-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CYFsr8H+nuNWW/LM4lBD6sj97m0XwxjZOhVg2VZEnnpQBH2QkykSmdBVl4z6Mk4s xBOlbyEM7IVIDqVphIi9eg== 0000916641-02-002132.txt : 20021217 0000916641-02-002132.hdr.sgml : 20021217 20021217171045 ACCESSION NUMBER: 0000916641-02-002132 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20021126 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20021217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUMPHREY HOSPITALITY TRUST INC CENTRAL INDEX KEY: 0000929545 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521889548 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25060 FILM NUMBER: 02860593 BUSINESS ADDRESS: STREET 1: 7170 RIVERWOOD DRIVE CITY: COLUMBIA STATE: MD ZIP: 21046 BUSINESS PHONE: 3016804343 MAIL ADDRESS: STREET 1: 7170 RIVERWOOD DRIVE CITY: COLUMBIA STATE: MD ZIP: 21046 8-K 1 d8k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 November 26, 2002 ---------------------- Date of Report (Date of Earliest Event Reported) HUMPHREY HOSPITALITY TRUST, INC. (Exact Name of Registrant as Specified in Its Charter) Virginia 0-25060 52-1889548 -------------------- ----------------- ------------------ (State or Other Jurisdiction (Commission File No.) (I.R.S. Employer of Incorporation) Identification No.) 7170 Riverwood Drive Columbia, Maryland 21046 --------------------------------------- (Address of Principal Executive Offices) (Zip Code) (443) 259-4900 ------------------------ (Registrant's Telephone Number, Including Area Code) N/A ------------------------ (Former Name or Former Address, if Changed Since Last Report) Item 5. Other Events. Refinancing Our Debt - -------------------- As of September 30, 2002, we had long-term debt of approximately $92.2 million consisting of notes, mortgages payable and bonds. Our primary lenders included Wells Fargo Bank (formerly Marquette Capital Bank, N.A.), Fleet National Bank, Mercantile Safe Deposit and Trust Company, U.S. Bank and First National Bank of Omaha. On November 26, 2002, we entered into a new $40 million mortgage loan with Greenwich Capital Financial Products, Inc. ("Greenwich"). The new loan bears interest at a fixed rate of 7.5% per year, matures in December 2012 and is secured by first mortgages on 32 of our hotel properties that previously secured our loans from Wells Fargo, Fleet and Mercantile. The proceeds of this new loan were used to repay in their entirety our existing loans from Wells Fargo and Fleet ($11.5 million and $10.0 million outstanding, respectively), and to repay a portion of our loan from Mercantile ($16.4 million repaid; $4.9 million remains outstanding). The remaining loan proceeds were primarily used to establish real estate tax, insurance, and capital expenditure reserves. The above description is only a summary. Reference is hereby made to the Loan Agreement, Promissory Note, Guaranty and Pledge and Security Agreement, copies of which are filed as Exhibits 10.1, 10.2, 10.3 and 10.4 hereto, respectively, for a complete description of our new financing. As a result of the refinancing, our aggregate annual principal payments and payments to bond sinking funds as of November 2002 are as follows: (in thousands) 2002................. $ 6,054 2003................. $ 7,787 2004................. $ 16,415 2005................. $ 3,913 2006................. $ 2,041 Thereafter $ 56,648 --------- Total.......... $ 92,858 --------- Our $10.7 million revolving credit facility with U.S. Bank (the "Bank"), with an outstanding balance of $6.0 million as of November 30, 2002, became due on October 31, 2002. The Bank initially extended the maturity date to November 30, 2002 and subsequently elected to extend the maturity date to December 31, 2002 to allow time to attempt to arrange for the underwriting of a requested three-year extension of the credit facility's maturity date. Although we expect to complete the extension of this financing in December 2002, the extension is subject to a number of conditions and contingencies and there can be no assurance that we will complete the refinancing or complete it on the terms described above. Amendment of Operating Lease with our TRS Lessee - ------------------------------------------------ We lease all of our hotels to our wholly-owned taxable REIT subsidiary, TRS Leasing, Inc. and its subsidiaries (our "TRS Lessee") pursuant to a master lease (the "Master Lease"). The Master Lease previously required our TRS Lessee to pay us quarterly percentage rent equal to 26% of quarterly room revenues through December 31, 2003, increasing to 30% of quarterly room revenues for the remainder of the initial five-year term expiring December 31, 2006. In connection with the Greenwich refinancing described above, Greenwich required us to negotiate a new lease (the "New Lease") with our TRS Lessee with respect to the 32 hotel properties securing the new loan, extending the term of the lease to ten years, concurrent with the term of the new loan. In addition, we have amended and restated the Master Lease (the "Amended Lease") to reflect the same changes with respect to the remaining hotel properties. Effective November 26, 2002, the New Lease and the Amended Lease require payment of rents equal to 30% of quarterly room revenues throughout the lease term, and provide for a reduction in the rents to 25% of quarterly room revenues in the event we contribute to our TRS Lessee all of the personal property currently used in the operation of our hotels. We have elected to capitalize our TRS Lessee as described above, and accordingly, the rents have been set at 25% of the quarterly room revenues for the period beginning January 1, 2002 and ending November 25, 2012. -2- The above description is only a summary. Reference is hereby made to the Master Lease Agreement and First Amended and Restated Master Lease Agreement, copies of which are filed as Exhibits 10.5 and 10.6 hereto, respectively, for a complete description of the amended leases. Amendment of Hotel Management Agreement Our management agreement requires us to pay an annual base management fee to Humphrey Hospitality Management, Inc. equal to 6% of total hotel revenues, plus any incentive fees earned for the remainder of the initial five-year term expiring September 30, 2005. In connection with the Greenwich refinancing described above, we were required to amend the terms of our management agreement (the "Agreement"), to extend the initial term to November 2007, and to provide for an additional five-year extension of the Agreement upon the occurrence of certain conditions. The amended Agreement requires payment of a 6% base management fee plus any incentive fees earned through December 31, 2003, and a 5% base management fee plus any incentive fees earned for each remaining year of the Agreement's term. The above description is only a summary. Reference is hereby made to the First Amended and Restated Hotel Management Agreement, a copy of which is filed as Exhibit 10.7 hereto, for a complete description of the amended management agreement. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (c) Exhibits 10.1 Loan Agreement dated as of November 26, 2002, by and among Solomons Beacon Inn Limited Partnership, TRS Subsidiary, LLC and Greenwich Capital Financial Products, Inc. 10.2 Promissory Note between Solomons Beacon Inn Limited Partnership and TRS Subsidiary, LLC and Greenwich Capital Financial Products, Inc. dated as of November 26, 2002 10.3 Guaranty of Recourse Obligations made by Humphrey Hospitality Trust, Inc., as guarantor, in favor of Greenwich Capital Financial Products, Inc., dated as of November 26, 2002 10.4 Pledge and Security Agreement by Humphrey Hospitality Trust, Inc., Humphrey Hospitality Limited Partnership, TRS Leasing, Inc. and Solomons GP, LLC, for the benefit of Greenwich Capital Financial Products, Inc. dated as of November 26, 2002 10.5 Master Lease Agreement dated as of November 26, 2002, between Solomons Beacon Inn Limited Partnership, as lessor, and TRS Subsidiary, LLC, as lessee 10.6 First Amended and Restated Master Lease Agreement dated as of November 26, 2002, between Humphrey Hospitality Limited Partnership and E&P Financing Limited Partnership, as lessors, and TRS Leasing Subsidiary, LLC, as lessee, and Solomons Beacon Inn Limited Partnership as withdrawing lessor 10.7 First Amended and Restated Hotel Management Agreement between TRS Leasing, Inc., TRS Subsidiary, LLC and Humphrey Hospitality Management, Inc. dated November 26, 2002 -3- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HUMPHREY HOSPITALITY TRUST, INC. December 17, 2002 /S/ Michael M. Schurer ----------------------- Michael M. Schurer Chief Financial Officer -4- HUMPHREY HOSPITALITY TRUST, INC. INDEX TO EXHIBITS Exhibit Number 10.1 Loan Agreement dated as of November 26, 2002, by and among Solomons Beacon Inn Limited Partnership, TRS Subsidiary, LLC and Greenwich Capital Financial Products, Inc. 10.2 Promissory Note between Solomons Beacon Inn Limited Partnership and TRS Subsidiary, LLC and Greenwich Capital Financial Products, Inc. dated as of November 26, 2002 10.3 Guaranty of Recourse Obligations made by Humphrey Hospitality Trust, Inc., as guarantor, in favor of Greenwich Capital Financial Products, Inc., dated as of November 26, 2002 10.4 Pledge and Security Agreement by Humphrey Hospitality Trust, Inc., Humphrey Hospitality Limited Partnership, TRS Leasing, Inc. and Solomons GP, LLC, for the benefit of Greenwich Capital Financial Products, Inc. dated as of November 26, 2002 10.5 Master Lease Agreement dated as of November 26, 2002, between Solomons Beacon Inn Limited Partnership, as lessor, and TRS Subsidiary, LLC, as lessee 10.6 First Amended and Restated Master Lease Agreement dated as of November 26, 2002, between Humphrey Hospitality Limited Partnership and E&P Financing Limited Partnership, as lessors, and TRS Leasing Subsidiary, LLC, as lessee, and Solomons Beacon Inn Limited Partnership as withdrawing lessor 10.7 First Amended and Restated Hotel Management Agreement between TRS Leasing, Inc., TRS Subsidiary, LLC and Humphrey Hospitality Management, Inc. dated November 26, 2002 EX-10.1 3 dex101.txt EXHIBIT 10.1 ---------------------------------------------------------------- LOAN AGREEMENT Dated as of November 26, 2002 By and Among SOLOMONS BEACON INN LIMITED PARTNERSHIP ("Fee Borrower") TRS SUBSIDIARY, LLC ("Leasehold Borrower") together, Borrowers And GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. as Lender ----------------------------------------------------------------
TABLE OF CONTENTS Page ---- 1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION ........................... 1 1.1 Specific Definitions ....................................... 1 1.2 Index of Other Definitions ................................. 11 1.3 Principles of Construction ................................. 13 2. GENERAL LOAN TERMS ................................................ 13 2.1 The Loan ................................................... 13 2.2 Interest; Monthly Payments. ................................ 13 2.2.1 Generally ......................................... 13 2.2.2 Default Rate ...................................... 14 2.2.3 Taxes ............................................. 14 2.2.4 New Payment Date .................................. 14 2.3 Loan Repayment. ............................................ 14 2.3.1 Repayment ......................................... 14 2.3.2 Mandatory Prepayments ............................. 15 2.3.3 Defeasance ........................................ 15 2.3.4 Optional Prepayments .............................. 18 2.4 Release of Properties ...................................... 18 2.4.1 Release on Defeasance ............................. 18 2.4.2 Sale of Properties ................................ 18 2.4.3 Release on Payment in Full ........................ 19 2.5 Substitution of Properties ................................. 19 2.5.1 Substitution of Collateral Properties ............. 19 2.5.2 Substitution of Defeasance Collateral ............. 22 2.6 Payments and Computations .................................. 23 2.6.1 Making of Payments ................................ 23 2.6.2 Computations ...................................... 23 2.6.3 Late Payment Charge ............................... 23 3. CASH MANAGEMENT AND RESERVES ...................................... 23 3.1 Cash Management Arrangements ............................... 23 3.2 Required Repairs. .......................................... 24 3.2.1 Completion of Required Repairs .................... 24 3.2.2 Required Repairs Reserves ......................... 24 3.2.3 Required Repairs Letter of Credit ................. 24 3.2.4 Environmental Remediation Reserves ................ 25 3.3 Taxes and Insurance ........................................ 26 3.3.1 Tax and Insurance Subaccount ...................... 26 3.3.2 Tax and Insurance Letter of Credit ................ 26 3.4 Capital Expense Reserves ................................... 27 3.4.1 Capital Reserve Subaccount ........................ 27
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Page ---- 3.4.2 Capital Expenses Letter of Credit ................. 28 3.5 Seasonal Working Capital Reserves .......................... 29 3.5.1 Seasonal Capital Reserve Subaccount ............... 29 3.5.2 Seasonal Working Capital Letter of Credit ......... 29 3.6 Operating Expense Subaccount ............................... 30 3.7 Casualty/Condemnation Subaccount ........................... 30 3.8 Ground Rent Subaccount ..................................... 30 3.9 Security Deposits .......................................... 31 3.10 Grant of Security Interest; Application of Funds ........... 31 3.11 Property Cash Flow Allocation. ............................. 32 3.12 Provisions Regarding Letters of Credit ..................... 33 3.12.1 Letters of Credit Generally ....................... 33 3.12.2 Security for Debt ................................. 33 3.12.3 Additional Rights of Lender ....................... 33 4. REPRESENTATIONS AND WARRANTIES .................................... 34 4.1 Organization; Special Purpose .............................. 35 4.2 Proceedings; Enforceability ................................ 35 4.3 No Conflicts ............................................... 35 4.4 Litigation ................................................. 35 4.5 Agreements ................................................. 35 4.6 Title ...................................................... 36 4.7 No Bankruptcy Filing ....................................... 36 4.8 Full and Accurate Disclosure ............................... 36 4.9 Tax Filings ................................................ 37 4.10 No Plan Assets ............................................. 37 4.11 Compliance ................................................. 37 4.12 Contracts .................................................. 38 4.13 Federal Reserve Regulations; Investment Company Act ........ 38 4.14 Easements; Utilities and Public Access ..................... 38 4.15 Physical Condition ......................................... 38 4.16 Leases ..................................................... 39 4.17 Fraudulent Transfer ........................................ 39 4.18 Ownership of Borrower ...................................... 39 4.19 Purchase Options ........................................... 40 4.20 Management Agreement ....................................... 40 4.21 Hazardous Substances ....................................... 40 4.22 Name; Principal Place of Business .......................... 40 4.23 Other Debt ................................................. 41 4.24 Franchise Agreements ....................................... 41 4.25 Operating Lease ............................................ 41 4.26 Ground Lease ............................................... 41 5. COVENANTS ......................................................... 41 5.1 Existence .................................................. 41 5.2 Taxes and Other Charges .................................... 41 5.3 Access to Properties ....................................... 42
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Page ---- 5.4 Repairs; Maintenance and Compliance; Alterations. ............. 42 5.4.1 Repairs; Maintenance and Compliance .................... 42 5.4.2 Alterations ............................................ 42 5.5 Performance of Other Agreements ............................... 43 5.6 Cooperate in Legal Proceedings ................................ 43 5.7 Further Assurances ............................................ 43 5.8 Environmental Matters. ........................................ 43 5.8.1 Hazardous Substances ................................... 43 5.8.2 Environmental Monitoring ............................... 44 5.9 Title to the Properties ....................................... 45 5.10 Leases. ....................................................... 45 5.10.1 Generally .............................................. 45 5.10.2 Material Leases ........................................ 45 5.10.3 Minor Leases ........................................... 46 5.10.4 Additional Covenants with respect to Leases ............ 46 5.11 Estoppel Statement ............................................ 47 5.12 Property Management. .......................................... 47 5.12.1 Management Agreement ................................... 47 5.12.2 Termination of Manager ................................. 47 5.13 Special Purpose Bankruptcy Remote Entity ...................... 48 5.14 Assumption in Non-Consolidation Opinion ....................... 48 5.15 Change In Business or Operation of Properties ................. 48 5.16 Debt Cancellation ............................................. 48 5.17 Affiliate Transactions ........................................ 48 5.18 Zoning ........................................................ 48 5.19 No Joint Assessment ........................................... 48 5.20 Principal Place of Business ................................... 48 5.21 Change of Name, Identity or Structure ......................... 49 5.22 Indebtedness .................................................. 49 5.23 Licenses ...................................................... 49 5.24 Compliance with Restrictive Covenants, Etc. ................... 49 5.25 ERISA. ........................................................ 49 5.26 Prohibited Transfers .......................................... 50 5.26.1 Generally .............................................. 50 5.26.2 Transfer and Assumption ................................ 50 5.27 Liens ......................................................... 52 5.28 Dissolution ................................................... 52 5.29 Expenses ...................................................... 52 5.30 Indemnity ..................................................... 52 5.31 Franchise Agreements .......................................... 53 5.32 Operating Lease ............................................... 54 5.33 Ground Lease. ................................................. 54 5.33.1 ........................................................ 54 5.33.2 ........................................................ 55 6. NOTICES AND REPORTING ................................................ 55 6.1 Notices ....................................................... 55
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Page ---- 6.2 Borrower Notices and Deliveries ................................ 55 6.3 Financial Reporting. ........................................... 56 6.3.1 Bookkeeping ........................................... 56 6.3.2 Annual Reports ........................................ 56 6.3.3 Monthly Reports ....................................... 57 6.3.4 Other Reports ......................................... 57 6.3.5 Annual Budget ......................................... 57 6.3.6 Breach ................................................ 58 6.3.7 Hotel Accounting ...................................... 58 7. INSURANCE; CASUALTY; AND CONDEMNATION ................................. 58 7.1 Insurance. ..................................................... 58 7.1.1 Coverage .............................................. 58 7.1.2 Policies .............................................. 60 7.1.3 Modification of Insurance Requirements ................ 61 7.2 Casualty. ...................................................... 61 7.2.1 Notice; Restoration ................................... 61 7.2.2 Settlement of Proceeds ................................ 62 7.3 Condemnation. .................................................. 62 7.3.1 Notice; Restoration ................................... 62 7.3.2 Collection of Award ................................... 62 7.4 Application of Proceeds or Award. .............................. 63 7.4.1 Application to Restoration ............................ 63 7.4.2 Application to Debt ................................... 63 7.4.3 Procedure for Application to Restoration .............. 64 7.4.4 Ground Lease .......................................... 64 8. DEFAULTS .............................................................. 64 8.1 Events of Default .............................................. 64 8.2 Remedies. ...................................................... 67 8.2.1 Acceleration .......................................... 67 8.2.2 Remedies Cumulative ................................... 67 8.2.3 Severance ............................................. 67 8.2.4 Delay ................................................. 68 8.2.5 Lender's Right to Perform ............................. 68 9. SPECIAL PROVISIONS .................................................... 68 9.1 Sale of Note and Secondary Market Transaction. ................. 68 9.1.1 General; Borrower Cooperation ......................... 68 9.1.2 Use of Information .................................... 69 9.1.3 Borrower Obligations Regarding Disclosure Documents ... 69 9.1.4 Borrower Indemnity Regarding Filings .................. 70 9.1.5 Indemnification Procedure ............................. 70 9.1.6 Contribution .......................................... 71 9.1.7 Rating Surveillance ................................... 71 9.1.8 Severance of Loan ..................................... 71
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Page ---- 10. MISCELLANEOUS ..................................................... 72 10.1 Exculpation ................................................ 72 10.2 Brokers and Financial Advisors ............................. 73 10.3 Retention of Servicer ...................................... 73 10.4 Survival ................................................... 74 10.5 Lender's Discretion ........................................ 74 10.6 Governing Law. ............................................. 74 10.7 Modification, Waiver in Writing ............................ 75 10.8 Trial by Jury .............................................. 75 10.9 Headings/Exhibits .......................................... 76 10.10 Severability ............................................... 76 10.11 Preferences ................................................ 76 10.12 Waiver of Notice ........................................... 76 10.13 Remedies of Borrower ....................................... 76 10.14 Prior Agreements ........................................... 77 10.15 Offsets, Counterclaims and Defenses ........................ 77 10.16 Publicity .................................................. 77 10.17 No Usury ................................................... 77 10.18 Conflict; Construction of Documents ........................ 78 10.19 No Third Party Beneficiaries ............................... 78 10.20 Yield Maintenance Premium .................................. 78 10.21 Assignment ................................................. 78 10.22 Cross Default; Cross Collateralization ..................... 78 10.23 Joint and Several .......................................... 79 10.24 Set-Off .................................................... 79 10.25 Counterparts ............................................... 79
