and expenses, including reasonable attorneys' fees, incurred by reason of any acts performed by Beneficiary pursuant to the provisions of this Section 9.4 or by reason of the Security Documents or the Guaranty, and any funds expended by Beneficiary to which it shall be entitled to be indemnified, together with interest thereon at the Default Interest Rate from the date of such expenditures, shall constitute additions to the Indebtedness and shall be secured by the Security Documents and shall be paid by Grantor to Beneficiary upon demand. 9.5 Covenants Running with the Land. All covenants contained in the Security Documents shall run with the Mortgaged Property until the liens and security interest created hereby are released by Beneficiary. 9.6 Severability. In case any one or more of the Obligations shall be invalid, illegal or unenforceable in any respect, the validity of the Note, this Deed of Trust, the Security Documents, the Indemnity Agreement and remaining Obligations shall be in no way affected, prejudiced or disturbed thereby. 9.7 Modification. The Security Documents and the terms of each of them may not be changed, waived, discharged or terminated orally, but only by an instrument or instruments in writing signed by the party against which enforcement of the change, waiver, discharge or termination is asserted. 9.8 Non-Assumable. The loan evidenced by the Note and secured by this Deed of Trust is personal to Grantor, and Beneficiary made such loan to Grantor, based upon the credit of Grantor and Guarantor, and Beneficiary's judgment of the ability of Grantor to repay the entire Indebtedness and therefore this Deed of Trust may not be assumed by any subsequent holder of an interest in the Mortgaged Property without Beneficiary's prior written consent. This Section 9.8 is subject to the terms of Section 6.9 hereof. Beneficiary shall notify Grantor promptly in writing of any transaction or event described in Section 6.9 hereof. 9.9 Tax on Indebtedness or Deed of Trust. In the event of the passage, after the date of this Deed of Trust, of any law deducting from the value of land for the purposes of taxation, 33 34 any lien thereon, or imposing upon Beneficiary the obligation to pay the whole, or any part, of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust, mortgages or debts as to affect this Deed of Trust or the Indebtedness, the entire unpaid balance of the Indebtedness shall, at the option of Beneficiary, after thirty (30) days written notice to Grantor, become due and payable; provided, however, that if, in the opinion of Beneficiary's counsel, it shall be lawful for Grantor to pay such taxes, assessments, or charges, or to reimburse Beneficiary therefor, then there shall be no such acceleration of the time for payment of the unpaid balance of the Indebtedness if a mutually satisfactory agreement for reimbursement, in writing, is executed by Grantor and delivered to Beneficiary within the aforesaid period. 9.10 Maximum Rate of Interest. All agreements between Grantor and Beneficiary, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of the maturity of the Note or otherwise, shall the amount paid, or agreed to be paid to Beneficiary for the use, forbearance, or detention of the money to be loaned under the Note or otherwise or for the payment or performance of any covenant or obligation contained herein or in the Note, exceed the Maximum Rate. The term "Maximum Rate" as used herein shall mean the higher of the maximum interest rate allowed by applicable United States or Texas law as amended from time to time, in effect on the date for which a determination of interest accrued hereunder is made. If from any circumstances whatsoever fulfillment of any provision hereof or of any such other documents, at the time performance of such provisions shall be due, shall involve transcending the limit of validity prescribed by applicable usury law, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance, Beneficiary shall have ever received interest or anything which might be deemed interest under applicable law which would exceed the Maximum Rate, such amount which would be excessive interest shall be applied to the reduction of the principal amount owing on account of the Note or the amounts owing on other obligations of Grantor to Beneficiary hereunder and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of the principal of the Note and the amounts owing on other obligations of Grantor to Beneficiary hereunder as the case may be, such excess shall be refunded to Grantor. All sums paid or agreed to be paid to Beneficiary for the use, forbearance or detention of the Indebtedness of Grantor to Beneficiary shall, to the extent permitted by applicable law, (i) be amortized, prorated, allocated and spread throughout the full term of such Indebtedness until payment in full so that the actual rate of interest on account of such Indebtedness does not exceed the Maximum Rate throughout the term thereof, (ii) be characterized as a fee, expense or other charge other than interest, and/or (iii) exclude any voluntary prepayments and the effects thereof. 9.11 Survival of Warranties and Covenants. The warranties, representations, covenants and agreements set forth in the Security Documents shall survive the making of the loan and the execution and delivery of the Note, and shall continue in full force and effect until the Indebtedness shall have been paid in full, except such obligations as specified in Section 5.1.10 and 5.1.16 hereof which shall survive. 34 35 9.12 APPLICABLE LAW. THE LOAN DOCUMENTS AND THE SECURITY DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THIS DEED OF TRUST, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 9.13 Tax and Insurance Escrow. Grantor shall pay to Beneficiary, on each of the monthly due dates of interest payments set forth in the Note, an amount equal to one-twelfth of the annual (i) Impositions and (ii) insurance premiums for such insurance as is required hereunder. Grantor shall also pay into such account such additional amounts, to be determined by Beneficiary from time to time, as will provide a sufficient fund, at least thirty days prior to the due dates of the next installment of such Impositions and premiums, for payment of such Impositions and premiums so as to realize the maximum discounts permitted by law. Amounts held hereunder by Beneficiary shall be interest bearing but may be commingled with Beneficiary's other funds. Upon assignment of this Deed of Trust, Beneficiary shall have the right to pay over the balance of such amounts then in its possession to the assignee and Beneficiary shall thereupon be completely released from all liability with respect to such amounts. Upon full payment of the Indebtedness, or, at the election of Beneficiary at any prior time, the balance of such amounts shall be paid over to Grantor and no other party shall have any right or claim thereto. Amounts held by Beneficiary pursuant to this Section 9.13 shall be made available to Grantor in sufficient time to allow Grantor to satisfy Grantor's obligations under the Security Documents to pay Impositions and required insurance premiums, within the maximum discount period, where applicable. 9.14 Loan Expenses. Grantor shall pay all costs and expenses in connection with the preparation, execution, delivery and performance of the Note, the Guaranty, the Indemnity Agreement and the Security Documents and the transactions contemplated thereby, including (but not limited to) costs and fees incurred by Beneficiary's independent inspector, reasonable fees and disbursements of its and Beneficiary's counsel, broker's fees, costs and expenses of procuring any environmental audits required to be procured by Grantor, recording costs and expenses, conveyance fees, documentary stamp, intangible and other taxes, and costs and expenses of surveys, appraisals and policies of title insurance, physical damage insurance, and liability insurance. Grantor shall also pay any and all expenses associated with any future amendment and modifications to the Loan. 9.15 Substitution of Trustee. Beneficiary may appoint a substitute or successor trustee or trustees in place of the Trustee or Trustees, with or without any reason, and without other formality than a designation in writing of a substitute or successor. Beneficiary may exercise this irrevocable appointment power at any time without specifying any reason therefor. The power of appointment of a successor Trustee or Trustees may be exercised as often as and whenever the Beneficiary may choose, and the exercise of the power of appointment, no matter how often, shall not be an exhaustion thereof. Whenever in this Deed of Trust reference is made to the Trustee or Trustees, it shall be construed to mean the Trustee or Trustees for the time being, whether original or successors or successor in trust; and all title, estate, rights, powers, trusts, and duties hereunder given or appertaining to or devolving upon the Trustee or Trustees shall be in each of the Trustees so that any action hereunder or purporting to be hereunder of any one of the original 35 36 or any successor Trustees shall for all purposes be considered to be, and as effective as, the action of all the Trustees. 9.16 No Representations by Beneficiary. By accepting or approving anything required to be observed, performed or fulfilled or to be given to Beneficiary, pursuant to the Security Documents, including (but not limited to) any officer's certificate, survey, appraisal or insurance policy, Beneficiary shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or representation with respect thereto by Beneficiary. 9.17 Acceptance of Trust. Trustee accepts the Trust created by this Deed of Trust when this Deed of Trust, duly executed and acknowledged, is made a public record as provided by law. 9.18 Release. Upon the payment of all sums secured hereby, Beneficiary shall execute and deliver to Grantor a release of the lien created hereunder; provided, however, that Beneficiary shall not be responsible for recording same in the real property records and Grantor shall be solely responsible for the payment of any recordation fees. The recitals in any such release of any matters or facts contained in such release shall be conclusive proof thereof. 9.19 Compensation of Trustee. Trustee shall be entitled to reasonable compensation for all services rendered or expenses incurred in the administration or execution of the trusts hereby created and Grantor hereby agrees to pay same (so long as such services are not a duplication of attorney fees). Trustee and Beneficiary shall be indemnified, held harmless and reimbursed by Grantor for any liability, damage or expense, including reasonable attorneys' fees and amounts paid in settlement, which they or either of them may incur or sustain in the execution of this trust or in the doing of any act which they, or either of them, are required or permitted to do by the terms hereof or by law. 9.20 Brokerage Commission. Any brokerage commission or finder's fee payable in connection with the loan evidenced by the Note shall be payable by Grantor and not by Beneficiary, and Grantor shall indemnify Beneficiary and hold Beneficiary harmless against any claim of any broker or finder arising out of such loan. 9.21 Headings. The article headings and the section and subsection captions are inserted for convenience of reference only and shall in no way alter or modify the text of such articles, sections and subsections. 9.22 No Further Agreements. Grantor hereby acknowledges, with respect to the Loan Documents, that: 1. THE RIGHTS AND OBLIGATIONS OF GRANTOR AND BENEFICIARY SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN DOCUMENTS AND ANY PRIOR ORAL AGREEMENTS BETWEEN BENEFICIARY 36 37 AND GRANTOR ARE SUPERSEDED BY AND MERGED INTO THE LOAN DOCUMENTS. 2. THE LOAN DOCUMENTS MAY NOT BE VARIED BY ANY ORAL AGREEMENTS OR DISCUSSIONS THAT OCCUR BEFORE, CONTEMPORANEOUSLY WITH, OR SUBSEQUENT TO THE EXECUTION OF SUCH LOAN DOCUMENTS. 3. THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 9.23 Extension of Prior Liens. If any or all of the proceeds of the Note have been used to pay any indebtedness heretofore existing against the Mortgaged Property, then, to the extent of such funds so used, Beneficiary shall be subrogated to all of the rights, claims, liens, titles and interests heretofore existing against the Mortgaged Property to secure the indebtedness so paid and the former rights, claims, liens, titles and interests, if any, are not waived but rather shall continue in full force and effect in favor of Beneficiary as cumulative security for the repayment of the Indebtedness and the satisfactions of the Obligations regardless of whether said liens or debts are acquired by Beneficiary by assignment or are released by the holder thereof upon payment. 9.24 Limitation of Liability. Without impairing Beneficiary's rights, powers, privileges, liens or security interest of this Deed of Trust or any other document existing as security for the payment of the Indebtedness, Beneficiary agrees that, for enforcement of payment of the Note, it will look solely to the Mortgaged Property and such other collateral, as may now or hereafter be given to secure the payment of the Note, and no other property or assets of Grantor or its partner(s), except as described in this Deed of Trust, or the Security Documents, shall be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Beneficiary, or for any payment required to be made under the Note or under this Deed of Trust or for the performance of any of the covenants or warranties contained therein or herein; provided, however, Beneficiary may pursue all of its rights and remedies against the property of Grantor or its general partner or any guarantors of the Note described in this Deed of Trust or the other Security Documents, including, without limitation, the Mortgaged Property, to the full extent of such rights and remedies at law or in equity including, without limitation, all such rights and remedies as set forth in this Deed of Trust, the Note and the other Security Documents. The foregoing provisions of this section shall not affect in any way the validity or enforceability of any guaranty (whether of payment and/or performance) given to Beneficiary in connection with the loan secured hereby or constitute a waiver by Beneficiary of any rights to damages or other monetary relief or any other remedy at law or equity against Grantor or its general partner by reason of any one or more of the following: any actual loss, liability, damage, cost or expense (including reasonable attorneys' fees but expressly excluding consequential damages) incurred or to be incurred by Beneficiary (a) from Grantor's failure to perform its 37 38 obligation to properly account to Beneficiary as mortgagee for any proceeds of insurance or awards of condemnation as required by this Deed of Trust, to properly apply same in accordance with the terms and provisions of the Loan Documents, or for the misapplication or misappropriation by Grantor of condemnation or insurance proceeds, or any use by Grantor without the prior written consent of Beneficiary of condemnation or insurance proceeds after an Event of Default has occurred and is continuing (provided, however, that to the extent condemnation and insurance proceeds are applied in accordance with this Deed of Trust, Grantor will not be liable pursuant to the terms of the foregoing clause); or (b) because of Grantor's attempts to interfere with Beneficiary's rights under the Security Agreement or the Assignment of Leases and Rents contained in this Deed of Trust (provided, however, that this provision is not intended to prevent Grantor from exercising any of its rights or remedies under law or equity); or (c) because Grantor misappropriates or fails to apply security deposits, rents (advance, prepaid or otherwise), proceeds of rents and other income of the Mortgaged Property, working capital reserves, any other project reserves or project escrows towards the costs of maintenance and operation of the Mortgaged Property and to payment of real estate taxes and assessments, lien claims, insurance premiums and debt service to Beneficiary and on other permitted indebtedness; provided, however, that to the extent Grantor achieves a positive cash flow for any period after payment of debt service and Mortgaged Property expenses attributable to such period, Grantor shall have no personal liability for its failure to reserve or use any portion of such positive cash flow to cover operating deficits or debt service expenses in later periods (i.e., distributions to partners of Grantor are permissible during periods of positive cash flow); or (d) from Grantor's failure to pay for any loss, liability, damage, cost or expense (including attorneys' fees) incurred by Beneficiary in connection with either (i) any violation, directive (threatened or otherwise), order, consent decree, settlement, judgment or verdict arising from the presence, deposit, storage, disposal, burial, dumping, injecting, spilling, leaking or other placement or release in, on, over, under or from the Mortgaged Property of asbestos or a "hazardous substance" as defined in 42 U.S.C. Section 9601, et seq. as amended from time to time, or any other toxic or hazardous waste or waste products, or any Hazardous Materials, or (ii) any other cost or expense related to the environmental condition of the Mortgaged Property which results in a material diminution in value of the Mortgaged Property and results in actual loss, liability, damage, cost or expense to Beneficiary or which is otherwise covered by the indemnity set forth in the Indemnity Agreement; or (e) from any fraud, material misrepresentation, material misstatement and/or omission, or breach of material representations or warranties (including, without limitation, those related to the environmental condition of the Mortgaged Property and those related to Grantor's title to the Mortgaged Property) of Grantor whether contained in the Loan Documents or other writing in connection with the Loan evidenced by the Note and the other Loan Documents; or (f) because of Grantor's failure or refusal to pay any Impositions except to the extent being properly contested in accordance with the terms of this Deed of Trust; or (g) because of any waste (ordinary wear and tear excepted) committed by Grantor with respect to the Mortgaged Property; or (h) from Grantor's failure to purchase and maintain the insurance required by the terms of this Deed of Trust; or (i) any damages sustained by Beneficiary as a result of claims made by tenants at the Mortgaged Property arising out of matters occurring prior to the date on which Beneficiary succeeds to the interest of Grantor under the leases, unless such tenants have agreed in writing that Beneficiary is not responsible for such claims. 38 39 In addition, in the event Grantor files any petition or commences any proceeding pursuant to the United States Bankruptcy Reform Act of 1978, as amended, or any successor statute or equivalent debtor relief law, or any such proceeding is commenced or filing made with respect to Grantor by any member, partner, or shareholder of Grantor or any affiliate of Grantor or any such entity, or any other person or entity acting, directly or indirectly, in concert with one or more of the foregoing, Grantor and Guarantor shall be personally liable on a full recourse basis for all amounts payable pursuant to the Note and the other Loan Documents and for all losses, costs and expenses of any nature, including, without limitation, attorneys fees and disbursements, paid or incurred by Beneficiary in connection with or arising out of such petition or proceeding. The foregoing limitations on personal liability shall in no way impair or constitute a waiver of the validity of the Note, the indebtedness secured by the Mortgaged Property or the liens on, security title to, or security interests in the Mortgaged Property or the right of Beneficiary, as beneficiary or secured party, to foreclose and/or enforce its rights with respect to the Mortgaged Property after an Event of Default. Nothing herein shall be deemed to be a waiver of any right which Beneficiary may have under the United States Bankruptcy Code to file a claim for the full amount of the debt owing to Beneficiary by Grantor or to require that all Mortgaged Property shall continue to secure all of the indebtedness owing to Beneficiary in accordance with the Loan Documents. Beneficiary may seek a judgment on the Note as part of judicial proceedings to foreclose under this Deed of Trust or to foreclose pursuant to any other instrument securing the indebtedness evidenced by the Note, or as a prerequisite to any such foreclosure or to confirm any foreclosure or sale pursuant to power of sale thereunder, and in the event any suit is brought on the Note, or with respect to any indebtedness evidenced by the Note or secured by this Deed of Trust or any judgment rendered in such judicial proceedings, such judgment shall constitute a lien on and will be and can be enforced on and against the Mortgaged Property conveyed by this Deed of Trust or any such other security instruments and the rents, profits, issues, products and proceeds thereof. Nothing herein stated shall impair the right of the Beneficiary to accelerate the maturity of the Note (or to avail itself of any of its other rights and impair the right of the Beneficiary to accelerate the maturity of the Note (or to avail itself of any of its other rights and remedies) upon the occurrence of an Event of Default hereunder or under any other instrument securing or evidencing the indebtedness represented by the Note, nor shall anything herein stated impair or be construed to impair the right of Beneficiary to seek personal judgments and all rights and remedies to enforce same allowed by law, jointly and severally against any guarantors to the extent allowed by any applicable guarantees. The provisions set forth in this Section 9.24 are not intended as any release or discharge of the Indebtedness, or any monies due under the Note or under any other Loan Documents, but are intended as a limitation on Beneficiary's right to sue for deficiency or personal judgment except as provided in this section. 9.25 WAIVER OF JURY TRIAL. GRANTOR AND BENEFICIARY MUTUALLY, EXPRESSLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY FOR ANY PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS DEED OF TRUST, IN THE INTEREST OF AVOIDING DELAYS AND EXPENSES ASSOCIATED WITH JURY TRIALS. 39 40 9.26 Partial Release of Collateral. The Mortgaged Property is comprised of three (3) distinct Hotel Projects: Harvey Hotel-DFW (Irving, Texas); Crowne Plaza Hotel (Addison, Texas); and Crowne Plaza Suites Hotel (Dallas, Texas) (collectively, the "Hotel Projects", individually, a "Hotel Project"). In connection with the sale of any of the Hotel Projects comprising the Mortgaged Property, Beneficiary agrees that Grantor shall have the right to obtain a release of the Mortgaged Property from the lien of this Deed of Trust upon compliance with all of the following conditions: (a) no Event of Default shall then exist under this Deed of Trust or any other document evidencing or further securing any indebtedness secured hereby; (b) Beneficiary shall receive thirty (30) days prior written notice from Grantor identifying the Hotel Project to be released; (c) Grantee shall have received a cash payment (the "Release Price") to reduce the Principal Balance (as defined in the Note) equal to (i) the greater of (x) the Par Agreement amount set forth below for the respective Hotel Projects and (y) 100% of the net sales proceeds (i.e., gross sales price less reasonable and customary closing costs approved in writing by Beneficiary) from the subject Hotel Project (but in no event shall the Release Price exceed the Principal Balance of the Note): 1. Harvey Hotel-DFW ($28,500,000.00); 2. Crowne Plaza Hotel (Addison) ($18,500,000.00); and 3. Crowne Plaza Suites Hotel (Dallas) ($16,000,000.00), plus (ii) the pro rata portion of the prepayment premium, plus (iii) all accrued interest on the portion of the Principal Balance being prepaid. (d) The debt service coverage for the remaining Hotel Projects is no less than 2.00 to 1 at the greater of (i) 10% per annum or (ii) the interest rate of the Note in effect at the time. [SIGNATURES ON FOLLOWING PAGE] 40 41 IN WITNESS WHEREOF, Grantor has executed this Deed of Trust effective as of the date first above written. GRANTOR: FELCOR HOTEL COMPANY II, LTD., a Texas limited partnership By: FelCor Hotels GenPar II, L.L.C., a Delaware limited liability company, its general partner By: /s/ JOEL M. EASTMAN ------------------------------ Joel M. Eastman Vice President ACKNOWLEDGMENT STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me this __ day of March, 1999, by the said Joel M. Eastman, Vice President of FelCor Hotels GenPar II, L.L.C., a Delaware limited liability company, general partner of FELCOR HOTEL COMPANY II, LTD., a Texas limited partnership, on behalf of said limited partnership. /s/ SOPHIE MALESKI -------------------------------------- Notary Public in and for the State of Texas My Commission Expires: 11/21/00 Sophie Maleski - ---------------------------- -------------------------------------- Printed Name of Notary 41 EX-10.22.1 4 LOAN AGREEMENT U.S. $375,000,000 1 EXHIBIT 10.22.1 U.S. $375,000,000 LOAN AGREEMENT Dated as of April 1, 1999 Among FELCOR LODGING TRUST INCORPORATED and FELCOR LODGING LIMITED PARTNERSHIP as Borrower and THE LENDERS PARTY HERETO and THE CHASE MANHATTAN BANK as Administrative Agent & Collateral Agent ================================================== CHASE SECURITIES INC. as Lead Arranger & Book Manager 2 TABLE OF CONTENTS
PAGE Article I DEFINITIONS AND ACCOUNTING TERMS..................................................1 1.1. Defined Terms.........................................................................1 1.2. Computation of Time Periods..........................................................26 1.3. Accounting Terms.....................................................................26 1.4. Certain Terms........................................................................27 Article II AMOUNTS AND TERMS OF THE LOANS...................................................27 2.1. The Loans............................................................................27 2.2. Making the Loans.....................................................................27 2.3. Fees.................................................................................28 2.4. Collateral...........................................................................28 2.5. Repayment............................................................................29 2.6. Prepayments..........................................................................29 2.7. Conversion/Continuation Option.......................................................30 2.8. Interest.............................................................................30 2.9. Interest Rate Determination and Protection...........................................31 2.10. Increased Costs......................................................................31 2.11. Illegality...........................................................................32 2.12. Capital Adequacy.....................................................................32 2.13. Payments and Computations............................................................33 2.14. Taxes................................................................................34 2.15. Sharing of Payments, Etc.............................................................35 Article III CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT AND OF LENDING....................36 3.1. Conditions Precedent to Effectiveness of this Agreement and to the Loans.............36 3.2. Additional Conditions Precedent to Effectiveness of this Agreement and to the Loans..38 Article IV REPRESENTATIONS AND WARRANTIES...................................................39 4.1. Existence; Compliance with Law.......................................................39 4.2. Power; Authorization; Enforceable Obligations........................................39 4.3. Taxes................................................................................40 4.4. Full Disclosure......................................................................41
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PAGE 4.5. Financial Matters....................................................................41 4.6. Litigation...........................................................................42 4.7. Margin Regulations...................................................................42 4.8. Ownership of Borrower and DJONT; Subsidiaries........................................42 4.9. ERISA................................................................................43 4.10. Indebtedness.........................................................................44 4.11. Restricted Payments..................................................................44 4.12. No Burdensome Restrictions; No Defaults..............................................44 4.13. Investments..........................................................................44 4.14. Government Regulation................................................................44 4.15. Insurance............................................................................45 4.16. Labor Matters........................................................................45 4.17. Force Majeure........................................................................46 4.18. Use of Proceeds......................................................................46 4.19. Environmental Protection.............................................................46 4.20. Contractual Obligations Concerning Assets............................................48 4.21. Intellectual Property................................................................48 4.22. Title................................................................................48 4.23. Status as REIT.......................................................................50 4.24. Operator: Compliance with Law........................................................50 4.25. Operating Leases, Licenses and Management Agreement..................................50 4.26. FF&E Reserves........................................................................51 4.27. Year 2000 Compliance.................................................................51 Article V FINANCIAL COVENANTS..............................................................51 5.1. Unsecured Interest Expense Coverage..................................................51 5.2. Fixed Charge Coverage Ratio..........................................................52 5.3. Maintenance of Tangible Net Worth....................................................52 5.4. Limitations on Total Indebtedness....................................................52 5.5. Limitations on Total Secured Indebtedness............................................52 5.6. Adjusted NOI and Hotels..............................................................52 5.7. Limitations on Recourse Secured Indebtedness.........................................52
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PAGE Article VI AFFIRMATIVE COVENANTS............................................................52 6.1. Compliance with Laws, Etc............................................................52 6.2. Conduct of Business..................................................................53 6.3. Payment of Taxes, Etc................................................................53 6.4. Maintenance of Insurance.............................................................53 6.5. Preservation of Existence, Etc.......................................................53 6.6. Access...............................................................................54 6.7. Keeping of Books.....................................................................54 6.8. Maintenance of Properties, Etc.......................................................54 6.9. Performance and Compliance with Other Covenants......................................54 6.10. Application of Proceeds..............................................................54 6.11. Financial Statements.................................................................54 6.12. Reporting Requirements...............................................................56 6.13. Leases and Operating Leases; Management Agreements and Licenses......................58 6.14. Employee Plans.......................................................................59 6.15. Fiscal Year..........................................................................59 6.16. Environmental Matters................................................................59 6.17. REIT Requirements....................................................................60 6.18. Maintenance of FF&E Reserves.........................................................60 6.19. Further Assurances...................................................................60 6.20. Unencumbered Hotel Properties/Financial Covenant Imbalance...........................60 6.21. Hotel Documents......................................................................60 Article VII NEGATIVE COVENANTS...............................................................61 7.1. Restrictions on Wholly-Owned Subsidiaries............................................61 7.2. Operation/Ownership of Hotels........................................................62 7.3. Lease Obligations....................................................................62 7.4. Restricted Payments..................................................................62 7.5. Mergers, Stock Issuances, Asset Sales, Etc...........................................63 7.6. Restrictions on Construction/Budget Hotels...........................................63 7.7. Change in Nature of Business or in Capital Structure.................................63
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PAGE 7.8. Modification of Material Agreements..................................................64 7.9. Accounting Changes...................................................................64 7.10. Transactions with Affiliates.........................................................64 7.11. Adverse or Speculative Transactions..................................................64 7.12. Environmental Matters................................................................64 7.13. Joint Enterprises....................................................................65 7.14. ERISA Plan Assets....................................................................65 Article VIII EVENTS OF DEFAULT................................................................65 8.1. Events of Default....................................................................65 8.2. Remedies.............................................................................67 Article IX THE ADMINISTRATIVE AGENT.........................................................67 9.1. Authorization and Action.............................................................67 9.2. Administrative Agent's Reliance, Etc.................................................68 9.3. Chase and Affiliates.................................................................68 9.4. Lender Credit Decision...............................................................69 9.5. Indemnification......................................................................69 9.6. Successor Agent......................................................................70 Article X MISCELLANEOUS....................................................................70 10.1. Amendments, Etc......................................................................70 10.2. Notices, Etc.........................................................................71 10.3. No Waiver; Remedies..................................................................72 10.4. Costs; Expenses; Indemnities.........................................................72 10.5. Right of Set-off.....................................................................73 10.6. Binding Effect.......................................................................73 10.7. Assignments and Participations.......................................................74 10.8. Governing Law; Severability..........................................................76 10.9. Submission to Jurisdiction; Service of Process.......................................77 10.10. Section Titles.......................................................................77 10.11. Execution in Counterparts............................................................77 10.12. Entire Agreement.....................................................................77 10.13. Confidentiality......................................................................77
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PAGE 10.14. WAIVER OF JURY TRIAL.................................................................78 10.15. Joint and Several Obligations........................................................78
v 7 SCHEDULES Schedule I - Loan Commitments Schedule II - Applicable Lending Offices and Addresses for Notices Schedule III - Operating Lessees Schedule IV - Permitted Transferees Schedule 4.8 - Subsidiaries and Unconsolidated Entities Schedule 4.10 - Existing Indebtedness Schedule 4.13 - Existing Investments Schedule 4.19 - Environmental Protection Schedule 4.22(a) - Owned Real Estate Schedule 4.22(b) - Leased Real Estate vi 8 EXHIBITS Exhibit A - Form of Note Exhibit B - Form of Notice of Conversion or Continuation Exhibit C - Form(s) of Opinion(s) of Counsel for the Loan Parties Exhibit D - Form of Assignment and Acceptance Exhibit E - Form of Compliance Certificate Exhibit F - Form of Operating Lease Exhibit G - Form of Guaranty Exhibit H - Form of Pledge and Security Agreement vii 9 LOAN AGREEMENT ("Agreement"), dated as of April 1, 1999 among FELCOR LODGING TRUST INCORPORATED, a Maryland corporation ("FelCor") and FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership ("FelCor LP" and collectively with FelCor, the "Borrower"), the financial institutions listed on the signature pages hereof (each individually a "Lender" and collectively the "Lenders") and THE CHASE MANHATTAN BANK ("Chase"), as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). W I T N E S S E T H : WHEREAS, the Borrower desires to obtain the Loans (hereafter defined) from the Lenders; and WHEREAS, subject to and upon the terms and conditions set forth herein, the Lenders are willing to make Loans to the Borrower as provided for herein; NOW, THEREFORE, in consideration of the promises and the covenants and agreements contained herein, the parties hereto hereby agree that the aforementioned recitals are true and correct and hereby incorporated herein and that the parties hereto hereby agree as follows: Article I DEFINITIONS AND ACCOUNTING TERMS 1.1. Defined Terms. As used in this Agreement, the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adjusted EBITDA" means, for any Person for any period, EBITDA of such Person for such period less the FF&E Reserve for such Person. "Adjusted Funds From Operations" means, for any Person, for any period, Net Income (Loss) of such Person for such period plus (a) the sum (without duplication) of the following amounts of such Person and its Subsidiaries for such period determined on a consolidated basis in conformity with GAAP to the extent included in the determination of such Net Income (Loss): (i) depreciation expense, (ii) amortization expense and other non-cash charges of such Person and its Subsidiaries with respect to their real estate assets for such period, (iii) losses from Asset Sales of such Person and its Subsidiaries, losses resulting from restructuring of Indebtedness of such Person and its Subsidiaries and other extraordinary losses, and (iv) minority interests attributable to FelCor LP's partnership units; less (b) the sum (without duplication) of the following amounts of such Person and its Subsidiaries for such period determined on a consolidated 10 basis in conformity with GAAP to the extent included in the determination of such Net Income (Loss): (i) gains from Asset Sales of such Person and its Subsidiaries, gains resulting from restructuring of Indebtedness of such Person and its Subsidiaries and other extraordinary gains, and (ii) the applicable share of Net Income (Loss) of such Person's Unconsolidated Entities; plus (c) such Person's Pro Rata Share of Adjusted Funds From Operations of such Person's Unconsolidated Entities. "Adjusted NOI" means, with respect to any Hotel owned or leased by the Borrower or any of its Subsidiaries, Eligible Joint Ventures or Unconsolidated Entities, for any period, the Net Operating Income for such Hotel for such period less the FF&E Reserve for such Hotel for such period. "Affiliate" means, to any Person, any Subsidiary of such Person and any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person and includes each executive officer, director, trustee, limited liability company manager or general partner of such Person, and each Person who is the beneficial owner of 10% or more of any class of voting Stock of such Person. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Allerton Hotel" shall mean that certain Hotel located in Chicago Illinois and commonly known as the Allerton Hotel. "Alternative Currency Contract" means a currency swap agreement, currency cap agreement, currency collar agreement or forward currency agreement entered into to provide protection against fluctuations in an Alternative Currency. "Alternative Currency" means any lawful currency of a country where a Hotel is located, other than Dollars, which is freely transferable and convertible into Dollars. "Applicable Lending Office" means, with respect to each Lender, its Domestic Lending Office in the case of a Base Rate Loan and its Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Applicable Margin" means 2.5% per annum. "Asset Sale" means any sale, conveyance, transfer, assignment, lease or other disposition (including, without limitation, by merger or consolidation, and by condemnation, eminent domain, loss, damage, or destruction, and whether by operation of law or otherwise) by the Borrower or any of its Subsidiaries to any Person (other than to Borrower or any of its Subsidiaries) of any Stock of any of its Subsidiaries, any Stock Equivalents of any of its Subsidiaries or any Hotel, but excluding Operating Leases. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit D. 2 11 "Base Rate" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall be equal at all times to the higher of: (a) the rate of interest announced publicly by Chase at its principal office, from time to time, as Chase's base rate; and (b) the sum of (i) 1/2 of one percent per annum plus (ii) the Federal Funds Rate. "Base Rate Loan" means any outstanding principal amount of the Loans of any Lender that bears interest with reference to the Base Rate. "Borrower's Investment" means, with respect to any Hotel, the Borrower's or any of its Subsidiaries' investment in such Hotel (including all investments constituting, evidencing or secured by an interest in property, whether tangible or intangible and whether real, personal or mixed, that is used or intended for use in, or in any manner connected with or relating to, the ownership or leasing of such Hotel, specifically including, without limitation, investments in Subsidiaries and Unconsolidated Entities owning or leasing Hotels), at cost, on a consolidated basis, provided that in determining the cost of such investments, there shall be included (i) the amount of all cash paid and the value (as determined by the Board of Directors of FelCor for purposes of such investment) of any other property transferred therefor by the Borrower or its Subsidiary, (ii) the amount of all indebtedness and other obligations assumed or incurred by the Borrower or its Subsidiary or to which the Borrower or its Subsidiary takes subject, and (iii) the value (as determined by the Board of Directors of FelCor for the purposes of such investment) of all equity securities of which the issuer is an entity that is, or upon such investment will be, included within the Borrower or its Subsidiary and which are issued (otherwise than for cash) to, or retained by, any person other than the Borrower or its Subsidiary in connection with such investment. For purposes of this definition only "indebtedness" of the Borrower or its Subsidiary shall mean the consolidated liabilities of the Borrower and its Subsidiaries for borrowed money (including all notes payable and drafts accepted representing extensions of credit) and all obligations evidenced by bonds, debentures, notes or other similar instruments on which interest charges are customarily paid, including obligations under Capitalized Leases. "Bristol" shall mean Bristol Hotels & Resorts and any Person controlled by Bristol Hotels & Resorts that is a Manager. "Business Day" means a day of the year on which banks are not required or authorized to close in New York City and California and, if the applicable Business Day relates to a Eurodollar Rate Loan, a day on which dealings are also carried on in the London interbank market. "Capital Expenditures" means, for any Person for any period, the aggregate of all expenditures by such Person and its Subsidiaries, except interest capitalized during construction, during such period for property, plant or equipment, 3 12 including, without limitation, renewals, improvements, replacements and capitalized repairs, that would be reflected as additions to property, plant or equipment on a consolidated balance sheet of such Person and its Subsidiaries prepared in conformity with GAAP. For the purpose of this definition, the purchase price of equipment which is acquired simultaneously with the trade-in of existing equipment owned by such Person or any of its Subsidiaries or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount of such purchase price less the credit granted by the seller of such equipment being traded in at such time or the amount of such proceeds, as the case may be. "Capitalized Lease" means, as to any Person, any lease of property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in conformity with GAAP. "Capitalized Lease Obligations" means, as to any Person, the capitalized amount of all obligations of such Person or any of its Subsidiaries under Capitalized Leases, as determined on a consolidated basis in conformity with GAAP. "Cash" shall mean coin or currency of the United States of America or immediately available federal funds. "Cash Equivalents" means (i) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States government or any agency thereof, (ii) certificates of deposit, eurodollar time deposits, overnight bank deposits and bankers' acceptances of any commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000 having maturities of one year or less from the date of acquisition, and (iii) commercial paper of an issuer rated at least "A-1" by S&P or "P-1" by Moody's, or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments. "Closing Date" means April 1, 1999. "Code" means the Internal Revenue Code of 1986 (or any successor legislation thereto), as amended from time to time. "Collateral" has the meaning specified in the Pledge Agreement. "Collateral Agent" means Chase. "Commitment" has the meaning specified in Section 2.1. "Compliance Certificate" shall have the meaning specified in Section 3.1(l). "Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any Indebtedness or Contractual Obligation of another Person, if the purpose or intent of such 4 13 Person in incurring the Contingent Obligation is to provide assurance to the obligee of such Indebtedness or Contractual Obligation that such Indebtedness or Contractual Obligation will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Indebtedness or Contractual Obligation will be protected (in whole or in part) against loss in respect thereof. Contingent Obligations of a Person include, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of an obligation of another Person (including, in the case of any Guarantor, its obligations under the Guaranty), and (b) any liability of such Person for an obligation of another Person through any agreement (contingent or otherwise) (i) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of a loan, advance, stock purchase, capital contribution or otherwise), (ii) to maintain the solvency or any balance sheet item, level of income or financial condition of another Person, (iii) to make take-or-pay or similar payments, if required, regardless of non-performance by any other party or parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such obligation or to assure the holder of such obligation against loss, or (v) to supply funds to or in any other manner invest in such other Person (including, without limitation, to pay for property or services irrespective of whether such property is received or such services are rendered), if in the case of any agreement described under subclause (i), (ii), (iii), (iv) or (v) of this sentence the primary purpose or intent thereof is as described in the preceding sentence. Anything herein to the contrary notwithstanding, no agreement entered into by the Borrower or any of its Subsidiaries or Unconsolidated Entities with respect to its acquisition of any direct or indirect interest in any Hotel shall, prior to the satisfaction in full of all conditions precedent to the obligations of such Person pursuant to the agreement, be deemed or construed to constitute a "Contingent Obligation" or "Indebtedness" of such Person hereunder, provided that pursuant to any such agreement, the Borrower or its Subsidiary or Unconsolidated Entity is not liable or responsible for, and does not assume any, development or construction risks. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported. "Contractual Obligation" of any Person means any obligation, agreement, undertaking or similar provision of any security issued by such Person or of any agreement (including, without limitation, any management or franchise agreement), undertaking, contract, lease, indenture, mortgage, deed of trust or other instrument (excluding a Loan Document) to which such Person is a party or by which it or any of its property is bound or to which any of its properties is subject. "Credit Agreement" means that certain Fourth Amended and Restated Credit Agreement, dated as of July 1, 1998, as may be amended, modified or supplemented from time to time, among FelCor Suite Hotels, Inc. and FelCor Suites Limited Partnership (as predecessors in interest to Borrower), those certain lending institutions included as signatories thereto, and Chase as administrative agent, for indebtedness of up to $1.1 billion. 5 14 "Default" means any event which with the passing of time or the giving of notice or both would become an Event of Default. "DJONT" means DJONT Operations, L.L.C., a Delaware limited liability company. "DOL" means the United States Department of Labor, or any successor thereto. "Dollars" and the sign "$" each mean the lawful money of the United States of America. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule II or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "EBITDA" means, for any Person for any period, the Net Income (Loss) of such Person for such period taken as a single accounting period, plus (a) the sum (without duplication) of the following amounts of such Person and its Subsidiaries for such period determined on a consolidated basis in conformity with GAAP to the extent included in the determination of such Net Income (Loss): (i) depreciation expense, (ii) amortization expense and other non-cash charges, (iii) interest expense, (iv) income tax expense, (v) extraordinary losses (and other losses on Asset Sales not otherwise included in extraordinary losses determined on a consolidated basis in conformity with GAAP), and (vi) minority interests attributable to FelCor LP's partnership units, less (b) the sum (without duplication) of the following amounts of such Person and its Subsidiaries determined on a consolidated basis in conformity with GAAP to the extent included in the determination of such Net Income (Loss): (i) extraordinary gains (and in the case of the Borrower, other gains on Asset Sales not otherwise included in extraordinary gains determined on a consolidated basis in conformity with GAAP), (ii) the applicable share of Net Income (Loss) of such Person's Unconsolidated Entities, (iii) cash payments made with respect to any non-cash charge which was added back to Net Operating Income to determine EBITDA for any prior period; plus (c) such Person's Pro Rata Share of EBITDA of such Person's Unconsolidated Entities. "Effective Date" has the meaning specified in Section 3.1. "Eligible Assignee" means (i) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having total assets in excess of $5,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD or the Cayman Islands; (iii) the central bank of any country which is a member of the OECD; corporation organized under the laws of the United States, or any State thereof, and having total assets in excess of $3,000,000,000; 6 15 (iv) a mutual fund or an insurance company organized under the laws of the United States, or any State thereof, in each case having total assets in excess of $5,000,000,000; (v) any Lender; (vi) any Affiliate of any Lender; (vii) any Person other than an Affiliate of a Loan Party; and (viii) only with respect to any Lender that is a fund that invests in bank loans, any other fund or trust entity that invests in bank loans and is advised by or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor, in each case ((i) through (vii) above) acceptable (a) to the Administrative Agent, and (b) provided no Default or Event of Default exists, to the Borrower, which acceptance will not be unreasonably withheld, conditioned or delayed. "Eligible Entity" shall mean any Eligible Joint Venture in which the Borrower owns, directly or indirectly, at least a 90% equity interest and the remainder of such equity interest is owned by either (i) Promus, (ii) Starwood or (iii) Bristol, provided, however, such Eligible Joint Venture shall only be an Eligible Entity if (i) Borrower (x) is the sole general partner (or equivalent) in such Eligible Joint Venture or (y) owns directly or indirectly at least 90% of the Stock of the sole general partner (or equivalent) in such Eligible Joint Venture and all other Stock of such sole general partner (or equivalent) which is not owned by Borrower is owned by either Promus, Starwood or Bristol, (ii) such sole general partner (or equivalent) is the only Person who can unilaterally authorize the sale or encumbrance of the assets of such Eligible Joint Venture (iii) Borrower alone controls the sole general partner (or equivalent) and (iv) such Eligible Joint Venture has no debt other than unsecured trade debt incurred in the ordinary course of business. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of management and policies of such Person (including without limitation the power to authorize the sale or encumbrance of the assets of such Person), whether through the ownership of voting securities, by contract or otherwise. "Eligible Joint Venture" means any joint venture, corporation, partnership or other business entity in which the Borrower (i) owns directly or indirectly a JV% of at least 50% and (ii) is (or owns directly or indirectly a majority of the voting Stock of and controls) the managing general partner or equivalent thereof for such entity and (iii) Borrower alone controls such managing general partner or equivalent. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of management and policies of such Person (including without limitation the power to authorize the sale or encumbrance of the assets of such Person), whether through the ownership of voting securities, by contract or otherwise. "Environmental Claim" means any accusation, allegation, notice of violation, action, claim, Environmental Lien, demand, abatement or other Order or direction (conditional or otherwise) by any Governmental Authority or any other Person for personal injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment, nuisance, pollution, contamination or other adverse effects on the environment, or for fines, penalties or restriction, resulting from or based upon (i) the existence, or the continuation of the existence, of a Release (including, without limitation, sudden or non-sudden accidental or non-accidental Releases) of, or exposure to, any Hazardous Material or other nuisance (to the extent the same relates to any Hazardous Materials), or other Release in, into or onto the environment (including, 7 16 without limitation, the air, soil, surface water or groundwater) at, in, by, from or related to any property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures or any activities or operations thereof; (ii) the environmental aspects of the transportation, storage, treatment or disposal of Hazardous Materials in connection with any property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures or their operations or facilities; or (iii) the violation, or alleged violation, of any Environmental Laws, Orders or Environmental Permits of or from any Governmental Authority relating to environmental matters connected with any property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures. "Environmental Laws" means any applicable federal, state, local or foreign law (including common law), statute, code, ordinance, rule, regulation or other requirement having the force or effect of law relating to the environment, natural resources, or public or employee health and safety and includes, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq. (to the extent the same relates to any Hazardous Materials), and the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq., as such laws have been amended or supplemented, and the regulations promulgated pursuant thereto, and all analogous state and local statutes. "Environmental Liabilities and Costs" means, as to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any other Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including, without limitation, any thereof arising under any Environmental Law, Environmental Permit, order or agreement with any Governmental Authority or other Person, and which relate to any environmental, health or safety condition, or a Release or threatened Release, and result from the past, present or future operations of, or ownership of property by, such Person or any of its Subsidiaries or Eligible Joint Ventures. "Environmental Lien" means any Lien in favor of any Governmental Authority arising under any Environmental Law. "Environmental Permit" means any Permit required under any applicable Environmental Laws or Order and all supporting documents associated therewith. "ERISA" means the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time. 8 17 "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control or treated as a single employer with any Loan Party within the meaning of Section 414 (b), (c), (m) or (o) of the Code. "ERISA Event" means (i) an event described in Sections 4043(c)(1), (2), (3), (5), (6), (8) or (9) of ERISA with respect to a Pension Plan; (ii) the withdrawal of any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (iii) the complete or partial withdrawal of any Loan Party or any ERISA Affiliate from any Multiemployer Plan or the insolvency of any Multiemployer Plan; (iv) the filing of a notice of intent to terminate a Pension Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (v) the institution of proceedings by the PBGC to terminate or appoint a trustee to administer a Pension Plan or Multiemployer Plan; (vi) the failure to make any required contribution to a Pension Plan; (vii) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; (viii) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA; (ix) a prohibited transaction (as described in Code Section 4975 or ERISA Section 406) shall occur with respect to any Plan; or (x) any Loan Party or ERISA Affiliate shall request a minimum funding waiver from the IRS with respect to any Pension Plan. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" below its name on Schedule II (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Eurodollar Rate" means, for any Interest Period, an interest rate per annum equal to the rate per annum obtained by multiplying (a) a rate per annum equal to the rate for U.S. dollar deposits with maturities comparable to such Interest Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, provided, however, that if such rate does not appear on Telerate Page 3750, the "Eurodollar Rate" applicable to a particular Interest Period shall mean a rate per annum equal to the rate at which U.S. dollar deposits in an amount approximately equal to the Principal Balance (or the portion thereof which will bear interest at a rate determined by reference to the Eurodollar Rate during the Interest Period to which such Eurodollar Rate is applicable in accordance with the provisions hereof), and with maturities comparable to the last day of the Interest Period with respect to which such Eurodollar Rate is applicable, are offered in immediately available funds in the London Interbank Market to the London office of Chase by leading banks in the Eurodollar market at 11:00 a.m., London time, two (2) Business Days prior to the commencement of the Interest Period to which such Eurodollar Rate is applicable, by (b) a fraction (expressed as a decimal) the numerator of which shall be the number one and the denominator of which shall be the number one minus the Eurodollar Rate Reserve Percentage for such Interest Period. 