EX-10.27 8 dex1027.txt LOAN AGREEMENT - MARCH 1997 EXHIBIT 10.27 ================================================================================ LOAN AGREEMENT Dated as of March 5, 1997 Between INNKEEPERS RESIDENCE DENVER-DOWNTOWN, L.P. INNKEEPERS RESIDENCE WICHITA EAST, L.P. INNKEEPERS RESIDENCE SILI I, L.P. INNKEEPERS FINANCING PARTNERSHIP III, L.P., as Borrower and NOMURA ASSET CAPITAL CORPORATION, as Lender ================================================================================ TABLE OF CONTENTS Page ---- I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION .................................1 Section 1.1 Definitions .................................................1 Section 1.2 Principles of Construction .................................14 II. GENERAL ..................................................................15 Section 2.1 The Loan ...................................................15 2.1.1 Commitment ...............................................15 2.1.2 Disbursement to Borrower .................................15 2.1.3 The Note .................................................15 2.1.4 Use of Proceeds of Loan ..................................15 Section 2.2 Interest; Monthly Payments .................................15 2.2.1 Generally ................................................15 2.2.2 Accrued Interest .........................................16 2.2.3 Property Cash Flow Allocation ............................16 2.2.4 Default Rate .............................................17 Section 2.3 Loan Repayment and Defeasance ..............................17 2.3.1 Repayment.................................................17 2.3.2 Mandatory Prepayments ....................................17 2.3.3 Voluntary Defeasance of the Note .........................18 Section 2.4 Release of Property ........................................20 2.4.1 Release of All of the Properties .........................20 2.4.2 Release of Individual Properties .........................20 2.4.3 Release on Payment in Full ...............................21 Section 2.5 Payments and Computations ..................................21 2.5.1 Making of Payments .......................................21 2.5.2 Computations .............................................21 2.5.3 Late Payment Charge ......................................21 Section 2.6 Cash Management Arrangements ...............................22 III. CONDITIONS PRECEDENT ....................................................22 Section 3.1 Conditions Precedent to the Loan ...........................22 IV. REPRESENTATIONS AND WARRANTIES ...........................................25 Section 4.1 Borrower Representations ...................................25 Section 4.2 Survival of Representations ................................33 V. AFFIRMATIVE COVENANTS ....................................................33 Section 5.1 Borrower Covenants .........................................33 VI. NEGATIVE COVENANTS .......................................................42 i Page ---- Section 6.1 Borrower's Negative Covenants...............................42 VII. CASUALTY; CONDEMNATION; ESCROWS .........................................44 Section 7.1 Insurance; Casualty and Condemnation........................44 7.1.1 Insurance ................................................44 7.1.2 Casualty and Application of Proceeds .....................46 7.1.3 Condemnation .............................................47 Section 7.2 Required Repair; Required Repair Funds .....................49 7.2.1 Required Repairs: Deposits ...............................49 7.2.2 Grant of Security Interest ...............................49 7.2.3 Release of Required Repair Funds .........................49 7.2.4 Failure to Perform Required Repairs ......................50 Section 7.3 Tax and Insurance Escrow Fund ..............................50 7.3.1 Tax and Insurance Escrow Fund ............................50 7.3.2 Grant of Security Interest ...............................51 7.3.3 Application of Tax and Insurance Escrow Fund .............51 Section 7.4 Capital Reserve Fund .......................................52 7.4.1 Capital Reserve Fund .....................................52 7.4.2 Additional Capital Reserve Fund ..........................52 7.4.3 Grant of Security Interest ...............................53 7.4.4 Application of Capital Reserve Fund ......................53 7.4.5 Payment of Capital Expenses ..............................53 Section 7.5 Payment of Approved Operating Expenses......................53 VIII. DEFAULTS ...............................................................54 Section 8.1 Event of Default ...........................................54 Section 8.2 Remedies ...................................................57 Section 8.3 Remedies Cumulative ........................................58 IX. SPECIAL PROVISIONS .......................................................58 Section 9.1 Sale of Note and Securitization ............................58 Section 9.2 Securitization Indemnification .............................59 Section 9.3 Rating Surveillance ........................................62 Section 9.4 Exculpation ................................................62 Section 9.5 Retention of Servicer ......................................63 X. MISCELLANEOUS ............................................................63 Section 10.1 Survival ..................................................63 Section 10.2 Lender's Discretion .......................................63 Section 10.3 Governing Law .............................................64 Section 10.4 Modification, Waiver in Writing ...........................65 Section 10.5 Delay Not a Waiver ........................................65 Section 10.6 Notices ...................................................65 ii Page ---- Section 10.7 Trial by Jury .............................................66 Section 10.8 Headings ..................................................67 Section 10.9 Severability ..............................................67 Section 10.10 Preferences ..............................................67 Section 10.11 Waiver of Notice .........................................67 Section 10.12 Remedies of Borrower .....................................67 Section 10.13 Expenses; Indemnity ......................................67 Section 10.14 Exhibits Incorporated ....................................69 Section 10.15 Offsets, Counterclaims and Defenses ......................69 Section 10.16 No Joint Venture or Partnership ..........................69 Section 10.17 Publicity ................................................69 Section 10.18 Waiver of Marshalling of Assets ..........................69 Section 10.19 Waiver of Counterclaim ...................................70 Section 10.20 Conflict; Construction of Documents ......................70 Section 10.21 Brokers and Financial Advisors ...........................70 Section 10.22 No Third Party Beneficiaries .............................70 Section 10.23 Cross-Default; Cross Collateralization ...................70 Section 10.24 Prior Agreements .........................................70 SCHEDULES Schedule 1 - Properties; Allocated Loan Amounts Schedule 2 - Matters Regarding Representations Schedule 3 - Required Repairs EXHIBITS Exhibit A - Form of Note Exhibit B - Form of Budget iii LOAN AGREEMENT LOAN AGREEMENT dated as of March 5, 1997 between INNKEEPERS RESIDENCE DENVER-DOWNTOWN, L.P., INNKEEPERS RESIDENCE WICHITA EAST, L.P., INNKEEPERS RESIDENCE SILI I, L.P. and INNKEEPERS FINANCING PARTNERSHIP III, L.P., each a limited partnership duly organized and validly existing under the laws of the State of Virginia (each, an "Individual Borrower", and collectively, "Borrower"), on a joint and several basis, and NOMURA ASSET CAPITAL CORPORATION, a corporation organized under the laws of the State of Delaware (together with its permitted successors and assigns, "Lender"). All capitalized terms used herein shall have the respective meanings set forth in Section 1 hereof. W I T N E S S E T H : WHEREAS, Borrower desires to obtain the Loan from Lender; WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents; NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "Accrued Interest" shall have the meaning set forth in Section 2.2.2. "Actual Net Operating Income" shall mean, for any Properties for any period, the actual net operating income (as opposed to the Net Operating Income) relating to such Properties during such period, computed in accordance with GAAP and the Uniform System of Accounts without taking into account any underwriting adjustments of Lender. "Additional Capital Reserve Fund" shall have the meaning set forth in Section 7.4.2. "Affiliate" shall mean, as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by or is under common Control with such Person or is a director or officer of such Person or of an Affiliate of such Person. "Allocated Loan Amount" shall mean the principal portion of the Loan attributable to each Property as set forth on Schedule 1 attached hereto. "ALTA" shall mean American Land Title Association, or any successor thereto. "Annual Budget" shall have the meaning set forth in Section 5.1(r). "Approved Capital Expenses" shall mean with respect to any Property other than a Marriott Managed Property, Capital Expenses and FF&E Expenses incurred by Borrower which (i) are included in the approved Capital Budget for such Property, (ii) are not included in the approved Capital Budget, but do not cause either (A) the relevant line item for the entire year covered by the approved Capital Budget for such Property to be exceeded by the greater of $5,000 or more than 5% or (B) the total of the approved Capital Budget for such Property for the Current Month and all prior months covered by such approved Capital Budget (i.e., year to date) to be exceeded by more than 5%, or (iii) have been approved by the Lender. "Approved Operating Expenses" shall mean, with respect to any Property for which there is no Operating Lease, Operating Expenses incurred by Borrower with respect to such Property which (i) are included in the approved Operating Budget for such Property for the Current Month, (ii) are not included in the approved Operating Budget for such Property for the Current Month, but do not cause the relevant line item for the Current Month or the total of such approved Operating Budget for the Current Month to be exceeded by more than the greater of $5,000 or 5%, (iii) are for required insurance or electric, gas, oil, water, sewer or other utility service to such Property or (iv) have been approved by the Lender. "Assignment of Agreements" shall mean, with respect to each Property, that certain first priority Assignment of Agreements, Licenses, Permits and Contracts dated as of the date hereof, from Borrower, as assignor, to Lender, as assignee, assigning to Lender as security for the Loan, to the extent assignable under law, all of Borrower's interest in and to the applicable Franchise Agreement and all other licenses, permits and contracts necessary for the use and operation of such Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Assignment of Leases" shall mean, with respect to each Property, that certain first priority Assignment of Leases and Rents dated as of the date hereof, from Borrower, as assignor, to Lender, as assignee, assigning to Lender as security for the Loan, to the extent assignable under law, all of Borrower's interest in and to the Rents and Leases for such Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Award" shall have the meaning set forth in Section 7.1.3. 2 "Borrower" shall mean, collectively, the four Individual Borrowers, on a joint and several basis, together with their permitted successors and assigns. "Business Day" shall mean any day excluding a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. "Capital Budget" shall have the meaning set forth in Section 5.1(r). "Capital Expenses" shall mean expenses that are required under GAAP to be capitalized. "Capital Reserve Fund" shall have the meaning set forth in Section 7.4.1. "Casualty/Condemnation Prepayments" shall have the meaning set forth in Section 2.3.2. "Closing Date" shall mean the date of the funding of the Loan. "Code" shall mean the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "Condemnation" shall have the meaning set forth in Section 7.1.3. "Condemnation Restoration" shall have the meaning set forth in Section 7.1.3. "Control" shall mean with respect to any Person either (i) ownership directly or through other entities, of more than 50% of all beneficial equity interest in such Person, and (ii) the power to direct the management, operation and business of such Person. "Current Month" shall mean, as of any date of determination, the then current calendar month. "Debt" shall mean the outstanding principal amount set forth in, and evidenced by, the Note, together with all interest accrued and unpaid thereon and all other sums due to Lender in respect of the Loan, including the Yield Maintenance Premium (if any then due) and any sums due under the Note, this Agreement, the Mortgages, or any other Loan Document. "Debt Service" shall mean, with respect to any particular period of time, scheduled principal and interest payments under the Note. "Debt Service Coverage Ratio" shall mean, as of any date, a ratio in which (a) the numerator is the Net Operating Income for the period of 12 calendar months ending immediately preceding such date, and (b) the denominator is the Pro-Forma Debt Service for such period. 3 "Default" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default. "Default Rate" shall mean, with respect to the Loan, a rate per annum equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) five percent (5%) above the Interest Rate. "Defeasance" shall have the meaning set forth in Section 2.3.3 hereof. "Defeasance Date" shall have the meaning set forth in Section 2.3.3. hereof. "Defeasance Deposit" shall mean an amount equal to the sum of (i) an amount sufficient to purchase U.S. Obligations which provide payments that will meet the Scheduled Defeasance Payments, (ii) any costs and expenses incurred or to be incurred in the purchase of such U.S. Obligations and (iii) any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection with the transfer of the Note, the creation of the Defeased Note and the Undefeased Note, if applicable, any transfer of the Defeased Note or otherwise required to accomplish the agreements of Sections 2.3 and 2.4 hereof. "Defeased Note" shall have the meaning set forth in Section 2.3.3 hereof. "Deposit Account" shall mean that account established and maintained pursuant to the Deposit Account Agreement. "Deposit Account Agreement" shall mean that certain Deposit Account Agreement dated as of the date hereof among Borrower, Lender, Lessee and LaSalle National Bank for collecting and retaining all the Rents from the Properties, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Disclosure Document" shall have the meaning set forth in Section 9.2(a). "Environmental Indemnity" shall mean that certain Environmental and Hazardous Substance Indemnification Agreement executed by Borrower in connection with the Loan for the benefit of Lender. "Equipment" shall have the meaning set forth in the Mortgages. "Event of Default" shall have the meaning set forth in Section 8.1. "Exchange Act" shall have the meaning set forth in Section 9.2(a). "Fiscal Year" shall mean each twelve month period commencing on January 1 and ending on December 31 during each year of the term of the Loan. 4 "FF&E Expenses" shall mean expenses on account of furniture, furnishings and equipment for any Property. "Franchise Agreement" shall mean any franchise or license agreement between Borrower or Lessee and any national hotel chain approved by Lender with respect to a Property. "GAAP" shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "General Partner" shall mean Innkeepers Financial Corporation III, a Virginia corporation. "Governmental Authority" shall mean any court, board, agency, commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "Improvements" shall have the meaning set forth in the Mortgages. "including" shall mean "including, without limitation". "Independent Director" shall have the meaning set forth in Section 4.1(cc). "Individual Borrower" shall mean each of Innkeepers Residence Denver Downtown, L.P., Innkeepers Residence Wichita East, L.P., Innkeepers Residence Sili I, L.P. and Innkeepers Financing Partnership III, L.P.,each of which is a Virginia limited partnership, together with its permitted successors and assigns. "Initial Prepayment" shall mean the prepayment by Borrower occurring on the date hereof of principal under the Note in the amount of $1,545,085. "Insurance Premiums" shall have the meaning set forth in Section 7.1.1 hereof. "Insured Casualty" shall have the meaning specified in Section 7.1.1(d). "Interest Rate" shall mean a rate of interest equal to 8.15% per annum. "Lease" shall mean any lease (including the Operating Lease), or, to the extent of the interest therein of Borrower, any sublease or sub-sublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Property, and every modification, amendment or other agreement relating to such lease, sublease, sub-sublease, or other agreement entered into in connection with such lease, sublease, sub-sublease, or other agreement and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. 5 "Legal Requirements" shall mean, with respect to each Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting such Property or any part thereof or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting such Property or any part thereof, including any which may (i) require repairs, modifications or alterations in or to such Property or any part thereof, or (ii) in any way limit the use and enjoyment thereof. "Lender" shall mean Nomura Asset Capital Corporation, together with its successors and assigns. "Lessee" shall mean collectively, JF Hotel IV, Inc., a Virginia corporation and JF Hotel V, Inc., a Virginia corporation, or any permitted successor lessees under the Operating Lease. "Lessee Subordination" shall mean collectively, those certain Subordination and Attornment Agreements dated the date hereof between Lessee and Lender. "Liabilities" shall have the meaning set forth in Section 9.2(b). "Licenses" shall have the meaning set forth in Section 4.1(w). "Lien" shall mean, with respect to each Property, any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting such Property or any portion thereof or any Individual Borrower, or any interest therein, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances. "Loan" shall mean the loan made to Borrower by Lender pursuant hereto in the original principal amount of $43,545,085 and evidenced by the Note and secured by the Mortgages and the other Loan Documents. "Loan Documents" shall mean, collectively, this Agreement, the Note, each Mortgage, each Assignment of Leases, each Assignment of Agreements, the Environmental Indemnity, the Lessee Subordination, the Manager Subordination, the Deposit Account Agreement and all other documents, agreements and instruments evidencing, securing or delivered to Lender in connection with the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Management Agreements" shall mean those certain management agreements between Lessee and Manager pursuant to which Manager is to provide management and other services with respect to the Marriott Managed Properties. 6 "Manager" shall mean Residence Inn by Marriott, Inc., a Delaware corporation. "Manager Subordination" shall mean collectively, those three certain Subordination Nondisturbance and Attornment Agreements dated the date hereof between Manager and Lender. "Marriott Managed Properties" shall mean the Properties known as Residence Inn - Denver, Residence Inn - Wichita and Residence Inn - Sili I for so long as such Properties continue to be managed by Manager. "Maturity Date" shall mean the date on which the final payment of principal of the Note (or the Defeased Note, if applicable) becomes due and payable as therein provided, whether at the Stated Maturity Date (March 11, 2019), by declaration of acceleration, or otherwise. "Monthly Debt Service Payment Amount" shall have the meaning set forth in Section 2.2.1. "Mortgages" shall mean those certain documents, each entitled Mortgage, Assignment of Leases and Rents and Security Agreement or Deed of Trust, Assignment of Leases and Rents and Security Agreement, executed and delivered by an Individual Borrower as security for the Loan and encumbering the respective Properties, as the same may be amended, restated, replaced, supplemented, consolidated or otherwise modified from time to time. "NACC" shall mean Nomura Asset Capital Corporation, a Delaware corporation. "Net Operating Income" shall mean, for any Properties for any period, the difference between all Operating Income of such Properties during such period, minus all Operating Expenses of such Properties; subject to adjustment, in the sole discretion of Lender, to reflect (i) supply and demand dynamics in the specific market for each such Property and the effect of new construction on occupancy and room rates; (ii) the growth or decline, as the case may be, in occupancy, average daily rate, gross revenue, departmental profit and gross operating profit for each such Property; (iii) the operating performance of such Properties that have been recently renovated; (iv) expense and other operating ratios of each such Property compared to those ratios achieved for a comparable asset in the hotel industry at large; and (v) minimum standards in the hotel industry for management and franchise fees for either full-service or limited-service hotels that have both a national franchise and management affiliation. Net Operating Income shall be audited, or shall be determined in accordance with agreed-upon procedures determined by Lender. "Nomura" shall have the meaning set forth in Section 9.2(b). "Nomura Group" shall have the meaning set forth in Section 9.2(b). "Note" shall mean that certain Note of even date herewith, made by Borrower in favor of Lender, substantially in the form of Exhibit A annexed hereto, as the same may be amended. 