Schedule 1 - Location of Properties/Allocated Loan Amounts Schedule 2 - Required Repairs Schedule 3 - Exceptions to Representations and Warranties Schedule 4 - Organization of Borrower Schedule 5 - Definition of Special Purpose Bankruptcy Remote Entity Schedule 6 - Seasonal Working Capital Reserve Subaccount Payments Schedule 7 - Franchise Agreements Schedule 8 - Approved Franchisors Schedule 9 - Approved Managers Schedule 10 - Existing Environmental Conditions v LOAN AGREEMENT LOAN AGREEMENT dated as of November 26, 2002 (as the same may be modified, supplemented, amended or otherwise changed, this "Agreement") by and among SOLOMONS BEACON INN LIMITED PARTNERSHIP, a Maryland limited partnership ("Fee Borrower") and TRS SUBSIDIARY, LLC, a Delaware limited liability company ("Leasehold Borrower", and together with Fee Borrower, each, a "Borrower" and, collectively together with their respective permitted successors and assigns, "Borrowers"), and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation (together with its successors and assigns, "Lender"). 1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION 1.1 Specific Definitions. The following terms have the meanings set forth below: Acceptable Appraisal: an appraisal of a Property or a proposed Substitute Property that is (i) dated not more than 120 days prior to the applicable Substitution Date, (ii) signed by a qualified, independent MAI appraiser engaged by Lender, with no interest, direct or indirect, in the Loan, any Property or the proposed Substitute Property, and whose compensation is not affected by the Appraised Value, (iii) addressed to Lender and its successors and assigns and (iv) made in compliance with the requirements of the Federal National Mortgage Association Company or Federal Home Loan Mortgage Corporation, or any successor thereto, and Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 and the regulations promulgated thereunder. Actual Debt Service Coverage Ratio: as of any date, the ratio calculated by Lender of (i) the Actual Net Operating Income for the 12-month period ending with the most recently completed calendar month to (ii) the Debt Service with respect to such period. Actual Net Operating Income: for any period, the actual cash flow of the Properties determined on a cash basis of accounting, after deducting therefrom deposits to (but not withdrawals from) any reserves required under this Agreement, and without giving credit for non-recurring items of income. Affiliate: 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 Environmental Remediation Amount: with respect to each Property at which there is an Existing Environmental Condition, the amount set forth with respect to such Property on Schedule 10. Allocated Loan Amount: with respect to each Property, the amount set forth with respect to such Property on Schedule 1. Appraised Value: the fair market value of a Property or a proposed Substitute Property reflected in an Acceptable Appraisal. Approved Bank shall mean a bank or other financial institution, the long term unsecured debt obligations of which are rated at least "AA-" by Fitch and S&P and "Aa3" by Moody's, and, as of the date hereof, shall mean and include US Bank NA, so long as the long term unsecured debt obligations of US Bank NA are rated at least "A+" by S&P and Fitch and "Aa2" by Moody's. Approved Capital Expenses: Capital Expenses incurred by a Borrower, provided that during a Cash Management Period, such Capital Expenses shall either be (i) included in the Approved Capital Budget for the Property owned or leased by such Borrower for the current calendar month or (ii) approved by Lender. Approved Franchisor: shall mean a nationally recognized hotel franchisor with a net worth and financial rating equal to or greater than the net worth and financial rating of the hotel franchisor with respect to the applicable Property as of the Closing Date. Examples of hotel franchisors that would qualify on the date hereof (but provided that such franchisors are subject to review by Lender at the time of any proposed replacement) are listed on Schedule 8. Approved Manager: shall mean a hotel management company (i) with a net worth and financial rating, as determined by Lender in its reasonable discretion, equal to or greater than the net worth and financial rating of the Manager of the applicable Property as of the Closing Date, (ii) having at least five (5) years' experience in the management of hotels similar in size to the Property or the portfolio of Properties, as applicable, and (iii) not the subject of a bankruptcy or similar insolvency proceeding. Examples of hotel management companies that would qualify on the date hereof (but provided that such management companies are subject to review by Lender at the time of any proposed replacement) are listed on Schedule 9. Approved Operating Expenses: during a Cash Management Period, operating expenses incurred by a Borrower which (i) are included in the Approved Operating Budget for the Property owned or leased by such Borrower for the current calendar month, (ii) are for real estate taxes, insurance premiums, electric, gas, oil, water, sewer or other utility service to such Property or (iii) have been approved by Lender. Available Cash: the amount of Rents, if any, remaining in the Deposit Account after the application of all of the payments required under clauses (i) through (vii) of Section 3.11(a). Borrower Representative: collectively, Fee Borrower Representative and Leasehold Borrower Representative. Business Day: any day other than a Saturday, Sunday or any day on which commercial banks in New York, New York are authorized or required to close. Calculation Date: the last day of each calendar quarter during the Term. Capital Expenses: expenses that are capital in nature or required under GAAP to be capitalized. 2 Cash Management Period: shall commence upon Lender giving notice to the Clearing Bank of the occurrence of any of the following: (i) the Stated Maturity Date, (ii) an Event of Default, or (iii) if, as of any Calculation Date, the Debt Service Coverage Ratio is less than 1.20:1; and shall end upon Lender giving notice to the Clearing Bank that the sweeping of funds into the Deposit Account may cease, which notice Lender shall only be required to give if (1) the Loan and all other obligations under the Loan Documents have been repaid in full or (2) the Stated Maturity Date has not occurred and (A) with respect for the matters described in clause (ii) above, such Event of Default has been cured and no other Event of Default has occurred and is continuing or (B) with respect to the matter described in clause (iii) above, Lender has determined that the Properties have achieved a Debt Service Coverage Ratio of at least 1.20:1 for two consecutive Calculation Dates. Clearing Bank: US Bank National Association, or such other bank as selected by Borrowers and approved by Lender pursuant to the Clearing Account Agreement. Code: 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. Control: with respect to any Person, either (i) ownership directly or indirectly of 49% or more of all equity interests in such Person or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise. Debt: the unpaid Principal, all interest accrued and unpaid thereon, any Yield Maintenance Premium and all other sums due to Lender in respect of the Loan or under any Loan Document. Debt Service: with respect to any particular period, the scheduled Principal and interest payments due under the Note in such period. Debt Service Coverage Ratio: as of any date, the ratio calculated by Lender of (i) the Net Operating Income for the 12-month period ending with the most recently completed calendar month to (ii) the Debt Service with respect to such period. Default: the occurrence of any event under any Loan Document which, with the giving of notice or passage of time, or both, would be an Event of Default. Default Rate: a rate per annum equal to the lesser of (i) the maximum rate permitted by applicable law, or (ii) 5% above the Interest Rate, compounded monthly. Defeasance Collateral: U.S. Obligations, which provide payments (i) on or prior to, but as close as possible to, all Payment Dates and other scheduled payment dates, if any, under the Note after the Defeasance Date and up to and including the Stated Maturity Date, and (ii) in amounts equal to or greater than the Scheduled Defeasance Payments. Defeasance Percentage: the percentage derived by dividing, (i) in the case of an initial Partial Defeasance, the original principal amount of the Defeased Note by the original 3 principal amount of the Note or (ii) in the case of a subsequent Defeasance, the amount of the subsequent Defeased Note by the original principal amount of its corresponding Undefeased Note. Deposit Bank: Wachovia Bank, National Association, or such other bank or depository selected by Lender in its discretion. Eligible Institution: a depository institution insured by the Federal Deposit Insurance Corporation the short term unsecured debt obligations or commercial paper of which are rated at least A-1 by S&P, P-1 by Moody's and F-1+ by Fitch. in the case of accounts in which funds are held for thirty (30) days or less or, in the case of Letters of Credit or accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least "AA" by Fitch and S&P and "Aa2" by Moody's. Environmental Report: each or collectively, the Coralville Environmental Report, the Morgantown Environmental Report and the Solomons Environmental Report ERISA: the Employment Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder. ERISA Affiliate: all members of a controlled group of corporations and all trades and business (whether or not incorporated) under common control and all other entities which, together with Borrowers (or any Borrower), are treated as a single employer under any or all of Section 414(b), (c), (m) or (o) of the Code. Existing Environmental Conditions: those certain environmental conditions at certain Properties, all as more particularly described on Schedule 10. Fee Borrower Representative: Solomons GP, LLC, a Delaware limited liability company. Franchise Agreements: The franchise agreements identified on Schedule 7, as the same may from time to time be amended, supplemented, replaced with the consent of the Lender or replaced in accordance with their Agreement, pursuant to which a Borrower has the right to operate the hotel on each Property under a name and hotel system controlled by the applicable franchisor. GAAP: generally accepted accounting principles in the United States of America as of the date of the applicable financial report. Governmental Authority: any court, board, agency, commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) now or hereafter in existence. Guarantor: Humphrey Hospitality Trust, Inc, a Virginia corporation. 4 Ground Lease: the Lease dated November 23, 1992, between J. Kendrick Williams, Bishop of the Roman Catholic Diocese of Lexington, as landlord, and Fee Borrower, as tenant. Interest Period: (i) the period from the date hereof through the first day thereafter that is the last day of a calendar month and (ii) each period thereafter from the 1/st/ day of each calendar month through the last day of each such calendar month; except that the Interest Period, if any, that would otherwise commence before and end after the Maturity Date shall end on the Maturity Date. Interest Rate: a rate of interest equal to 7.50% per annum (or, when applicable pursuant to this Note or any other Loan Document, the Default Rate). Key Principal(s): Humphrey Hospitality Trust, Inc, a Virginia corporation. Leases: all leases and other agreements or arrangements heretofore or hereafter entered into affecting the use, enjoyment or occupancy of, or the conduct of any activity upon or in, a Property or the Improvements relating thereto, including any guarantees, extensions, renewals, modifications or amendments thereof and all additional remainders, reversions and other rights and estates appurtenant thereunder. Leasehold Borrower Representative: TRS Leasing, Inc., a Virginia corporation. Legal Requirements: statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting any Borrower, any Loan Document or all or part of any Property or the construction, ownership, use, alteration or operation 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 instrument, either of record or known to any Borrower, at any time in force affecting all or part of any Property. Letter of Credit: shall mean an irrevocable, unconditional, transferable, clean sight draft letter of credit acceptable to Lender and the Rating Agencies (either an evergreen letter of credit or one which does not expire until at least thirty (30) Business Days after the Maturity Date) in favor of Lender and entitling Lender to draw thereon in New York, New York, issued by a domestic Approved Bank or the U.S. agency or branch of a foreign Approved Bank. Lien: any mortgage, deed of trust, lien (statutory or otherwise), pledge, hypothecation, easement, restrictive covenant, preference, assignment, security interest or any other encumbrance, charge or transfer of, or any agreement to enter into or create any of the foregoing, on or affecting all or any part of any Property or any interest therein, or any direct or indirect interest in any Borrower or any Borrower Representative, 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 Documents: this Agreement and all other documents, agreements and instruments now or hereafter evidencing, securing or delivered to Lender in connection with the 5 Loan, including the following, each of which is dated as of the date hereof: (i) the Note or Notes made by Borrowers to Lender in the aggregate principal amount equal to the Loan (the "Note"), (ii) each Mortgage, Assignment of Leases and Rents and Security Agreement made by a Borrower (or the Deed of Trust, Assignment of Leases and Rents and Security Agreement made by a Borrower to a trustee, as the case may be) in favor of Lender which covers the Property owned or leased by such Borrower (collectively, the "Mortgages"), (iii) each Assignment of Leases and Rents from a Borrower to Lender, (iv) each Assignment of Agreements, Licenses, Permits and Contracts from a Borrower to Lender, (v) the Subordination and Security Agreement from Leasehold Borrower to Lender (the "Security Agreement"), (vi) the Consent, Subordination and Agreement of Manager among each Borrower, Manager and Lender (the "Manager Agreement"), (vii) the Blocked Account Control Agreement (the "Clearing Account Agreement") among each Borrower, Lender, Manager and the Clearing Bank, (viii) the Deposit Account Agreement (the "Deposit Account Agreement") among Borrowers, Lender, Manager and the Deposit Bank, (ix) the Guaranty of Recourse Obligations made by Guarantor and (x) the Pledge and Security Agreement made by any Borrower Representative in favor of Lender; as each of the foregoing may be (and each of the foregoing defined terms shall refer to such documents as they may be) amended, restated, replaced, supplemented or otherwise modified from time to time. Management Agreement: the management agreement between a Borrower and Manager, pursuant to which Manager is to manage the Property owned by such Borrower, as same may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with Section 5.12. Manager: Humphrey Hospitality Management, Inc., a Maryland corporation, or any successor, assignee or replacement manager appointed by Borrower in accordance with Section 5.12. Material Alteration: any alteration affecting structural elements of a Property the cost of which exceeds $250,000; provided, however, if such alteration is required pursuant to the applicable Franchise Agreement, such alteration shall not be a Material Alteration unless the cost of such alteration exceeds $500,000; provided further, that in no event shall (i) any Required Repairs, (ii) any tenant improvement work performed pursuant to any Lease existing on the date hereof or entered into hereafter in accordance with the provisions of this Agreement, or (iii) alterations performed as part of a Restoration, constitute a Material Alteration. Material Lease: the Operating Lease and all Leases which individually or in the aggregate with respect to the same tenant and its Affiliates (i) cover more than 1,500 square feet of the Improvements at any Property, or (ii) constitute more than 5.0% of the total annual Rents for such Property. Maturity Date: 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, by declaration of acceleration, or otherwise. Minor Lease: any Lease that is not a Material Lease. 6 Net Operating Income: for any period, the underwritten net cash flow of the Properties determined by Lender in its sole and absolute discretion in accordance with Lender's then current underwriting standards for loans of this type and the then current underwriting standards of the Rating Agencies. It is anticipated that such underwriting adjustments shall include, but not be limited to, capping occupancy at a maximum of 70% to 75%, assuming a minimum management fee equal to 5%, assuming minimum FF&E of 5%, assuming that the combination of franchise, management & marketing expenses equates to a minimum of 14% of total revenue, eliminating non-recurring income, adjusting occupancy and ADR to reflect any new competition and adjusting expenses for any known increases (for example, taxes and insurance). Officer's Certificate: a certificate delivered to Lender by Fee Borrower or Leasehold Borrower which is signed by a senior executive officer of Fee Borrower Representative or Leasehold Borrower Representative, respectively. Operating Lease: the Master Lease Agreement dated as of November 26, 2002 between Fee Borrower, as landlord, and Leasehold Borrower, as tenant. Other Charges: 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 any Property, now or hereafter levied or assessed or imposed against any Property or any part thereof. Payment Date: the 1st day of each calendar month or, upon Lender's exercise if its right to change the Payment Date in accordance with Section 2.2.4, the New Payment Date (in either case, if such day is not a Business Day, the Payment Date shall be the first Business Day thereafter). The first Payment Date hereunder shall be January 1, 2003. Permitted Encumbrances: (i) the Liens created by the Loan Documents, (ii) all Liens and other matters disclosed in the Title Insurance Policies, (iii) Liens, if any, for Taxes or Other Charges not yet due and payable and not delinquent, (iv) any workers', mechanics' or other similar Liens on a Property provided that any such Lien is bonded or discharged within 30 days after a Borrower first receives notice of such Lien and (v) such other title and survey exceptions as Lender approves in writing in Lender's discretion. Permitted Transfers: (i) a Lease entered into in accordance with the Loan Documents, (ii) a Permitted Encumbrance, (iii) a Transfer and Assumption pursuant to Section 5.26.2, (iv) the Transfer of a Property pursuant to Section 2.4.2, 2.5.1 or 2.5.2, (v) a transfer of publicly traded shares in Key Principal or (vi) provided that no Default or Event of Default shall then exist, a Transfer of an interest in any Borrower other than the membership interest, or partnership interest, as the case may be, held by Fee Borrower's Borrower Representative, or a Transfer of an interest in Fee Borrower's Borrower Representative to any Person provided that (A) such Transfer shall not (x) cause the transferee (other than Key Principal), together with its Affiliates, to acquire Control of any Borrower or Fee Borrower's Borrower Representative or to increase its direct or indirect interest in any Borrower or in Fee Borrower's Borrower Representative to an amount which equals or exceeds 49% or (y) result in any Borrower or Fee Borrower's Borrower Representative no longer being Controlled by Key Principal(s), (B) after 7 giving effect to such Transfer, Key Principal(s) shall continue to own at least 80% of all equity interests (direct or indirect) in Borrowers, (C) Borrowers shall give Lender notice of such Transfer together with copies of all instruments effecting such Transfer not less than 10 days prior to the date of such Transfer, and (D) the legal and financial structure of Borrowers and their members and the single purpose nature and bankruptcy remoteness of Borrowers and their members after such Transfer, shall satisfy Lender's then current applicable underwriting criteria and requirements. Person: any individual, corporation, partnership, limited liability company, joint venture, estate, trust, unincorporated association, any other person or entity, and any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. Plan: (i) an employee benefit or other plan established or maintained by a Borrower or any ERISA Affiliate or to which a Borrower or any ERISA Affiliate makes or is obligated to make contributions and (ii) which is covered by Title IV of ERISA or Section 302 of ERISA or Section 412 of the Code. Properties: collectively, the parcels of real property and Improvements thereon owned or ground leased by the Fee Borrower and encumbered by the Mortgages or leased by Leasehold Borrower and secured by the Security Agreement; together with all rights pertaining to such real property and Improvements, and all other collateral for the Loan as more particularly described in (i) the Granting Clauses of the Mortgages and referred to therein as the Mortgaged Property or the Trust Property, as applicable or (ii) in the Security Agreement and referred to therein as the Collateral. The location of each Property is identified on Schedule 1. Property Value: the value of a Property that Borrowers desire to be released from the Lien of the Loan Documents and substituted with a Mortgage encumbering a Substitute Property, which value shall be deemed to be equal to the greatest of (i) the Appraised Value of such Property, (ii) the Allocated Loan Amount for such Property or (iii) if such Property is being sold, the sale price of such Property pursuant to an arms' length agreement to a third party not Affiliated with any Borrower or Guarantor, and in which no Borrower and no Affiliate of any Borrower and/or Guarantor has any beneficial interest. Rating Agency: each of Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), and Fitch IBCA Duff & Phelps or any other