9 18 "Eurodollar Rate Loan" means any outstanding principal amount of the Loans of any Lender that, for an Interest Period, bears interest at a rate determined with reference to the Eurodollar Rate. "Eurodollar Rate Reserve Percentage" for any Interest Period means the aggregate reserve percentages (expressed as a decimal) from time to time established by the Board of Governors of the Federal Reserve System of the United States and any other banking authority to which any of the Lenders are now or hereafter subject, including, but not limited to any reserve on Eurocurrency Liabilities as defined in Regulation D of the Board of Governors of the Federal Reserve System of the United States at the ratios provided in such Regulation from time to time, it being agreed that any portion of the Principal Balance bearing interest at a rate determined by reference to the Eurodollar Rate shall be deemed to constitute Eurocurrency Liabilities, as defined by such Regulation, and it being further agreed that such Eurocurrency Liabilities shall be deemed to be subject to such reserve requirements without benefit of or credit for prorations, exceptions or offsets that may be available to any of the Lenders from time to time under such Regulation and irrespective of whether such Lender actually maintains all or any portion of such reserve. "Event of Default" has the meaning specified in Section 8.1. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "FelCor Bonds" means the debt securities issued under the Indenture. "FF&E Reserve" means, for any Person and its Subsidiaries determined on a consolidated basis in accordance with GAAP (or with respect to any Hotel) for any period, a reserve equal to four percent (4%) of Room Revenues from any Hotel owned by such Person or its Subsidiary (or from such Hotel), for such period (unless such Person is contractually obligated to reserve a greater percentage of Room Revenues, in which case such Person shall be required to reserve such greater amount with respect to such Hotel), plus, for any Person, such Person's Pro Rata Share of any FF&E Reserve for any Hotel owned by such Person's Unconsolidated Entities. "Financial Covenant Imbalance" shall have the meaning specified in Section 2.6(c). "Fiscal Quarter" means each of the three month periods ending on March 31, June 30, September 30 and December 31. "Fiscal Year" means the twelve month period ending on December 31. 10 19 "Fixed Charges" means, for any Person for any period, (a) Gross Interest Expense for such period plus (b) the aggregate amount of scheduled principal payments on the Total Indebtedness of such Person (excluding optional prepayments and scheduled principal payments in respect of any such Total Indebtedness which is payable in a single installment at final maturity) required to be made during such period plus (c) dividends required to be paid by such Person (and its Subsidiaries determined on a consolidated basis in conformity with GAAP) in connection with preferred Stock issued by such Person (including such Person's Pro Rata Share of such dividends required to be paid by such Person's Unconsolidated Entities.) "Free Cash Flow" means, for any Person for any period, the Adjusted Funds From Operations for such period less (a) the aggregate FF&E Reserve for such Person and its Subsidiaries for such period, and (b) the aggregate amount of scheduled principal payments on the Total Indebtedness of such Person (excluding optional prepayments and scheduled principal payments in respect of any such Indebtedness which is payable in a single installment at final maturity) required to be made during such period. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination except that, for purposes of Articles V and VII, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the audited financial statements referred to in Section 4.5. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity duly exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Gross Interest Expense" means, for any Person for any period, the sum of (a) the total interest expense in respect of all Indebtedness (excluding all Contingent Obligations) of such Person and its Subsidiaries for such period determined on a consolidated basis in conformity with GAAP, plus capitalized interest of such Person and its Subsidiaries, plus (b) such Person's Pro Rata Share of Gross Interest Expense of such Person's Unconsolidated Entities. "Guarantor" means the Initial Guarantors and each direct and indirect wholly owned Subsidiary of the Borrower formed or acquired after the date hereof, provided however, a wholly owned Subsidiary of the Borrower which is formed or acquired after the date hereof shall only be required to be a Guarantor if such Subsidiary is a Required Guarantor. 11 20 "Guaranty" means that certain guaranty entered into in connection herewith, in substantially the form of Exhibit G, executed by each Guarantor, as such guaranty may be amended, supplemented or otherwise modified from time to time. "Hazardous Material" means any substance, material or waste which is regulated by any Governmental Authority of the United States as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "contaminant," "toxic waste," "toxic substance" or words of similar meaning or import under any provision of Environmental Law, which includes, but is not limited to, petroleum, petroleum products, asbestos, urea formaldehyde and polychlorinated biphenyls. "Hotel" means any Real Estate or Lease comprising an operating facility offering hotel or other lodging services. "Hotel Documents" means, with respect to any Hotel, the following documents: (i) A description of such Hotel, such description to include the age, location and number of rooms or suites of such Hotel; (ii) Details of the Borrower's Investment in such Hotel and, if available (or able to be reasonably obtained), details of the Adjusted NOI of such Hotel for the prior four (4) Fiscal Quarters; (iii) A copy of the most recent ALTA Owner's Policy of Title Insurance (or commitment to issue such a policy to the Person owning or to own such Hotel) relating to such Hotel showing the identity of the fee titleholder thereto and all matters of record as of its date; (iv) Copies of each of the Operating Lease, Management Agreement and License relating to such Hotel; (v) Copies of all engineering, mechanical, structural and maintenance studies performed by third party consultants with respect to such Hotel; (vi) A "Phase I" environmental assessment of such Hotel prepared by an environmental engineering firm acceptable to the Administrative Agent, and any additional environmental studies or assessments available to the Borrower performed with respect to such Hotel; (vii) If such Hotel is owned pursuant to a Qualified Lease, a copy of such Lease together with all and any amendments thereto or modifications thereof; and (viii) Such other information as the Administrative Agent may reasonably request in order to evaluate the Hotel. 12 21 "Improvements" has the meaning specified in Section 4.22(c). "Indebtedness" of any Person means, without duplication, the principal amount of (i) all indebtedness of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured) or for the deferred purchase price of property or services, (ii) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments (including, in the case of the Borrower, the Loans outstanding), (iii) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all Capitalized Lease Obligations of such Person, (v) all Contingent Obligations of such Person, (vi) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value (other than for other equity securities) any Stock or Stock Equivalents of such Person, valued, in the case of mandatorily redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (vii) all Indebtedness referred to in clause (i), (ii), (iii), (iv), (v) or (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, accounts and general intangibles) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (viii) all liabilities of such Person under Title IV of ERISA. "Indemnitees" has the meaning specified in Section 10.4. "Indenture" means that certain Indenture dated as of October 1, 1997, as amended to date and as may be amended, modified, or supplemented from time to time, among FelCor Suites Limited Partnership (predecessor in interest to FelCor LP) as issuer, various Borrower affiliates as guarantors, and SunTrust Bank, Atlanta, as trustee providing for the initial issuance of up to $175,000,000 aggregate principal amount of 7-3/8% senior notes due 2004 and $125,000,000 aggregate principal amount of 7-5/8% senior notes due 2007. "Initial Guarantors" means (i) FelCor/CSS Hotels, L.L.C., a Delaware limited liability company, (ii) FelCor/LAX Hotels, L.L.C., a Delaware limited liability company, (iii) FelCor/CSS Holdings, L.P., a Delaware limited partnership, (iv) FelCor/St. Paul Holdings, L.P., a Delaware limited partnership, (v) FelCor/LAX Holdings, L.P., a Delaware limited partnership, (vi) FelCor Eight Hotels L.L.C., a Delaware limited liability company, (vii) FelCor Hotel Asset Company, L.L.C., a limited liability company, (viii) FelCor Nevada Holdings, L.L.C., a Nevada limited liability company, (ix) FHAC Nevada Holdings, L.L.C., a Nevada limited liability company, and (x) FHAC Texas Holdings L.P., a Texas limited partnership. "Interest Period" means, in the case of any Eurodollar Rate Loan, (i) initially, the period commencing on the date such Eurodollar Rate Loan is made or on the date of conversion of a Base Rate Loan to such Eurodollar Rate Loan and ending one, 13 22 two, three, six, nine (upon consent of each Lender) or twelve (upon consent of each Lender) months thereafter, as selected by the Borrower pursuant to Section 2.2, and (ii) thereafter, if such Loan is continued in whole or in part, as a Eurodollar Rate Loan pursuant to Section 2.7, a period commencing on the last day of the immediately preceding Interest Period therefor and ending one, two, three, six, nine (upon consent of each Lender) or twelve (upon consent of each Lender) months thereafter, as selected by the Borrower in its Notice of Conversion or Continuation given to the Administrative Agent pursuant to Section 2.7; provided, however, that: (A) if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless the result of such extension would be to extend such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (B) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (C) the Borrower may not select any Interest Period which ends after the Maturity Date; (D) the Borrower may not select any Interest Period in respect of Loans having an aggregate principal amount of less than $5,000,000; and (E) there shall be outstanding at any one time no more than fifteen (15) Interest Periods in the aggregate. "Interest Rate Contracts" means interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, interest rate insurance, and other agreements or arrangements designed to provide protection against fluctuations in interest rates. "Investment" means, with respect to any Person, (a) any loan or advance to any other Person, (b) the ownership, purchase or other acquisition of, any Stock, Stock Equivalents, other equity interest, obligations or other securities of, (i) any other Person, (ii) all or substantially all of the assets of any other Person, or (iii) all or substantially all of the assets constituting the business of a division, branch or other unit operation of any other Person, or (c) any joint venture or partnership with, or any capital contribution to, or other investment in, any other Person or any real property. "Investment Grade" means a rating by both S&P and Moody's, each such rating being in one of such agency's four highest generic rating categories that signifies investment grade (i.e. BBB- (or the equivalent) or higher by S&P and Baa3 (or the equivalent) or higher by Moody's); provided, in each case, such ratings are publicly available; provided further, that in the event Moody's or S&P is no longer in existence for purposes of determining Investment Grade, such organization may be replaced by a 14 23 nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act of 1933, as amended) designated by FelCor LP and FelCor. "IRS" means the Internal Revenue Service, or any successor thereto. "Joint Enterprise" shall mean with respect to any Person, any joint venture, corporation, partnership or other business entity which is not (directly or indirectly) owned 100% by such Person. "Joint Venture Hotel" means any Hotel owned by an Eligible Joint Venture. "JV%" means, with respect to any Eligible Joint Venture, the percentage ownership interest of Borrower in such Eligible Joint Venture. "Leases" means, with respect to the Borrower or any of its Subsidiaries or Eligible Joint Ventures, all of those leasehold estates in real property owned by the Borrower or such Subsidiary or Eligible Joint Venture, as lessee, as such may be amended, supplemented or otherwise modified from time to time to the extent permitted by this Agreement. "Legal Proceedings" means any judicial, administrative or arbitral actions, suits, proceedings (public or private) or governmental proceedings. "Leverage Ratio" shall mean, at any date, a fraction (expressed as a percentage) the numerator of which is Total Indebtedness, on such date, and the denominator of which is Total Value, on such date. "License" means either (x) an agreement in favor of either the Borrower or the Operating Lessee as licensee, permitting the use of hotel system trademarks, trade names and any related rights in connection with the ownership or operation of any Hotel or (y) a Management Agreement, provided the Manager under such Management Agreement owns the rights to hotel system trademarks, trade names and any related rights in connection with the ownership or operation of any Hotel. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever intended to assure payment of any Indebtedness or other obligation, including, without limitation, any conditional sale or other title retention agreement, the interest of a lessor under a Capitalized Lease Obligation, any financing lease having substantially the same economic effect as any of the foregoing, and the filing, under the Uniform Commercial Code or comparable law of any jurisdiction, of any financing statement naming the owner of the asset to which such Lien relates as debtor. "Loan" means a loan made by a Lender to the Borrower pursuant to Article II and "Loans" means the aggregate Loans. 15 24 "Loan Documents" means, collectively, this Agreement, the Notes, the Pledge Agreement, the Guaranties and each certificate, agreement or document executed by a Loan Party and delivered to the Administrative Agent or any Lender in connection with or pursuant to any of the foregoing. "Loan Party" means each of the Borrower and each Guarantor. "Majority Lenders" means, at any time, Lenders holding at least 51% of the then aggregate unpaid principal amount of the Loans. "Management Agreement" means an agreement relating to the operation and/or management of any Hotel on behalf of the Operating Lessee. "Manager" means Promus, Starwood, MeriStar Hotels & Resorts, Inc., Coastal Hotel Group, Inc., Bristol or such other manager as shall be reasonably approved by the Borrower and the Administrative Agent (such consent not to be unreasonably withheld or delayed) and engaged by the Operating Lessee, as manager under the Management Agreement. "Material Adverse Change" means a material adverse change in any of (i) the condition (financial or otherwise), business, performance, prospects, operations or properties of (A) either entity which comprises the Borrower or (B) the Borrower and its Subsidiaries taken as one enterprise, (ii) the legality, validity or enforceability of any Loan Document, or any material Operating Lease or the Operating Leases taken as a whole, (iii) the ability of the Borrower or its Significant Subsidiaries to repay the Obligations or to perform its obligations under any Loan Document, (iv) the ability of (x) any Operating Lessee to perform its obligations under any material Operating Lease or (y) DJONT or Bristol to perform its obligations under their respective Operating Leases taken as a whole, or (v) the rights and remedies of the Lenders or the Administrative Agent under the Loan Documents. "Material Adverse Effect" means an effect that results in or causes, or has a reasonable likelihood of resulting in or causing, a Material Adverse Change. "Maturity Date" shall mean March 31, 2004. "Minimum Tangible Net Worth" means, with respect to the Borrower, at any time, the sum of (a) $858,000,000; plus (b) 50% of the aggregate net proceeds received by the Borrower or any of its Subsidiaries after March 31, 1998 in connection with any offering of Stock or Stock Equivalents of the Borrower and its Subsidiaries taken as a whole. "Moody's" means Moody's Investors Service. "Multiemployer Plan" means, as of any applicable date, a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, and to which any Loan Party, any of its Subsidiaries or any ERISA Affiliate is making, is obligated to make, or within the six- 16 25 year period ending at such date, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "Net Income (Loss)" means, for any Person for any period, the aggregate of net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in conformity with GAAP. "Net Operating Income" means, with respect to any Hotel, for any period, the sum of the following (without duplication) (a) all gross income, revenues, receipts and all other consideration received by the lessor under the Operating Lease for such Hotel, including, without limitation, base rent, percentage and similar rentals, late charges and interest payments, but excluding extraordinary income and, until earned, security deposits, prepaid rents and other refundable receipts, minus (b) all expenses incurred by the owner of such Hotel during such period pursuant to its obligations as lessor under the Operating Lease for such Hotel, including, without limitation, real estate taxes, personal property taxes, maintenance and repair costs of a non-capital nature for the structural portions of such Hotel and premiums payable for insurance required to be carried by the lessor on or with respect to such Hotels pursuant to the Operating Lease therefor, but excluding extraordinary expenses. "Non-Recourse Indebtedness" of any Person means all Indebtedness of such Person with respect to which recourse for payment is limited to specific assets encumbered by a Lien securing such Indebtedness; provided, however, that personal recourse of a holder of Indebtedness against any obligor with respect thereto for fraud, misrepresentation, misapplication of cash, waste and other circumstances customarily excluded from non-recourse provisions in non-recourse financing of real estate shall not, by itself, prevent any Indebtedness from being characterized as Non-Recourse Indebtedness, provided further that if a personal recourse claim is made in connection therewith, such claim shall not constitute Non-Recourse Indebtedness for the purposes of this Agreement). "Note" means a promissory note of the Borrower payable to the order of any Lender in a principal amount equal to the amount of such Lender's Loan as originally in effect, in substantially the form of Exhibit A, evidencing the Indebtedness of the Borrower to such Lender resulting from the Loan made by such Lender and "Notes" means the aggregate Notes. "Notice of Conversion or Continuation" shall have the meaning specified in Section 2.7. "Obligations" means the Loans, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Administrative Agent, any Lender, any Affiliate of any of them or any Indemnitee, of every type and description, present or future, arising under this Agreement or under any other Loan Document, whether direct or indirect (including, without limitation, those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term "Obligations" includes, without limitation, all interest, charges, expenses, fees, attorneys' 17 26 fees and disbursements and any other sum then payable by the Borrower under this Agreement or any other Loan Document. "OECD" means the Organization for Economic Cooperation and Development. "Operating Lease" means a lease or sublease relating to any Hotel, between the Borrower or any of its Subsidiaries or Eligible Joint Ventures or Unconsolidated Entities, as lessor, and an Operating Lessee, as lessee, substantially in a form as approved by Administrative Agent. "Operating Lessee" means either (x) DJONT or its Subsidiary (provided DJONT owns at least 50% of the voting Stock in such Subsidiary and maintains voting control over such Subsidiary), or (y) any entity listed on Schedule III attached hereto, each as lessee under an Operating Lease. "Operator" means the Operating Lessee and/or the Manager or both (as the case may be) responsible for the operation and management of any Hotel. "Order" means any order, injunction, judgment, decree, ruling, assessment or arbitration award. "Other Taxes" has the meaning specified in Section 2.14(b). "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Pension Plan" means a plan, other than a Multiemployer Plan, which is covered by Title IV of ERISA or Code Section 412 and which any Loan Party, any of its Subsidiaries or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Permit" means any permit, approval, authorization, license, variance, registration, permission or consent required from a Governmental Authority under an applicable Requirement of Law. "Permitted Liens" means, collectively, (a) Liens arising by operation of law in favor of materialmen, mechanics, warehousemen, carriers, lessors or other similar Persons incurred by the Borrower or any of its Subsidiaries or Eligible Joint Ventures in the ordinary course of business which secure its obligations to such Person; provided, however, that (i) the Borrower or such Subsidiary or Eligible Joint Venture is not in default with respect to such payment obligation to such Person, or (ii) the Borrower or such Subsidiary or Eligible Joint Venture is in good faith and by appropriate proceedings diligently contesting such obligation and adequate provision is made for the payment thereof; (b) Liens (excluding Environmental Liens) securing taxes, assessments or governmental charges or levies; provided, however, that neither the Borrower nor any of its Subsidiaries or Eligible Joint Ventures is in default in respect of any payment obligation with respect thereto unless the Borrower or such Subsidiary or Eligible Joint 18 27 Venture is in good faith and by appropriate proceedings diligently contesting such obligation and adequate provision is made for the payment thereof; and (c) Zoning restrictions, subleases, licenses or concessions for restaurants, bars, gift shops, antennas, communications equipment and similar agreements entered into in the ordinary course of such Person's business in connection with the ownership and operation of a hotel; and easements, licenses, reservations, restrictions on the use of real property or minor irregularities incident thereto which do not in the aggregate materially detract from the value or use of the property or assets of the Borrower or any of its Subsidiaries or Eligible Joint Venture or impair, in any material manner, the use of such property for the purposes for which such property is held by the Borrower or any such Subsidiary or Eligible Joint Venture. "Permitted Transferee" shall be those entities named on Schedule IV. "Person" means an individual, partnership, corporation (including, without limitation, a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a Governmental Authority. "Plan" means an employee benefit plan, as defined in Section 3(3) of ERISA, which any Loan Party or any of its Subsidiaries maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Pledge Agreement" means that certain Pledge and Security Agreement entered into in connection herewith in substantially the same form of Exhibit H, under which ownership interests in certain entities of or affiliated with the Borrower (as set forth in the Pledge Agreement) are pledged under certain circumstances as collateral for, inter alia, the Loans, as such Pledge Agreement may be amended, modified, or supplemented from time to time. "Principal Balance" means, collectively, the outstanding principal balances of the Notes from time to time. "Projections" means those financial projections covering the fiscal years ending in 1999 through 2001, inclusive, delivered to the Lenders by the Borrower. "Promus" means Promus Hotels, Inc., a Delaware corporation or any Person controlled by Promus Hotel Corporation, that is a Manager. "Pro Rata Share" means, for any Person, with respect to such Person's Unconsolidated Entities (or Subsidiaries), the percentage ownership interest of such Person in such Unconsolidated Entity (or Subsidiary), provided that, in the event that such Person is the general partner of such Unconsolidated Entity (or Subsidiary), such Person's Pro Rata Share with respect to such Unconsolidated Entity (or Subsidiary) shall be the percentage of the general partner interests owned by such Person in such Unconsolidated Entity (or Subsidiary) with respect to any Indebtedness for which recourse may be made against any general partner of such Unconsolidated Entity (or Subsidiary). 19 28 "Qualified Lease" means any Lease (a) which is a direct ground lease granted by the fee owner of real property, (b) which may be transferred and/or assigned without the consent of the lessor (or as to which the Lease expressly provides that (i) such Lease may be transferred and/or assigned with the consent of the lessor and (ii) such consent shall not be unreasonably withheld or delayed), (c) which has a remaining term (including any renewal terms exercisable at the sole option of the lessee) of at least 35 years, (d) under which no material default has occurred and is continuing, (e) with respect to which a security interest may be granted without the consent of the lessor (or as to which the Lease expressly provides that (i) a security interest in such lease may be granted with the consent of the lessor and (ii) such consent shall not be unreasonably withheld or delayed), and (f) which contains lender protection provisions reasonably acceptable to the Administrative Agent. "Ratable Portion" or "ratably" means, except as otherwise specifically provided herein, with respect to any Lender, the quotient obtained by dividing the amount of the Loan of such Lender by the amount of the Loans of all Lenders and that payments of principal of the Loans and interest thereon shall be made pro rata in accordance with the respective unpaid principal amounts of the Loans held by the Lenders. "Real Estate" means all of those plots, pieces or parcels of land now owned or hereafter acquired by the Borrower or any of its Subsidiaries or Eligible Joint Ventures (the "Land"), including, without limitation, those listed on Schedule 4.22(a), together with the right, title and interest of the Borrower or such Subsidiary or Eligible Joint Venture, if any, in and to the streets, the land lying in the bed of any streets, roads or avenues, opened or proposed, in front of, adjoining or abutting the Land to the center line thereof, the air space and development rights pertaining to the Land and the right to use such air space and development rights, all rights of way, privileges, liberties, tenements, hereditaments and appurtenances belonging or in any way appertaining thereto, all fixtures, all easements now or hereafter benefiting the Land and all royalties and rights appertaining to the use and enjoyment of the Land, including, without limitation, all alley, vault, drainage, mineral, water, oil and gas rights, together with all of the buildings and other improvements now or hereafter erected on the Land, and any fixtures appurtenant thereto. "Recourse Secured Indebtedness" of any Person means the sum of the following: (A) all Indebtedness of such Person and its Subsidiaries determined on a consolidated basis in conformity with GAAP which (x) is secured by a Lien (other than in connection with the Pledge Agreement) and (y) recourse for payment is not limited to the specific assets encumbered by such Lien, provided, however, that personal recourse of a holder of Indebtedness against (i) any Subsidiary (or Unconsolidated Entity) of Borrower formed specifically for the limited purpose of owning specific assets which secure Indebtedness which does not exceed 65% of the value of the assets owned by such Subsidiary (or Unconsolidated Entity) or (ii) any obligor with respect thereto for fraud, misrepresentation, misapplication of cash, waste and other circumstances customarily excluded from non-recourse provisions in non-recourse financing of real estate, shall not, by itself, cause any Indebtedness to be characterized as Recourse Secured Indebtedness, provided further that if a personal recourse claim is made in connection therewith, such 20 29 claim shall constitute Recourse Secured Indebtedness for the purposes of this Agreement; plus (B) such Person's Pro Rata Share of Recourse Secured Indebtedness of such Person's Unconsolidated Entities. "Refurbishment Hotel" shall mean Hotels, designated by Borrower, which (i) will experience or are experiencing a disruption in hotel operations due to refurbishment and (ii) are continuously operating with at least 65% of its rooms in service at all times. Any given Hotel may only be characterized as a Refurbishment Hotel for a maximum of six consecutive Fiscal Quarters provided, however, that the requirement of continuous operation shall not apply with respect to the Allerton Hotel or the Tampa Hotel. "Register" has the meaning specified in Section 10.7. "Release" means any release, spill, emission, leaking, pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching or migration on or into the indoor or outdoor environment or into or out of any property. "Remedial Action" means all actions, including without limitation any Capital Expenditures, required or necessary to (i) clean up, remove, treat or in any other way address any Hazardous Material or other substance in the indoor or outdoor environment, (ii) prevent the Release or threat of Release, or minimize the further Release, of any Hazardous Material or other substance so it does not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (iii) perform pre-remedial studies and investigations or post-remedial monitoring and care, or (iv) bring facilities on any property owned or leased by the Borrower or any of its Subsidiaries into compliance with all Environmental Laws and Environmental Permits. "Reporting Operating Lessee" shall mean any Operating Lessee which is a party to Operating Leases which in the aggregate provide at least 25% of Borrower's consolidated Operating Lease revenue. "Requested Operating Lessee" shall mean each Operating Lessee which is a party to Operating Leases which in the aggregate provide at least 10% of Borrower's consolidated Operating Lease revenue provided such Operating Lessee has been designated by the Administrative Agent as a Requested Operating Lessee. "Required Guarantor" shall mean any direct or indirect wholly-owned Subsidiary of Borrower which is formed after the date hereof, provided, the value of the assets of such Subsidiary plus the value of the assets of such Person's Subsidiaries' exceed 10% of Total Value, provided, further, that in the event the aggregate value of the assets of all wholly-owned Subsidiaries which are not Guarantors exceed 20% of Total Value then each direct or indirect wholly-owned Subsidiary formed thereafter shall be deemed a Required Guarantor if the value of the assets of such Subsidiary plus the value of the assets of such Person's Subsidiaries' exceed 1% of Total Value. "Requirement of Law" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such 21 30 Person, and all federal, state and local laws, rules and regulations, including, without limitation, federal, state or local securities, antitrust and licensing laws, all food, health and safety laws, and all applicable trade laws and requirements, including, without limitation, all disclosure requirements of Environmental Laws, ERISA and all orders, judgments, decrees or other determinations of any Governmental Authority or arbitrator, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" means, with respect to any Person, any of the principal executive officers or general partners of such Person. "Restricted Payments" has the meaning specified in Section 7.4. "Room Revenues" has the meaning ascribed to such term in the form of Operating Lease attached as Exhibit F hereto. "S&P" means Standard & Poor's Ratings Services and its successors. "Significant Subsidiary" means, at any date of determination, (i) any Subsidiary of the Borrower which, or (ii) any group of Subsidiaries of the Borrower which when aggregated, at such date, directly or indirectly own(s) or lease(s) one or more Hotels having an aggregate value (calculated on the basis of the Borrower's Investment therein) in excess of $75,000,000. "Solvent" means, with respect to any Person, that the value of the assets of such Person (at fair value) is, on the date of determination, greater than the total amount of liabilities (including, without limitation, contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities mature and does not have unreasonably small capital. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Starwood" shall mean Starwood Hotels and Resorts and any Person controlled by Starwood Hotels & Resorts Worldwide, Inc. (or its successors or assigns) that is a Manager. "Stock" means shares of capital stock, beneficial or partnership interests, participations or other equivalents (regardless of how designated) of or in a corporation or equivalent entity, whether voting or non-voting, and includes, without limitation, common stock and preferred stock. "Stock Equivalents" means all securities (other than Stock) convertible into or exchangeable for Stock and all warrants, options or other rights to purchase or subscribe for any stock, whether or not presently convertible, exchangeable or exercisable. 22 31 "Subsidiary" means, with respect to any Person (other than FelCor LP with respect to FelCor), at any date, any corporation, partnership or other business entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements in accordance with GAAP, if such statements were prepared as of such date. "Tampa Hotel" shall mean that certain Holiday Inn Hotel located in Tampa (Busch Gardens), Florida. "Tangible Net Worth" means, with respect to the Borrower at any date, (a) the sum of (i) the total shareholders' equity of FelCor, and (ii) the book value of all partnership interests in FelCor LP owned by Persons other than FelCor; minus (b) the sum of all intangible assets of FelCor, each as shown on the consolidated balance sheet of FelCor as of such date. "Tax Affiliate" means, as to any Person, (i) any Subsidiary of such Person, and (ii) any Affiliate of such Person with which such Person files or is eligible to file consolidated, combined or unitary tax returns. "Tax Return" has the meaning specified in Section 4.3. "Taxes" has the meaning specified in Section 2.14(a). "Telerate Page 3750" means the display designated as "Page 3750" on the Associated Press-Dow Jones Telerate Service (or such other page as may replace Page 3750 on the Associated Press-Dow Jones Telerate Service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association interest settlement rates for U.S. Dollar deposits). Any Eurodollar Rate determined on the basis of the rate displayed on Telerate Page 3750 in accordance with the provisions hereof shall be subject to corrections, if any, made in such rate and displayed by the Associated Press-Dow Jones Telerate Service within one hour of the time when such rate is first displayed by such Service. "Total Indebtedness" of any Person means the sum of the following (without duplication): (a) all Indebtedness of such Person and its Subsidiaries determined on a consolidated basis in conformity with GAAP, plus (b) such Person's Pro Rata Share of Indebtedness of such Person's Unconsolidated Entities, provided, however, Indebtedness of a Person's Subsidiary shall only be included in the calculation of Total Indebtedness to the extent of the greater of (x) such Person's Pro-Rata Share of such Indebtedness and (y) the amount of such Indebtedness guaranteed by such Person. "Total Secured Indebtedness" of any Person means any Total Indebtedness of such Person for which the obligations thereunder are secured by a pledge of or other encumbrance (other than in connection with the Pledge Agreement) on any assets of such Person or its Subsidiaries or Unconsolidated Entities. "Total Value" means the sum of: 23 32 (A) for Hotels owned or leased pursuant to a Qualified Lease (including newly acquired Hotels and Hotels to be immediately acquired using the proceeds of any Loans), other than Hotels described in clause (B) below, Adjusted NOI on a consolidated basis from such Hotels for the preceding four (4) Fiscal Quarters divided by ten percent (10%); plus (B) for Hotels owned or leased pursuant to a Qualified Lease by Borrower (or any Subsidiary or Unconsolidated Entity of Borrower) for less than four (4) fiscal Quarters and (x) for which the Borrower (or any Subsidiary or Unconsolidated Entity of Borrower) does not have, or is not able to reasonably obtain, trailing four quarter audited financial information or (y) which the Borrower has designated as a Refurbishment Hotel, in each such case 95% of the Borrower's Investment in such Hotels (provided that if the Allerton Hotel is designated as a Refurbishment Hotel, then such Hotel shall be valued at 85% of the Borrower's Investment in such Hotel); plus (C) the sum of $15,000,000, being the agreed aggregate sum of the Borrower's investment at cost in (x) certain vacant land at the Kingston Plantation Hotel in Myrtle Beach, South Carolina, and (y) the Myrtle Beach Condo Management Company; plus (D) unencumbered Cash or Cash Equivalents held by the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) plus the Borrower's Pro Rata Share of unencumbered Cash or Cash Equivalents held by the Borrower's Unconsolidated Entities; provided, however, that in the case of (A) above, Adjusted NOI with respect to a Hotel shall only be included in the calculation of Total Value if such Hotel is, as at the date of such calculation, owned or leased by Borrower, its Subsidiary or its Unconsolidated Entity but only to the extent (i) in the case of Adjusted NOI attributable to the Borrower's Subsidiaries, financial statements prepared in accordance with GAAP would consolidate such Subsidiary with the Borrower and (ii) in the case of Adjusted NOI attributable to the Borrower's Unconsolidated Entities, of the Borrower's Pro Rata Share of such Adjusted NOI, and provided, further, in the case of (B) above, the Borrower's Investment with respect to a Hotel shall only be included in the calculation of Total Value if such Hotel is, as of the date of such calculation, owned by Borrower, its Subsidiary or Unconsolidated Entity. Notwithstanding the foregoing, in no event shall more than 20% of Total Value be attributable to Refurbishment Hotels which are valued at 95% (or 85% in the case of the Allerton Hotel) of Borrower's Investment. "Unconsolidated Entity" means, with respect to any Person, at any date, any other Person in whom such Person holds an Investment, which Investment is accounted for in the financial statements of such Person on an equity basis of accounting and whose financial results would not be consolidated under GAAP with the financial results of such Person on the consolidated financial statements of such Person, if such statements were prepared as of such date. 24 33 "Unencumbered" means, with respect to any Hotel, at any date of determination, the circumstance that such Hotel on such date: (a) is not subject to any Liens (including restrictions on transferability or assignability) of any kind (including any such Lien or restriction imposed by (i) any agreement governing Indebtedness, and (ii) the organizational documents of the Borrower or any of its Subsidiaries or Eligible Joint Ventures, but excluding Permitted Liens and, in the case of any Qualified Lease (to the extent permitted by the definition thereof), restrictions on transferability or assignability in respect of such Lease); (b) is not subject to any agreement (including (i) any agreement governing Indebtedness, and (ii) if applicable, the organizational documents of the Borrower or any of its Subsidiaries or Eligible Joint Ventures) which prohibits or limits the ability of the Borrower or any of its Subsidiaries or Eligible Joint Ventures to create, incur, assume or suffer to exist any Lien upon such Hotel, other than Permitted Liens (excluding any agreement or organizational document (x) which limits generally the amount of Indebtedness which may be incurred by the Borrower or its Subsidiaries or Eligible Joint Ventures or (y) in the case of an Eligible Joint Venture which is not an Eligible Entity, which requires the consent of partners (or the equivalent) in such Eligible Joint Venture (other than the Borrower or its wholly owned Subsidiaries) to create, incur, assume or suffer to exist any Lien upon such Hotel); and (c) is not subject to any agreement (including any agreement governing Indebtedness) which entitles any Person to the benefit of any Lien (other than Permitted Liens) on such Hotel, or would entitle any Person to the benefit of any such Lien upon the occurrence of any contingency (including, without limitation, pursuant to an "equal and ratable" clause, other than those certain equal and ratable clauses contained in the Indenture). For the purposes of this Agreement, any Joint Venture Hotel or Hotel owned by a Subsidiary or Eligible Joint Venture of the Borrower shall not be deemed to be Unencumbered unless both (i) such Hotel and (ii) all Stock owned directly or indirectly by Borrower in such Eligible Joint Venture or Subsidiary, is Unencumbered. "Unencumbered Hotel Property" means, collectively, (a) such of the Hotels owned or leased by the Borrower or any of its direct or indirect wholly-owned Subsidiaries, and (b) such of the Joint Venture Hotels, as in each case shall meet at any time and from time to time, each of the following minimum criteria: (a) such Hotel is Unencumbered; (b) such Hotel is free of all material structural and title defects and other material adverse matters; (c) such Hotel is, as of the date upon which such Hotel is included as an Unencumbered Hotel Property and as of the end of each succeeding Fiscal Quarter, (i) in compliance, in all material respects, with all applicable Environmental Laws, and (ii) not subject to any material Environmental Liabilities and Costs, in each case as initially 25 34 verified by a written report of an environmental consultant reasonably acceptable to the Administrative Agent; (d) such Hotel is (i) owned in fee simple by, or (ii) leased pursuant to a Qualified Lease in favor of, the Borrower or its direct or indirect wholly-owned Subsidiary or an Eligible Joint Venture; provided that, if a Joint Venture Hotel is owned by an Eligible Joint Venture which owns more than a single Hotel, such Joint Venture Hotel shall only be an Unencumbered Hotel Property if it satisfies all of the requirements set forth in subparagraphs (a) through (d) above and all other Hotels owned by such Eligible Joint Venture satisfy the conditions set forth in subparagraphs (a) and (c) above, provided further that the parties acknowledge and agree that the Embassy Suites Hotel located at Los Angeles Airport, CA is subject to a mortgage in favor of FelCor LP but the Administrative Agent has agreed, as a one time waiver only, to accept such Hotel as Unencumbered (for purposes of clause (a) above) provided that such Hotel shall cease to be Unencumbered (for purposes of clause (a) above), inter alia, in the event that FelCor LP assigns its mortgage to any other Person. "Unencumbered NOI" shall mean Adjusted NOI from each Unencumbered Hotel Property, provided, that (i) only Borrower's JV% of Adjusted NOI generated by any Joint Venture Hotel shall be included in Unencumbered NOI and (ii) in no event shall more than 25% of Unencumbered NOI be attributable to Unencumbered Hotel Properties leased pursuant to Qualified Leases. "Unsecured Interest Expense" means, for any Person for any period, the greater of (I) the sum of (a) the total interest expense in respect of all unsecured Indebtedness of such Person (excluding, on an annual basis, up to $3,000,000 of non-cash expense which is attributable to the amortization of costs and expenses incurred in connection with the incurrence of such Indebtedness) and its Subsidiaries for such period determined on a consolidated basis in conformity with GAAP, plus capitalized interest of such Person and its Subsidiaries in respect of unsecured Indebtedness, plus (b) such Person's Pro Rata Share of Unsecured Interest Expense of such Person's Unconsolidated Entities and (II) 7.5% of the sum of (a) the average outstanding balance of all unsecured Indebtedness of such Person and its Subsidiaries for such period determined on a consolidated basis in conformity with GAAP plus (b) such Person's Pro Rata Share of unsecured Indebtedness of such Person's Unconsolidated Entities for such period. 1.2. Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding" and the word "through" means "to and including". 1.3. Accounting Terms. All accounting terms not specifically defined herein shall be construed in conformity with GAAP and all accounting determinations required to be made pursuant hereto shall, unless expressly otherwise provided herein, be made in conformity with GAAP. 26 35 1.4. Certain Terms. (a) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, and not to any particular Article, Section, subsection or clause in this Agreement. References herein to an Exhibit, Schedule, Article, Section, subsection or clause refer to the appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in this Agreement. (b) The terms "Lender" and "Administrative Agent" include their respective successors and the term "Lender" includes each assignee of such Lender who becomes a party hereto pursuant to Section 10.7. Article II AMOUNTS AND TERMS OF THE LOANS 2.1. The Loans. On the terms and subject to the conditions contained in this Agreement, each Lender severally agrees to make a loan (each a "Loan", and in the aggregate, the "Loans") to Borrower and Borrower agrees to borrow the Loans on the Closing Date, in an amount equal to the amount set opposite such Lender's name on Schedule I as its Loan Commitment (such Lender's "Commitment", and in the aggregate, "Commitments"). Any amounts prepaid may not be reborrowed. The Loan of each Lender shall be evidenced by the Note to the order of such Lender. 2.2. Making the Loans. (a) The Loans shall be made on the Closing Date. Not later than 11:00 A.M. (New York City time) on the third (3rd) Business Day prior to the Closing Date, Borrower shall give to the Administrative Agent notice of the initial Interest Period or Periods, which notice shall specify each Interest Period and the respective pro rata portion of the aggregate Loan amount to which such Interest Period shall apply; provided, however, that the aggregate of the Eurodollar Rate Loans for each Interest Period must be in an amount of not less than $5,000,000 or an integral multiple of $500,000 in excess thereof. If the Administrative Agent does not receive such notice of the initial Interest Period as provided above, the initial Interest Period shall equal one month and shall apply to the aggregate principal balance of the Loans. (b) Each Lender shall, before 12:00 Noon (New York City time) on the Closing Date, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 10.2, in immediately available funds, such Lender's Loan. By 12:00 Noon (New York City time) on the Closing Date, subject to fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent's aforesaid address; provided that in the event that the Administrative Agent shall have received notice from a Lender prior to the Closing Date that such Lender will not make available to the Administrative Agent such Lender's Loan, the Administrative Agent shall be under no obligation to fund such Lender's Loan. 27 36 (c) Unless the Administrative Agent shall have received notice from a Lender prior to the Closing Date that such Lender will not make available to the Administrative Agent such Lender's Loan, the Administrative Agent may assume that such Lender has made such Loan available to the Administrative Agent on the Closing Date in accordance with this Section 2.2 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on the Closing Date a corresponding amount. If and to the extent that such Lender shall not have so made such Loan available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable to the Loan and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Loan for purposes of this Agreement. If the Borrower shall repay to the Administrative Agent such corresponding amount, such payment shall not relieve such Lender of any obligation it may have to the Borrower hereunder. (d) The failure of any Lender to make the Loan to be made by it hereunder shall not relieve any other Lender of its obligation, if any, hereunder to make its Loan on the Closing Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the Closing Date. 2.3. Fees. The Borrower has agreed to pay to Chase additional fees, the amount and dates of payment of which are embodied in a separate agreement between the Borrower and Chase. 2.4. Collateral. (a) During such time that, and only for so long as, the FelCor Bonds are rated below Investment Grade, the Loans shall be secured by ownership interests in certain entities of, or affiliated with, the Borrower as set forth in the Pledge Agreement. In the event that the FelCor Bonds attain a rating of Investment Grade, upon written request from the Borrower, the Administrative Agent shall direct the Collateral Agent to release the Collateral. Should the FelCor Bonds thereafter become rated below Investment Grade, the Collateral shall be re-pledged pursuant to a new pledge and security agreement in substantially the same form as Exhibit H hereto and any other instruments and documents reasonably required by the Administrative Agent in order to effect such new pledge, including but not limited to a new guaranty in substantially the same for as Exhibit G hereto. During any period in which the Collateral secures the Loans, the Collateral may also secure, equally and ratably, (i) the FelCor Bonds and (ii) the Indebtedness under the Credit Agreement. (b) Upon consent from or at the request of the Majority Lenders, the Administrative Agent may direct the Collateral Agent to take any action with respect to the Collateral other than such action requiring consent of all the Lenders under Section 10.1 hereof. Notwithstanding the preceding sentence, the Administrative Agent shall have the sole and absolute discretion to direct the Collateral Agent to release (i) any 28 37 portion of the Collateral representing, in the aggregate, no more than 10% of Total Value, or (ii) all or any portion of the Collateral as contemplated by Section 2.4(a). 2.5. Repayment. (a) The Borrower shall make a one million dollar ($1,000,000.00) payment in reduction of the principal balance of the Loan on each anniversary of the Closing Date during the term of the Loan, with the first such payment being due on April 1, 2000. (b) The Borrower shall repay the entire unpaid principal amount of the Loans on the Maturity Date. 2.6. Prepayments. (a) The Borrower shall have no right to prepay the principal amount of any Loan other than as provided in this Section 2.6. (b) The Borrower may, upon at least two (2) Business Days' prior notice to the Administrative Agent, stating the proposed date and aggregate principal amount of the prepayment, prepay the outstanding principal amount of the Loans in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that any prepayment of any Eurodollar Rate Loan made other than on the last day of an Interest Period for such Loan shall be subject to payment by the Borrower to the Administrative Agent of any costs, fees or expenses incurred by any Lender in connection with such prepayment including without limitation any costs to unwind any Eurodollar Rate contracts; and, provided, further, that each partial prepayment shall be in an aggregate principal amount not less than $3,000,000 or integral multiples of $100,000 in excess thereof. Upon the giving of such notice of prepayment, the principal amount of the Loans specified to be prepaid shall become due and payable on the date specified for such prepayment. (c) If at any time the Borrower shall not be in compliance with the covenant contained in Section 5.1 hereof, (a "Financial Covenant Imbalance"), the Borrower shall prepay the Loans then outstanding in an amount necessary to cure such Financial Covenant Imbalance, together with accrued interest as follows: (i) in the event that the Financial Covenant Imbalance is due to (A) any sale, conveyance, transfer, assignment or other disposition of an Unencumbered Hotel Property, (B) a financing secured by a Hotel or (C) any drawing on the revolving credit line under the Credit Agreement, the prepayment shall be made within one (1) Business Day of such event occurring; (ii) in the event that the Financial Covenant Imbalance is due to any (A) condemnation or taking by eminent domain of an Unencumbered Hotel Property, or (B) loss, damage or destruction by casualty to any Hotel, the prepayment shall be made within one (1) Business Day after receipt by the Borrower or its Subsidiary or Eligible Joint Venture of the condemnation award or insurance proceeds relating to such event; or (iii) in the event that the Financial Covenant Imbalance is due to a determination by the Administrative Agent, after review of the applicable Hotel 29 38 Documents, that an Unencumbered Hotel Property, represented by Borrower in a Compliance Certificate to be an Unencumbered Hotel Property, fails to meet (and never actually met) the requirements for Unencumbered Hotel Properties set forth herein, the prepayment shall be made within 5 Business Days of the Administrative Agent notifying Borrower of such Hotel's failure to meet the Unencumbered Hotel Property requirements. 2.7. Conversion/Continuation Option. The Borrower may elect (i) at any time after the date hereof to convert Base Rate Loans or any portion thereof to Eurodollar Rate Loans, or (ii) at the end of any Interest Period with respect thereto, to convert Eurodollar Rate Loans or any portion thereof into Base Rate Loans, or to continue such Eurodollar Rate Loans or any portion thereof for an additional Interest Period; provided, however, that the aggregate of the Eurodollar Rate Loans for each Interest Period therefor must be in the amount of $5,000,000 or an integral multiple of $500,000 in excess thereof. Each conversion or continuation shall be allocated among the Loans of all Lenders in accordance with their Ratable Portion. Each such election shall be in substantially the form of Exhibit B hereto (a "Notice of Conversion or Continuation") and shall be made by giving the Administrative Agent at least three (3) Business Days' prior written notice thereof specifying (A) the amount and type of conversion or continuation, (B) in the case of a conversion to or a continuation of Eurodollar Rate Loans, the Interest Period therefor, and (C) in the case of a conversion, the date of conversion (which date shall be a Business Day and, if a conversion from Eurodollar Rate Loans, shall also be the last day of the Interest Period therefor). The Administrative Agent shall promptly notify each Lender of its receipt of a Notice of Conversion or Continuation and of the contents thereof and such Lender's Ratable Portion of the Loans to be converted. Notwithstanding the foregoing, no conversion in whole or in part of Base Rate Loans to Eurodollar Rate Loans, and no continuation in whole or in part of Eurodollar Rate Loans upon the expiration of any Interest Period therefor, shall be permitted at any time at which a Default or an Event of Default shall have occurred and be continuing. If, within the time period required under the terms of this Section 2.7, the Administrative Agent does not receive a Notice of Conversion or Continuation from the Borrower containing a permitted election to continue any Eurodollar Rate Loans for an additional Interest Period or to convert any such Loans, then, upon the expiration of the Interest Period therefor, such Loans will be automatically converted to Base Rate Loans. Each Notice of Conversion or Continuation shall be irrevocable. 2.8. Interest. (a) The Borrower shall pay interest on the unpaid principal amount of each Loan from the date thereof until the principal amount thereof shall be paid in full, at the following rates per annum: (i) For Base Rate Loans, at a rate per annum equal at all times to the Base Rate in effect from time to time, payable monthly on the first day of each month, on the Maturity Date and on the date any Base Rate Loan is converted or paid in full. 30 39 (ii) For Eurodollar Rate Loans, at a rate per annum equal at all times during the applicable Interest Period for each Eurodollar Rate Loan to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin, payable on the last day of such Interest Period, on the Maturity Date and, if such Interest Period has a duration of more than three months, on the last day of each calendar quarter during such Interest Period commencing on March 31, 1999. (b) If the principal indebtedness of the Loans is declared immediately due and payable by the Administrative Agent pursuant to the provisions of this Agreement or any other Loan Document, or if the Loans are not paid in full on the Maturity Date, the Borrower shall thereafter, unless and until such date, if any, as the Majority Lenders may elect, in their sole and absolute discretion, to waive, in writing, all or any portion of such default rate interest, pay interest on the principal sum then remaining unpaid from the date of such declaration or the Maturity Date, as the case may be, until the date on which the principal sum then outstanding is paid in full (whether before or after judgment), at a rate per annum (calculated for the actual number of days elapsed on the basis of a 360-day year) equal to the greater, on a daily basis, of (x) 13% or (y) 4% plus the Base Rate, provided, however, that such interest rate shall in no event exceed the maximum interest rate which the Borrower may by law pay. 2.9. Interest Rate Determination and Protection. (a) The Eurodollar Rate for each Interest Period for Eurodollar Rate Loans shall be determined by the Administrative Agent two (2) Business Days before the first day of such Interest Period. (b) The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.8. (c) If the Majority Lenders in good faith notify the Administrative Agent that the Eurodollar Rate for any Interest Period therefor will not adequately reflect the cost to such Majority Lenders of making such Loans or funding or maintaining their respective Eurodollar Rate Loans for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Rate Loan will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Loan; and (ii) The Base Rate Loan shall continue in effect until the Administrative Agent shall notify the Borrower that such Lenders have determined that the circumstances that required the Base Rate no longer exist, after which time Borrower may convert the Loans to Eurodollar Rate Loans by submitting a Notice of Conversion or Continuation in accordance with the terms set forth herein. 2.10. Increased Costs. If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation (other than any change by way of imposition or increase of reserve requirements included in determining the Eurodollar 31 40 Rate Reserve Percentage) or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. If the Borrower so notifies the Administrative Agent within five Business Days after any Lender notifies the Borrower of any increased cost pursuant to the foregoing provisions of this Section 2.10, the Borrower may either (A) prepay in full all Eurodollar Rate Loans of such Lender then outstanding in accordance with Section 2.6(b) and, additionally, reimburse such Lender for such increased cost in accordance with this Section 2.10 or (B) convert all Eurodollar Rate Loans of all Lenders then outstanding into Base Rate Loans in accordance with Section 2.7 and, additionally, reimburse such Lender for such increased cost in accordance with this Section 2.10. 2.11. Illegality. Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans, then, on notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent, (i) the obligation of such Lender to make or to continue Eurodollar Rate Loans and to convert Base Rate Loans into Eurodollar Rate Loans shall terminate and (ii) the Borrower shall forthwith prepay in full all Eurodollar Rate Loans of such Lender then outstanding, together with interest accrued thereon, unless the Borrower, within five Business Days of such notice and demand, converts all Eurodollar Rate Loans of all Lenders then outstanding into Base Rate Loans. 2.12. Capital Adequacy. If (i) the introduction of or any change in or in the interpretation of any law or regulation, (ii) compliance with any law or regulation, or (iii) compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by any Lender or any corporation controlling any Lender and such Lender reasonably determines that such amount is based upon the existence of such Lender's Loans and its other commitments, letters of credit or loans of this type, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's Loans. A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes absent manifest error. 32 41 2.13. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes not later than 11:00 A.M. (New York City time) on the day when due, in Dollars, to the Administrative Agent at its address referred to in Section 10.2 in immediately available funds without set-off or counterclaim. The Administrative Agent will promptly thereafter cause to be distributed immediately available funds relating to the payment of principal or interest or fees (other than amounts payable pursuant to Section 2.10, 2.11, 2.12, or 2.14) to the Lenders, in accordance with their respective Ratable Portions, for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. To the extent the foregoing payments are received by the Administrative Agent prior to 11:00 A.M. (New York City time) and are not distributed to the Lenders on the same day, the Administrative Agent shall pay to each Lender in addition to the amount distributed to such Lender, interest thereon, for each day from the date such amount is received by the Administrative Agent until the date such amount is distributed to such Lender, at the Federal Funds Rate. Payment received by the Administrative Agent after 11:00 A.M. (New York City time) shall be deemed to be received on the next Business Day. (b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under any Loan held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (c) All computations of interest based on the Base Rate, the Eurodollar Rate or the Federal Funds Rate and of fees shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest and fees are payable. Each determination by the Administrative Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of any Eurodollar Rate Loan to be made in the next calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due hereunder to the Lenders that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith 33 42 on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. 