7 restated, replaced, supplemented, consolidated or otherwise modified from time to time, including any Undefeased Note that may exist from time to time. "Officers' Certificate" shall mean a certificate delivered to Lender by Borrower which is signed by a senior executive officer of General Partner pursuant to which such Person shall make a certification that is to the best of his knowledge after due inquiry. "Operating Budget" shall have the meaning set forth in Section 5.1(r). "Operating Expenses" shall mean, for any Property for any period, all fees and expenses incurred in connection with the operation of such Property for such period, whether incurred, paid, accrued or payable, as determined in accordance with GAAP and the Uniform System of Accounts, by or on behalf of any Individual Borrower or the Lessee, including the following (provided, however, that Operating Expenses shall not include Debt Service or payments to Lender for administration of the Loan, Capital Expenses, Rent payable under the Operating Lease, non-cash items such as depreciation and amortization or any extraordinary one-time expenditures not considered operating expenses): (i) the cost of sales, including compensation, fringe benefits, payroll taxes and other costs related to employees of the Property (the foregoing costs shall not include salaries and other employee costs of executive personnel of Lessee who do not work at the Property on a regular basis, except that the foregoing costs shall include the allocable portion of the salary and other employee costs of any "on-site" manager or other supervisory personnel assigned to a "cluster" of hotels which includes the Property); (ii) departmental expenses incurred at departments within the Property, administrative and general expenses for the Property and the cost of marketing incurred by Lessee for the Property, advertising and business promotion incurred by Lessee, heat, light, power. computer line charges and routine repairs, maintenance and minor alterations (excluding any amounts paid from the Capital Reserve Fund); (iii) the cost of inventories and fixed asset supplies consumed in the operation of the Property; (iv) a reasonable reserve for uncollectible accounts receivable as determined by Lessee; (v) all costs and fees of independent professionals or other third parties who are retained by Lessee with respect to the Property to perform services required or permitted hereunder; (vi) all costs and fees of technical consultants and operational experts who are retained or employed by Lessee and/or Affiliates of Lessee for specialized services (including quality assurance inspectors) with respect to the Property and the cost of attendance by employees of Lessee 8 (chargeable to the Property under (i) above) at training and manpower development programs sponsored by Lessee; (vii) advertising or marketing expenses or commissions or association dues paid in connection with the operation of the Property; (viii) franchise and license fees related to the Property; (ix) management fees, provided that, whether or not management fees are actually payable with respect to the operation of the Property, Operating Expenses for each month shall include an amount attributable to management fees in the amount of the greater of four and one-half percent (4.5%) of Operating Income of such Property for such month or the actual amount of such fees; (x) taxes, if any, payable by or assessed against Lessee related to this Agreement or to Lessee's operation of the Property (exclusive of income taxes) and all Taxes, Other Charges and insurance premiums related to the Property; (xi) deposits to the Capital Reserve Fund (but excluding any amounts paid from the Capital Reserve Fund) with respect to the Property; (xii) costs and expenses incurred in making reservations at or for the Property; and (xiii) such other costs and expenses related to the Property incurred by Borrower and/or Lessee as specifically provided for elsewhere in this Agreement or are otherwise reasonably necessary for the proper and efficient operation of the Property. "Operating Income" shall mean, for any Property for any period, all room rentals, together with all other rents, revenues, receipts or income payable to Lessee or Borrower from or otherwise relating to such Property including all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower from any and all sources arising from or attributable to such Property, including all hotel receipts, revenues and credit card receipts collected from guest rooms, mini-bars, parking, restaurants, bars, laundry, meeting rooms, banquet rooms and recreational facilities, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Borrower or any operator or manager of the hotel or the commercial space located in the Improvements or acquired from others (including from the rental of any office space, retail space, guest rooms or other space, halls, stores, and offices, and deposits securing reservations of such space), license, lease, sublease and concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales, service charges, 9 vending machine sales and proceeds, if any, from business interruption, rent loss or other loss of income insurance, during such period, excluding, however, (i) tips and gratuities (including service charges added to a customer's bill or statement in lieu of gratuities which are payable to employees of Lessee); (ii) sales taxes, excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist taxes or charges, hotel and motel taxes and any other taxes collected directly from patrons or guests or included as part of the sales price of any goods or services; (iii) credits, refunds, discounts or rebates made to customers, guests or patrons; (iv) sums and credits received in settlement of claims for loss or damage to merchandise; (v) income from the sale of furnishings, fixtures or equipment; (vi) bad debts; (vii) net proceeds of an Insured Casualty or a Condemnation (other than from rent loss or business interruption insurance); (viii) interest received or accrued with respect to any funds in the Deposit Account or any escrow or reserve account; (ix) any proceeds from any sale of the Property or from the refinancing of any debt encumbering the Property; and (x) any rent payable under the Operating Lease. "Operating Lease" shall mean, collectively, the four Lease Agreements dated as of the date hereof between Borrower and Lessee with respect to the Properties, as modified and supplemented in accordance herewith and in effect from time to time. "Optional Prepayment Date" shall mean March 11, 2009. "Other Charges" shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Properties, now or hereafter levied or assessed or imposed against the Properties or any part thereof. "Payment Date," shall mean the eleventh (11th) day of each calendar month or, if in any month the eleventh (11th) day is not a Business Day, than the Payment Date for such month shall be the first Business Day thereafter. "Permitted Encumbrances" shall mean, with respect to each Property, collectively, (a) the Liens and security interests created by the Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policy relating to such Property or any part thereof, (c) Liens, if any, for Taxes or Other Charges not yet delinquent, and (d) such other title and survey exceptions as Lender has approved or may approve in writing in Lender's sole discretion. "Permitted Indebtedness" shall mean the Debt and unsecured trade debt customarily payable within thirty (30) days in an aggregate amount not to exceed $750,000 at any time. "Permitted Investments" shall have the meaning set forth in the Deposit Account Agreement. "Person" shall mean any individual, corporation, partnership, joint venture, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, 10 department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "Policies" shall have the meaning specified in Section 7.1.1(c). "Pooling and Servicing Agreement" shall mean the Servicing Agreement entered into with the Servicer in connection with any Securitization of the Loan. "Premises" shall have the meaning set forth in the Granting Clause of the Mortgages. "Pro-Forma Debt Service" shall mean, for any period, the interest and principal that would have been due and payable for such period under the Note assuming (i) an outstanding principal equal to the principal balance of the Note outstanding on the determination date, (ii) an interest rate equal to the Interest Rate, and (iii) an annual debt service constant equal to the actual constant which is 10.15%. "Properties" shall mean, collectively, the parcels of real property and improvements thereon owned by Borrower and encumbered by the Mortgages, together with all rights pertaining to such property and improvements, as more particularly described in the Granting Clauses of the Mortgages and referred to therein as the "Property" or the "Mortgaged Property", as the case may be. A list of the Properties is set forth in Schedule 1 annexed hereto. "Provided Information" shall have the meaning set forth in Section 9.1. "Rating Agency" shall mean each of Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Fitch Investors Service, Inc. or any other nationally-recognized statistical rating agency which has been approved by Lender. "Registration Statement" shall have the meaning set forth in Section 9.2(b). "REIT" shall mean Innkeepers USA Trust, a Maryland real estate investment trust. "Release Amount" shall mean, for any Property, the product of the Allocated Loan Amount for such Property and one hundred twenty-five percent (125%). "Release Date" shall mean two (2) years from the "start-up day" (within the meaning of Section 860G(a)(9) of the Code) of the REMIC Trust. "REMIC" shall mean a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code. "REMIC Trust" shall mean a REMIC which holds the Note. 11 "Rents" shall mean all rent, rent equivalents, monies payable or damages in lieu of rent or rent equivalents under the Operating Leases and any other Leases directly between Borrower and a tenant, and for any Property if there is no Operating Lease, with respect to each such Property, all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower or its agents or employees from any and all sources arising from or attributable to such Property, including all hotel receipts, revenues and credit card receipts collected from guest rooms, mini-bars, parking, restaurants, bars, meeting rooms, banquet rooms and recreational facilities, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Borrower or any operator or manager of the hotel or the commercial space located in the Improvements or acquired from others (including from the rental of any office space, retail space, guest rooms or other space, halls, stores, and offices, and deposits securing reservations of such space), license, lease, sublease and concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales, service charges, vending machine sales and proceeds, if any, from business interruption, rent loss or other loss of income insurance. "Required Records" shall have the meaning set forth in Section 9.2 hereof. "Required Repair Account" shall have the meaning set forth in Section 7.2.1. "Required Repair Fund" shall have the meaning set forth in Section 7.2.1. "Required Repairs" shall have the meaning set forth in Section 7.2.1. "Restoration" shall have the meaning set forth in Section 7.1.2(b). "Revised Interest Rate" shall mean the per annum rate of interest which is the greater of (i) the Interest Rate plus 5% and (ii) the Treasury Rate on the Optional Prepayment Date plus 6.5%. "Scheduled Defeasance Payments" shall have the meaning set forth in Section 2.3.3. "Secondary Market Transaction" shall mean any transaction in which Lender (i) sells the Loan, the Note and the other Loan Documents to one or more investors as a whole loan, (ii) participates the Loan to one or more investors, (iii) deposits the Loan, the Mortgages, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (iv) otherwise sells the Loan or an interest therein to investors. 12 "Securities" shall have the meaning set forth in Section 9.1. "Securities Act" shall have the meaning set forth in Section 9.2(a). "Securitization" shall have the meaning set forth in Section 9.1. "Security Agreement" shall have the meaning set forth in Section 2.3.3(vii). "Servicer" shall mean the entity appointed by Lender to service the Loan or its successor in interest, or if any successor servicer is appointed pursuant to the Pooling and Servicing Agreement, such successor servicer. "Special Transfer" shall mean the sale by the original Borrower of all of the Properties (excluding those previously released under Section 2.4.2) to one purchaser pursuant to which such purchaser shall assume in writing all of the obligations of Borrower under the Loan, provided that Lender shall have received (i) evidence in writing from the applicable Rating Agencies to the effect that such a sale and assumption of the Loan by such purchaser will not result in a qualification, withdrawal or downgrading of the ratings in effect immediately prior to such sale for the Securities issued in connection with the Securitization which are then outstanding and (ii) an assumption fee equal to one percent (1%) of the outstanding amount of the Loan being assumed. "State" shall mean, for any Property, the state in which such Property is located. "Stated Maturity Date" shall mean March 11, 2019. "Successor Borrower," shall have the meaning set forth in Section 2.3.3(c). "Survey" shall mean a survey of the Property in question prepared by a surveyor licensed in the State and satisfactory to Lender and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Lender. "Tax and Insurance Escrow Fund" shall have the meaning set forth in Section 7.3.1. "Taxes" shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Property or part thereof. "Term" shall mean the entire term of this Agreement, which shall expire upon repayment in full of the Debt and full performance of each and every obligation to be performed by Borrower pursuant to the Loan Documents. 13 "Title Insurance Policy" shall mean, with respect to each Property, the ALTA mortgagee title insurance policy in the form (acceptable to Lender) issued with respect to such Property and insuring the lien of the Mortgage encumbering such Property. "Transfer" shall have the meaning set forth in Section 6.1(j). "Treasury Rate" shall mean, as of the Optional Prepayment Date, the linear interpolation of the bond equivalent yields as reported in Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading "U.S. Government Securities/Treasury Constant Maturities" for the week ending prior to the Optional Prepayment Date of U.S. Treasury constant maturities with maturity dates (one longer and one shorter) most nearly approximating the remaining term of the Note as of the Optional Prepayment Date. "UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in the State. "Undefeased Note" shall have the meaning set forth in Section 2.3.3 hereof. "Underwriter Group" shall have the meaning set forth in Section 9.2(b). "Uniform System of Accounts" shall mean the Uniform System of Accounts for Hotels as approved by the American Hotel and Motel Association (as in effect from time to time) applied on a consistent basis. "U.S, Obligation" shall mean direct non-callable obligations of the United States of America, or such other obligations of the United States of America or its agencies as may be permitted by Lender and the Rating Agencies at the time of a Defeasance. "Yield Maintenance Premium" shall mean the amount (if any) which, when added to the remaining principal amount of the Note or the principal amount of Defeased Note, as applicable, will be sufficient to purchase U.S. Obligations providing the required Scheduled Defeasance Payments. Section 1.2 Principles of Construction. All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. Unless otherwise specified, the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, as modified herein. 14 II. GENERAL Section 2.1 The Loan. 2.1.1 Commitment. Subject to and upon the terms and conditions set forth herein, including the conditions precedent set forth in Section 3.1, Lender hereby agrees to make the Loan to Borrower on the Closing Date, in the aggregate original principal amount set forth in the Note and which Loan shall mature on the Stated Maturity Date. Borrower hereby agrees to accept the Loan on the Closing Date, subject to and upon the terms and conditions set forth herein. 2.1.2 Disbursement to Borrower. Borrower may request and receive only one borrowing hereunder in respect of the Loan. Borrower shall receive the Loan upon the Closing, subject to the direction given by Borrower as to the application of Loan proceeds for the uses set forth in Section 2.1.4. Any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed. 2.1.3 The Note. The Loan shall be evidenced by the Note, in the aggregate original principal amount of the Loan. The Note shall bear interest as provided therein. The Note shall be subject to repayment as provided in Section 2.3, shall be entitled to the benefits of this Agreement and shall be secured by the Mortgages and the other Loan Documents. 2.1.4 Use of Proceeds of Loan. Borrower shall use the proceeds of the Loan first to (i) repay and discharge any existing loans relating to the Properties, (ii) fund the Tax and Insurance Escrow Fund, the Capital Reserve Fund and the Required Repair Fund, and (iii) pay costs and expenses incurred in connection with the Closing of the Loan, as approved by Lender; and for general Borrower purposes. Section 2.2 Interest; Monthly Payments. 2.2.1 Generally. (a) From the date hereof to but not including the Optional Prepayment Date, Borrower shall pay interest on the outstanding principal balance of the Loan at the Interest Rate. (b) On the Closing Date, Borrower shall (i) make the Initial Prepayment of the Loan and (ii) pay interest on the outstanding principal balance of the Loan after the Initial Prepayment from the Closing Date through March 10, 1997. Commencing with the Payment Date on April 11. 1997 and on each and every Payment Date thereafter through and including March 11, 1999, Borrower shall make payments of interest only on the then outstanding principal balance of the Loan at the Interest Rate. Commencing with the Payment Date on April 11, 1999 and on each and every Payment Date thereafter through and including the Maturity Date, the principal amount of the Loan and interest thereon at the Interest Rate shall be payable in equal monthly installments of $355,235.77 (the "Monthly Debt Service Payment Amount"); such Monthly Debt Service Payment Amount being based on the Interest Rate and a 264-month amortization schedule. The 15 Monthly Debt Service Payment Amount due on any Payment Date shall first be applied to the payment of interest accrued from the eleventh (11th) day of the month preceding the Payment Date through the tenth (10th) day of the month in which the Payment Date occurs, notwithstanding that the Payment Date may not have been the eleventh (11th) day of such month because the eleventh (11th) day of such month is not a Business Day. The remainder of such Monthly Debt Service Payment Amount shall be applied to the reduction of the outstanding principal balance of the Note. (c) From and after the Optional Prepayment Date, interest on the Loan shall accrue at the Revised Interest Rate and shall be payable as provided in Sections 2.2.2 and 2.2.3. 2.2.2 Accrued Interest. From and after the Optional Prepayment Date, all interest accruing in respect of the Note in excess of the Interest Rate ("Accrued Interest") shall, to the extent not paid, be deferred, be added to the Debt and, to the extent permitted by applicable law, accrue interest at the Revised Interest Rate, compounded monthly. All Accrued Interest shall be due and payable on the Maturity Date. 2.2.3 Property Cash Flow Allocation. (a) Commencing on April 11, 1997 and continuing on each Payment Date thereafter through the Optional Prepayment Date, except during the continuance of an Event of Default, any Rents deposited into the Deposit Account (or otherwise received by Borrower) during the immediately preceding calendar month shall be applied by Lender as follows in the following order of priority: (i) First, to make required payments to the Tax and Insurance Escrow Fund; (ii) Second, to Lender to pay interest only on the Loan up to and including the March 11, 1999 Payment Date, and the Monthly Debt Service Payment Amount on each Payment Date thereafter (plus, if applicable, interest at the Default Rate); (iii) Third, to make required payments to the Capital Reserve Fund; (iv) Fourth, payments for Approved Operating Expenses for any Property for which there is no Operating Lease; and (v) Lastly, payments to (or for the account of) Borrower of any excess amounts. (b) Commencing on the first Payment Date occurring after the Optional Prepayment Date and continuing on each Payment Date thereafter until the entire Debt has been paid in full, and at any time during the continuance of an Event of Default, any Rents deposited into the Deposit Account (or otherwise received by Borrower) during the immediately preceding calendar month shall be applied by Lender as follows in the following order of priority: (i) First to make required payments to the Tax and Insurance Escrow Fund; 16 (ii) Second, to Lender to pay the Monthly Debt Service Payment Amount (plus, if applicable, interest at the Default Rate); (iii) Third, to make required payments to the Capital Reserve Fund; (iv) Fourth, payments for Approved Operating Expenses for any Property for which there is no Operating Lease; (v) Fifth, payments to Lender to prepay the outstanding principal balance under the Note until paid in full; (vi) Sixth, payments to Lender to be applied against Accrued Interest and interest accrued thereon; and (vii) Lastly, payments to Borrower of any excess amounts. Notwithstanding anything herein to the contrary, the failure of Borrower to make all of the payments required under clauses (i) through (iv) above in full on each Payment Date after the Optional Prepayment Date shall constitute a Default under this Agreement. However, the failure of Borrower to prepay any principal amount outstanding or to pay any Accrued Interest on a Payment Date as a result of insufficient Rents for such payment shall not constitute a Default hereunder. All Accrued Interest shall nonetheless be due and payable on the Maturity Date. 2.2.4 Default Rate. After the occurrence and during the continuance of an Event of Default, the entire outstanding principal balance of the Loan shall bear interest at the Default Rate, and shall be payable upon demand from time to time, to the extent permitted by applicable law. Payment or acceptance of the increased rates provided for in this subsection is not a permitted alternative to timely payment and shall not constitute a waiver of any Default or Event of Default or an amendment to this Agreement or any other Loan Document and shall not otherwise prejudice or limit any rights or remedies of Lender. Section 2.3 Loan Repayment and Defeasance. 2.3.1 Repayment. Borrower shall repay any outstanding principal indebtedness of the Loan in full on the Maturity Date of the Loan, together with interest thereon to (but excluding) the date of repayment. Other than the Initial Prepayment and as set forth in Sections 2.3.2 and 2.3.3 below, Borrower shall have no right to prepay all or any portion of Loan during the period commencing on the Closing Date to but not including the third Payment Date prior to the Optional Prepayment Date. From and after the third Payment Date prior to the Optional Prepayment Date, the Loan may be prepaid in whole or in part without penalty or premium. 