nationally-recognized statistical rating organization to the extent any of the foregoing have been engaged by Lender or its designee in connection with or in anticipation of any Secondary Market Transaction. Rating Comfort Letter: a letter issued by each of the applicable Rating Agencies which confirms that the taking of the action referenced to therein will not result in any qualification, withdrawal or downgrading of any existing ratings of Securities created in a Secondary Market Transaction. Release Date: the earlier to occur of (i) the forty second (42/nd/) Payment Date of the Term and (ii) the date that is two (2) years from the "startup day" (within the meaning of 8 Section 860G(a)(9) of the Code) of the REMIC Trust established in connection with a Securitization involving this Loan. REMIC Trust: a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code that holds the Note. Release Amount: with respect to any Property released pursuant to Section 2.4.2, (i) $1,562,500 with respect to the Harlan, Kentucky Property, (ii) $500,000 with respect to the Pella, Iowa Property and (iii) 125% of the Allocated Loan Amount with respect to each Property other than the Harlan, Kentucky Property or the Pella, Iowa Property. Rents: all rents, rent equivalents, moneys payable as damages (including payments by reason of the rejection of a Lease in a Bankruptcy Proceeding) or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, fees, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other payment and consideration of whatever form or nature received by or paid to or for the account of or benefit of each Borrower, Manager or any of their agents or employees from any and all sources arising from or attributable to each Property and the Improvements, including, without limitation, all revenues and credit card receipts collected from guest rooms, restaurants, bars (other than, with respect to revenue collected from guest rooms, restaurants and bars, such revenue attributable to room service charges that Borrowers collect for the benefit of the tenant under any restaurant lease), meeting rooms, banquet rooms and recreational facilities, parking charges, 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 each Property or rendering of services by a Borrower, Manager or any operator or manager of the hotel or the commercial space located in the Improvements or acquired from others (including, without limitation, from the rental of any office space, retail space, 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 or other loss of income insurance. Scheduled Defeasance Payments: (i) in the case of a Full Defeasance, the Monthly Debt Service Payment Amount required under the Note (or, to the extent that there has been a previous Partial Defeasance, Undefeased Note, as the case may be) for all Payment Dates occurring after the Defeasance Date (including the outstanding Principal balance on the Note (or Undefeased Note, as the case may be) as of the Stated Maturity Date) and (ii) in the case of a Partial Defeasance, the Monthly Debt Service Payment Amount multiplied by the Defeasance Percentage for all Payment Dates occurring after the Defeasance Date (including the outstanding Principal balance on the Note (or Undefeased Note, as the case may be) as of the Stated Maturity Date). Security Agreement: a security agreement in form and substance that would be satisfactory to Lender (in Lender's sole but good faith discretion) pursuant to which Borrowers 9 grant Lender a perfected, first priority security interest in the Defeasance Collateral Account and the Defeasance Collateral. Servicer: a servicer selected by Lender to service the Loan. State: as to any Property, the state in which such Property is located. Stated Maturity Date: December 1, 2012, as such date may be changed in accordance with Section 2.2.4. Taxes: all real estate and personal property taxes, assessments, water rates or sewer rents, maintenance charges, impositions, vault charges and license fees, now or hereafter levied or assessed or imposed against all or part of the Properties. Term: 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 Borrowers pursuant to the Loan Documents. Title Insurance Policies: the ALTA mortgagee title insurance policies in the form acceptable to Lender issued with respect to each Property and insuring the Liens of the Mortgages. Transfer: any sale, conveyance, transfer, lease or assignment, or the entry into any agreement to sell, convey, transfer, lease or assign, whether by law or otherwise, of, on, in or affecting (i) all or part of any Property (including any legal or beneficial direct or indirect interest therein), (ii) any direct or indirect interest in any Borrower (including any profit interest), or (iii) any direct or indirect interest in any Borrower Representative. UCC: the Uniform Commercial Code as in effect in the State or the state in which any of the Cash Management Accounts are located, as the case may be. U.S. Obligations: direct full faith and credit obligations of the United States of America that are not subject to prepayment, call or early redemption. Welfare Plan: an employee welfare benefit plan, as defined in Section 3(1) of ERISA. Yield Maintenance Premium: an amount which, when added to the outstanding Principal, would be sufficient to purchase U.S. Obligations which provide payments (a) on or prior to, but as close as possible to, all successive scheduled payment dates under this Agreement through the Stated Maturity Date and (b) in amounts equal to the Monthly Debt Service Payment Amount required under this Agreement through the Stated Maturity Date together with the outstanding principal balance of the Note as of the Stated Maturity Date assuming all such Monthly Debt Service Payments are made (including any servicing costs associated therewith). In no event shall the Yield Maintenance Premium be less than zero. 10 1.2 Index of Other Definitions. The following terms are defined in the sections or Loan Documents indicated below: "Approved Annual Budget" - 6.3.5 "Annual Budget" - 6.3.5 "Applicable Subaccounts" - 3.12.1 "Approved Capital Budget" - 6.3.5 "Approved Operating Budget" - 6.3.5 "Applicable Taxes" - 2.2.3 "Award" - 7.3.2 "Bankruptcy Proceeding" - 4.7 "Borrower's Recourse Liabilities" - 10.1 "Capital Expenses Letter of Credit" - 3.4.2 "Capital Reserve Subaccount" - 3.4.1 "Cash Management Accounts" - 3.11 "Casualty" - 7.2.1 "Casualty/Condemnation Prepayment" - 2.3.2 "Casualty/Condemnation Subaccount" - 3.7 "Clearing Account" - 3.1 "Clearing Account Agreement" - 1.1 (Definition of Loan Documents) "Concentration Account" - 3.1 "Concentration Bank'- 3.1 "Condemnation" - 7.3.1 "Coralville Environmental Report" - Schedule 10 "Coralville Property Existing Environmental Condition" - Schedule 10 "Defeasance Collateral Account" - 2.3.3 "Defeasance " - 2.3.3 "Defeasance Event" - 2.3.3 "Defeasance Date" - 2.3.3 "Defeased Note" - 2.3.3 "Deposit Account" - 3.1 "Deposit Account Agreement" - 1.1 (Definition of Loan Documents) "Disclosure Document" - 9.1.2 "Easements" - 4.14 "Eligible Account" - Deposit Account Agreement "Endorsement" - 5.26 "Environmental Laws" - 4.21 "Environmental Remediation Subaccount" - 3.2.4 "Equipment" - Mortgage "Event of Default" - 8.1 "Exchange Act" - 9.1.2 "Full Defeasance " - 2.3.3 "GCM Group" - 9.1.3 "Ground Rent Subaccount" - 3.8 "Hazardous Substances" - 4.21 "Improvements" - Mortgage "Increased Capital Expenses Letter of Credit" - 3.4.2 11 "Indemnified Liabilities" - 5.30 "Indemnified Party" - 5.30 "Independent Director" - Schedule 5 "Insurance Premiums" - 7.1.2 "Insurance Requirements" - 7.1.3 "Insured Casualty" - 7.2.2 "Issuer" - 9.1.3 "Late Payment Charge" - 2.6.3 "Lender's Consultant" - 5.7.1 "Liabilities" - 9.1.3 "Licenses" - 4.11 "Loan" - 2.1 "LTV Ratio" - 2.5.1 "Monthly Debt Service Payment Amount" - 2.2.1 "Moody's" - 1.1 (Definition of Rating Agency) "Morgantown Environmental Report" - Schedule 10 "Morgantown Property Existing Environmental Condition" - Schedule 10 "Mortgage" - 1.1 (Definition of Loan Documents) "New Payment Date" - 2.2.4 "Note" - 1.1 (Definition of Loan Documents) "Notice" - 6.1 "Operating Expense Subaccount" - 3.6 "Partial Defeasance" - 2.3.3 "Permitted Indebtedness" - 5.22 "Permitted Investments" - Deposit Account Agreement "Permitted Prepayment Date" - 2.3.4 "Policies" - 7.1.2 "Principal" - 2.1 "Proceeds" - 7.2.2 "Proposed Material Lease" - 5.10.2 "Provided Information" - 9.1.1 "Qualified Carrier" - 7.1.1 "Registration Statement" - 9.1.3 "Remedial Action" - 3.2.4 "Remedial Work" - 5.7.2 "Rent Roll" - 4.16 "Required Records" - 6.3.6 "Required Repairs" - 3.2.1 "Required Repairs Letter of Credit" - 3.2.3 "Required Repairs Subaccount" - 3.2.2 "Restoration" - 7.4.1 "S&P" - 1.1 (Definition of Rating Agency) "Seasonal Working Capital Reserve Subaccount" - 3.5.1 "Seasonal Working Capital Reserve Letter of Credit" - 3.5.2 "Secondary Market Transaction" - 9.1.1 "Section 3.4.1 Shortfall" - 3.4.1 12 "Section 3.4.2 Shortfall" - 3.4.2 "Securities" - 9.1.1 "Securities Act" - 9.1.2 "Security Deposit Account" - 3.9 "Security Deposit Subaccount" - 3.9 "Significant Casualty" - 7.2.2 "Solomons Environmental Report" - Schedule 10 "Solomons Property Existing Environmental Condition" - Schedule 10 "Special Purpose Bankruptcy Remote Entity" - 5.13 "Springing Recourse Event" - 10.1 "Subaccounts" - 3.1 "Substitute Property" - 2.5.1 "Substitution" - 2.5.1 "Substitution Date" - 2.5.1 "Successor Borrower" - 2.3.3 "Tax and Insurance Letter of Credit" - 3.3.2 "Tax and Insurance Subaccount" - 3.3 "Terrorism Insurance Cap" - 7.1.1 "Transfer and Assumption" - 5.26 "Transferee Borrower" - 5.26 "Undefeased Note " - 2.3.3 "Underwriter Group" - 9.1.3 "Underwriters" - 9.1.3 1.3 Principles of Construction. Unless otherwise specified, (i) all references to sections and schedules are to those in this Agreement, (ii) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular provision, (iii) all definitions are equally applicable to the singular and plural forms of the terms defined, (iv) the word "including" means "including but not limited to," and (v) accounting terms not specifically defined herein shall be construed in accordance with GAAP. 2. GENERAL LOAN TERMS 2.1 The Loan. Lender is making a loan (the "Loan") to Borrowers on the date hereof, in the original principal amount (the "Principal") of $40,000,000, which shall mature on the Stated Maturity Date. Each Borrower acknowledges receipt of the Loan, the proceeds of which are being and shall be used to (i) repay and discharge existing loans relating to the Properties, (ii) fund certain of the Subaccounts, and (iii) pay transaction costs. Any excess proceeds may be used for any lawful purpose. No amount repaid in respect of the Loan may be reborrowed. 2.2 Interest; Monthly Payments. 2.2.1 Generally. From and after the date hereof, interest on the unpaid Principal shall accrue at the Interest Rate and be payable as hereinafter provided. On the date hereof, Borrowers shall pay interest on the unpaid Principal from the date hereof through and 13 including November 30, 2002. On January 1, 2003 and each Payment Date thereafter through and including November 1, 2012 (as such date may be changed pursuant to Section 2.2.4), the Principal and interest thereon at the Interest Rate shall be payable in equal monthly installments of $322,237.28 (the "Monthly Debt Service Payment Amount"); which is based on the Interest Rate and a 20 year amortization schedule. The Monthly Debt Service Payment Amount due on any Payment Date shall first be applied to the payment of interest accrued during the preceding Interest Period and the remainder of such Monthly Debt Service Payment Amount shall be applied to the reduction of the unpaid Principal. All accrued and unpaid interest shall be due and payable on the Maturity Date. If the Loan is repaid on any date other than on a Payment Date (whether prior to or after the Stated Maturity Date), Borrowers shall also pay interest that would have accrued on such repaid Principal to but not including the next Payment Date. 2.2.2 Default Rate. After the occurrence and during the continuance of an Event of Default, the entire unpaid Debt shall bear interest at the Default Rate, and shall be payable upon demand from time to time, to the extent permitted by applicable law. 2.2.3 Taxes. Any and all payments by Borrowers hereunder and under the other Loan Documents shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on Lender's income, and franchise taxes imposed on Lender by the law or regulation of any Governmental Authority (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to in this Section 2.2.3 as "Applicable Taxes"). If any Borrower shall be required by law to deduct any Applicable Taxes from or in respect of any sum payable hereunder to Lender, the following shall apply: (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.2.3), Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Payments pursuant to this Section 2.2.3 shall be made within ten days after the date Lender makes written demand therefor. 2.2.4 New Payment Date. Lender shall have the right, to be exercised not more than once during the term of the Loan, to change the Payment Date to a date other than the first day of each month (a "New Payment Date"), on 30 days' written notice to Borrowers; provided, however, that any such change in the Payment Date: (i) shall not modify the amount of regularly scheduled monthly principal and interest payments, except that the first payment of principal and interest payable on the New Payment Date shall be accompanied by interest at the interest rate herein provided for the period from the Payment Date in the month in which the New Payment Date first occurs to the New Payment Date, and (ii) shall extend the Stated Maturity Date to the New Payment Date occurring in the month set forth in the definition of Stated Maturity Date. 2.3 Loan Repayment. 2.3.1 Repayment. Borrowers shall repay the entire outstanding principal balance of the Note in full on the Maturity Date, together with interest thereon to (but excluding) the date of repayment and any other amounts due and owing under the Loan 14 Documents. Borrowers shall have no right to prepay or defease all or any portion of the Principal except in accordance with Section 2.3.2, Section 2.3.3 and Section 2.4 below. Except during the continuance of an Event of Default, all proceeds of any repayment, including any prepayments of the Loan, shall be applied by Lender as follows in the following order of priority: First, accrued and unpaid interest at the Interest Rate; Second, to Principal; and Third, to any other amounts then due and owing under the Loan Documents. If prior to the Stated Maturity Date the Debt is accelerated by reason of an Event of Default, then Lender shall be entitled to receive, in addition to the unpaid Principal and accrued interest and other sums due under the Loan Documents, an amount equal to the Yield Maintenance Premium applicable to such Principal so accelerated. During the continuance of an Event of Default, all proceeds of repayment, including any payment or recovery on one or more of the Properties (whether through foreclosure, deed-in-lieu of foreclosure, or otherwise) shall, unless otherwise provided in the Loan Documents, be applied in such order and in such manner as Lender shall elect in Lender's discretion. 2.3.2 Mandatory Prepayments. The Loan is subject to mandatory prepayment in certain instances of Insured Casualty or Condemnation (each a "Casualty/Condemnation Prepayment"), in the manner and to the extent set forth in Section 7.4.2. Each Casualty/Condemnation Prepayment, after deducting Lender's costs and expenses (including reasonable attorneys' fees and expenses) in connection with the settlement or collection of the Proceeds or Award, shall be applied in the same manner as repayments under Section 2.3.1, and if such Casualty/Condemnation Payment is made on any date other than a Payment Date, then such Casualty/Condemnation Payment shall include interest that would have accrued on the Principal prepaid to but not including the next Payment Date. Provided that no Event of Default is continuing, any such mandatory prepayment under this Section 2.3.2 shall be without the payment of the Yield Maintenance Premium. 2.3.3 Defeasance. (a) Conditions to Defeasance. Provided no Event of Default shall be continuing, Borrowers shall have the right on any Payment Date after the Release Date and prior to the Permitted Prepayment Date to voluntarily defease the entire amount of the Principal (a "Full Defeasance") or a portion of the Principal (a "Partial Defeasance") (any such Full Defeasance or Partial Defeasance, a "Defeasance") by providing Lender with the Defeasance Collateral (a "Defeasance Event"), subject to the satisfaction of the following conditions precedent: (1) Borrowers shall give Lender not less than thirty (30) days prior written notice specifying a Payment Date (the "Defeasance Date") on which the Defeasance Event is to occur; (2) Borrowers shall pay to Lender (A) all payments of Principal and interest due on the Loan to and including the Defeasance Date and (B) all other sums, then due under the Note, this Agreement and the other Loan Documents; 15 (3) Borrowers shall deposit the Defeasance Collateral into the Defeasance Collateral Account and otherwise comply with the provisions of subsections (b) and (c) of this Section 2.3.3; (4) Borrowers shall execute and deliver to Lender a Security Agreement in respect of the Defeasance Collateral Account and the Defeasance Collateral; (5) Borrowers shall deliver to Lender an opinion of counsel for Borrowers that is standard in commercial lending transactions and subject only to customary qualifications, assumptions and exceptions opining, among other things, that (i) Lender has a legal and valid perfected first priority security interest in the Defeasance Collateral Account and the Defeasance Collateral, (ii) if a securitization has occurred, the REMIC Trust formed pursuant to such securitization will not fail to maintain its status as a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code as a result of a Defeasance Event pursuant to this Section 2.3.3, (iii) the Defeasance Event will not result in a deemed exchange for purposes of the Code and will not adversely affect the status of the Note as indebtedness for federal income tax purposes, (iv) delivery of the Defeasance Collateral and the grant of a security interest therein to Lender shall not constitute an avoidable preference under Section 547 of the Bankruptcy Code or applicable state law and (v) a non-consolidation opinion with respect to the Successor Borrower; (6) In the case of a Partial Defeasance, the execution and delivery by Borrowers of 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 the other having a principal balance equal to the undefeased portion of the original Note (the "Undefeased Note"). The Defeased Note and Undefeased Note shall have terms identical to the terms of the Note, except for the principal balance and a pro rata allocation of the Monthly Debt Service Payment Amount. (After a Partial Defeasance, all references hereunder and in the other Loan Documents to "Note" shall be deemed to mean the Undefeased Note, unless expressly provided to the contrary.) A Defeased Note cannot be the subject of any further Defeasance; (7) Borrowers shall deliver to Lender a Rating Comfort Letter as to the Defeasance Event; (8) Borrowers shall deliver an Officer's Certificate certifying that the requirements set forth in this Section 2.3.3 have been satisfied; (9) Borrowers shall deliver a certificate of a "big four" or other nationally recognized public accounting firm acceptable to Lender certifying that the Defeasance Collateral will generate monthly amounts equal to or greater than the Scheduled Defeasance Payments; (10) Borrowers shall deliver such other certificates, opinions, documents and instruments as Lender may reasonably request; and 16 (11) Borrowers shall pay all costs and expenses of Lender incurred in connection with the Defeasance Event, including Lender's reasonable attorneys' fees and expenses and Rating Agency fees and expenses. (b) Defeasance Collateral Account. On or before the date on which Borrowers deliver the Defeasance Collateral, Borrowers shall open at any Eligible Institution the defeasance collateral account (the "Defeasance Collateral Account") which shall at all times be an Eligible Account. The Defeasance Collateral Account shall contain only (i) Defeasance Collateral, and (ii) cash from interest and principal paid on the Defeasance Collateral. All cash from interest and principal payments paid on the Defeasance Collateral shall be paid over to Lender on each Payment Date and applied first to accrued and unpaid interest and then to Principal. Any cash from interest and principal paid on the Defeasance Collateral not needed to pay accrued and unpaid interest or Principal shall be retained in the Defeasance Collateral Account as additional collateral for the Loan. Borrowers shall cause the Eligible Institution at which the Defeasance Collateral is deposited to enter an agreement with Borrowers and Lender, satisfactory to Lender in its sole discretion, pursuant to which such Eligible Institution shall agree to hold and distribute the Defeasance Collateral in accordance with this Agreement. The Successor Borrower shall be the owner of the Defeasance Collateral Account and shall report all income accrued on Defeasance Collateral for federal, state and local income tax purposes in its income tax return. Borrowers shall prepay all cost and expenses associated with opening and maintaining the Defeasance Collateral Account. Lender shall not in any way be liable by reason of any insufficiency in the Defeasance Collateral Account. (c) Successor Borrower. In connection with a Defeasance Event under this Section 2.3.3, Borrowers shall, if required by the Rating Agencies or if Borrowers elect to do so, establish or designate a successor entity (the "Successor Borrower") which shall be a Single Purpose Bankruptcy Remote Entity and which shall be approved by the Rating Agencies. Any such Successor Borrower may, at Borrowers' option, be an Affiliate of Borrowers unless the Rating Agencies shall require otherwise. Borrowers shall transfer and assign all obligations, rights and duties under and to the Defeased Note, together with the Defeasance Collateral to such Successor Borrower. Such Successor Borrower shall assume the obligations under the Note and the Security Agreement and Borrower shall be relieved of its obligations under such documents. Borrowers shall pay a minimum of $1,000 to any such Successor Borrower as consideration for assuming the obligations under the Note and the Security Agreement. Borrowers shall pay all costs and expenses incurred by Lender, including Lender's attorney's fees and expenses, incurred in connection therewith. 17 2.3.4 Optional Prepayments. From and after the third Payment Date prior to the Stated Maturity Date (the "Permitted Prepayment Date"), Borrowers shall have the right to prepay all or any portion of the Principal, provided that Borrowers give Lender at least 15 days' prior written notice thereof. If any such prepayment is not made on a Payment Date, Borrowers shall also pay interest that would have accrued on such prepaid Principal to, but not including, the next Payment Date. Any such prepayment shall be made without payment of the Yield Maintenance Premium. 