2.14. Taxes. (a) Any and all payments by the Borrower under each Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes measured by its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes measured by its net income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities (excluding, in the case of such Lender or the Administrative Agent, taxes imposed by reason of any failure of such Lender or the Administrative Agent, if such Lender or the Administrative Agent is entitled at such time to a total or partial exemption from withholding that is required to be evidenced by a United States Internal Revenue Service Form 1001 or 4224 or any successor or additional form (including but not limited to Form W8), to deliver to the Administrative Agent or the Borrower, from time to time as required by the Administrative Agent or the Borrower, such Form 1001 or 4224 (as applicable) or any successor or additional form (including but not limited to Form W8), completed in a manner reasonably satisfactory to the Administrative Agent or the Borrower) being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including, without limitation, deductions applicable to additional sums payable under this Section 2.14) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law, and (iv) the Borrower shall deliver to the Administrative Agent evidence of such payment to the relevant taxation or other authority. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies of the United States or any political subdivision thereof or any applicable foreign jurisdiction which arise from any payment made under any Loan Document or from the execution, delivery or registration of, or otherwise with respect to, any Loan Document (collectively, "Other Taxes"). (c) The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including, without limitation, for penalties, interest and expenses) arising 34 43 therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes or Other Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 10.2, the original or a certified copy of a receipt evidencing payment thereof. (e) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.14 shall survive the payment in full of the Obligations. (f) Prior to the Effective Date in the case of each Lender that is a signatory hereto, and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender and from time to time thereafter if requested by the Borrower or the Administrative Agent, each Lender organized under the laws of a jurisdiction outside the United States that is entitled to an exemption from United States withholding tax, or that is subject to such tax at a reduced rate under an applicable tax treaty, shall provide the Administrative Agent and the Borrower with an IRS Form 4224 or Form 1001 or other applicable form (including but not limited to Form W8), certificate or document prescribed by the IRS certifying as to such Lender's entitlement to such exemption or reduced rate with respect to all payments to be made to such Lender hereunder and under the Notes. Unless the Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under any Note are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrower or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States. (g) Any Lender claiming any additional amounts payable pursuant to this Section 2.14 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. 2.15. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loans made by it (other than pursuant to Sections 2.12 or 2.14) in excess of its Ratable Portion of payments on account of the Loans obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in their Loans as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them. 35 44 Article III CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT AND OF LENDING 3.1. Conditions Precedent to Effectiveness of this Agreement and to the Loans. The effectiveness of this Agreement and the obligation of each Lender to make its Loan hereunder is subject to satisfaction of the conditions precedent that the Administrative Agent shall have received counterparts of this Agreement duly executed by each Borrower, each Lender and the Administrative Agent, together with the following, each dated the Effective Date (hereinafter defined) unless otherwise indicated, in form and substance satisfactory to the Administrative Agent and (except for the Notes) in sufficient copies for each Lender (the date of satisfaction of the conditions precedent set forth in this Section 3.1 and in Section 3.2 being the "Effective Date"): (a) The Notes to the order of the Lenders, respectively. (b) The Guaranty, duly executed by the Guarantor parties thereto. (c) The Pledge Agreement, duly executed by the pledgors thereto covering the present and future rights and interests in the collateral as set forth in the Pledge Agreement, together with: (i) proper Financing Statements (Form UCC-1) fully executed for filing under the UCC or other appropriate filing offices of each jurisdiction as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by the Pledge Agreement; (ii) copies of Requests for Information (Form UCC-11), or equivalent reports, listing all effective financing statements that name as debtor any entity whose ownership interests are pledged as collateral under the Pledge Agreement and that are filed in the jurisdictions referred to in preceding clause (i), together with copies of such financing statements (none of which shall cover the Pledge Agreement Collateral except to the extent evidencing Permitted Liens); (iii) evidence of the completion of all other recordings and filings of, or with respect to, such Pledge Agreement as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by the Pledge Agreement; and (iv) evidence that all other actions necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by the Pledge Agreement have been taken. In addition to the foregoing requirements, pursuant to the Pledge Agreement, each pledgor thereunder shall have delivered to the Collateral Agent, as pledgee, all pledged collateral referred to therein (to the extent evidenced by any certificate, note or other written instrument), together with executed and undated 36 45 irrevocable stock powers in the case of pledged stock and together with irrevocable assignments in the case of pledged partnership interests and pledged limited liability company interests in each case which are evidenced by certificates, instruments, documents or other writings. (d) A certificate of the Secretary or an Assistant Secretary of each Loan Party (or, as applicable, of such Loan Party's partners) certifying (i) the resolutions of its Board of Trustees or Directors, as appropriate, approving each Loan Document to which it is a party, (ii) all documents evidencing other necessary trust, partnership or corporate action, as appropriate, and required governmental and third party approvals, licenses and consents with respect to each Loan Document to which it is a party and the transactions contemplated thereby, (iii) a copy of its and each of its Subsidiaries' and Eligible Joint Ventures' declaration of trust, certificates of incorporation, by-laws, partnership agreements and certificates of partnership as appropriate, as of the Effective Date, and (iv) the names and true signatures of each of its officers who has been authorized to execute and deliver any Loan Document or other document required hereunder to be executed and delivered by or on behalf of such Person. (e) A copy of the declaration of trust or articles or certificate of incorporation or partnership agreement or certificate of partnership, as appropriate, of each Loan Party and of each of its Subsidiaries and Eligible Joint Ventures which is not a Loan Party certified as of a recent date by the Secretary of State of the state of formation of such Loan Party or Subsidiary, together with certificates of such official attesting to the good standing of each such Loan Party, Subsidiary and Eligible Joint Ventures. (f) Favorable opinion(s) of counsel to the Loan Parties, in substantially the form(s) of Exhibit C, and as to such other matters as any Lender through the Administrative Agent may reasonably request. (g) A certificate of the chief financial officer of the Borrower, stating that the Borrower is Solvent after giving effect to the Loans, the application of the proceeds thereof in accordance with Section 6.10 and the payment of all estimated legal, accounting and other fees related hereto and thereto. (h) Evidence that the insurance required by Section 6.4 is in full force and effect. (i) Such additional documents, information and materials as any Lender, through the Administrative Agent, may reasonably request. (j) A certificate, signed by a Responsible Officer of the Borrower, stating that the following statements are true and correct on the Effective Date: (i) All costs and accrued and unpaid fees and expenses (including, without limitation, legal fees and expenses) required to be paid to the Administrative Agent and the Lenders on or before the Effective Date, including, without limitation, those referred to in Sections 2.3 and 10.4, to the extent then due and payable, have been paid. 37 46 (ii) All necessary governmental and third party approvals required to be obtained by any Loan Party in connection with the transactions contemplated hereby have been obtained and remain in effect, and all applicable waiting periods have expired without any action being taken by any competent authority which restrains, prevents, impedes, delays or imposes materially adverse conditions upon any of the transactions contemplated hereby. (iii) There exists no judgment, order, injunction or other restraint prohibiting or imposing materially adverse conditions upon any of the transactions contemplated hereby. (iv) There exists no claim, action, suit, investigation or proceeding (including, without limitation, shareholder or derivative litigation) pending or, to the knowledge of the Borrower, threatened in any court or before any arbitrator or Governmental Authority which relates to the Loan Documents or the financing hereunder or which, if adversely determined, would have a Material Adverse Effect. (v) There has been no Material Adverse Change since December 31, 1998 in the corporate, capital or legal structure of the Borrower or any of its Subsidiaries without the consent of the Administrative Agent. (vi) The Borrower's Tangible Net Worth is not less than the Minimum Tangible Net Worth. (k) Administrative Agent's reasonable satisfaction with the form and substance of each Operating Lease. (l) A Compliance Certificate, executed by the Chief Financial Officer of the Borrower substantially in the form attached as Exhibit E hereto (a "Compliance Certificate"), and if requested by the Administrative Agent, together with copies (to the extent not already delivered) of the Hotel Documents in respect of each Hotel indicated by Administrative Agent. 3.2. Additional Conditions Precedent to Effectiveness of this Agreement and to the Loans. The effectiveness of this Agreement and the obligation of each Lender to make its Loan hereunder is subject to the further conditions precedent that: (a) No Lender in its sole judgment exercised reasonably shall have determined (i) that there has been any Material Adverse Change since December 31, 1998 or (ii) that there has occurred any adverse change which such Lender deems material in the financial markets generally, since December 31, 1998 or (iii) that there is any claim, action, suit, investigation, litigation or proceeding (including, without limitation, shareholder or derivative litigation) pending or threatened in any court or before any arbitrator or Governmental Authority which, if adversely determined, would have a Material Adverse Effect; and nothing shall have occurred since December 31, 1998 which, in the judgment of any Lender, has had a Material Adverse Effect. 38 47 (b) Each Lender shall be satisfied, in its sole judgment, exercised reasonably, with the corporate, capital, legal and management structure of the Borrower and its Subsidiaries, and shall be satisfied, in its sole judgment exercised reasonably, with the nature and status of all Contractual Obligations, securities, labor, tax, ERISA, employee benefit, environmental, health and safety matters, in each case, involving or affecting the Borrower or any of its Subsidiaries. Article IV REPRESENTATIONS AND WARRANTIES To induce the Lenders and the Administrative Agent to enter into this Agreement, the Borrower represents and warrants to the Lenders and the Administrative Agent that on and after the Effective Date: 4.1. Existence; Compliance with Law. Each Loan Party and each of its Subsidiaries and Eligible Joint Ventures (i) is a real estate investment trust or a corporation, limited liability company or limited partnership, as specified herein, duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation; (ii) is duly qualified as a foreign corporation, limited liability company or limited partnership and in good standing under the laws of each jurisdiction where such qualification is necessary, except for failures which in the aggregate have no Material Adverse Effect; (iii) has all requisite corporate, limited liability company or partnership power and authority and the legal right to own, pledge and mortgage its properties, to lease (as lessee) the properties that it leases as lessee, to lease or sublease (as lessor) the properties it owns and/or leases (as lessee) and to conduct its business as now or currently proposed to be conducted; (iv) is in compliance with its declaration of trust or certificate of or formation and by-laws, regulations or partnership agreement, as appropriate; (v) is in compliance with all other applicable Requirements of Law except for such non-compliances as in the aggregate have no Material Adverse Effect; and (vi) has all necessary licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, leasing and conduct, except for licenses, permits, consents or approvals which can be obtained by the taking of ministerial action to secure the grant or transfer thereof or failures which in the aggregate have no Material Adverse Effect. 4.2. Power; Authorization; Enforceable Obligations. (a) The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party and the consummation of the transactions related to the financing contemplated hereby: (i) are within such Loan Party's corporate, partnership or trust powers, as appropriate; 39 48 (ii) have been duly authorized by all necessary corporate, partnership or trust action, as appropriate, including, without limitation, the consent of stockholders and general and/or limited partners where required; (iii) do not and will not (A) contravene any Loan Party's or any of its Subsidiaries' or Eligible Joint Ventures' respective declaration of trust, certificate of incorporation or formation or by-laws, regulations, partnership agreement or other comparable governing documents, (B) violate any other applicable Requirement of Law (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System), or any order or decree of any Governmental Authority or arbitrator, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration of, any material Contractual Obligation of any Loan Party or any of its Subsidiaries or Eligible Joint Ventures, or (D) result in the creation or imposition of any Lien upon any of the property of any Loan Party or any of its Subsidiaries or Eligible Joint Ventures other than as contemplated under the Loan Documents; and (iv) do not require the consent of, authorization by, approval of, notice to, or filing or registration with, any Governmental Authority or any other Person, other than those which have been obtained or made and copies of which have been or will be delivered to the Administrative Agent pursuant to Section 3.1, and each of which on the Effective Date will be in full force and effect. (b) This Agreement has been, and each of the other Loan Documents has been, or will have been upon delivery thereof pursuant to Section 3.1, duly executed and delivered by each Loan Party thereto. This Agreement is, and the other Loan Documents are or will be, when delivered hereunder, the legal, valid and binding obligation of each Loan Party thereto, enforceable against it in accordance with its terms except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting the enforcement of creditor's rights and remedies generally. 4.3. Taxes. All federal, state, local and foreign tax returns, reports and statements (collectively, the "Tax Returns") required to be filed by the Borrower or any of its Tax Affiliates have been filed with the appropriate governmental agencies in all jurisdictions in which such Tax Returns, are required to be filed, all such Tax Returns are true and correct in all material respects, and all taxes, charges and other impositions due and payable have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for non-payment thereof, except where contested in good faith and by appropriate proceedings if (i) adequate reserves therefor have been established on the books of the Borrower or such Tax Affiliate in conformity with GAAP and (ii) all such non-payments in the aggregate have no Material Adverse Effect. Proper and accurate amounts have been withheld by the Borrower and each of its respective Tax Affiliates from their respective employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the 40 49 respective Governmental Authorities. None of the Borrower or any of its Tax Affiliates has (i) executed or filed with the IRS any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any charges; (ii) agreed or been requested to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise; or (iii) any obligation under any written tax sharing agreement. 4.4. Full Disclosure. No written statement prepared or furnished by or on behalf of any Loan Party or any of its Affiliates in connection with any of the Loan Documents or the consummation of the transactions contemplated thereby, and no financial statement delivered pursuant hereto or thereto, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. 4.5. Financial Matters. (a) The consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 1998, and the related consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, audited by PricewaterhouseCoopers LLP, and the consolidated balance sheets of the Borrower and its Subsidiaries as at December 31, 1998, and the related consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for the twelve months then ended, certified by the chief financial officer of the Borrower, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheets as at December 31, 1998, and said statements of income, retained earnings and cash flows for the twelve months then ended, to year-end audit adjustments, the consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the consolidated results of the operations of the Borrower and its Subsidiaries for the period ended on such dates, all in conformity with GAAP. (b) Since December 31, 1998, there has been no Material Adverse Change and there have been no events or developments that in the aggregate have had a Material Adverse Effect. (c) Neither the Borrower nor any of its Subsidiaries had at December 31, 1998 any material obligation, contingent liability or liability for taxes, long-term leases or unusual forward or long-term commitment which is not reflected in the balance sheet at such date referred to in subsection (a) above or in the notes thereto. (d) The Projections that have been delivered to each Lender, were prepared on the basis of the assumptions expressed therein, which assumptions the Borrower believed to be reasonable based on the information available to the Borrower at the time so furnished and on the Closing Date. (e) The Borrower is, and on a consolidated basis the Borrower and its Subsidiaries are, Solvent. 41 50 4.6. Litigation. There are no pending or, to the knowledge of the Borrower, threatened actions, investigations or proceedings affecting the Borrower, any of its Subsidiaries or Eligible Joint Ventures, or (to the best knowledge of the Borrower) any Operating Lessee or any of their respective properties or revenues before any court, Governmental Authority or arbitrator, other than those that in the aggregate, if adversely determined, would have no Material Adverse Effect. The performance of any action by (a) any Loan Party required or contemplated by any of the Loan Documents or (b) any Operator required or contemplated by any Operating Lease or Management Agreement is not, to the best knowledge of the Borrower, restrained or enjoined (either temporarily, preliminarily or permanently), and, to the best knowledge of the Borrower, no material adverse condition has been imposed by any Governmental Authority or arbitrator upon any of the foregoing transactions contemplated by the aforementioned documents. 4.7. Margin Regulations. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 4.8. Ownership of Borrower and DJONT; Subsidiaries. (a) The authorized capital stock of FelCor consists of (i) as of the date hereof 200,000,000 shares of common stock, $.01 par value per share, of which 68,062,887 shares are issued and outstanding as of the date hereof, and (ii) as of the date hereof 20,000,000 shares of preferred stock, $.01 par value per share, of which 6,050,000 shares, designated as $1.95 Series A Cumulative Convertible Preferred Stock, $25.00 per share liquidation preference, and 57,500 shares designated as 9% Series B Cumulative Redeemable Preferred Stock, $2,500.00 per share liquidation preference (and represented by 5,750,000 Depository Shares, each representing a 1/100 interest in such preferred stock) are outstanding as of the date hereof. All of the outstanding capital stock of FelCor has been validly issued, is fully paid and non-assessable. (b) FelCor is the sole general partner of FelCor LP and, as of the date hereof, owns beneficially and of record 1% of the partnership interests of FelCor LP free and clear of all Liens. FelCor is the sole member and sole equity owner of FelCor Nevada Holdings, L.L.C., which owns beneficially and of record 94.8% of the partnership interests of FelCor LP. (c) There are no outstanding classes of voting membership interests of DJONT other than the Class A membership interests. As of the date hereof Hervey A. Feldman and Thomas J. Corcoran, Jr. own, beneficially, all of the voting Class A membership interests in DJONT, free and clear of all Liens. (d) Set forth on Schedule 4.8 hereto is a complete and accurate list showing, as of the Effective Date, all Subsidiaries and Unconsolidated Entities of the Borrower and, as to each such Subsidiary and Unconsolidated Entity, the jurisdiction of its formation and the percentage of the outstanding Stock of each class owned (directly or indirectly) by the Borrower. No Stock of any Subsidiary or Unconsolidated Entity of the 42 51 Borrower is subject to any outstanding option, warrant, right of conversion or purchase or any similar right other than certain rights of first refusal contained in partnership agreements to which the Borrower or a Subsidiary is a party. All of the outstanding capital Stock of each such Subsidiary and Unconsolidated Entity owned by the Borrower has been validly issued, is fully paid and (except for partnership interests) non-assessable, and all outstanding capital Stock of its Subsidiaries and Unconsolidated Entities owned by the Borrower is free and clear of all Liens. Neither the Borrower nor any such Subsidiary or Unconsolidated Entity is a party to, or has knowledge of, any agreement restricting the transfer or hypothecation of any shares of Stock of any such Subsidiary or Unconsolidated Entity, other than those imposed by Requirements of Law, or the Loan Documents; provided that mortgage loan agreements executed by certain single purpose entities which do not constitute Collateral under the Pledge Agreement may contain such restrictions. 4.9. ERISA. (a) There are no Multiemployer Plans. (b) Each Plan and any related trust intended to qualify under Code Section 401 or 501 has been determined by the IRS to be so qualified and to the best knowledge of the Borrower nothing has occurred which would cause the loss of such qualification. (c) None of the Borrower, any of its Subsidiaries or any ERISA Affiliate, with respect to any Pension Plan, has failed to make any contribution or pay any amount due as required by Section 412 of the Code or Section 302 of ERISA or the terms of any such plan, and all required contributions and benefits have been paid in accordance with the provisions of each such plan. (d) There are no pending or, to the knowledge of the Borrower, threatened claims, actions or proceedings (other than claims for benefits in the normal course), relating to any Plan other than those that in the aggregate, if adversely determined, would have no Material Adverse Effect. (e) No Pension Plan has any unfunded accrued benefit liabilities, as determined by using reasonable actuarial assumptions utilized by such plan's actuary for funding purposes. Within the last five years none of the Borrower, any of its Subsidiaries or any ERISA Affiliate has caused a Pension Plan with any such liabilities to be transferred outside of its "controlled group" (within the meaning of Section 4001(a)(14) of ERISA). (f) No Plan provides for continuing health, disability, accident or death benefits or coverage for any participant or his or her beneficiary after such participant's termination of employment (except as may be required by Section 4980B of the Code and at the sole expense of the participant or the beneficiary) which would result in the aggregate under all Plans in a liability in an amount which would have a Material Adverse Effect. 43 52 (g) None of the assets of any of the Loan Parties are subject to Title I of ERISA because they consist of "plan assets" within the meaning of DOL Regulation Section 2510.3-101 by reason of an equity investment in any of the Loan Parties. 4.10. Indebtedness. Except as disclosed on Schedule 4.10, as of the date hereof, none of the Borrower or any of its Subsidiaries or Unconsolidated Entities has any Indebtedness. 4.11. Restricted Payments. From and after the Closing Date, the Borrower has not declared or made any Restricted Payments (other than those permitted pursuant to Section 7.4). 4.12. No Burdensome Restrictions; No Defaults. (a) No Loan Party nor any of its Subsidiaries or Eligible Joint Ventures (i) is a party to any Contractual Obligation the compliance with which would have a Material Adverse Effect or the performance of which by any thereof, either unconditionally or upon the happening of an event, will result in the creation of a Lien on the property or assets of any such Loan Party or its Subsidiaries, or (ii) is subject to any charter or corporate restriction which has a Material Adverse Effect. (b) No Loan Party or Subsidiary or Eligible Joint Venture of any Loan Party is in default under or with respect to any Contractual Obligation owed by it and, to the knowledge of the Borrower, no other party is in default under or with respect to any Contractual Obligation owed to any Loan Party or to any Subsidiary or Eligible Joint Venture of a Loan Party, other than those defaults which in the aggregate have no Material Adverse Effect. (c) No Event of Default or Default has occurred and is continuing. (d) There is no Requirement of Law the compliance with which by any Loan Party would have a Material Adverse Effect. (e) As of the date hereof, no Subsidiary or Eligible Joint Venture of the Borrower is subject to any Contractual Obligation (other than as set forth in the governing documents thereof) restricting or limiting its ability to transfer its assets to the Borrower or to declare or make any dividend payment or other distribution on account of any shares of any class of its Stock or its ability to purchase, redeem, or otherwise acquire for value or make any payment in respect of any such shares or any shareholder rights. 4.13. Investments. Except as disclosed on Schedule 4.8 or 4.13, the Borrower and its Subsidiaries, considered as a single enterprise, is not engaged in any joint venture or partnership with any other Person nor does it maintain any Investment, as of the date hereof. 4.14. Government Regulation. Neither the Borrower nor any of its Subsidiaries or Eligible Joint Ventures is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended, or subject 44 53 to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or any other federal or state statute or regulation such that its ability to incur Indebtedness is limited, or its ability to consummate the transactions contemplated hereby or by any other Loan Document, or the exercise by the Administrative Agent or any Lender of rights and remedies hereunder or thereunder, is impaired. The making of the Loans by the Lenders, the application of the proceeds and repayment thereof by the Borrower and the consummation of the transactions contemplated by the Loan Documents will not cause the Borrower or any of its Subsidiaries or Eligible Joint Ventures to violate any provision of any of the foregoing or any rule, regulation or order issued by the Securities and Exchange Commission thereunder. 4.15. Insurance. All policies of insurance of any kind or nature owned by or issued to or for the benefit of any Loan Party or any of its Subsidiaries or Eligible Joint Ventures, or issued in respect of any real property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures including, without limitation, policies of life, fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers' compensation and employee health and welfare insurance, are in full force and effect and are of a nature and provide such coverage as is sufficient and as is customarily carried by companies of the size and character of such Person. No Loan Party or any of its Subsidiaries or Eligible Joint Ventures has been refused insurance for which it applied or had any policy of insurance terminated (other than at its request). 4.16. Labor Matters. (a) There are no strikes, work stoppages, slowdowns or lockouts pending or threatened against or involving the Borrower or its Subsidiaries or their respective Hotels, other than those which in the aggregate have no Material Adverse Effect. (b) There are no unfair labor practice charges, arbitrations or grievances pending against or involving, or to the knowledge of the Borrower threatened against or involving the Borrower or its Subsidiaries or Eligible Joint Ventures, other than those which, in the aggregate, if resolved adversely to the Borrower or such Subsidiary or Eligible Joint Venture, would have no Material Adverse Effect. (c) As of the Effective Date, neither the Borrower nor any of its Subsidiaries or Eligible Joint Ventures are parties to, or have any obligations under, any collective bargaining agreement. (d) There is no organizing activity involving the Borrower or any of its Subsidiaries or Eligible Joint Ventures pending or, to the Borrower's knowledge, threatened by any labor union or group of employees, other than those which in the aggregate have no Material Adverse Effect. There are no representation proceedings pending or, to the Borrower's knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of the Borrower or any of its Subsidiaries or Eligible Joint Ventures have made a pending demand for recognition, other than those which in the aggregate have no Material Adverse Effect. 45 54 4.17. Force Majeure. Neither the business nor the properties of any Loan Party or any of their respective Subsidiaries or Eligible Joint Ventures are currently suffering from the effects of any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance), other than those which in the aggregate have no Material Adverse Effect. 4.18. Use of Proceeds. The entire proceeds of the Loans will be applied by the Borrower solely to the indebtedness incurred under the Credit Agreement as follows: (a) first, to repay in whole the aggregate Term Loans (as defined in the Credit Agreement), (b) second, to reduce the aggregate outstanding principal amount of the Revolving Credit Loans (as defined in the Credit Agreement), and (c) third, to the extent any proceeds are remaining, to pay any unpaid fees and expenses owed to the Administrative Agent or the Lenders. 4.19. Environmental Protection. Except as disclosed on Schedule 4.19 (and the Borrower represents and warrants to the Lenders and the Administrative Agent that the matters disclosed in the reports identified on Schedule 4.19 would not reasonably be expected to have a Material Adverse Effect): (a) to the best knowledge of Borrower and its Subsidiaries, all real property leased or owned by the Borrower or any of its Subsidiaries or Eligible Joint Ventures is free from contamination by any Hazardous Material which could reasonably be expected to subject the Borrower or any of its Subsidiaries to Environmental Liabilities and Costs of $5,000,000 or more; (b) the operations of the Borrower and each of its Subsidiaries or Eligible Joint Ventures, and the operations at any real property leased or owned by the Borrower or any of its Subsidiaries or Eligible Joint Ventures are in material compliance in all respects with all applicable Environmental Laws; (c) neither the Borrower nor any of its Subsidiaries or Eligible Joint Ventures have liabilities with respect to Hazardous Materials and, to the best knowledge of the Borrower and its Subsidiaries, no facts or circumstances exist which could give rise to liabilities with respect to Hazardous Materials which could reasonably be expected to subject the Borrower or any of its Subsidiaries to Environmental Liabilities and Costs of $5,000,000 or more; (d) (i) the Borrower and its Subsidiaries and Eligible Joint Ventures and all real property owned or leased by the Borrower or its Subsidiaries and Eligible Joint Ventures have all Environmental Permits necessary for the operations at such real property and are in material compliance with such Environmental Permits, (ii) there are no Legal Proceedings pending nor, to the best knowledge of the Borrower and its Subsidiaries, threatened to revoke, or alleging the violation of, such Environmental Permits, and (iii) neither the Borrower nor any of its Subsidiaries or Eligible Joint Ventures or to the best knowledge of the Borrower and its Subsidiaries the Operators have received any notice from any source to the effect that there is lacking any 46 55 Environmental Permit required in connection with the current use or operation of any property leased or owned by the Borrower or any of its Subsidiaries or Eligible Joint Ventures; (e) neither the Borrower's nor any of its Subsidiaries' or Eligible Joint Ventures' current facilities and operations, nor, to the best knowledge of the Borrower and its Subsidiaries, any Operator, any predecessor of the Borrower or any of its Subsidiaries or Eligible Joint Ventures, nor any of the Borrower's or its Subsidiaries' or Eligible Joint Ventures' past facilities and operations, nor to the best knowledge of the Borrower and its Subsidiaries, any owner of premises leased or operated by the Borrower and its Subsidiaries and Eligible Joint Ventures, are subject to any outstanding written Order or Contractual Obligation, including Environmental Liens, with any Governmental Authority or other Person, or to any federal, state, local, foreign or territorial investigation respecting (i) Environmental Laws, (ii) Remedial Action, (iii) any Environmental Claim, or (iv) the Release or threatened Release of any Hazardous Material; (f) neither the Borrower nor any of its Subsidiaries or Eligible Joint Ventures or, to the best knowledge of the Borrower and its Subsidiaries, Operators are subject to any pending Legal Proceeding alleging the violation of any Environmental Law with respect to a Hotel nor, to the best knowledge of the Borrower and its Subsidiaries, are any such proceedings threatened; (g) neither the Borrower nor any of its Subsidiaries or Eligible Joint Ventures nor, to the best knowledge of the Borrower and its Subsidiaries, any Operators or predecessor of the Borrower or any of its Subsidiaries or Eligible Joint Ventures, nor to the best knowledge of the Borrower and its Subsidiaries any owner of premises leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures, have filed any notice under federal, state or local, territorial or foreign law indicating past or present treatment, storage, or disposal of or reporting a Release of Hazardous Material into the environment; (h) none of the operations of the Borrower or any of its Subsidiaries or Eligible Joint Ventures or, to the best knowledge of the Borrower and its Subsidiaries, of any Operators or predecessor of the Borrower or any of its Subsidiaries or Eligible Joint Ventures, or, to the best knowledge of the Borrower and its Subsidiaries, of any owner of premises leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures, involve or previously involved the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Part 261.3 (in effect as of the date of this Agreement) or any state, local, territorial or foreign equivalent; and (i) there is not now, nor to the best knowledge of the Borrower and its Subsidiaries, has there been in the past, on, in or under any real property leased or owned by the Borrower or any of its Subsidiaries or Eligible Joint Ventures, to the best knowledge of the Borrower and its Subsidiaries or any of their predecessors (i) any underground storage tanks or surface tanks, dikes or impoundments (other than for surface water), (ii) any friable asbestos-containing materials, (iii) any polychlorinated 47 56 biphenyls, or (iv) any radioactive substances other than naturally-occurring radioactive material. 4.20. Contractual Obligations Concerning Assets. As of the date hereof, neither the Borrower nor any of its Subsidiaries owns or holds, or is obligated under or a party to, any option, right of first refusal, or other contractual right to purchase or acquire, or any Contractual Obligation to effect an Asset Sale of, any Hotel owned or leased by the Borrower or any of its Subsidiaries, except those that in the aggregate would not have a Material Adverse Effect whether or not exercised. 4.21. Intellectual Property. The Loan Parties and their Subsidiaries and Eligible Joint Ventures or the Operating Lessee own or license or otherwise have the right to use all material licenses, permits, patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, copyright applications, franchises, authorizations and other intellectual property rights that are necessary for the operations of their respective businesses, without infringement upon or conflict with the rights of any other Person with respect thereto, including, without limitation, the Licenses and all trade names associated with any private label brands of any Loan Party or any of its Subsidiaries or Eligible Joint Ventures. To the best knowledge of the Borrower, no material slogan or other advertising device, product, process, method, substance, part or component, or other material now employed, or now contemplated to be employed, by any Loan Party or any of their respective Subsidiaries or Eligible Joint Ventures or the Operating Lessee infringes upon or conflicts with any rights owned by any other Person, and no claim or litigation regarding any of the foregoing is pending or threatened. 4.22. Title. (a) Each Loan Party and their respective Subsidiaries and Eligible Joint Ventures own good and marketable fee simple absolute title to all of the Real Estate purported to be owned by them, which Real Estate is at the date hereof described in Schedule 4.22(a), and good and marketable title to, or valid leasehold interests in, all other properties and assets purported to be leased by any Loan Party or any of their respective Subsidiaries or Eligible Joint Ventures, including, without limitation, valid leasehold interests pursuant to the Leases and all property reflected in the balance sheet referred to in Section 4.5(a). Each Loan Party and its respective Subsidiaries or Eligible Joint Ventures received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and have duly effected all recordings, filings and other actions necessary to establish, protect and perfect such Loan Party's and their respective Subsidiaries' or Eligible Joint Ventures' right, title and interest in and to all such property except for such documents or actions the failure to obtain or accomplish which would not have a Material Adverse Effect. (b) All material real property leased at the date hereof by the Borrower or any of their respective Subsidiaries or Eligible Joint Ventures is listed on Schedule 4.22(b). Each of such leases is valid and enforceable in accordance with its terms and is in full force and effect. The Borrower has delivered to the Administrative Agent true and complete copies of each of such leases and all documents affecting the rights or obligations of the Borrower or any of its Subsidiaries or Eligible Joint Ventures which is 48 57 a party thereto, including, without limitation, any non-disturbance and recognition agreements, subordination agreements, attornment agreements and agreements regarding the term or rental of any of the leases. None of the Borrower or any of its respective Subsidiaries or Eligible Joint Ventures nor, to the knowledge of the Borrower, any other party to any such lease is in default of its obligations thereunder or has delivered or received any notice of default under any such lease, nor has any event occurred which, with the giving of notice, the passage of time or both, would constitute a default under any such lease, except for defaults which in the aggregate have no Material Adverse Effect. (c) All components of all improvements included within the Hotels owned or leased, as lessee, by any Loan Party or Eligible Joint Venture (collectively, "Improvements"), including, without limitation, the roofs and structural elements thereof and the heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer, waste water, storm water, paving and parking equipment, systems and facilities included therein, are in good working order and repair, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. All water, gas, electrical, steam, compressed air, telecommunication, sanitary and storm sewage lines and systems and other similar systems serving the Hotels owned or leased by any Loan Party or any of their respective Subsidiaries or Eligible Joint Ventures are installed and operating and are sufficient to enable the real property owned or leased by any Loan Party and their respective Subsidiaries or Eligible Joint Ventures to continue to be used and operated in the manner currently being used and operated, and no Loan Party or any of its Subsidiaries or Eligible Joint Ventures has any knowledge of any factor or condition that reasonably could be expected to result in the termination or material impairment of the furnishing thereof. No Improvement or portion thereof is dependent for its access, operation or utility on any land, building or other Improvement not included in the real property owned or leased by any Loan Party or any of its Subsidiaries or Eligible Joint Ventures other than for access provided pursuant to a recorded easement or other right of way establishing the right of such access. (d) All Permits required to have been issued or appropriate to enable all real property owned or leased by any Loan Party or any of its Subsidiaries or Eligible Joint Ventures to be lawfully occupied and used for all of the purposes for which they are currently occupied and used have been lawfully issued and are in full force and effect, other than those which in the aggregate have no Material Adverse Effect. (e) No Loan Party or any of its Subsidiaries or Eligible Joint Ventures has received any notice, or has any knowledge, of any pending, threatened or contemplated condemnation proceeding affecting any real property owned or leased by any Loan Party or any of its Subsidiaries or Eligible Joint Ventures or any part thereof, or any proposed termination or impairment of any parking at any such owned or leased real property or of any sale or other disposition of any real property owned or leased by any Loan Party or any of its Subsidiaries or Eligible Joint Ventures or any part thereof in lieu of condemnation, which in the aggregate, are reasonably likely to have a Material Adverse Effect. 49 58 (f) Except for events or conditions not reasonably likely to have, in the aggregate, a Material Adverse Effect, (i) no portion of any real property owned or leased by any Loan Party or any of its Subsidiaries or Eligible Joint Ventures has suffered any material damage by fire or other casualty loss which has not heretofore been completely repaired and restored to its condition prior to such casualty, and (ii) no portion of any real property owned or leased by any Loan Party or any of its Subsidiaries or Eligible Joint Ventures is located in a special flood hazard area as designated by any Federal Governmental Authorities. 4.23. Status as REIT. The Borrower is organized in conformity with the requirements for qualification as an equity-oriented real estate investment trust under the Code. Borrower has met all of the requirements for qualification as an equity-oriented real estate investment trust under the Code for its Fiscal Year ended December 31, 1998. The Borrower is in a position to qualify for its current Fiscal Year as a real estate investment trust under the Code and its proposed methods of operation will enable it to so qualify. 4.24. Operator: Compliance with Law. To the best knowledge of the Borrower and its Subsidiaries, each Operator (i) has full power and authority and the legal right to own, lease (or sublease), manage and operate (as applicable) the properties it operates and to conduct the business in which it is currently engaged with respect to any real property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures, (ii) is duly qualified or licensed and is in good standing under the laws of each jurisdiction where its ownership, lease (or sublease), management or operation of any real property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures requires such qualification, and (iii) is in compliance with all Requirements of Law applicable to the real property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures, or applicable to the operation or management thereof except to the extent that the failure to comply therewith is not reasonably likely to have, in the aggregate, a Material Adverse Effect. 4.25. Operating Leases, Licenses and Management Agreement. (a) Each of the Hotels (i) is leased to an Operating Lessee under an Operating Lease (ii) is the subject of a License, and (iii) is managed and operated for the Operating Lessee pursuant to a Management Agreement except to the extent that the aggregate value of any Hotels owned or leased by the Borrower (directly or indirectly) which are not leased to an Operating Lessee, managed by a Manager, and operated pursuant to and with the benefit of a License does not exceed 10% of Total Value. (b) Each of the Operating Leases, Licenses and Management Agreements in respect of the Hotels (i) is in full force and effect, (ii) is a legally valid and binding obligation of each of the parties thereto, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect, and (iii) has not been modified, amended or supplemented in any material or adverse way. Neither the Borrower nor any of its Subsidiaries or Eligible Joint Ventures has collected any rents becoming due under any Operating Lease more than 30 days in advance. All rent and other sums and charges payable by any Operating Lessee under each Operating Lease to 50 59 which it is a party are current, no notice of default or termination under any such Operating Lease is outstanding, no termination event or condition or uncured default on the part of the Operating Lessee exists under any Operating Lease, and no event of default has occurred which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition or uncured default on the part of the Borrower or its Subsidiaries or Eligible Joint Ventures or the Operators (as the case may be), subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. As to all of the Leases, Borrower and each of its Subsidiaries or Eligible Joint Ventures has performed all of its repair and maintenance obligations (if any) and, to the best knowledge and belief of Borrower, each Operating Lessee under each Operating Lease to which it is a party has performed all of its repair and maintenance obligations, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. 4.26. FF&E Reserves. An FF&E Reserve has been established in respect of each of the Hotels and the Borrower or its Subsidiaries or Eligible Joint Ventures have made contributions to such FF&E Reserve as required by the terms of the Operating Lease and/or the Management Agreement relating thereto. 4.27. Year 2000 Compliance. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Borrower's computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which Borrower's systems interface) and the testing of all such systems and equipment, as so reprogrammed, has been completed. The cost to the Borrower of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Borrower (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Borrower and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Borrower to conduct its business without the occurrence of a Material Adverse Effect. Article V FINANCIAL COVENANTS As long as any of the Obligations remain outstanding, unless the requisite Lenders specified in Section 10.1 otherwise consent in writing, the Borrower agrees with the Lenders and the Administrative Agent that: 5.1. Unsecured Interest Expense Coverage. The Borrower shall maintain at the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending on March 31, 1999, a ratio of (a) Unencumbered NOI to (b) Unsecured Interest Expense, in each case determined on the basis of the four (4) Fiscal Quarters ending on the date of determination, of not less than 2.5:1.0. 51 60 5.2. Fixed Charge Coverage Ratio. The Borrower shall maintain at the end of each Fiscal Quarter commencing with the Fiscal Quarter ending on March 31, 1999, a ratio of (a) Adjusted EBITDA to (b) Fixed Charges, in each case determined on the basis of the four (4) Fiscal Quarters ending on the date of determination, of not less than 2.0:1.0. 5.3. Maintenance of Tangible Net Worth. The Borrower shall maintain during each Fiscal Quarter a Tangible Net Worth of not less than the Minimum Tangible Net Worth. 5.4. Limitations on Total Indebtedness. The Borrower shall not, during each Fiscal Quarter on a consolidated basis, permit the Total Indebtedness (including, without limitation, the Obligations and all Capitalized Lease Obligations) of the Borrower for borrowed money to exceed 50% of Total Value. 5.5. Limitations on Total Secured Indebtedness. The Borrower shall not, during each Fiscal Quarter on a consolidated basis, permit the Total Secured Indebtedness (including, without limitation, Capitalized Lease Obligations) of the Borrower, to exceed (x) prior to and including June 30, 1999, 30% of Total Value and (y) after June 30, 1999, 25% of Total Value. 5.6. Adjusted NOI and Hotels. The Borrower shall ensure that at the end of each Fiscal Quarter commencing with the Fiscal Quarter ending on March 31, 1999 at least 50% of the aggregate Adjusted NOI generated by all Hotels during the preceding four (4) Fiscal Quarters shall be generated by Hotels wholly owned or leased by the Borrower or its wholly-owned Subsidiaries, provided that, for Hotels owned or leased for less than four (4) Fiscal Quarters only the Adjusted NOI generated by such Hotels since the date of acquisition of such Hotel shall be included in calculating such aggregate Adjusted NOI. 5.7. Limitations on Recourse Secured Indebtedness. The Borrower shall not, during each Fiscal Quarter on a consolidated basis, permit the Recourse Secured Indebtedness (including, without limitation, Capitalized Lease Obligations) of the Borrower, to exceed the lesser of (x) 7.5% of Total Value and (y) $200,000,000.00. Article VI AFFIRMATIVE COVENANTS As long as any of the Obligations remain outstanding, unless the Majority Lenders otherwise consent in writing, the Borrower agrees with the Lenders and the Administrative Agent that: 6.1. Compliance with Laws, Etc. The Borrower shall comply, and shall cause each of its Subsidiaries and Eligible Joint Ventures to comply, in all material respects with all Requirements of Law, Contractual Obligations, commitments, 52 61 instruments, licenses, permits and franchises, including, without limitation, all Permits; provided, however, that the Borrower shall not be deemed in default of this Section 6.1 if all such non-compliances in the aggregate have no Material Adverse Effect. 6.2. Conduct of Business. The Borrower shall (a) conduct, and shall cause each of its Subsidiaries and Eligible Joint Ventures to conduct, its business in the ordinary course and consistent with past practice; (b) use, and cause each of its Subsidiaries and Eligible Joint Ventures to use, its reasonable efforts, in the ordinary course and consistent with past practice, to (i) preserve its business and the goodwill and business of the customers, advertisers, suppliers and others having business relations with the Borrower or any of its Subsidiaries or Eligible Joint Ventures, and (ii) keep available the services and goodwill of its present employees; (c) preserve, and cause each of its Subsidiaries and Eligible Joint Ventures to preserve, all registered patents, trademarks, trade names, copyrights and service marks with respect to its business; and (d) perform and observe, and cause each of its Subsidiaries and Eligible Joint Ventures to perform and observe, all the terms, covenants and conditions required to be performed and observed by it under its Contractual Obligations (including, without limitation, to pay all rent and other charges payable under any lease and all debts and other obligations as the same become due), and do, and cause its Subsidiaries and Eligible Joint Ventures to do, all things necessary to preserve and to keep unimpaired its rights under such Contractual Obligations; provided, however, that, in the case of each of clauses (a) through (d), the Borrower shall not be deemed in default of this Section 6.2 if all such failures in the aggregate have no Material Adverse Effect. 6.3. Payment of Taxes, Etc. The Borrower shall pay and discharge, and shall cause each of its Subsidiaries and Eligible Joint Ventures, as appropriate, to pay and discharge, before the same shall become delinquent, all lawful governmental claims, taxes, assessments, charges and levies, except where contested in good faith, by proper proceedings, if adequate reserves therefor have been established on the books of the Borrower or the appropriate Subsidiary or Eligible Joint Venture in conformity with GAAP; provided, however, that the Borrower shall not be deemed in default of this Section 6.3 if all such non-payments in the aggregate have no Material Adverse Effect. 6.4. Maintenance of Insurance. The Borrower shall maintain, and shall cause each of its Subsidiaries and Eligible Joint Ventures to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks (including, without limitation, fire, extended coverage, vandalism, malicious mischief, public liability, product liability, and business interruption) as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary or Eligible Joint Venture. The Borrower will furnish to the Lenders from time to time such information as may be requested as to such insurance. 6.5. Preservation of Existence, Etc. The Borrower shall preserve and maintain, and shall cause each of its Subsidiaries and Eligible Joint Ventures to preserve and maintain, its corporate or partnership existence, rights (charter and statutory) and franchises, except as permitted under Section 7.5. 53 62 6.6. Access. The Borrower shall, at any reasonable time and from time to time, permit the Administrative Agent or any of the Lenders, or any agents or representatives thereof, at the expense of the Lenders (but such expense to be reimbursed by the Borrower in the event that any of the following reveal a material Default by the Borrower), to (a) examine and make copies of and abstracts from the records and books of account of the Borrower and each of its Subsidiaries and Eligible Joint Ventures, (b) visit the properties of the Borrower and each of its Subsidiaries and Eligible Joint Ventures, (c) discuss the affairs, finances and accounts of the Borrower and each of its Subsidiaries and Eligible Joint Ventures with any of their respective officers or directors, and (d) communicate directly with the Borrower's independent certified public accountants. 6.7. Keeping of Books. The Borrower shall keep, and shall cause each of its Subsidiaries and Eligible Joint Ventures to keep, proper books of record and account, in which proper entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary or Eligible Joint Venture. 6.8. Maintenance of Properties, Etc. The Borrower shall maintain and preserve, and shall cause each of its Subsidiaries and Eligible Joint Ventures to maintain and preserve, (i) all of its properties which are used or useful or necessary in the conduct of its business in good working order and condition, and (ii) all rights, permits, licenses, approvals and privileges (including, without limitation, all Permits) which are used or useful or necessary in the conduct of its business; provided, however, that the Borrower shall not be deemed in default of this Section 6.8 if all such failures in the aggregate have no Material Adverse Effect. 6.9. Performance and Compliance with Other Covenants. The Borrower shall perform and comply with, and shall cause each of its Subsidiaries and Eligible Joint Ventures to perform and comply with, each of the covenants and agreements set forth in each Contractual Obligation to which it or any of its Subsidiaries or Eligible Joint Ventures is a party; provided, however, that the Borrower shall not be deemed in default of this Section 6.9 if all such failures in the aggregate have no Material Adverse Effect. 6.10. Application of Proceeds. The Borrower shall use the entire amount of the proceeds of the Loans as provided in Section 4.18. 6.11. Financial Statements. The Borrower shall furnish to the Lenders: (a) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, consolidated balance sheets of the Borrower and its Subsidiaries and the Reporting Operating Lessees and any Requested Operating Lessee as of the end of such quarter and consolidated statements of income, retained earnings and cash flow of the Borrower and its Subsidiaries and the Reporting Operating Lessees and any Requested Operating Lessee for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, all prepared in conformity with GAAP and certified by the chief financial 54 63 officer of the Borrower or the chief financial officer of the Reporting Operating Lessees or a Requested Operating Lessee, as appropriate, as fairly presenting the financial condition and results of operations of the Borrower and its Subsidiaries and the Reporting Operating Lessees and any Requested Operating Lessee at such date and for such period, together with (i) a certificate of said officer stating that no Default or Event of Default has occurred and is continuing or, if a Default or an Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which the Borrower, any Reporting Operating Lessees or any Requested Operating Lessee, as appropriate, proposes to take with respect thereto, (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by the Borrower or any Reporting Operating Lessee or any Requested Operating Lessee, as appropriate, in determining compliance with all financial covenants contained herein, and (iii) a written discussion and analysis by the management of the Borrower or any Reporting Operating Lessee or any Requested Operating Lessee, as appropriate, of the financial statements furnished in respect of such Fiscal Quarter; (b) as soon as available and in any event within 90 days after the end of each Fiscal Year, consolidated balance sheets of the Borrower and its Subsidiaries and the Reporting Operating Lessees as of the end of such year and consolidated statements of income, retained earnings and cash flow of the Borrower and its Subsidiaries and the Reporting Operating Lessees for such Fiscal Year, all prepared in conformity with GAAP and certified, in the case of such consolidated financial statements, in a manner reasonably acceptable to the Administrative Agent without qualification as to the scope of the audit by PricewaterhouseCoopers LLP, or other independent public accountants of recognized national standing together with (i) a schedule in form satisfactory to the Administrative Agent of the computations used by the Borrower in determining, as of the end of such Fiscal Year, the Borrower's or a Reporting Operating Lessee's, as appropriate, compliance with all financial covenants contained herein, and (ii) a written discussion and analysis by the management of the Borrower or any Reporting Operating Lessee, as appropriate, of the financial statements furnished in respect of such Fiscal Year; provided, however, that for purposes of this subparagraph (b) of this paragraph 6.11 only, "Reporting Operating Lessees" shall not include Bristol. (c) promptly after the same are received by the Borrower, a copy of each management letter provided to the Borrower by its independent certified public accountants which refers in whole or in part to any inadequacy, defect, problem, qualification or other lack of fully satisfactory accounting controls utilized by the Borrower or any of its Subsidiaries; and (d) within 45 days after the end of each Fiscal Quarter, a Compliance Certificate as of the end of such Fiscal Quarter, executed by the Chief Financial Officer of the Borrower and if requested by the Administrative Agent, together with copies (to the extent not already delivered) of the Hotel Documents in respect of each Hotel indicated by Administrative Agent. 