2.3.2 Mandatory Prepayments. The Loan is subject to mandatory prepayment without premium or penalty, in certain instances of Insured Casualty or Condemnation (each a "Casualty/Condemnation Prepayment"), in the manner and to the extent set forth in Sections 17 7.1.2 and Section 7.1.3 hereof. Each Casualty/Condemnation Prepayment shall be made on a Payment Date and include all accrued and unpaid interest on the amount prepaid up to but not including such Payment Date or, if not paid on a Payment Date, include interest that would have accrued on the amount prepaid to but not including the next Payment Date. 2.3.3 Voluntary Defeasance of the Note. (a) Subject to the terms and conditions set forth in this Section 2.3.3, Borrower may defease all or any portion of the Loan evidenced by the Note (hereinafter, a "Defeasance"); provided, that no such Defeasance may occur prior to the Release Date. Each Defeasance shall be subject, in each case, to the satisfaction of the following conditions precedent: (i) Borrower shall provide not less than thirty (30) days prior written notice to Lender specifying a Payment Date (the "Defeasance Date") on which the Defeasance is to occur. Such notice shall indicate the principal amount of the Note to be defeased. (ii) Borrower shall pay to Lender all accrued and unpaid interest on the principal balance of the Note to but not including the Defeasance Date. If for any reason the Defeasance Date is not a Payment Date, Borrower shall also pay interest that would have accrued on the Note to but not including the next Payment Date. (iii) Borrower shall pay to Lender all other sums, not including scheduled interest or principal payments, then due under the Note, this Agreement, the Mortgages and the other Loan Documents. (iv) No Event of Default shall exist. (v) Borrower shall pay to Lender the required Defeasance Deposit for the Defeasance. (vi) In the event only a portion of the Loan evidenced by the Note is the subject of the Defeasance, Borrower shall execute and deliver all necessary documents to amend and restate the Note and issue two substitute notes: one having a principal balance equal to the defeased portion of the original Note (the "Defeased Note") and one note having a principal balance equal to the undefeased portion of the original Note (the "Undefeased Note"). The Defeased Note and Undefeased Note shall have identical terms as the Note, except for the principal balance. A Defeased Note cannot be the subject of any further Defeasance. (vii) Borrower shall execute and deliver a security agreement, in form and substance satisfactory to Lender, creating a first priority lien on the Defeasance Deposit and the U.S. Obligations purchased with the Defeasance Deposit in accordance with this provision of this Section 2.3.3 (the "Security Agreement"). (viii) Borrower shall deliver an opinion of counsel for Borrower in form satisfactory to Lender in its reasonable discretion stating, among other things, that (A) Lender has a perfected first 18 priority security interest in the Defeasance Deposit and the U.S. Obligations delivered by Borrower and (B) said U.S. Obligations have been validly assigned to the REMIC Trust. (ix) Lender shall receive evidence in writing from the applicable Rating Agencies to the effect that such Defeasance will not result in a reduction, withdrawal or requalification of the ratings in effect immediately prior to such Defeasance for the Securities issued in connection with the Securitization which are then outstanding. (x) If required by the applicable Rating Agencies, Borrower shall also deliver or cause to be delivered a non-consolidation opinion with respect to the Successor Borrower in form and substance satisfactory to Lender and the applicable Rating Agencies. (xi) Borrower shall deliver an Officer's Certificate certifying that the requirements set forth in this Section 2.3.3(a) have been satisfied. (xii) Borrower shall deliver a certificate from an independent certified public accountant certifying that the amounts of the U.S. Obligations comply with all of the requirements of this Agreement. (xiii) Borrower shall deliver such other certificates, documents or instruments as Lender may reasonably request. (xiv) Borrower shall pay all reasonable costs and expenses of Lender incurred in the Defeasance, including any costs and expenses associated with a release of Lien as provided in Section 2.4 hereof and reasonable attorney's fees and expenses. (b) In connection with each Defeasance of all or any portion of the Note, Borrower hereby appoints Lender as its agent and attorney-in-fact for the purpose of using the Defeasance Deposit to purchase U.S. Obligations (which purchases, if made by Lender, shall be made by Lender on an arms-length basis at then prevailing market rates) which provide payments on or prior to, but as close as possible to, all successive Payment Dates after the Defeasance Date through and including the Optional Prepayment Date, in the case of a Defeasance for the entire outstanding principal balance of the Note, or the Defeased Note, in the case of a Defeasance for only a portion of the outstanding principal balance of the Loan, as applicable (including, on the Optional Prepayment Date, the outstanding principal balance of either the Note or the Defeased Note), and in amounts equal to the scheduled payments due on such dates under the Note or the Defeased Note, as applicable (the "Scheduled Defeasance Payments"). Borrower, pursuant to the Security Agreement or other appropriate document, shall irrevocably authorize and direct that the payments received from the U.S. Obligations may be made directly to Lender and applied to satisfy the obligations of Borrower under the Note or the Defeased Note, as applicable. Any portion of the Defeasance Deposit in excess of the amount necessary to purchase the U.S. Obligations required by this Section 2.3(b) and satisfy Borrower's obligations under Sections 2.3 or 2.4 shall be remitted to Borrower. Any amounts received in respect of the U.S. Obligations in excess of the amounts necessary to make monthly payments pursuant to Section 2.2 shall be retained by Lender until 19 payment in full of the Loan. Semi-annual payments in respect of U.S. Obligations shall be applied to payments under the Note or the Defeased Note, as applicable, as the same become due thereunder. (c) If requested by Borrower in connection with any Defeasance under this Section 2.3.3, NACC shall establish or designate a successor entity (the "Successor Borrower") and Borrower shall transfer and assign all obligations, rights and duties under and to the Note or the Defeased Note, as applicable, together with the pledged U.S. Obligations to such Successor Borrower. The obligation of NACC to establish or designate a Successor Borrower shall be retained by NACC notwithstanding the sale or transfer of this Agreement unless such obligation is specifically assumed by the transferee. Such Successor Borrower shall assume the obligations under the Note or the Defeased Note, as applicable, and the Security Agreement and Borrower shall be relieved of its obligations thereunder. Borrower shall pay $1,000 to any such Successor Borrower as consideration for assuming the obligations under the Note or the Defeased Note, as applicable, and the Security Agreement. Notwithstanding anything in this Agreement to the contrary, no other assumption fee shall be payable upon a transfer of the Note or the Defeased Note in accordance with this Section 2.3.3, but Borrower shall pay all costs and expenses incurred by Lender, including Lender's reasonable attorneys' fees and expenses, incurred in connection therewith. Section 2.4 Release of Property. Except as set forth in this Section 2.4, no repayment, prepayment or Defeasance of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of the Lien of the Mortgage on any Property. 2.4.1 Release of All of the Properties. (a) If Borrower has elected to defease the Note in its entirety, and the requirements of Section 2.3 have been satisfied, the Properties shall be released from the Lien of the Mortgages and the U.S. Obligations, pledged pursuant to the Security Agreement, shall be the sole source of collateral securing the Note. (b) In connection with the release of the Lien, Borrower shall submit to Lender, not less than twenty (20) days prior to the Defeasance Date, a release of Lien (and related Loan Documents) for each Property (for execution by Lender) in a form appropriate in the State satisfactory to Lender in its reasonable discretion and all other documentation Lender requires to be delivered by Borrower in connection with such release, together with an Officer's Certificate certifying that such documentation (i) is in compliance with all Legal Requirements, and (ii) will effect such release in accordance with the terms of this Agreement. 2.4.2 Release of Individual Properties. Borrower on one or more occasions may obtain (i) the release of an individual Property from the Lien of the Mortgage thereon (and related Loan Documents) and (ii) the release of Borrower's obligations under the Loan Documents with respect to such Property (other than those expressly stated to survive), upon satisfaction of each of the following conditions: (a) In connection with a Defeasance of the Note under Section 2.3.3, the principal balance of the Defeased Note shall equal or exceed the Release Amount and the requirements of Section 2.3.3. shall have been satisfied. 20 (b) Borrower shall submit to Lender, not less than twenty (20) days prior to the date of such release, a release of Lien (and related Loan Documents) for such Property (for execution by Lender) in a form appropriate in each jurisdiction in which the Property is located satisfactory to Lender in its reasonable discretion and all other documentation Lender reasonably requires to be delivered by Borrower in connection with such release, together with an Officer's Certificate certifying that such documentation (i) is in compliance with all Legal Requirements, (ii) will effect such release in accordance with the terms of this Agreement, and (iii) will not impair or otherwise adversely affect the Liens, security interests and other rights of Lender under the Loan Documents not being released (or as to the parties to the Loan Documents and Properties subject to the Loan Documents not being released). (c) With respect to any release of an individual Property, after giving effect to such release and the Defeasance of the Note, the Debt Service Coverage Ratio for all of the Properties then remaining subject to the Liens of the Mortgages shall be equal to the greater of (i) the Debt Service Coverage Ratio on the Closing Date and (ii) the Debt Service Coverage Ratio on the date of the release of such Property. 2.4.3 Release on Payment in Full. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of all principal and interest on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms thereof, release the Lien of the Mortgages if not theretofore released. Section 2.5 Payments and Computations. 2.5.1 Making of Payments. Each payment by Borrower hereunder or under the Note shall be made in funds settled through the New York Clearing House Interbank Payments System or other funds immediately available to Lender by 11:00 a.m., New York City time, on the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. Whenever any payment hereunder or under the Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the first Business Day thereafter. 2.5.2 Computations. Interest payable hereunder or under the Note by Borrower shall be computed on the basis of the actual number of days elapsed and a 360-day year. 2.5.3 Late Payment Charge. If any principal, interest or any other sums due under the Loan Documents (other than any principal that is not part of scheduled debt service) is not paid by Borrower on the date on which it is due (unless sufficient funds are available in the Deposit Account on the applicable date), Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Mortgages and the other Loan Documents. 21 Section 2.6 Cash Management Arrangements. All Rents payable by Lessee under the Operating Lease will be transmitted directly by Lessee into the Deposit Account. All other Rents and security deposits from the Properties received by Borrower will be transmitted directly into the Deposit Account, or at Borrower's option, into one or more accounts maintained by Borrower but controlled by Lender at one or more local banks selected by Borrower which shall be swept into the Deposit Account on a daily basis. All other income or revenue received by Borrower in connection with the Properties will be deposited into the Deposit Account within one Business Day of receipt. Any amounts so deposited into the Deposit Account shall be applied and disbursed in accordance with the terms and provisions of this Agreement and the Deposit Account Agreement. III. CONDITIONS PRECEDENT Section 3.1 Conditions Precedent to the Loan. The obligation of Lender to make the Loan hereunder is subject to the fulfillment by Borrower or waiver by Lender of the following conditions precedent no later than the Closing Date: (a) Representation and Warranties; Compliance with Conditions. The representations and warranties of Borrower contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of such date, and no Default or Event of Default shall have occurred and be continuing; and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each other Loan Document on its part to be observed or performed. (b) Loan Agreement and Note. Lender shall have received a copy of this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrower. (c) Delivery of Loan Documents; Title Insurance; Reports; Etc. (i) Mortgages; Assignments. Lender shall have received from Borrower fully executed and acknowledged counterparts of the Mortgage, Assignment of Leases, Assignment of Agreements and Manager Subordination relating to each Property and evidence that counterparts of each Mortgage and Assignment of Leases have been delivered to the title company for recording, so as to effectively create upon such recording valid and enforceable Liens upon such Property, of the requisite priority, in favor of Lender (or such trustee as may be required or desired under local law), subject only to the Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents. Lender shall have also received from Borrower a fully executed counterpart of the Environmental Indemnity, the Manager Subordination and the Lessee Subordination. (ii) Title Insurance. Lender shall have received, for each Property, a Title Insurance Policy issued by Chicago Title Insurance Company or another title company acceptable to Lender, with reinsurance and direct access agreements acceptable to Lender, and evidence that the premium in respect of such Title Insurance Policy has been paid. Each Title Insurance Policy shall (A) provide coverage in amounts satisfactory to Lender, (B) insure Lender that each Mortgage 22 creates a valid lien on the Property encumbered thereby of the requisite priority, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (C) contain such endorsements and affirmative coverages as Lender may reasonably request, (D) name Lender as the insured and (E) be assignable. (iii) Survey. Lender shall have received, for each Property, a current title survey, certified to the title company and Lender and their successors and assigns, that (A) is in form and content satisfactory to Lender, (B) is prepared by a professional and properly licensed land surveyor satisfactory to Lender in accordance with the 1992 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys, (c) meets the classification of an "Urban Survey" and the following additional items from the list of "Optional Survey Responsibilities and Specifications" (Table A) should be added to each survey: 2, 3, 4, 6, 8, 9, 10, 11 and 13, (D) reflects the same legal description contained in the Title Insurance Policy relating to the applicable Property, (E) includes, among other things, a metes and bounds description of the real property comprising part of such Property reasonably satisfactory to Lender and (F) contains a certification in form and substance acceptable to Lender. (iv) Insurance. Lender shall have received valid certificates of insurance for the policies of insurance required hereunder, satisfactory to Lender in its sole discretion, and evidence of the payment of all premiums payable for the existing policy period which period shall not be less than one year in advance. (v) Environmental Reports. Lender shall have received an environmental report in respect of each Property satisfactory to Lender. (vi) Engineering Reports. Lender shall have received an engineering report in respect of each Property satisfactory to Lender, identifying, among other things, (A) deferred maintenance for such Property and the cost thereof, (B) a ten-year schedule of anticipated capital expenditures and the annual cost thereof and (C) a probable maximum loss study identifying the seismic risks of any Property in a known earthquake zone. (vii) Compliance: Zoning. With respect to each Property, Lender shall have received, at Borrower's option, (A) letters or other evidence with respect to such Property from the appropriate municipal authorities (or other Persons) concerning applicable zoning and building laws, or (B) an ALTA 3.1 zoning endorsement for the Title Insurance Policy, or (C) a zoning opinion letter, in substance reasonably satisfactory to Lender. (viii) Encumbrances. Borrower shall have taken or caused to be taken such actions in such a manner so that Lender has a valid and perfected Lien of the requisite priority as of the Closing Date with respect to the Mortgage on each Property, subject only to applicable Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents, and Lender shall have received satisfactory evidence thereof. 23 (d) Related Documents. Each additional document not specifically referenced herein, but relating to the transactions contemplated herein, shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received and approved certified copies thereof. (e) Delivery of Organizational Documents. On or before the Closing Date, Borrower shall deliver or cause to be delivered to Lender (i) copies certified by Borrower of all organizational documentation related to each Individual Borrower and/or the formation, structure, existence, good standing and/or qualification to do business, as Lender may request in its reasonable discretion, including good standing certificates, qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and incumbency certificates as may be requested by Lender. (f) Opinions of Borrower's Counsel. Lender shall have received opinions of Borrower's counsel (i) with respect to non-consolidation, true sale or true contribution, and fraudulent transfer issues, and (ii) with respect to due execution, authority, enforceability of the Loan Documents and such other matters as Lender may require, all such opinions in form, scope and substance satisfactory to Lender and Lender's counsel in their reasonable discretion. (g) Budgets. Borrower shall have delivered, and Lender shall have approved, the Annual Budget for the Properties for the balance of the current Fiscal Year. (h) Basic Carrying Costs. Borrower shall have paid or deposited into an applicable reserve fund all (i) accrued but unpaid Insurance Premiums, (ii) currently due Taxes (including any in arrears) as required by Section 7.3, and (iii) currently due Other Charges, which amounts shall be funded with proceeds of the Loan. (i) Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated by this Agreement and other Loan Documents and all documents incidental thereto shall be satisfactory in form and substance to Lender, and Lender shall have received all such counterpart originals or certified copies of such documents as Lender may reasonably request. (j) Financial Statements. Borrower shall have provided historical financial statements for the Properties for 1994, 1995 and 1996 and an agreed upon procedures report on the historical 1996 financial statements by an independent accounting firm. (k) Loan to Value Ratio: Appraisals. Lender shall have received appraisals for the Properties satisfactory to Lender indicating that the original principal balance of the Loan is not more then sixty percent (60%) of the aggregate fair market value of the Properties as of the date hereof. (l) Licenses: Leases: Material Contracts. Borrower shall have provided Lender with copies of all Licenses. Leases and material contracts affecting the Properties. 24 (m) Utilities: Separate Assessment. Borrower shall have provided Lender with evidence satisfactory to Lender that all utility services required for the Properties are available and that each Property is subject to assessment for Taxes separate from any other property. (n) Occupancy Statistics and Room Rates. Borrower shall have provided Lender with a copy of the current occupancy statistics and room rates for the Properties. (o) Franchise Agreements. Borrower shall have provided Lender with a copy of the Franchise Agreement for each Property (other than those managed by Manager for which there is no Franchise Agreement), together with a "comfort" letter from the franchisor thereunder to Lender, in form and substance satisfactory to Lender. (p) Fees and Expenses. Borrower shall have paid (i) to Lender (A) a structuring fee equal to one percent of the principal amount of the Note, (B) all expenses of Lender then due and payable by Borrower hereunder, and (C) the deposit in respect of securitization costs required pursuant to Section 9.1, (ii) all mortgage, mortgage recording and intangible taxes and recording charges required to be paid in connection with the execution, delivery and recording of any of the Loan Documents, and (iii) all title insurance premiums and other title and survey charges. IV. REPRESENTATIONS AND WARRANTIES Section 4.1 Borrower Representations. Borrower represents and warrants as of the date hereof and as of the Closing Date that: (a) Organization. Each Individual Borrower has been duly organized and is validly existing and in good standing with requisite power and authority to own its properties and to transact the businesses in which it is now engaged. Each Individual Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, businesses and operations. Each Individual Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its Properties and to transact the businesses in which it is now engaged, and the sole business of each Individual Borrower is the ownership, management and operation of its individual Properties. (b) Proceedings. Each Individual Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and such other Loan Documents to which an Individual Borrower is a party have been duly executed and delivered by or on behalf of such Individual Borrower and constitute legal, valid and binding obligations of such Individual Borrower enforceable against such Individual Borrower in accordance with their respective terms, subject to applicable bankruptcy. insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (c) No Conflicts. The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the 25 terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of any Individual Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement or other agreement or instrument to which any Individual Borrower is a party or by which any Individual Borrower's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over any Individual Borrower or any of its properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any court or any such regulatory authority or other governmental agency or body required for the execution, delivery and performance by any Individual Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect. (d) Litigation. Except as set forth on Schedule 2, there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or threatened against or affecting any Individual Borrower or any Property, which actions, suits or proceedings, if determined against any Individual Borrower or any Property, might materially adversely affect the condition (financial or otherwise) or business of any Individual Borrower or the condition or ownership of such Property. (e) Agreements. No Individual Borrower is a party to any agreement or instrument or subject to any restriction which might material adversely affect any Individual Borrower or any Property, or any Individual Borrower's business, properties or assets, operations or condition, financial or otherwise. No Individual Borrower is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Permitted Encumbrance or any other agreement or instrument to which it is a party or by which it or any Property is bound. (f) Title. Each Individual Borrower has good and indefeasible title in fee to the real property comprising part of each Property, and good title to the balance of each such Property, free and clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents and the Liens created by the Loan Documents. The Mortgage intended to encumber each Property, when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create (i) a valid, perfected first priority lien on such Property, subject only to Permitted Encumbrances and the Liens created by the Loan Documents and (ii) perfected security interests in and to, and perfected collateral assignments of, all personalty (including the Leases), all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents and the Liens created or permitted by the Loan Documents. The Permitted Encumbrances do not materially adversely affect the value or use of any Property, or any Individual Borrower's ability to repay the Loan. There are no claims for payment for work, labor or materials affecting any Property which are or may become a lien prior to, or of equal priority with, the Liens created by the Loan Documents. 