2.4 Release of Properties. 2.4.1 Release on Defeasance. If Borrowers have elected a Full Defeasance and the requirements of Section 2.3.3 and this Section 2.4 have been satisfied, the Properties shall be released from the Liens of the Mortgages and the Defeasance Collateral pledged pursuant to the Security Agreement shall be the sole source of collateral securing the Note. In connection with the release of the Lien, Borrowers shall submit to Lender, not less than thirty (30) days prior to the Defeasance Date (or such shorter time as is acceptable to Lender in its sole discretion), releases of Lien (and related Loan Documents) for execution by Lender. Such releases shall be in a form appropriate in the jurisdiction in which the Properties are located and contain standard provisions protecting the rights of the releasing lender. In addition, Borrowers shall provide all other documentation Lender reasonably requires to be delivered by Borrowers 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. Borrower shall pay all costs, taxes and expenses associated with the release of the Lien of the Mortgage, including Lender's reasonable attorneys' fees. 2.4.2 Sale of Properties. On any Payment Date after the Release Date, any Borrower may obtain the (i) the release of a Property from the Lien of the Mortgage thereon (and related Loan Documents) and (ii) the release of such Borrower's obligations under the Loan Documents with respect to such Property (other than those obligations expressly stated to survive) upon a bona fide third-party sale of such Property, provided each of the following conditions are satisfied: (a) The sale of such Property is to a third party not Affiliated with any Borrower or Guarantor, and in which no Borrower and no Affiliate of any Borrower and/or Guarantor has any beneficial interest; (b) Borrowers shall defease an amount of Principal equal to the Release Amount for the Property in question and Borrowers shall satisfy all of the requirements of Section 2.3.3 with respect to such Defeasance; (c) Both immediately before such sale and immediately thereafter, no Default or Event of Default shall be continuing; (d) Concurrently with such sale, each Borrower Representative shall remain a Special Purpose Bankruptcy Remote Entity; (e) After giving effect to such release, each Borrower shall remain a Special Purpose Bankruptcy Remote Entity; 18 (f) The representations and warranties made by Borrowers and/or Guarantor in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such sale (and after giving effect to such sale); (g) Borrowers shall have given Lender at least 20 days' prior written notice of such sale, accompanied by a copy of the applicable contract of sale and all related documents, and drafts of any applicable release documents (which shall be subject to Lender's approval); (h) Borrowers shall have delivered to Lender a copy of the final closing settlement statement for such sale at least two Business Days prior to the closing of such sale; (i) Borrowers shall have paid to Lender all costs and expenses (including reasonable attorneys' fees) incurred by Lender in connection with such sale and the release of such Property from the Lien of the Loan Documents; (j) Borrowers and Guarantor shall execute and deliver such documents as Lender may reasonably request to confirm the continued validity of the Loan Documents and the Liens thereof; (k) after giving effect to such release and Defeasance, the Debt Service Coverage Ratio for all of the Properties then remaining subject to the Liens of the Mortgages shall be no less than the greater of (i) the Debt Service Coverage Ratio immediately preceding such release and (ii) 1.89:1 (which is the Debt Service Coverage Ratio as of the date hereof); (l) Lender shall have received, at Borrowers' cost and expense, a Rating Comfort Letter from the applicable Rating Agencies; 2.4.3 Release on Payment in Full. Lender shall, upon the written request and at the expense of Borrowers, upon payment in full of the Debt in accordance herewith, release or, if requested by Borrowers, assign to Borrowers' designee (without any representation or warranty by and without any recourse against Lender whatsoever), the Liens of the Loan Documents if not theretofore released. 2.5 Substitution of Properties. 2.5.1 Substitution of Collateral Properties. Subject to the terms and conditions set forth in this Section 2.5.1, on any Payment Date after the Release Date, Borrowers may obtain (i) the release of one or more Property(ies) from the Lien of the Mortgage(s) thereon (and related Loan Documents) and (ii) the release of Borrowers' obligations under the Loan Documents with respect to such Property(ies) (other than those obligations expressly stated to survive) by substituting another property or properties, as the case may be (each, or collectively in one Substitution, a "Substitute Property") for the Property so released as collateral for the Loan. Any such substitution (a "Substitution") shall be subject, in each case, to the satisfaction of the following conditions precedent: (a) Borrowers shall request such substitution by written notice to Lender given at least 45 days prior to the date on which the substitution is to occur (the "Substitution Date"); 19 (b) Borrowers shall provide to Lender all industry standard property due diligence material similar to the due diligence material provided to Lender in connection with the origination of the Loan (e.g., title, survey, leases, engineering report, environmental report) with respect to each Substitute Property at least 30 days before the Substitution Date, and the same would be satisfactory to prudent lenders for loans with similar financing arrangements as those contained herein; (c) Lender shall have received, at Borrowers' cost and expense, a Rating Comfort Letter from the applicable Rating Agencies with respect to the proposed substitution; (d) Lender shall have received an opinion of counsel for Borrowers stating that any securitization vehicle formed in connection with a securitization which includes the Loan which has elected to be treated as a "real estate mortgage investment conduit" within the meaning of Section 860D of the Internal Revenue Code, as amended, will not fail to maintain such status as a result of such Substitution and that the Substitution does not constitute a "significant modification" of the Loan under Section 1001 of the Internal Revenue Code, as amended, or otherwise cause a tax to be imposed on a "prohibited transaction" by any securitization vehicle electing to be treated as a REMIC Trust; (e) Borrowers shall provide evidence to Lender that the improvements constituting a part of the Substitute Property have a remaining useful life substantially equivalent to, or better than, that of the Improvements constituting a part of the Property to be released; (f) if the Substitute Property is located in another state, Borrowers shall pay any increased costs by reason of a Substitution in such other jurisdiction; (g) No Event of Default shall be continuing at the time that the Substitution request is made or on the Substitution Date; (h) Borrowers and Guarantor shall execute and deliver such other consents, certificates, documents, agreements or instruments as Lender may reasonably request in order to encumber the Substitute Property and confirm the continued validity of the Loan Documents and the Liens thereof (including, without limitation, a mortgage or deed of trust and assignment of leases and rents granted by Borrowers to Lender with respect to the Substitute Property, any modifications to this Agreement or the other Loan Documents necessitated by the Substitution and a reaffirmation by Guarantor of the guaranty of recourse obligations delivered in connection with the Loan); (i) Borrowers shall deliver an Officer's Certificate certifying that all information delivered to Lender by or on behalf of Borrowers in connection with the Substitution is true, accurate and complete in all material respects; (j) Borrowers shall have paid to Lender all reserves amounts required under Article III in connection with the Substitute Property; (k) Borrowers shall have paid all costs and expenses incurred by Lender in connection with such Substitution, including attorneys' fees and servicer fees; 20 (l) after giving effect to such Substitution, (A) the Debt Service Coverage Ratio of all the Properties subject to the Liens of the Mortgages shall be no less than the greater of (i) the Debt Service Coverage Ratio immediately preceding such Substitution and (ii) 1.89:1 (which is the Debt Service Coverage Ratio as of the date hereof), or (B) if the Debt Service Coverage Ratio of all the Properties subject to the Liens of the Mortgages is greater than the Debt Service Coverage Ratio immediately preceding such Substitution but is less than 1.89:1, (i) the subject Substitute Property(ies) must generate Net Operating Income at least equal to 125% of the Net Operating Income of the Property(ies) being substituted and (ii) the subject Substitute Property(ies) must have an Appraised Value equal to or greater than 125% of the Appraised Value of the Property(ies) being substituted; (m) Borrowers shall have delivered to Lender an Acceptable Appraisal for the Substitute Property, indicating an Appraised Value of the Substitute Property that is equal to or greater than the Property Value of the Property that is to be released; (n) after giving effect to such Substitution, (A) the ratio of unpaid Principal to the Appraised Value of all of the Properties then subject to the Liens of the Mortgages (the "LTV Ratio") shall be no more than the lesser of (i) the LTV Ratio immediately preceding such Substitution and (ii) 0.6381:1 (which is the LTV Ratio as of the date hereof), or (B) if the LTV Ratio is less than the LTV Ratio immediately preceding such Substitution but is greater than 0.6381:1, (i) the subject Substitute Property(ies) must generate Net Operating Income at least equal to 125% of the Net Operating Income of the Property(ies) being substituted and (ii) the subject Substitute Property(ies) must have an Appraised Value equal to or greater than 125% of the Appraised Value of the Property(ies) being substituted; (o) any percentage decline in the Net Operating Income of the Substitute Property for the preceding three years is not greater than the lesser of (1) the percentage decline, if any, in the Net Operating Income during the same period of the Property being replaced and (2) the percentage decline, if any, in the Net Operating Income during the same period, of the Properties subject to the Liens of the Mortgages before giving effect to such Substitution; (p) In no event shall a Substitution be permitted more than two times during any 12-month period (it being understood that a single Substitution may involve the Substitution of one or more Properties); and (q) Substitution shall not be permitted if, after giving effect to such Substitution, the Substitute Properties (including all prior Substitute Properties), in the aggregate, represent more than the lesser of: (x) 20% of the Net Operating Income of the Properties subject to the Liens of the Mortgages, as of the date of any Substitution, for the 12-month period ending with the most recently completed calendar month or (y) $1,459,433 (which amount is 20% of the Net Operating Income of the Properties as of the date hereof for the immediately preceding 12-month period); and (r) Substitution shall not be permitted if, after giving effect to such Substitution, the Substitute Properties (including all prior Substitute Properties), in the aggregate, represent more than the lesser of: (x) 20% of the aggregate Property Value of the Properties subject to the Liens of the Mortgages as of the date of any Substitution or (y) $12,538,000 21 (which amount is 20% of the aggregate Property Value of the Properties subject to the Liens of the Mortgages as of the date hereof). 2.5.2 Substitution of Defeasance Collateral. If (i) one or more properties has been released pursuant to and in accordance with Section 2.4.2 and (ii) a Partial Defeasance has occurred pursuant to Section 2.3.3 and (iii) Lender is holding the Defeasance Collateral in the Defeasance Collateral Account as security for the Loan, then on any Payment Date after the Release Date, Borrowers may obtain the release of such Defeasance Collateral delivered in connection with such Partial Defeasance from the Lien of the applicable Security Agreement and may substitute as collateral for the Loan a Substitute Property in place of such Defeasance Collateral, subject, in each case, to the satisfaction of the following conditions precedent: (a) All of the conditions set forth in Section 2.5.1 with respect to such Substitute Property shall have been satisfied; (b) If a Successor Borrower was appointed pursuant to Section 2.3.3(c), then Borrowers shall assume all obligations of such Successor Borrower under the applicable Defeased Note (whereupon such Successor Borrower shall be relieved for all obligations thereunder); (c) Borrowers shall execute and deliver such other consents, certificates, documents, agreements or instruments as Lender may reasonably request in order to amend, restate and consolidate the indebtedness evidenced by the applicable Defeased Note and the Undefeased Note and evidence the encumbrance of the Substitute Property thereby (including, without limitation, a mortgage or deed of trust and assignment of leases and rents granted by Borrowers to Lender with respect to the Substitute Property, any modifications to the Loan Documents necessitated by the Substitution); (d) Borrowers shall have delivered to Lender an Acceptable Appraisal for the Substitute Property, indicating an Appraised Value of the Substitute Property that is equal to or greater than 125% of the Defeasance Collateral that Borrowers seek to have released; and (e) The consummation of the Substitution shall occur no more than 180 days after the Partial Defeasance in question. 22 2.6 Payments and Computations. 2.6.1 Making of Payments. Each payment by a Borrower or Borrowers 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 Borrowers. Whenever any such payment shall be stated to be due on a day that is not a Business Day, such payment shall be made on the first Business Day thereafter. All such payments shall be made irrespective of, and without any deduction, set-off or counterclaim whatsoever and are payable without relief from valuation and appraisement laws and with all costs and charges incurred in the collection or enforcement thereof, including attorneys' fees and court costs. 2.6.2 Computations. Interest payable under the Loan Documents shall be computed on the basis of the actual number of days elapsed over a 360-day year. 2.6.3 Late Payment Charge. If any Principal, interest or other sum due under any Loan Document is not paid by Borrowers on the date on which it is due, Borrowers shall pay to Lender upon demand an amount equal to the lesser of 2% of such unpaid sum or the maximum amount permitted by applicable law (the "Late Payment Charge"), 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. Such amount shall be secured by the Loan Documents. 3. CASH MANAGEMENT AND RESERVES 3.1 Cash Management Arrangements. Each Borrower and Manager shall cause all Rents relating to its Property, except for credit card charges with respect to each Property, to be transmitted into an account maintained by Borrower at the local bank for each Property (each, a "Clearing Account"). Without in any way limiting the foregoing, all Rents received by Borrowers or Manager shall be deposited into the applicable Clearing Account within one Business Day of receipt. Funds deposited into each Clearing Account shall be swept from the applicable local bank two (2) times each week into the Borrowers' account (the "Concentration Account") at the Concentration Bank. The Concentration Bank must at all times be an Eligible Institution. Borrowers shall cause Manager to cause all credit card charges with respect to each Property to be deposited into the Concentration Account in accordance with the provisions of the Manager Agreement. Funds deposited into the Concentration Account shall be swept from the Concentration Bank on a daily basis into the Borrowers' operating account at such Concentration Bank, unless a Cash Management Period is continuing, in which event such funds shall be swept on a daily basis into an Eligible Account at the Deposit Bank controlled by Lender (the "Deposit Account") and applied and disbursed in accordance with this Agreement. Funds in the Deposit Account shall be invested at Lender's discretion only in Permitted Investments. Lender will also establish subaccounts of the Deposit Account which shall at all times be Eligible Accounts (and may be ledger or book entry accounts and not actual accounts) (such subaccounts are referred to herein as "Subaccounts"). The Concentration Account, the Deposit Account and any Subaccount will be under the sole control and dominion of Lender, and no Borrower shall have any right of withdrawal therefrom, except as permitted in the Loan Documents, including this 23 Section and the Clearing Account Agreement. Borrowers shall pay for all expenses of opening and maintaining all of the above accounts. 3.2 Required Repairs. 3.2.1 Completion of Required Repairs. Borrowers shall perform and complete each item of the repairs and environmental remedial work relating to the Properties described on Schedule 2 (the "Required Repairs") within twelve (12) months of the date hereof or such shorter period of time for such item set forth on Schedule 2. 3.2.2 Required Repairs Reserves. On the date hereof, Borrowers shall deposit with Lender the aggregate amount set forth on Schedule 2 as being required to complete the Required Repairs and Lender shall cause such amount to be transferred to a Subaccount (the "Required Repairs Subaccount"). Provided no Default or Event of Default shall have occurred and is continuing, Lender shall disburse funds held in the Required Repairs Subaccount to Borrowers, within 15 days after the delivery by Borrowers to Lender of a request therefor (but not more often than once per month), in increments of at least $5,000, accompanied by the following items (which items shall be in form and substance satisfactory to Lender): (i) an Officer's Certificate (A) certifying that the Required Repairs or any portion thereof which are the subject of the requested disbursement have been completed in a good and workmanlike manner and in accordance with all applicable Legal Requirements, (B) identifying each Person that supplied materials or labor in connection with such Required Repairs or any portion thereof and (C) stating that each such Person has been or, upon receipt of the requested disbursement, will be paid in full with respect to the portion of the Required Repairs which is the subject of the requested disbursement; (ii) copies of appropriate Lien waivers or other evidence of payment satisfactory to Lender (e.g., paid invoices or cancelled checks); (iii) if any individual disbursement is for $50,000 or more, at Lender's option, a title search for the applicable Property indicating that it is free from all Liens not previously approved by Lender; (iv) a copy of each License required to be obtained with respect to the portion of the Required Repairs which is the subject of the requested disbursement; and (v) such other evidence as Lender shall reasonably request that the Required Repairs which are the subject of the requested disbursement have been completed and paid for. Provided no Default or Event of Default shall have occurred and is continuing, upon Borrowers' completion of all Required Repairs in accordance with this Section 3.2, Lender shall release any funds remaining in the Required Repairs Subaccount, if any, to Borrowers. 3.2.3 Required Repairs Letter of Credit. Notwithstanding anything to the contrary contained in Section 3.2.2, at Borrowers' option, Borrowers may at any time deliver a Letter of Credit to Lender in an amount equal to the amount of funds then on deposit or required to be on deposit with Lender in the Required Repairs Subaccount (the "Required Repairs Letter of Credit") which Required Repairs Letter of Credit shall be subject to the provisions of Section 3.12 hereof. If a Required Repairs Letter of Credit is delivered in replacement of the funds then on deposit with Lender in the Required Repairs Subaccount, then, provided no Event of Default is continuing, all funds then on deposit in the Required Repairs Subaccount shall promptly be released to Borrowers. 24 3.2.4 Environmental Remediation Reserves. (a) On the date hereof, Borrowers shall deposit with Lender the sum of $385,000.00 and Lender shall cause such amount to be transferred to a Subaccount (the "Environmental Remediation Subaccount "). Borrowers shall (i) with respect to the Solomons Existing Environmental Condition and the Morgantown Existing Environmental Condition, (A) promptly commence any Remedial Work, testing or other action (collectively, "Remedial Action") recommended in the applicable Environmental Report and (B) if Lender determines that any such Remedial Action necessitates any further Remedial Action, Borrowers shall promptly commence any such additional Remedial Action; and (ii) with respect to the Coralville Existing Environmental Condition, (A) commence any Remedial Action recommended in the applicable Environmental Report promptly upon the re-opening in the spring of 2003 of the asphalt plants servicing the Coralville, Iowa Property and (B) if Lender determines that any such Remedial Action necessitates any further Remedial Action, Borrowers shall promptly commence any such additional Remedial Action; and (iii) in all cases, diligently prosecute to completion any such Remedial Action any undertaken pursuant to this subsection. Any such Remedial Action shall be performed by licensed contractors and, at Lender's option, Lender shall have verified performance of the applicable Remedial Action by a consulting engineer engaged by or approved by Lender (in either case, at Borrowers' sole cost and expense). Without in any way limiting the foregoing, Borrowers shall take all actions necessary and advisable to ensure that the each of the relevant Properties remains in compliance with all Environmental Laws or any voluntary cleanup program. (b) Provided no Default or Event of Default shall have occurred and be continuing, Lender shall disburse the applicable Allocated Environmental Remediation Amount to Borrowers within 15 days after the delivery by Borrowers to Lender of a request therefor accompanied by the following items (which items shall be in form and substance satisfactory to Lender): (A) a certificate by the licensed contractor that has performed the subject Remedial Action (or by Lender's consulting engineer) to the effect that the Remedial Action that is the subject of the requested disbursement has been completed in compliance with applicable Legal Requirements and no further Remedial Action is recommended by such licensed contractor (or Lender consulting engineer, if applicable); (B) copies of appropriate Lien waivers or other evidence of payment satisfactory to Lender (if applicable); (C) such other evidence as Lender shall reasonably request that the Remedial Action which are the subject of the requested disbursement have been completed and paid for or will be paid for concurrently with the requested disbursement; and (D) with respect to a disbursement relating to the Solomons Existing Environmental Condition, a "No Further Requirements" letter, a "Certificate of Completion" or a "no further action" designation has been issued by the applicable Governmental Authorities and, if necessary, recorded in the appropriate land records, to the effect that no Remedial Action is or will be required to be performed by any Borrower in connection with the Solomons Existing Environmental Condition. Notwithstanding the foregoing, however, Lender shall not be required to disburse, and shall be permitted to retain, $35,000 of the Allocated Environmental Remediation Amount with respect to the Morgantown, West Virginia Property until all necessary and appropriate Remedial Action has been performed in connection with the Solomons Existing Environmental Condition in accordance with this Section 3.2.4. 