55 64 6.12. Reporting Requirements. The Borrower shall furnish to the Lenders: (a) prior to any Asset Sale generating proceeds in excess of 10% of the Total Value of the Borrower, a notice (i) describing the assets being sold, (ii) stating the estimated Asset Sales proceeds in respect of such Asset Sale and (iii) accompanied by a Compliance Certificate and a certificate of the Chief Financial Officer of the Borrower stating that before and after giving effect to such Asset Sale, the Borrower shall be in compliance with all of its covenants set forth in the Loan Documents and that no Default or Event of Default will result from such Asset Sale. (b) as soon as available and in any event within 90 days after the end of each Fiscal Year (or earlier if approved earlier by the Board of Directors of the Borrower), an annual budget of the Borrower and its Subsidiaries for the succeeding Fiscal Year, displaying on a quarterly basis anticipated balance sheets, forecasted Capital Expenditures, working capital requirements, revenues, net income, cash flow, EBITDA, all on a consolidated basis; (c) promptly and in any event within 30 days after the Borrower, any of its Subsidiaries or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred, a written statement of the Chief Financial Officer or other appropriate officer of the Borrower describing such ERISA Event or waiver request and the action, if any, which the Borrower, its Subsidiaries and ERISA Affiliates propose to take with respect thereto and a copy of any notice filed by or with the PBGC or the IRS pertaining thereto; (d) promptly and in any event within 10 days after receipt thereof, a copy of any adverse notice, determination letter, ruling or opinion the Borrower, any of its Subsidiaries or any ERISA Affiliate receives from the PBGC, DOL or IRS with respect to any Plan, other than those which, in the aggregate, do not have any reasonable likelihood of resulting in a Material Adverse Change; (e) promptly after the commencement thereof, notice of all actions, suits and proceedings before any domestic or foreign Governmental Authority or arbitrator, affecting the Borrower or any of its Subsidiaries, except those which in the aggregate, if adversely determined, would have no Material Adverse Effect; (f) promptly and in any event within two Business Days after the Borrower becomes aware of the existence of (i) any Default or Event of Default, (ii) any breach or non-performance of, or any default under, any Operating Lease, Management Agreement or any Contractual Obligation which is material to the business, prospects, operations or financial condition of the Borrower and its Subsidiaries taken as one enterprise, or (iii) any Material Adverse Change or any event, development or other circumstance which has any reasonable likelihood of causing or resulting in a Material Adverse Change, telephonic or telecopied notice in reasonable detail specifying the nature of the Default, Event of Default, breach, non-performance, default, event, 56 65 development or circumstance, including, without limitation, the anticipated effect thereof, which notice shall be promptly confirmed in writing within five days; (g) promptly after the sending or filing thereof, copies of all reports which the Borrower sends to its security holders generally, and copies of all reports and registration statements which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange or the National Association of Securities Dealers, Inc.; (h) promptly upon the request of any Lender, through the Administrative Agent, copies of all federal tax returns and reports filed by the Borrower or any of its Subsidiaries in respect of taxes measured by income (excluding sales, use and like taxes); (i) promptly and in any event within ten days of the Borrower or any Subsidiary learning of any of the following, written notice to the Administrative Agent of any of the following: (i) the Release or threatened Release of any Hazardous Material on or from any property owned or leased by the Borrower of any of its Subsidiaries or Eligible Joint Ventures and any written order, notice, permit, application or other written communication or report received by the Borrower, any of its Subsidiaries or Eligible Joint Ventures in connection with or relating to any such Release or threatened Release, unless such Release or threatened Release is not reasonably likely to subject the Borrower or any of its Subsidiaries to Environmental Liabilities and Costs of $5,000,000 or more; (ii) any notice or claim to the effect that the Borrower, any of its Subsidiaries or any Eligible Joint Ventures is or may be liable to any Person as a result of the Release or threatened Release of any Hazardous Material into the environment; (iii) receipt by the Borrower, any of its Subsidiaries or Eligible Joint Ventures or any Operator of notification that any real or personal property of the Borrower or any of its Subsidiaries is subject to an Environmental Lien; (iv) any Remedial Action taken by the Borrower or any of its Subsidiaries or Eligible Joint Ventures or any other Person on their behalf in response to any Hazardous Material on, under or about any real property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures, unless such Remedial Action is not reasonably likely to subject the Borrower or any of its Subsidiaries or Eligible Joint Ventures to Environmental Liabilities and Costs of $5,000,000 or more; (v) receipt by the Borrower or any of its Subsidiaries or Eligible Joint Ventures of any notice of violation of, or knowledge by the Borrower or any of its Subsidiaries or any Eligible Joint Ventures that there exists a condition which may result in a violation by the Borrower or any of its Subsidiaries or Eligible Joint Ventures of, any Environmental Law, unless such violation is not 57 66 reasonably likely to subject the Borrower or any of its Subsidiaries to Environmental Liabilities and Costs of $5,000,000 or more; (vi) any proposed Capital Expenditure by the Borrower or any of its Subsidiaries or Eligible Joint Ventures intended or designed to implement any existing or additional Remedial Action, unless such expenditures are not reasonably likely to exceed $5,000,000; (vii) the commencement of any judicial or administrative proceeding or investigation alleging a violation of any Environmental Law; or (viii) any proposed acquisition of stock, assets or real property, or any proposed leasing of property by the Borrower, or any of its Subsidiaries or Eligible Joint Ventures, unless such action is not reasonably likely to subject the Borrower and its Subsidiaries to Environmental Liabilities and Costs to the Borrower in excess of $5,000,000; (j) promptly, such additional financial and other information respecting the financial or other condition of the Borrower or any of its Subsidiaries or Eligible Joint Ventures or the Operating Lessee or the status or condition of any real property owned or leased by the Borrower or its Subsidiaries or Eligible Joint Ventures, or the operation thereof which the Borrower is entitled to or can otherwise reasonably obtain, as the Administrative Agent from time to time reasonably requests; and (k) upon written request by any Lender through the Administrative Agent, a report providing an update of the status of any Environmental Claim, Remedial Action or any other issue identified in any notice or report required pursuant to this Section 6.12. 6.13. Leases and Operating Leases; Management Agreements and Licenses. (a) If requested by Administrative Agent, the Borrower shall provide the Administrative Agent, within 30 days of such request, with a copy of each Qualified Lease and each Operating Lease (to the extent not already delivered). The Borrower shall, and shall cause each of its Subsidiaries and Eligible Joint Ventures to, (i) comply in all material respects with all of their respective obligations under all of their respective Leases and Operating Leases now or hereafter held respectively by them with respect to real property, including, without limitation, the Leases set forth in Schedule 4.22(b); (ii) not modify, amend, cancel, extend or otherwise change in any materially adverse manner any of the terms, covenants or conditions of any such Leases or Operating Leases; (iii) not assign any Leases or sublet any portion of the premises if such assignment or sublet would have a Material Adverse Effect; (iv) provide the Administrative Agent with a copy of each notice of default under any Lease or Operating Lease received by the Borrower or any Subsidiary or Eligible Joint Venture of the Borrower immediately upon receipt thereof and deliver to the Administrative Agent a copy of each notice of default sent by the Borrower or any Subsidiary or Eligible Joint Venture of the Borrower under any Lease or Operating Lease simultaneously with its delivery of such notice under such Lease or Operating Lease except to the extent that such defaults, in the aggregate, would not have a Material Adverse Effect; (v) notify the 58 67 Administrative Agent, not later than 30 days prior to the date of the expiration of the term of any Qualified Lease, of the Borrower's or any Subsidiary or Eligible Joint Venture of the Borrower's intention either to renew or to not renew any such Qualified Lease, and, if the Borrower or any Subsidiary or Eligible Joint Venture of the Borrower intends to renew such Qualified Lease, the terms and conditions of such renewal; and (vi) maintain each Operating Lease in full force and effect and enforce the obligations of the Operating Lessee thereunder, in a timely manner except to the extent that the failure to do so, in the aggregate, would not have a Material Adverse Effect. (b) The Borrower shall take all actions and do all things within its power or control necessary or required to cause each Operating Lessee to (i) keep, observe, comply with and perform all of the terms, provisions, covenants and undertakings on its part required by each Operating Lease, each License, each sublease and Management Agreement relating to any Hotel, and (ii) to enforce the provisions of each License and each Management Agreement, if the failure to comply or enforce such agreements would be reasonably likely, in the aggregate, to have a Material Adverse Effect. 6.14. Employee Plans. For each Plan and any related trust hereafter adopted or maintained by a Loan Party or any of its ERISA Affiliates intended to qualify under Code Section 125, 401 or 501, the Borrower shall (i) seek, and cause such of its ERISA Affiliates to seek, and receive determination letters from the IRS to the effect that such plan is so qualified; and (ii) cause such plan to be so qualified. 6.15. Fiscal Year. The Borrower shall maintain as its Fiscal Year the twelve month period ending on December 31 of each year. 6.16. Environmental Matters. (a) The Borrower shall comply and shall cause each of its Subsidiaries and Eligible Joint Ventures and each property owned or leased by such parties to comply in all material respects with all applicable Environmental Laws currently or hereafter in effect. (b) If Administrative Agent or Lenders at any time have a reasonable basis to believe that there may be a material violation of any Environmental Law by the Borrower or any of its Subsidiaries and Eligible Joint Ventures or any Operator related to any real property owned or leased by the Borrower or any of its Subsidiaries and Eligible Joint Ventures, or real property adjacent to such real property, then the Borrower agrees, upon request from the Administrative Agent, to provide the Administrative Agent, at the Borrower's expense, with such reports, certificates, engineering studies or other written material or data as the Administrative Agent or Lenders may reasonably require so as to reasonably satisfy the Administrative Agent and Lenders that the Borrower or such Subsidiary, Eligible Joint Venture or real property owned or leased by them is in material compliance with all applicable Environmental Laws. Furthermore, Administrative Agent shall have the right to inspect during normal business hours any real property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures if at any time Administrative Agent or Lenders have a reasonable basis to believe that there may be such a material violation of Environmental Law. 59 68 (c) The Borrower shall, and shall cause each of its Subsidiaries and Eligible Joint Ventures and each Operating Lessee to, take such Remedial Action or other action as required by Environmental Laws, as any Governmental Authority requires, except to the extent contested in good faith and by proper proceedings, or as is appropriate and consistent with good business practice. 6.17. REIT Requirements. The Borrower shall operate its business at all times so as to satisfy all requirements necessary to qualify as an equity-oriented real estate investment trust under Sections 856 through 860 of the Code. The Borrower will maintain adequate records so as to comply with all record-keeping requirements relating to the qualification of the Borrower as an equity-oriented real estate investment trust as required by the Code and applicable regulations of the Department of the Treasury promulgated thereunder and will properly prepare and timely file with the IRS all returns and reports required thereby. The Borrower will request from its shareholders all shareholder information required by the Code and applicable regulations of the Department of Treasury promulgated thereunder. 6.18. Maintenance of FF&E Reserves. The Borrower shall cause to be maintained the FF&E Reserves pursuant to the terms of the Operating Leases. 6.19. Further Assurances. At any time upon the request of the Administrative Agent, the Borrower will, promptly and at its expense, execute, acknowledge and deliver such further documents and do such other acts and things as the Administrative Agent may reasonably request to evidence the Loans made hereunder and interest thereon in accordance with the terms of this Agreement; 6.20. Unencumbered Hotel Properties/Financial Covenant Imbalance. (a) The Borrower shall promptly notify the Administrative Agent in writing in the event that at any time the Borrower or any of its Subsidiaries receives or otherwise gains knowledge that (i) any Hotel included in the calculation of a prior Compliance Certificate as an Unencumbered Hotel Property, ceases, for any reason whatsoever, to be an Unencumbered Hotel Property or (ii) a Financial Covenant Imbalance exists, and the amount of the Loans which must be repaid to cure such Financial Covenant Imbalance. (b) The Administrative Agent, at the expense of the Lenders, which expense shall not exceed $10,000 without the consent of the Majority Lenders (but such expense to be reimbursed by the Borrower in the event that a Hotel fails to meet requirements for an Unencumbered Hotel Property in any material respect) may make physical and other verifications of any Hotels included as Unencumbered Hotel Properties in any reasonable manner and through any medium that the Administrative Agent considers advisable, and the Borrower shall furnish all such assistance and information as the Administrative Agent may require in connection therewith. 6.21. Hotel Documents. Within 30 days of Administrative Agent's request, Borrower shall deliver to Administrative Agent Hotel Documents (to the extent not already delivered) for any Hotel indicated by Administrative Agent. 60 69 Article VII NEGATIVE COVENANTS As long as any of the Obligations remain outstanding, without the written consent of the Administrative Agent, the Borrower agrees with the Lenders and the Administrative Agent that: 7.1. Restrictions on Wholly-Owned Subsidiaries. (a) The Borrower shall not create or acquire any direct or indirect wholly-owned Subsidiary after the Closing Date unless (i) if such Subsidiary is a Required Guarantor, concurrently with the creation or acquisition thereof, (x) such Subsidiary executes and delivers to the Administrative Agent counterparts of the Guaranty, at which time such Subsidiary shall become a Guarantor hereunder, and (y) if the Administrative Agent, in its sole discretion, so requires, the holder of such Subsidiary's ownership interests executes and delivers to the Administrative Agent counterparts to the Pledge Agreement; or (ii) if such Subsidiary is not a Required Guarantor the organizational documents and agreement of limited partnership (or equivalent) of such Subsidiary provide that such Subsidiary shall not incur any Indebtedness (other than (A) intercompany Indebtedness owed to Borrower and (B) Indebtedness which is either (x) Non-Recourse Indebtedness or (y) recourse to such Subsidiary provided such Indebtedness (I) does not exceed 65% of the value of such Subsidiary's assets which secures such Indebtedness and (II) is secured by all of the Hotels owned by such Subsidiary). (b) No wholly-owned Subsidiary which is acquired or created after the Closing Date may (i) incur any Indebtedness (other than (A) intercompany Indebtedness owed to Borrower and (B) Indebtedness which is either (x) Non-Recourse Indebtedness or (y) recourse to such Subsidiary provided such Indebtedness (I) does not exceed 65% of the value of such Subsidiary's assets which secures such Indebtedness and (II) is secured by all of the Hotels owned by such Subsidiary) or (ii) be subject to any contractual restriction on such Subsidiary's ability to declare or pay dividends or distribute cash or other assets to Borrower or any of its Subsidiaries. (c) Borrower shall not permit any direct or indirect wholly-owned Subsidiary to own assets (including the assets of such Person's Subsidiaries) the value of which exceed 10% of Total Value unless (i) such Subsidiary executes and delivers to the Administrative Agent counterparts of the Guaranty, at which time such Subsidiary shall become a Guarantor hereunder, and (ii) if the Administrative Agent, in its sole discretion, so requires, the holder of such Subsidiary's ownership interests executes and delivers to the Administrative Agent counterparts to the Pledge Agreement; provided, that in the event the aggregate value of the assets of all wholly-owned Subsidiaries which are not Guarantors exceed 20% of Total Value then Borrower shall not permit any direct or indirect wholly-owned Subsidiary formed thereafter to own assets (including the assets of such Person's Subsidiaries) the value of which exceed 1% of Total Value unless (x) such Subsidiary executes and delivers to the Administrative Agent counterparts of the Guaranty, at which time such Subsidiary shall become a Guarantor hereunder, and (y) if the Administrative Agent, in its sole discretion, so requires, the holder of such 61 70 Subsidiary's ownership interests executes and delivers to the Administrative Agent counterparts to the Pledge Agreement. (d) Any Subsidiary required to take action pursuant to this Section 7.1 shall execute and deliver, or cause to be executed and delivered, all other relevant documentation of the type described in Article III (including without limitation opinions of counsel) as such Subsidiary would have had to deliver if such Subsidiary were a Loan Party on the Closing Date, with all actions to be taken pursuant to this Section 7.1 to be taken to the reasonable satisfaction of the Administrative Agent and the Collateral Agent. 7.2. Operation/Ownership of Hotels. (a) Borrower shall not own or lease (directly or indirectly) any Hotels which are not (i) leased to an Operating Lessee pursuant to an Operating Lease within 90 days of Borrower's (or a Subsidiary's) acquisition of such Hotel, (ii) managed pursuant to a Management Agreement and (iii) operated pursuant to and with the benefit of a License, except to the extent that the aggregate value of any Hotels owned or leased by the Borrower (directly or indirectly) which are not leased to an Operating Lessee, managed by a Manager, and operated pursuant to and with the benefit of a License does not exceed 10% of Total Value. (b) The aggregate value of any Hotels owned or leased by the Borrower (directly or indirectly) which are not operated under a nationally recognized brand may not exceed 10% of Total Value. 7.3. Lease Obligations. (a) The Borrower shall not create or suffer to exist, or permit any of its Subsidiaries or Eligible Joint Ventures to create or suffer to exist, any obligations as lessee for the rental or hire of real or personal property of any kind under other leases or agreements to lease entered into otherwise than in the ordinary course of business. (b) The Borrower shall not, and shall not permit any of its Subsidiaries or Eligible Joint Ventures to, become or remain liable as lessee or guarantor or other surety with respect to any lease, whether an operating lease or a Capitalized Lease, of any property (whether real or personal or mixed), whether now owned or hereafter acquired, which (i) the Borrower or any of its Subsidiaries or Eligible Joint Ventures has sold or transferred or is to sell or transfer to any other Person, or (ii) the Borrower or any of its Subsidiaries or Eligible Joint Ventures intends to use for substantially the same purposes as any other property which has been or is to be sold or transferred by that entity to any other Person in connection with such lease. 7.4. Restricted Payments. The Borrower, unless otherwise required in order to maintain FelCor's status as a real estate investment trust in accordance with the written advice of independent counsel to the Borrower, shall not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account or in respect of any of its Stock or Stock Equivalents (collectively, "Restricted Payments"); provided, that, notwithstanding the foregoing, during any period of four consecutive Fiscal Quarters, (i) the Borrower may make Restricted Payments in an aggregate amount not to exceed 85% of the consolidated Adjusted Funds From 62 71 Operations of the Borrower for such period and (ii) the aggregate amount of Restricted Payments made shall not exceed 100% of Free Cash Flow of the Borrower for such period. 7.5. Mergers, Stock Issuances, Asset Sales, Etc. (a) The Borrower shall not sell, convey, transfer, lease or otherwise dispose of all or substantially all of its assets or properties, and shall not, and shall not permit any of its Subsidiaries or Eligible Joint Ventures to, (i) merge with any Person, or (ii) consolidate with any Person, unless the Borrower or its Subsidiary or Eligible Joint Venture is the surviving or resulting entity and, following such merger or consolidation, no Default or Event of Default shall have occurred. (b) The Borrower shall not and shall not permit any of its Subsidiaries or Eligible Joint Ventures to effect, enter into, consummate or suffer to exist any Asset Sale(s) of any Hotel(s) generating proceeds aggregating more than 25% of the value of the Hotels owned by the Borrower, its Subsidiaries and Eligible Joint Ventures at the time of such transaction. (c) The Borrower shall not sell or otherwise dispose of, or factor at maturity or collection, or permit any of its Subsidiaries or Eligible Joint Ventures to sell or otherwise dispose of, or factor at maturity or collection, any accounts receivables. 7.6. Restrictions on Construction/Budget Hotels. (a) The Borrower shall not, and shall not permit any of its Subsidiaries or Eligible Joint Ventures to (i) engage in the construction of new hotels (provided that nothing herein shall prohibit expansions to existing Hotels) or (ii) enter into any commitments or agreements to purchase any Hotels under, or to be under, original construction (provided that nothing herein shall limit commitments or agreements for expansions to existing Hotels), pursuant to which (A) such Persons' obligations, in the aggregate at the time of the transaction, exceed the lesser of (x) 15% of the Total Value of the Borrower as of the end of the Fiscal Quarter immediately preceding the date of any such commitment or agreement and (y) $400,000,000, or (B) any such Person is or may be liable for, or otherwise assumes, any risks relating to the development or construction (but not operation) of such Hotel, whether by way of providing any guaranties of completion, payment of any construction loans, payment of construction cost overruns, or otherwise. (b) Other than Borrower's (or its Subsidiary's or Unconsolidated Entity's) investments in budget hotels, limited service hotels or extended stay hotels which are in existence as of the Effective Date, the Borrower's investments (direct or indirect) in any budget hotels, limited service hotels or extended stay hotels, shall not exceed, in the aggregate, 10% of Total Value. 7.7. Change in Nature of Business or in Capital Structure. (a) The Borrower shall not make, and shall not permit any of its Subsidiaries or Eligible Joint Ventures to make, any material change in the nature or conduct of its business as carried on at the Closing Date. 63 72 (b) The Borrower shall not make, and shall not permit any of its Subsidiaries or Eligible Joint Ventures to make, any change in its capital structure (including, without limitation, in the terms of its outstanding Stock) or amend its declaration of trust, certificate of incorporation or by-laws or other equivalent documents other than for changes or amendments which in the aggregate have no Material Adverse Effect. 7.8. Modification of Material Agreements. The Borrower shall not, and shall not permit any of its Subsidiaries or Eligible Joint Ventures to, alter, amend, modify, rescind, terminate, supplement or waive any of their respective rights under, or fail to comply in all material respects with, any of its material Contractual Obligations unless approved by the Administrative Agent, which approval shall not be unreasonably withheld, conditioned or delayed; provided, however, that, with respect to any such failure to comply with any Contractual Obligation, the Borrower shall not be deemed in default of this Section 7.8 if all such failures in the aggregate would have no Material Adverse Effect; and provided, further, that in the event of any breach or event of default by a Person other than the Borrower or any of its Subsidiaries or Eligible Joint Ventures, the Borrower shall promptly notify the Administrative Agent of any such breach or event of default and take all such action as may be reasonably necessary in order to endeavor to avoid having such breach or event of default have a Material Adverse Effect. 7.9. Accounting Changes. The Borrower shall not make, nor permit any of its Subsidiaries to make, any change in accounting treatment and reporting practices or tax reporting treatment, except as required by GAAP or law and disclosed to the Lenders and the Administrative Agent. 7.10. Transactions with Affiliates. The Borrower shall not, and shall not permit any of its Subsidiaries or Eligible Joint Ventures, to enter into any transaction or series of related transactions, including, without limitation, any Asset Sale or the rendering of any service, with any Affiliate (other than among the Borrower and its wholly owned Subsidiaries) unless (a) no Default or Event of Default would occur as a result thereof, and (b) such transaction is (i) in the ordinary course of the Borrower's or such Subsidiary's or Eligible Joint Venture's business, and (ii) upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary or Eligible Joint Venture, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate. 7.11. Adverse or Speculative Transactions. The Borrower shall not and shall not permit any of its Subsidiaries or Eligible Joint Ventures to engage in any transaction involving contracts for commodity options or futures contracts other than Interest Rate Contracts and Alternative Currency Contracts. 7.12. Environmental Matters. (a) The Borrower shall not, and shall not permit any of its Subsidiaries or Eligible Joint Ventures or any Operating Lessee, or, to the extent reasonably practicable, any other Person to dispose of any Hazardous Material by placing it in or on the ground or waters of any property owned or leased by the Borrower or any of its Subsidiaries or Eligible Joint Ventures. 64 73 (b) The Borrower shall not, and shall not permit any of its Subsidiaries or Eligible Joint Ventures, or, to the extent practicable, authorize any other Person to, dispose or to arrange for the disposal of any Hazardous Material on behalf of the Borrower or any of its Subsidiaries or Eligible Joint Ventures except in material compliance with all applicable Environmental Laws currently and hereinafter in effect. 7.13. Joint Enterprises. Other than investments in (x) Joint Enterprises in existence as of the Effective Date and (y) Eligible Entities, the Borrower's investments (direct or indirect) in Joint Enterprises shall not exceed, in the aggregate, 15% of Total Value. 7.14. ERISA Plan Assets. The Borrower shall not and shall not permit any of its Subsidiaries to have any of their assets become subject to Title I of ERISA because they constitute "plan assets" within the meaning of the DOL Regulation Section 2510.3-101 and by reason of an investment in the Borrower or any Subsidiary. Article VIII EVENTS OF DEFAULT 8.1. Events of Default. Each of the following events shall be an Event of Default: (a) The Borrower shall fail to pay any principal (including, without limitation, mandatory prepayments of principal) of, or interest on, any Loan, any fee, any other amount due hereunder or under the other Loan Documents or other of the Obligations when the same becomes due and payable; or (b) Any representation or warranty made or deemed made by any Loan Party in any Loan Document or by any Loan Party (or any of its officers) in connection with any Loan Document shall prove to have been incorrect in any material respect when made or deemed made; or (c) Any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or in any other Loan Document if such failure shall remain unremedied for thirty days after the earlier of the date on which (A) a Responsible Officer of the Borrower becomes aware of such failure or (B) written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or (d) Any Loan Party or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Recourse Indebtedness of such Loan Party or Subsidiary having a principal amount of $10,000,000 or more (excluding Indebtedness evidenced by the Notes and any Non-Recourse Indebtedness), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or any other event shall occur or condition shall exist under any 65 74 agreement or instrument relating to any such Indebtedness, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall become or be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), or any Loan Party or any of its Subsidiaries shall be required to repurchase or offer to repurchase such Indebtedness, prior to the stated maturity thereof; or (e) The Borrower or any of its Significant Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against the Borrower or any of its Significant Subsidiaries seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceedings instituted against the Borrower or any of its Significant Subsidiaries (but not instituted by it), either such proceedings shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceedings shall occur; or the Borrower or any of its Significant Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess of $10,000,000 to the extent not fully covered by insurance shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (g) An ERISA Event shall occur which, in the reasonable determination of the Majority Lenders, has a reasonable possibility of a liability, deficiency or waiver request of the Borrower or any ERISA Affiliate, whether or not assessed, exceeding $5,000,000; or (h) The Borrower or any of its Subsidiaries shall have entered into any consent or settlement decree or agreement or similar arrangement with an Governmental Authority or any judgment, order, decree or similar action shall have been entered against the Borrower or any of its Subsidiaries, in each case based on or arising from the violation of or pursuant to any Environmental Law, or the generation, storage, transportation, treatment, disposal or Release of any Hazardous Material and, in connection with all the foregoing, the Borrower and its Subsidiaries are likely to incur Environmental Liabilities and Costs in excess of $5,000,000; or (i) There shall occur a Material Adverse Change or an event which is reasonably likely to have a Material Adverse Effect; or 66 75 (j) FelCor shall cease, for any reason, to maintain its status as an equity-oriented real estate investment trust under Sections 856 through 860 of the Code; or (k) FelCor shall cease at any time to be the sole general partner of FelCor LP; or (l) Hervey A. Feldman or Thomas J. Corcoran, Jr. shall sell, transfer or encumber (otherwise than to (i) members of their respective families, (ii) entities controlled by them, (iii) trusts for the benefit of any of the foregoing or (iv) a Permitted Transferee) their voting Class A membership interest in DJONT; or (m) Any provision of the Guaranty after delivery thereof under this Agreement shall for any reason cease to be valid and binding on any Significant Subsidiary party thereto, or any Significant Subsidiary Party shall so state in writing. 8.2. Remedies. (a) If there shall occur and be continuing any Event of Default, the Administrative Agent shall at the request, or may with the consent, of the Majority Lenders by notice to the Borrower, declare the Loans, all interest thereon and all other amounts and Obligations payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts and Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that upon the occurrence of the Event of Default specified in subparagraph 8.1(e) above, the Loans, all such interest and all such amounts and Obligations shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. In addition to the remedies set forth above, the Administrative Agent may exercise any remedies provided by applicable law. (b) If the Administrative Agent exercises any rights or remedies pursuant to subparagraph 8.2(a), the Administrative Agent shall not, without the consent of the Majority Lenders, rescind the exercise of said rights or remedies. Article IX THE ADMINISTRATIVE AGENT 9.1. Authorization and Action. (a) Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Without limitation of the foregoing, each Lender hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under, each of the Loan Documents to which the Administrative Agent is a party, and to exercise all rights, powers and remedies that the Administrative Agent may have under such Loan Documents. 67 76 (b) As to any matters not expressly provided for by this Agreement and the other Loan Documents (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action which the Administrative Agent in good faith believes exposes it to personal liability or is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender prompt notice of (a) each notice and, (b) to the extent the Administrative Agent grants any consents, approvals, disapprovals or waivers to the Borrower pursuant to the directions of the Majority Lenders or all of the Lenders as required hereunder, notice of such consent, approval, disapproval or waiver, given to it by, or by it to, any Loan Party pursuant to the terms of this Agreement or the other Loan Documents. 9.2. Administrative Agent's Reliance, Etc. Neither the Administrative Agent, nor any of its Affiliates or any of the respective directors, officers, agents or employees of the Administrative Agent or any such Affiliate shall be liable for any action taken or omitted to be taken by it, him, her or them under or in connection with this Agreement or the other Loan Documents, except for its, his, her or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent (i) may treat the payee of any Note as the holder thereof until such note has been assigned in accordance with Section 10.7; (ii) may rely on the Register to the extent set forth in Section 10.7(c); (iii) may consult with legal counsel (including, without limitation, counsel to the Borrower or any other Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iv) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement or any of the other Loan Documents; (v) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any of the other Loan Documents on the part of the Borrower or any other Loan Party or to inspect the property (including, without limitation, the books and records) of the Borrower or any other Loan Party; (vi) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vii) shall incur no liability under or in respect of this Agreement or any of the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable, telex or facsimile transmission) believed by it to be genuine and signed or sent by the proper party or parties. 9.3. Chase and Affiliates. With respect to any Commitment or Loan made by Chase, and any Note issued to it, Chase shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent; and the term "Lender" or "Lenders" shall, unless otherwise 68 77 expressly indicated, include Chase in its individual capacity. Chase and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower or any other Loan Party or any of their respective Subsidiaries and any Person who may do business with or own securities of the Borrower or any other Loan Party or any of their respective Subsidiaries, all as if Chase were not the Administrative Agent and without any duty to account therefor to the Lenders. 9.4. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements referred to in Article IV and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and other Loan Documents. 9.5. Indemnification. (a) The Lenders agree to indemnify the Administrative Agent and their Affiliates, and their respective directors, officers, employees, agents and advisors (to the extent not reimbursed by the Borrower or other Loan Parties), ratably according to the respective principal amounts of the Notes then held by each of them, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements (including, without limitation, fees and disbursements of legal counsel) of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against, the Administrative Agent in any way relating to or arising out of this Agreement or the other Loan Documents or any action taken or omitted by the Administrative Agent under this Agreement or the other Loan Documents; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's or such Affiliate's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including, without limitation, fees and disbursements of legal counsel) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of its rights or responsibilities under, this Agreement or the other Loan Documents, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower or another Loan Party. (b) The Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the Closing Date the applicable conditions set forth in Article III, including, without limitation, any loss (including, without limitation, loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund any Eurodollar Rate Loan to be made by such Lender as 69 78 part of such proposed Borrowing when such Eurodollar Rate Loan, as a result of such failure, is not made on such date. 9.6. Successor Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed by the Majority Lenders in the event that the Administrative Agent commits a willful breach of, or is grossly negligent in the performance of, its material obligations hereunder. Furthermore, in the event that at any time the Administrative Agent assigns its entire interest as a Lender hereunder to an Eligible Assignee as permitted by Section 10.7 hereof, which Eligible Assignee is not an Affiliate of the Administrative Agent, then the Administrative Agent shall resign as Administrative Agent. Upon any such resignation or removal (which shall be effective upon such date as a successor Agent accepts its appointment), the Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof, having a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. Article X MISCELLANEOUS 10.1. Amendments, Etc. (a) No amendment or waiver of any provision of this Agreement nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that, (x) the Administrative Agent shall have the right to waive or depart from any of the requirements or criteria contained in the definition of Qualified Lease and (y) subject to Section 10.1(b) below, the Administrative Agent shall have the right to make non-material waivers of non-economic provisions of this Agreement or consent to non-material departures therefrom. The parties hereto agree that any waiver of any provision of this Agreement or any other Loan Document shall be effective upon the execution by the party so charged of a written agreement to such effect. 70 79 (b) Notwithstanding anything set forth in subparagraph (a) above, no amendment, waiver or consent shall, unless in writing and signed by all the Lenders do any of the following: (i) increase the amount of any Loan or subject the Lenders to any additional obligations; (ii) reduce the principal of, or interest on, the Loans or any fees or other amounts payable hereunder; (iii) waive or postpone any date fixed for any payment of principal of, or interest on, the Loans or any fees or other amounts payable hereunder; (iv) change the aggregate unpaid principal amount of the Loans; (v) release all or substantially all of the Collateral, except as provided in Section 2.4(a); (vi) permit other debt to be secured by the Collateral; (vii) change the definition of Majority Lenders; (viii) change the number of Lenders which shall be required for the Lenders or any of them to take any action hereunder; (ix) release any Loan Party from its obligations under any Note or material Guaranty; or (x) amend this Section 10.1; provided that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or the other Loan Documents. (c) Each Lender shall reply promptly, but in any event within ten (10) Business Days of receipt by such Lender of a written request for consent, approval, disapproval or waiver, from the Administrative Agent (the "Lender Reply Period"). Unless a Lender shall give written notice to the Administrative Agent that it objects to consenting, approving, disapproving or waiving any matter as requested by the Administrative Agent within the Lender Reply Period, such Lender shall be deemed to have consented, approved, disapproved or waived such matters as specified in the Administrative Agent's request. 10.2. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including, without limitation, telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to the Borrower, at its address at 545 East John Carpenter Freeway, Suite 1300, Irving, Texas 75062 (telecopy number: 972-444-4949) (telephone number: 972-444-4900), Attention: Chief Financial Officer, with a copy to Attention: General Counsel; if to any Lender, at its Domestic Lending Office specified opposite its name on Schedule II; and if to the Administrative Agent, at its address at 380 Madison Avenue, 11th Floor, New York, New York 10017 (telecopy number: 212-622-3580) (telephone number: 212-622-3419), Attention Alan Breindel with a copy to One Chase Manhattan Plaza, 8th Floor, New York, New York 10081 (telecopy number: 212-552-5701) (telephone number: 212-552-7469), Attention Thierry LeJouam; or, as to the Borrower or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Administrative Agent. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when deposited in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively, except that notices and communications to the Administrative Agent pursuant to Article II or IX shall not be effective until received by the Administrative Agent. 71 80 10.3. No Waiver; Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 10.4. Costs; Expenses; Indemnities. (a) The Borrower agrees to pay on demand (i) all costs and expenses of the Administrative Agent and its respective Affiliates in connection with the preparation, execution, delivery, administration, syndication, modification and amendment of this Agreement, each of the other Loan Documents, each document prepared in connection with any re-pledge of the Collateral pursuant to Section 2.4(a), and each of the other documents to be delivered hereunder and thereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel, accountants, appraisers, consultants or industry experts retained by the Administrative Agent with respect thereto and, as to the Administrative Agent, with respect to advising it as to its rights and responsibilities under this Agreement and the other Loan Documents, and (ii) all costs and expenses of the Administrative Agent or any of the Lenders (including, without limitation, the fees and out-of-pocket expenses of counsel, accountants, appraisers, consultants or industry experts retained by the Administrative Agent or any Lender) in connection with the restructuring or enforcement (whether through negotiation, legal proceedings or otherwise) of this Agreement and the other Loan Documents. (b) The Borrower agrees to indemnify and hold harmless the Administrative Agent, each Lender and their respective Affiliates, and the directors, officers, employees, agents, attorneys, consultants and advisors of or to any of the foregoing (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article III) (each of the foregoing being an "Indemnitee") from and against any and all claims, damages, liabilities, obligations, losses, penalties, actions, judgments, suits, costs, disbursements and expenses of any kind or nature (including, without limitation, fees and disbursements of counsel to any such Indemnitee and experts, engineers and consultants and the costs of investigation and feasibility studies) which may be imposed on, incurred by or asserted against any such Indemnitee in connection with or arising out of any investigation, litigation or proceeding, whether or not any such Indemnitee is a party thereto, whether direct, indirect, or consequential and whether based on any federal, state or local law or other statutory regulation, securities or commercial law or regulation, or under common law or in equity, or on contract, tort or otherwise, in any manner relating to or arising out of or based upon or attributable to this Agreement, any other Loan Document, any document delivered hereunder or thereunder, any Obligation, or any act, event or transaction related or attendant to any thereof, including, without limitation, (i) arising from any misrepresentation or breach of warranty under Section 4.18 or any Environmental Claim or any Environmental Lien or any Remedial Action arising out of or based upon anything relating to real property owned or leased by the Borrower or any of its Subsidiaries (collectively, the "Indemnified Matters"); provided, however, that the Borrower shall not have any obligation under this Section 10.4(b) to an Indemnitee with 72 81 respect to any Indemnified Matter caused by or resulting from the gross negligence or willful misconduct of that Indemnitee, as determined by a court of competent jurisdiction in a final non-appealable judgment or order. (c) If any Lender receives any payment of principal of, or is subject to a conversion of, any Eurodollar Rate Loan other than on the last day of an Interest Period relating to such Loan, as a result of any payment or conversion made by the Borrower or acceleration of the maturity of the Notes pursuant to Section 8.2 or for any other reason, the Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), to the extent not previously paid to such Lender pursuant to any other provision hereof, pay to the Administrative Agent for the account of such Lender all amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or conversion, including, without limitation, any loss (including, without limitation, loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Loan. (d) The Borrower shall indemnify the Administrative Agent and the Lenders for, and hold the Administrative Agent and the Lenders harmless from and against, any and all claims for brokerage commissions, fees and other compensation made against the Administrative Agent and the Lenders for any broker, finder or consultant with respect to any agreement, arrangement or understanding made by or on behalf of any Loan Party or any of its Subsidiaries in connection with the transactions contemplated by this Agreement. (e) The Borrower agrees that any indemnification or other protection provided to any Indemnitee pursuant to this Agreement (including, without limitation, pursuant to this Section 10.4) or any other Loan Document shall (i) survive payment of the Obligations and (ii) inure to the benefit of any Person who was at any time an Indemnitee under this Agreement or any other Loan Document. 10.5. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the Obligations now or hereafter existing whether or not such Lender shall have made any demand under this Agreement or any Note or any other Loan Document and although such Obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. 10.6. Binding Effect. This Agreement shall become effective as of the Effective Date and thereafter shall be binding upon and inure to the benefit of the 73 82 Borrower, the Administrative Agent, each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. 10.7. Assignments and Participations. (a) Each Lender may sell, transfer, negotiate or assign to one or more other Lenders or Eligible Assignees all or a portion of the Loans owing to it and the Notes held by it and a commensurate portion of its rights and obligations hereunder and under the other Loan Documents; provided, however, that (i) the aggregate amount of the Loans being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than the assignor's entire interest, except (x) with the consent of the Borrower and the Administrative Agent (which consent shall not be unreasonably withheld or delayed), or (y) during the continuance of an Event of Default, or (z) a Lender may assign a portion of its Loans to another existing Lender or Lenders or a fund or trust entity that invests in bank loans and is advised by or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor only, provided that the aggregate amount of the Loans retained by the assignor shall in no event be less than $5,000,000, and (ii) each assignee hereunder shall also be an Eligible Assignee. The parties to each assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording, an Assignment and Acceptance, together with the Notes (or an Affidavit of Loss and Indemnity with respect to such Notes satisfactory to the Administrative Agent) subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (A) the assignee thereunder shall become a party hereto and, to the extent that rights and obligations under the Loan Documents have been assigned to such assignee pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and thereunder, and (B) the assignor thereunder shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except those which survive the payment in full of the Obligations) and be released from its obligations under the Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under the Loan Documents, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any of the statements, warranties or representations made in or in connection with this Agreement or any other Loan Document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under this Agreement or any other Loan Document or of any other instrument or document furnished pursuant hereto or thereto; (iii) such 74 83 assigning Lender confirms that it has delivered to the assignee and the assignee confirms that it has received a copy of this Agreement and each of the Loan Documents together with a copy of the most recent financial statements delivered by the Borrower to the Lenders pursuant to each of the clauses of Section 6.11 (or if no such statements have been delivered, the financial statements referred to in Section 4.5 of this Agreement) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (c) The Borrower hereby instructs the Administrative Agent for the benefit of the Borrower to maintain at its address referred to in Section 10.2 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the principal amount of the Loans owing to each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Loan Parties, the Administrative Agent, and the Lenders may treat each Person whose name is recorded in the Register as a Lender for all purposes of this Agreement. The Register shall be available for inspection by the Borrower, the Administrative Agent, or any Lender at any reasonable time and from time to time upon reasonable prior notice. The Administrative Agent shall supply to the Borrower promptly after any amendment thereto, a copy of the amended Register. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (d). Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent, in exchange for such surrendered Notes, new Notes to the order of such Eligible Assignee in an amount equal to the outstanding principal balance of the Loan assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained any portion of such Loan hereunder, new Notes to the order of the assigning Lender in an amount equal to the outstanding principal balance of the Loan retained by it hereunder. Such new Notes shall be dated the same date as the surrendered Notes and be in substantially the form of Exhibit A hereto. 75 84 (e) In addition to the other assignment rights provided in this Section 10.7, each Lender may, without prior notice to or consent of the Borrower or the Administrative Agent: (i) assign, as collateral or otherwise, any of its rights under this Agreement (including, without limitation, rights to payments of principal or interest on the Loans) to any Federal Reserve Bank, or (ii) subject, nevertheless, to the restrictions on assignment set forth in this Section 10.7, pledge its rights under this Agreement to any Person to secure such Lender's obligations to such Person; provided, however, that such Person shall have no rights under this Agreement unless such Person is an Eligible Assignee and unless and until such rights have been assigned to such Person in accordance with the terms of this Agreement; provided further, however, that no such assignment or pledge shall release the assigning or pledging Lender from any of its obligations hereunder. The terms and conditions of any such assignment and the documentation evidencing such assignment shall be in form and substance satisfactory to the assigning Lender and the assignee Federal Reserve Bank. (f) Each Lender may sell participations to one or more banks or other Persons in or to all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of the Loans owing to it and the Notes held by it). The terms of such participation shall not, in any event, require the participant's consent to any amendments, waivers or other modifications of any provision of any Loan Documents, the consent to any departure by any Loan Party therefrom, or to the exercising or refraining from exercising any powers or rights which such Lender may have under or in respect of the Loan Documents (including, without limitation, the right to enforce the obligations of the Loan Parties), except if any such amendment, waiver or other modification or consent would reduce the amount, or postpone any date fixed for, any amount (whether of principal, interest or fees) payable to such participant under the Loan Documents, to which such participant would otherwise be entitled under such participation. In the event of the sale of any participation by any Lender, (i) such Lender's obligations under the Loan Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of such Notes and Obligations for all purposes of this Agreement, and (iv) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. (g) Each participant shall be entitled to the benefits of Sections 2.10, 2.12, 2.14 and 10.4 as if it were a Lender; provided, however, that anything herein to the contrary notwithstanding, the Borrower shall not, at any time, be obligated to pay to any assignee or participant of any interest of any Lender, under Section 2.10, 2.12, 2.14 or 10.4, any sum in excess of the sum which if the Borrower would not at the time of such assignment have been obligated to pay to such assignor Lender any such amount in respect of such interest had such assignment not been effected or had such participation not been sold. 10.8. Governing Law; Severability. This Agreement and the Notes and the rights and obligations of the parties hereto and thereto shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. 76 85 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. 10.9. Submission to Jurisdiction; Service of Process. (a) Any legal action or proceeding with respect to this Agreement or the Notes or any document related thereto may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, the Borrower hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The parties hereto hereby irrevocably waive any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which any of them may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions. (b) The Borrower irrevocably consents to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Borrower at its address provided herein. (c) Nothing contained in this Section 10.9 shall affect the right of the agent, any Lender or any holder of a Note to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the Borrower in any other jurisdiction. 10.10. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 10.11. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 10.12. Entire Agreement. This Agreement, together with all of the other Loan Documents and all certificates and documents delivered hereunder or thereunder, and the agreement referred to in Section 2.3 embody the entire agreement of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof. 10.13. Confidentiality. Each Lender and the Administrative Agent agree to keep information obtained by it pursuant hereto and the other Loan Documents confidential and agrees that it will only use such information in connection with the transactions contemplated by this Agreement and not disclose any of such information other than (i) to such Lender's or the Administrative Agent's, as the case may be, 77 86 Affiliates, employees, representatives and agents who are or are expected to be involved in the evaluation of such information in connection with the transactions contemplated by this Agreement and who are advised of the confidential nature of such information, (ii) to the extent such information presently is or hereafter becomes available to such Lender or the Administrative Agent, as the case may be, on a non-confidential basis from a source other than the Borrower, (iii) to the extent disclosure is required by law, regulation or judicial order or requested or required by bank regulators or auditors, or (iv) to assignees or participants or potential assignees or participants who agree to be bound by the provisions of this sentence. 10.14. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR ACTION OF ANY PARTY HERETO. 