26 (g) No Bankruptcy Filing. No Individual Borrower is contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or property, and no Individual Borrower has knowledge of any Person contemplating the filing of any such petition against it. (h) Full and Accurate Disclosure. To the best of Borrower's knowledge, no statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no material fact presently known to Borrower which has not been disclosed to Lender which materially adversely affects, nor as far as Borrower can foresee, might materially adversely affect, the Properties or the business, operations or condition (financial or otherwise) of any Individual Borrower. (i) No Plan Assets. No Individual Borrower is an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of any Individual Borrower constitutes or will constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101. (j) Compliance. Each Individual Borrower and each Property and the use thereof comply in all material respects with all applicable Legal Requirements, including building and zoning ordinances and codes. No Individual Borrower is in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority, the violation of which might materially adversely affect the condition (financial or otherwise) or business of an Individual Borrower. There has not been and shall never be committed by any Individual Borrower, Lessee or any other person in occupancy of or involved with the operation or use of any Property any act or omission affording the federal government or any state or local government the right of forfeiture as against any Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. (k) Survey. The survey for each Property delivered to Lender in connection with this Agreement does not fail to reflect any material matter affecting such Property or the title thereto. (l) Financial Information. All financial data, including the statements of cash flow and income and operating expense, that have been delivered to Lender in respect of the Properties (i) are true, complete and correct in all material respects, (ii) accurately represent the financial condition of the Properties as of the date of such reports, and (iii) to the extent prepared by an independent certified public accounting firm, have been prepared in accordance with GAAP consistently applied throughout the periods covered, except as disclosed therein. No Individual Borrower has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower and reasonably likely to have a materially adverse effect on any Property or the operation thereof, except as referred to or reflected in said financial statements. Since the date of 27 such financial statements, there has been no materially adverse change in the financial condition, operations or business of any Individual Borrower from that set forth in said financial statements. (m) Condemnation. No Condemnation or other proceeding has been commenced or, to Borrower's best knowledge, is contemplated with respect to all or any portion of any Property or for the relocation of roadways providing access to any Property. (n) Federal Reserve Regulations. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. (o) Utilities and Public Access. Each Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service such Property for its respective intended uses. All public utilities presently servicing the Properties enter the Properties through public rights-of-way abutting the Properties or through valid easements insured by the Title Insurance Policy. All roads necessary for the use of each Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities or valid easements insured by the Title Insurance Policy for such roads or access easements have been obtained. (p) Not a Foreign Person. No Individual Borrower is a "foreign person" within the meaning of (S) 1445(f)(3) of the Code. (q) Separate Lots. Each Property is comprised of one (1) or more parcels which constitutes a separate tax lot and does not constitute a portion of any other tax lot not a part of such Property. (r) Assessments. To the best of Borrower's knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting any Property, nor are there any contemplated improvements to any Property that may result in such special or other assessments. (s) Enforceability. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by any Individual Borrower, including the defense of usury, nor would the exercise of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable, and Borrower has not asserted any right of rescission, set-off, counterclaim or defense with respect thereto. (t) No Prior Assignment. There are no prior assignments of the Leases by Borrower or Lessee or any portion of the Rents due and payable or to become due and payable which are presently outstanding. 28 (u) Insurance. Borrower has obtained and has delivered to Lender insurance policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. (v) Use of Properties. Each Property is used exclusively for hotel and other appurtenant and related uses. (w) Certificate of Occupancy: Licenses. All certifications, permits, licenses and approvals, including certificates of completion and occupancy permits and any applicable liquor licenses required for the legal use, occupancy and operation of each Property as presently being used (collectively, the "Licenses"), have been obtained and are in full force and effect. Borrower shall keep and maintain or cause to be kept and maintained all licenses necessary for the operation of each Property. The use being made of each Property is in conformity with the certificate of occupancy issued for such Property. (x) Flood Zone. Except as identified on Schedule 2, none of the Improvements on any Property are located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards. (y) Physical Condition. Each Property, including all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; there exists no structural or other material defects or damages in any Property, whether latent or otherwise. Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in any Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. (z) Appraised Value. Except as shown on the surveys for the Properties delivered to Lender, all of the improvements which were included in determining the appraised value of any Property lie wholly within the boundaries and building restriction lines of such Property, and no improvements on adjoining properties encroach upon any Property, and no easements or other encumbrances upon any Property encroach upon any of the improvements, so as to affect the value or marketability of any Property except those which are insured against by title insurance. (aa) Leases. The only Leases affecting the Properties are the Operating Leases. (bb) Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Properties to Borrower have been paid. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of am of the Loan 29 Documents, including the Mortgages, have been paid and, under current Legal Requirements, each Mortgage is enforceable against Borrower in accordance with its respective terms by Lender (or any subsequent holder thereof), except as such enforceability may be limited by insolvency, bankruptcy, moratorium or other laws affecting creditor's remedies in general and principles of equity. (cc) Single-Purpose. Borrower hereby represents and warrants to Lender as of the date hereof and covenants with Lender that until such time as the Debt shall be paid in full: (i) Each Individual Borrower does not and will not own any encumbered asset or property other than (A) the Properties, and (B) incidental personal property necessary for the ownership or operation of the Properties. (ii) No Individual Borrower will engage in any business other than the ownership, management and operation of the Properties and will conduct and operate its business as presently conducted and operated. (iii) No Individual Borrower will enter into any contract or agreement with any of its Affiliates or constituent parties, any guarantor (a "Guarantor") of the Debt 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 those that would be available on an arms-length basis with third parties other than any such party. (iv) No Individual Borrower has incurred, and no Individual Borrower will incur, any indebtedness, secured or unsecured, direct or indirect, absolute or contingent (including guaranteeing any obligation), other than the Permitted Indebtedness. Except as set forth in the immediately preceding sentence, no indebtedness other than the Debt may be secured (subordinate or pari passu) by the Properties. (v) No Individual Borrower has made and no Individual Borrower will make any loans or advances to any third party (including any affiliate or constituent party, any Guarantor or any affiliate of any constituent party or Guarantor). (vi) Each Individual Borrower is and will remain solvent and will pay its debts and liabilities (including employment and overhead expenses) from its assets as the same shall become due. (vii) Each Individual Borrower has done or caused to be done and will do all things necessary to observe corporate or partnership formalities, as the case may be, and preserve its existence. (viii) No Individual Borrower will, nor will any Individual Borrower, permit any constituent party or Guarantor to amend, modify or otherwise change the partnership certificate, partnership agreement, articles of incorporation and bylaws, trust or other organizational documents of an Individual Borrower or such constituent party or Guarantor in a manner which would adversely affect an Individual Borrower's existence as a single purpose entity. 30 (ix) Each Individual Borrower will maintain books and records and bank accounts separate from those of its Affiliates and any constituent party and each Individual Borrower will file its own tax returns. (x) Each Individual Borrower 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, any constituent party, any Guarantor or any Affiliate of any constituent party or Guarantor), shall conduct business in its own name and shall maintain and utilize separate stationery, invoices and checks. (xi) Each Individual Borrower 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. (xii) No Individual Borrower nor any constituent party will seek the dissolution or winding up, in whole or in part, of any Individual Borrower. (xiii) No Individual Borrower will commingle its funds and other assets with those of any Affiliate or constituent party, any Guarantor, or any Affiliate of any constituent party or Guarantor, or any other person. (xiv) Each Individual Borrower 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. (xv) No Individual Borrower does and no Individual Borrower will hold itself out to be responsible for the debts or obligations of any other person. (xvi) The General Partner will at all times comply with each of the representations, warranties, and covenants contained in this Section 4.1 as if such representation, warranty or covenant was made directly by the General Partner. (xvii) The charter of the General Partner shall at all times have at least one duly appointed member of its board of directors (an "Independent Director") reasonably satisfactory to Lender who shall not have been at the time of such individual's appointment, and may not have been at any time during the preceding two years (i) a shareholder of, or an officer or employee of, any Individual Borrower or any of its shareholders, subsidiaries or affiliates, (ii) a customer of, or supplier to, any Individual Borrower or any of its shareholders, subsidiaries or affiliates, (iii) a person or other entity controlling any such shareholder, supplier or customer. or (iv) a member of the immediate family of any such shareholder, officer, employee, supplier or customer of any other director of the General Partner. As used in this Section 4.l (cc)(xvii), the term "control" means the possession, directly or indirectly, of the power 31 to direct or cause the direction of the management and policies of a person or entity, whether through ownership of voting securities, by contract or otherwise. (xviii) The board of directors of the General Partner shall not take any action which, under the terms of any certificate of incorporation, by-laws or any voting trust agreement with respect to any common stock, requires the vote of the board of directors of the General Partner unless at the time of such action there shall be at least one member who is an Independent Director. (xix) Each Individual Borrower shall conduct its business so that the assumptions made with respect to such Individual Borrower in that certain opinion letter dated as of the date hereof delivered by Borrower's counsel in connection with the Loan shall be true and correct in all respects. (dd) Investment Company Act. No Individual Borrower is (i) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (ii) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (iii) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. (ee) Fraudulent Transfer. No Individual Borrower has entered into the Loan or any Loan Document with the actual intent to hinder, delay, or defraud any creditor, and each Individual Borrower has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the transactions contemplated by the Loan Documents, the fair saleable value of Borrower's assets exceeds and will, immediately following the execution and delivery of the Loan Documents, exceed Borrower's total liabilities, including subordinated, unliquidated, disputed or contingent liabilities. The fair saleable value of Borrower's assets is and will, immediately following the execution and delivery of the Loan Documents, be greater than Borrower's probable liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. Each Individual Borrower's assets do not and, immediately following the execution and delivery of the Loan Documents will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower). (ff) Partners. The sole general partner of each Individual Borrower is the General Partner. The REIT is the owner of all of the issued and outstanding capital stock of the General Partner, all of which capital stock has been validly issued, is fully paid and nonassessable. Such stock is owned by the REIT free and clear of all mortgages, assignments, pledges and security interests and free and clear of all warrants, options and rights to purchase. Borrower has no obligation to any Person to purchase, repurchase or issue any ownership interest in it. 32 (gg) Management Agreements. Borrower has made available to Lender correct and complete copies of the Management Agreements. As of the Closing Date, the Management Agreements are unmodified and in full force and effect and Lessee is not, and, to Borrower's best knowledge, Manager is not, in default under any of the Management Agreements. (hh) Operating Lease. Borrower has made available to Lender a correct and complete copy of each Operating Lease. As of the Closing Date each Operating Lease is unmodified and in full force and effect and Borrower is not, and, to Borrower's knowledge, Lessee is not, in default under any Operating Lease. (ii) Franchise Agreements. Borrower has made available to Lender a correct and complete copy of each Franchise Agreement and all amendments thereto. As of the Closing Date, each Franchise Agreement has not been further amended and is in full force and effect and Borrower is not, and, to Borrower's knowledge, no franchisor is, in default under any such Franchise Agreement. (jj) Contracts. Schedule 2 sets forth a description of each contract or other agreement and management agreement (including all amendments thereto) to which the Borrower or any Affiliate thereof or Lessee is a party which is material to the value, utility, operation or legality of any Property, other than Franchise Agreements, Management Agreements, Leases and any such contract or agreement which may be terminated on thirty days' or less notice and without any material penalty. The information set forth in such Schedule is correct and complete in all material respects as of the date hereof. A correct and complete copy of each contract or other agreement and management agreement (including all such amendments) specified on Schedule 2, has been provided to the Lender and each thereof is unmodified (except as set forth on Schedule 2) and in full force and effect and no Individual Borrower nor, to Borrower's knowledge, any other party to any thereof is in default thereunder. Section 4.2 Survival of Representations. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. V. AFFIRMATIVE COVENANTS Section 5.1 Borrower Covenants. From the date hereof and until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the Mortgages (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender that: 33 (a) Existence: Compliance with Legal Requirements: Insurance. Each Individual Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises and comply with all Legal Requirements applicable to it and each Property. Each Individual Borrower shall at all times maintain, preserve and protect all franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and shall keep or cause to be kept each Property in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgages. Borrower shall keep or cause to be kept each Property insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in this Agreement. (b) Taxes and Other Charges. Borrower shall pay all Taxes and Other Charges now or hereafter levied or assessed or imposed against each Property or any part thereof before they become delinquent. Borrower will deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then delinquent no later than thirty (30) days prior to the date on which the Taxes and/or Other Charges would otherwise be delinquent if not paid (provided, however, that Borrower is not required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid by Lender pursuant to Section 7.3 hereof). Borrower shall not suffer and shall promptly cause to be paid and disc harged any lien or charge whatsoever which may be or become a lien or charge against any Property, and shall promptly pay for all utility services provided to any Property. After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Taxes or Other Charges, provided that (i) no Default or Event of Default has occurred and remains uncured, (ii) such proceeding shall suspend the collection of the Taxes or Other Charges from the applicable Property, (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which an Individual Borrower is subject and shall not constitute a default thereunder, (iv) neither such Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, canceled or lost, (v) Borrower shall have furnished such security as may be required in the proceeding, or as may be requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon; and (vi) Borrower shall promptly upon final determination thereof pay the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith. Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the reasonable judgment of Lender, the entitlement of such claimant is established. (c) Litigation. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened in writing against any Individual Borrower which might materially adversely affect any Individual Borrower's condition (financial or otherwise) or business or any Property. 34 (d) Premises. Borrower shall permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice. (e) Notice of Default. Borrower shall promptly advise Lender of any material adverse change in any Individual Borrower's condition, financial or otherwise, or of the occurrence of any Default or Event of Default of which Borrower has knowledge. (f) Cooperate in Legal Proceedings. Borrower shall cooperate fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way affect the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings. (g) Perform Loan Documents. Each Individual Borrower shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the extent required under the Loan Documents executed and delivered by, or applicable to, such Individual Borrower. (h) Insurance Benefits. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Insurance Proceeds lawfully or equitably payable in connection with any Property, and Lender shall be reimbursed for any reasonable expenses incurred in connection therewith (including attorneys' fees and disbursements, and the reasonable expense of an appraisal on behalf of Lender in case of a fire or other casualty affecting any Property or any part thereof) out of such Insurance Proceeds. (i) Further Assurances. Each Individual Borrower shall, at Borrower's sole cost and expense: (A) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by it pursuant to the terms of the Loan Documents or reasonably requested by Lender in connection therewith; (B) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure its obligations under the Loan Documents, all as Lender may reasonably require; and (C) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time. 35 (j) Supplemental Mortgages Affidavits. As of the date hereof, Borrower represents that it has paid all state, county and municipal recording and all other taxes imposed upon the execution and recordation of the Mortgages. If at any time Lender determines, based on applicable law, that Lender is not being afforded the maximum amount of security available from any one or more of the Properties as a direct or indirect result of applicable taxes not having been paid with respect to any such Properties, Borrower agrees that Borrower will execute, acknowledge and deliver to Lender, immediately upon Lender's request, supplemental affidavits increasing the amount of the Debt attributable to any such Property (as set forth on Schedule 1 annexed hereto) for which all applicable taxes have been paid to an amount determined by Lender to be equal to the lesser of (a) the greater of the fair market value of the applicable Property (i) as of the date hereof and (ii) as of the date such supplemental affidavits are to be delivered to Lender, and (b) the amount of the Debt attributable to any such Property (as set forth on Schedule 1 annexed hereto), and Borrower shall, on demand, pay any additional taxes. (k) Financial Reporting. (i) Borrower will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with GAAP, proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and all items of income and expense in connection with the operation on an individual basis of each of the Properties and in connection with any services, equipment or furnishings provided in connection with the operation of each of the Properties, whether such income or expense be realized by Borrower or by any other Person whatsoever, excepting lessees unrelated to and not an Affiliate of Borrower who have leased from Borrower or Lessee portions of any of the Properties for the purpose of occupying the same. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower or other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence of an Event of Default, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower's accounting records with respect to the Properties, as Lender shall determine to be necessary or appropriate in the protection of Lender's interest. (ii) Borrower will furnish to Lender annually, (A) within forty-five (45) days following the end of each Fiscal Year of Borrower, unaudited financial statements of Borrower, and (B) within ninety (90) days following the end of each Fiscal Year of Borrower, a complete copy of Borrower's annual financial statements, audited by a "big six" accounting firm or another independent certified public accountant reasonably acceptable to Lender, in accordance with GAAP, covering the Properties on a combined basis as well as each individual Property for such Fiscal Year, and containing statements of profit and loss for Borrower and the Properties in such detail as Lender may request; provided, however, that separate financial statements for each individual Property need not be audited so long as such statements are accompanied by a report of such accountant, based upon procedures satisfactory to Lender, tying such statements into the audited statements of Borrower. Such statements shall set forth the income and expenses for the Properties for the immediately preceding calendar year, including statements of annual Actual Net Operating Income. Borrower's audited annual financial statements shall be accompanied by an unqualified opinion of 36 such accountant. Borrower's annual financial statements (audited and unaudited) shall be accompanied by an Officer's Certificate certifying that each such annual financial statement presents fairly the financial condition of the Properties being reported upon and has been prepared in accordance with GAAP. Together with Borrower's annual financial statements, Borrower shall furnish to Lender an Officer's Certificate certifying as of the date thereof whether there exists an event or circumstance which constitutes a Default or Event of Default under the Loan Documents executed and delivered by, or applicable to, Borrower, and if such Default or Event of Default exists, the nature thereof, the period of time it has existed and the action then being taken to remedy the same. (iii) Borrower will furnish, or cause to be furnished, to Lender on or before thirty-five (35) days after the end of each calendar month the following items, accompanied by an Officer's Certificate certifying that such items are true, correct, accurate, and complete and fairly present the financial condition and results of the operations of Borrower and the Properties in accordance with GAAP (subject to normal year end adjustments) as applicable: (A) monthly and year to date operating statements prepared for each calendar month (on an aggregate and Property by Property basis), noting Actual Net Operating Income and other information necessary and sufficient under GAAP to fairly represent results of operation of the Properties during such calendar month, all in form satisfactory to Lender; (B) a comparison of the budgeted income and expenses and the actual income and expenses for each month and year to date for the Properties on an aggregate basis together with a detailed explanation of any variances of ten percent (10%) or more between budgeted and actual amounts for such period and year to date; (C) a statement of the actual capital expenditures made by Borrower during each calendar quarter as of the last day of such calendar quarter; (D) a calculation reflecting the annual Actual Debt Service Coverage Ratio as of the last day of each calendar month; and (F) a statement that the representations and warranties of Borrower set forth in Section 4.1(cc)(iv) are true and correct as of the date of such certificate. (iv) Borrower will furnish, or cause to be furnished, to Lender as soon as available and in any event on or before thirty-five (35) days after the end of each calendar month occupancy rates, room rate statistics, and for any Property which has Leases other than an Operating Lease, rent rolls (identifying the leased premises, names of all tenants, units leased, monthly rental and all other charges payable under each lease, date to which paid, term of lease, date of occupancy, date of expiration, any and every material special provision, concession or inducement granted to tenants) and a delinquency report for the Properties, and such other relevant information with respect to the Properties as requested by Lender, in each case accompanied by an Officer's Certificate certifying that such items are true, correct, accurate, and complete. (v) Borrower shall furnish to Lender, within ten (10) Business Days after request, such further detailed information with respect to the operation of any of the Properties and the financial affairs of Borrower as may be reasonably requested by Lender or any applicable Rating Agency. (l) Business and Operations. Each Individual Borrower will continue to engage in the businesses presently conducted by it as and to the extent the same are necessary for the 37 ownership, maintenance, management and operation of the Properties. Each Individual Borrower will qualify to do business and will remain in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the Properties. (m) Title to the Properties. Borrower will warrant and defend (i) the title to each Property and every part thereof, subject only to Liens permitted under the Loan Documents (including Permitted Encumbrances), and (ii) the validity and priority of the Lien of each Mortgage, subject only to Liens permitted under the Loan Documents (including Permitted Encumbrances), in each case against the claims of all Persons whomsoever. Borrower shall reimburse Lender for any losses, costs, damages or expenses (including reasonable attorneys' fees and court costs) incurred by Lender if an interest in any Property, other than as permitted hereunder, is claimed by another Person. (n) Costs of Enforcement. In the event (i) that any Mortgage is foreclosed in whole or in part is put into the hands of an attorney for collection, suit, action or foreclosure, (ii) of the foreclosure of any mortgage prior to or subsequent to the Mortgage encumbering any Property in which proceeding Lender is made a party, or (iii) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of any Individual Borrower or an assignment by any Individual Borrower for the benefit of its creditors, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including attorneys' fees in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, which shall be due and payable together with all required service or use taxes. (o) Estoppel Statement. (i) After request by Lender, Borrower shall within ten (10) days furnish Lender with a statement, duly acknowledged and certified, setting forth (A) the unpaid principal amount of the Note. (B) the Interest Rate of the Note. (C) the date installments of interest and/or principal were last paid. (D) any offsets or defenses to the payment of the Debt, if any, and (E) that the Note, this Agreement, the Mortgages and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (ii) After request by Lender (but no more frequently than twice in any year). Borrower shall within ten (10) days furnish Lender with a certificate reaffirming all representations and warranties of Borrower set forth herein and in the other Loan Documents as of the date requested by Lender or, to the extent of any changes to any such representations and warranties, so stating such changes. (iii) Borrower shall deliver to Lender upon request, tenant estoppel certificates from Lessee and each tenant of Borrower or Lessee at the Properties in form and substance reasonably satisfactory to Lender provided that Borrower shall not be required to deliver such certificates more frequently than two (2) times in am calendar year. 38 (p) Loan Proceeds. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the purposes set forth in Section 2.1.4. (q) Performance by Borrower. Each Individual Borrower shall in a timely manner observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, such Individual Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, such Individual Borrower without the prior written consent of Lender. (r) Annual Budget. Prior to the Optional Prepayment Date, Borrower shall prepare and submit (or shall cause Lessee to prepare and submit) to Lender by December 1 of each year during the Term, for approval by Lender, which approval shall not be unreasonably withheld or delayed, a proposed pro forma budget for each Property during the succeeding fiscal year commencing January 1 and ending December 31 (the "Annual Budget") and, promptly after preparation thereof, any subsequent revisions to such Annual Budget and the final Annual Budget by January 31 of such year. After the Optional Prepayment Date, Borrower shall prepare and submit such Annual Budget by November 15 of each remaining year of the Term. Lender's failure to approve or disapprove any Annual Budget within thirty (30) days after Lender's receipt thereof shall be deemed to constitute Lender's approval thereof. The Annual Budget shall consist of (a) for any Property for which there is no Operating Lease, an operating expense budget (the "Operating Budget") showing, on a month-by-month basis, in reasonable detail, each line item of the Borrower's anticipated income and Operating Expenses (on a cash and accrual basis), including amounts required to establish, maintain and/or increase reserves for such Property, (b) for each Property other than a Marriott Managed Property, a Capital Expense budget (the "Capital Budget") showing, on a Property-by-Property basis, in reasonable detail, each line item of anticipated Capital Expenses and FF&E Expenses. A copy of the approved Budget for the period commencing on the date hereof and ending on December 31, 1997 is annexed hereto as Exhibit B. (s) Confirmation of Representations. In addition to and not in limitation of the covenants and agreements of Borrower contained in Section 7.1, Borrower shall deliver, in connection with any Secondary Market Transaction, (i) one or more Officer's Certificates certifying as to the accuracy of all representations made by Borrower in the Loan Documents as of the date of the closing of such Secondary Market Transaction in all relevant jurisdictions or, to the extent of any changes to any such representations and warranties, so stating such changes, and (ii) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of Borrower as of the date of the Secondary Market Transaction. (t) No Joint Assessment. Borrower shall not suffer, permit or initiate the joint assessment of any Property (i) with any other real property constituting a tax lot separate from such Property, and (ii) with any portion of such Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such Property. 39 (u) Leasing Matters. No Individual Borrower shall, without Lender's prior written consent, enter into, modify, amend or renew any Lease for space over 1,500 square feet. Upon request, Borrower shall furnish Lender with executed copies of all Leases. All renewals of Leases and all proposed Leases shall provide for rental rates that are at or greater than existing local market rates for space at hotel properties similar to the applicable Property. All proposed Leases shall be on commercially reasonable terms and shall not contain any terms which would materially adversely affect Lender's rights under the Loan Documents. All Leases shall provide (either by the terms of the Lease or pursuant to a subordination and non-disturbance agreement with Lender) that they are subordinate to the Mortgage encumbering the applicable Property and that the lessee agrees to attorn to Lender Borrower (i) shall observe and perform or cause to be performed the obligations imposed upon the lessor under the Leases; (ii) shall enforce the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed; (iii) shall not collect any of the rents more than one (1) month in advance (other than security deposits); (iv) shall not execute any other assignment of lessor's interest in the Leases or the Rents (except as contemplated by the Loan Documents); (v) shall not alter, modify or change the terms of the Leases in a manner inconsistent within the provisions of the Loan Documents; and (vi) shall execute and deliver at the request of Lender all such further assurances, confirmations and assignments in connection with the Leases as Lender shall from time to time reasonably require. (v) Operation of the Properties. Borrower shall cause each of the Properties to be leased to the Lessee pursuant to the Operating Lease and managed by Lessee or by Manager pursuant to the Management Agreements (or such other third-party managers approved by Lender pursuant to management agreements approved as to form and substance by and in all respects acceptable to Lender). Notwithstanding the foregoing, in the event that (A) there shall have occurred and be continuing an Event of Default or (B) on the last day of any calendar quarter, the Debt Service Coverage Ratio (using Actual Net Operating Income) is less than 1.40 to 1.00, then, except as hereinafter provided, Lender may instruct Borrower to (i) terminate the Operating Lease with respect to any or all of the Properties and/or (ii) except as otherwise provided in the Management Agreements, cause Lessee to terminate the Management Agreement with respect to any or all of the Marriott Managed Properties, and may designate either a replacement lessee or a hotel manager, as the case may be, acceptable to Lender and willing to operate the Properties pursuant to terms and conditions and pursuant to an Operating Lease or management agreement approved by Lender, and except as hereinafter otherwise provided, Borrower shall so terminate the Operating Lease and/or cause Lessee to terminate the Management Agreement(s) and appoint or cause the appointment of such replacement lessee or manager. No Individual Borrower shall (and no Individual Borrower shall permit Lessee to) enter into any operating lease or property management agreement in respect of any Property without Lender's prior written consent and unless any such agreement contains a provision permitting such agreement to be terminated as contemplated above and unless such replacement operator or manager executes an agreement substantially similar (and otherwise in form and substance satisfactory to Lender) to the Lessee Subordination or the Manager Subordination, as the case may be. Lender shall not have the right to require the termination of the Operating Lease or any Management Agreement under the circumstances described in the foregoing clause (B) if (x) no Event of Default shall have occurred or be continuing and (y) within ten Business Days after the end of the calendar quarter for which such circumstances have arisen. Borrower shall defease a 40 portion of the Loan in accordance with Section 2.3.3 sufficient to produce a Debt Service Coverage Ratio (using Actual Net Operating Income) on the undefeased portion of the Loan equal to at least 1.40 to 1.00. (w) Principal Place of Business. Borrower shall not change its principal place of business set forth on the first page of this Agreement without first giving Lender thirty (30) days prior written notice. (x) Franchise Agreements. Borrower shall cause the Properties (other than the Marriott Managed Properties) to be operated pursuant to the Franchise Agreements. Borrower shall: (i) promptly perform and/or observe (or cause to be performed and/or observed) all of the covenants and agreements required to be performed and observed by it under the Franchise Agreements and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii) promptly notify Lender of any default under the any Franchise Agreement of which it is aware; (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, property improvement plan and any other notice, report and estimate received by it under any of the Franchise Agreements; and (iv) promptly enforce or cause to be enforced the performance and observance of all of the covenants and agreements required to be performed and/or observed by the Franchisor under each Franchise Agreement. (y) Management Agreements. With respect to the Marriott Managed Properties, Borrower shall: (i) promptly perform and/or observe (or cause to be performed and/or observed) all of the covenants and agreements required to be performed and observed by it under the Management Agreements and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii) promptly notify Lender of any default under the any Management Agreement of which it is aware; (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, property improvement plan and any other notice, report and estimate received by it under any of the Management Agreements; and 41 (iv) promptly enforce or cause to be enforced the performance and observance of all of the covenants and agreements required to be performed and/or observed by the Manager under each Management Agreement. VI. NEGATIVE COVENANTS Section 6.1 Borrower's Negative Covenants. From the date hereof until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the Mortgages in accordance with the terms of this Agreement and the other Loan Documents, each Individual Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following: (a) Operation of Properties. No Individual Borrower shall, without Lender's prior consent: (i) surrender, terminate or cancel the Operating Lease or any of the Franchise Agreements or Management Agreements or otherwise replace Lessee or the franchisor or the Manager of any Property or enter into any other operating lease or franchise or management agreements with respect to any Property (except pursuant to Section 5.1(v)), (ii) reduce or consent to the reduction of the term of the Operating Lease or any of the Management Agreements or Franchise Agreements; (iii) increase or consent to the increase by any material amount of the amount of any charges under any of the Management Agreements or Franchise Agreements; or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under the Operating Lease or any of the Management Agreements or Franchise Agreements in any material respect. (b) Liens. No Individual Borrower shall, without the prior written consent of Lender, create, incur, assume or suffer to exist any Lien on any portion of any of the Properties or permit any such action to be taken, except (i) Permitted Encumbrances, (ii) Liens created by or permitted pursuant to the Loan Documents and (iii) Liens for Taxes or Other Charges not yet delinquent, unless any such Lien is bonded or discharged within thirty (30) days after Borrower first receives notice thereof. No Individual Borrower shall permit any partner in such Individual Borrower to pledge or otherwise encumber its interest in such Individual Borrower. (c) Dissolution. No Individual Borrower shall dissolve, terminate, liquidate, merge with or consolidate into another Person. (d) Change In Business. No Individual Borrower shall enter into any line of business other than the ownership and operation of the Properties, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business. (e) Debt Cancellation. No Individual Borrower shall cancel or otherwise forgive or release any claim or debt owed to such Individual Borrower by any Person, except for adequate consideration and in the ordinary course of such Individual Borrower's business in its reasonable judgment. 42 (f) Affiliate Transactions. No Individual Borrower shall enter into, or be a party to, any transaction with an Affiliate of such Individual Borrower or any of the partners of such Individual Borrower except in the ordinary course of business and on terms which are fully disclosed to Lender in advance and are no less favorable to such Individual Borrower or such Affiliate than would be obtained in a comparable arm's-length transaction with an unrelated third party. (g) Zoning. No Individual Borrower shall initiate or consent to any zoning reclassification of any portion of any of any Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any of the Properties in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior consent of Lender. (h) Assets. No Individual Borrower shall purchase or own any properties other than its own individual Property. (i) Debt. No Individual Borrower shall create, incur or assume any debt other than the Debt and other Permitted Indebtedness. (j) Transfers. No Individual Borrower shall, without the prior written consent of Lender, suffer or permit the sale, assignment or transfer (collectively, "Transfer") of (i) all or any part of any Property or portion thereof, (ii) any direct interest in any Individual Borrower or (iii) any direct or indirect interest in any partner of any Individual Borrower, except for: (A) a Special Transfer; (B) the Transfer of a Property in connection with the release thereof from the Lien of the Mortgage thereon pursuant to Section 2.4.2; (C) Transfers of publicly-traded interests in the REIT; and (D) Transfers of limited partnership interests in any Individual Borrower (or Transfers of interests in any such limited partner); provided that any Transfers aggregating more than 49% of the interests (direct or indirect) in any Individual Borrower, or which result in any limited partner (other than a limited partner currently owning more than a 49% interest) owning more than 49% of the interests (direct or indirect) in any Individual Borrower, shall require (1) written confirmation from the applicable Rating Agencies that such Transfers will not cause a qualification, withdrawal or downgrading of the ratings in effect immediately prior to such Transfer for the Securities issued in connection with the Securitization which are then outstanding and (2) a substantive non-consolidation opinion with respect to such Individual Borrower in form satisfactory to Lender and the applicable Rating Agencies. Borrower shall pay all reasonable expenses in connection with a Transfer permitted hereunder. 