25 3.3 Taxes and Insurance. 3.3.1 Tax and Insurance Subaccount. Borrowers shall pay to Lender on each Payment Date (i) one-twelfth of the Taxes that Lender estimates will be payable during the next 12 months in order to accumulate with Lender sufficient funds to pay all such Taxes at least 30 days prior to their respective due dates and (ii) one-twelfth of the Insurance Premiums that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least 30 days prior to the expiration of the Policies. Such amounts will be transferred by Lender to a Subaccount (the "Tax and Insurance Subaccount"). Provided that no Default or Event of Default has occurred and is continuing, Lender will (a) apply funds in the Tax and Insurance Subaccount to payments of Taxes and Insurance Premiums required to be made by Borrowers pursuant to Sections 5.2 and 7.1, provided that Borrowers have promptly supplied Lender with notices of all Taxes and Insurance Premiums due, or (b) reimburse Borrowers for such amounts upon presentation of evidence of payment; subject, however, to Borrowers' right to contest Taxes in accordance with Section 5.2. In making any payment relating to Taxes and Insurance Premiums, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If Lender determines in its reasonable judgment that the funds in the Tax and Insurance Subaccount will be insufficient to pay (or in excess of) the Taxes or Insurance Premiums next coming due, Lender may increase (or decrease) the monthly contribution required to be made by Borrowers to the Tax and Insurance Subaccount. 3.3.2 Tax and Insurance Letter of Credit. Notwithstanding anything to the contrary contained in Section 3.3, in lieu of the requirements set forth therein with respect to Borrowers' obligations to make monthly deposits into the Tax and Insurance Subaccount, provided no Event of Default exits, Borrowers may at any time during the term of the Loan deliver to Lender a Letter of Credit in an amount equal to the aggregate amount which Borrowers would otherwise be required to deposit for Taxes and Insurance Premiums over the next six (6) month period (the "Tax and Insurance Letter of Credit") which Tax and Insurance Letter of Credit shall be subject to the provisions of Section 3.12 herein, whereupon the Taxes and Insurance Premiums then on deposit in the Tax and Insurance Subaccount, if any, shall be remitted to Borrowers. In the event that Borrowers deliver the Tax and Insurance Letter of Credit to Lender, Borrowers shall be responsible for the payment of Taxes and Insurance Premiums and Lender shall not be responsible therefor. Borrowers shall provide Lender with notice of any increases in the annual payments for Taxes or Insurance Premiums not less than thirty (30) days prior to the effective date of any such increase and the Tax and Insurance Letter of Credit shall be increased by such increased amount at least ten (10) Business Days prior to the effective date of such increase. Upon any non-payment of Taxes or Insurance Premiums, Lender shall have the right, but not the obligation, to draw on the Tax and Insurance Letter of Credit for purposes of making the payment of Taxes or Insurance Premiums on behalf of any Borrower, whereupon Borrowers' obligation to make the monthly payments required under Section 3.3.1 shall be immediately reinstated. 26 At all times that the Tax and Insurance Letter of Credit is being held by Lender, Borrowers shall pay the Taxes and Insurance Premiums as the same become due and payable and furnish to Lender receipts for the payment thereof. 3.4 Capital Expense Reserves 3.4.1 Capital Reserve Subaccount (a) Borrowers shall pay to Lender on each Payment Date an amount equal to one-twelfth of 5% of the annual Rents for the Properties, based on the prior year. Lender will transfer such amounts into a Subaccount (the "Capital Reserve Subaccount"). Additionally, upon thirty (30) days' prior notice to Borrowers, Lender may reassess the amount of the monthly payment required under this Section 3.4 from time to time if, in its determination one or more of the Properties is not being maintained in accordance with prudent hotel management standards for similar hotels in the same geographic area. Provided that no Default or Event of Default has occurred and is continuing, Lender shall disburse funds held in the Capital Reserve Subaccount to Borrowers, within 15 days after the delivery by Borrowers to Lender of a request therefor (but not more often than once per month), in increments of at least $5,000 provided that (i) such disbursement is for an Approved Capital Expense; (ii) if any individual disbursement is for $50,000 or more, Lender shall have (if it desires) verified (by an inspection conducted at Borrowers' expense) performance of the work associated with such Approved Capital Expense; and (iii) the request for disbursement is accompanied by (A) an Officer's Certificate certifying (1) that such funds will be used to pay or reimburse Borrowers for Approved Capital Expenses and a description thereof, (2) that all outstanding trade payables (other than those to be paid from the requested disbursement or those constituting Permitted Indebtedness) have been paid in full, (3) that the same has not been the subject of a previous disbursement, and (4) that all previous disbursements have been used to pay the previously identified Approved Capital Expenses, and (B) if any individual disbursement is for $50,000 or more, lien waivers or other evidence of payment satisfactory to Lender, (C) if any individual disbursement is for $50,000 or more, at Lender's option, a title search for the applicable Property or Properties indicating that such Property or Properties are free from all Liens, claims and other encumbrances not previously approved by Lender and (D) such other evidence as Lender shall reasonably request that the Approved Capital Expenditures at the subject Property or Properties to be funded by the requested disbursement have been completed and are paid for or will be paid upon such disbursement to Borrowers. Any such disbursement of more than $50,000 to pay (rather than reimburse) Approved Capital Expenses may, at Lender's option, be made by joint check payable to Borrowers and the payee on such Approved Capital Expenses. (b) Notwithstanding anything to the contrary contained in this Section 3.4.1, if during any calendar year one or more property improvement plans are issued in connection with any Franchise Agreement, the cost of which (when taken together with the anticipated Capital Expenses set forth in the Approved Capital Budget for such calendar year) exceed 5% of the annual Rents for the Properties, based on the prior year (such amount being referred to herein as the "Section 3.4.1 Shortfall"), then Lender shall have the right to increase the monthly contribution required to be made by Borrowers to the Capital Reserve Subaccount on each Payment Date to account for such Section 3.4.1 Shortfall, and Borrowers shall pay such amount, as increased, for such time period as Lender determines such increase is necessary (based upon 27 Lender's determination of the period of time required to complete the items set forth in the applicable property improvement plan(s), the anticipated availability of Available Cash during such period and the amount of such Section 3.4.1 Shortfall). 3.4.2 Capital Expenses Letter of Credit (a) At Borrowers' option, in lieu of the requirements set forth in Section 3.4.1 with respect to Borrowers' obligations to make monthly deposits into the Capital Reserve Subaccount, provided no Event of Default exists, Borrowers may at any time during the Term deliver to Lender a Letter of Credit in an amount equal to 5% of the annual Rents for the Properties for the preceding 12 month period (the "Capital Expenses Letter of Credit"), which Capital Expenses Letter of Credit shall be subject to the provisions of this Section 3.4.2 and Section 3.12. (b) Upon the expiration of each calendar quarter subsequent to Borrowers' delivery of the Capital Expenses Letter of Credit, Borrowers shall be entitled to reduce the face amount of the Capital Expenses Letter of Credit by an amount equal to the lesser of (i) the amount of Approved Capital Expenses paid for by Borrowers during such calendar quarter or (ii) 25% of the original face amount of the Capital Expenses Letter of Credit (as the same may be adjusted on each anniversary date as set forth in this clause (b)). Borrowers shall be entitled to reduce the face amount of the Capital Expenses Letter of Credit upon the delivery by Borrowers to Lender of an Officer's Certificate identical to the Officer's Certificate required before funds are disbursed from the Capital Reserve Subaccount as provided in Section 3.4.1 and such other evidence as Lender shall reasonably request demonstrating the amount of funds expended by Borrowers for Approved Capital Expenses during the applicable period and that the Approved Capital Expenses at the subject Property or Properties have been completed. On or prior to each anniversary date of the issuance of the Capital Expenses Letter of Credit, Borrowers shall increase the amount of the Capital Expenses Letter of Credit to an amount equal to 5% of the annual Rents for the Properties for the preceding 12 month period. If, as of any such anniversary date, Borrowers fail to increase the amount of the Capital Expenses Letter of Credit as required pursuant to the immediately preceding sentence, then (x) Lender shall be entitled to immediately draw upon the then remaining amount available under the Capital Expenses Letter of Credit (if any) and deposit such proceeds into the Capital Reserve Subaccount and (y) Borrowers' option to deliver the Capital Expenses Letter of Credit pursuant to this Section 3.4.2 shall immediately cease and Borrowers' obligations to make monthly contributions into the Capital Reserve Subaccount in accordance with Section 3.4.1 shall immediately resume. (c) Notwithstanding anything to the contrary contained in this Section 3.4, if Borrowers have elected to deliver the Capital Expenses Letter of Credit pursuant to this Section 3.4.2, and during any calendar year one or more property improvement plans are issued in connection with any Franchise Agreement, the cost of which (when taken together with the anticipated Capital Expenses set forth in the Approved Capital Budget for such calendar year) exceed the face amount of the Capital Expenses Letter of Credit (determined as of each anniversary date of the issuance of the Capital Expenses Letter of Credit) (such amount being referred to herein as the "Section 3.4.2 Shortfall"), then at Borrowers' election either (i) Borrowers shall immediately increase the face amount of the Capital Expenses Letter of Credit by an amount equal to the Section 3.4.2 Shortfall (the "Increased Capital Expenses Letter of Credit") or (ii) Borrowers 28 shall pay on each Payment Date all Available Cash into the Capital Reserve Subaccount until such Section 3.4.2 Shortfall has been deposited into the Capital Reserve Subaccount (whereupon, Borrowers' rights to receive payments under clause (ix) of Section 3.11(a) shall resume). Notwithstanding the foregoing, Lender in its discretion may elect (based upon Lender's determination of the period of time required to complete the items set forth in the applicable property improvement plan(s), the anticipated availability of Available Cash during such period and the amount of such Section 3.4.2 Shortfall) to have only a portion of the Available Cash on any Payment Date deposited into the Capital Reserve Subaccount, and any excess shall be made available to Borrowers pursuant to clause (ix) of Section 3.11(a). Should Borrowers elect to post the Increased Capital Expenses Letter of Credit, upon the expiration of each calendar quarter, Borrowers shall be entitled to reduce the face amount of the Increased Capital Expenses Letter of Credit as such property improvement plans are completed, in accordance with the requirements of Section 3.4.2(b). (d) In the event that Borrowers deliver the Capital Expenses Letter of Credit to Lender, Borrowers shall be responsible for the payment of all Approved Capital Expenses and Lender shall not be responsible for disbursing funds to Borrowers therefor. (e) Upon any failure of a Borrower to timely pay for Approved Capital Expenses, Lender shall have the right, but not the obligation, to draw on the Capital Expenses Letter of Credit for purposes of making such payment of Approved Capital Expenses on behalf of any Borrower, whereupon Borrowers' obligation to make the monthly payments required under Section 3.4.1 shall be immediately reinstated. 3.5 Seasonal Working Capital Reserves. 3.5.1 Seasonal Capital Reserve Subaccount. Borrower shall deposit with Lender on each Payment Date (in addition to the other payments required hereunder) an amount equal to the amount set forth for such Payment Date on Schedule 6, for the purpose of funding a seasonal working capital reserve fund (the "Seasonal Working Capital Reserve Subaccount") to provide some protection for the payment of Approved Operating Expenses and Principal and interest and interest payments due under the Note during seasonal periods when the Rents may be reduced. Lender may, at any time, in its sole discretion, increase or decrease the required amount of Borrowers' monthly deposits to the Seasonal Working Capital Reserve Subaccount by giving at least 30 days' prior notice to Borrower of any such increase or decrease; provided, however, that the total annual amount of such required deposits shall not be increased except (i) in the event of a material change in the monthly fluctuation of occupancy, average daily rate or Rents, (ii) if the Actual Debt Service Coverage Ratio is less than 1.40:1 as of the end of two consecutive calendar quarters, or (iii) if required by any Rating Agency. Provided no Event of Default exists, then on each Payment Date from and after January 1, 2004, Lender shall release to Borrower the excess (if any) of the balance in the Seasonal Working Capital Reserve Subaccount (excluding the deposit thereto being made on such Payment Date) over the minimum balance set forth for such Payment Date on Schedule 6. 3.5.2 Seasonal Working Capital Letter of Credit. Notwithstanding anything to the contrary contained in Section 3.5.1, at Borrowers' option, Borrowers may at any time deliver a Letter of Credit to Lender in an amount equal to the aggregate amount of funds which 29 Borrowers would otherwise be required to deposit in the Seasonal Working Capital Reserve Subaccount over the next twelve (12) month period (the "Seasonal Working Capital Reserve Letter of Credit"), which Seasonal Working Capital Reserve Letter of Credit shall be subject to the provisions of Section 3.12 herein. Upon any failure of a Borrower to timely pay (i) for Approved Operating Expenses or (ii) Principal and interest payments due under the Note, Lender shall have the right, but not the obligation, to draw on the Seasonal Working Capital Reserve Letter of Credit for purposes of making such payments, whereupon Borrowers' obligation to make the payments required under Section 3.5.1 shall be immediately reinstated. 3.6 Operating Expense Subaccount. During a Cash Management Period, on or before each Payment Date Lender shall cause the monthly amount set forth in the Approved Operating Budget for the following month as being necessary for payment of Approved Operating Expenses at the Properties for such month to be transferred to the Deposit Bank, which amounts shall be transferred into a Subaccount for the payment of Approved Operating Expenses (the "Operating Expense Subaccount"). Provided no Event of Default has occurred and is continuing, Lender shall disburse funds held in the Operating Expense Subaccount to Borrowers, within 15 days after delivery by Borrowers to Lender of a request therefor (but not more often than once per month), in increments of at least $1,000, provided (i) such disbursement is for an Approved Operating Expense; and (ii) such disbursement is accompanied by (A) an Officer's Certificate certifying (1) that such funds will be used to pay Approved Operating Expenses and a description thereof, (2) that all outstanding trade payables (other than those to be paid from the requested disbursement or those constituting Permitted Indebtedness) have been paid in full, (3) that the same has not been the subject of a previous disbursement, and (4) that all previous disbursements have been or will be used to pay the previously identified Approved Operating Expenses, and (B) reasonably detailed documentation satisfactory to Lender as to the amount, necessity and purpose therefor. 3.7 Casualty/Condemnation Subaccount. Borrowers shall pay, or cause to be paid, to Lender all Proceeds or Awards due to any Casualty or Condemnation to be transferred to a Subaccount (the "Casualty/Condemnation Subaccount") in accordance with the provisions of Section 7. All amounts in the Casualty/Condemnation Subaccount shall disbursed in accordance with the provisions of Section 7. 3.8 Ground Rent Subaccount. On the date hereof, Borrowers shall deposit with Lender $11,322, which amount is equal to three (3) months of the percentage ground rent due under the Ground Lease, which sums have been transferred by Lender to a Subaccount (the "Ground Rent Subaccount"). Upon Borrowers' failure to make a monthly rent payment under the Ground Lease, Lender may, in its discretion, apply the funds in the Ground Rent Subaccount to the payment of such monthly rent payment; provided, however, that the provisions of this Section 3.8 shall not be deemed to create any obligation on the part of Lender to pay any monthly rent payment under the Ground Lease from amounts on deposit in the Ground Rent Subaccount. In the event Lender does apply the funds in the Ground Rent Subaccount to payment of such rental payment under the Ground Lease, Borrowers shall promptly replenish the Ground Rent Subaccount upon demand. In making any payment of funds from the Ground Rent Subaccount, Lender may do so according to any bill, statement or estimate procured from the landlord under the Ground Lease, without inquiry into the accuracy of such bill, statement or estimate or into the validity of any claim by such landlord. Lender may increase the amount 30 required to be maintained on deposit in the Ground Rent Subaccount to the amount Lender deems necessary to reflect any increases in the required monthly rent payment under the Ground Lease. 3.9 Security Deposits. Each Borrower shall keep, or shall cause Manager to keep, all security deposits under Leases at a separately designated account under such Borrower's control at the Clearing Bank (and in the case of a letter of credit, assigned with full power of attorney and executed sight drafts to Lender) so that the security deposits shall not be commingled with any other funds of such Borrower (such account, the "Security Deposit Account"). During a Cash Management Period, Borrowers shall, upon Lender's request, if permitted by applicable Legal Requirements, turn over to Lender the security deposits (and any interest theretofore earned thereon) under Leases, to be held by Lender in a Subaccount (the "Security Deposit Subaccount") subject to the terms of the Leases. Security deposits held in the Security Deposit Subaccount will be released by Lender upon notice from Borrowers together with such evidence as Lender may reasonably request that such security deposit is required to be returned to a tenant pursuant to the terms of a Lease or may be applied as Rent pursuant to the rights of Borrower under the applicable Lease. Any letter of credit or other instrument that any Borrower receives in lieu of a cash security deposit under any Lease shall (i) be maintained in full force and effect in the full amount unless replaced by a cash deposit as hereinabove described and (ii) if permitted pursuant to any Legal Requirements, name Lender as payee or mortgagee thereunder (or at Lender's option, be fully assignable to Lender). 3.10 Grant of Security Interest; Application of Funds. As security for payment of the Debt and the performance by Borrowers of all other terms, conditions and provisions of the Loan Documents, each Borrower hereby pledges and assigns to Lender, and grants to Lender a security interest in, all such Borrower's right, title and interest in and to all Rents and in and to all payments to or monies held in each Clearing Account, the Concentration Account, the Deposit Account, all Subaccounts created pursuant to this Agreement (collectively, the "Cash Management Accounts"). Each Borrower hereby grants to Lender a continuing security interest in, and agrees to hold in trust for the benefit of Lender, all Rents in its possession prior to the (i) payment of such Rents to Lender or (ii) deposit of such Rents into the Deposit Account. No Borrower shall, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in any Cash Management Account, or permit any Lien to attach thereto, or any levy to be made thereon, or any UCC 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 UCC. Upon the occurrence and during the continuance of an Event of Default, Lender may apply any sums in any Cash Management Account in any order and in any manner as Lender shall elect in Lender's discretion without seeking the appointment of a receiver and without adversely affecting the rights of Lender to foreclose the Lien of any Mortgage or exercise its other rights under the Loan Documents. Cash Management Accounts shall not constitute trust funds and may be commingled with other monies held by Lender. All interest which accrues on the funds in any Cash Management Account (other than the Tax and Insurance Subaccount) shall accrue for the benefit of Borrowers and shall be taxable to Borrowers and shall be added to and disbursed in the same manner and under the same conditions as the principal sum on which said interest accrued. Upon repayment in full of the Debt, all remaining funds in the Subaccounts, if any, shall be promptly disbursed to Borrowers. 