10.15. Joint and Several Obligations. Unless the context clearly indicates otherwise each covenant, agreement, undertaking, condition or other matter stated herein as a covenant, agreement, undertaking or matter involving the Borrower shall be jointly and severally binding upon each of the parties comprising Borrower. [SIGNATURES BEGIN ON THE FOLLOWING PAGE] 78 87 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. FELCOR LODGING TRUST INCORPORATED, a Maryland corporation By: /s/ LAWRENCE D. ROBINSON ---------------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President FELCOR LODGING LIMITED PARTNERSHIP, a Delaware limited partnership By: FELCOR LODGING TRUST INCORPORATED, a Maryland corporation, its sole general partner By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 88 THE CHASE MANHATTAN BANK, as Administrative Agent, Book Manager, and Collateral Agent By: /s/ THOMAS H. KOZLAN --------------------------------------- Name: Thomas H. Kozlan Title: VP [SIGNATURES CONTINUE ON FOLLOWING PAGE] 89 Lenders THE CHASE MANHATTAN BANK By: /s/ THOMAS H. KOZLAN -------------------------------------- Name: Thomas H. Kozlan Title: VP [SIGNATURES CONTINUE ON FOLLOWING PAGE] 90 CHASE SECURITIES INC., as agent for THE CHASE MANHATTAN BANK By: /s/ ERIC S. ROSEN ------------------------------------ Name: Eric S. Rosen Title: Authorized Signatory [SIGNATURES CONTINUE ON FOLLOWING PAGE] 91 USTRUST By: /s/ BRIAN W. SOPP ----------------------------------- Name: Brian W. Sopp Title: Executive Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 92 KZH APPALOOSA LLC By: /s/ VIRGINIA CONWAY -------------------------------------- Name: Virginia Conway Title: Authorized Agent [SIGNATURES CONTINUE ON FOLLOWING PAGE] 93 VAN KAMPEN PRIME RATE INCOME TRUST By: /s/ JEFFREY W. MAILLET ------------------------------------- Name: JEFFREY W. MAILLET Title: Senior Vice President & Director [SIGNATURES CONTINUE ON FOLLOWING PAGE] 94 KZH IV LLC By: /S/ VIRGINIA CONWAY ------------------------------------- Name: Virginia Conway Title: Authorized Agent [SIGNATURES CONTINUE ON FOLLOWING PAGE] 95 OCTAGON LOAN TRUST By: OCTAGON CREDIT INVESTORS, as Manager By: /s/ JAMES P. FERGUSON -------------------------------------- Name: JAMES P. FERGUSON Title: MANAGING DIRECTOR [SIGNATURES CONTINUE ON FOLLOWING PAGE] 96 WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ KENT HOWARD ------------------------------------- Name: Kent Howard Title: Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 97 KZH BDC LLC By: /s/ VIRGINIA CONWAY ------------------------------------ Name: Virginia Conway Title: Authorized Agent [SIGNATURES CONTINUE ON FOLLOWING PAGE] 98 FRANKLIN FLOATING RATE TRUST By: /s/ CHAUNCEY LUFKIN ------------------------------------ Name: Chauncey Lufkin Title: Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 99 KZH RIVERSIDE LLC By: /s/ VIRGINIA CONWAY ------------------------------------ Name: Virginia Conway Title: Authorized Agent [SIGNATURES CONTINUE ON FOLLOWING PAGE] 100 MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By: /s/ PETER GEWIRTZ ---------------------------------- Name: Peter Gewirtz Title: Authorized Signatory [SIGNATURES CONTINUE ON FOLLOWING PAGE] 101 KZH-CNC LLC By: /s/ VIRGINIA CONWAY ------------------------------------ Name: Virginia Conway Title: Authorized Agent 102 STEIN ROE FARNHAM, INCORPORATED, as Agent for KEYPORT LIFE INSURANCE COMPANY, as a Lender By: /s/ BRIAN W. GOOD ------------------------------------- Name: Brian W. Good Title: Vice President and Portfolio Manager [SIGNATURES CONTINUE ON FOLLOWING PAGE] 103 SRF TRADING, INC. By: /s/ KELLY C. WALKER ------------------------------------ Name: Kelly C. Walker Title: Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 104 ' FLOATING RATE PORTFOLIO By: INVESCO, Senior Secured Management, Inc., as Attorney-in-fact By: /s/ ANNE M. McCARTHY -------------------------------------- Name: Anne M. McCarthy Title: Authorized Signatory [SIGNATURES CONTINUE ON FOLLOWING PAGE] 105 KZH WATERSIDE LLC By: /s/ VIRGINIA CONWAY ------------------------------------ Name: Virginia Conway Title: Authorized Agent [SIGNATURES CONTINUE ON FOLLOWING PAGE] 106 KZH CYPRESSTREE-1 LLC By: /s/ VIRGINIA CONWAY ------------------------------------ Name: Virginia Conway Title: Authorized Agent [SIGNATURES CONTINUE ON FOLLOWING PAGE] 107 NORTH AMERICAN SENIOR FLOATING RATE FUND By: CypressTree Investment Management Company, Inc., as Portfolio Manager By: /s/ TIMOTHY M. BARNS -------------------------------------- Name: Timothy M. Barns Title: Managing Director [SIGNATURES CONTINUE ON FOLLOWING PAGE] 108 CYPRESSTREE SENIOR FLOATING RATE FUND By: CypressTree Investment Management Company, Inc., as Portfolio Manager By: /s/ TIMOTHY M. BARNS -------------------------------------- Name: Timothy M. Barns Title: Managing Director [SIGNATURES CONTINUE ON FOLLOWING PAGE] EX-10.22.2 5 GUARANTY 1 EXHIBIT 10.22.2 GUARANTY GUARANTY, dated as of April 1, 1999 (as amended, modified or supplemented from time to time, this "GUARANTY"), made by each of the signatories hereto (each a "GUARANTOR" and, together with any other entity that becomes a party hereto pursuant to Section 22(f) hereof, the "GUARANTORS"), each having an address as provided on Annex 2 hereto, in favor of the Guarantied Parties referred to below. Unless otherwise defined herein, capitalized terms used herein shall have the respective meaning set forth in the Loan Agreement referred to below. W I T N E S S E T H: WHEREAS, FelCor Lodging Trust Incorporated (the "REIT") and FelCor Lodging Limited Partnership (the "OPERATING PARTNERSHIP"), each a "BORROWER" and collectively, the "BORROWERS"), various lenders from time to time party thereto (the "LENDERS"), The Chase Manhattan Bank, as Administrative Agent (in such capacity and together with any successor agent, the "ADMINISTRATIVE AGENT" and, together with the the Lenders and their respective successors and assigns, and together with any other lenders from time to time party to the Loan Agreement hereinafter referred to, the "GUARANTIED PARTIES"), have entered into a Loan Agreement, dated as of April 1, 1999, providing for the making of a Loan to the Borrowers all as contemplated therein (as used herein, the term "LOAN AGREEMENT" means the Loan Agreement described above in this paragraph, as the same may be amended, modified, extended, renewed, replaced, restated, supplemented or refinanced from time to time, and including any agreement extending the maturity of, or refinancing or restructuring (including, but not limited to, the inclusion of additional borrowers or guarantor thereunder or any increase in the amount borrowed) all or any portion of, the indebtedness under such agreement or any successor agreement, whether or not with the same agent, trustee, representative, lenders or holders); WHEREAS, Borrowers either directly or indirectly own beneficially 100% of the capital stock of the Guarantors, the Borrowers are the principal financing entities for capital requirements of their Subsidiaries, and from time to time the Borrowers have made and will continue to make capital contributions and advances to their Subsidiaries, including the Guarantors, the Borrowers and the Guarantors are members of the same consolidated group of companies and are engaged in related businesses; and the Guarantors will derive direct and indirect economic benefit from the Loans; and WHEREAS, it is a condition precedent under the Loan Agreement to the making of Loans that the Guarantors shall have executed and delivered this Guaranty; WHEREAS, each Guarantor will obtain benefits from the incurrence of Loans under the Loan Agreement and, accordingly, desires to execute this Guaranty in order to satisfy the condition precedent described in the preceding paragraph; and 1 2 NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to each Guarantor, the receipt and sufficiency of which are hereby acknowledged, each Guarantor hereby makes the following representations and warranties to the Guarantied Parties and hereby covenants and agrees with each Guarantied Party as follows: SECTION 1. Guaranty. Each Guarantor hereby jointly and severally, unconditionally and irrevocably, guarantees to the Guarantied Parties the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of (x) the principal of and interest on the Notes issued by, and the Loans made to, each Borrower under the Loan Agreement; (y) all other obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing by any Borrower to the Guarantied Parties under the Loan Agreement or any other Loan Document to which such Borrower is a party (including, without limitation, indemnities, Fees and interest thereon), whether now existing or hereafter incurred under, arising out of or in connection with the Loan Agreement or any such other Loan Document and the due performance and compliance with all of the terms, conditions and agreements contained in such Loan Documents by any Borrower; and (z) all Obligations (as defined in the Pledge Agreement) (all such principal, interest, liabilities and obligations being herein collectively called the "GUARANTEED Obligations"). Each Guarantor understands, agrees and confirms that the Guarantied Parties may enforce this Guaranty up to the full amount of the Guaranteed Obligations against each Guarantor without proceeding against any other Guarantor, any other Loan Party, against any security for the Guaranteed Obligations, or under any other guaranty covering all or a portion of the Guaranteed Obligations. For purposes of this Section 1, the term "GUARANTOR" as applied to any Guarantor shall refer to such Guarantor as a guarantor of indebtedness incurred by others, as opposed to indebtedness directly incurred by it. This Guaranty is an absolute guaranty of payment and performance and not a guaranty of collection. SECTION 2. Guaranty Absolute. Each Guarantor guaranties that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Agreement, the Notes and the other Loan Documents, as the case may be (with all such instruments and agreements being herein collectively called the "GUARANTEED OBLIGATIONS DOCUMENTS"), regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Guarantied Parties with respect thereto. The liability of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of any provision of any other Guaranteed Obligations Documents or any other agreement or instrument relating to any Guaranteed Obligations Documents, or avoidance or subordination of any of the Guaranteed Obligations; (b) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Guaranteed 2 3 Obligations, or any other amendment or waiver of any term of, or any consent to departure from any requirement of, the Loan Agreement, the Notes or any of the other Guaranteed Obligations Documents; (c) consent to or waiver of any breach, or any act, omission or default under, any of the Guaranteed Obligations Documents or any of the instruments or agreements referred to therein, or other amendment, modification or supplementation of any of the Guaranteed Obligations Documents or any of such other instruments or agreements; (d) the absence of any attempt to collect any of the Guaranteed Obligations from any Borrower or for any other guarantor or any other action to enforce the same or the election of any remedy by any of the Guarantied Parties; (e) any waiver, consent, extension, forbearance or granting of any indulgence by any of the Guarantied Parties with respect to any provision of any other Guaranteed Obligations Document; (f) the election by any of the Guarantied Parties in any proceeding under chapter 11 of title 11 of the United States Code, as amended, or any successor statute (the "Bankruptcy Code"), of the application of section 1111(b)(2) of the Bankruptcy Code; (g) any borrowing or grant of a security interest by any Borrower, as debtor-in-possession, under section 364 of the Bankruptcy Code; (h) the disallowance, under section 502 of the Bankruptcy Code, of all or any portion of the claims of any of the Guarantied Parties for payment of any of the Guaranteed Obligations; and/or (i) any other circumstances which might otherwise constitute a legal or equitable discharge or defense of any Borrower or a Guarantor. SECTION 3. Waiver. (a) Each Guarantor hereby (i) waives (A) promptness, diligence, notice or acceptance and any and all other notices with respect to any of the Guaranteed Obligations or this Guaranty or any other liability to which it may apply, (B) the filing of any claim with a court in the event of receivership or bankruptcy of any Borrower, (C) presentment, demand of payment, protest or notices of dishonor or nonpayment of all or any of the Guaranteed Obligations, (D) the benefit of any statute of limitation, (E) all demands whatsoever (and any requirement that same be made on the Borrowers as a condition precedent to the Guarantor's Guaranteed Obligations hereunder); and (ii) covenants and agrees that this Guaranty will not be discharged except by complete performance of the Guaranteed Obligations of the Guarantor contained herein. 3 4 (b) If, in the exercise of any of its rights and remedies, any of the Guarantied Parties shall forfeit any of its rights or remedies, including, without limitation, its right to enter a deficiency judgment against the Borrowers or any other Person, whether because of any applicable law pertaining to "election of remedies" or the like, the Guarantor hereby consents to such action by such Guarantied Party and waives any claim based upon such action. Any election of remedies which results in the denial or impairment of the right of such Guarantied Party to seek a deficiency judgment against any Borrower shall not impair the obligation of each Guarantor to pay the full amount of the Guaranteed Obligations or any other obligation of such Guarantor contained herein. (c) Each Guarantor agrees that notwithstanding the foregoing and without limiting the generality of the foregoing if, after the occurrence and during the continuance of an Event of Default, the Guarantied Parties are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Guaranteed Obligations, to collect interest on the Guaranteed Obligations, or to enforce or exercise any other right or remedy with respect to the Guaranteed Obligations, each Guarantor agrees to pay to the Administrative Agent for the account of the Guarantied Parties, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Guarantied Parties. (d) Each Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrowers and of each other Guarantor of all or any part of the Guaranteed Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations or any part thereof, that diligent inquiry would reveal. Each Guarantor hereby agrees that the Guarantied Parties shall have no duty to advise such Guarantor of information known to any of the Guarantied Parties regarding such condition or any such circumstance. In the event that any of the Guarantied Parties in its sole discretion undertakes at any time or from time to time to provide any such information to any Guarantor, such Guarantied Party shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which, pursuant to accepted or reasonable banking or commercial finance practices, such Guarantied Party wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to any Guarantor. (e) Each Guarantor consents and agrees that the Guarantied Parties shall be under no obligation to marshall any assets in favor of such Guarantor or otherwise in connection with obtaining payment of any or all of the Guaranteed Obligations from any Person or source. SECTION 4. No Subrogation Etc. Except as provided in Sections 12 and 18 hereof, each Guarantor waives and relinquishes any and all rights which it may acquire by way of subrogation (whether contractual, under Section 509 of the Bankruptcy Code or otherwise), contribution or reimbursement by reason of this Guaranty or by any payment made hereunder. 4 5 SECTION 5. Representations and Warranties. In order to induce the Lenders to make the Loans pursuant to the Loan Agreement, each Guarantor represents, warrants and covenants that: (a) Each Guarantor (i) is a limited liability company, limited partnership, general partnership, corporation or trust, as applicable, duly organized, validly existing and in good standing under the laws of the State of its organization; (ii) is duly qualified as a foreign (if applicable) limited liability company, limited partnership, general partnership, corporation or trust, as applicable, and is in good standing under the laws of each jurisdiction where such Guarantor owns or operates property, except for failures which in the aggregate would not reasonably be expected to have a Material Adverse Effect; (iii) has all requisite company, partnership, corporate or trust, as applicable, power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted; (iv) is in compliance with its certificate of partnership and partnership agreement, articles of organization and operating agreement, certificate of incorporation, by-laws and declaration of trust, as applicable; (v) is in compliance with all other applicable Requirements of Law except for such noncompliance which in the aggregate would not reasonably be expected to have a Material Adverse Effect; and (vi) has all necessary licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for licenses, permits, consents or approvals which can be obtained by the taking of ministerial action to secure the grant or transfer thereof or failures which in the aggregate would not reasonably be expected to have a Material Adverse Effect. (b) The execution, delivery and performance by each Guarantor of this Guaranty and the other Loan Documents to which it is a party: (i) are within its company, partnership, corporate or trust powers, as applicable; (ii) have been duly authorized by all necessary company, partnership, trust or corporate action, as applicable, including, without limitation, the consent of members, partners, trustees or directors, as applicable, where required; and (iii) do not and will not (A) contravene its certificate of partnership or partnership agreement, articles of organization or operating agreement, declaration of trust, or certificate of incorporation or by-laws, as applicable, or other comparable governing documents, (B) violate any other applicable Requirement of Law (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System), or any order or decree of any Governmental Authority or arbitrator, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the 5 6 termination or acceleration of, any of its Contractual Obligations, (D) result in the creation or imposition of any Lien (other than pursuant to the Pledge Agreement upon any of its property, or (E) require the consent, authorization by, or approval of, or notice to, or filing or registration with, any Governmental Authority or any other Person, other than those which have been obtained or made, and each of which is in full force and effect. (c) This Guaranty has been duly executed and delivered by each Guarantor and is the legal, valid and binding obligation of each Guarantor enforceable against it in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditor's rights and remedies generally. (d) There are no pending or, to the knowledge of such Guarantor, threatened actions, investigations or proceedings affecting such Guarantor or any of its subsidiaries before any Governmental Authority or arbitrator other than those that in the aggregate, if adversely determined, would not reasonably be expected to have a Material Adverse Effect. The performance by each Guarantor under this Guaranty and under each of the other Guaranteed Obligations Documents to which it is a party is not restrained or enjoined (either temporarily, preliminarily or permanently) and no conditions have been imposed by any Governmental Authority or arbitrator that in the aggregate would not reasonably be expected to have a Material Adverse Effect. SECTION 6. Amendments, Etc. No amendment or waiver of any provision of this Guaranty nor consent to any departure by any Guarantor herefrom shall in any event be effective unless the same shall be in writing, approved by each Guarantor directly affected thereby and the Administrative Agent (in accordance with the provisions of the Loan Agreement) at all times prior to the time that the Loans have been terminated and all Loan Document Obligations have been repaid in full; provided, however, that (x) additional Guarantors may be added as parties hereto in accordance with the provisions of Section 22(f) and (y) Guarantors may cease to be parties hereto in accordance with the provisions of Section 22(h) hereof. SECTION 7. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to any Guarantor, addressed to it at the address specified in the first paragraph of this Guaranty, if to any Guarantied Party, addressed to it at the address of such Guarantied Party specified in the Loan Agreement, or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when deposited in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively. 6 7 SECTION 8. No Waiver; Remedies. (a) No failure on the part of any Guarantied Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies herein provided are cumulative and not exclusive of any remedies provided by law or by any of the other Loan Documents. No notice to or demand on any Guarantor in any case shall entitle such Guarantor or any other Guarantor or to any other further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Guarantied Party to any other or further action in any circumstances without notice or demand. (b) Failure by any of the Guarantied Parties at any time or times hereafter to require strict performance by any Borrower, any Guarantor or any other Person of any of the provisions, warranties, terms or conditions contained in any of the Guaranteed Obligations Documents now or at any time or times hereafter executed by any Borrower, any Guarantor or such other Person shall not waive, affect or diminish any right of any of the Guarantied Parties at any time or times hereafter to demand strict performance thereof, and that right shall not be deemed to have been modified or waived by any course of conduct or knowledge or any of the Guarantied Parties or any agent, officer, employee or any of the Guarantied Parties. (c) No waiver by the Guarantied Parties of any default shall operate as a waiver of any other default or the same default on a future occasion, and no action by any of the Guarantied Parties permitted hereunder shall in any way affect or impair any of the rights of the Guarantied Parties or the Guarantied Obligations of any Guarantor under this Guaranty or under any of the other Guaranteed Obligations Documents. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest or other amount constituting any of the Guaranteed Obligations shall be conclusive and binding on each Guarantor irrespective of whether such Guarantor was a party to the suit or action in which such determination was made. SECTION 9. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default (such term to mean and include any "EVENT OF DEFAULT" as defined in the Loan Agreement), each of the Guarantied Parties is hereby authorized at any time and from time to time, to the fullest extent permitted by law (including, without limitation, Section 151 of the New York Debtor and Creditor Law), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Guarantied Party to or for the credit or the account of any Guarantor against any and all of the Guaranteed Obligations of such Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not such Guarantied Party shall have made any demand under this Guaranty and although such Guaranteed Obligations, liabilities, deposits or claims or any of them may be contingent and unmatured. Each of the Guarantied Parties agrees promptly to notify the Guarantors after any such set-off and application made by such Guarantied Party; provided, however, that the failure to give such notice shall not effect the validity of such set-off and application and any such notice is hereby expressly 7 8 waived. The rights of each Guarantied Party under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Guarantied Party may have. SECTION 10. Continuing Guaranty; Transfer of Notes. This Guaranty is a continuing guaranty and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon, and shall (i) remain in full force and effect as to each Guarantor until the termination of the Loans and when no Note remains outstanding and all Guaranteed Obligations have been indefeasibly paid in full, (ii) be binding upon the Guarantors, their successors and assigns, and (iii) inure to the benefit of and be enforceable by the Guarantied Parties and their respective successors, transferees, and assigns. Without limiting the generality of the foregoing clause (iii), any of the Guarantied Parties may assign or otherwise transfer any Notes held by it or Obligation owing to it to any other Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Guarantied Party herein or otherwise with respect to such of the Notes and Guaranteed Obligations so transferred or assigned, subject, however, to compliance with the provisions of Section 10.7 of the Loan Agreement in respect of assignments. SECTION 11. Limitation of Guaranty. Each Guarantor hereby confirms that it is its intention that this Guaranty not constitute a fraudulent transfer or conveyance for purposes of any bankruptcy, insolvency or similar law, the Uniform Fraudulent Conveyance Act or any similar Federal, state or foreign law. To effectuate the foregoing intention, if enforcement of the liability of any Guarantor under this Guaranty for the full amount of the Guaranteed Obligations would be an unlawful or voidable transfer under any applicable fraudulent conveyance or fraudulent transfer of law or any comparable law, then the liability of such Guarantor hereunder shall be reduced to the maximum amount for which such liability may then be enforced without giving rise to an unlawful or voidable transfer under any such law. SECTION 12. Contribution. To the extent that any Guarantor shall be required hereunder to pay a portion of the Guaranteed Obligations which shall exceed the greater of (i) the amount of the economic benefit actually received by such Guarantor from the incurrence of the Loans under the Loan Agreement and (ii) the amount which such Guarantor would otherwise have paid if such Guarantor had paid the aggregate amount of the Guaranteed Obligations (excluding the amount thereof repaid by the Borrowers and the other Guarantors) in the same proportion as such Guarantor's net worth at the date enforcement hereunder is sought bears to the aggregate net worth of all the Guarantors at the date enforcement hereunder is sought (the "CONTRIBUTION PERCENTAGE"), then such Guarantor shall have a right of contribution against each other Guarantor who has made payments in respect of the Guaranteed Obligations to and including the date enforcement hereunder is sought in an aggregate amount less than such other Guarantor's Contribution Percentage of the aggregate payments made to and including the date enforcement hereunder is sought by all Guarantors in respect of the Guaranteed Obligations; provided, that no Guarantor may take any action to enforce such right until the Guaranteed Obligations have been indefeasibly paid in full and the Loans 8 9 have been terminated, it being expressly recognized and agreed by all parties hereto that any Guarantor's right of contribution arising pursuant to this Section 12 against any other Guarantor shall be expressly junior and subordinate to such other Guarantor's obligations and liabilities in respect of the Guaranteed Obligations and any other obligations owing under this Guaranty. All parties hereto recognize and agree that, except for any right of contribution arising pursuant to this Section 12, each Guarantor who makes any payment in respect of the Guaranteed Obligations shall have no right of contribution or subrogation against any other Guarantor in respect of such payment. Each of the Guarantors recognizes and acknowledges that the rights to contribution arising hereunder shall constitute an asset in favor of the party entitled to such contribution. In this connection, each Guarantor has the right to waive its contribution right against any Guarantor to the extent that after giving effect to such waiver such Guarantor would remain solvent, in the determination of the Administrative Agent. SECTION 13. Reinstatement. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Loan Party for liquidation or reorganization, should any Loan Party become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any Loan Party's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Guaranteed Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Guaranteed Obligations or such part thereof, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Guaranteed Obligations shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. SECTION 14. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Guaranty. SECTION 15. Submission to Jurisdiction, Jury Trial. (a) Any legal action or proceeding with respect to this Guaranty or any document related thereto may be brought in the courts of the State of New York or the United States of America for the Southern District of New York, and, by execution and delivery of this Guaranty, each Guarantor hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non convenient, which it may now or hereafter 9 10 have to the bringing of any such action or proceeding in such respective jurisdictions and consents to the granting of such legal or equitable relief as is deemed appropriate by the court. (b) Each Guarantor irrevocably consents to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the guarantor at its address provided herein, such service to become effective thirty (30) days after such mailing. (c) Nothing contained in this Section 15 shall affect the right of any Guarantied Party to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against any Guarantor or any of the Guarantors' property in any other jurisdiction. (d) EACH GUARANTOR AND EACH GUARANTIED PARTY (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS GUARANTY) HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY OTHER LOAN DOCUMENT TO WHICH SUCH GUARANTOR IS A PARTY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF ANY LOAN PARTY OR ANY GUARANTIED PARTY CONTEMPLATED HEREBY OR THEREBY. SECTION 16. Section Titles. The Section titles contained in this Guaranty are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Guaranty. SECTION 17. Execution in Counterparts. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Guaranty. SECTION 18. INTENTIONALLY DELETED. SECTION 19. INTENTIONALLY DELETED. SECTION 20. INTENTIONALLY DELETED. SECTION 21. INTENTIONALLY DELETED. SECTION 22. Miscellaneous. (a) All references herein to the Borrowers or to the Guarantors shall include their respective successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession of or for any Borrower or any Guarantor. All references to the singular shall be deemed to include the plural where the context so requires. 10 11 (b) Intentionally Deleted. (c) The Guaranteed Obligations and liabilities of each Guarantor are joint and several. (d) By executing and delivering this Guaranty, each Guarantor agrees to be bound by all covenants and agreements in the Loan Agreement that apply to such Guarantor by name, or in its capacity as Guarantor or Loan Party. (e) All payments made by any Guarantor hereunder will be made without setoff, counterclaim or other defense and on the same basis as payments made by the Borrowers pursuant to Sections 2.13 and 2.15 of the Loan Agreement. (f) Pursuant to Section 7.1 of the Loan Agreement or otherwise, certain Subsidiaries of the Borrowers may after the date hereof be required to enter into this Guaranty as a Guarantor. Upon execution and delivery, after the date hereof, by the Collateral Agent and such Subsidiary of an instrument in the form of Annex 1 hereto, such Subsidiary shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor hereunder. The execution and delivery of any such instrument shall not require the consent of any other Guarantor hereunder. (g) The Guarantors hereby jointly and severally agree to pay all reasonable out-of-pocket costs and expenses of each Guarantied Party in connection with the enforcement of this Guaranty and any amendment, waiver or consent relating hereto (including, without limitation, the reasonable fees and disbursements of counsel employed by any of the Guarantied Parties). (h) In the event that all of the Capital Stock that is owned by the Borrowers and their Subsidiaries of one or more Guarantors is sold or otherwise disposed of (but not to any Borrower or a Subsidiary thereof) or liquidated in compliance with the requirements of Section 7.5 of the Loan Agreement (or such sale or other disposition to a Person other than a Borrower or a Subsidiary thereof has been approved in accordance with the Loan Agreement)) and the proceeds of such sale, disposition or liquidation are applied in accordance with the provisions of the Loan Agreement, to the extent applicable, such Guarantor shall be released from this Guaranty and this Guaranty shall, as to each such Guarantor or Guarantors, terminate, and have no further force or effect (it being understood and agreed that the sale of one or more Persons which are not Borrowers (but not to any Borrower or any Subsidiary thereof) that own, directly or indirectly, all of the Capital Stock of any Guarantor shall be deemed to be a sale of such Guarantor for purposes of this Section 22(h)). The release of any Guarantor as provided in this clause (h) shall not require the consent of any other Guarantor hereunder. SECTION 23. Continuing Guarantors. The rights and obligations of each Guarantor (other than the respective released Guarantor in the case of the following clause (y)) hereunder shall remain in full force and effect notwithstanding (x) the addition of any new Guarantor as a party to this Agreement as contemplated by preceding Section 11 12 22(f) or otherwise and/or (y) the release of any Guarantor under this Agreement as contemplated by Section 22(h) or otherwise. NO FURTHER TEXT ON THIS PAGE 12 13 IN WITNESS WHEREOF, each Guarantor has caused this Agreement to be duly executed and delivered by its duly authorized officer on the date first above written. [BORROWERS] [GUARANTORS] 13 14 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR/CSS HOTELS, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 15 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR HOTEL ASSET COMPANY, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 16 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR/LAX HOTELS, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 17 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR NEVADA HOLDINGS, L.L.C., a Nevada limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President & Manager [SIGNATURES CONTINUE ON FOLLOWING PAGE] 18 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FHAC NEVADA HOLDINGS, L.L.C., a Nevada limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President & Manager [SIGNATURES CONTINUE ON FOLLOWING PAGE] 19 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR/CSS HOLDINGS, L.P., a Delaware limited partnership By: FELCOR/CSS HOTELS, L.L.C., a Delaware limited liability company, its general partner By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 20 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR EIGHT HOTELS, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 21 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR/LAX HOLDINGS, L.P., a Delaware limited partnership By: FELCOR/LAX HOTELS, L.L.C., a Delaware limited liability company, its general partner By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 22 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FHAC TEXAS HOLDINGS, L.P., a Texas limited partnership By: FELCOR HOTEL ASSET COMPANY, L.L.C., a Delaware limited liability company, its general partner By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 23 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR/ST. PAUL HOLDINGS, L.P., a Delaware limited partnership By: FELCOR/CSS HOTELS, L.L.C., a Delaware limited liability company, its general partner By: /s/ LAWRENCE D. ROBINSON ---------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President EX-10.22.3 6 PLEDGE AND SECURITY AGREEMENT 1 EXHIBIT 10.22.3 PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT, dated as of April 1, 1999 (as amended, modified or supplemented from time to time, this "AGREEMENT"), made by each of the undersigned (each a "PLEDGOR", and together with any entity that becomes a party hereto pursuant to Section 24 hereof, the "PLEDGORS"), in favor of THE CHASE MANHATTAN BANK, as Collateral Agent (the "PLEDGEE"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Loan Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H: WHEREAS, FelCor Lodging Trust Incorporated (the "REIT") and FelCor Lodging Limited Partnership (the "OPERATING PARTNERSHIP"), (each a "BORROWER" and collectively, the "BORROWERS"), various lenders from time to time party thereto (the "LENDERS"), The Chase Manhattan Bank, as Administrative Agent (in such capacity and together with any successor agent, the "ADMINISTRATIVE AGENT"), and, together with the Pledgee, the Administrative Agent, and the Lenders and their respective successors and assigns, and together with any other lenders from time to time party to the Loan Agreement hereinafter referred to, the "LENDER CREDITORS"), have entered into a Loan Agreement, dated as of April 1, 1999, providing for the making of a Loan to the Borrowers all as contemplated therein (as used herein, the term "LOAN AGREEMENT" means the Loan Agreement described above in this paragraph, as the same may be amended, modified, extended, renewed, replaced, restated, supplemented or refinanced from time to time, and including any agreement extending the maturity of, or refinancing or restructuring (including, but not limited to, the inclusion of additional borrowers or guarantor thereunder or any increase in the amount borrowed) all or any portion of, the indebtedness under such agreement or any successor agreement, whether or not with the same agent, trustee, representative, lenders or holders); WHEREAS, pursuant to the Guaranty, the Guarantors have jointly and severally guaranteed to the Lender Creditors the payment when due of all obligations and liabilities of each Borrower under or with respect to the Loan Documents (as used herein, the term "LOAN DOCUMENTS" shall have the meaning provided in the Loan Agreement and shall include any documentation executed and delivered in connection with any replacement or refinancing Loan Agreement), the R/C Documents (as hereinafter defined) and the Felcor Note Documents (as hereinafter defined); WHEREAS, the Operating Partnership has, prior to the date hereof, issued $300,000,000.00 in aggregate principal amount of notes pursuant to the Indenture (the "FELCOR NOTES"; with the holders from time to time of such FelCor Notes being herein called the "FELCOR NOTEHOLDERS"); 2 WHEREAS, the Borrowers entered into a revolving credit facility and term loan pursuant to the Fourth Amended and Restated Credit Agreement dated as of July 1, 1998 among Borrowers (formerly known as FelCor Suite Hotels, Inc. and FelCor Suites Limited Partnership) and various lenders from time to time party thereto (the "R/C CREDITORS") and The Chase Manhattan Bank, as Administrative Agent (the "CREDIT AGREEMENT"); WHEREAS, the Term Loan is being made, among other reasons, to refinance the term loans made to the Borrowers under the Credit Agreement; WHEREAS, the Term Loan Obligations (as defined below) are to be secured hereunder on an equal and ratable basis as with the R/C Obligations (as defined below) and the FelCor Note Obligations (as defined below) as provided herein; WHEREAS, it is a condition precedent to the advance of sums under the Loan Agreement that each Pledgor shall have executed and delivered to the Pledgee this Agreement; WHEREAS, each Pledgor desires to execute this Agreement to satisfy the conditions described in the immediately preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Pledgor, the receipt and sufficiency of which are hereby acknowledged, each Pledgor hereby makes the following representations and warranties to the Pledgee and hereby covenants and agrees with the Pledgee as follows: 1. SECURITY FOR OBLIGATIONS; CERTAIN EXCLUDED OBLIGATIONS, SUBORDINATION OF CERTAIN SECURITY INTERESTS. This Agreement is made by each Pledgor for the benefit of the Lender Creditors and the R/C Creditors (collectively, the "INSTITUTIONAL LENDERS"), and each of the FelCor Noteholders (the Institutional Lenders and the FelCor Noteholders, collectively, together with the Pledgee, the "SECURED CREDITORS"), to secure: (a) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities (including, without limitation, indemnities, Fees and interest thereon) of such Pledgor and Borrowers to the Lender Creditors, now existing or hereafter incurred under, arising out of or in connection with the Loan Agreement and all other Loan Documents to which it is at any time a party (including, without limitation, all such obligations and liabilities of such Pledgor and Borrowers under the Loan Agreement and under the Guaranty or under any other guarantee by it of obligations pursuant to any Loan Agreement) and the due performance and compliance by such Pledgor and Borrowers with the terms of each such Loan Document (all such obligations and liabilities under this clause (i) being herein collectively, called the "TERM LOAN OBLIGATIONS"); 2 3 (b) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of such Pledgor and Borrowers to the R/C Creditors, now existing or hereafter incurred under, arising out of or in connection with the Credit Agreement and the other documents executed in connection with or pursuant to the Credit Agreement (together with the Credit Agreement, (the "R/C DOCUMENTS") and the due performance and compliance by such Pledgor and the Borrowers with the terms of such Credit Agreement (all such obligations and liabilities under this clause (ii) being herein collectively, called the "R/C OBLIGATIONS" and, together with the Term Loan Obligations, collectively the "LOAN DOCUMENT OBLIGATIONS"); (c) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of such Pledgor (as obligor or guarantor, as applicable) and the Operating Partnership to the FelCor Noteholders, whether now existing or hereafter incurred under, arising out of or in connection with the FelCor Notes and the other documents executed in connection with or pursuant to the Indenture (the "FELCOR NOTE DOCUMENTS") to which such Pledgor is at any time a party and the due performance and compliance by such Pledgor and the Operating Partnership with all of the terms, conditions and agreements on its part contained in the FelCor Note Documents (all such obligations and liabilities under this clause (iii) being herein collectively, called the "FELCOR NOTE OBLIGATIONS" and collectively, with the R/C Obligations, the "OTHER OBLIGATIONS"); (d) any and all sums advanced by the Pledgee in order to preserve the Collateral (as hereinafter defined) or preserve its security interest in the Collateral; (e) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (a) through (d) above, after an Event of Default (such term, as used in this Agreement, shall mean any Event of Default at any time under, and as defined in, the Loan Agreement and, if the related Obligations (as defined below) are secured hereunder at such time, the FelCor Note Documents, the Credit Agreement and any payment default (after the expiration of any applicable grace period) on any of the Obligations secured hereunder at such time) shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Pledgee of its rights hereunder, together with reasonable attorneys' fees and court costs; and (f) all amounts paid by any Secured Creditor as to which such Secured Creditor has the right to reimbursement under Section 11 of this Agreement; all such obligations, liabilities, sums and expenses set forth in clauses (a) through (f) of this Section 1, subject to the provisions of following clause (b), being herein collectively called the "OBLIGATIONS," it being acknowledged and agreed that the "OBLIGATIONS" shall 3 4 include extensions of credit of the type described above, whether outstanding on the date of this Agreement or extended from time to time after the date of this Agreement. 2. DEFINITION OF STOCK, LIMITED LIABILITY COMPANY INTERESTS, PARTNERSHIP INTERESTS, SECURITIES, ETC. (a) As used herein: (i) the term "STOCK" shall mean (x) with respect to corporations incorporated under the laws of the United States or any State or territory thereof (each a "DOMESTIC CORPORATION"), all of the issued and outstanding shares of capital stock of any Domestic Corporation at any time owned by any Pledgor and (y) with respect to corporations that are not Domestic Corporations (each a "FOREIGN CORPORATION"), all of the issued and outstanding shares of capital stock of any Foreign Corporation at any time owned by any Pledgor, provided that, (A) except as provided in the last sentence of this Section 2(a), such Pledgor shall not be required to pledge hereunder more than 65% of the total combined voting power of all classes of capital stock entitled to vote for the directors of such Foreign Corporation (herein called "VOTING Stock") owned by such Pledgor of any Foreign Corporation, (B) the Pledgor shall be required to pledge hereunder 100% of the issued and outstanding shares of all capital stock which is not Voting Stock (herein called "NON-VOTING STOCK") at any time owned by the Pledgor of any Foreign Corporation; (ii) the term "LIMITED LIABILITY COMPANY INTEREST" shall mean the entire limited liability company interests at any time owned by each Pledgor in any limited liability company; (iii) the term "PARTNERSHIP INTEREST" shall mean the entire partnership interests (whether general and/or limited partnership interests) at any time owned by each Pledgor in any Person; and (iv) the term "SECURITIES" shall mean all of the Stock, Limited Liability Company Interests and Partnership Interests. (b) All Stock at any time pledged or required to be pledged hereunder is hereinafter called the "PLEDGED STOCK," all Limited Liability Company Interests at any time pledged or, required to be pledged hereunder are hereinafter called the "PLEDGED LIMITED LIABILITY COMPANY INTERESTS," all Partnership Interests at any time pledged or required to be pledged hereunder are hereinafter called the "PLEDGED PARTNERSHIP INTERESTS" all of the Pledged Stock, Pledged Limited Liability Company Interests and Pledged Partnership Interests together are hereinafter called the "PLEDGED SECURITIES" which together with all proceeds thereof, including any securities and moneys received and at the time held by the Pledgee hereunder and all rights under Section 3.1(a)(iv) and (v) are hereinafter called the "COLLATERAL". Each Pledgor represents and warrants that on the date hereof (i) the Pledged Stock held by such Pledgor consists of the number and type of shares of the stock of the corporations as described in Annex A hereto; (ii) such Pledged Stock constitutes that percentage of the issued and outstanding capital stock of the issuing corporation as is set forth in Annex A hereto; (iii) the Pledged Limited Liability Company Interests held by such Pledgor consist of the number and type of interest of the issuing Person (each a "PLEDGED LIMITED LIABILITY COMPANY") as described in Annex B hereto; (iv) such Pledged Limited Liability Company Interests constitute that percentage of the issued and outstanding equity interests of the issuing Person as set forth in Annex B hereto; (v) the Pledged Partnership Interests held by such 4 5 Pledgor constitute that percentage of the entire Partnership Interest of the respective partnership (each a "PLEDGED PARTNERSHIP") as is set forth in Annex C hereto for such Pledgor; and (vi) on the date hereof, such Pledgor owns no other Pledged Securities. 3. PLEDGE OF SECURITIES, ETC. 3.1 Pledge. (a) To secure all Obligations of such Pledgor and for the purposes set forth in Section 1 hereof, each Pledgor hereby: (i) grants to the Pledgee a security interest in all of the Collateral owned by such Pledgor; (ii) pledges and deposits as security with the Pledgee the Securities owned by such Pledgor on the date hereof, and delivers to the Pledgee certificates or instruments therefor, accompanied by undated stock powers duly executed in blank by such Pledgor in the case of Stock, or such other instruments of transfer as are reasonably acceptable to the Pledgee; (iii) assigns, transfers, hypothecates, mortgages, charges and sets over to the Pledgee all of such Pledgor's right, title and interest in and to such Securities (and in and to all certificates or instruments evidencing such Securities), to be held by the Pledgee, upon the terms and conditions set forth in this Agreement; (iv) transfers and assigns to the Pledgee all of such Pledgor's Pledged Limited Liability Company Interests and all of such Pledged Pledgor's right, title and interest in each limited liability company to which such interests relate, whether now existing or hereafter acquired, including, without limitation: (A) all the capital thereof and its interest in all profits, losses, Limited Liability Company Assets (as defined below) and other distributions to which such Pledgor shall at any time be entitled in respect of such Pledged Limited Liability Company Interests; (B) all other payments due or to become due to such Pledgor in respect of Pledged Limited Liability Company Interests, whether under any limited liability company agreement or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise; (C) all of its claims, rights, powers, privileges, authority, options, security interest, liens and remedies, if any, under any limited liability company agreement or operating agreement, or at law or otherwise in respect of such Pledged Limited Liability Company Interests; (D) all present and future claims, if any, of such Pledgor against any such limited liability company for moneys loaned or advanced, for services rendered or otherwise; 5 6 (E) all of such Pledgor's rights under any limited liability company agreement or operating agreement or at law to exercise and enforce every right, power, remedy, authority, option and privilege of such Pledgor relating to such Pledged Limited Liability Company Interests, including any power to terminate, cancel or modify any limited liability company agreement or operating agreement, to execute any instruments and to take any and all other action on behalf of and in the name of such Pledgor in respect of such Pledged Limited Liability Company Interest and any such limited liability company, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect or receipt for any of the foregoing or for any Limited Liability Company Asset, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; (F) all other property hereafter delivered in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (G) to the extent not otherwise included, all proceeds of any or all of the foregoing; and (v) transfers and assigns to the Pledgee such Pledgor's Pledged Partnership Interests (and delivers any certificates or instruments evidencing such partnership interests, duly endorsed in blank) and all of such Pledgor's right, title and interest in each Pledged Partnership including, without limitation: (A) all of the capital thereof and its interest in all profits, losses, Partnership Assets (as defined below) and other distributions to which such Pledgor shall at any time be entitled in respect of any such Collateral; (B) all other payments due or to become due to such Pledgor in respect of any such Collateral, whether under any partnership agreement or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise; (C) all of its claims, rights, powers, privileges, authority, options, security interest, liens and remedies, if any, under any partnership or other agreement or at law or otherwise in respect of any such Collateral; (D) all present and future claims, if any, of such Pledgor against any Pledged Partnership for moneys loaned or advanced, for services rendered or otherwise; (E) all of such Pledgor's rights under any partnership agreement or at law to exercise and enforce every right, power, remedy, authority, option and privilege of such Pledgor relating to any Pledged Partnership Interest, including any power, if any, to 6 7 terminate, cancel or modify any general or limited partnership agreement, to execute any instruments and to take any and all other action on behalf of and in the name of such Pledgor in respect of such Pledged Partnership Interest and any Pledged Partnership, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect or receipt for any of the foregoing or for any Partnership Asset, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; (F) all other property hereafter delivered in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (G) to the extent not otherwise included, all proceeds of any or all of the foregoing. (b) As used herein, the term "LIMITED LIABILITY COMPANY ASSETS" shall mean all assets, whether tangible or intangible and whether real, personal or mixed (including, without limitation, all limited liability company capital and interests in other limited liability companies), at any time owned or represented by any Pledged Limited Liability Company Interest. (c) As used herein, the term "PARTNERSHIP ASSETS" shall mean all assets, whether tangible or intangible and whether real, personal or mixed (including, without limitation, all partnership capital and interests in other partnerships), at any time owned by any Pledged Partnership or represented by any Pledged Partnership Interest. 3.2 Subsequently Acquired Securities. If any Pledgor shall acquire (by purchase, stock dividend or otherwise) any additional Securities which represent ownership interests in any Required Guarantor at any time or from time to time after the date hereof, such Securities shall automatically (and without any further action being required to be taken) be subject to the pledge and security interests created pursuant to Section 3.1(a) and, furthermore, such Pledgor will forthwith deliver and deposit such Securities (or certificates or instruments representing such Securities) as security with the Pledgee and deliver to the Pledgee certificates therefor or instruments thereof, and accompanied by undated stock powers duly executed in blank in the case of Stock, Limited Liability Company Interests or Partnership Interests or such other instruments of transfer as are reasonably acceptable to the Pledgee, and will promptly thereafter deliver to the Pledgee a certificate executed by any Authorized Officer of such Pledgor describing such Securities and certifying that the same have been duly pledged with the Pledgee hereunder. Subject to the last sentence of Section 2(a) hereof, any pledge of Voting Stock of any Foreign Corporation shall be subject to the provisions of part (A) of the proviso to clause (i)(y) of Section 2(a) hereof. 7 8 3.3 Uncertificated Securities. If any Pledged Securities (whether now owned or hereafter acquired) are uncertificated securities, the respective Pledgor shall promptly notify the Pledgee thereof, and shall promptly take all actions required to perfect the security interest of the Pledgee under applicable law (including, in any event, under Sections 8-106 and 9-115 of the New York UCC, if applicable). Each Pledgor further agrees to take such actions as the Pledgee deems reasonably necessary or desirable to effect the foregoing and to permit the Pledgee to exercise any of its rights and remedies hereunder, and agrees to provide an opinion of counsel reasonably satisfactory to the Pledgee with respect to any such pledge of uncertificated Securities promptly upon request of the Pledgee. 4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Pledged Securities, which may be held (in the discretion of the Pledgee) in the name of such Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent appointed by the Pledgee. The Pledgee agrees to promptly notify the relevant Pledgor after the appointment of any sub-agent; provided, however, that the failure to give such notice shall not affect the validity of such appointment. 5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until an Event of Default shall have occurred and be continuing, each Pledgor shall be entitled to (i) exercise any and all voting and other consensual rights pertaining to the Pledged Stock and to give all consents, waivers or ratifications in respect thereof; and (ii) exercise any and all voting, consent, administration, management and other rights and remedies under (x) any limited liability company agreement or operating agreement or otherwise with respect to the Pledged Limited Liability Interests of such Pledgor and (y) any partnership agreement or otherwise with respect to the Pledged Partnership Interests of such Pledgor; provided, that no vote shall be cast or any consent, waiver or ratification given or any action taken which would violate or be inconsistent with any of the terms of this Agreement or any other Loan Document, or which would have the effect of impairing the rights, priorities or remedies of the Pledgee or any other Secured Creditor under this Agreement or any other Loan Documents. All such rights of such Pledgor to vote and to give consents, waivers and ratifications shall cease in case an Event of Default shall occur and be continuing, and Section 7 hereof shall become applicable. 6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default shall have occurred and be continuing, all cash dividends and other cash distributions payable in respect of the Pledged Securities shall be paid to the respective Pledgor. The Pledgee shall also be entitled to receive directly, and to retain as part of the Collateral: (i) all other or additional stock or other securities or property (other than cash) paid or distributed by way of dividend or otherwise in respect of the Pledged Stock, Pledged Limited Liability Company Interests and Pledged Partnership Interests; 8 9 (ii) all other or additional stock or other securities or property (including cash) paid or distributed in respect of the Pledged Stock, Pledged Limited Liability Company Interests or Pledged Partnership Interests by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar rearrangement; and (iii) all other or additional stock or other securities or property (including cash) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange of stock, conveyance of assets, liquidation or similar corporate reorganization. Nothing contained in this Section 6 shall limit or restrict in any way the Pledgee's right to receive proceeds of the Collateral in any form in accordance with Section 3 of this Agreement. All dividends, distributions or other payments which are received by the Pledgor contrary to the provisions of this Section 6 and Section 7 below shall be received in trust for the benefit of the Pledgee, shall be segregated from other property or funds of the Pledgor and shall be forthwith paid over to the Pledgee as Collateral in the same form as so received (with any necessary endorsement). 7. REMEDIES IN CASE OF EVENT OF DEFAULT. In case an Event of Default shall have occurred and be continuing, the Pledgee shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement or by any other Loan Document or, to the extent then in effect and secured hereby the Credit Agreement and any FelCor Note Document (with all of the Documents listed above being herein collectively called the "SENIOR DOCUMENTS" or the "SECURED DEBT AGREEMENTS") or by law) for the protection and enforcement of its rights in respect of the Collateral, and the Pledgee shall be entitled to exercise all the rights and remedies of a secured party under the UCC and also shall be entitled, without limitation, to exercise the following rights, which each Pledgor hereby agrees to be commercially reasonable: (i) to receive all amounts payable in respect of the Collateral payable to such Pledgor under Section 6 hereof; --------- (ii) to transfer all or any part of the Pledged Securities into the Pledgee's name or the name of its nominee or nominees (the Pledgee agrees to promptly notify the relevant Pledgor after such transfer; provided, however, that the failure to give such notice shall not affect the validity of such transfer); (iii) to vote all or any part of the Pledged Stock, Pledged Limited Liability Company Interests or Pledged Partnership Interests (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (each Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of such Pledgor, with full power of substitution to do so); and (iv) at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to 9 10 sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by each Pledgor), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine; provided, that at least ten (10) Business Days' notice of the time and place of any such sale shall be given to such Pledgor. Each Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Pledgee on behalf of the Secured Creditors may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Pledgee nor any Secured Creditor shall be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto. 8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the Pledgee provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee or any other Secured Creditor of any one or more of the rights, powers or remedies provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee or any other Secured Creditor of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee or any other Secured Creditor to exercise any such right, power or remedy shall operate as a waiver thereof. The Secured Creditors agree that this Agreement may be enforced only by the action of the Administrative Agent or the Pledgee, in each case acting in accordance with the Loan Agreement and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agents or the Pledgee, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement. The Secured Creditors further agree that the Pledgee has sole discretion to release all or any portion of the Collateral in accordance with the Loan Agreement from time to time and that any such release shall automatically, without any further action by Pledgee, serve to release such Collateral as security for all of the Obligations and no consent from or notice to any Secured Creditor is required in connection with any such release. 9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Collateral Agent upon any sale or other disposition of the Collateral of each Pledgor, together with all other moneys received by the Collateral Agent hereunder, shall be applied as follows: first, to the payment of all Obligations owing to the Collateral Agent of the type provided in clauses (e) and (f) of the definition of Obligation; 10 11 second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Primary Obligations (as hereinafter defined) of the respective Pledgor shall be paid to the Secured Creditors (with such Secured Creditors being herein called the "SENIOR SECURED CREDITORS") as provided in Section 9(e) hereof, with each Senior Secured Creditor receiving an amount equal to its outstanding Primary Obligations of such Pledgor or, if the proceeds are insufficient to pay in full all such Primary Obligations, its Pro Rata Share (as hereinafter defined) of the amount remaining to be distributed; third, to the extent proceeds remain after the application pursuant to the preceding clauses first and second, an amount equal to the outstanding Secondary Obligations of the respective Pledgor shall be paid to the Senior Secured Creditors as provided in Section 9(e) hereof, with each Senior Secured Creditor receiving an amount equal to its outstanding Secondary Obligations (as hereinafter defined) of such Pledgor or, if the proceeds are insufficient to pay in full all such Secondary Obligations, its Pro Rata Share of the amount remaining to be distributed; and fourth, to the extent proceeds remain after the application pursuant to the preceding clauses first through third inclusive, and following the termination of this Agreement pursuant to Section 18 hereof, to the relevant Pledgor or to whomever may be legally entitled to receive such surplus. (b) For purposes of this Agreement (x) "PRO RATA SHARE" shall mean, when calculating a Secured Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Secured Creditor's Primary Obligations or Secondary Obligations, as the case may be, of the respective Pledgor and the denominator of which is the then outstanding amount of all Primary Obligations or Secondary Obligations, as the case may be, of the respective Pledgor, (y) "PRIMARY OBLIGATIONS" of any Pledgor shall mean (i) in the case of the Term Loan Obligations, all Obligations of such Pledgor arising out of or in connection with (including, without limitation, as obligor or guarantor, as the case may be) the principal of, and interest on, the Loan and all regularly accruing fees, (ii) in the case of the FelCor Note Obligations, all Obligations of such Pledgor secured hereby arising out of or in connection with (including, without limitation, as obligor or guarantor, as the case may be) the principal of, and interest on, the FelCor Notes, and (iii) in the case of the R/C Obligations and all Obligations of such Pledgor secured hereby arising out of or in connection with (including, without limitation, as obligor or guarantor, as the case may be) the principal of, and interest on, the R/C Obligations and all Unpaid Drawings theretofore made (together with all interest accrued thereon), and the regularly accruing Fees, (z) "SECONDARY OBLIGATIONS" of any Pledgor shall mean all Obligations of such Pledgor secured hereby other than Primary Obligations. (c) When payments to Senior Secured Creditors are based upon their respective Pro Rata Shares, the amounts received by such Senior Secured Creditors hereunder shall be applied (for purposes of making determinations under this Section 9 only) (i) first, to the Primary Obligations of the respective Pledgor and (ii) second, to the Secondary Obligations of the respective Pledgor. 