43 VII. CASUALTY; CONDEMNATION; ESCROWS Section 7.1 Insurance; Casualty and Condemnation. 7.1.1 Insurance. (a) Borrower, at its sole cost and expense, for the mutual benefit of Borrower and Lender, shall keep the Properties insured and obtain and maintain during the Term policies of insurance insuring against loss or damage by a "Special Form" policy. Such insurance (i) shall be in an amount equal to the greatest of (A) the then full replacement cost of each Property without deduction for physical depreciation, (B) the outstanding principal balance of the Loan, and (c) such amount that the insurer would not deem Borrower a co-insurer under said policies, and (ii) and shall have deductibles no greater than five percent (5%) of such replacement cost. The policies of insurance carried in accordance with this paragraph shall be paid annually in advance and shall contain a "Replacement Cost Endorsement" with a waiver of depreciation. (b) Borrower, at its sole cost and expense, for the mutual benefit of Borrower and Lender, shall also obtain and maintain during the Term the following policies of insurance: (i) Flood insurance if any part of any Property is located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Program in an amount at least equal to the Allocated Loan Amount for the applicable Property or the maximum limit of coverage available with respect to such Property under said program, whichever is less. (ii) Comprehensive public liability insurance, including broad form property damage, blanket contractual and personal injuries (including death resulting therefrom) coverages and containing minimum limits per occurrence of $1,000,000 and $2,000,000 in the aggregate for any policy year. In addition, at least $10,000,000 excess and/or umbrella liability insurance shall be obtained and maintained for any and all claims, including all legal liability imposed upon Borrower and all court costs and attorneys' fees incurred in connection with the ownership, operation and maintenance of the Properties. (iii) Rental loss and/or business interruption insurance in an amount equal to the greater of (A) the estimated gross revenues from the operations of the Properties for the next succeeding 18-month period or (B) the projected operating expenses (including debt service) for the maintenance and operation of the Properties for the next succeeding 18-month period. The amount of such insurance shall be increased from time to time during the Term as and when the Rents increase or the estimate of (or the actual) gross revenue, as may be applicable, increases. (iv) Insurance against loss or damage from (A) leakage of sprinkler systems and (B) explosion of steam boilers, air conditioning equipment, high pressure piping, machinery and equipment, pressure vessels or similar apparatus now or hereafter installed in any of the Improvements (without exclusion for explosions), in an amount at least equal to $2,000,000 for each Property. 44 (v) Worker's compensation insurance with respect to any employees of Borrower or Lessee, as required by any governmental authority or legal requirement. (vi) During any period wherein any Property is subject to a material repair or restoration, builder's "all risk" insurance in an amount equal to not less than the full insurable value of the applicable Property against such risks (including fire and extended coverage and collapse of the Improvements to agreed limits) as Lender may request, in form and substance acceptable to Lender. (vii) Coverage to compensate for the cost of demolition and the increased cost of construction for each Property in an amount satisfactory to Lender. (viii) Such other insurance, including earthquake insurance, as may from time to time be reasonably required by Lender in order to protect its interests. (c) All policies of insurance (the "Policies") required pursuant to this Section 7.1.1 (i) shall be issued by companies approved by Lender and licensed to do business in the State, with a claims paying ability rating of "AA" or better by Standard & Poor's Ratings Group; (ii) shall name Lender and its successors and/or assigns as their interest may appear as the mortgagee; (iii) shall contain a Non-Contributory Standard Lender Clause and a Lender's Loss Payable Endorsement, or their equivalents, naming Lender as the person to which all payments made by such insurance company shall be paid; (iv) shall contain a waiver of subrogation against Lender; (v) shall be maintained throughout the Term without cost to Lender; (vi) shall be assigned and the originals thereof delivered to Lender; (vii) shall contain such provisions as Lender deems reasonably necessary or desirable to protect its interest including endorsements providing that neither Borrower, Lender nor any other party shall be a co-insurer under said Policies and that Lender shall receive at least thirty (30) days prior written notice of any modification, reduction or cancellation of any of the Policies; and (viii) shall be satisfactory in form and substance to Lender and shall be approved by Lender as to amounts, form, risk coverage, deductibles, loss payees and insureds. Borrower shall pay the premiums for such Policies (the "Insurance Premiums") as the same become due and payable and shall furnish to Lender evidence of the renewal of each of the Policies with receipts for the payment of the Insurance Premiums or other evidence of such payment reasonably satisfactory to Lender (provided, however, that Borrower is not required to furnish such evidence of payment to Lender if such Insurance Premiums have been paid by Lender pursuant to Section 7.3 hereof). If Borrower does not furnish such evidence and receipts at least thirty (30) days prior to the expiration of any expiring Policy, then Lender may procure, but shall not be obligated to procure, such insurance and pay the Insurance Premiums therefor, and Borrower agrees to reimburse Lender for the cost of such Insurance Premiums promptly on demand. Within thirty (30) days after request by Lender, Borrower shall obtain such increases in the amounts of coverage required hereunder as may be reasonably requested by Lender, taking into consideration changes in the value of money over time, changes in liability laws, changes in prudent customs and practices, and the like. (d) If any Property is damaged or destroyed, in whole or in part, by fire or other casualty (an "Insured Casualty"), Borrower shall give prompt notice thereof to Lender. Following the occurrence of an Insured Casualty, Borrower, regardless of whether insurance proceeds are available, shall promptly proceed to restore, repair, replace or rebuild the affected Property to be of 45 at least equal value and of substantially the same character as prior to such damage or destruction, all to be effected in accordance with Legal Requirements. The expenses incurred by Lender in the adjustment and collection of insurance proceeds shall become part of the Debt and be secured hereby and shall be reimbursed by Borrower to Lender upon demand. 7.1.2 Casualty and Application of Proceeds. (a) In case of loss or damages covered by any of the Policies, the following provisions shall apply: (i) In the event of an Insured Casualty that does not exceed $250,000, Borrower may settle and adjust any claim without the consent of Lender; provided that such adjustment is carried out in a competent and timely manner. In such case, Borrower is hereby authorized to collect and receipt for any such insurance proceeds. (ii) In the event of an Insured Casualty that equals or exceeds $250,000, Lender may settle and adjust any claim without the consent of Borrower and agree with the insurance company or companies on the amount to be paid on the loss and the proceeds of any such policy shall be due and payable solely to Lender and held in escrow by Lender in accordance with the terms hereof. (b) In the event of an Insured Casualty where the loss is in an aggregate amount less than sixty percent (60%) of the Allocated Loan Amount for any individual Property, and if, in the reasonable judgment of Lender, the Property can be restored within six (6) months and prior to the maturity of the Note (and prior to the expiration of the business interruption insurance) to an economic unit not materially less valuable and not less useful than the same was prior to the Insured Casualty, and after such restoration will adequately secure the outstanding balance of the Allocated Loan Amount, then, if no Default or Event of Default shall have occurred and be then continuing, the proceeds of insurance (after reimbursement of any expenses incurred by Lender) shall be applied to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Property or part thereof subject to the Insured Casualty (the "Restoration"), in the manner set forth herein. Borrower hereby covenants and agrees to commence and diligently to prosecute such Restoration; provided that (i) Borrower shall pay all costs (and if required by Lender, Borrower shall deposit the total thereof with Lender in advance) of such Restoration in excess of the net proceeds of insurance made available pursuant to the terms hereof; (ii) the Restoration shall be done in compliance with all Legal Requirements; and (iii) Lender shall have received evidence reasonably satisfactory to it that, during the period of the Restoration, the sum of (A) income derived from the applicable Property, as reasonably determined by Lender, plus (B) proceeds of rent loss insurance or business interruption insurance, if any, to be paid, plus (C) any amounts otherwise deposited by Borrower with Lender, will equal or exceed the sum of (I) expenses in connection with the operation of such Property and (II) the debt service under the portion of the Loan attributable to such Property. (c) Except as provided above, the proceeds of insurance collected upon any Insured Casualty may, at the option of Lender in its sole discretion, be applied to the payment of the Debt (up to the Release Amount for the Property so affected together with any Yield Maintenance Premium applicable thereto to the extent provided under Section 2.3.3) or applied to reimburse Borrower for the cost of any Restoration, in the manner set forth below. Any such application to the Debt shall be without any prepayment consideration except that if an Event of Default has occurred 46 and is continuing at the time the insurance proceeds are received from the insurance company, then Borrower shall pay to Lender an additional amount equal to the Yield Maintenance Premium, if any, that would be required under Section 2.3.3 hereof if a Defeasance Deposit was to be made by Borrower in the case of a Defeased Note equal to the amount of the insurance proceeds applied to the Debt. After any such application to the Debt, the remaining principal balance outstanding under the Note shall be reamortized over the remaining term thereof, and the Allocated Loan Amount for the affected Property shall be reduced by the principal reduction resulting from such application. (d) If Borrower is entitled to reimbursement out of insurance proceeds held by Lender, such proceeds shall be deposited by Lender into the Casualty/Condemnation Subaccount and disbursed from time to time from the Casualty/Condemnation Subaccount upon Lender being furnished with (1) evidence satisfactory to it of the estimated cost of completion of the Restoration, (2) funds or, at Lender's option, assurances satisfactory to Lender that such funds are available, sufficient in addition to the proceeds of insurance to complete the proposed Restoration, (3) such architect's certificates, waivers of lien, contractor's sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of cost, payment and performance as Lender may reasonably require and approve, and (4) all plans and specifications for such Restoration, such plans and specifications to be approved by Lender prior to commencement of any work. In addition, no payment made prior to the final completion of the Restoration shall exceed ninety percent (90%) of the value of the work performed from time to time; funds other than proceeds of insurance shall be disbursed prior to disbursement of such proceeds; and at all times, the undisbursed balance of such proceeds remaining in the hands of Lender, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Lender by or on behalf of Borrower for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the cost of completion of the Restoration, free and clear of all liens or claims for lien. Any surplus which may remain out of insurance proceeds held by Lender after payment of such costs of Restoration shall be paid to Borrower. 7.1.3 Condemnation. (a) Borrower shall promptly give Lender written notice of the actual or threatened commencement of any condemnation or eminent domain proceeding affecting a Property (a "Condemnation") and shall deliver to Lender copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, Borrower, regardless of whether an Award is available, shall promptly proceed to restore, repair, replace or rebuild the affected Property to the extent practicable to be of at least equal value and of substantially the same character as prior to such Condemnation, all to be effected in accordance with Legal Requirements. (b) Lender is hereby irrevocably appointed as Borrower's attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain any award or payment in respect of a Condemnation (an "Award") and to make any compromise or settlement in connection with such Condemnation, subject to the provisions of this Section. Notwithstanding any Condemnation by any public or quasi-public authority (including any transfer made in lieu of or in anticipation of such a Condemnation), Borrower shall continue to pay the Debt at the time and in the manner provided for in the Note, in this Agreement and the other Loan Documents and the Debt shall not be reduced unless and until any Award shall have been actually received and applied by Lender to expenses of collecting the Award and to discharge of the Debt (up to the Release Amount for the 47 Property so affected together with any Yield Maintenance Premium applicable thereto to the extent provided under Section 2.3.3). Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided in the Note. Borrower shall cause any Award that is payable to Borrower to be paid directly to Lender. (c) In the event of any Condemnation where the Award is in an aggregate amount less than sixty (60%) of the Allocated Loan Amount for any Property, and if, in the reasonable judgment of Lender, the Property can be restored within six (6) months and prior to maturity of the Note (and prior to expiration of the business interruption insurance) to an economic unit not less valuable and not less useful than the same was prior to the Condemnation, and after such restoration will adequately secure the outstanding balance of the Allocated Loan Amount, then, if no Default or Event of Default shall have occurred and be then continuing, the proceeds of the Award (after reimbursement of any expenses incurred by Lender) shall be applied to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Property or part thereof subject to Condemnation (the "Condemnation Restoration") in the manner set forth below. Borrower hereby covenants and agrees to commence and diligently to prosecute such Condemnation Restoration; provided that (i) Borrower shall pay all costs (and if required by Lender, Borrower shall deposit the total thereof with Lender in advance) of such Condemnation Restoration in excess of the Award made available pursuant to the terms hereof; (ii) the Condemnation Restoration shall be done in compliance with all Legal Requirements; and (iii) Lender shall have received evidence reasonably satisfactory to it that, during the period of the Condemnation Restoration, the sum of (A) income derived from the applicable Property, as reasonably determined by Lender, plus (B) proceeds of rent loss insurance or business interruption insurance, if any, to be paid, plus (C) any amounts otherwise deposited by Borrower with Lender, will equal or exceed the sum of (I) expenses in connection with the operation of such Property and (II) the debt service under the portion of the Loan attributable to such Property. (d) Except as provided above, the Award collected upon any Condemnation shall, at the option of Lender in its sole discretion, be applied to the payment of the Debt (up to the Release Amount for the Property so affected together with any Yield Maintenance Premium applicable thereto to the extent provided under Section 2.3.3) or applied to reimburse Borrower for the cost of the Condemnation Restoration in the manner set forth below. Any such application to the Debt shall be without any prepayment consideration except that if an Event of Default has occurred and is continuing at the time the Award is received, then Borrower shall pay to Lender an additional amount equal to the Yield Maintenance Premium, if any, that would be required under Section 2.3.3 hereof if a Defeasance Deposit was to be made by Borrower in the case of a Defeased Note equal to the amount of the condemnation proceeds applied to the Debt. After any such application to the Debt, the remaining principal balance outstanding under the Note shall be reamortized over the remaining term thereof. If the related Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of such Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall be recoverable or shall have been sought, recovered or denied, to receive all or a portion of said Award sufficient to pay the Allocated Loan Amount and interest thereon. (e) In the event Borrower is entitled to reimbursement out of the Award received by Lender, such proceeds shall be disbursed from time to time upon Lender being furnished with (1) 48 evidence satisfactory to it of the estimated cost of completion of the Condemnation Restoration, (2) funds or, at Lender's option, assurances satisfactory to Lender that such funds are available, sufficient in addition to the proceeds of the Award to complete the Condemnation Restoration, (3) such architect's certificates, waivers of lien, contractor's sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of costs, payment and performance as Lender may reasonably require and approve; and (4) all plans and specifications for such Condemnation Restoration, such plans and specifications to be approved by Lender prior to commencement of work. In addition, no payment made prior to the final completion of the restoration, repair, replacement and rebuilding shall exceed ninety percent (90%) of the value of the work performed from time to time; (5) funds other than proceeds of the Award shall be disbursed prior to disbursement of such proceeds; and (6) at all times, the undisbursed balance of such proceeds remaining in the hands of Lender, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Lender by or on behalf of Borrower for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the costs of completion of the Condemnation Restoration free and clear of all liens or claims for lien. Any surplus which may remain out of the Award received by Lender after payment of such costs of restoration, repair, replacement or rebuilding shall, in the sole and absolute discretion of Lender, be retained by Lender and applied to payment of the Debt or returned to Borrower. Section 7.2 Required Repair; Required Repair Funds. 7.2.1 Required Repairs; Deposits. Borrower shall perform the deferred maintenance and PIP work required under the Franchise Agreements at the Properties set forth on Schedule 4 annexed hereto (the "Required Repairs"). Borrower shall complete each of the Required Repairs on or before the deadline for same set forth on schedule 4. On the Closing Date, Borrower shall deposit with Lender the amount for each Property set forth on such Schedule 4 hereto to perform the Required Repairs for such Property. Amounts so deposited with Lender (the "Required Repair Fund") shall be held by Lender in an account (the "Required Repair Account") in Lender's name at a financial institution selected by Lender in its sole discretion and shall be invested in Permitted Investments. 7.2.2 Grant of Security Interest. Borrower hereby pledges, assigns and grants a security interest to Lender, as security for payment of all sums due in respect of the Loan and the performance of all other terms, conditions and covenants of the Loan Documents and this Agreement on Borrower's part to be paid and performed, all of Borrower's right, title and interest in and to the Required Repair Fund and the Required Repair Account. Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in the Required Repair Fund or the Required Repair Account or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. 7.2.3 Release of Required Repair Funds. Lender shall disburse to Borrower all Required Repair Funds in the Required Repair Account with respect to any individual Property upon satisfaction by Borrower of each of the following conditions: (a) Borrower shall submit a written request for payment to Lender at least fifteen (15) Business Days prior to the date on which Borrower requests such payment be made (except in the case of an emergency repair which requires 49 immediate attention, in which event Borrower may submit such payment request within ten (10) days), (b) on the date such request is received by Lender and on the date such payment is to be made, no Default or Event of Default shall exist and remain uncured, (c) Lender shall have received an Officer's Certificate from Borrower certifying that all Required Repairs at the applicable Property have been completed (i) in a good and workmanlike manner, and (ii) in accordance with all applicable Legal Requirements, such certificate to be accompanied by a copy of each license, permit or other approval required by any Governmental Authority for the use or occupancy of the applicable Property, (d) Lender shall have received an Officer's Certificate from Borrower (i) identifying each Person that supplied materials or labor in connection with the Required Repairs performed at such Property and (ii) stating that each such Person has been or, upon receipt of the requested disbursement, will be paid in full, such certificate to be accompanied by a copy of appropriate lien waivers or other evidence of payment satisfactory to Lender, (e) at Lender's option, a title search for such Property indicating that such Property is free from all liens, claims and other encumbrances not previously approved by Lender, and (f) Lender shall have received such other evidence as Lender shall reasonably request that the Required Repairs at such Property have been completed and paid for. Lender shall be required to make only one disbursement per month from the Required Repair Account with respect to each Property and such disbursement shall be made only upon satisfaction of each condition contained in this Section 7.2.3. Upon completion of all Required Repairs in accordance with the terms hereof, Lender shall disburse to Borrower any amounts then remaining in the Required Repair Account. 