31 3.11 Property Cash Flow Allocation. (a) During any Cash Management Period, all Rents deposited into the Deposit Account during the immediately preceding Interest Period shall be applied on each Payment Date as follows in the following order of priority: (i) First, to make payments into the Tax and Insurance Subaccount as required under Section 3.3; (ii) Second, to pay the monthly portion of the fees charged by the Deposit Bank in accordance with the Deposit Account Agreement; (iii) Third, to Lender to pay the Monthly Debt Service Payment Amount due on such Payment Date (plus, if applicable, interest at the Default Rate and all other amounts, other than those described under other clauses of this Section 3.11(a), then due to Lender under the Loan Documents); (iv) Fourth, to make payments into the Capital Reserve Subaccount as required under Section 3.4; (v) Fifth, to make payments into the Seasonal Working Capital Reserve Subaccount as required under Section 3.5; (vi) Sixth, to make payments for Approved Operating Expenses as required under Section 3.6; (vii) Seventh, after the consummation of a Secondary Market Transaction, to pay the pro rata portion of the expenses described in Section 9.1.7; (viii) Eighth, if required pursuant to Section 3.4.1(b) or Section 3.4.2(c), to make payments of all or a portion of Available Cash into the Capital Reserve Subaccount; and (ix) Lastly, payments to Borrowers of any remaining amounts. (b) The failure of Borrowers to make all of the payments required under clauses (i) through (viii) of Section 3.11(a) in full on each Payment Date shall constitute an Event of Default under this Agreement; provided, however, if adequate funds are available in the Deposit Account for such payments, the failure by the Deposit Bank to allocate such funds into the appropriate Subaccounts shall not constitute an Event of Default. (c) Notwithstanding anything to the contrary contained in this Section 3.11, after the occurrence of an Event of Default, Lender may apply all Rents deposited into the Deposit Account and other proceeds of repayment in such order and in such manner as Lender shall elect. 32 3.12 Provisions Regarding Letters of Credit 3.12.1 Letters of Credit Generally. Borrowers may deliver to Lender a Letter of Credit in accordance with the provisions of this Section 3.12 in lieu of deposits previously made to or then required to be made into certain Subaccounts in accordance with Sections 3.2.2, 3.3.1, 3.4.1 and 3.5.1 (the "Applicable Subaccounts"). The aggregate amount of any Letter of Credit and cash on deposit with respect to the Applicable Subaccounts shall at all times be at least equal to the aggregate face amount of the Letters of Credit which Borrowers may deliver pursuant to Sections 3.2.3, 3.3.2, 3.4.2 and 3.5.2. Borrowers shall give Lender no less than thirty (30) days notice of Borrowers' election to deliver a Letter of Credit and Borrowers shall pay to Lender all of Lender's reasonable out-of-pocket costs and expenses in connection therewith. No Borrower shall be entitled to draw upon any such Letter of Credit. Upon thirty (30) days notice to Lender, Borrowers may replace a Letter of Credit with a cash deposit to any Applicable Subaccount if a Letter of Credit has been outstanding for more than three (3) months. Prior to the return of a Letter of Credit, Borrowers shall deposit an amount equal to the amount that would have accumulated in any Applicable Subaccount and not been disbursed in accordance with this Agreement if such Letter of Credit had not been delivered. 3.12.2 Security for Debt. Each Letter of Credit delivered under this Agreement shall be additional security for the payment of the Debt. Upon the occurrence and during the continuance of an Event of Default, Lender shall have the right, at its option, to draw on any Letter of Credit and to apply all or any part thereof to the payment of the items for which such Letter of Credit was established or to apply each such Letter of Credit to payment of the Debt in such order, proportion or priority as Lender may determine. Any such application to the Debt after an Event of Default that remains uncured shall be subject to the Yield Maintenance Premium. On the Maturity Date, any such Letter of Credit may be applied to reduce the Debt. 3.12.3 Additional Rights of Lender. In addition to any other right Lender may have to draw upon a Letter of Credit pursuant to the terms and conditions of this Agreement, Lender shall have the additional rights to draw in full any Letter of Credit: (a) with respect to any evergreen Letter of Credit, if Lender has received a notice from the issuing bank that the Letter of Credit will not be renewed and a substitute Letter of Credit is not provided at least thirty (30) days prior to the date on which the outstanding Letter of Credit is scheduled to expire; (b) with respect to any Letter of Credit with a stated expiration date, if Lender has not received a notice from the issuing bank that it has renewed the Letter of Credit at least thirty (30) days prior to the date on which such Letter of Credit is scheduled to expire and a substitute Letter of Credit is not provided at least thirty (30) days prior to the date on which the outstanding Letter of Credit is scheduled to expire; (c) upon receipt of notice from the issuing bank that the Letter of Credit will be terminated (except if the termination of such Letter of Credit is permitted pursuant to the terms and conditions of this Agreement or a substitute Letter of Credit is provided); or (d) if Lender has received notice that the bank issuing the Letter of Credit shall cease to be an Approved Bank and Borrowers shall not have replaced such Letter of Credit with a Letter of Credit issued by an Approved Bank within ten (10) Business Days after notice thereof. Notwithstanding anything to the contrary contained in the above, Lender is not obligated to draw any Letter of Credit upon the happening of an event specified in (a), (b), (c) or (d) above and shall not be liable for any losses sustained by Borrowers due to the insolvency of the bank issuing the Letter of Credit if Lender has not drawn the Letter of Credit. 33 4. REPRESENTATIONS AND WARRANTIES Borrowers represent and warrant to Lender as of the date hereof that, except to the extent (if any) disclosed on Schedule 3 with reference to a specific Section of this Article 4: 34 4.1 Organization; Special Purpose. Each Borrower and each Borrower Representative has been duly organized and is validly existing and in good standing under the laws of the state of its formation, with requisite power and authority, and all rights, licenses, permits and authorizations, governmental or otherwise, necessary to own its properties and to transact the business in which it is now engaged. Each Borrower and each Borrower Representative 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, business and operations. Each Borrower and each Borrower Representative is a Special Purpose Bankruptcy Remote Entity. 4.2 Proceedings; Enforceability. Each Borrower has taken all necessary action to authorize the execution, delivery and performance of the Loan Documents. The Loan Documents have been duly executed and delivered by each Borrower that is a party to such Loan Document and constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms, subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and general principles of equity. The Loan Documents are not subject to, and no Borrower has asserted, any right of rescission, set-off, counterclaim or defense, including the defense of usury. No exercise of any of the terms of the Loan Documents, or any right thereunder, will render any Loan Document unenforceable. 4.3 No Conflicts. The execution, delivery and performance of the Loan Documents by Borrowers and the transactions contemplated hereby will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien (other than pursuant to the Loan Documents) upon any of the property of any Borrower pursuant to the terms of, any agreement or instrument to which any Borrower is a party or by which its property is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over any Borrower or any of its properties. No Borrower's rights under the Licenses, the Franchise Agreements and the Management Agreement will be adversely affected by the execution and delivery of the Loan Documents, any Borrower's performance thereunder, the recordation of the Mortgages, or the exercise of any remedies by Lender. Any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by any Borrower of the Loan Documents has been obtained and is in full force and effect. 4.4 Litigation. There are no actions, suits or other proceedings at law or in equity by or before any Governmental Authority now pending or threatened against or affecting any Borrower, any Borrower Representative, the Manager or any Property, which, if adversely determined, might materially adversely affect the condition (financial or otherwise) or business of any Borrower, any Borrower Representative, Manager or the condition or ownership of any Property. 4.5 Agreements. No Borrower is a party to any agreement or instrument or subject to any restriction which might adversely affect any Borrower or any Property, or any Borrower's business, properties, operations or condition, financial or otherwise. No Borrower is in default in any material respect in the performance, observance or fulfillment of any of the obligations, 35 covenants or conditions contained in any Permitted Encumbrance or any other agreement or instrument to which any Borrower is a party or by which any Borrower or any Property is bound. 4.6 Title. Fee Borrower has good, marketable and indefeasible fee title to or leasehold estate in real property and good title to the balance of the Properties and Leasehold Borrowers have good, marketable title to the leasehold estates created by the Operating Lease, free and clear of all Liens except the Permitted Encumbrances. 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 in connection with the transfer of a Property or leasing of a Property pursuant to the Ground Lease to Fee Borrower have been paid. The Mortgages when properly recorded in the appropriate records, together with any UCC Financing Statements required to be filed in connection therewith, will create (i) a valid, perfected first priority liens on the Borrowers' interest in the Properties and (ii) valid and perfected first priority 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. All mortgage, recording, stamp, intangible or other similar taxes required to be paid by any Person under applicable Legal Requirements in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents have been paid or will be paid in connection with the closing of the Loan. The Permitted Encumbrances do not materially adversely affect the value, operation or use of any Property, or Borrowers' ability to repay the Loan. No Condemnation or other proceeding has been commenced or, to Borrowers' best knowledge, is contemplated with respect to all or part of any Property or for the relocation of roadways providing access to any Property. 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. There are no outstanding options to purchase or rights of first refusal affecting all or any portion of any Property. The survey for each Property delivered to Lender does not fail to reflect any material matter affecting such Property or the title thereto. Except for the Permitted Encumbrances, all of the Improvements included in determining the appraised value of each Property lie wholly within the boundaries and building restriction lines of such Property, and no improvement on an adjoining property encroaches upon such Property, and no easement or other encumbrance upon such Property encroaches upon any of the Improvements, except those insured against by the Title Insurance Policies. Each parcel comprising each Property is a separate tax lot and is not a portion of any other tax lot that is not a part of such Property. There are no pending or proposed special or other assessments for public improvements or otherwise affecting any Property, or any contemplated improvements to any Property that may result in such special or other assessments. 4.7 No Bankruptcy Filing. No Borrower is contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency law or the liquidation of all or a major portion of its property (a "Bankruptcy Proceeding"), and Borrowers have no knowledge of any Person contemplating the filing of any such petition against any Borrower. In addition, neither Borrowers nor any Borrower Representative nor any principal nor Affiliate of any Borrower or any Borrower Representative has been a party to, or the subject of a Bankruptcy Proceeding for the past ten years. 4.8 Full and Accurate Disclosure. No statement of fact made by any Borrower in any Loan Documents contains any untrue statement of a material fact or omits to state any 36 material fact necessary to make statements contained therein not misleading. There is no material fact presently known to any Borrower that has not been disclosed to Lender which adversely affects, or, as far as any Borrower can foresee, might adversely affect, any Property or the business, operations or condition (financial or otherwise) of any Borrower. All financial data, including the statements of cash flow and income and operating expense, that have been delivered to Lender in respect of Borrowers and the Properties (i) are true, complete and correct in all material respects, (ii) accurately represent the financial condition of each Borrower and each Property 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 Borrower has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, unrealized or anticipated losses from any unfavorable commitments or any liabilities or obligations not expressly permitted by this Agreement. Since the date of such financial statements, there has been no materially adverse change in the financial condition, operations or business of any Borrower or any Property from that set forth in said financial statements. 4.9 Tax Filings. To the extent required, each Borrower has filed (or has obtained effective extensions for filing) all federal, state and local tax returns required to be filed and have paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by such Borrower. Each Borrower believes that its tax returns (if any) properly reflect the income and taxes of such Borrower for the periods covered thereby, subject only to reasonable adjustments required by the Internal Revenue Service or other applicable tax authority upon audit. 4.10 No Plan Assets. As of the date hereof and throughout the Term (i) no Borrower is or will be an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, (ii) none of the assets of any 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, (iii) no Borrower is or will be a "governmental plan" within the meaning of Section 3(32) of ERISA, and (iv) transactions by or with any Borrower are not and will not be subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans. 4.11 Compliance. Each Borrower and each Property and the use thereof comply in all material respects with all applicable Legal Requirements (including with respect to parking and applicable zoning and land use laws, regulations and ordinances). No 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 any Borrower. Each Property is used exclusively for hotel use and other appurtenant and related uses. To our knowledge, in the event that all or any part of the Improvements at any Property are destroyed or damaged, said Improvements can be legally reconstructed to their condition prior to such damage or destruction, and thereafter exist for the same use without violating any zoning or other ordinances applicable thereto and without the necessity of obtaining any variances or special permits. No legal proceedings are pending or, to the knowledge of Borrowers, threatened with respect to the zoning of any Property. Neither the zoning nor any other right to construct, use or operate any Property is in any way dependent upon or related to any property other than such Property. All certifications, permits, licenses and approvals, including certificates of completion and occupancy permits required for the legal use, 37 occupancy and operation of the Properties (collectively, the "Licenses"), have been obtained and are in full force and effect. The use being made of each Property is in conformity with the certificate of occupancy issued for such Property and all other restrictions, covenants and conditions affecting such Property. 4.12 Contracts. There are no service, maintenance or repair contracts affecting any Property that are not terminable on one month's notice or less without cause and without penalty or premium. All service, maintenance or repair contracts affecting any Property have been entered into at arms-length in the ordinary course of the business of the Borrower which owns such Property and provide for the payment of fees in amounts and upon terms comparable to existing market rates. 4.13 Federal Reserve Regulations; Investment Company Act. 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 that would be inconsistent with such Regulation U or any other regulation of such Board of Governors, or for any purpose prohibited by Legal Requirements or any Loan Document. No 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. 4.14 Easements; Utilities and Public Access. All easements, cross easements, licenses, air rights and rights-of-way or other similar property interests (collectively, "Easements"), if any, necessary for the full utilization of the Improvements for their intended purposes have been obtained, are described in the Title Insurance Policies and are in full force and effect without material default thereunder. Each Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service it for its intended uses. All public utilities necessary or convenient to the full use and enjoyment of each Property are located in the public right-of-way abutting such Property, and all such utilities are connected so as to serve such Property without passing over other property absent a valid easement. 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. 4.15 Physical Condition. Each Property, including all Improvements, parking facilities, systems, Equipment and landscaping, are in good condition, order and repair in all material respects and in compliance under the applicable Franchise Agreements; there exists no structural or other material defect or damages to any Property, whether latent or otherwise. No Borrower has received notice from any insurance company or bonding company of any defect or inadequacy in any Property, or any part thereof, which would adversely affect its insurability or cause the imposition of extraordinary premiums or charges thereon or any termination of any policy of insurance or bond. No portion of any Property is located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards. The Improvements have suffered no material casualty or damage which has not been fully repaired and the cost thereof fully paid. 38 4.16 Leases. No Property is subject to any Leases other than the Lease, dated November 1, 2001 between Fee Borrower, as landlord, and Massaro's Restaurant, Inc. D/B/A The Captain's Table, as tenant, at the Solomons, Maryland Property, and the Lease, dated September 13, 2001, between Fee Borrower (successor in interest to Humphrey Hospitality Limited Partnership), as landlord, and Peggy and David Kennison, d/b/a Prime Thyme @ Comfort Inn, at the Morgantown, West Virginia Property. Except as set forth on the Rent Roll: (i) each Lease is in full force and effect; (ii) the tenants under the Leases have accepted possession of and are in occupancy of all of their respective demised premises, have commenced the payment of rent under the Leases, and there are no offsets, claims or defenses to the enforcement thereof; (iii) all rents due and payable under the Leases have been paid and no portion thereof has been paid for any period more than 30 days in advance; (iv) the rent payable under each Lease is the amount of fixed rent set forth in the Rent Roll, and there is no claim or basis for a claim by the tenant thereunder for an adjustment to the rent; (v) no tenant has made any claim against the landlord under any Lease which remains outstanding, there are no defaults on the part of the landlord under any Lease, and no event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default; (vi) to Borrowers' best knowledge, there is no present material default by the tenant under any Lease; (vii) all security deposits under Leases are as set forth on the Rent Roll and are held consistent with Section 3.9; (viii) the applicable Borrower is the sole owner of the entire lessor's interest in each Lease; (ix) each Lease is the valid, binding and enforceable obligation of such Borrower and the applicable tenant thereunder; (x) no Person has any possessory interest in, or right to occupy, any Property except under the terms of the Lease; and (xi) each Lease is subordinate to the Loan Documents, either pursuant to its terms or pursuant to a subordination and attornment agreement. None of the Leases contains any option to purchase or right of first refusal to purchase any Property or any part thereof. Neither the Leases nor the Rents have been assigned or pledged except to Lender, and no other Person has any interest therein except the tenants thereunder. 4.17 Fraudulent Transfer. No Borrower has entered into the Loan or any Loan Document with the actual intent to hinder, delay, or defraud any creditor, and each 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 each Borrower's assets exceeds and will, immediately following the execution and delivery of the Loan Documents, exceed such Borrower's total liabilities, including subordinated, unliquidated, disputed or contingent liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. Each 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. No Borrower intends 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 such Borrower). 4.18 Ownership of Borrower. The sole general partner of Fee Borrower is the Fee Borrower Representative. Humphrey Hospitality Limited Partnership is the owner of all of the issued and outstanding capital stock of the Fee Borrower Representative, all of which capital stock has been validly issued and fully paid and is nonassessable. The only other limited partners of Fee Borrower is Guarantor. The stock of the Fee Borrower Representative and the 39 partnership interests in Fee Borrower are owned free and clear of all Liens, warrants, options and rights to purchase. The sole managing member of Leasehold Borrower is the Leasehold Borrower Representative. Guarantor is the owner of all of the issued and outstanding stock of the Leasehold Borrower Representative, all of which capital stock has been validly issued or fully paid and is nonassessable. There are no other members of Leasehold Borrower. The stock of Leasehold Borrower Representative and the membership interests in Leasehold Borrower are owned free and clean of all liens, warrants, options and rights to purchase. No Borrower has any obligation to any Person to purchase, repurchase or issue any ownership interest in it. The organizational chart attached hereto as Schedule 4 is complete and accurate and illustrates all Persons who have a direct or indirect ownership interest in each Borrower. 