11 12 (i) INTENTIONALLY DELETED (d) All payments required to be made hereunder shall be made (i) if to the Lender Creditors, to the Administrative Agent under the Loan Agreement for the account of the Lender Creditors, and (ii) if to any other Secured Creditors (other than the Collateral Agent), to the trustee, Administrative Agent or other similar representative (each a "Representative") for such Secured Creditors or, in the absence of such a Representative, directly to the other Secured Creditors. (e) For purposes of applying payments received in accordance with this Section 9, the Collateral Agent shall be entitled to rely upon (i) the Administrative Agent under the Loan Agreement and (ii) the Representative for any other Secured Creditors or, in the absence of such a Representative, upon the respective Secured Creditors for a determination (which the Administrative Agent, each Representative for any other Secured Creditors and the Secured Creditors agree (or shall agree) to provide upon request of the Collateral Agent) of the outstanding Primary Obligations and Secondary Obligations owed to the Secured Creditors. (f) It is understood and agreed that each Pledgor shall remain liable to the extent of any deficiency between the amount of the proceeds of the Collateral pledged by it hereunder and the aggregate amount of the Obligations of such Pledgor. 10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt of the Pledgee or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication or nonapplication thereof. 11. INDEMNITY. Each Pledgor jointly and severally agrees (a) to indemnify and hold harmless the Pledgee in such capacity and each other Secured Creditor from and against any and all claims, demands, losses, judgments and liabilities of whatsoever kind or nature, and (b) to reimburse the Pledgee and each other Secured Creditor for all reasonable costs and expenses, including reasonable attorneys' fees, in each case to the extent growing out of or resulting from the exercise by the Pledgee of any right or remedy granted to it hereunder or under any other Secured Debt Agreement except, with respect to clauses (a) and (b) above, to the extent arising from the Pledgee's or such other Secured Creditor's gross negligence or willful misconduct. In no event shall the Pledgee be liable, in the absence of gross negligence or willful misconduct on its part, for any matter or thing in connection with this Agreement other than to account for moneys actually received by it in accordance with the terms hereof. If and to the extent that the obligations of the Pledgors under this Section 11 are unenforceable for any reason, each 12 13 Pledgor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 12. FURTHER ASSURANCES; POWER OF ATTORNEY. (a) Each Pledgor agrees that it will join with the Pledgee in executing and, at such Pledgor's own expense, file and refile under the applicable UCC or such other law such financing statements, continuation statements and other documents in such offices as the Pledgee may reasonably deem necessary or appropriate and wherever required or permitted by law in order to perfect and preserve the Pledgee's security interest in the Collateral and hereby authorizes the Pledgee to file financing statements and amendments thereto relative to all or any part of the Collateral without the signature of such Pledgor where permitted by law, and agrees to do such further acts and things and to execute and deliver to the Pledgee such additional conveyances, assignments, agreements and instruments as the Pledgee may reasonably deem necessary or advisable to carry into effect the purposes of this Agreement or to further assure and confirm unto the Pledgee its rights, powers and remedies hereunder. (b) Each Pledgor hereby appoints the Pledgee such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, to act from time to time after the occurrence and during the continuance of an Event of Default in the Pledgee's reasonable discretion to take any action and to execute any instrument which the Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement. 13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Pledgee as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Pledgee shall act hereunder on the terms and conditions set forth in Annex G hereto, the terms of which shall be deemed incorporated herein by reference as fully as if same were set forth herein in their entirety. 14. TRANSFER BY PLEDGORS. No Pledgor will sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein (except in accordance with the terms of this Agreement and as permitted by the terms of the Loan Agreement). 15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGORS. (a) Each Pledgor represents, warrants and covenants that: (i) it is the legal, record and beneficial owner of, and has good title to, all Pledged Securities purported to be owned by such Pledgor (including as shown on Annexes A, B and C hereof), subject to no Lien, except the Liens created by this Agreement and Liens permitted under Section 5.7 of the Loan Agreement; 13 14 (ii) it has full power, authority and legal right to pledge all the Pledged Securities; (iii) this Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes the legal, valid and binding obligation of such Pledgor enforceable in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); (iv) no consent of any other party (including, without limitation, any stockholder or creditor of such Pledgor or any of its Subsidiaries and any other partners or members of such Pledgor's partnerships or limited liability companies) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing (except any filings required under the UCC, which filings have been made) or declaration with, any governmental authority is required to be obtained by such Pledgor in connection with the execution, delivery or performance of this Agreement, or in connection with the exercise of its rights and remedies pursuant to this Agreement, except those which have been obtained or made or as may be required by laws affecting the offer and sale of securities generally in connection with the exercise by the Pledgee of certain of its remedies hereunder or which may be required to be obtained by the Pledgee pursuant to Section 22 or 23 hereof in connection with the exercise of its rights and remedies hereunder; (v) the execution, delivery and performance of this Agreement by such Pledgor does not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of the certificate of incorporation or by-laws (or analogous organizational documents) of such Pledgor or of any securities issued by such Pledgor or any of its Subsidiaries, or of any mortgage, indenture, lease, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument to which such Pledgor or any of its Subsidiaries is a party or which purports to be binding upon such Pledgor or any of its Subsidiaries or upon any of their respective assets and will not result in the creation or imposition (or the obligation to create or impose) of any lien or encumbrance on any of the assets of such Pledgor or any of its Subsidiaries except as contemplated by this Agreement; (vi) all the shares of Stock and all Pledged Limited Liability Company interests have been duly and validly issued, are fully paid and nonassessable and subject to no options to purchase or similar rights; (vii) the pledge, assignment and delivery (which delivery has been made) to the Pledgee of the Pledged Stock creates a valid and perfected first security interest in such Stock, subject to no prior lien or encumbrance or to any agreement purporting to grant to any third party a lien or encumbrance on the property or assets of such Pledgor which would include the Securities; 14 15 (viii) each Pledged Partnership Interest has been validly acquired and is fully paid for (to the extent applicable) and is duly and validly pledged hereunder; (ix) each partnership agreement is the legal, valid and binding obligation of the applicable Pledgor, enforceable in accordance with its terms; (x) no Pledgor is in default in the payment of any portion of any mandatory capital contribution, if any, required to be made under any general or limited partnership agreement to which such Pledgor is a party, and no Pledgor is in violation of any other material provisions of any partnership agreement to which such Pledgor is a party, or otherwise in default or violation thereunder; (xi) no Pledged Partnership Interest is subject to any defense, offset or counterclaim, nor have any of the foregoing been asserted or alleged against such Pledgor by any Person with respect thereto; (xii) the pledge and assignment of the Pledged Partnership Interests and/or Pledged Limited Liability Company Interests pursuant to this Agreement, together with the relevant filings or recordings under the UCC (which filings and recordings have been or will be made), create a valid perfected and continuing first priority security interest in such Partnership Interests and/or Limited Liability Company Interests and the proceeds thereof, subject to no prior lien or encumbrance or to any agreement purporting to grant to any third party a lien or encumbrance on the property or assets of such Pledgee or which would include the Collateral; (xiii) there are no currently effective financing statements in respect of the UCC covering property which is now or hereafter may be included in the Collateral and such Pledgor will not, without the prior written consent of the Pledgee, execute and, until the Termination Date (as hereinafter defined), there will not ever be on file in any public office any enforceable financing statement or statements covering any or all of the Collateral, except financing statements filed or to be filed in favor of the Pledgee as secured party; (xiv) each Pledgor shall give the Pledgee prompt notice of any written claim it receives relating to the Collateral; and (xv) each Pledgor shall deliver to the Pledgee a copy of each other demand, notice or document received by it which may adversely affect the Pledgee's interest in the Collateral promptly upon, but in any event within 10 days after, such Pledgor's receipt thereof. Each Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Securities and the proceeds thereof against the claims and demands of all persons whomsoever; and such Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter 15 16 pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee and the other Secured Creditors. (b) Each Pledgor hereby further represents, warrants and covenants that as of the date hereof, the chief executive office of such Pledgor is located at the address indicated on Annex F hereto for such Pledgor. Such Pledgor will not move its chief executive office except to such new location as such Pledgor may establish in accordance with the last sentence of this Section 15(b). No Pledgor shall establish new locations for such offices until (i) it shall have given to the Pledgee not less than thirty (30) days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Pledgee may reasonably request, (ii) it shall have delivered to the Pledgee a written supplement to Annex F hereto in the form of Exhibit A-1 hereto as provided in clause (c) below showing the new location of its chief executive office and (iii) with respect to such new location, it shall have taken all action, reasonably satisfactory to the Pledgee, to maintain all security interest of the Pledgee in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. (c) Without in any way limiting Section 3.2 hereof, at any time and from time to time that any Pledgor (x) determines that the information with respect to it contained on Annex A, B, C and/or F, as the case may be, is inaccurate or (y) acquires any additional Securities which have not already been pledged hereunder and reflected on Annexes A through C, as appropriate, such Pledgor shall deliver a supplement to this Agreement, substantially in the form of Exhibit A-1 hereto (each a "PLEDGE AND SECURITY AGREEMENT SUPPLEMENT") adding (or, in the case of any Securities released pursuant to Section 18(b) hereof, deleting) such Securities to (from) Annexes A through C hereto, as appropriate. The execution and delivery of any such supplement shall not require the consent of any Pledgor hereunder. It is understood and agreed that the pledge and security interests granted hereunder shall apply to all Collateral as provided in Section 3.1 regardless of the failure of any Pledgor to deliver, or any inaccurate information stated in, the Pledge and Security Agreement Supplement as otherwise provided above. (d) Each Pledgor hereby covenants and agrees that with respect to all Partnership Interests or Limited Liability Company Interests, in each case required to be pledged by it hereunder, such Pledgor will deliver to the respective Pledged Partnerships or Pledged Limited Liability Companies, as the case may be (with copies to the Collateral Agent) a notice (appropriately completed) in the form of Annex D attached hereto and by this reference made a part hereof (each such notice a "PARTNERSHIP/LLC NOTICE") and such Pledgor will use its reasonable best efforts to cause to be delivered to the Collateral Agent an acknowledgment in the form set forth as Annex E attached hereto (each such acknowledgment, a "PLEDGE ACKNOWLEDGMENT"), duly executed by the relevant Pledged Partnership and/or Pledged Limited Liability Company, as the case may be, in each case within forty-five days following the date of any pledge of any Pledged Partnership Interests or Pledged Limited Liability Company Interests hereunder. 16 17 (e) Each Pledgor hereby represents and warrants that none of the Pledged Partnership Interests or Pledged Limited Liability Company Interests pledged by such Pledgor pursuant to this Agreement are dealt in or traded on securities exchange or in securities markets, and none of the partnership agreements or limited liability company agreements relating to such Pledged Partnership Interests or Pledged Limited Liability Company Interests expressly provide that any such interests is a security governed by Article 8 of the UCC as it is in effect in the State of Texas. (f) Each Pledgor pledging Pledged Stock in FelCor Canada Company hereby represents and warrants that such Pledged Stock is certificated. 16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including, without limitation: (a) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Secured Debt Agreement or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (b) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument or this Agreement; (c) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any release of any security by the Pledgee or its assignee; (d) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; (e) any limitation on any other Pledgor's liability or obligations under this Agreement, the Guaranty or any other Loan Document or any invalidity or unenforceability, in whole or in part, of this Agreement, the Guaranty or any other Loan Document or any term thereof; or (f) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to such Pledgor or any Subsidiary of such Pledgor, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not such Pledgor shall have notice or knowledge of any of the foregoing. 17. REGISTRATION, ETC. (a) If an Event of Default shall have occurred and be continuing and any Pledgor shall have received from the Pledgee a written request or requests that such Pledgor cause any registration, qualification or compliance under any Federal or State securities law or laws to be effected to the extent practicable with respect to all or any part of the Pledged Securities, such Pledgor as soon as practicable and at its expense will use its best efforts to cause such registration to be effected (and be kept effective) and will use its best efforts to cause such qualification and compliance to be effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Pledged Securities, including, without limitation, registration under the Securities Act as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other government requirements; provided, that the Pledgee shall furnish to such Pledgor such information regarding the 17 18 Pledgee as such Pledgor may request in writing and as shall be required in connection with any such registration, qualification or compliance. Such Pledgor will cause the Pledgee to be kept reasonably advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee, each other Secured Creditor and all others participating in the distribution of the Pledged Securities against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to such Pledgor by the Pledgee or such other Secured Creditor expressly for use therein. (b) If at any time when the Pledgee shall determine to exercise its right to sell all or any part of the Pledged Securities pursuant to Section 7 hereof, such Pledged Securities or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act, as then in effect, the Pledgee may, in its sole and absolute discretion, sell such Pledged Securities or part thereof by private sale in such manner and under such circumstances as the Pledgee may deem necessary or advisable in order that such sale may legally be effected without such registration; provided, that at least ten (10) Business Days' notice of the time and place of any such sale shall be given to such Pledgor. Without limiting the generality of the foregoing, in any such event the Pledgee, in its sole and absolute discretion: (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under such Securities Act; (ii) may approach and negotiate with a single possible purchaser to effect such sale; and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Pledged Securities or part thereof. In the event of any such sale, the Pledgee shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price which the Pledgee, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration as aforesaid. 18. TERMINATION, RELEASE. (a) After the Term Loan Obligations Termination Date (as defined in Section 20), this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 11 hereof shall survive any such termination) and the Pledgee, at the request and expense of the respective Pledgor, will promptly execute and deliver to such Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Pledgor (without recourse and without any 18 19 representation or warranty) such of the Collateral as may be in the possession of the Pledgee and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. (b) At any time and from time to time Pledgee is authorized, upon written instruction by Administrative Agent to release any portion of the Collateral as may be in possession of the Pledgee and has not theretofore been released pursuant to this Agreement (c) At any time that a Pledgor desires that Collateral be released as provided in the foregoing Section 18(a) or (b), it shall deliver to the Pledgee a certificate signed by an Authorized Officer of such Pledgor stating that the release of the respective Collateral is permitted pursuant to Section 18(a) or (b), and the Pledgee shall be entitled (but not required) to conclusively rely thereon. 19. NOTICES, ETC. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when delivered to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, addressed as follows: (a) if to any Pledgor, at the address indicated therefor on Annex F hereto. (b) if to the Pledgee, at: THE CHASE MANHATTAN BANK 380 Madison Avenue, 10th Floor New York, New York 10017 Facsimile: (212) 622-3395 Phone: (212) 622-3369 Attn: Charles Hoagland With a copy to: THE CHASE MANHATTAN BANK Loan and Agency Services One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Facsimile: (212) 552-5701 Phone: (212) 552-7469 Attn: Linda Rodriguez (c) if to any Lender Creditor (other than the Pledgee), (x) to the Administrative Agent, at the address of the Administrative Agent specified in the Loan Agreement or (y) at such address as such Lender Creditor shall have issued in the Loan Agreement; 19 20 (d) if to any other Secured Creditor, (x) to the Representative for such Secured Creditor or (y) if there is no such representative, at such address as such Secured Creditor shall have specified in writing to each Pledgor and the Pledgee; or at such other address as shall have been finished in writing by any Person described above to the party required to give notice hereunder. 20. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Pledgor directly affected thereby (it being understood that additional Pledgors may be added as parties hereto from time to time in accordance with Section 24 and Pledgors may be released as parties hereto in accordance with Section 21, and that no consent of any other Pledgor or of the Secured Creditors shall be required in connection therewith) and the Pledgee (with the written consent of the Administrative Agent at all times prior to the time at which all Term Loan Obligations have been paid in full and all commitments pursuant to the Loan Agreement have terminated (with such date being herein called the "TERM LOAN OBLIGATIONS TERMINATION DATE". 21. RELEASE OF GUARANTORS. In the event any Pledgor which is a Subsidiary of any Borrower party to the Guaranty is released from the Guaranty, such Pledgor (so long as not a Borrower) shall be released from this Agreement and this Agreement shall, as to such Pledgor only, have no further force or effect. 22. INTENTIONALLY DELETED 23. INTENTIONALLY DELETED 24. ADDITIONAL PLEDGORS. Pursuant to Section 7.1 of the Loan Agreement, certain Subsidiaries of a Borrower may after the date hereof be required to enter into this Agreement as a Pledgor. Upon execution and delivery, after the date hereof, by the Collateral Agent and such Subsidiary of an instrument in the form of Exhibit A-2, such Subsidiary shall become a Pledgor hereunder with the same force and effect as if originally named as a Pledgor hereunder. Each Subsidiary which is required to become a party to this Agreement shall so execute and deliver a copy of Exhibit A-2 to the Collateral Agent and, at such time, shall execute a Pledge and Security Agreement Supplement in the form of Exhibit A-1 to this Agreement with respect to all Collateral of such Pledgor required to be pledged hereunder, which Supplement shall be completed in accordance with Exhibit A-1. The execution and delivery of any such instrument shall not require the consent of any other Pledgor hereunder. Upon the execution and delivery by the Collateral Agent and such Subsidiary of an instrument in the form of Exhibit A-2 as provided above, it is understood and agreed that the pledge and security interests hereunder shall apply to all Collateral of such additional Pledgor provided in Section 3.1 hereof regardless of any failure of any additional Pledgor to deliver, or any inaccurate information stated in, the Pledge and Security Agreement Supplement. 20 21 25. RECOURSE. This Agreement is made with full recourse to the Pledgors and pursuant to and upon all representations, warranties, covenants and agreements on the part of the Pledgors contained herein and otherwise in writing in connection herewith. 26. LIMITATION BY LAW; SEVERABILITY. All rights, remedies and powers in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable law and may be limited to the extent necessary so that they will not render this Agreement invalid or unenforceable, in whole or in part. 27. PLEDGEE NOT BOUND. (a) Nothing herein shall be construed to make the Pledgee or any other Secured Creditor liable as a member of any limited liability company or any partnership and the Pledgee or any other Secured Creditor by virtue of this Agreement or otherwise (except as referred to in the following sentence) shall not have any of the duties, obligations or liabilities of a member of any limited liability company or partnership. The parties hereto expressly agree that, unless the Pledgee shall become the absolute owner of the respective Pledged Limited Liability Interest or Pledged Partnership Interest pursuant hereto, this Agreement shall not be construed as creating a partnership or joint venture among the Pledgee, any other Secured Creditor and/or any Pledgor. (b) Except as provided in the last sentence of paragraph (a) of this Section, the Pledgee, by accepting this Agreement, did not intend to become a member of any limited liability company or partnership or otherwise be deemed to be a co-venturer with respect to any Pledgor or any limited liability company or partnership either before or after an Event of Default shall have occurred. The Pledgee shall have only those powers set forth herein and shall assume none of the duties, obligations or liabilities of a member of any limited liability company or partnership or any Pledgor. (c) The Pledgee shall not be obligated to perform or discharge any obligation of any Pledgor as a result of the collateral assignment hereby effected. (d) The acceptance by the Pledgee of this Agreement, with all the rights, powers, privileges and authority so created, shall not at any time or in any event obligate the Pledgee to appear in or defend any action or proceeding relating to the Collateral to which it is not a party or to take any action hereunder or thereunder, or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under the Collateral. 28. CONTINUING PLEDGORS. The rights and obligations of each Pledgor (other than the respective released Pledgor in the case of following clause (y)) hereunder shall remain in full force and effect notwithstanding (x) the addition of any new Pledgor as a party to this Agreement as contemplated by preceding Section 24 or otherwise and/or (y) the release of any Pledgor under this Agreement as contemplated by Section 21 or otherwise. 22 29. NO FRAUDULENT CONVEYANCE. Each Pledgor hereby confirms that it is its intention that this Agreement not constitute a fraudulent transfer or conveyance for purposes of any bankruptcy, insolvency or similar law, the Uniform Fraudulent Conveyance Act or any similar Federal, state or foreign law. To effectuate the foregoing intention, each Pledgor hereby irrevocably agrees that its obligations and liabilities hereunder shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Pledgor that are relevant under such laws, result in the obligations and liabilities of such Pledgor hereunder in respect of such maximum amount not constituting a fraudulent transfer or conveyance. 30. INTENTIONALLY DELETED 31. MISCELLANEOUS. This Agreement shall be binding upon the successors and assigns of each Pledgor and shall inure to the benefit of and be enforceable by the Pledgee and its successors and assigns; provided that no Pledgor may assign any of its rights or obligations hereunder without the prior written consent of the Pledgee. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 22 23 IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly executed and delivered by its duly authorized officer on the date first above written. [PLEDGOR SIGNATURES] 23 24 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR LODGING TRUST INCORPORATED, a Maryland corporation By: /s/ LAWRENCE D. ROBINSON ---------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 25 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR LODGING LIMITED PARTNERSHIP, a Delaware Limited Partnership By: FELCOR LODGING TRUST INCORPORATED, a Maryland corporation, its sole general partner By: /s/ LAWRENCE D. ROBINSON ---------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 26 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR CANADA HOLDING GP, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 27 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR CANADA HOLDING, L.P., a Delaware limited partnership By: FELCOR CANADA HOLDING GP, L.L.C., a Delaware limited liability company, its sole general partner By: /s/ LAWRENCE D. ROBINSON --------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 28 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. HHHC GENPAR, L.P., a Delaware limited partnership By: FELCOR HOTELS GENPAR, L.L.C., a Delaware limited liability company, its sole general partner By: /s/ LAWRENCE D. ROBINSON ------------------------------------------ Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 29 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR/CSS HOTELS, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 30 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR HOTELS LIMPAR, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 31 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR HOTELS GENPAR, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 32 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR HOTEL ASSET COMPANY, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 33 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR/LAX HOTELS, L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------- Name: Lawrence D. Robinson Title: Senior Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] 34 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR NEVADA HOLDINGS, L.L.C., a Nevada limited liability company By: /s/ LAWRENCE D. ROBINSON -------------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President & Manager [SIGNATURES CONTINUE ON FOLLOWING PAGE] 35 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FHAC NEVADA HOLDINGS, L.L.C., a Nevada limited liability company By: /s/ LAWRENCE D. ROBINSON -------------------------------------- Name: Lawrence D. Robinson Title: Senior Vice President & Manager [SIGNATURES CONTINUE ON FOLLOWING PAGE] 36 IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of the day and year first above written. FELCOR HHCL COMPANY,L.L.C., a Delaware limited liability company By: /s/ LAWRENCE D. ROBINSON ---------------------------- Name: Lawrence D. Robinson Title: Senior Vice President EX-10.23 7 MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING 1 EXHIBIT 10.23 RECORDING REQUESTED BY: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA WHEN RECORDED MAIL TO: SONNENSCHEIN NATH & ROSENTHAL 8000 SEARS TOWER CHICAGO, ILLINOIS 60606 ATTENTION: SCOTT A. LINDQUIST, ESQ. - -------------------------------------------------------------------------------- LOAN NO: 6-103-269 Property: ________ FELCOR/CSS HOLDINGS, L.P., AS MORTGAGOR (BORROWER) TO THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, AS MORTGAGEE (LENDER) ------------------ MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING ------------------ DATED: AS OF _________, 1999 2 TABLE OF CONTENTS
PAGE ARTICLE I ADDITIONAL DEFINITIONS.................................................................................2 ARTICLE II GRANT.................................................................................................2 2.1 Grant....................................................................................................2 2.2 Assignment of Leases and Rents...........................................................................3 2.3 Release..................................................................................................3 ARTICLE III OBLIGATIONS..........................................................................................4 ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................4 4.1 Title, Legal Status and Authority........................................................................4 4.2 Validity of Loan.........................................................................................4 4.3 Litigation...............................................................................................5 4.4 Status of Property.......................................................................................5 4.5 Tax Status of Borrower...................................................................................6 4.6 Bankruptcy and Equivalent Value..........................................................................6 4.7 Disclosure...............................................................................................6 4.8 Illegal Activity.........................................................................................6 4.9 Primary Lease............................................................................................6 ARTICLE V COVENANTS AND AGREEMENTS...............................................................................6 5.1 Payment of Obligations...................................................................................6 5.2 Continuation of Existence................................................................................7 5.3 Taxes and Other Charges..................................................................................7 5.4 Defense of Title, Litigation, and Rights under Loan Documents............................................8 5.5 Operation and Maintenance of Property....................................................................8 5.6 Insurance...............................................................................................10 5.7 Damage and Destruction of Property......................................................................11 5.8 Condemnation............................................................................................13 5.9 Liens and Liabilities...................................................................................15 5.10 Tax and Insurance Deposits...........................................................................15 5.11 ERISA................................................................................................16 5.12 Environmental Representations, Warranties, and Covenants.............................................16 5.13 Electronic Payments..................................................................................18 5.14 Inspection...........................................................................................18 5.15 Records, Reports, and Audits.........................................................................18 5.16 Borrower's Certificates..............................................................................19 5.17 Full Performance Required; Survival of Warranties....................................................20 5.18 Leasing Restrictions.................................................................................20 5.19 Management Agreement and License Agreement Restrictions..............................................21 5.20 Additional Security..................................................................................22 5.21 Further Acts.........................................................................................22
i 3 ARTICLE VI ADDITIONAL ADVANCES: EXPENSES; SUBROGATION...........................................................22 6.1 Expenses and Advances...................................................................................22 6.2 Subrogation.............................................................................................23 ARTICLE VII SALE, TRANSFER, OR ENCUMBRANCE OF THE PROPERTY......................................................23 7.1 General Restrictions....................................................................................23 7.2 Provisions for Merger of FelCor or FelCor REIT:.........................................................23 7.3 Provisions on Sale of Lessee:...........................................................................24 ARTICLE VIII DEFAULTS AND REMEDIES..............................................................................25 8.1 Events of Default.......................................................................................25 8.2 Remedies................................................................................................27 8.3 Expenses................................................................................................29 8.4 Rights Pertaining to Sales..............................................................................29 8.5 Application of Proceeds.................................................................................30 8.6 Additional Provisions as to Remedies....................................................................30 8.7 Waiver of Rights and Defenses...........................................................................32 ARTICLE IX SECURITY AGREEMENT AND FIXTURE FILING................................................................33 9.1 Security Agreement......................................................................................33 9.2 Fixture Filing..........................................................................................33 ARTICLE X LIMITATION ON PERSONAL LIABILITY AND INDEMNITIES......................................................33 10.1 Limited Recourse Liability...........................................................................33 10.2 General Indemnity....................................................................................36 10.3 Transaction Taxes Indemnity..........................................................................37 10.4 ERISA Indemnity......................................................................................37 10.5 Broker Indemnity.....................................................................................37 10.6 Environmental Indemnity..............................................................................37 10.7 Duty to Defend, Costs and Expenses...................................................................37 10.8 Recourse Obligation and Survival.....................................................................38 ARTICLE XI ADDITIONAL PROVISIONS................................................................................38 11.1 Usury Savings Clause.................................................................................38 11.2 Notices:.............................................................................................38 11.3 Sole Discretion of Lender............................................................................39 11.4 Applicable Law and Submission to Jurisdiction........................................................40 11.5 Construction of Provisions...........................................................................40 11.6 Transfer of Loan.....................................................................................40 11.7 Miscellaneous........................................................................................42 11.8 Entire Agreement.....................................................................................42 11.9 WAIVER OF TRIAL BY JURY..............................................................................42 ARTICLE XII LOCAL LAW PROVISIONS................................................................................42
ATTACHMENTS: Exhibit A - Schedule of Defined Terms Exhibit B - Legal Description of Land Exhibit C - Description of Personal Property Security Exhibit D - Other Hotel Properties ii 4 DEFINITIONS The terms set forth below are defined in the following sections of this Mortgage, Security Agreement and Fixture Filing: Action Section 11.4 Additional Funds Section 5.7(c) Affecting the Property Section 5.12(a) Amount Realized Upon Foreclosure Section 8.6(c) Assessments Section 5.3(a) Assignment of Leases and Rents Section 2.2 Award Section 5.8(b) Bankruptcy Code Section 2.1(i) Borrower Preamble Costs Section 6.1 Damage Section 5.7(a) Deposits Section 5.10 Environmental Indemnity Section 10.6 Environmental Liens Section 5.12(b) Environmental Report Section 5.12(a) ERISA Section 5.11 ERISA Certificate and Indemnification Agreement Section 10.4 Event of Default Section 8.1 Exculpated Parties 10.1(a) Flood Acts Section 4.4(a) GAAP Section 5.15(a) Grace Period Section 8.1(b) Impositions Section 5.10 Improvements Section 2.1(b) Indemnified Parties Section 10.2 Instrument Preamble Insurance Premiums Section 5.10 Investor Section 11.6 Land Section 2.1(a) Laws Section 5.5(c) Leases Section 2.1(i) Lender Preamble Lessee Personal Property Section 2.1 Liens Section 5.9 Loan Recitals Losses Section 10.2 Net Proceeds Section 5.7(d) Non-Material Leases Section 5.18 Note Recitals Notice Section 11.2
iii 5 Obligations Section 3 Partial Foreclosure Section 8.6(a) Person Section 11.5(i) Personal Property Section 2.1(f) Property Section 2.1 Property State Section 4.1 Rating Agency Section 5.6(c) Rent Loss Proceeds Section 5.7(c) Rents Section 2.1(j) Restoration Section 5.7(a) Successor Entity Section 7.2 Successor Lessee Section 7.3 Taking Section 5.8(a) Transaction Taxes Section 5.3(c) UCC Section 4.2 Violation Section 5.11
iv 6 MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING THIS MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING (this "INSTRUMENT") is made as of the ___ day of _________, 1999, by FELCOR/CSS HOLDINGS, L.P., a Delaware limited partnership, having its principal office and place of business at c/o FelCor Lodging Limited Partnership, 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas 75062-3933, as mortgagor ("BORROWER"), to THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, having an office at Two Ravinia Drive, Suite 1400, Atlanta, Georgia 30346, as mortgagee ("LENDER"). R E C I T A L S: A. Borrower has delivered to Lender a promissory note of even date herewith (the "NOTE") evidencing a loan to be made by Lender to Borrower in the principal amount of One Hundred Million Dollars ($100,000,000.00) (the "LOAN"). The Loan is made pursuant to that certain First Mortgage Loan Application No. 6-103-269 dated February 22, 1999 (the "APPLICATION"). B. The Note evidences a Loan requested by Borrower, and which Lender has agreed to make, on the understanding and condition that the indebtedness evidenced by the Note and all of the other obligations of Borrower under all of the Loan Documents (as hereinafter defined) are to be secured by, among other things, a portfolio of hotel properties, which includes (i) the Property (as hereinafter defined) encumbered by this Instrument, and (ii) the other properties identified in Exhibit D attached hereto (upon which Borrower is executing and delivering concurrently herewith mortgage instruments similar to this Instrument) (the Property and the other hotel properties listed in Exhibit D are collectively referred to as the "HOTEL PROPERTIES"). C. The Property is subject to the Primary Lease (as hereinafter defined), pursuant to which the Lessee holds a leasehold estate in all of the Land and Improvements and operates the Property (pursuant to the Management Agreement and License Agreement) as an "Embassy Suites Hotel" (all of the foregoing defined terms having the definitions set forth in Exhibit A attached hereto). The Lessee owns certain of the Personal Property, Leases, Rents, and other Property that is the subject of this Instrument. D. It is intended that the indebtedness evidenced by the Note and all of the other obligations of Borrower under all of the Loan Documents are not to be apportioned among any of the Hotel Properties, or any of the security of the mortgages thereon, so that each of the Hotel Properties and each and every lien, assignment and security interest thereon is intended to secure the entire amount of such indebtedness and obligations. E. The execution and delivery of this Instrument by Borrower is required by the Application as a condition to Borrower's receipt of proceeds of the Loan. 7 IN CONSIDERATION of the principal sum of the Note, and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, Borrower irrevocably agrees as follows: ARTICLE I ADDITIONAL DEFINITIONS Initially capitalized terms used in this Instrument and not otherwise defined in the body of this Instrument shall have the meanings specified in the Schedule of Defined Terms attached hereto as Exhibit A. ARTICLE II GRANT 2.1 GRANT. For valuable consideration, Borrower hereby grants, bargains, sells, assigns, transfers, pledges, mortgages, warrants, and conveys to Lender, and grants Lender a security interest in, the following property, rights, interests and estates now or hereafter owned by Borrower (collectively, the "PROPERTY"), it being expressly provided that certain of the Personal Property, Leases, Rents, and other Property described in paragraphs (e) through (j) below is presently owned or held by Lessee (collectively, the "LESSEE PERSONAL Property") pursuant to the Primary Lease, rather than Borrower: (a) All that certain real property in _______ County, _______ described in Exhibit B attached hereto (the "LAND"); (b) All buildings, structures, parking facilities and other improvements (including fixtures) now or later located in or on the Land (the "IMPROVEMENTS"); (c) All easements, estates, and real property interests including hereditaments, servitudes, appurtenances, tenements, mineral and oil/gas rights, water rights, air rights, development power or rights, options, reversion and remainder rights, and any other similar rights owned by Borrower and relating to or usable in connection with or access to the Property; (d) All right, title, and interest owned by Borrower in and to all land lying within the rights-of-way, roads, or streets, open or proposed, adjoining the Land to the center line thereof, and all sidewalks, alleys, and strips and gores of land adjacent to or used in connection with the Property; (e) All right, title, and interest of Borrower in, to, and under all plans, specifications, surveys, studies, reports, permits, licenses, agreements, contracts, instruments, books of account, insurance policies, and any other documents relating to the use, construction, occupancy, leasing, or operation of the Property; 2 8 (f) All furniture, furnishings, fixtures, inventory and equipment located on or used in connection with the Property, including the fixtures and personal property, contractual rights, rights to payment or recovery, books and records, permits and licenses, plans and manuals, funds in accounts held by or for the benefit of Borrower, and all other intangible personal property required or used in the operation of the Property and owned by Borrower, and expressly including the property described in Exhibit C and replacements thereof (collectively, the "PERSONAL PROPERTY"); (g) All of Borrower's right, title and interest in the proceeds (including conversion to cash or liquidation claims) of (i) insurance relating to the Property and (ii) all awards made for the taking by eminent domain (or by any proceeding or purchase in lieu thereof) of the Property, including awards resulting from a change of any streets (whether as to grade, access, or otherwise) and for severance damages; (h) All tax refunds, including interest thereon, tax rebates, tax credits, and tax abatements, and the right to receive the same, which may be payable or available with respect to the Property; (i) All leasehold estates, ground leases, leases, subleases, occupancy agreements, concessions, licenses, or other agreements affecting the use, enjoyment or occupancy of the Property now or later existing, including the Primary Lease and any use or occupancy arrangements created pursuant to Title 7 or 11 of the United States Code, as amended from time to time, or any similar federal or state laws now or later enacted for the relief of debtors (the "BANKRUPTCY CODE"), and all extensions and amendments thereto (collectively, the "LEASES") and all Borrower's right, title and interest under the Leases, including all guaranties thereof; and (j) All rents, deposits, issues, guest receipts, meeting facility revenue, profits, royalties, receivables, use and occupancy charges (including all oil, gas or other mineral royalties and bonuses), income and other benefits now or later derived from any portion or use of the Property (including any payments received with respect to any Tenant or the Property pursuant to the Bankruptcy Code) and all cash, security deposits, advance rentals, or similar payments relating thereto (collectively, the "RENTS") and all proceeds from the cancellation, termination, surrender, sale or other disposition of the Leases, and the right to receive and apply the Rents to the payment of the Obligations. 2.2 ASSIGNMENT OF LEASES AND RENTS. Borrower hereby absolutely and unconditionally assigns, sets over, and transfers to Lender all of Borrower's right, title, interest and estates in and to the Leases and the Rents, subject to the terms and license granted to the Borrower under that certain Assignment of Leases and Rents made by Borrower to Lender dated the same date as this Instrument (the "ASSIGNMENT OF LEASES AND RENTS"), which document shall govern and control the provisions of this assignment. 2.3 RELEASE. If Borrower shall pay and perform the Obligations as provided for in the Loan Documents and shall comply with all the provisions in the Loan Documents, the presents and the estates hereby granted pursuant to this Article II (except for the obligations of Borrower 3 9 set forth in this Instrument that expressly survive repayment of the Obligations) shall cease, terminate and be void. ARTICLE III OBLIGATIONS This Instrument is executed, acknowledged, and delivered by Borrower to secure and enforce the following obligations (collectively, the "OBLIGATIONS"): (a) Payment and performance of all covenants, obligations, agreements, indebtedness and liabilities arising under or in connection with the Note, this Instrument, each of the Other Mortgages and any other Loan Document; (b) All renewals, extensions, amendments, modifications, supplements, consolidations, restatements, and changes of, or substitutions for, all or any part of the items described in item (a) above; and (c) Payment of all sums advanced (including costs and expenses) by Lender pursuant to the Loan Documents including renewals, extensions, and amendments of the Loan Documents. ARTICLE IV REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender as follows: 4.1 TITLE, LEGAL STATUS AND AUTHORITY. Borrower (i) is seized of the Land and Improvements in fee simple and has good and marketable title to the Property (other than the Lessee Personal Property), free and clear of all liens, charges, encumbrances, and security interests, except the Permitted Encumbrances; (ii) will forever warrant and defend title to the Property and the validity, enforceability, and priority of the lien and security interest created by this Instrument against the claims of all persons; (iii) is a limited partnership duly organized, validly existing, and in good standing and qualified to transact business under the laws of its state of organization and the state where the Property is located ("PROPERTY STATE"); and (iv) has all necessary approvals, governmental and otherwise, and full power and authority to own its properties (including the Property) and carry on its business. 4.2 VALIDITY OF LOAN. The execution, delivery and performance of the Loan Documents by Borrower and the borrowing evidenced by the Note (i) are within the power of Borrower; (ii) have been authorized by all requisite action; (iii) have received all necessary approvals and consents; (iv) will not violate, conflict with, breach, or constitute (with notice or lapse of time, or both) a default under (A) any law, order or judgment of any court or governmental authority applicable to Borrower, or the governing instrument of Borrower or (B) any indenture, agreement, or other instrument to which Borrower is a party or by which Borrower or any of its property is bound or affected; (v) will not result in the creation or imposition of any 4 10 lien, charge, or encumbrance upon any of its properties or assets except for those in this Instrument and those created by the other Loan Documents; and (vi) will not require any authorization or license from, or any filing with, any governmental or other body (except for the recordation of this Instrument, the Assignment of Leases and Rents and the UCC-1 Financing Statement under the Uniform Commercial Code as enacted in the state in which the Property is located (the "UCC")). The Loan Documents executed by Borrower constitute legal, valid, and binding obligations of Borrower. 4.3 LITIGATION. There is no action, suit, or proceeding, judicial, administrative, or otherwise (including any condemnation or similar proceeding), pending or, to the best knowledge of Borrower, threatened or contemplated against, or affecting, Borrower or the Property which would have a material adverse affect on either the Property or Borrower's ability to perform the Obligations. 4.4 STATUS OF PROPERTY. (a) The Land and Improvements are not located in an area identified by the Secretary of Housing and Urban Development, or any successor, 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 has been or may be amended, or any successor law (collectively, the "FLOOD ACTS") or, if located within any such area, Borrower has and will maintain the insurance prescribed in Section 5.6(a)(iii) below. (b) Borrower or Lessee, as the case may be, has all necessary (i) certificates, licenses, and other approvals, governmental and otherwise, for the operation of the Property and the conduct of its business and (ii) zoning, building code, land use, environmental and other similar permits or approvals, all of which are currently in full force and effect and not subject to revocation, suspension, forfeiture, or modification. The Property and its use and occupancy is in full compliance with all Laws and Borrower has not received any notice of any violation or potential violation of the Laws which has not been remedied or satisfied. (c) The Property is served by all utilities (including water and sewer) required for its use. (d) All public roads and streets necessary to serve the Property for its use have been completed, are serviceable, are legally open, and have been dedicated to and accepted by the appropriate governmental entities. (e) The Property is free from damage caused by fire or other casualty. (f) All costs and expenses for labor, materials, supplies, and equipment used in the construction of the Improvements have been paid in full except for the Permitted Encumbrances. 5 11 (g) Except for property owned by (i) Lessee, (ii) tenants under the Leases, and (iii) the Manager, lessors under equipment leases or vendors under service contracts affecting the Property as more particularly described in the Certificate of Representations and Warranties, Borrower owns and has paid in full for all tangible PERSONAL Property used in connection with the operation of the Property, free of all security interests, liens, or encumbrances except the Permitted Encumbrances and those created by this Instrument. (h) The Property is assessed for real estate tax purposes as one or more wholly independent tax lot(s), separate from any adjoining land or improvements and no other land or improvements is assessed and taxed together with the Property. 4.5 TAX STATUS OF BORROWER. Borrower is not a "foreign person" within the meaning of Sections 1445 and 7701 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. FelCor REIT qualifies as a "real estate investment trust" as such term is used in the Internal Revenue Code of 1986, as amended (the "IRC"), and the regulations thereunder, and none of FelCor, Borrower or Borrower's General Partner is subject to separate taxation under the IRC. 4.6 BANKRUPTCY AND EQUIVALENT VALUE. No bankruptcy, reorganization, insolvency, liquidation, or other proceeding for the relief of debtors has been instituted by or against Borrower, the General Partner of Borrower or FelCor. Borrower has received reasonably equivalent value for granting this Instrument. 4.7 DISCLOSURE. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. There has been no adverse change in any condition, fact, circumstance, or event that would make any such information materially inaccurate, incomplete or otherwise misleading. 4.8 ILLEGAL ACTIVITY. No portion of the Property has been or will be purchased, improved, fixtured, equipped or furnished with proceeds of any illegal activity and, to the best of Borrower's knowledge, there are no illegal activities at or on the Property. 4.9 PRIMARY LEASE. The Primary Lease is in full force and effect; no default by Borrower has occurred under the Primary Lease; and there is no existing condition which, but for the passage of time or the giving of notice, would result in a default by Borrower or, to Borrower's knowledge, by Lessee under the terms of the Primary Lease. Borrower's interest in the Property is assignable to Lender without the consent of, or notice to, Lessee. ARTICLE V COVENANTS AND AGREEMENTS Borrower covenants and agrees with Lender as follows: 5.1 PAYMENT OF OBLIGATIONS. Borrower shall timely pay and perform the Obligations. 6 12 5.2 CONTINUATION OF EXISTENCE. Borrower shall not (and Lessee, by its joinder to this Instrument, agrees not to) (a) dissolve, terminate, or otherwise dispose of, directly, indirectly or by operation of law, all or substantially all of its assets; (b) reorganize or change its legal structure without Lender's prior written consent; (c) change its name, address, or the name under which it conducts its business without promptly notifying Lender; or (d) do anything to cause the representations in Section 4.2 to become untrue. 5.3 TAXES AND OTHER CHARGES. (a) PAYMENT OF ASSESSMENTS. Borrower shall (except to the extent Lessee is required to do so under the Primary Lease, in which case Borrower shall cause Lessee to) pay when due all taxes, liens, assessments, utility charges (public or private and including sewer fees), ground rents, maintenance charges, dues, fines, impositions, and public and other charges of any character (including penalties and interest) assessed against, or which could become a lien against, the Property ("ASSESSMENTS") ten (10) days prior to the date any fine, penalty, interest or charge for nonpayment may be imposed. Unless Borrower is making deposits per Section 5.10, Borrower shall provide Lender with receipts evidencing such payments (except for income taxes, franchise taxes, ground rents, maintenance charges, and utility charges) within thirty (30) days after their due date. Lender may retain at its sole cost and expense a firm to monitor payment of Assessments by Borrower or Lessee. (b) RIGHT TO CONTEST. So long as no Event of Default (defined below) is continuing, Borrower or Lessee (if permitted under the Primary Lease) may, prior to delinquency and at its sole expense, contest any Assessment, but this shall not change or extend Borrower's obligation to pay the Assessment as required above unless (i) Borrower or Lessee, as the case may be, gives Lender prior written notice of its intent to contest an Assessment; (ii) Borrower or Lessee, as the case may be, demonstrates to Lender's reasonable satisfaction that (A) the Property will not be sold to satisfy the Assessment prior to the final determination of the legal proceedings, (B) Borrower or Lessee, as the case may be, has taken such actions as are required or permitted to accomplish a stay of any such sale, or (C) Borrower or Lessee, as the case may be, has furnished a bond or surety (satisfactory to Lender in form and amount) sufficient to prevent a sale of the Property; (iii) at Lender's option, Borrower or Lessee, as the case may be, has deposited the full amount necessary to pay any unpaid portion of the Assessments with Lender; and (iv) such proceeding shall be permitted under any other instrument to which Borrower, Lessee or the Property is subject (whether superior or inferior to this Instrument); provided, however, that the foregoing shall not apply to the contesting of any income taxes, franchise taxes, ground rents, maintenance charges, and utility charges. (c) DOCUMENTARY STAMPS AND OTHER CHARGES. Borrower shall pay all taxes, assessments, charges, expenses, costs and fees (including registration and recording fees and revenue, mortgage, transfer, stamp, intangible, indebtedness and any similar taxes) (collectively, the "TRANSACTION TAXES") required in connection with the making and/or recording of the Loan Documents. If Borrower fails to pay the Transaction Taxes after demand, Lender may (but is not obligated to) pay these and Borrower shall reimburse 7 13 Lender on demand for any amount so paid with interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws. (d) CHANGES IN LAWS REGARDING TAXATION. If any law (i) taxes mortgages or debts secured by mortgages for federal, state or local purposes or changes the manner of the collection of any such existing taxes, and/or (ii) imposes a tax, either directly or indirectly, on any of the Loan Documents or the Obligations, Borrower shall, if permitted by law, pay such tax within the statutory period or within twenty (20) days after demand by Lender, whichever is less; provided, however, that if, in the opinion of Lender, Borrower is not permitted by law to pay such taxes, Lender shall have the option to declare the Obligations immediately due and payable (without any Prepayment Premium) upon sixty (60) days' notice to Borrower. 5.4 DEFENSE OF TITLE, LITIGATION, AND RIGHTS UNDER LOAN DOCUMENTS. Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) forever warrant, defend and preserve title to the Property, the validity, enforceability and priority of this Instrument and the lien or security interest created thereby, and any rights of Lender under the Loan Documents against the claims of all persons, and shall promptly notify Lender of any such claims. If at any time in Lender's good faith judgment it believes it necessary in order to protect its interests hereunder, Lender (whether or not named as a party to such proceedings) is authorized and empowered (but shall not be obligated) to take such additional steps as it may deem necessary or proper for the defense of any such proceeding or the protection of the lien, security interest, validity, enforceability, or priority of this Instrument, title to the Property, or any rights of Lender under the Loan Documents, including the employment of counsel, the prosecution and/or defense of litigation, the compromise, release, or discharge of such adverse claims, the purchase of any tax title, the removal of such any liens and security interests, and any other actions Lender deems necessary to protect its interests. Borrower hereby (and Lessee, by its joinder to this Instrument, thereby) authorizes Lender to take any actions required to be taken by Borrower or Lessee which Lender so determines in good faith to be necessary to protect its interests hereunder, or permitted to be taken by Lender, in the Loan Documents in the name and on behalf of Borrower or Lessee. Borrower shall reimburse Lender on demand for all expenses (including attorneys' fees) incurred by it in connection with the foregoing and Lender's exercise of its rights under the Loan Documents. All such expenses of Lender, until reimbursed by Borrower, shall be part of the Obligations, bear interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, and shall be secured by this Instrument. 