7.2.4 Failure to Perform Required Repairs. It shall be a Default under this Agreement if (a) Borrower does not complete the Required Repairs at each Property by the required deadline for each repair as set forth on Schedule 4, or (b) Borrower does not satisfy each condition contained in Section 7.2.3 hereof. Upon the occurrence and during the continuance of an Event of Default, Lender, at its option, may withdraw all Required Repair Funds from the Required Repair Account and Lender may apply such funds either to completion of the Required Repairs at one or more of the Properties or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply Required Repair Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. Section 7.3 Tax and Insurance Escrow Fund. 7.3.1 Tax and Insurance Escrow Fund. Borrower shall pay to Lender on each Payment Date (a) one-twelfth of the Taxes that Lender estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to the respective dates they become delinquent, and (b) one-twelfth of the Insurance Premiums that Lender reasonably estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies (said amounts in (a) and (b) above hereinafter called the "Tax and Insurance Escrow Fund"). The Tax and Insurance Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note, shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Sec- 50 Section 5.1 hereof and under the Mortgages, or to reimburse Borrower for such amounts upon presentation of evidence of payment and an Officer's Certificate in form and substance satisfactory to Lender; subject, however, to Borrower's right to contest Taxes in accordance with Section 5.1(b) hereof. In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. Borrower shall furnish to Lender all bills and statements of the applicable taxing authority with respect to Taxes no later than five (5) Business Days before the same becomes due and payable. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Section 5.1 hereof, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. In allocating such excess, Lender may deal with the Person shown on the records of Lender to be the owner of the Properties. If at any time Lender determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay the items set forth in (a) and (b) above, Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes and/or expiration of the Policies, as the case may be. 7.3.2 Grant of Security Interest. Borrower hereby pledges, assigns and grants a security interest to Lender, as security for payment of all sums due under the Loan and the performance of all other terms, conditions and provisions of the Loan Documents and this Agreement on Borrower's part to be paid and performed, of all Borrower's right, title and interest in and to the Tax and Insurance Escrow Fund. Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in the Tax and Insurance Escrow Fund, or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. 7.3.3 Application of Tax and Insurance Escrow Fund. Upon the occurrence and during the continuance of an Event of Default, Lender may apply any sums then present in the Tax and Insurance Escrow Fund to the payment of the following items in any order in its sole discretion: (a) Taxes and Other Charges; (b) Insurance Premiums; (c) interest on the unpaid principal balance of the Note; (d) amortization of the unpaid principal balance of the Note; or (e) all other sums payable pursuant to this Agreement and the other Loan Documents. The Tax and Insurance Escrow Fund shall not constitute a trust fund and may be commingled with other monies held by Lender. Sums in the Tax and Insurance Escrow Fund shall be held by Lender in an account in Lender's name at a financial institution selected by Lender in its sole discretion and shall be invested in Permitted Investments. Earnings or interest, if any, thereon shall be retained as part of such funds and applied in accordance with this Section 7.3. Lender shall not be liable for any loss sustained on the investment of any funds constituting the Tax and Insurance Escrow Fund. 51 Section 7.4 Capital Reserve Fund. 7.4.1 Capital Reserve Fund. Borrower shall pay to Lender on each Payment Date an amount equal to five percent (5%) of the gross revenues of the Properties for the second calendar month preceding such Payment Date (said amounts hereinafter called the "Capital Reserve Fund"). Lender will apply the Capital Reserve Fund to payment of Approved Capital Expenses pursuant to the terms hereof; provided, however, if the Loan shall have been accelerated or if there is an Event of Default which is continuing, then Lender may credit such Capital Reserve Fund against the Debt in such priority and proportions as Lender in its sole and absolute discretion shall deem proper. If the amount of the Capital Reserve Fund shall exceed the amounts due for Approved Capital Expenses pursuant to the terms hereof, Lender shall, in its discretion, return any excess to Borrower or, if future Capital Reserve Fund payments are then required, credit such excess against such future payments; provided, however, if the Loan shall have been accelerated or if there is an Event of Default which is continuing, then Lender may credit such excess against the Debt in such priority and proportions as Lender in its sole and absolute discretion shall deem proper. 7.4.2 Additional Capital Reserve Fund. (a) Notwithstanding anything to the contrary contained in Section 7.4.1, Lender will waive its right to require monthly deposits into the Capital Reserve Fund for the Marriott Managed Properties so long as (i) there is held in an escrow in all respects satisfactory to Lender (the "Additional Capital Reserve Fund") an amount equal to $604,362 and (ii) within 30 days after the end of each calendar year during the Term, Borrower shall provide the Lender an Officer's Certificate and evidence satisfactory to Lender in all respects certifying (A) that Borrower made payments into an escrow reserve account established by Manager for each of the Marriott Managed Properties in an amount equal to five percent (5%) of the Gross Revenues for such Marriott Managed Properties during such calendar year and (B) the actual amount spent by Manager on Capital Expenditures and FF&E Expenditures at each of the Marriott Managed Properties during such calendar year, together with reasonable detail as to the actual expenditures made. If at any time Borrower fails to satisfy the requirements of clauses (i) or (ii) above or if there is an Event of Default which is continuing, then (x) Lender may credit such Alternative Capital Reserve Fund against the Debt in such priority and proportions as Lender in its sole and absolute discretion shall deem proper, and (y) Borrower's rights under this Section 7.4.2 shall terminate and Borrower shall be required to commence making monthly deposits into the Capital Reserve Fund for the Marriott Managed Properties pursuant to Section 7.4.1 on the next Payment Date which shall be in addition to any payments Borrower is required to make on account of Capital Expenditures and FF&E Expenditures under the Management Agreements. (b) Notwithstanding anything to the contrary contained in this Section 7.4.2, in lieu of making a cash deposit for the Additional Capital Reserve Fund, Borrower may, at its option, deposit with Lender an unconditional, irrevocable, stand-by letter of credit for the benefit of Lender issued by a commercial bank having a rating of "AA-" or better by Standard & Poor's Ratings Group in the amount of $604,362 for a term of not less than one year, which letter of credit shall otherwise be in form acceptable to Lender in all respects. Lender shall have the right to draw down such letter of credit (i) if Borrower fails to extend or replace such letter of credit no later than 30 days prior to the expiration date thereof and (ii) at any time Lender is entitled to apply the Additional Capital Reserve Fund pursuant to Section 7.4.4. 52 7.4.3 Grant of Security Interest. Borrower hereby pledges, assigns and grants a security interest to Lender, as security for payment of all sums due under the Loan and the performance of all other terms, conditions and provisions of the Loan Documents and this Agreement on Borrower's part to be paid and performed, of all Borrower's right, title and interest in and to the Capital Reserve Fund, the Additional Capital Reserve Fund and any letter of credit deposited by Borrower in lieu of a cash deposit for the Additional Capital Reserve Fund. Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in the Capital Reserve Fund, the Additional Capital Reserve Fund or any such letter of credit, or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-l Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. This Agreement is, among other things, intended by the parties to be a security agreement for purposes of the New York Uniform Commercial Code. 7.4.4 Application of Capital Reserve Fund. Upon the occurrence of an Event of Default, Lender may apply any sums then present in the Capital Reserve Fund and/or the Additional Capital Reserve Fund (and, if applicable, draw down any letter of credit being held in connection therewith for application hereunder) to the payment of the following items in any order in its sole discretion: (a) Capital Expenses; (b) interest on the unpaid principal balance of the Note; (c) amortization of the unpaid principal balance of the Note; or (d) all other sums payable pursuant to this Agreement and the other Loan Documents. The Capital Reserve Fund and the Additional Capital Reserve Fund shall not constitute a trust fund and may be commingled with other monies held by Lender. Sums in the Capital Reserve Fund and the Additional Capital Reserve Fund shall be held by Lender in an account in Lender's name at a financial institution selected by Lender in its sole discretion and shall be invested in Permitted Investments. Earnings or interest, if any, thereon shall become part of the Capital Reserve Fund or the Additional Capital Reserve Fund and shall be disbursed as provided in this Section 7.4.4. Lender shall not be liable for any loss sustained on the investment of any funds constituting the Capital Reserve Fund or the Additional Capital Reserve Fund. 7.4.5 Payment of Capital Expenses. Funds held in the Capital Reserve Fund may be used for Approved Capital Expenses. From time to time, Borrower may send a request for disbursement of funds in the Capital Reserve Fund, but not more than two (2) times per month and, to the extent there are sufficient funds available in the Capital Reserve Fund, such disbursements shall be made by Lender so long as (A) no Event of Default shall have occurred and be continuing; (B) such expenditure is for an Approved Capital Expense; and (C) the request for disbursement is accompanied by (1) an Officer's Certificate certifying (v) the amount of funds to be disbursed, (w) that such funds will be used to pay Approved Capital Expenses and a description thereof, (x) that all outstanding trade payables (other than those to be paid from the requested disbursement or those otherwise permitted to be outstanding under Section 6.1(i) hereof) have been paid in full, (y) that the same has not been the subject of a previous disbursement, and (z) that all previous disbursements have been used to pay the previously identified Approved Capital Expenses, (2) at Lender's option, copies of appropriate lien waivers or other evidence of payment satisfactory to Lender, and (3) reasonably detailed documentation as to the amount, necessity and purpose therefor. Section 7.5 Payment of Approved Operating Expenses. Funds held in the Deposit Account with respect to any Property for which there is no Operating Lease may be used for 53 Approved Operating Expenses. From time to time, Borrower may send a request for disbursement of funds in the Deposit Account for payment of Approved Operating Expenses, but not more than two (2) times per month. To the extent there are funds available in the Deposit Account in excess of the amounts required to fund the Tax and Insurance Escrow Fund, the Capital Reserve Fund and to pay the Monthly Debt Service Payment Amount due in respect of the Loan on the next Payment Date, such disbursements for Approved Operating Expenses shall be made by the Lender so long as (A) no Event of Default shall have occurred and be continuing; (B) such expenditure is for an Approved Operating Expense; and (C) the request for disbursement is accompanied by (1) an Officer's Certificate certifying (v) the amount of funds to be disbursed, (w) that such funds will be used to pay Approved Operating Expenses and a description thereof, (x) that all outstanding trade payables (other than those to be paid from the requested disbursement or those otherwise permitted to be outstanding under Section 6.1(i) hereof) have been paid in full, (y) that the same has not been the subject of a previous disbursement, and (z) that all previous disbursements have been or will be used to pay the previously identified Approved Operating Expenses, and (2) reasonably detailed documentation as to the amount, necessity and purpose therefor. Subject to satisfaction of the preceding conditions, if the Lender receives from the Borrower a valid request for a disbursement for payment of Approved Operating Expenses with respect to any Property for which there is no Operating Lease for the then Current Month at least five (5) Business Days prior to the Payment Date occurring in such Current Month, then the disbursement in respect of such Approved Operating Expenses shall be made to Borrower on such Payment Date. If the Borrower shall fail to validly request a disbursement for payment of Approved Operating Expenses for such Property for the then Current Month at least five (5) Business Days prior to the Payment Date in such Current Month, then the Lender shall retain in the Deposit Account an amount equal to the anticipated Operating Expenses for the then Current Month as set forth in the approved Operating Budget for such Property for such month, and the Lender shall, subject to satisfaction of the preceding conditions, disburse same to the Borrower five (5) Business Days after the Lender receives a valid request therefor. Amounts disbursed to the Borrower under this Section 7.5 shall be used by the Borrower to pay current Approved Operating Expenses for any Property for which there is no Operating Lease and for no other purpose. The Borrower shall furnish the Lender with copies of bills, statements, invoices, receipts or other evidence as the Lender may reasonably request in connection with a request for disbursement. VIII. DEFAULTS Section 8.1 Event of Default. (a) Each of the following events shall constitute an event of default hereunder (each, an "Event of Default"): (i) if any portion of the Debt is not paid when due (unless sufficient funds are available in the Deposit Account on the applicable date); (ii) if any of the Taxes or Other Charges are not paid when the same are due and payable (unless sufficient funds are available in the Tax and Insurance Escrow Fund on the applicable date), subject to Borrower's right to contest Taxes in accordance with Section 5.1(b) hereof; 54 (iii) if the Policies are not kept in full force and effect, or if the Policies are not delivered to Lender within five (5) days after written request from Lender to Borrower; (iv) if, without Lender's prior written consent, (A) any Individual Borrower transfers or encumbers all or any portion of the Properties other than in connection with a Special Transfer or (B) any direct or indirect interest in any Individual Borrower is transferred or assigned except as expressly permitted under Section 6.1(j) hereof; (v) if any representation or warranty made by Borrower herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished by Borrower in connection with this Agreement or any other Loan Document, shall be false or misleading in any material respect as of the date the representation or warranty was made; (vi) if any Individual Borrower or Lessee shall make an assignment for the benefit of creditors, or if Borrower shall generally not be paying its debts as they become due; (vii) if a receiver, liquidator or trustee shall be appointed for any Individual Borrower or Lessee or if any Individual Borrower or Lessee shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, any Individual Borrower or Lessee, or if any proceeding for the dissolution or liquidation of any Individual Borrower or Lessee shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or Lessee, as the case may be, upon the same not being discharged, stayed or dismissed within sixty (60) days; (viii) if any Individual Borrower attempts to assign its respective rights under this Agreement in contravention of the Loan Documents or any of the other Loan Documents or any interest herein or therein; (ix) if any Individual Borrower breaches any of its respective negative covenants contained in Section 6.1 or any covenant contained in Section 4.1(cc) hereof; (x) if any Property becomes subject to any mechanic's, materialman's or other lien and such lien is not bonded or discharged within thirty (30) days after Borrower first receives notice of any such lien except a lien for local real estate taxes and assessments not then due and payable; (xi) if Borrower fails to cure properly any violations of laws or ordinances affecting or which may be interpreted to affect any Property within thirty (30) days after Borrower first receives notice of any such violations; (xii) except as permitted under the Mortgages, the actual or threatened alteration, improvement, demolition or removal of any of the Improvements without the prior consent of Lender; 55 (xiii) if an Event of Default as defined or described in any of the other Loan Documents occurs, whether as to any Individual Borrower or any Property, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt; (xiv) if Borrower shall be in default of its obligations to make deposits into the Tax and Insurance Escrow Fund or the Capital Reserve Fund; (xv) if Borrower shall be in default under any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period after the giving of such notice or the expiration of such grace period; (xvi) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in subsections (i) to (xii) above, for ten (10) days after notice to Borrower from Lender, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; provided, however, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such 30-day period and provided further that Borrower shall have commenced to cure such Default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, such 30-day period shall be extended for an additional period of time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed sixty (60) days; (xvii) if, without Lender's prior consent, (a) the Operating Lease is amended, modified or terminated or (b) the ownership, management or Control of the Lessee is Transferred to a Person other than Borrower or an Affiliate of Borrower; (xviii) if, so long as Lessee is an Affiliate of any Individual Borrower, an Event of Default as defined in the Operating Lease occurs thereunder; (xix) if Lessee shall default in the performance or observance of any of the obligations under the Lessee Subordination beyond any applicable period of notice and grace thereunder; (xx) if, without Lender's prior consent, there is any material change in any Franchise Agreement or Management Agreement or any Franchise Agreement or Management Agreement is terminated; (xxi) if a default has occurred and for so long as it continues beyond any applicable cure period under any Franchise Agreement or Management Agreement if such default permits the franchisor or Manager to terminate or cancel such Franchise Agreement or Management Agreement; or 56 (xxii) if and so long as Borrower ceases to do business as a hotel on any Property or terminates such business for any reason whatsoever (other than temporary cessation in connection with any renovations to a Property). (b) Upon the occurrence and during the continuance of an Event of Default (other than an Event of Default described in clauses (vi), (vii) or (viii) above) and at any time thereafter Lender may, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in and to the Properties, including declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against any or all of the Individual Borrowers and any or all of the Properties, including all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi), (vii) or (viii) above, the Debt and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and each Individual Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. Section 8.2 Remedies. (a) Upon the occurrence and during the continuance of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to all or any of the Properties. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing (i) to the extent permitted by applicable law, Lender is not subject to any "one action" or "election of remedies" law or rule, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Properties and each Mortgage has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. (b) With respect to Borrower and the Properties, and to the extent permitted by applicable law, nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to any Individual Borrower or any Property for the satisfaction of any of the Debt in preference or priority to any Individual Borrower or any other Properties, and Lender may seek satisfaction out of all of the Properties or any part thereof, in its absolute discretion in respect of the Debt. In addition, Lender shall have the right from time to time to partially foreclose the Mortgages in any manner and for any amounts secured by the Mortgages then due and payable as determined by Lender in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults in the payment of one or more scheduled payments 57 of principal and interest, Lender may foreclose one or more of the Mortgages to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loan, Lender may foreclose one or more of the Mortgages to recover so much of the principal balance of the Loan as Lender may accelerate and such other sums secured by one or more of the Mortgages as Lender may elect. Notwithstanding one or more partial foreclosures, the Properties shall remain subject to the Mortgages to secure payment of sums secured by the Mortgages and not previously recovered. (c) Lender shall have the right from time to time to sever the Note and the other Loan Documents into one or more separate notes, mortgages and other security documents in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof. Section 8.3 Remedies Cumulative. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon. IX. SPECIAL PROVISIONS Section 9.1 Sale of Note and Securitization. At the request of the holder of the Note and, to the extent not already required to be provided by Borrower under this Agreement. Borrower shall use reasonable efforts to satisfy the market standards to which the holder of the Note customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies in connection with the sale of the Note or participation therein or the first successful securitization (such sale and/or securitization, the "Securitization") of rated single or multi-class securities (the "Securities") secured by or evidencing ownership interests in the Note and the Mortgages, including: (a) (1) provide such financial and other information with respect to the Properties, Borrower and its affiliates, Manager and any tenants of the Properties, (ii) provide business plans and budgets relating to the Properties and (iii) to perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase 58 I's and, if appropriate, Phase II's), engineering reports and other due diligence investigations of the Properties, as may be reasonably requested by the holder of the Note or the Rating Agencies or as may be reasonably necessary or appropriate in connection with the Securitization (the "Provided Information"), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of auditors or opinions of counsel of independent attorneys acceptable to Lender and the Rating Agencies; (b) at Borrower's expense, cause counsel to render opinions as to non-consolidation, fraudulent conveyance, and true sale, true contribution or any other opinion customary in securitization transactions with respect to the Properties and Borrower and its affiliates, which counsel and opinions shall be reasonably satisfactory to the holder of the Note and the Rating Agencies; (c) make such representations and warranties as of the closing date of the Securitization with respect to the Properties, Borrower, and the Loan Documents as are customarily provided in securitization transactions and as may be reasonably requested by the holder of the Note or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof, including the representations and warranties made in the Loan Documents; and (d) execute such amendments to the Loan Documents and Borrower's organizational documents, enter into a lock-box or similar arrangement with respect to the Rents and establish and fund such reserve funds (including reserve funds for deferred maintenance and capital improvements) as may be requested by the holder of the Note or the Rating Agencies or otherwise to effect the Securitization, provided, that nothing contained in this subsection (d) shall result in a material change in the transaction. In connection with only the initial Securitization, all reasonable third party costs and expenses incurred by Lender in connection with Borrower's complying with requests made under this Section 9.1 shall be paid by Borrower up to a maximum amount equal to $147,000, which Borrower will deposit with Lender on the Closing Date. Section 9.2 Securitization Indemnification. (a) Borrower understands that certain of the Provided Information and the Required Records may be included in disclosure documents in connection with the Securitization, including a prospectus or private placement memorandum (each, a "Disclosure Document") and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, Borrower will cooperate with the holder of the Note in updating the Provided Information or Required Reports for inclusion or summary in the Disclosure Document by providing all current information pertaining to Borrower and the Properties necessary to keep the Disclosure Document accurate and complete in all material respects with respect to such matters. 59 (b) In connection with each of (i) a preliminary and a private placement memorandum or (ii) a preliminary and final prospectus, as applicable, Borrower agrees to provide an indemnification certificate: (A) certifying that Borrower has carefully examined those portions of such memorandum or prospectus, as applicable, pertaining to Borrower, the Properties and the Loan including applicable portions of the sections entitled "Special Considerations", "Description of the Mortgages", "Description of the Mortgage Loans and Mortgaged Properties", "The Manager", "The Borrower" and "Certain Legal Aspects of the Mortgage Loan", and such sections (and any other sections reasonably requested and pertaining to Borrower, the Properties or the Loan) to the best of Borrower's knowledge, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; (B) indemnifying Lender and the affiliates of Nomura Securities International, Inc. (" Nomura"), that has filed the registration statement relating to the securitization (the "Registration Statement"), each of its directors, each of its officers who have signed the Registration Statement and each person or entity who controls Nomura within the meaning of Section 15 of the Securities Act or Section 30 of the Exchange Act of 1933, as amended (collectively, the "Nomura Group"), and Nomura, each of its directors and each person who controls Nomura, within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act (collectively, the "Underwriter Group") for any losses, claims, damages or liabilities to which Lender, the Nomura Group or the Underwriter Group may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the applicable portions of such sections applicable to Borrower, the Properties or the Loan, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated in the applicable portions of such sections or necessary in order to make the statements in the applicable portions of such sections or in light of the circumstances under which they were made, not misleading (the "Liabilities"); and (C) agreeing to reimburse Lender and Nomura for any reasonable legal or other expenses reasonably incurred by Lender and Nomura in connection with investigating or defending the Liabilities. Borrower's Liability under clauses (A), (B) and this (C) shall be limited to Liabilities arising out of or based upon any such untrue statement or omission made therein in reliance upon and in conformity with information furnished to Lender by Borrower, its accountants, officers and employees in writing in connection with the preparation of those portions of the memorandum or prospectus pertaining to Borrower, the Properties or the Loan or in connection with the underwriting of the debt, including financial statements of Borrower, operating statements, occupancy statistics and room rates, rent rolls, environmental site assessment reports and property condition reports with respect to the Properties. This indemnity agreement will be in addition to any liability which Borrower may otherwise have. (c) In connection with filings under the Exchange Act, Borrower agrees to (i) indemnify Lender, the Nomura Group and the Underwriter Group for any Liabilities to which Lender, the Nomura Group or the Underwriter Group may become subject insofar as the Liabilities arise out of or are based upon the omission or alleged omission to state in the Provided Information 60 or Required Records a material fact required to be stated in the Provided Information or Required Records in order to make the statements in the Provided Information or Required Records, in light of the circumstances under which they were made not misleading and (ii) reimburse Lender or Nomura for any legal or other expenses reasonably incurred by Lender and Nomura in connection with defending or investigating the Liabilities; provided that Borrower shall not be required to indemnify Lender or Nomura in connection with any Liability arising from the gross negligence or willful misconduct of Lender or Nomura. (d) Promptly after receipt by an indemnified party under this Section 9.2 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9.2, notify the indemnifying party in writing of the commencement thereof, but the omission to so notify the indemnifying party will not relieve the indemnifying party from any liability which the indemnifying party may have to any indemnified party hereunder except to the extent that failure to notify causes prejudice to the indemnifying party. In the event that any action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled, jointly with any other indemnifying party, to participate therein and, to the extent that it (or they) may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party under this Section 9.2 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party shall have reasonably concluded that there are any legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. The indemnifying party shall not be liable for the expenses of more than one separate counsel unless there are legal defenses available to it that are materially different from or additional to those available to another indemnified party. (e) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 9.2(b) or (c) is for any reason held to be unenforceable by an indemnified party in respect of any losses, claims, damages or liabilities (or action in respect thereof) referred to therein which would otherwise be indemnifiable under Section 9.2(b) or 9.2(c), the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages or liabilities (or action in respect thereof); provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. In determining the amount of contribution to which the respective parties are entitled, the following factors shall be considered: (i) the Nomura Group's and Borrower's relative knowledge and access to information concerning the matter with respect to which claim was asserted; (ii) the opportunity to correct and prevent any statement or omission; and (iii) any other equitable considerations appropriate in the circumstances. Lender and Borrower hereby agree that it may not be equitable if the amount of such contribution were determined by pro rata or per capita allocation. 61 Section 9.3 Rating Surveillance. Lender will retain the Rating Agencies to provide rating surveillance services on any certificates issued in a Securitization. The pro rata share of such rating surveillance will be at the expense of Borrower. Section 9.4 Exculpation. Notwithstanding anything to the contrary in any of the Loan Documents, subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in the Note, this Agreement, the Mortgages or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest under the Note, this Agreement, the Mortgages and the other Loan Documents, or in the Properties, the Rents, or any other collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Properties, in the Rents and in any other collateral given to Lender, and Lender, by accepting the Note, this Agreement, the Mortgages and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding under or by reason of or under or in connection with the Note, this Agreement, the Mortgages or the other Loan Documents. The provisions of this section shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Lender to name Borrower as a party defendant in any action or suit for foreclosure and sale under the Mortgages; (c) affect the validity or enforceability of or any guaranty made in connection with the Loan or any of the rights and remedies of Lender thereunder; (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of any of the Assignments of Leases; (f) constitute a prohibition against Lender commence any other appropriate action or proceeding in order for Lender to fully realize the security granted by the Mortgages or to exercise its remedies against the Properties; or (g) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including reasonable attorneys' fees and costs) arising out of or in connection with the following: (i) fraud or intentional misrepresentation by Borrower or any guarantor in connection with the Loan; (ii) the gross negligence or willful misconduct of Borrower; (iii) the breach of any provision in that certain Environmental and Hazardous Substance Indemnification Agreement of even date herewith given by Borrower to Lender or in the Mortgages concerning environmental laws, hazardous substances and asbestos and any indemnification of Lender with respect thereto in either document; (iv) the removal or disposal of any portion of any Property after an Event of Default (excluding any items which are replaced with items of reasonably equivalent value); 62 (v) the misapplication or conversion by Borrower of (A) any insurance proceeds paid by reason of any loss, damage or destruction to any Property, (B) any awards or other amounts received in connection with the condemnation of all or a portion of any Property, or (C) any Rents following an Event of Default (prior to any cure of such Event of Default); provided that Borrower shall not be liable for any amounts applied to Debt Service, Approved Operating Expenses or Approved Capital Expenses; (vi) failure to pay charges for labor or materials or other charges that can create liens on any portion of any Property unless such charges are the subject of a bona fide dispute in which Borrower is contesting the amount or validity thereof; (vii) any security deposits collected with respect to the Properties which are not delivered to Lender upon a foreclosure of or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof; and (viii) Borrower's indemnification of Lender set forth in Section 9.2. Notwithstanding anything to the contrary in this Agreement or any of the Loan Documents, Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by the Mortgages or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents. Section 9.5 Retention of Servicer. Lender reserves the right to retain the Servicer to act as its agent hereunder with such powers as are specifically delegated to the Servicer by Lender, whether pursuant to the terms of this Agreement, the Pooling and Servicing Agreement or the Deposit Account Agreement or otherwise, together with such other powers as are reasonably incidental thereto. Borrower shall pay any reasonable fees and expenses of the Servicer in connection with a Defeasance of the Note, release of Property, assumption or modification of the Loan or enforcement of the Loan Documents. X. MISCELLANEOUS Section 10.1 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid (but the accuracy thereof shall be determined as of the Closing Date). Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement contained, by or on behalf of Borrower, shall inure to the benefit of the respective legal representatives, successors and assigns of Lender. Section 10.2 Lender's Discretion. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be 63 satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. Section 10.3 Governing Law. (a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE OF NEW YORK, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO (S) 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. (b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, PURSUANT TO (S) 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND BORROWER WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND APPOINT HUNTON & WILLIAMS, 200 PARK AVENUE, NEW YORK, NEW YORK 10022, ATTN: GEORGE HOWELL, ESQ., AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE OF BORROWER MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF 64 PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR. Section 10.4 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by any Individual Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on any Individual Borrower, shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Section 10.5 Delay Not a Waiver. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Section 10.6 Notices. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section): 65 If to Lender: Nomura Asset Capital Corporation Two World Financial Center Building B New York, New York 10281 Attention: Sheryl McAfee Telecopier: 212-667-1206 with a copy to: Nomura Asset Capital Corporation Two World Financial Center Building B New York, New York 10281 Attention: Barry Funt Telecopier: 212-667-1567 If to Borrower: c/o Innkeepers USA Trust 306 Royal Poinciana Way Palm Beach, Florida 33480 Attention: Jeffrey Fisher Telecopier: 407-835-0457 with copies to: Hunton & Williams 951 E. Byrd Street Richmond, Virginia 23219 Attention: George Howell, Esq. Telecopier: 804-788-8218 A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day. Section 10.7 Trial by Jury. BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY 66 EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER. Section 10.8 Headings. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 10.9 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 10.10 Preferences. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. Section 10.11 Waiver of Notice. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Lender to Borrower. Section 10.12 Remedies of Borrower. In the event that a claim or adjudication is made that Lender or its agents, including Servicer, have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents, including Servicer, shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment plus reasonable costs thereof (including, without limitation, reasonable attorneys' fees). The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. Section 10.13 Expenses; Indemnity. (a) Borrower covenants and agrees to reimburse Lender (or the holder of the Loan, as applicable) upon receipt of written notice from such 67 holder for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrower (including any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Properties); (ii) Borrower's ongoing performance of and compliance with Borrower's respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including confirming compliance with environmental and insurance requirements; (iii) Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date; (iv) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by Lender; (v) Borrower complying with any requests made pursuant to Section 9.1 hereof (subject to the limitations contained in such section); (vi) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents, the Properties, or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Properties or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender or its employees or agents. Any costs and expenses due and payable to Lender hereunder which are not paid by Borrower within ten (10) days after demand may be paid from any amounts in the Deposit Account, with notice thereof to Borrower. (b) Borrower shall indemnify and hold harmless Lender from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in this Agreement or the other Loan Documents, (ii) the use or intended use of the proceeds of the Loan, or (iii) any information provided in writing by or on behalf of Borrower, or contained in any documentation approved by Borrower in writing and in any way relating to the issuance, offering and sale of the Securities (collectively, the "Indemnified Liabilities"); provided, however, that Borrower shall not have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify and hold harmless set forth in the preceding 68 sentence may be unenforceable because it violates any law or public policy, Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. Section 10.14 Exhibits Incorporated. The Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. Section 10.15 Offsets, Counterclaims and Defenses. Any assignee of Lender's interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. Section 10.16 No Joint Venture or Partnership. Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor to grant Lender any interest in the Properties other than that of mortgagee or lender. Section 10.17 Publicity. All news releases, publicity or advertising by Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents, to Lender, Nomura, the Loan purchaser, the Servicer or the trustee in a Securitization shall be subject to the prior written approval of Lender. Section 10.18 Waiver of Marshalling of Assets. To the fullest extent Borrower may legally do so, Borrower waives all rights to a marshalling of the assets of Borrower, Borrower's partners, if any, and others with interests in Borrower, and of Borrower's Properties, or to a sale in inverse order of alienation in the event of foreclosure of the interests hereby created, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the applicable Properties for the collection of the related Indebtedness without any prior or different resort for collection, of the right of Lender or any deed of trust trustee to the payment of the related Indebtedness out of the net proceeds of a Property in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Mortgages, any equitable right otherwise available to the Borrower which would require the separate sale of the Properties or require Lender to exhaust its remedies against any Property or any combination of the Properties before proceeding against any other Property or combination of Properties; and further in the event of such foreclosure the Borrower does hereby expressly consent to and authorize, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Properties. 69 Section 10.19 Waiver of Counterclaim. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents, including Servicer. Section 10.20 Conflict; Construction of Documents. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by counsel in connection with the negotiation and drafting of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Section 10.21 Brokers and Financial Advisors. Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower and Lender hereby agree to indemnify and hold the other harmless from and against any and all claims, liabilities, costs and expenses of any kind in any way relating to or arising from a claim by any Person that such Person acted on behalf of the indemnifying party in connection with the transactions contemplated herein. The provisions of this Section 10.21 shall survive the expiration and termination of this Agreement and the repayment of the Debt. Section 10.22 No Third Party Beneficiaries. This Agreement and the other Loan Documents are solely for the benefit of Lender and the Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than the Lender and the Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. Section 10.23 Cross-Default; Cross Collateralization. Borrower acknowledges that Lender has made the Loan to Borrower upon the security of its collective interest in the Properties and in reliance upon the aggregate of the Properties taken together being of greater value as collateral security than the sum of the Properties taken separately. Borrower agrees that the Mortgages are and will be cross-collateralized and cross-defaulted with each other so that (i) an Event of Default under any of the Mortgages shall constitute an Event of Default under each of the other Mortgages which secure the Note; (ii) an Event of Default under the Note or this Agreement shall constitute an Event of Default under each Mortgage; and (iii) each Mortgage shall constitute security for the Note as if a single blanket lien were placed on all of the Properties as security for the Note. Section 10.24 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written are superseded by the terms of this Agreement and the other Loan Documents. 70 IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. INNKEEPERS RESIDENCE DENVER- DOWNTOWN, L.P., a Virginia limited partnership By: Innkeepers Financial Corporation III, a Virginia corporation, its sole general partner By: /s/ Jeffrey Fisher --------------------------- Name: Jeffrey Fisher Title: President INNKEEPERS RESIDENCE WICHITA EAST, L.P., a Virginia limited partnership By: Innkeepers Financial Corporation III, a Virginia corporation, its sole general partner By: /s/ Jeffrey Fisher --------------------------- Name: Jeffrey Fisher Title: President INNKEEPERS RESIDENCE SILI I, L.P., a Virginia limited partnership By: Innkeepers Financial Corporation III, a Virginia corporation, its sole general partner By: /s/ Jeffrey Fisher --------------------------- Name: Jeffrey Fisher Title: President INNKEEPERS FINANCING PARTNERSHIP III, L.P., a Virginia limited partnership By: Innkeepers Financial Corporation III, a Virginia corporation, its sole general partner By: /s/ Jeffrey Fisher --------------------------- Name: Jeffrey Fisher Title: President 71 NORMURA ASSET CAPITAL CORPORATION By: /s/ David Walker ------------------------------- Name: David Walker Title: Vice President 72