4.19 Purchase Options. Neither any Property nor any part thereof are subject to any purchase options or other similar rights in favor of third parties. 4.20 Management Agreement. The Management Agreement is in full force and effect. There is no default, breach or violation existing thereunder, and no event has occurred (other than payments due but not yet delinquent) that, with the passage of time or the giving of notice, or both, would constitute a default, breach or violation thereunder, by either party thereto. 4.21 Hazardous Substances. (i) No Property is in violation of any Legal Requirement pertaining to or imposing liability or standards of conduct concerning environmental regulation, contamination or clean-up, including the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Emergency Planning and Community Right-to-Know Act of 1986, the Hazardous Substances Transportation Act, the Solid Waste Disposal Act, the Clean Water Act, the Clean Air Act, the Toxic Substance Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act, any state super-lien and environmental clean-up statutes, any local law requiring related permits and licenses and all amendments to and regulations in respect of the foregoing laws (collectively, "Environmental Laws"); (ii) no Property is subject to any private or governmental Lien or judicial or administrative notice or action or inquiry, investigation or claim relating to hazardous, toxic and/or dangerous substances, or any other substances or materials which are included under or regulated by Environmental Laws (collectively, "Hazardous Substances"); (iii) to the best of each Borrower's knowledge, after due inquiry, no Hazardous Substances are or have been (including the period prior to such Borrower's acquisition of its Property), discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from any Property other than in compliance with all Environmental Laws; (iv) to the best of each Borrower's knowledge, after due inquiry, no Hazardous Substances are present in, on or under any nearby real property which could migrate to or otherwise affect any Property; (v) no underground storage tanks exist on any Property and no Property has ever been used as a landfill; and (vi) there have been no environmental investigations, studies, audits, reviews or other analyses conducted by or on behalf of any Borrower in connection with the Loan which have not been provided to Lender. 4.22 Name; Principal Place of Business. No Borrower uses or will use any trade name or has done or will not do business under any name other than its actual name set forth herein. The principal place of business of each Borrower is its primary address for notices as set forth in Section 6.1, and no Borrower has any other place of business. 40 4.23 Other Debt. There is no indebtedness with respect to any Property or any excess cash flow or any residual interest therein, whether secured or unsecured, other than Permitted Encumbrances and Permitted Indebtedness. 4.24 Franchise Agreements. Each of the Franchise Agreement is in full force and effect, there is no default, breach or violation existing thereunder by either party thereto, and no event has occurred (other than payments due but not yet delinquent) that, with the passage of time or the giving of notice, or both, would constitute a default, breach or violation by either party thereunder. 4.25 Operating Lease. The Operating Lease is in full force and effect and has not been modified or amended. There are no defaults under the Operating Lease and no event has occurred, which with the passage of time, the giving of notice, or both, would constitute a default under the Operating Lease. All rents, additional rents and other sums due and payable under the Operating Lease have been paid in full. No Borrower has commenced any action or given or received any notice for the purpose of terminating the Operating Lease. 4.26 Ground Lease. The Ground Lease is in full force and effect and has not been modified or amended. There are no defaults under the Ground Lease on the part of Borrower as tenant or, to the best knowledge of Borrower, by the landlord thereunder, and no event has occurred, which with the passage of time, the giving of notice, or both, would constitute a default under the Ground Lease on the part of Borrower, or to the best knowledge of Borrower, by the landlord thereunder. All rents, additional rents and other sums due and payable under the Ground Lease have been paid in full. Neither Borrower nor the landlord under the Ground Lease has commenced any action or given or received any notice for the purpose of terminating the Ground Lease. All of the representations and warranties in this Article 4 and elsewhere in the Loan Documents (i) shall survive for so long as any portion of the Debt remains owing to Lender and (ii) shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf, provided, however, that the representations, warranties and covenants set forth in Section 4.21 shall survive in perpetuity. 5. COVENANTS Until the end of the Term, Borrowers hereby covenant and agree with Lender that: 5.1 Existence. Each Borrower and each Borrower Representative shall (i) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, and franchises, (ii) continue to engage in the business presently conducted by it, (iii) obtain and maintain all Licenses, and (iv) qualify to do business and remain in good standing under the laws of each jurisdiction, in each case as and to the extent required for the ownership, maintenance, management and operation of the Property owned by it. 5.2 Taxes and Other Charges. Borrowers shall pay all Taxes and Other Charges as the same become due and payable, and deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid no later than 30 days before they would be delinquent if not paid (provided, however, that Borrowers need not pay 41 such Taxes nor furnish such receipts for payment of Taxes paid by Lender pursuant to Section 3.3). Borrowers shall not suffer and shall promptly cause to be paid and discharged any Lien against any Property, and shall promptly pay for all utility services provided to any Property. After prior notice to Lender, Borrowers, at their 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 of any Taxes or Other Charges, provided that (i) no Default or Event of Default has occurred and is continuing, (ii) such proceeding shall suspend the collection of the Taxes or such Other Charges, (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which any Borrower is subject and shall not constitute a default thereunder, (iv) no part of or interest in any Property will be in danger of being sold, forfeited, terminated, canceled or lost, (v) Borrowers 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, which shall not be less than 125% of the Taxes and Other Charges being contested, and (vi) Borrowers shall promptly upon final determination thereof pay the amount of such Taxes or Other Charges, together with all costs, interest and penalties. Lender may pay over any such security or part thereof held by Lender to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established. 5.3 Access to Properties. Borrowers shall permit agents, representatives, consultants and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice. 5.4 Repairs; Maintenance and Compliance; Alterations. 5.4.1 Repairs; Maintenance and Compliance. Borrowers shall at all times maintain, preserve and protect all franchises and trade names, and Borrowers shall cause the Properties to be maintained in a good and safe condition and repair and shall not remove, demolish or alter the Improvements or Equipment (except for alterations performed in accordance with Section 5.4.2 and normal replacement of Equipment with Equipment of equivalent value and functionality). Borrowers shall promptly comply with all Legal Requirements and immediately cure properly any violation of a Legal Requirement. Borrowers shall notify Lender in writing within five (5) Business Days after any Borrower first receives notice of any such non-compliance. Borrowers shall promptly repair, replace or rebuild any part of any Property that becomes damaged, worn or dilapidated and shall complete and pay for any Improvements at any time in the process of construction or repair. 5.4.2 Alterations. Any Borrower may, without Lender's consent, perform alterations to the Improvements and Equipment which (i) do not constitute a Material Alteration, (ii) do not adversely affect any Borrower's financial condition or the value or Net Operating Income of any Property and (iii) are in the ordinary course of such Borrower's business. No Borrower shall perform any Material Alteration without Lender's prior written consent, which consent shall not be unreasonably withheld or delayed; provided, however, that Lender may, in its sole and absolute discretion, withhold consent to any alteration the cost of which is reasonably estimated to exceed $1,000,000 or which is likely to result in a decrease of Net Operating Income for the applicable Property by 2.5% or more for a period of 30 days or longer. Lender may, as a condition to giving its consent to a Material Alteration, require that Borrowers deliver 42 to Lender security for payment of the cost of such Material Alteration in an amount equal to 125% of the cost of the Material Alteration as estimated by Lender. Upon substantial completion of the Material Alteration, Borrowers shall provide evidence satisfactory to Lender that (i) the Material Alteration was constructed in accordance with applicable Legal Requirements and the applicable Franchise Agreement and substantially in accordance with plans and specifications approved by Lender (which approval shall not be unreasonably withheld or delayed), (ii) all contractors, subcontractors, materialmen and professionals who provided work, materials or services in connection with the Material Alteration have been paid in full and have delivered unconditional releases of lien and (iii) all material Licenses necessary for the use, operation and occupancy of the Material Alteration (other than those which depend on the performance of tenant improvement work) have been issued. Borrowers shall reimburse Lender upon demand for all out-of-pocket costs and expenses (including the reasonable fees of any architect, engineer or other professional engaged by Lender) incurred by Lender in reviewing plans and specifications or in making any determinations necessary to implement the provisions of this Section 5.4.2. 5.5 Performance of Other Agreements. Borrowers shall observe and perform each and every term to be observed or performed in all material respects by one or more Borrowers pursuant to the terms of any agreement or instrument affecting or pertaining to any Property, including the Loan Documents. 5.6 Cooperate in Legal Proceedings. Borrowers shall cooperate fully with Lender with respect to, and permit Lender, at its option, to participate in, any proceedings before any Governmental Authority which may in any way affect the rights of Lender under any Loan Document. 5.7 Further Assurances. Borrowers shall, at Borrowers' sole cost and expense, (i) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts as are commercially reasonable, necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the Debt and/or for the better and more effective carrying out of the intents and purposes of the Loan Documents, as Lender may reasonably require from time to time; and (ii) upon Lender's request therefor given from time to time after the occurrence of any Event of Default pay for (a) reports of UCC, federal tax lien, state tax lien, judgment and pending litigation searches with respect to any Borrower and any Borrower Representative and (b) searches of title to one or more of the Properties, each such search to be conducted by search firms reasonably designated by Lender in each of the locations reasonably designated by Lender. 5.8 Environmental Matters. 5.8.1 Hazardous Substances. So long as one or more Borrowers own or are in possession of one or more of the Properties, each such Borrower shall (i) keep the Property owned or possessed by it free from Hazardous Substances (other than reasonable quantities of products used by Borrowers, Manager or any tenants in the ordinary course of such party's business and enclosed in containers sealed in accordance with applicable Environmental Laws) and in compliance with all Environmental Laws, (ii) promptly notify Lender if such Borrower shall become aware that (A) any Hazardous Substance is on or near such Property, (B) such 43 Property is in violation of any Environmental Laws or (C) any condition on or near such Property shall pose a threat to the health, safety or welfare of humans and (iii) remove such Hazardous Substances and/or cure such violations and/or remove such threats, as applicable, as required by law (or as shall be required by Lender in the case of removal which is not required by law, but in response to the opinion of a licensed hydrogeologist, licensed environmental engineer or other qualified environmental consulting firm engaged by Lender ("Lender's Consultant")), promptly after such Borrower becomes aware of same, at Borrowers' sole expense. Nothing herein shall prevent such Borrower from recovering such expenses from any other party that may be liable for such removal or cure. 5.8.2 Environmental Monitoring. (a) Borrowers shall give prompt written notice to Lender of (i) any proceeding or inquiry by any party (including any Governmental Authority) with respect to the presence of any Hazardous Substance on, under, from or about any Property, (ii) all claims made or threatened by any third party (including any Governmental Authority) against any Borrower or any Property or any party occupying any Property relating to any loss or injury resulting from any Hazardous Substance, and (iii) any Borrower's discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Property that could cause such Property to be subject to any investigation or cleanup pursuant to any Environmental Law. Borrowers shall permit Lender to join and participate in, as a party if it so elects, any legal or administrative proceedings or other actions initiated with respect to any Property in connection with any Environmental Law or Hazardous Substance, and Borrowers shall pay all reasonable attorneys' fees and disbursements incurred by Lender in connection therewith. (b) Upon Lender's request, at any time and from time to time, Borrowers shall provide an inspection or audit of one or more Properties designated by Lender prepared by a licensed hydrogeologist, licensed environmental engineer or qualified environmental consulting firm approved by Lender assessing the presence or absence of Hazardous Substances on, in or near such Property or Properties, and if Lender in its good faith judgment determines that reasonable cause exists for the performance of such environmental inspection or audit, then the cost and expense of such audit or inspection shall be paid by Borrowers (otherwise, such cost and expense shall be paid by Lender). Such inspections and audit may include soil bearings and ground water monitoring. If Borrowers fail to provide any such inspection or audit within 60 days after such request, Lender may order same, and Borrowers hereby grant to Lender and its employees and agents access to the Properties and a license to undertake such inspection or audit. (c) If any environmental site assessment report prepared in connection with such inspection or audit recommends that an operations and maintenance plan be implemented for any Hazardous Substance, whether such Hazardous Substance existed prior to the ownership of the applicable Property by any Borrower, or presently exists or is reasonably suspected of existing, Borrowers shall cause such operations and maintenance plan to be prepared and implemented at their expense upon request of Lender. If any investigation, site monitoring, containment, cleanup, removal, restoration or other work of any kind is reasonably necessary under an applicable Environmental Law ("Remedial Work"), Borrowers shall commence all such Remedial Work within 30 days after written demand by Lender and thereafter diligently 44 prosecute to completion all such Remedial Work within such period of time as may be required under applicable law). All Remedial Work shall be performed by licensed contractors approved in advance by Lender and under the supervision of a consulting engineer approved by Lender. All costs of such Remedial Work shall be paid by Borrowers, including Lender's reasonable attorneys' fees and disbursements incurred in connection with the monitoring or review of such Remedial Work. If Borrowers do not timely commence and diligently prosecute to completion the Remedial Work, Lender may (but shall not be obligated to) cause such Remedial Work to be performed at Borrowers' expense. Notwithstanding the foregoing, Borrowers shall not be required to commence such Remedial Work within the above specified time period: (x) if prevented from doing so by any Governmental Authority, (y) if commencing such Remedial Work within such time period would result in any Borrower or such Remedial Work violating any Environmental Law, or (z) if Borrowers, at their expense and after prior written notice to Lender, are contesting by appropriate legal, administrative or other proceedings, conducted in good faith and with due diligence, the need to perform Remedial Work. Borrowers shall have the right to contest the need to perform such Remedial Work, provided that, (1) Borrowers are permitted by the applicable Environmental Laws to delay performance of the Remedial Work pending such proceedings, (2) neither any Property nor any part thereof or interest therein will be sold, forfeited or lost if a Borrower fails to promptly perform the Remedial Work being contested, and if such Borrower fails to prevail in contest such Borrower would thereafter have the opportunity to perform such Remedial Work, (3) Lender would not, by virtue of such permitted contest, be exposed to any risk of any civil liability for which Borrowers have not furnished additional security as provided in clause (4) below, or to any risk of criminal liability, and neither any Property nor any interest therein would be subject to the imposition of any Lien for which Borrowers have not furnished additional security as provided in clause (4) below, as a result of the failure to perform such Remedial Work and (4) Borrowers shall have furnished to Lender additional security in respect of the Remedial Work being contested and the loss or damage that may result from Borrowers' failure to prevail in such contest in such amount as may be reasonably requested by Lender but in no event less than one hundred twenty-five percent (125%) of the cost of such Remedial Work as estimated by Lender or Lender's Consultant and any loss or damage that may result from Borrowers' failure to prevail in such contest. (d) No Borrower shall install or permit to be installed on any Property any underground storage tank. 5.9 Title to the Properties. Borrowers will warrant and defend the title to the Properties, and the validity and priority of all Liens granted or otherwise given to Lender under the Loan Documents, subject only to Permitted Encumbrances, against the claims of all Persons. 5.10 Leases. 5.10.1 Generally. Upon request, Borrowers shall furnish Lender with executed copies of all Leases then in effect. All renewals of Leases and all proposed leases shall provide for rental rates and terms comparable to existing local market rates and shall be arm's length transactions with bona fide, independent third-party tenants. 5.10.2 Material Leases. No Borrower shall enter into a proposed Material Lease or a proposed renewal, extension or modification of an existing Material Lease without the prior 45 written consent of Lender; provided, however, that the provisions for payment of rent from Leasehold Borrower to Fee Borrower in the Operating Lease may be adjusted or modified without the prior consent of Lender, if such adjustment or modification does not effect the rights or obligations of either Borrower under the Loan or the Loan Documents. 5.10.3 Minor Leases. Notwithstanding the provisions of Section 5.10.2 above, provided that no Event of Default is continuing, renewals, amendments and modifications of existing Leases and proposed leases shall not be subject to the prior approval of Lender provided (i) the proposed lease would be a Minor Lease or the existing Lease as amended or modified or the renewal Lease is a Minor Lease, (ii) the proposed lease shall be written substantially in accordance with the standard form of Lease which shall have been approved by Lender, (iii) the Lease as amended or modified or the renewal Lease or series of leases or proposed lease or series of leases: (a) shall provide for net effective rental rates comparable to existing local market rates, (b) shall have an initial term (together with all renewal options) of not less than three years or greater than ten years, (c) shall provide for automatic self-operative subordination to the Mortgages and, at Lender's option, (x) attornment to Lender and (y) the unilateral right by Lender, at the option of Lender, to subordinate the Liens of the Mortgages to the Lease, and (d) shall not contain any option to purchase, any right of first refusal to purchase, any right to terminate (except in the event of the destruction or condemnation of substantially all of the applicable Property), any requirement for a non-disturbance or recognition agreement, or any other provision which might adversely affect the rights of Lender under the Loan Documents in any material respect. Borrowers shall deliver to Lender copies of all Leases which are entered into pursuant to the preceding sentence together with Borrowers' certification that it has satisfied all of the conditions of the preceding sentence within ten days after the execution of the Lease. 5.10.4 Additional Covenants with respect to Leases. Each Borrower (i) shall observe and perform the material obligations imposed upon the lessor under the Leases and shall not do or permit anything to impair the value of the Leases as security for the Debt; (ii) shall promptly send copies to Lender of all notices of default that such Borrower shall send or receive under any Lease; (iii) shall enforce, in accordance with commercially reasonable practices for properties similar to the applicable Property, the terms, covenants and conditions in the Leases to be observed or performed by the lessees, short of termination thereof; (iv) shall not collect any of the Rents more than one month in advance (other than security deposits); (v) shall not execute any other assignment of lessor's interest in the Leases or the Rents (except as contemplated by the Loan Documents); (vi) shall not modify any Lease in a manner inconsistent with the Loan Documents; (vii) shall not convey or transfer or suffer or permit a conveyance or transfer of any Property so as to effect a merger of the estates and rights of, or a termination or diminution of the obligations of, lessees under Leases; (viii) shall not consent to any assignment of or subletting under any Material Lease unless required in accordance with its terms without the prior consent of Lender, which, with respect to a subletting, may not, so long as no Event of Default is continuing, be unreasonably withheld or delayed; and (ix) shall not cancel or terminate any Lease or accept a surrender thereof (except in the exercise of the applicable Borrower's commercially reasonable judgment in connection with a tenant default under a Minor Lease) without the prior consent of Lender, which consent shall not, so long as no Event of Default is continuing, be unreasonably withheld or delayed. 