5.5 OPERATION AND MAINTENANCE OF PROPERTY. (a) REPAIR AND MAINTENANCE. Borrower will (and Lessee, by its joinder to this Instrument, agrees to) (i) operate and maintain the Property in good order, repair, and operating condition, (ii) promptly make all necessary repairs, replacements, additions, and improvements necessary to ensure that the Property shall not in any way be diminished or impaired, (iii) not cause or allow any of the Property to be misused, wasted, or to deteriorate and Borrower will not abandon the Property. No new building, structure, or other improvement shall be constructed on the Land nor shall any material part of the 8 14 Improvements be removed, demolished, or structurally or materially altered, without Lender's prior written consent. (b) REPLACEMENT OF PROPERTY. Borrower (and Lessee, by its joinder to this Instrument, agrees to) (i) keep the Property fully equipped and will replace all worn out or obsolete Property with new fixtures or Property of comparable quality and function, (ii) not, without Lender's prior written consent, dispose of, pledge, convey or assign any Personal Property (other than sales of items normally held for sale in the ordinary course of business), unless the same is replaced by Borrower or Lessee with a new, comparable article (A) owned by Borrower or Lessee free and clear of any lien or security interest (other than the Permitted Encumbrances and those created by this Instrument) or (B) leased by Borrower or Lessee (x) with Lender's prior written consent or (y) if the replaced Property was leased at the time of execution of this Instrument. Notwithstanding anything to the contrary contained herein, provided no Event of Default exists, Borrower or Lessee may enter into leases for items of tangible Personal Property to be used at the Property, provided that (i) the aggregate value of such Personal Property leased under all such leases (as reflected in such leases and as the same reduces from time to time as the result of payments made under such leases) does not exceed $350,000.00 at any time, and (ii) Borrower or Lessee, as the case may be, shall deliver to Lender an agreement substantially in the form of Exhibit E attached hereto fully executed by each lessor thereunder. (c) COMPLIANCE WITH LAWS. Borrower, Lessee and the Property shall be maintained, used, and operated in compliance with all of the following: (i) present and future laws, Environmental Laws, ordinances, regulations, and requirements (including zoning and building codes) of any governmental or quasi-governmental authority or agency applicable to Borrower or the Property (collectively, the "LAWS"); (ii) orders, rules, and regulations of any regulatory, licensing, accrediting, insurance underwriting or rating organization, or other body exercising similar functions; (iii) duties or obligations of any kind imposed under any Permitted Encumbrance or by law, covenant, condition, agreement, or easement, public or private; and (iv) policies of insurance at any time in force with respect to the Property. If proceedings are initiated or Borrower receives notice that it, Lessee or the Property is not in compliance with any of the foregoing, Borrower will promptly send Lender notice and a copy of the proceeding or violation notice. If the Property is not in compliance with all Laws, Lender may impose additional requirements upon Borrower including monetary reserves or financial equivalents. (d) ZONING AND TITLE MATTERS. Borrower shall not (and Lessee, by its joinder to this Instrument, agrees not to), without Lender's prior written consent, (i) initiate or support any zoning reclassification of the Property or variance under existing zoning ordinances; (ii) modify or supplement any of the Permitted Encumbrances; (iii) impose any restrictive covenants or encumbrances upon the Property; (iv) execute or file any subdivision plat affecting the Property; (v) consent to the annexation of the Property to any municipality; (vi) permit the Property to be used by the public or any person in a way that might make a claim of adverse possession or any implied dedication or easement possible; (vii) cause or permit the Property to become a non-conforming use under zoning 9 15 ordinances or any present or future non-conforming use of the Property to be discontinued; or (viii) fail to comply with the terms of the Permitted Encumbrances. 5.6 INSURANCE. (a) CASUALTY INSURANCE. Borrower shall keep the Property insured for the benefit of Lender (i) by an "All Risk of Physical Loss" policy or the broadest form of extended coverage endorsement in an amount sufficient to prevent Lender from ever becoming a co-insurer under the policy or Laws, but in no event less than the lesser of (A) the Obligations or (B) the Full Insurable Value of the Property, subject to verification by Lender and with a deductible not to exceed Twenty-Five Thousand Dollars ($25,000.00); (ii) by rent, business interruption, and/or use and occupancy insurance in an amount equal to one (1) year's total income from the Property including all Rent and other income; (iii) against damage by flood if the Property is located in an area identified by the Secretary of Housing and Urban Development, or any successor, as an area having special flood hazards and in which flood insurance has been made available under the Flood Acts in an amount equal to the lesser of (1) the original amount of the Note or (2) the maximum limit of coverage available for the Property under the Flood Acts; (iv) against damage or loss from (1) sprinkler system leakage and (2) boilers, boiler tanks, heating and air-conditioning equipment, pressure vessels, auxiliary piping, and similar apparatus, in the amount required by Lender; and (v) during the period of any construction, repair, restoration, or replacement of the Property, by a standard builder's risk policy with extended coverage in an amount at least equal to the Full Insurable Value of such Property, and worker's compensation, in statutory amounts. (b) LIABILITY AND OTHER INSURANCE. Borrower or Lessee (to the extent Lessee is required to maintain such type of insurance pursuant to the Primary Lease) Lessee shall maintain comprehensive general liability insurance on an occurrence basis covering Borrower, Lessee, and Lender, as an additional insured, against claims for bodily injury or death or property damage occurring in, upon, or about the Property or any street, drive, sidewalk, curb, or passageway adjacent thereto, in the amount of $1,000,000.00 combined single limit per occurrence primary coverage, with umbrella/excess coverage of not less than $10,000,000.00, which insurance shall include operations and blanket contractual liability coverage which insures contractual liability under the indemnifications set forth in Article X below (but such coverage or the amount thereof shall in no way limit such indemnifications). Upon request by Lender, Borrower or (to the extent Lessee is required to maintain such type of insurance pursuant to the Primary Lease) Lessee shall maintain insurance or carry additional amounts of insurance covering Borrower or the Property as Lender shall reasonably require including against war risks. (c) FORM OF POLICY. All insurance required under this Section shall be fully paid for, non-assessable, and the policies shall contain such provisions, endorsements, and expiration dates as Lender shall reasonably require. The policies shall be issued by 10 16 insurance companies authorized to do business in the Property State, approved by Lender, and having (i) an investment grade rating or claims paying ability assigned by one or more credit rating agencies approved by Lender (a "RATING AGENCY") and (ii) a general policy rating of B+ XII or better by A.M. Best Company, Inc. (or if a rating of A.M. Best Company, Inc. is no longer available, a similar rating from a similar or successor service). In addition, all policies shall (x) include a standard mortgagee clause, without contribution, in the name of Lender and (y) provide that they shall not be canceled, amended, or materially altered (including reduction in the scope or limits of coverage) without at least thirty (30) days' prior notice to Lender. (d) ORIGINAL POLICIES. Borrower or Lessee, as the case may be, shall deliver to Lender (i) duplicate original or certified copies of all policies (and renewals) required under this Section and (ii) receipts evidencing payment of all premiums on such policies at least thirty (30) days prior to their expiration. If original and renewal policies are unavailable or if coverage is under a blanket policy, Borrower or Lessee, as the case may be, shall deliver duplicate originals, or, if unavailable, original certificates evidencing that such policies are in full force and effect together with certified copies of the original policies. (e) GENERAL PROVISIONS. Borrower or Lessee, as the case may be, shall not carry separate or additional insurance concurrent in form or contributing in the event of loss with that required under this Section unless endorsed in favor of Lender as per this Section and approved by Lender in all respects. In the event of foreclosure of this Instrument or other transfer of title or assignment of the Property in extinguishment, in whole or in part, of the Obligations, all right, title, and interest of Borrower or Lessee, as the case may be, in and to all policies of insurance then in force regarding the Property and all proceeds payable thereunder and unearned premiums thereon shall immediately vest in the purchaser or other transferee of the Property. No approval by Lender of any insurer shall be construed to be a representation, certification, or warranty of its solvency. No approval by Lender as to the amount, type, or form of any insurance shall be construed to be a representation, certification, or warranty of its sufficiency. Borrower and Lessee shall comply with all insurance requirements and shall not cause or permit any condition to exist which would be prohibited by an insurance requirement or would invalidate the insurance coverage on the Property. 5.7 DAMAGE AND DESTRUCTION OF PROPERTY. (a) BORROWER'S OBLIGATIONS. If any damage to, loss, or destruction of the Property occurs (any "DAMAGE"), (i) Borrower shall promptly notify Lender and take all necessary steps to preserve any undamaged part of the Property and (ii) if the insurance proceeds are made available for Restoration (but regardless of whether any proceeds are sufficient for Restoration), Borrower shall promptly commence and diligently pursue to completion (and Lessee, by its joinder to this Instrument, agrees to cooperate and/or participate in, as necessary) the restoration, replacement, and rebuilding of the Property as nearly as possible to its value and condition immediately prior to the Damage or a Taking (defined below) in accordance with plans and specifications approved by Lender 11 17 ("RESTORATION"). Borrower shall comply with other reasonable requirements established by Lender to preserve the security under this Instrument. (b) LENDER'S RIGHTS. If any Damage occurs and some or all of it is covered by insurance, then (i) Lender may, but is not obligated to, make proof of loss if not made promptly by Borrower, and Lender is authorized and empowered by Borrower to settle, adjust, or compromise any claims for the Damage if not promptly settled by Borrower (with the prior, written consent of Lender, which consent shall not be unreasonably withheld) or at any time if an Event of Default shall have occurred; (ii) each insurance company concerned is authorized and directed to make payment directly to Lender for the Damage; and (iii) Lender may apply the insurance proceeds in any order it determines (1) to reimburse Lender for all Costs (defined below) related to collection of the proceeds and (2) subject to Section 5.7(c) and at Lender's option, to (A) payment (without any Prepayment Premium) of all or part of the Obligations, whether or not then due and payable, in the order determined by Lender (provided that if any Obligations remain outstanding after this payment, the unpaid Obligations shall continue in full force and effect and Borrower shall not be excused in the payment thereof); (B) the cure of any default under the Loan Documents; or (C) the Restoration. Any insurance proceeds held by Lender shall be held without the payment of interest thereon. If Borrower receives any insurance proceeds for the Damage, Borrower shall promptly deliver the proceeds to Lender. Notwithstanding anything in this Instrument or at law or in equity to the contrary, none of the insurance proceeds paid to Lender shall be deemed trust funds and Lender may dispose of these proceeds as provided in this Section. Borrower expressly assumes all risk of loss from any Damage, whether or not insurable or insured against. (c) APPLICATION OF PROCEEDS TO RESTORATION. Lender shall make the Net Proceeds (defined below) available to Borrower for Restoration if: (i) there shall then be no Event of Default; (ii) Lender shall be satisfied that (A) Restoration can and will be completed within one (1) year after the Damage occurs and at least one (1) year prior to the maturity of the Note, (B) each of the Primary Lease, the Management Agreement and the License Agreement (or replacements thereof entered into in accordance with the terms of Section 8 of the Loan Agreement) shall remain in full force and effect during and after the Restoration, and (C) the tenants under the Major Leases agree in writing to continue their Leases, or Borrower or Lessee shall have entered into replacement Leases acceptable in all respects to Lender for the premises demised under the Major Leases; (iii) Borrower shall have entered into a general construction contract acceptable in all respects to Lender for Restoration, which contract must include provision for retainage of not less than ten percent (10%) until final completion of the Restoration; and (iv) in Lender's reasonable judgment, after Restoration has been completed the net cash flow of the Property will be sufficient to cover all costs and operating expenses of the Property, including payments due and reserves required under the Loan Documents. Notwithstanding any provision of this Instrument to the contrary, Lender shall not be obligated to make any portion of the Net Proceeds available for Restoration unless, at the time of the disbursement request, Lender has determined in its reasonable discretion that (y) Restoration can be completed at a cost which does not exceed the aggregate of the remaining Net Proceeds and any funds deposited with Lender by Borrower ("ADDITIONAL FUNDS") and (z) the aggregate of 12 18 any loss of rental income insurance proceeds which the carrier has acknowledged to be payable ("RENT LOSS PROCEEDS") and any funds deposited with Lender by Borrower are sufficient to cover all costs and operating expenses of the Property, including payments due and reserves required under the Loan Documents. (d) DISBURSEMENT OF PROCEEDS. If Lender elects or is required to make insurance proceeds available for Restoration, Lender shall, through a disbursement procedure established by Lender, periodically make available to Borrower in installments the net amount of all insurance proceeds received by Lender after deduction of all reasonable costs and expenses incurred by Lender in connection with the collection and disbursement of such proceeds ("NET PROCEEDS") and, if any, the Additional Funds. The amounts periodically disbursed to Borrower shall be based upon the amounts currently due under the construction contract for Restoration and Lender's receipt of (i) appropriate lien waivers, (ii) a certification of the percentage of Restoration completed by an architect or engineer acceptable to Lender, and (iii) title insurance or similar indemnification reasonably acceptable to Lender against materialmen's and mechanic's liens. At Lender's election, the disbursement of funds may be handled by a disbursing agent selected by Lender, and such agent's reasonable fees and expenses shall be paid by Borrower. The Net Proceeds, Rent Loss Proceeds, and any Additional Funds shall constitute additional security for the Loan and Borrower shall execute, deliver, file and/or record, at its expense, such instruments as Lender requires to grant to Lender a perfected, first-priority security interest in these funds. If the Net Proceeds are made available for Restoration and (x) Borrower refuses or fails to complete the Restoration, (y) an Event of Default occurs, or (z) the Net Proceeds or Additional Funds are not applied to Restoration, then any undisbursed portion may, at Lender's option, be applied to the Obligations in any order of priority, and any application to principal shall be deemed a voluntary prepayment subject to the Prepayment Premium. 5.8 CONDEMNATION. (a) BORROWER'S OBLIGATIONS. Borrower will promptly notify Lender of any threatened or instituted proceedings for the condemnation or taking by eminent domain of the Property including any change in any street (whether as to grade, access, or otherwise) (a "TAKING"). Borrower shall, at its expense, (i) diligently prosecute these proceedings, (ii) deliver to Lender copies of all papers served in connection therewith, and (iii) consult and cooperate with Lender in the handling of these proceedings. No settlement of these proceedings shall be made by Borrower or Lessee without Lender's prior written consent. Lender may participate in these proceedings (but shall not be obligated to do so) and Borrower will sign and deliver (and cause Lessee to sign and deliver) all instruments requested by Lender to permit this participation. (b) LENDER'S RIGHTS TO PROCEEDS. All condemnation awards, judgments, decrees, or proceeds of sale in lieu of condemnation ("AWARD") are assigned and shall be paid to Lender. Borrower authorizes Lender to collect and receive them, to give receipts for them, to accept them in the amount received without question or appeal, and/or to 13 19 appeal any judgment, decree, or award. Borrower will sign and deliver all instruments requested by Lender to permit these actions. (c) APPLICATION OF AWARD. Lender shall have the right to apply any Award, subject to Section 5.8(d), as per Section 5.7 for insurance proceeds held by Lender, including the waiver of Prepayment Premium. If Borrower receives any Award, Borrower shall promptly deliver them to Lender. Notwithstanding anything in this Instrument or at law or in equity to the contrary, none of the Award paid to Lender shall be deemed trust funds and Lender may dispose of these proceeds as provided in this Section. (d) APPLICATION OF AWARD TO RESTORATION. With respect to any portion of the Award that is not for loss of value of property, Lender shall permit the application of the Award to Restoration in accordance with the provisions of Section 5.7 if: (i) no more than (A) twenty (20%) of the gross area of the Improvements are affected by the Taking, (ii) no portion of the Improvements that are critical for the operation of the Property as a full service hotel are affected by the Taking, (iii) no more than ten percent (10%) of the parking spaces are affected by the Taking, (iv) the amount of the loss does not exceed twenty percent (20%) of the original amount of the Note; (v) the Taking does not materially and adversely affect access to the Property from any public right-of-way; (vi) there is no Event of Default at the time of application; (vii) after Restoration, the Property and its use will be in compliance with all Laws; (viii) in Lender's reasonable judgment, Restoration is practical and can be completed within one (1) year after the Taking and at least one (1) year prior to the maturity of the Note; and (ix) each of the Primary Lease, the Management Agreement and the License Agreement (or replacements thereof entered into in accordance with the terms of Section 8 of the Loan Agreement) shall remain in full force and effect during and after the Restoration; (ix) the tenants under the Major Leases agree in writing to continue their Leases, or Borrower or Lessee shall have entered into replacement Leases acceptable in all respects to Lender for the premises demised under the Major Leases; (x) Borrower shall have entered into a general construction contract acceptable in all respects to Lender for Restoration, which contract must include provision for retainage of not less than ten percent (10%) until final completion of the Restoration; and (xi) in Lender's reasonable judgment, after Restoration has been completed the net cash flow of the Property will be sufficient to cover all costs and operating expenses of the Property, including payments due and reserves required under the Loan Documents. Any portion of the Award that is (i) for loss of value or property or (ii) in excess of the cost of any Restoration permitted above may, in Lender's sole discretion, be applied against the Obligations (without any Prepayment Premium) or paid to Borrower. (e) EFFECT ON THE OBLIGATIONS. Notwithstanding any Taking, Borrower shall continue to pay and perform the Obligations as provided in the Loan Documents. Any reduction in the Obligations due to application of the Award shall take effect only upon Lender's actual receipt and application of the Award to the Obligations. If the Property shall have been foreclosed, sold pursuant to any power of sale granted hereunder, or transferred by deed-in-lieu of foreclosure prior to Lender's actual receipt of the Award, Lender may apply the Award received to the extent of any deficiency upon such sale and Costs incurred by Lender in connection with such sale. 14 20 5.9 LIENS AND LIABILITIES. Borrower shall pay, bond, or otherwise discharge all claims and demands of mechanics, materialman, laborers, and others which, if unpaid, might result in a lien or encumbrance on the Property or the Rents (collectively, "LIENS") and Borrower shall, at its sole expense, do everything necessary to preserve the lien and security interest created by this Instrument and its priority. As to such Liens for which the Lessee is responsible under the Primary Lease, Lessee (by its joinder to this Instrument) agrees to comply with the foregoing provisions with respect to such Liens. Nothing in the Loan Documents shall be deemed or construed as constituting the consent or request by Lender, express or implied, to any contractor, subcontractor, laborer, mechanic or materialman for the performance of any labor or the furnishing of any material for any improvement, construction, alteration, or repair of the Property. Borrower (and Lessee, by its joinder to this Instrument) further agrees that Lender does not stand in any fiduciary relationship to Borrower or Lessee. Any contributions made, directly or indirectly, to Borrower or Lessee by or on behalf of any of its partners, members, principals or any party related to such parties shall be treated as equity and shall be subordinate and inferior to the rights of Lender under the Loan Documents. 5.10 TAX AND INSURANCE DEPOSITS. At Lender's option, at any time after (a) an Event of Default has occurred, or (b) the aggregate Debt Service Coverage Ratio for the Hotel Properties for the immediately preceding twelve (12) month period shall be less than 1.50, Borrower shall make monthly deposits ("DEPOSITS") with Lender equal to one-twelfth (1/12) of the annual Assessments (except for income taxes, franchise taxes, ground rents, maintenance charges and utility charges) and the premiums for insurance required under Section 5.6 (the "INSURANCE PREMIUMS") together with amounts sufficient to pay these items thirty (30) days before they are due (collectively, the "IMPOSITIONS"). Lender shall estimate the amount of the Deposits until ascertainable. At that time, Borrower shall promptly deposit any deficiency. Borrower shall promptly notify Lender of any changes to the amounts, schedules and instructions for payment of the Impositions. Borrower authorizes Lender or its agent to obtain copies of the bills for Assessments directly from the appropriate tax or governmental authority. All Deposits are pledged to Lender and shall constitute additional security for the Obligations. The Deposits shall be held by Lender without interest (except to the extent required under Laws) and may be commingled with other funds. If (i) there is no Event of Default at the time of payment, (ii) Borrower has delivered bills or invoices to Lender for the Impositions in sufficient time to pay them when due, (iii) the Deposits are sufficient to pay the Impositions or Borrower has deposited the necessary additional amount, then Lender shall pay the Impositions prior to their due date. Any Deposits remaining after payment of the Impositions shall, at Lender's option, be credited against the Deposits required for the following year or paid to Borrower. If an Event of Default occurs, the Deposits may, at Lender's option, be applied to the Obligations in any order of priority, and any application to principal following an Event of Default shall be deemed a voluntary prepayment subject to the Prepayment Premium. Borrower shall not claim any credit against the principal and interest due under the Note for the Deposits unless and until such Deposits are applied by Lender towards the Obligations. Upon an assignment or other transfer of this Instrument, Lender may pay over the Deposits in its possession to the assignee or transferee and then it shall be completely released from all liability with respect to the Deposits. Borrower shall look solely to the assignee or transferee with respect thereto. This provision shall apply to every transfer of the Deposits to a new assignee or transferee. Subject to Article VII, a transfer 15 21 of title to the Land shall automatically transfer to the new owner the beneficial interest in the Deposits. Upon full payment and satisfaction of this Instrument or, at Lender's option, at any prior time, the balance of the Deposits in Lender's possession shall be paid over to the record owner of the Land and no other party shall have any right or claim to the Deposits. Lender may transfer all its duties under this Section to such service or financial institution as Lender may periodically designate and Borrower agrees to make the Deposits to such service or institution. Notwithstanding the foregoing, so long as no Event of Default has occurred, if the Debt Service Coverage Ratio for the Hotel Properties for the immediately preceding twelve (12) month period increases to 2.00 or more at any time subsequent to Lender's requirement that Deposits be made, the requirement for future Deposits shall terminate and all Deposits held by Lender shall be released to Borrower, subject to Lender's right to require further Deposits if at any time thereafter the Debt Service Coverage Ratio shall again be less than 1.50. 5.11 ERISA. Borrower represents and warrants to Lender that (i) Borrower is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or a "governmental plan" within the meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; (iii) the assets of the Borrower do not constitute "plan assets" of one or more plans within the meaning of 29 C.F.R. Section 2510.3-10 1; and (iv) one or more of the following circumstances is true as to Borrower: (1) equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) less than twenty-five percent (25%) of all 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 (3) 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). Borrower shall deliver to Lender such certifications and/or other evidence periodically requested by Lender, in its sole discretion, to verify these representations and warranties. Failure to deliver these certifications or evidence, breach of these representations and warranties, or consummation of any transaction which would cause this Instrument or any exercise of Lender's rights under this Instrument to (i) constitute a non-exempt prohibited transaction under ERISA or (ii) violate ERISA or any state statute regulating governmental plans (collectively, a "VIOLATION"), shall be an Event of Default. Notwithstanding anything in the Loan Documents to the contrary, no sale, assignment, or transfer of any direct or indirect right, title, or interest in Borrower or the Property (including creation of a junior lien, encumbrance or leasehold interest) shall be permitted which would, in Lender's opinion, negate the representations in this Section or cause a Violation. At least fifteen (15) days before consummation of any of the foregoing, Borrower shall obtain from the proposed transferee or lienholder (i) a certification to Lender that the representations and warranties of this Section will be true after consummation and (ii) an agreement to comply with this Section. 5.12 ENVIRONMENTAL REPRESENTATIONS, WARRANTIES, AND COVENANTS. (a) ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants, to the best of Borrower's knowledge (after due inquiry and investigation) and additionally based upon the environmental site assessment report of the Property delivered to and approved by Lender in connection with the Loan (the "ENVIRONMENTAL REPORT"), that except as fully disclosed in the Environmental Report: (i) there are no 16 22 Hazardous Materials (defined below) or underground storage tanks affecting the Property ("affecting the Property" shall mean "in, on, under, stored, used or migrating to or from the Property") except for (A) routine office, cleaning, janitorial and other materials and supplies necessary to operate the Property for its current use and (B) Hazardous Materials that are (1) in compliance with Environmental Laws, (2) have all required permits, and (3) are in only the amounts necessary to operate the Property; (ii) there are no past, present or threatened Releases of Hazardous Materials in violation of any Environmental Law affecting the Property; (iii) there is no past or present non-compliance with Environmental Laws or with permits issued pursuant thereto; (iv) Borrower does not know of, and has not received, any written or oral notice or communication from any person relating to Hazardous Materials affecting the Property; and (v) Borrower has provided to Lender, in writing, all information relating to environmental conditions affecting the Property known to Borrower or contained in Borrower's files. (b) ENVIRONMENTAL COVENANTS. Borrower covenants and agrees that (and Lessee, by its joinder to this Instrument, covenants and agrees that): (i) all use and operation of the Property shall be in compliance with all Environmental Laws and required permits; (ii) there shall be no Releases of Hazardous Materials affecting the Property except in compliance with Environmental Laws; (iii) there shall be no Hazardous Materials affecting the Property except (A) routine office, cleaning and janitorial supplies, (B) in compliance with all Environmental Laws, (C) in compliance with all required permits, and (D)(1) in only the amounts necessary to operate the Property or (2) fully disclosed to and approved by Lender in writing; (iv) Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) keep the Property free and clear of all liens and encumbrances imposed by any Environmental Laws (the "ENVIRONMENTAL LIENS"); (v) Borrower shall (and Lessee, by its joinder to this Instrument, agrees to), at its sole expense, fully and expeditiously cooperate in all activities in Section 5.12(c) including providing all relevant information and making knowledgeable persons available for interviews; (vi) Borrower shall (and Lessee, by its joinder to this Instrument, agrees to), at its sole expense, (A) perform any environmental site assessment or other investigation of environmental conditions at the Property upon Lender's request based on Lender's reasonable belief that the Property is not in compliance with all Environmental Laws, (B) share with Lender the results and reports and Lender and the Indemnified Parties (defined below) shall be entitled to rely on such results and reports, and (C) complete any remediation of Hazardous Materials affecting the Property or other actions required by any Environmental Laws; (vii) Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) prevent any Tenant, the Manager or other user of the Property from violating any Environmental Law; and (viii) Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) immediately notify Lender in writing after it becomes aware of (A) the presence, Release, or threatened Release of Hazardous Materials affecting the Property that might violate any Environmental Laws, (B) any non-compliance of the Property with any Environmental Laws, (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 communication or notice from any person relating to 17 23 Hazardous Materials. Any failure of Borrower or Lessee to perform its obligations under this Section 5.12 shall constitute waste of the Property. (c) LENDER'S RIGHTS. After reasonable prior notice to Borrower, Lender and any person designated by Lender may enter the Property to assess the environmental condition of the Property and its use including (i) conducting any environmental assessment or audit (the scope of which shall be determined in good faith by Lender) and (ii) taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing at all reasonable times when (A) a default has occurred under the Loan Documents, (B) Lender reasonably believes that a Release that might violate any Environmental Laws has occurred or the Property is not in compliance with all Environmental Laws, or (C) the Loan is being considered for sale. Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) cooperate with and provide access to Lender and such person. 5.13 ELECTRONIC PAYMENTS. Prior to the occurrence of an Event of Default, Borrower shall make payments due under the Loan Documents by wire transfer to an account specified by Lender from time to time. Following an Event of Default, all payments due under the Loan Documents shall be made by electronic funds transfer from a bank account established and maintained by Borrower for this purpose with a depository satisfactory to Lender in its good faith judgment. Lender hereby approves NationsBank and Chase Manhattan Bank as depositories that may act in this capacity. Borrower shall direct the depository to transmit such payments on or before their respective due dates to an account designated in writing by Lender. Lender shall have the right to require Borrower to select a different depository after thirty (30) days' prior notice. All costs of (i) establishing and maintaining such account and (ii) the electronic funds transfers shall be paid by Borrower. 5.14 INSPECTION. Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) allow Lender and any person designated by Lender to enter upon the Property and conduct tests or inspect the Property at all reasonable times. Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) assist Lender and such person in effecting said inspection. 5.15 RECORDS, REPORTS, AND AUDITS. (a) RECORDS AND REPORTS. Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) maintain, in accordance with generally-accepted accounting principles ("GAAP"), complete and accurate books and records with respect to all operations of or transactions involving the Property. Annually, Borrower shall furnish Lender financial statements for the most current fiscal year (including a schedule of all related Obligations and contingent liabilities) for (i) Borrower, (ii) the General Partner of Borrower, (iii) FelCor, (iv) the FelCor REIT, and (v) Lessee. On an annual basis, Borrower shall furnish Lender operating statements for the Property including income and expenses (before and after Obligations service), certified by an authorized senior financial officer of Borrower. Annually, Borrower shall furnish Lender (i) copies of paid tax receipts for the Property; (ii) a certified rent roll including security deposits held, the expiration of the terms of the Leases, and identification and explanation of any Tenants in 18 24 default; (iii) a budget showing projected income and expenses (before and after Obligations service) for the next twelve (12) month budget period; (iv) a budget showing projected expenditures for FF&E and other capital items for the next twelve (12) month budget period; and (v) upon Lender's request, (A) evidence of the continuity of FelCor REIT's status as a real estate investment trust and the continued exemption from taxation under the IRC of each of FelCor, Borrower and Borrower's General Partner, (B) the distribution of economic interests in the Property, and (C) copies of any other loan documents affecting the Property. (b) INSPECTION OF REPORTS. All of the reports, statements, and items required under this Section shall be (i) prepared in accordance with GAAP and REASONABLY satisfactory to Lender in form and substance; and (ii) delivered within ninety (90) days after the end of Borrower's fiscal year. The financial statements for Borrower and the General Partner of Borrower shall be certified as being true, correct and accurate by an authorized senior financial official of Borrower. The financial statements for FelCor, the FelCor REIT and Lessee shall be audited by a "Big-Five" accounting firm (or their successors). If any one report, statement, or item is not received by Lender on its due date, a late fee of Five Hundred and No/100 Dollars ($500.00) per month shall be due and payable by Borrower. If any one report, statement, or item is not received within thirty (30) days after written notice from Lender, Lender may immediately declare an Event of Default under the Loan Documents. Borrower shall (i) provide Lender with such additional financial, management, or other information regarding Borrower, the General Partner of Borrower, FelCor, the FelCor REIT or the Property, as Lender may reasonably request and (ii) upon Lender's request, deliver all items required by Section 5.15 in an electronic format (i.e., on computer disks) or by electronic transmission in the form prepared by or for Borrower or the FelCor REIT and in an electronic format accessible to Lender. By its joinder to this Instrument, Lessee agrees to provide Lender with such additional financial management, or other information regarding Lessee or the Property as Lender may reasonably request, in a form and manner that complies with the provisions of this Section. (c) INSPECTION OF RECORDS. Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) allow Lender or any person designated by Lender to examine, audit, and make copies of all such books and records and all supporting data at the place where these items are located at all reasonable times after reasonable advance notice; provided that no notice shall be required after any Event of Default under the Loan Documents. Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) assist Lender in effecting such examination. 5.16 BORROWER'S CERTIFICATES. Within ten (10) days after Lender's request, Borrower shall furnish a written certification to Lender and any Investors as to (a) the amount of the Obligations outstanding; (b) the interest rate, terms of payment, and maturity date of the Note; (c) the date to which payments have been paid under the Note; (d) whether any offsets or defenses are known by Borrower to exist against the Obligations and a detailed description of any listed; (e) whether the Primary Lease, the Management Agreement and/or the License Agreement are in full force and effect and have not been modified (or if modified, setting forth all modifications); (f) 19 25 the date to which the Rents under the Primary Lease have been paid; (g) whether, to the best knowledge of Borrower, any defaults exist under the Primary Lease, the Management Agreement and/or the License Agreement and a detailed description of any listed; (h) whether there are any defaults (or events which with the passage of time and/or notice would constitute a default) under the Loan Documents which are known by Borrower and a detailed description of any listed; (i) whether the Loan Documents are in full force and effect; and (j) any other matters reasonably requested by Lender related to the Primary Lease, the Management Agreement, the License Agreement, the Obligations, the Property, or the Loan Documents. 5.17 FULL PERFORMANCE REQUIRED; SURVIVAL OF WARRANTIES. All representations and warranties of Borrower in the Application or made in writing in connection with the Loan shall survive the execution and delivery of the Loan Documents and shall remain continuing warranties, and representations of Borrower. 5.18 LEASING RESTRICTIONS. Neither Borrower nor Lessee shall, without the prior, written consent of Lender, (i) amend or modify the Primary Lease or any other Lease, (ii) extend or renew the Primary Lease or any other Lease (except in accordance with the existing Lease provisions, if any, or in the case of the Primary Lease, the provisions of Section 8 of the Loan Agreement), (iii) terminate or accept the surrender of the Primary Lease or any other Lease (other than a termination of a Primary Lease on account of a material default by Lessee where Borrower timely cures any resulting default under the Loan Documents and enters into a replacement lease in accordance with the provisions of Section 8 of the Loan Agreement), (iv) enter into any new Primary Lease (other than in accordance with Section 8 of the Loan Agreement) or any other Lease, (v) grant any consent or approval required under the Primary Lease or any other Lease that is inconsistent with the terms of the Loan Documents, or (vi) accept any prepayment of rent, termination fee, or any similar payment under any Lease; provided, however, that so long as the aggregate Debt Service Coverage Ratio for all Hotel Properties is at least 1.50, the following provisions shall apply with respect to Leases of restaurant, gift shop, and other commercial spaces and Leases of rooftop space for antennas, relay stations, or other customary purposes: (a) Without Lender's consent or approval, Borrower or Lessee may enter into new Leases on an arms-length basis, with tenants or subtenants whose businesses and operations are consistent with the class and character of the Property, as determined by Borrower or Lessee in its reasonable judgment, provided each such Lease shall meet the following requirements: (i) such Lease shall provide for payment of rent and all other amounts as Borrower or Lessee shall determine, in the exercise of its reasonable judgment, to be in the best interest of the Property taken as a whole (taking into account the type and quality of the tenant, the nature of its business, the length of tenancy and the location and configuration of the space so rented) as of the date such Lease is executed; (ii) such Lease shall have a term that is reasonable in relation to the type of Lease, but not more than (A) a total of ten (10) years (including renewal options) with respect to space leases and (B) a total of 25 years (including renewal options) with respect to rooftop leases (it being agreed that a Lease with one or more cancellation options on the part of the landlord that may be exercised without a substantial penalty or termination payment shall be deemed to have a term that ends on the date the earliest such cancellation option may be exercised); (iii) no such Lease shall require alterations to the Property that are not permitted to be 20 26 made under the terms of the Loan Documents; and (iv) no such Lease shall include asbestos, environmental, or hazardous substances representations, warranties, or indemnifications, purchase options, rights of first refusal to purchase, or expansion options in favor of tenants or subtenants. (b) Without Lender's consent or approval, Borrower or Lessee may amend, modify, or waive the provisions of any such Lease or terminate, reduce rents under, or shorten the term of any such Lease, provided that such action (taking into account, in the case of a termination, reduction in rent or shortening of term, or any change in the use of the affected space under any such modification or amendment) does not materially adversely affect the value of the Property taken as a whole, in the reasonable judgment of Borrower or Lessee (as applicable), and provided further that such Lease, as amended, modified or waived, is otherwise in compliance with the requirements of the Loan Documents. (c) No later than thirty (30) days after Borrower or Lessee executes any such Lease pursuant to the provisions of this Section, Borrower or Lessee shall deliver to Lender (i) a complete copy of such Lease certified as true, correct and complete by an officer of Borrower or Lessee, and (ii) a summary of the rental provisions and other principal terms of such Lease, including (A) the term, (B) renewal or extension options, (C) any cancellation or termination options (other than those customarily provided for casualty and condemnation), (D) any "free" rent or rent abatement provisions, (E) the amount and terms of payment of any tenant allowances, (F) the scope of the Tenant's permitted uses, (G) any exclusive use restrictions, (H) any expansion options or rights of first offer or first refusal on any other space in the Project, and (I) any other provision that (x) departs from Borrower's normal leasing practices and (y) creates material obligations or liabilities on the part of the landlord. If the Debt Service Coverage Ratio shall fall below 1.5, but no Event of Default shall have occurred under the Loan Documents, then Borrower or Lessee (as applicable) may enter into Leases that are not Material Leases for commercial spaces and rooftop space for antennas, relay stations, and other customary purposes (collectively, "NON-MATERIAL LEASES"), and may amend, modify, or terminate the same, without the consent or approval of Lender, provided Borrower or Lessee complies with the provisions of paragraphs (a) through (c) above with respect to such Non-Material Leases 5.19 MANAGEMENT AGREEMENT AND LICENSE AGREEMENT RESTRICTIONS. Neither Borrower nor Lessee shall, without the prior, written consent of Lender, (i) amend or modify the Management Agreement or License Agreement, (ii) extend or renew the Management Agreement or License Agreement (except in accordance with the provisions of Section 8 of the Loan Agreement), (iii) terminate or accept the surrender of the Management Agreement or the License Agreement (other than a termination of the Management Agreement or the License Agreement on account of a material default by the Manager or the Licensor, respectively, where Borrower timely cures any resulting default under the Loan Documents and enters into a replacement agreement in accordance with the provisions of Section 8 of the Loan Agreement), (iv) enter into any new Management Agreement or License Agreement (other than in accordance with Section 8 21 27 of the Loan Agreement), or (v) grant any consent or approval required under the Management Agreement or License Agreement that is inconsistent with the terms of the Loan Documents. 5.20 ADDITIONAL SECURITY. No other security now existing or taken later to secure the Obligations shall be affected by the execution of the Loan Documents and all additional security shall be held as cumulative. The taking of additional security, execution of partial releases, or extension of the time of payment obligations of Borrower shall not diminish the effect and lien of this Instrument and shall not affect the liability or obligations of any maker or guarantor. Neither the acceptance of the Loan Documents nor their enforcement shall prejudice or affect Lender's right to realize upon or enforce any other security now or later held by Lender. Lender may enforce the Loan Documents or any other security in such order and manner as it may determine in its discretion. 5.21 FURTHER ACTS. Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) take all necessary actions to (i) keep valid and effective the lien and rights of Lender under the Loan Documents and (ii) protect the lawful owner of the Loan Documents. Promptly upon request by Lender and at Borrower's expense, Borrower shall execute additional instruments and take such actions as Lender reasonably believes are necessary or desirable to (a) maintain or grant Lender a first-priority, perfected lien on the Property, (b) ensure Lender that Lender will be able to realize on the Property following an Event of Default under the Loan Documents, (c) correct any error or omission in the Loan Documents, and (d) effect the intent of the Loan Documents, including filing/recording the Loan Documents, additional mortgages or deeds of trust, financing statements, and other instruments. ARTICLE VI ADDITIONAL ADVANCES; EXPENSES; SUBROGATION 6.1 EXPENSES AND ADVANCES. Borrower shall pay all reasonable appraisal, recording, filing, registration, brokerage, abstract, title insurance (including premiums), UCC search, escrow, attorneys' (but not in-house staff), engineers', environmental engineers', environmental testing, and architects' fees, costs (including travel), expenses, and disbursements incurred by Borrower or Lender in connection with the granting, closing, servicing, and enforcement of (a) the Loan and Documents or (b) attributable to Borrower or Lessee as owners of the Property. The term "COSTS" shall mean any of the foregoing incurred in connection with (a) any default by Borrower or Lessee under the Loan Documents, (b) the servicing of the Loan, or (c) the exercise, enforcement, compromise, defense, litigation, or settlement of any of Lender's rights or remedies under the Loan Documents or relating to the Loan or the Obligations. If Borrower or Lessee fails to pay any amounts or perform any actions required under the Loan Documents, Lender may (but shall not be obligated to) advance sums to pay such amounts or perform such actions. Borrower (and, by its subordination to this Instrument, Lessee) grants to Lender the right to enter upon and take possession of the Property to prevent or remedy any such failure and the right to take such actions in Borrower's or Lessee's name. No advance or performance shall be deemed to have cured a default by Borrower or Lessee. All (a) sums advanced by or payable to Lender per this Section or under applicable Laws, (b) except as expressly provided in the Loan Documents, payments due under the Loan Documents which are not paid in full when due, and (c) all Costs, 22 28 shall: (i) be deemed demand obligations, (ii) bear interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, until paid if not paid on demand, (iii) be part of, together with such interest, the Obligations , and (iv) be secured by the Loan Documents. Lender, upon making any such advance, shall also be subrogated to rights of the person receiving such advance. 6.2 SUBROGATION. If any proceeds of the Note were used to extinguish, extend or renew any indebtedness on the Property, then, to the extent of the funds so used, (a) Lender shall be subrogated to all rights, claims, liens, titles and interests existing on the Property held by the holder of such indebtedness and (b) these rights, claims, liens, titles and interests are not waived but rather shall (i) continue in full force and effect in favor of Lender and (ii) are merged with the lien and security interest created by the Loan Documents as cumulative security for the payment and performance of the Obligations. ARTICLE VII SALE, TRANSFER, OR ENCUMBRANCE OF THE PROPERTY 7.1 GENERAL RESTRICTIONS. It shall be an Event of Default and, at the sole option of Lender, Lender may accelerate the Obligations and the entire Obligations (including any Prepayment Premium) shall become immediately due and payable, if either Borrower or Lessee shall cause, permit, or suffer any Transfer of the Property or any portion thereof, or any Indirect Transfer other than a Permitted Indirect Transfer, without the prior written consent of Lender (which consent may be given or withheld for any reason, or for no reason, or given conditionally, in Lender's sole discretion); provided, however, that Borrower and Lessee shall be permitted to make those Transfers provided for under Sections 4, 5, and 6 of the Loan Agreement (subject to satisfaction of the terms of the Loan Agreement). 7.2 PROVISIONS FOR MERGER OF FELCOR OR FELCOR REIT. In the event of a Transfer in the nature of a merger, tender offer, or similar transaction in which FelCor or the FelCor REIT, or all or substantially all of assets of either of them, are merged into, acquired by, or combined with another entity (collectively, a "SUCCESSOR Entity"), such Transfer shall constitute a Permitted Indirect Transfer if (and only if) the following conditions are satisfied: (i) such Successor Entity has existing business experience in the ownership and portfolio management of real estate assets; (ii) such Successor Entity has a net Worth at least equal to the net worth of FelCor or FelCor REIT (whichever party is engaged in such transaction) as of the date of such transaction; (iii) such Successor Entity expressly assumes the obligations of FelCor or the FelCor REIT (as the case may be) under the Loan Documents and executes any documents reasonably required by Lender to confirm the same, which documents shall be satisfactory in form and substance to Lender; (iv) such Successor Entity is a United States person; 23 29 (v) at the time of the Transfer, the aggregate Debt Service Coverage Ratio for the Hotel Properties for the most recent full twelve (12) month period is not less than 1.50; (vi) at the time of the Transfer, the Loan to Value Ratio does not exceed sixty percent (60%); (vii) Borrower pays to Lender a non-refundable servicing fee of $25,000 at the time of the request, and an additional fee equal to one-quarter of one percent (0.25%) of the outstanding principal balance of the Loan (less the $25,000 servicing fee) at the time of such Transfer; (viii) Borrower delivers to Lender copies of all documents evidencing and governing such Transfer; (ix) the Transfer does not cause a violation of the provisions of the ERISA Certificate and Indemnification Agreement delivered to Lender at Closing, and the Successor Entity executes a new ERISA Certificate and Indemnification Agreement in favor of Lender in accordance with the guidelines with respect thereto then applicable to Lender's mortgage loans; and (x) Borrower or the Successor Entity pays all reasonable fees, costs and expenses incurred by Lender in connection with the proposed Transfer, including (without limitation) all legal fees for Lender's outside counsel, whether or not the Transfer is actually consummated. Notwithstanding the foregoing, however, if the result of such Transfer is that the Loan, together with other loans then held by Lender to the Successor Entity (or its predecessor) and its subsidiaries or affiliates, would exceed the total amount of loans that Lender may have outstanding to any one entity or group of related entities under the lending policies then generally applied by Lender or under lending regulations to which Lender is then subject, Lender shall be entitled to elect, by written notice to Borrower, to accelerate the maturity date of the Loan to a date no earlier than the date of closing of such Transfer or thirty (30) days following the date of such notice (whichever is later), but in such case Borrower shall not be required to pay any Prepayment Premium. 7.3 PROVISIONS ON SALE OF LESSEE. It shall be a Permitted Indirect Transfer and Lender shall consent to a sale of (a) all of the membership interests in Lessee or (b) all of the assets of the Lessee, if (and only if) the following conditions are satisfied: (i) the proposed purchaser of such membership interests or assets is a reputable, nationally-recognized operator or manager of hotel properties similar to the Property reasonably acceptable to Lender; (ii) such purchaser has a net worth at least equal to Thirty Million Dollars ($30,000,000); (iii) such purchaser expressly assumes (in the case of an asset sale) the obligations of the Lessee under, or must expressly acknowledge (in the case of a sale of 24 30 membership interests) that the Lessee will be and remain subject to, the terms and provisions of the Primary Lease, the Loan Documents, and the Management Agreements and License Agreements, and such purchaser executes any documents reasonably required by Lender to confirm the same, which documents shall be satisfactory in form and substance to Lender; (iv) the purchaser is a United States person; (v) at the time of the sale, the aggregate Debt Service Coverage Ratio for all of the Hotel Properties for the most recent full twelve (12) month period is not less than 1.50; (vi) Borrower or Lessee pays to Lender a non-refundable servicing fee of $50,000; (vii) Borrower or Lessee delivers to Lender copies of all documents evidencing and governing such sale; (viii) the sale does not cause a violation of the provisions of the ERISA Certificate and Indemnification Agreement delivered to Lender at Closing; and (ix) Borrower, Lessee or the purchaser pays all reasonable fees, costs and expenses incurred by Lender in connection with the proposed sale, including (without limitation) all legal fees for Lender's outside counsel, whether or not the sale is actually consummated. Upon the consummation of a sale permitted under this Section 7.3 in accordance with the foregoing requirements, the successor lessee as then owned or constituted shall be referred to herein as a "Successor Lessee". ARTICLE VIII DEFAULTS AND REMEDIES 8.1 EVENTS OF DEFAULT. The following shall be an "EVENT OF DEFAULT" (regardless of whether the breach, failure, default, or other event or circumstance specified below was caused or permitted by, or attributable to the actions or failure to act, of Borrower or Lessee): (a) if Borrower fails to make any payment required under the Note, this Instrument, the Other Mortgages or any other Loan Documents when due and such failure continues for five (5) days, provided, however, that if Borrower fails to make any payment required under the Note when due twice within any twelve (12) month period, Borrower shall have no further right to any grace period during that twelve (12) month period; (b) except for defaults listed in the other subsections of this Section 8.1, if Borrower or Lessee fails to perform or comply with any other provision contained in the Loan Documents and the default is not cured within thirty (30) days following written notice to Borrower (the "GRACE PERIOD"); provided, however, that Lender may extend the 25 31 Grace Period up to an additional thirty (30) days (for a total of sixty (60) days from the date of default) if (i) Borrower or Lessee, as the case may be, immediately commences and diligently pursues the cure of such default and delivers (within the Grace Period) to Lender a written request for more time and (ii) Lender determines in good faith that (1) such default cannot be cured within the Grace Period but can be cured within sixty (60) days after the default, (2) no lien or security interest created by the Loan Documents will be impaired prior to completion of such cure, and (3) Lender's immediate exercise of any remedies provided hereunder or by law is not necessary for the protection or preservation of the Property or Lender's security interest; (c) if any representation made (i) in connection with the Loan or Obligations or (ii) in the Application or Loan Documents shall be false or misleading in any material respect; (d) there is a Transfer or Indirect Transfer (other than a Permitted Indirect Transfer) without Lender's consent; (e) the occurrence of a default or event of default after the expiration of applicable cure periods, if any, under any of the other Loan Documents, including, without limitation, the Other Mortgages; (f) the occurrence of (i) a default resulting in the termination of the Primary Lease, the Management Agreement or the License Agreement after the expiration of applicable cure periods (unless the same shall be replaced in accordance with the provisions of Section 8 of the Loan Agreement within thirty (30) days after the termination of the existing agreement), (ii) the expiration of the Primary Lease, Management Agreement, or License Agreement (unless the same is being replaced as of the expiration date thereof in accordance with Section 8 of the Loan Agreement), or (iii) the occurrence of any other termination of the Primary Lease, Management Agreement or License Agreement without the prior, written consent of Lender; (g) if Borrower or Lessee (excluding a Successor Lessee, but subject to paragraph (f) above) shall (i) become insolvent, (ii) make a transfer in fraud of creditors, (iii) not be able to pay its debts as such debts become due, or (iv) admit in writing its inability to pay its debts as they become due; (h) if Borrower or Lessee shall make an assignment for the benefit of creditors; or if any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding, or any other proceedings for the relief of debtors, is instituted by or against Borrower or Lessee, and, if instituted against Borrower or Lessee, is allowed, consented to, or not dismissed within the earlier to occur of (i) ninety (90) days after such institution or (ii) the filing of an order for relief, (i) if any of the events in Sections 8.1(g) or (h) shall occur with respect to (i) the General Partner of Borrower, (ii) FelCor or FelCor REIT, or (iii) any guarantor of payment or performance of any of the Obligations; 26 32 (j) if the Property shall be taken, attached, or sequestered on execution or other process of law in any action against Borrower; (k) if any default occurs under the Environmental Indemnity and such default is not cured within any applicable grace period in that document; (l) if Borrower or Lessee shall fail at any time to obtain, maintain, renew, or keep in force the insurance policies required by Section 5.6 within ten (10) days after written notice; (m) if Borrower shall be in material default under any other mortgage or security agreement covering any part of the Property, whether it be superior or junior in lien to this Instrument, other than any equipment lease(s) permitted under the Loan Documents as to which (i) the aggregate liability of Borrower under any and all such equipment leases that may be in default at any one time does not exceed $20,000 and (ii) none of the personal property covered thereby is essential to the proper operation of the Property in accordance with the provisions of the License Agreement, Management Agreement, and Loan Documents; (n) if any claim of priority (except based upon a Permitted Encumbrance) to the Loan Documents by title, lien, or otherwise shall be upheld by any court of competent jurisdiction or shall be consented to by Borrower or Lessee; or (o) (i) the consummation by Borrower or Lessee of any transaction which would cause (A) the Loan or any exercise of Lender's rights under the Loan Documents to constitute a non-exempt prohibited transaction under ERISA or (B) a violation of a state statute regulating governmental plans; (ii) the failure of any representation in Section 5.11 to be true and correct in all respects; or (iii) the failure of Borrower or Lessee to provide Lender with the written certifications required by Section 5.11. 8.2 REMEDIES. If an Event of Default occurs, Lender or any person designated by Lender may (but shall not be obligated to) take any action (separately, concurrently, cumulatively, and at any time and in any order) permitted under any Laws, without notice, demand, presentment, or protest (all of which are hereby waived), to protect and enforce Lender's rights under the Loan Documents or Laws including the following actions: (a) accelerate and declare the entire unpaid Obligations immediately due and payable, except for defaults under Sections 8.1 (g), (h), (i) or (j) which shall automatically make the Obligations immediately due and payable; (b) judicially or otherwise, (i) completely foreclose this Instrument or (ii) partially foreclose this Instrument for any portion of the Obligations due and the lien and security interest created by this Instrument shall continue unimpaired and without loss of priority as to the remaining Obligations not yet due; (c) sell for cash or upon credit the Property and all right, title and interest of Borrower therein and rights of redemption thereof, pursuant to power of sale; 27 33 (d) recover judgment on the Note either before, during or after any proceedings for the enforcement of the Loan Documents and without any requirement of any action being taken to (i) realize on the Property or (ii) otherwise enforce the Loan Documents; (e) seek specific performance of any provisions in the Loan Documents; (f) apply for the appointment of a receiver, custodian, trustee, liquidator, or conservator of the Property without (i) notice to any person, (ii) regard for (A) the adequacy of the security for the Obligations or (B) the solvency of Borrower, Lessee or any other person liable for the payment of the Obligations; and Borrower, Lessee and any other person so liable waives or shall be deemed to have waived the foregoing and any other objections to the fullest extent permitted by Laws and consents or shall be deemed to have consented to such appointment; (g) with or without entering upon the Property, (i) exclude Borrower, Lessee and any other person from the Property without liability for trespass, damages, or otherwise, (ii) take possession of, and Borrower shall (and Lessee, by its joinder to this Instrument, agrees to) surrender on demand, all books, records, and accounts relating to the Property, (iii) give notice to Tenants or any person, make demand for, collect, receive, sue for, and recover in its own name all Rents and cash collateral derived from the Property; (iv) use, operate, manage, preserve, control, and otherwise deal with every aspect of the Property including (A) conducting its business, (B) insuring it, (C) making all repairs, renewals, replacements, alterations, additions, and improvements to or on it, (D) completing the construction of any Improvements in manner and form as Lender deems advisable, (E) executing, modifying, enforcing, and terminating new and existing Leases on such terms as Lender deems advisable and evicting any Tenants in default, and (F) executing, modifying, enforcing and terminating the Management Agreement, License Agreement, or any other management agreement or license agreement for the operation of the Property, as Lender deems advisable; (v) apply the receipts from the Property to payment of the Obligations, in any order or priority determined by Lender, after first deducting all Costs, expenses, and liabilities incurred by Lender in connection with the foregoing operations and all amounts needed to pay the Impositions and other expenses of the Property, as well as just and reasonable compensation for the services of Lender and its attorneys, agents, and employees; and/or (vi) in every case in connection with the foregoing, exercise all rights and powers of Borrower, Lessee or Lender with respect to the Property, either in Borrower's or Lessee's name or otherwise; (h) release any portion of the Property for such consideration, if any, as Lender may require without, as to the remainder of the Property, impairing or affecting the lien or priority of this Instrument or improving the position of any subordinate lienholder with respect thereto, except to the extent that the Obligations shall have been actually reduced, and Lender 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; 28 34 (i) apply any Deposits to the following items in any order and in Lender's sole discretion: (A) the Obligations, (B) Costs, (C) advances made by Lender under the Loan Documents, and/or (D) Impositions; (j) take all actions permitted under the UCC, including (i) the right to take possession of all of the Personal Property and take such actions as Lender deems advisable for the care, protection and preservation of the Personal Property and (ii) request Borrower and/or Lessee at its expense to assemble the Personal Property and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender with respect to the Personal Property sent to Borrower or Lessee at least five (5) days prior to such action shall constitute commercially reasonable notice to Borrower or Lessee; or (k) take any action permitted under any Laws or any other Loan Document. If Lender exercises any of its rights under Section 8.2(g), Lender shall not (a) be deemed to have entered upon or taken possession of the Property except upon the exercise of its option to do so, evidenced by its demand and overt act for such purpose; (b) be deemed a beneficiary or mortgagee in possession by reason of such entry or taking possession; nor (c) be liable (i) to account for any action taken pursuant to such exercise other than for Rents actually received by Lender, (ii) for any loss sustained by Borrower or Lessee resulting from any failure to lease the Property, or (iii) any other act or omission of Lender except for losses caused by Lender's willful misconduct or gross negligence. Borrower hereby (and Lessee, by its subordination to this Instrument, thereby) consents to, ratifies, and confirms the exercise by Lender of its rights under this Instrument and appoints Lender as its attorney-in- fact, which appointment shall be deemed to be coupled with an interest and irrevocable, for such purposes. 8.3 EXPENSES. All Costs, expenses, or other amounts paid or incurred by Lender in the exercise of its rights and remedies under the Loan Documents, together with interest thereon at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, shall be (a) part of the Obligations, (b) secured by this Instrument, and (c) allowed and included as part of the Obligations in any foreclosure, decree for sale, power of sale, or other judgment or decree enforcing Lender's rights under the Loan Documents. 8.4 RIGHTS PERTAINING TO SALES. To the extent permitted under (and in accordance with) any Laws, the following provisions shall, as Lender may determine in its sole discretion, apply to any sales of the Property under this Article VIII, whether by judicial proceeding, judgment, decree, power of sale, foreclosure or otherwise: (a) Lender may conduct multiple sales of any part of the Property in separate tracts or in its entirety and Borrower hereby (and Lessee, by its subordination to this Instrument, thereby) waives any right to require otherwise; (b) any sale may be postponed or adjourned by public announcement at the time and place appointed for such sale or for such postponed or adjourned sale without further notice; and (c) Lender may acquire the Property and, in lieu of paying cash, may pay by crediting against the Obligations the amount of its bid, after deducting therefrom any sums which Lender is authorized to deduct under the provisions of the Loan Documents. 29 35 8.5 APPLICATION OF PROCEEDS. Any proceeds received from any sale or disposition under this Article VIII or otherwise, together with any other sums held by Lender, shall, except as expressly provided to the contrary, be applied in the order determined by Lender to: (a) payment of all Costs and expenses of any enforcement action or foreclosure sale, including interest thereon at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, (b) all taxes, Assessments, and other charges unless the Property was sold subject to these items; (c) payment of the Obligations in such order as Lender may elect; (d) payment of any other sums secured or required to be paid by Borrower; and (e) payment of the surplus, if any, to any person lawfully entitled to receive it. Borrower and Lender intend and agree that during any period of time between any foreclosure judgment that may be obtained and the actual foreclosure sale that the foreclosure judgment will not extinguish the Loan Documents or any rights contained therein including the obligation of Borrower to pay all Costs and to pay interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws. 8.6 ADDITIONAL PROVISIONS AS TO REMEDIES. (a) The Obligations and Indebtedness under all of the Loan Documents are not intended to be, and shall not be, apportioned among any of the Hotel Properties, or any of the other security of Lender for the Loan, so that each of the Hotel Properties and each and every other lien, assignment, and security interest is intended to secure the entire amount of the Indebtedness. In no event shall any internal apportionment or allocation by Lender of the Indebtedness among the Hotel Properties, whether for purposes of Lender's underwriting, analysis, or administration of the Loan or otherwise, be binding on Lender for any purpose. (b) Upon an Event of Default, Lender shall be entitled to foreclose against any one or more of the Hotel Properties in any order, as Lender shall elect in its sole and absolute discretion, and no election by Lender to foreclose against fewer than all of the Hotel Properties shall constitute or be deemed to be (i) an election of remedies by Lender or (ii) a waiver of Lender's right to foreclose against any of the other Hotel Properties. Without in any manner limiting Lender's remedies, Lender shall be entitled to commence separate actions for foreclosure in any or all of the different jurisdictions in which the Hotel Properties are located, either concurrently or successively as Lender shall elect in its sole and absolute discretion. Borrower hereby waives any and all rights to object to Lender maintaining multiple actions for foreclosure and/or collection of the Indebtedness (or, to the extent any such rights or provisions are not waivable as a matter of law, Borrower stipulates and agrees that such provisions shall not be interpreted to prevent Lender from commencing, maintaining, and pursuing to judgment multiple actions for foreclosure and collection of the Indebtedness in the different jurisdictions in which the Hotel Properties are located, subject to Lender applying the amounts realized in any such foreclosures to the Indebtedness and Obligations as provided in this Instrument and the Other Mortgages). (c) In addition, upon the entry of any judgment of foreclosure against any one or more (but fewer than all) of the Hotel Properties and the completion of the sale of such 30 36 Hotel Properties (including any necessary proceedings subsequent to such sale in order to confirm or approve the same), the Amount Realized Upon Foreclosure (as hereinafter defined) shall be applied to the Indebtedness and Obligations in the manner provided in this Instrument and the Other Mortgages, and the remaining Indebtedness and Obligations which remain unsatisfied after each and any such application of the Amount Realized Upon Foreclosure of such Hotel Properties shall continue to be secured by this Instrument or the Other Mortgages (as the case may be) as to which a foreclosure judgment and sale shall not have been entered and completed as aforesaid, until all of the Indebtedness and Obligations shall be satisfied in full. For purposes of this Instrument and all Other Mortgages, the "AMOUNT REALIZED UPON FORECLOSURE" as used in the preceding sentence with respect to any of the Hotel Properties shall mean the amount of the successful bid in any foreclosure sale with respect to the applicable Hotel Properties, as confirmed in any confirmation of the foreclosure sale in the applicable foreclosure proceedings or, if no confirmation proceedings are available under the laws and procedures applicable to such foreclosure, then as otherwise customarily determined under the applicable laws and procedures (including by way of return of sale or deficiency judgment), without regard to whether the successful bid is made by Lender, any agent or affiliate of Lender, or any other person. Without limiting any other remedies of Lender, Borrower agrees that Lender shall be entitled to obtain a deficiency judgment against Borrower in any foreclosure proceedings for the purpose of obtaining a judicial determination of the Amount Realized Upon Foreclosure in any such foreclosure proceedings. (d) It is further agreed that if default be made in the payment of any part of the Indebtedness secured by this Instrument, as an alternative to the right of foreclosure for the full Indebtedness after acceleration thereof, Lender shall have the right to institute partial foreclosure proceedings with respect to any portion or portions of said Indebtedness so in default (either for recovery of those payments or installments which shall then be due and payable, without acceleration of the Note, or for recovery of such payments and amounts due under the Note as Lender may elect to accelerate, without accelerating the entire Note) against any one or more of the Hotel Properties, as Lender may elect, as if under a full foreclosure, and without declaring the entire Indebtedness due (such proceeding being hereinafter referred to as a "PARTIAL FORECLOSURE"), and provided that if foreclosure judgment is entered with respect to the Property pursuant to a partial foreclosure proceeding because of default of a part of the Indebtedness, such judgment and sale pursuant thereto may be made subject to the continuing lien of each of the Other Mortgages for the unmatured part of the Indebtedness; and it is agreed that such judgment or sale pursuant to a partial foreclosure, if so made, shall not in any manner affect the unmatured or unaccelerated part of the Indebtedness, but as to such unmatured or unaccelerated part, this Instrument (to the extent foreclosure and sale shall not have been made against all of the Property encumbered hereby) and each of the Other Mortgages and the liens thereof shall remain in full force and effect just as though no foreclosure judgment or sale had been entered or made under the provisions of this Section. Notwithstanding the filing of any partial foreclosure or entry of a judgment of foreclosure therein, Lender may elect at any time prior to a foreclosure sale pursuant to such 31 37 judgment, to discontinue such partial foreclosure and to accelerate the Indebtedness by reason of any uncured default or defaults upon which such partial foreclosure was predicated or by reason of any other defaults, and proceed with full foreclosure proceedings. It is further agreed that several foreclosure sales may be made pursuant to partial foreclosure without exhausting the right of full or partial foreclosure sale for any unmatured part of the secured indebtedness, it being the purpose to provide for a partial foreclosure sale of the Indebtedness for any matured or accelerated portion of the Indebtedness without exhausting the power to foreclose and to sell any of the Property or any of the other Hotel Properties pursuant to any such partial foreclosure for any other part of the Indebtedness whether matured at the time or subsequently maturing, and without exhausting any right of acceleration and full foreclosure. (e) No failure, refusal, waiver, or delay by Lender to exercise any rights under the Loan Documents upon any default or Event of Default shall impair Lender's rights or be construed as a waiver of, or acquiescence to, such or any subsequent default or Event of Default. No recovery of any judgment by Lender and no levy of an execution upon the Property or any other property of Borrower or Lessee shall affect the lien and security interest created by this Instrument and such liens, rights, powers, and remedies shall continue unimpaired as before. Lender may resort to any security given by this Instrument or any other security now given or hereafter existing to secure the Obligations, in whole or in part, in such portions and in such order as Lender may deem advisable, and no such action shall be construed as a waiver of any of the liens, rights, or benefits granted hereunder. Acceptance of any payment after any Event of Default shall not be deemed a waiver or a cure of such Event of Default and such acceptance shall be deemed an acceptance on account only. If Lender has started enforcement of any right by foreclosure, sale, entry, or otherwise and such proceeding shall be discontinued, abandoned, or determined adversely for any reason, then Borrower, Lessee and Lender shall be restored to their former positions and rights under the Loan Documents with respect to the Property, subject to the lien and security interest hereof. 8.7 WAIVER OF RIGHTS AND DEFENSES. To the fullest extent Borrower and Lessee may do so under Laws, (a) neither Borrower nor Lessee will at any time insist on, plead, claim, or take the benefit of (i) any statute or rule of law now or later enacted providing for any appraisement, valuation, stay, extension, moratorium, or redemption or (ii) any statute of limitations now or hereafter applicable to any of the Obligations to the extent that such statute of limitations would bar the assertion by Lender of any claim prior to the date that is two (2) years after the maturity date of Loan; (b) each of Borrower and Lessee, for itself, its successors and assigns, and for any person ever claiming an interest in the Property (other than Lender), waives and releases all rights of redemption, reinstatement, valuation, appraisement, notice of intention to mature or declare due the whole of the Obligations, all rights to a marshaling of the assets of Borrower or Lessee, including the Property, or to a sale in inverse order of alienation, in the event of foreclosure of the liens and security interests created under the Loan Documents; and (c) neither Borrower nor Lessee shall be relieved of its obligation to pay the Obligations as required in the Loan Documents nor shall the lien or priority of the Loan Documents be impaired by any agreement renewing, extending, or modifying the time of payment or the provisions of the Loan Documents (including a modification of any interest rate), unless expressly released, discharged, or modified by such 32 38 agreement. Regardless of consideration and without any notice to or consent by the holder of any subordinate lien, security interest, encumbrance, right, title, or interest in or to the Property, Lender may (i) release any person liable for payment of the Obligations or any portion thereof or any part of the security held for the Obligations or (ii) modify (with the agreement of Borrower or other applicable party or parties thereto) any of the provisions of the Loan Documents without impairing or affecting the Loan Documents or the lien, security interest, or the priority of the modified Loan Documents as security for the Obligations over any such subordinate lien, security interest, encumbrance, right, title, or interest. ARTICLE IX SECURITY AGREEMENT AND FIXTURE FILING 9.1 SECURITY AGREEMENT. This Instrument constitutes both a real property mortgage and a "security agreement" within the meaning of the UCC. The Property includes real and personal property and all tangible and intangible rights and interest of Borrower in the Property. Borrower grants to Lender, as security for the Obligations, a security interest in the Personal Property to the fullest extent that the same may be subject to the UCC. Borrower authorizes Lender to file any financing or continuation statements and amendments thereto relating to the Personal Property without the signature of Borrower if permitted by Laws. 9.2 FIXTURE FILING. This Instrument, upon recording or registration in the real estate records of the proper office, shall constitute a "fixture filing" within the meaning of Sections 9-313 and 9-402 of the UCC with respect to any and all fixtures included within the term "Property" and any Personal Property that may now be or hereafter become "fixtures" within the meaning of Section 9-313 of the UCC. ARTICLE X LIMITATION ON PERSONAL LIABILITY AND INDEMNITIES 10.1 LIMITED RECOURSE LIABILITY. (a) GENERAL LIMITATION ON PERSONAL LIABILITY. Except as provided in this Section 10.1, none of Borrower, the General Partner of Borrower or FelCor (singularly or collectively, the "EXCULPATED Parties") shall have any personal liability for the Loan or any obligations set forth in the Loan Documents. Notwithstanding the preceding sentence, Lender may bring a foreclosure action or other appropriate action to enforce the Loan Documents or realize upon and protect the Property (including, without limitation, naming the Exculpated Parties in the actions); (b) PARTIAL RECOURSE CARVEOUTS. Notwithstanding Section 10.1 (a), each of the Exculpated Parties shall have joint and several personal liability for: (i) any separate indemnity agreement, guaranty or similar instrument furnished in connection with the Loan (including, without limitation, the Environmental Indemnity and the ERISA Certificate and Indemnification Agreement); 33 39 (ii) any Assessments (accrued and/or payable) with respect to the Property, whether payable by Borrower or Lessee; (iii) any security deposits of tenants or subtenants (whether held by Borrower or Lessee [other than a Successor Lessee]) (A) not turned over to Lender upon foreclosure, sale (pursuant to power of sale), or conveyance in lieu thereof, or (B) not turned over to a receiver or trustee for any Property after his/her appointment; (iv) any insurance proceeds or condemnation awards neither turned over to Lender nor used in compliance with the Loan Documents (whether held by Borrower or Lessee [other than a Successor Lessee]); (v) if any of the Exculpated Parties or Lessee (other than a Successor Lessee) executes an amendment or termination of any Lease (other than the Primary Lease) in violation of the provisions of the Loan Documents, the Exculpated Parties shall have personal liability for the greater of: (1) the present value (calculated at the Discount Rate) of the aggregate total dollar amount (if any) by which (x) rental income and/or other tenant obligations prior to the amendment of such Lease exceeds (y) rental income and/or other tenant obligations after the amendment of such Lease; or (2) any termination fee or other consideration paid; (vi) intentional waste of all or any portion of the Property; (vii) any Rents received by any of the Exculpated Parties or Lessee (other than a Successor Lessee) after an Event of Default and not otherwise applied by Lessee to the rent payable under the Primary Lease and by the Borrower to the Obligations, or applied to the current (not deferred) operating expenses of the Property; provided, however, that the Exculpated Parties shall have personal liability for amounts paid as expenses to a person or entity related to or affiliated with any of the Exculpated Parties unless the payments are expressly permitted in the Loan Documents; and further provided, that for purposes of this provision, Promus Hotels, Inc. or its subsidiaries, as Manager of the Properties, shall not be deemed affiliated with Borrower; (viii) Borrower's failure to maintain a letter or letters of credit, (if any), required under the Loan Documents or otherwise in connection with the Loan; (ix) any payments required to be made by Lessee to Borrower under the Primary Lease that are withheld, set off, or otherwise not made by Lessee when due, in any case in which Borrower shall have approved or consented to the same; (x) Borrower's or Lessee's failure to cause funds to be paid into the FF&E Account or the failure by either of them to use or apply funds disbursed from the FF&E Account in accordance with the provisions of Section 3 of the Loan Agreement; or 34 40 (xi) all legal fees (excluding the allocated costs of Lender's staff attorneys) and other expenses incurred by Lender in enforcing the Loan Documents if Borrower contests, delays, or otherwise hinders or opposes (including, without limitation, the filing of a bankruptcy) any of Lender's enforcement actions, other than in the event that Borrower finally prevails in establishing that Borrower was not in default and Lender was not entitled to exercise its remedies under the Loan Documents. (c) FULL RECOURSE CARVEOUTS. Notwithstanding Section 10.1(a), each of the Exculpated Parties shall have joint and several personal liability for all of the Obligations if: (i) there is a Transfer or Indirect Transfer (other than a Permitted Indirect Transfer) without Lender's consent; (ii) there shall be any fraud or material misrepresentation by any of the Exculpated Parties or Lessee in connection with the Property, the Loan Documents, the Application, any due diligence materials delivered to Lender in with respect to the Loan or any other aspect of the Loan; (iii) the Property or any part thereof (including either the interests of Borrower or the interests of Lessee) shall become an asset in: (A) a voluntary bankruptcy or insolvency proceeding filed by Borrower or Lessee, or (B) an involuntary bankruptcy or insolvency proceeding filed against Borrower or Lessee which is not dismissed within ninety (90) days of filing; provided, however, that this subsection 10.1(c)(iii) shall not apply if (x) an involuntary bankruptcy is filed by Lender, (y) any voluntary bankruptcy proceeding is filed by a Successor Lessee, or (z) an involuntary bankruptcy proceeding is filed against a Successor Lessee (other than a proceeding filed by, or with the express consent of, the Borrower); and provided further, that if: (1) after ninety (90) days following the filing of any involuntary bankruptcy proceeding described in clause (B) above, such proceeding is dismissed with prejudice and without adversely affecting the enforceability or priority of any of the Loan Documents; (2) such dismissal occurs prior to the occurrence of any of the following: (aa) the entry of any order that adversely affects the enforceability or priority of any of the Loan Documents (other than solely by reason of the automatic stay), (bb) the entry of any order granting any person relief from the automatic stay to foreclose against, enforce any lien or security interest in, levy upon, or repossess any material assets of Borrower or Lessee that constitute a part 35 41 of, or that relate to, the Property, or to terminate any of the Management Agreements, License Agreements, or Material Leases, (cc) the liquidation of any material assets of Borrower or Lessee (other than a Successor Lessee) that constitute a part of, or that relate to, the Property, (dd) the entry of any order approving the rejection or termination of any Primary Lease, any Management Agreement, any License Agreement, or any Material Lease, or (ee) the entry of any order approving any plan of reorganization for Borrower or Lessee (other than a Successor Lessee); and (3) throughout the period following the filing of such bankruptcy proceeding, Borrower or one or more of the Exculpated Parties shall have continued to make regular payments of debt service on a timely basis in accordance with the provisions of the Loan Documents; then, the Exculpated Parties shall be personally liable only for the actual damages, losses, costs and expenses (including attorneys' fees) incurred by Lender (expressly including any diminution, loss or damage to the Property) as a result of such bankruptcy filing; (iv) any of the Exculpated Parties or Lessee executes an amendment or termination of the Primary Lease, or any of the Exculpated Parties or Lessee (other than a Successor Lessee) executes or authorizes any amendment of or terminates the Management Agreement or License Agreement, in each case without Lender's prior written consent (in any case in which Lender's consent was required under the Loan Documents) or other than in accordance with the provisions of Section 8 of the Loan Agreement; or (v) such liability shall arise by reason of the application of the provisions of Section 8 of the Loan Agreement. Notwithstanding the foregoing, following the occurrence of an event described in provisions of subsections 10.1(c)(i), 10.1(c)(ii) and 10.1(c)(iv), above, if Borrower (1) establishes that the same was inadvertent, (2) promptly gives Lender written notice of such event, and (3) cures the same to the reasonable satisfaction of Lender within thirty (30) days after any senior officer of Borrower, FelCor, or the FelCor REIT first had actual knowledge thereof (regardless of whether Lender shall have given any notice on account thereof), the Exculpated Parties shall be personally liable only for any actual damages, losses, costs and expenses incurred by Lender (including reasonable attorneys' fees) incurred by Lender as a result of the events described in subsections 10.1(c)(i), 10.1(c)(ii) and 10.1(c)(iv). 10.2 GENERAL INDEMNITY. Borrower agrees that while Lender has no liability to any person in tort or otherwise as lender and that Lender is not an owner or operator of the Property, Borrower shall, at its sole expense, protect, defend, release, indemnify and hold harmless the Indemnified Parties (defined below) from any Losses (defined below) imposed on, incurred by, or asserted against the Indemnified Parties, directly or indirectly, arising out of or in connection with the Property, Loan, or Loan Documents, including Losses; provided, however, that the foregoing indemnities shall not apply to any Losses caused by the gross negligence or willful misconduct of the Indemnified Parties. The term "LOSSES" shall mean any claims, suits, liabilities (including 36 42 strict liabilities), actions, proceedings, obligations, debts, damages, losses, Costs, expenses, fines, penalties, charges, fees, judgments, awards, and amounts paid in settlement of whatever kind including attorneys' fees (but not in-house staff) and all other costs of defense. The term "INDEMNIFIED PARTIES" shall mean (a) Lender, (b) any prior owner or holder of the Note, (c) any existing or prior servicer of the Loan, (d) the officers, directors, shareholders, partners, employees and trustees of any of the foregoing, and (e) the heirs, legal representatives, successors and assigns of each of the foregoing. 10.3 TRANSACTION TAXES INDEMNITY. Borrower shall, at its sole expense, protect, defend, release, indemnify and hold harmless the Indemnified Parties from all Losses imposed upon, incurred by, or asserted against the Indemnified Parties or the Loan Documents relating to Transaction Taxes. 10.4 ERISA INDEMNITY. Borrower and the other persons, if any, have executed and delivered the Erisa Certificate and Indemnification Agreement dated the date hereof to Lender (the "ERISA CERTIFICATE AND INDEMNIFICATION AGREEMENT"). 10.5 BROKER INDEMNITY. Borrower represents and warrants that it has not retained or used the services of any broker in connection with the Loan and that no brokerage commissions or fees shall be payable by either party with respect to the Loan. Borrower shall, at its sole expense, protect, defend, release, indemnify and hold harmless the Indemnified Parties against all Losses imposed upon, incurred by, or asserted against the Indemnified Parties from the payment of any brokerage commissions or fees of any kind with respect to the Loan (other than brokers claiming through or retained by Lender), and for any legal fees or expenses incurred by Lender in connection with any claims for such commissions or fees. 10.6 ENVIRONMENTAL INDEMNITY. Borrower and other persons, if any, have executed and delivered the Environmental Indemnity Agreement dated the date hereof to Lender ("ENVIRONMENTAL INDEMNITY"). 10.7 DUTY TO DEFEND, COSTS AND EXPENSES. Upon request, whether Borrower's obligation to indemnify Lender arises under this Article X or in the Loan Documents, Borrower shall defend the Indemnified Parties (in Borrower's or the Indemnified Parties' names) by attorneys and other professionals approved by the Indemnified Parties. Notwithstanding the foregoing, the Indemnified Parties may, in their sole discretion, engage their own attorneys and professionals to defend or assist them and, if there exists an Event of Default, at their option, their attorneys shall control the resolution of any claims or proceedings. Upon demand, Borrower shall pay or, in the sole discretion of the Indemnified Parties, reimburse and/or indemnify the Indemnified Parties for all Costs imposed on, incurred by, or asserted against the Indemnified Parties by reason of any items set forth in this Article X and/or the enforcement or preservation of the Indemnified Parties' rights under the Loan Documents. Any amount payable to the Indemnified Parties under this Section shall (a) be deemed a demand obligation, (b) be part of the Obligations, (c) bear interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, until paid if not paid on demand, and (d) be secured by this Instrument. 37 43 10.8 SURVIVAL. Notwithstanding anything to the contrary in the Loan Documents, the obligations of Borrower under Sections 10.3, 10.4, 10.5, 10.6 and 10.7 shall survive (a) repayment of the Obligations, (b) any termination, satisfaction, assignment or foreclosure of this Instrument, (c) the acceptance by Lender (or any nominee) of a deed in lieu of foreclosure, (d) a plan of reorganization filed under the Bankruptcy Code, or (e) the exercise by the Lender of any rights in the Loan Documents; provided, however, that Lender's recourse for any such surviving obligations shall be limited to Borrower's rights, title, and interests in the Hotel Properties and any and all income and proceeds thereof. Borrower's obligations under this Article X shall not be affected by the absence or unavailability of insurance covering the same or by the failure or refusal by any insurance carrier to perform any obligation under any applicable insurance policy. ARTICLE XI ADDITIONAL PROVISIONS 11.1 USURY SAVINGS CLAUSE. All agreements in the Loan Documents are expressly limited so that in no event whatsoever shall the amount paid or agreed to be paid under the Loan Documents for the use, forbearance, or detention of money exceed the highest lawful rate permitted by Laws. If, at the time of performance, fulfillment of any provision of the Loan Documents shall involve transcending the limit of validity prescribed by Laws, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity. If Lender shall ever receive as interest an amount which would exceed the highest lawful rate, the receipt of such excess shall be deemed a mistake and (a) shall be canceled automatically or (b) if paid, such excess shall be (1) credited against the principal amount of the Obligations to the extent permitted by Laws or (ii) rebated to Borrower if it cannot be so credited under Laws. Furthermore, all sums paid or agreed to be paid under the Loan Documents for the use, forbearance, or detention of money shall to the extent permitted by Laws be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Obligations does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Obligations for so long as the Obligations is outstanding. 11.2 NOTICES. Any notice, request, demand, consent, approval, direction, agreement, or other communication (any "NOTICE") required or permitted under the Loan Documents shall be in writing and shall be validly given if sent by a nationally-recognized courier that obtains receipts, delivered personally by a courier that obtains receipts, or mailed by United States certified mail (with return receipt requested and postage prepaid) addressed to the applicable person as follows: If to Borrower: FELCOR/CSS HOLDINGS, L.P. c/o FelCor Lodging Limited Partnership 545 E. John Carpenter Freeway, Suite 1300 Irving, Texas 75062-3933 Attention: Andrew Welch 38 44 With a copy of notices sent to Borrower to: FelCor/CSS Holdings, L.P. 545 E. John Carpenter Freeway, Suite 1300 Irving, Texas 75062-3933 Attention: Joel Eastman, Esq. and Jenkens & Gilchrist 1445 Ross Avenue Suite 3200 Dallas, Texas 75202 Attention: Robert W. Dockery, Esq. If to Lender: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA Prudential Capital Group Two Ravinia Drive, Suite 1400 Atlanta, Georgia 30346 Attention: Mortgage Loan Customer Service Reference Loan No. 6-103-269 With a copy of notices sent to Lender to: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA Prudential Capital Group Two Ravinia Drive, Suite 1400 Atlanta, Georgia 30346 Attention: Regional Counsel Reference Loan No. 6-103-269 Each notice shall be effective upon being so sent, delivered, or mailed, but the time period for response or action shall run from the date of receipt as shown on the delivery receipt. Refusal to accept delivery or the inability to deliver because of a changed address for which no notice was given shall be deemed receipt. Any party may periodically change its address for notice and specify up to two (2) additional addresses for copies by giving the other party at least ten (10) days' prior notice. 11.3 GOOD FAITH DISCRETION OF LENDER. Except as otherwise expressly stated, whenever Lender's judgment, consent, or approval is required or Lender shall have an option or election under the Loan Documents, such judgment, the decision as to whether or not to consent to or approve the same, or the exercise of such option or election shall be in the good faith discretion of Lender. 39 45 11.4 APPLICABLE LAW AND SUBMISSION TO JURISDICTION. The Loan Documents (subject to any contrary provisions contained therein) shall be governed by and construed in accordance with the laws of the State of Illinois, except to the extent that the law of the State in which the Property is located shall require that the laws and procedures governing the manner of foreclosure of this Instrument and the exercise of remedies under this Instrument be governed by the law of such State, in which event the law of such State shall apply thereto. Without limiting Lender's right to bring any action or proceeding against Borrower, Lessee or the Property relating to the Obligations (an "ACTION") in the courts of other jurisdictions, each of Borrower, Lender, and (by its joinder to this Instrument) Lessee irrevocably (a) submits to the jurisdiction of any state or federal court in the State of Illinois or the Property State, (b) agrees that any Action may be heard and determined in such court, and (c) waives, to the fullest extent permitted by Laws, the defense of an inconvenient forum to the maintenance of any Action in such jurisdiction. 11.5 CONSTRUCTION OF PROVISIONS. The following rules of construction shall apply for all purposes of this Instrument unless the context otherwise requires: (a) all references to numbered Articles or Sections or to lettered Exhibits are references to the Articles and Sections hereof and the Exhibits annexed to this Instrument and such Exhibits are incorporated into this Instrument as if fully set forth in the body of the Instrument; (b) all Article, Section, and Exhibit captions are used for convenience and reference only and in no way define, limit, or in any way affect this Instrument; (c) words of masculine, feminine, or neuter gender shall mean and include the correlative words of the other genders, and words importing the singular number shall mean and include the plural number, and vice versa; (d) no inference in favor of or against any party shall be drawn from the fact that such party has drafted any portion of this Instrument; (e) all obligations of Borrower hereunder shall be performed and satisfied by or on behalf of Borrower at Borrower's sole expense; (f) the terms "include," "including," and similar terms shall be construed as if followed by the phrase "without being limited to"; (g) the terms "Property", "Land", "Improvements", and "Personal Property" shall be construed as if followed by the phrase "or any part thereof"; (h) the term "Obligations" shall be construed as if followed by the phrase "or any other sums secured hereby, or any part thereof"; (i) the term "person" shall include natural persons, firms, partnerships, corporations, governmental authorities or agencies, and any other public or private legal entities; (j) the term "provisions," when used with respect hereto or to any other document or instrument, shall be construed as if preceded by the phrase "terms, covenants, agreements, requirements, and/or conditions"; (k) the term "lease" shall mean "tenancy, subtenancy, lease, sublease, or rental agreement," the term "lessor" shall mean "landlord, sublandlord, lessor, and sublessor," and the term "Tenant" or "lessee" shall mean "tenant, subtenant, lessee, and sublessee"; (1) the term "owned" shall mean "now owned or later acquired"; (m) the terms "any" and "all" shall mean "any or all"; and (n) the term "on demand" or "upon demand" shall mean "within five (5) business days after written notice". 11.6 TRANSFER OF LOAN. Lender shall have the right, in its sole discretion, at any time and from time to time, to sell, assign, syndicate, participate out, or otherwise transfer and/or dispose of all or any portion of its interest in the Loan, and, in connection therewith, Borrower shall (i) permit any proposed purchaser, assignee, participant or co-lender (collectively, "INVESTOR") access to the Property during reasonable hours and after reasonable advance notice for inspection of same, and (ii) permit Lender to submit to Investors any financial data and other 40 46 information furnished by Borrower or any other person to Lender in connection with the operation of the Property. As a precondition to the receipt of any non-public or otherwise confidential information about Borrower or the Property, such Investor shall agree to be bound by a confidentiality agreement. Borrower shall, at the request of Lender and in connection with any such sale, assignment or other transfer, cooperate as requested, and shall provide a certificate in accordance with Section 5.16 and such other representations, warranties, agreements and documents as are customary and usual in the marketplace or as may be reasonably required by Lender in any such sale, assignment or other transfer, and shall use diligent efforts to obtain such documents and agreements from tenants and other third parties as may be reasonably requested; provided, that Borrower shall not be required to incur (i) any liability beyond the scope of the Loan Documents, or (ii) any material unreasonable expense (unless the same is reimbursed by Lender). For purposes of the preceding sentence, any expense in excess of $5,000 shall be deemed a "material unreasonable expense." 11.7 MISCELLANEOUS. If any provision of the Loan Documents shall be held to be invalid, illegal, or unenforceable in any respect, this shall not affect any other provisions of the Loan Documents and such provision shall be limited and construed as if it were not in the Loan Documents. If title to the Property becomes vested in any person other than Borrower or Lessee, Lender may, without notice to Borrower or Lessee, deal with such person regarding the Loan Documents or the Obligations in the same manner as with Borrower or Lessee without in any way vitiating or discharging Borrower's or Lessee's liability under the Loan Documents or being deemed to have consented to the vesting. If both the lessor's and lessee's interest under any Lease ever becomes vested in any one person, this Instrument and the lien and security interest created hereby shall not be destroyed or terminated by the application of the doctrine of merger and Lender shall continue to have and enjoy all its rights and privileges as to each separate estate. Upon foreclosure of this Instrument, none of the Leases shall be destroyed or terminated as a result of such foreclosure, by application of the doctrine of merger or as a matter of law, unless Lender takes all actions required by law to terminate the Leases as a result of foreclosure. All of Borrower's and Lessee's covenants and agreements under the Loan Documents shall run with the land and time is of the essence. Borrower appoints Lender as its attorney-in-fact, which appointment is irrevocable and shall be deemed to be coupled with an interest, with respect to the execution, acknowledgment, delivery, filing or recording for and in the name of Borrower of any of the documents required in accordance with Sections 5.4, 5.21, and 6.1 which Borrower fails to execute and deliver within ten (10) business days after written request by Lender. The Loan Documents cannot be amended, terminated, or discharged except in a writing signed by the party against whom enforcement is sought. No waiver, release, or other forbearance by Lender will be effective unless it is in a writing signed by Lender and then only to the extent expressly stated. The provisions of the Loan Documents shall be binding upon Borrower and Lessee and their successors and assigns including successors in interest to the Property and inure to the benefit of Lender and its heirs, successors, substitutes, and assigns. Where two or more persons have executed the Loan Documents, the obligations of such persons shall be joint and several, except to the extent the context clearly indicates otherwise. The Loan Documents may be executed in any number of counterparts with the same effect as if all parties had executed the same document. All such counterparts shall be construed together and shall constitute one instrument, but in making proof hereof it shall only be necessary to produce one such counterpart. Upon receipt of 41 47 an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of any Loan Document which is not of public record, and, in the case of any mutilation, upon surrender and cancellation of the Loan Document, Borrower will issue, in lieu thereof, a replacement Loan Document, dated the date of the lost, stolen, destroyed or mutilated Loan Document containing the same provisions. 11.8 ENTIRE AGREEMENT. Except as provided in Section 5.17, (a) the Loan Documents constitute the entire understanding and agreement between Borrower and Lender with respect to the Loan and supersede all prior written or oral understandings and agreements with respect to the Loan including the Application and (b) Borrower is not relying on any representations or warranties of Lender except as expressly set forth in the Loan Documents. 11.9 WAIVER OF TRIAL BY JURY. BORROWER AND LENDER WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM FILED BY ANY OF BORROWER, LENDER, OR LESSEE, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE LOAN DOCUMENTS, OR ANY ACTS OR OMISSIONS OF BORROWER, LESSEE, OR LENDER IN CONNECTION THEREWITH. ARTICLE XII LOCAL LAW PROVISIONS [ADD STATE SPECIFIC PROVISIONS] IN WITNESS WHEREOF, the undersigned has executed this Instrument as of the day first set forth above. BORROWER: FELCOR/CSS HOLDINGS, L.P., a Delaware limited partnership By: FelCor/CSS Hotels, L.L.C., its General Partner By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 42 48 STATE OF ) ---------- ) COUNTY OF ) -------- On _________________ before me, _____________________, personally appeared ___________________ (here insert name and title of the officer), 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 authorized capacity(ies), and that by 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 (Seal) -------------------- 49 EXHIBIT A SCHEDULE OF DEFINED TERMS As used in this Instrument, the following terms shall have the meaning specified: Certificate of Representations and Warranties: That certain Certificate of Representations and Warranties dated as of the date of this Instrument executed by Borrower in favor of Lender, as the same may be amended, modified, extended, renewed or restated from time to time. Debt Service Coverage Ratio: The ratio, as reasonably determined by Lender, calculated by dividing (i) NOI by (ii) the aggregate debt service payments for any given calendar year on the Loan and on all other indebtedness secured, or to be secured, by any part of the Hotel Properties. An example calculation of the Debt Service Coverage Ratio is attached as Schedule A-1 hereto. Default Rate: The meaning specified in the Note. Discount Rate: The meaning specified in the Note. Environmental Law: Any present and future federal, state and local laws, statutes, ordinances, rules, regulations, standards, policies and other government directives or requirements, as well as common law, that apply to Borrower or the Property and relate to Hazardous Materials including the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act. Fair Market Value: With respect to any Hotel Property, the amount that a willing buyer under no compulsion to buy would pay, and a willing seller under no compulsion to sell would accept, for the purchase and sale of such Hotel Property, in an arms-length, all-cash sale with customary closing pro-rations and adjustments and based on the current state of title to the Hotel Property, but free and clear of this Instrument and the Other Mortgages, the Primary Lease and the Other Primary Leases, the Management Agreement and the Other Management Agreements and the License Agreement and the Other License Agreements (it being agreed that any termination fee or similar payment required to terminate any of the Management Agreements and/or License Agreements prior to expiration of their respective terms shall be taken into account and shall constitute deductions in determining Fair Market Value). FelCor: FelCor Lodging Limited Partnership, a Delaware limited partnership, which, as of the date of this Instrument, is the holder of all of the limited partnership interests in Borrower and all of the membership interests in Borrower's General Partner. FelCor REIT: FelCor Lodging Trust Incorporated, a Delaware corporation, which, as of the date of this Instrument, is the sole general partner of FelCor. FF&E Account: The meaning specified in the Loan Agreement. 50 Full Insurable Value: The one hundred percent (100%) replacement cost of the Property, without allowance for depreciation and exclusive of the cost of excavations, foundations, and footings, as determined, at Borrower's expense, periodically (but at least once per year) by the insurance company or an appraiser, engineer, architect, or contractor approved by said company and Lender. Governmental Authority: Any court, board, agency, commission, office or authority of any nature whatsoever for any governmental and quasi-governmental unit (federal, state, county, district, municipal, city, regional, or otherwise) whether now or hereafter in existence. General Partner: FelCor/CSS Hotels, LLC, a Delaware limited liability company. Hazardous Materials: 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; any substance the presence of which on the Property is prohibited by any federal, state or local authority; any substance that requires special handling or poses a hazard to the Property, the environment or the health and safety of persons on or about the Property; 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," or "pollutant" within the meaning of any Environmental Law. Hotel Properties: Along with the Property, the hotel properties securing the Loan, as the same may be released, replaced or modified pursuant to the terms of the Loan Agreement. Indirect Transfer: Any Transfer of, or with respect to, any equity interests in Borrower or Lessee held either directly or indirectly through one or more intermediate entities. Indebtedness: The indebtedness evidenced by the Note (including any prepayment Premium due thereunder) and any extensions, modifications or renewals thereof, whether or not evidenced by a new or additional promissory note or notes, and all other amounts due from Borrower to Lender hereunder or under any of the Other Mortgages, or evidenced and/or secured by the Loan Documents, plus interest on all such amounts as provided in the Loan Documents. Lessee: DJONT Operations, L.L.C., a Delaware limited liability company. License Agreement: The existing license Agreement with the Licensor with respect to the Property as of the date of this Instrument, as the same may be amended from time to time (subject to obtaining Lender's consent to any such amendment), or any extension, renewal, or replacement thereof entered into in accordance with the provisions of Section 8 of the Loan Agreement. 2 51 Licensor: Promus Hotels, Inc., a Delaware corporation, or in the event Borrower shall enter into a replacement License Agreement in accordance with the provisions of Section 8 of the Loan Agreement, the licensor under such replacement license agreement. Loan Agreement: That certain Mortgage Loan Agreement dated as of the date of this Instrument entered into by and between Borrower and Lender, as the same may be amended, modified, extended, renewed or restated from time to time. Loan Documents: The Note, this Instrument, the Loan Agreement, the Other Mortgages, the Assignment of Leases and Rents, all Assignments of Leases and Rents with respect to the other Hotel Properties, the Environmental Indemnity, the ERISA Certificate and Indemnification Agreement, the Assignment of Agreements with respect to the Property and all Assignments of Agreements with respect to the other Hotel Properties, the Certificate of Representations and Warranties, the Multi-Party Agreement with respect to the Property and all Multi-Party Agreements with respect to the other Hotel Properties, all other documents now or hereafter evidencing, securing or relating to the Loan, the payment or performance of the Obligations, as any of the foregoing may be amended, modified, renewed, supplemented, restated, or extended from time to time. Loan to Value Ratio: The ratio, as of the time at which such ratio is to be determined hereunder, of (i) the aggregate principal balance of all encumbrances against the Hotel Properties to (ii) the Fair Market Value of the Hotel Properties. In any case in which the Loan-to-Value Ratio is to be determined, Lender shall promptly make a determination, based on its standard property valuation methods, of the Fair Market Value and shall notify Borrower in writing of Lender's determination. If, within ten (10) business days after Borrower's receipt of Lender's determination, the parties are unable to reach agreement on the Fair Market Value of the applicable Hotel Properties, then such Fair Market Value shall be determined by appraisal as provided in Section 9 of the Loan Agreement. Manager: Collectively, Promus Hotels, Inc., a Delaware corporation, or in the event Borrower shall enter into a replacement Management Agreement in accordance with the provisions of Section 8 of the Loan Agreement, the manager under such replacement management agreement. Management Agreement: The existing management agreement with respect to the Property with the Manager as of the date of this Instrument, as the same may be amended from time to time (subject to obtaining Lender's consent to any such amendment), or any extension, renewal, or replacement thereof entered into in accordance with the provisions of Section 8 of the Loan Agreement. Material Leases: Any Lease for restaurant space. NOI: The total, for all Hotel Properties of the aggregate rental payments made under the Primary Lease and the Other Primary Leases for the applicable twelve (12) month period, less all expenses and obligations payable by Borrower under the Primary Lease and the Other Primary 3 52 Leases or with respect to Borrower's ownership and operation of the Hotel Properties for that twelve (12) month period, including, without limitation, payments (if any) for ground rent, reserves for replacements of FF&E in the amounts required from time to time pursuant to Section 3 of the Loan Agreement, Assessments and Insurance Premiums, but excluding deductions for federal, state and other income taxes, debt service expense, depreciation or amortization of capital expenditures and other similar non-cash items. For purposes of calculating NOI, (i) rental income shall not be anticipated for any greater time period than that approved by generally accepted accounting principles, and (ii) expense items shall not be prepaid. Documentation of NOI and expenses shall be certified by an officer of Borrower with detail reasonably satisfactory to Lender. Note: That certain Promissory Note of even date with this Instrument made by Borrower to the order of Lender in the aggregate amount of the Loan, as the same may be amended, supplemented, restated, consolidated or otherwise modified from time to time. Other License Agreements. Collectively, all of those certain other license agreements with respect to the other Hotel Properties with the Licensor, as the same may be amended from time to time (subject to obtaining Lender's consent to any such amendment), or any extension, renewal or replacement thereof entered into in accordance with the provisions of Section 8 of the Loan Agreement. Other Management Agreements. Collectively, all of those certain other management agreements with respect to the other Hotel Properties with the Manager, as the same may be amended from time to time (subject to obtaining Lender's consent to any such amendment), or any extension, renewal or replacement thereof entered into in accordance with the provisions of Section 8 of the Loan Agreement. Other Mortgages: Collectively, all of those certain other mortgages or deeds of trust of even date with this Instrument made by Borrower in favor of Lender to secure the Obligations, which encumber the other Hotel Properties, as the same may be amended, supplemented, restated, consolidated or otherwise modified from time to time. Other Primary Leases. Collectively, all of those certain other lease agreements between Borrower, as landlord, and Lessee, as tenant, pursuant to which other Hotel Properties are leased to Lessee. Permitted Encumbrance: Collectively, (a) the Liens, encumbrances and other matters shown as exceptions in the title insurance policy with respect to the Property approved by Lender, (b) Liens for Assessments from time to time which are not yet delinquent, (c) the Lien of this Instrument and the other Loan Documents, (d) the Primary Lease, the Material Leases, the Management Agreement, the License Agreement and the Non-Material Leases, and (e) such other title exceptions as Lender shall have approved in its sole discretion. Permitted Indirect Transfer: The following (and only the following) Indirect Transfers, which shall not require the consent or approval of Lender and shall not constitute a default or Event of Default under the Loan Documents: (i) any Transfer of any direct or indirect equity 4 53 interests in either Borrower or FelCor, to any of FelCor, FelCor REIT, or any entity wholly-owned (directly or indirectly) by FelCor or the FelCor REIT; (ii) any Transfer of limited partnership interests in FelCor, expressly including any conversion of such limited partnership interests to stock in the FelCor REIT; provided, that in the event all limited partnership interests in FelCor have been converted to stock of the FelCor REIT and FelCor is dissolved, the FelCor REIT shall succeed to all of the assets, and shall assume all of the obligations and liabilities, of FelCor at the time of such dissolution, including all of the obligations and liabilities of FelCor under the Loan Documents; (iii) any Transfer of stock in the FelCor REIT; provided, that in any case in which a Transfer is in the nature of a merger, tender offer, or similar transaction in which the FelCor REIT or all or substantially all of its assets are merged into, acquired by, or combined with a Successor Entity, the requirements of Section 7.2 of this Instrument must be satisfied; (iv) any sale of all of the membership interests in Lessee, in accordance with the requirements of Section 7.3 of this Instrument, or any Transfer between or among the persons holding the membership interests in Lessee as of the date of the Loan Documents or to or among such persons' immediate family members or family trusts; (v) any Transfer of limited partnership interests in Borrower, provided that FelCor or the FelCor REIT, or any entity wholly-owned (directly or indirectly) by FelCor or the FelCor REIT, shall retain at least 50.1% of all such limited partnership interests; and (vi) any Transfer under any will (or applicable law of descent), or any Transfer into any grantor trust or family trust for estate planning purposes. Primary Lease: That certain Lease Agreement dated as of between Borrower, as landlord, and Lessee, as tenant, pursuant to which the Property has been leased to Lessee, as the same may be amended from time to time (subject to obtaining Lender's consent to any such amendment), or any extension, renewal or replacement thereof entered into in accordance with Section 8 of the Loan Agreement. Prepayment Premium: The meaning specified in the Note. Release of Hazardous Materials: Any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, pumping, pouring, escaping, dumping, disposing or other movement of Hazardous Materials. Transfer: With respect to any property or interest, any manner of sale, conveyance, assignment, transfer, divestiture, exchange, conversion, mortgage, pledge, assignment for security, or encumbrance of such property or interest, whether voluntarily or involuntarily, and expressly including any merger, consolidation, or dissolution with respect to any entity holding such property or interest. 5 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1999 10-Q OF FELCOR LODGING TRUST INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 26,644 0 31,513 0 0 58,157 4,225,293 (214,333) 4,231,771 110,865 1,671,191 0 295,000 693 2,013,583 4,231,771 0 126,917 0 0 0 0 28,422 36,747 0 36,747 0 0 0 36,747 .45 .45
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