46 5.11 Estoppel Statement. After request by Lender, Borrowers shall within ten Business Days furnish Lender with a statement addressed to Lender, its successors and assigns, duly acknowledged and certified, setting forth (i) the unpaid Principal, (ii) the Interest Rate, (iii) the date installments of interest and/or Principal were last paid, (iv) any offsets or defenses to the payment of the Debt, and (v) that the Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. 5.12 Property Management. 5.12.1 Management Agreement. Each Borrower shall (i) cause the Property owned by it to be managed pursuant to the Management Agreement; (ii) promptly perform and observe all of the covenants required to be performed and observed by it under the Management Agreement and do all things necessary to preserve and to keep unimpaired its rights thereunder; (iii) promptly notify Lender of any material default under the Management Agreement of which it is aware; (iv) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditure plan, and property improvement plan and any other material notice, report and estimate received by such Borrower under its Management Agreement; and (v) promptly enforce the performance and observance, in all material respects, of all of the covenants required to be performed and observed by Manager under the Management Agreement. Without Lender's prior written consent, no Borrower shall (a) surrender, terminate, cancel, extend or renew its Management Agreement or otherwise replace the Manager or enter into any other management agreement (except pursuant to Section 5.12.2); (b) reduce or consent to the reduction of the term of its Management Agreement; (c) increase or consent to the increase of the amount of any charges under its Management Agreement; (d) otherwise modify, change, supplement, alter or amend in any material respect, or waive or release any of its rights and remedies under, its Management Agreement; (e) suffer or permit the occurrence and continuance of a default beyond any applicable cure period under its Management Agreement (or any successor management agreement) if such default permits the Manager to terminate the Management Agreement (or such successor management agreement); or (f) suffer or permit the ownership, management or control of the Manager to be transferred to a Person other than an Affiliate of a Borrower, or an Approved Manager. 5.12.2 Termination of Manager. If (i) as of any Calculation Date, Borrowers fail to maintain an Actual Debt Service Coverage Ratio of at least 1.40:1 or (ii) an Event of Default shall be continuing, or (iii) Manager is in default under the Management Agreement, or (iv) upon the gross negligence, malfeasance or willful misconduct of the Manager, Borrowers shall, at the request of Lender, terminate the Management Agreement and replace Manager with an Approved Manager or a replacement manager acceptable to Lender in Lender's discretion and the applicable Rating Agencies on terms and conditions satisfactory to Lender and the applicable Rating Agencies. All calculations of the Debt Service Coverage Ratio for purposes of this Section 5.12.2 shall be subject to verification by Lender. Borrowers' failure to appoint an acceptable manager within forty five (45) days after Lender's request of Borrowers to terminate the Management Agreement shall constitute an immediate Event of Default. Borrowers may from time to time appoint a successor manager to manage the Properties, which successor manager and Management Agreement shall be an Approved Manager or shall be approved in writing by Lender in Lender's reasonable discretion and the applicable Rating Agencies. 47 5.13 Special Purpose Bankruptcy Remote Entity. Each Borrower and each Borrower Representative shall at all times be a Special Purpose Bankruptcy Remote Entity. No Borrower shall directly or indirectly make any change, amendment or modification to its or its respective Borrower Representative's organizational documents, or otherwise take any action which could result in such Borrower or its respective Borrower Representative not being a Special Purpose Bankruptcy Remote Entity. A "Special Purpose Bankruptcy Remote Entity" shall have the meaning set forth on Schedule 5 hereto. 5.14 Assumption in Non-Consolidation Opinion. Each Borrower and each Borrower Representative shall conduct their business so that the assumptions (with respect to each Person) made in that certain substantive non-consolidation opinion letter dated the date hereof delivered by Borrowers' counsel in connection with the Loan, shall be true and correct in all respects. 5.15 Change In Business or Operation of Properties. Borrowers shall not purchase or own any real property other than the Properties and shall not 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 their business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business or otherwise cease to operate the Properties as hotel properties, or terminate such business for any reason whatsoever (other than temporary cessation in connection with renovations to a Property). 5.16 Debt Cancellation. No Borrower shall cancel or otherwise forgive or release any claim or debt (other than termination of Leases in accordance herewith) owed to such Borrower by any Person, except for adequate consideration and in the ordinary course of such Borrower's business. 5.17 Affiliate Transactions. No Borrower shall enter into, or be a party to, any transaction with an Affiliate of any Borrower or any of the partners or members, as the case may be of any 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 Borrower or such Affiliate than would be obtained in a comparable arm's-length transaction with an unrelated third party. 5.18 Zoning. No Borrower shall initiate or consent to any zoning reclassification of any portion of any Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any Property 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. 5.19 No Joint Assessment. No Borrower shall 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. 5.20 Principal Place of Business. No Borrower shall change its principal place of business or chief executive office without first giving Lender 30 days' prior notice. 48 5.21 Change of Name, Identity or Structure. No Borrower shall change its name, identity (including its trade name or names) or such Borrower's corporate, partnership or other structure without notifying Lender of such change in writing at least thirty (30) days prior to the effective date of such change and, in the case of a change in such Borrower's structure, without first obtaining the prior written consent of Lender. Each Borrower shall execute and deliver to Lender, prior to or contemporaneously with the effective date of any such change, any financing statement or financing statement change required by Lender to establish or maintain the validity, perfection and priority of the security interest granted herein. At the request of Lender, each Borrower shall execute a certificate in form satisfactory to Lender listing the trade names under which such Borrower intends to operate the Property or Properties owned by such Borrower, and representing and warranting that such Borrower does business under no other trade name with respect to the Property. 5.22 Indebtedness. No Borrower shall directly or indirectly create, incur or assume any indebtedness other than the Debt and unsecured trade payables incurred in the ordinary course of business relating to the ownership and operation of the Property owned by it which do not exceed, at any time, a maximum amount of 1% of the original amount of the Principal and are paid within thirty (30) days of the date incurred (collectively, "Permitted Indebtedness"). 5.23 Licenses. No Borrower shall Transfer any License required for the operation of the Property owned by it. 5.24 Compliance with Restrictive Covenants, Etc. No Borrower will modify, waive in any material respect or release any Easements, restrictive covenants or other Permitted Encumbrances, or suffer, consent to or permit the foregoing, without Lender's prior written consent, which consent may be granted or denied in Lender's sole discretion. 5.25 ERISA. 5.25.1.1 No Borrower shall engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. 5.25.1.2 No Borrower shall maintain, sponsor, contribute to or become obligated to contribute to, or suffer or permit any ERISA Affiliate of such Borrower to, maintain, sponsor, contribute to or become obligated to contribute to, any Plan or any Welfare Plan or permit the assets of such Borrower to become "plan assets," whether by operation of law or under regulations promulgated under ERISA. 5.25.1.3 Each Borrower shall deliver to Lender such certifications or other evidence from time to time throughout the Term, as requested by Lender in its sole discretion, that (A) such Borrower is not and does not maintain an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (B) such Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) one or more of the following circumstances is true: 49 (1) Equity interests in such Borrower are publicly offered securities, within the meaning of 29 C.F.R. (S)2510.3-101(b)(2); (2) Less than twenty-five percent (25%) of each outstanding class of equity interests in such Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. (S)2510.3-101(f)(2); or (3) such Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. (S)2510.3-101(c) or (e). 5.26 Prohibited Transfers. 5.26.1 Generally. No Borrower shall directly or indirectly make, suffer or permit the occurrence of any Transfer other than a Permitted Transfer. 5.26.2 Transfer and Assumption. (a) Notwithstanding the foregoing, but subject to the terms and satisfaction of all of the conditions precedent set forth in this Section 5.26.2, Borrowers shall have a one-time right to Transfer all (but not less than all) of the Properties (which have not theretofore been released pursuant to Section 2.4.2) to another party (the "Transferee Borrower") and have the Transferee Borrower assume all of Borrowers' obligations under the Loan Documents, and have replacement guarantors and indemnitors assume all of the obligations of the indemnitors and guarantors of the Loan Documents (collectively, a "Transfer and Assumption"). Borrowers may make a written application to Lender for Lender's consent to the Transfer and Assumption, subject to the conditions set forth in paragraphs (b) and (c) of this Section 5.26.2. Together with such written application, Borrowers will pay to Lender the reasonable review fee then required by Lender. Borrowers also shall pay on demand all of the reasonable costs and expenses incurred by Lender, including reasonable attorneys' fees and expenses, and including the fees and expenses of Rating Agencies and other outside entities, in connection with considering any proposed Transfer and Assumption, whether or not the same is permitted or occurs. (b) Lender's consent, which may be withheld in Lender's sole and absolute discretion, to a Transfer and Assumption shall be subject to the following conditions: (1) No Default or Event of Default has occurred and is continuing; (2) Borrowers have submitted to Lender true, correct and complete copies of any and all information and documents of any kind requested by Lender concerning the Properties, Transferee Borrower, replacement guarantors and indemnitors and Borrowers; (3) Evidence satisfactory to Lender has been provided showing that the Transferee Borrower and such of its Affiliates as shall be designated by Lender comply and will comply with Section 5.13 hereof, as those provisions may be modified by Lender taking into account the ownership structure of Transferee Borrower and its Affiliates; 50 (4) If the Loan, by itself or together with other loans, has been the subject of a Secondary Market Transaction, then Lender shall have received a Rating Comfort Letter from the applicable Rating Agencies; (5) If the Loan has not been the subject of a Secondary Market Transaction, then Lender shall have determined that no rating for any securities that would be issued in connection with such securitization will be diminished, qualified, or withheld by reason of the Transfer and Assumption; (6) Borrowers shall have paid all of Lender's reasonable costs and expenses in connection with considering the Transfer and Assumption, and shall have paid the amount requested by Lender as a deposit against Lender's costs and expenses in connection with the effecting the Transfer and Assumption; (7) Borrowers, the Transferee Borrower, and the replacement guarantors and indemnitors shall have indicated in writing in form and substance reasonably satisfactory to Lender their readiness and ability to satisfy the conditions set forth in subsection (c) below; and (8) The identity, experience, and financial condition of the Transferee Borrower and the replacement guarantors and indemnitors shall be satisfactory to Lender. (c) If Lender consents to the Transfer and Assumption, the Transferee Borrower and/or Borrower as the case may be, shall immediately deliver the following to Lender: (1) Borrowers shall deliver to Lender an assumption fee in the amount of 1.00% of the then unpaid Principal; (2) Borrowers, Transferee Borrower and the original and replacement guarantors and indemnitors shall execute and deliver to Lender any and all documents required by Lender, in form and substance required by Lender, in Lender's sole discretion; (3) Counsel to the Transferee Borrower and replacement guarantors and indemnitors shall deliver to Lender opinions in form and substance satisfactory to Lender as to such matters as Lender shall require, which may include opinions as to substantially the same matters and were required in connection with the origination of the Loan; (4) Borrowers shall cause to be delivered to Lender, an endorsement (relating to the change in the identity of the vestee and execution and delivery of the Transfer and Assumption documents) to the Title Insurance Policies in form and substance acceptable to Lender, in Lender's reasonable discretion (the "Endorsement"); and (5) Borrowers shall deliver to Lender a payment in the amount of all remaining unpaid costs incurred by Lender in connection with the Transfer and Assumption, including but not limited to, Lender's reasonable attorneys fees and 51 expenses, all recording fees, and all fees payable to the title company for the delivery to Lender of the Endorsement. 5.27 Liens. Without Lender's prior written consent, no Borrower shall create, incur, assume, permit or suffer to exist any Lien on all or any portion of any Property or any direct or indirect legal or beneficial ownership interest in any Borrower or any Borrower Representative, except Liens in favor of Lender and Permitted Encumbrances, unless such Lien is bonded or discharged within 30 days after any Borrower first receives notice of such Lien. 5.28 Dissolution. No Borrower shall (i) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (ii) engage in any business activity not related to the ownership and operation of any Property or (iii) transfer, lease or sell, in one transaction or any combination of transactions, all or substantially all of the property or assets of such Borrower except to the extent expressly permitted by the Loan Documents. 5.29 Expenses. Borrowers shall reimburse Lender upon receipt of notice for all reasonable out-of-pocket costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with the Loan, including (i) the preparation, negotiation, execution and delivery of the Loan Documents and the consummation of the transactions contemplated thereby and all the costs of furnishing all opinions by counsel for Borrowers; (ii) Borrowers' and Lender's ongoing performance under and compliance with the Loan Documents, including confirming compliance with environmental and insurance requirements; (iii) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications of or under any Loan Document and any other documents or matters requested by Lender; (iv) filing and recording of any Loan Documents; (v) title insurance, surveys, inspections and appraisals; (vi) the creation, perfection or protection of Lender's Liens in the Properties and the Cash Management Accounts (including fees and expenses for title and lien searches, intangibles taxes, personal property taxes, mortgage recording taxes, due diligence expenses, travel expenses, accounting firm fees, costs of appraisals, environmental reports and Lender's Consultant, surveys and engineering reports); (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 one or more Borrowers, the Loan Documents, one or more of the Properties, or any other security given for the Loan; (viii) fees charged by Rating Agencies in connection with the Loan or any modification thereof and (ix) enforcing any obligations of or collecting any payments due from Borrowers under any Loan Document or with respect to any Property or in connection with any refinancing or restructuring of the Loan in the nature of a "work-out", or any insolvency or bankruptcy proceedings. Any costs and expenses due and payable to Lender hereunder which are not paid by Borrowers within ten days after demand may be paid from any amounts in the Deposit Account, with notice thereof to any Borrower. The obligations and liabilities of Borrowers under this Section 5.29 shall survive the Term and the exercise by Lender of any of its rights or remedies under the Loan Documents, including the acquisition of any Property by foreclosure or a conveyance in lieu of foreclosure. 5.30 Indemnity. Borrowers shall defend, indemnify and hold harmless Lender and each of its Affiliates and their respective successors and assigns, including the directors, officers, partners, members, shareholders, participants, employees, professionals and agents of any of the 52 foregoing (including any Servicer) and each other Person, if any, who Controls Lender, its Affiliates or any of the foregoing (each, an "Indemnified Party"), from and against any and all 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 an Indemnified Party in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto, court costs and costs of appeal at all appellate levels, investigation and laboratory fees, consultant fees and litigation expenses), that may be imposed on, incurred by, or asserted against any Indemnified Party (collectively, the "Indemnified Liabilities") in any manner, relating to or arising out of or by reason of the Loan, including: (i) any breach by any Borrower of its obligations under, or any misrepresentation by any Borrower contained in, any Loan Document; (ii) the use or intended use of the proceeds of the Loan; (iii) any information provided by or on behalf of any Borrower, or contained in any documentation approved by any Borrower; (iv) ownership of any Mortgage, any Property or any interest therein, or receipt of any Rents; (v) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about any Property or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (vi) any use, nonuse or condition in, on or about any Property or on adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (vii) performance of any labor or services or the furnishing of any materials or other property in respect of any Property; (viii) the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release, or threatened release of any Hazardous Substance on, from or affecting any Property; (ix) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Substance; (x) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Substance; (xi) any violation of the Environmental Laws which is based upon or in any way related to such Hazardous Substance, including the costs and expenses of any Remedial Work; (xii) any failure of any Property to comply with any Legal Requirement; (xiii) any claim by brokers, finders or similar persons claiming to be entitled to a commission in connection with any Lease or other transaction involving any Property or any part thereof, or any liability asserted against Lender with respect thereto; and (xiv) the claims of any lessee of any portion of any Property or any Person acting through or under any lessee or otherwise arising under or as a consequence of any Lease; provided, however, that Borrowers shall not have any obligation to any Indemnified Party hereunder to the extent that it is finally judicially determined that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of such Indemnified Party. Any amounts payable to any Indemnified Party by reason of the application of this paragraph shall be payable on demand and shall bear interest at the Default Rate from the date loss or damage is sustained by any Indemnified Party until paid. The obligations and liabilities of Borrowers under this Section 5.30 shall survive the Term and the exercise by Lender of any of its rights or remedies under the Loan Documents, including the acquisition of any Property by foreclosure or a conveyance in lieu of foreclosure. 5.31 Franchise Agreements. Each Borrower shall (i) cause the hotels located on its Properties to be operated pursuant to the applicable Franchise Agreement; (ii) promptly perform and observe all of the covenants required to be performed and observed by it under the applicable Franchise Agreement and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (iii) promptly notify Lender of any default under any Franchise Agreement of which it is aware; (iv) promptly deliver to Lender a copy of each financial 53 statement, business plan, capital expenditures plan, notice, report and estimate received by it under the Franchise Agreements; and (v) promptly enforce in accordance with commercially reasonable practices the performance and observance of all of the material covenants required to be performed and observed by the franchisor under the Franchise Agreements. Without Lender's prior consent, no Borrower shall (i) surrender, terminate or cancel any Franchise Agreement; (ii) reduce or consent to the reduction of the term of any Franchise Agreement; (iii) increase or consent to the increase of the amount of any charges under any Franchise Agreement; (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, any Franchise Agreement or (v) suffer or permit the occurrence of continuance a default beyond any applicable cure period under any Franchise Agreement (or any successor franchise agreement) if such default permits the franchisor to terminate or cancel such Franchise Agreement (or any successor franchise agreement). Notwithstanding anything to the contrary in this Section 5.31, Borrowers shall have the right to surrender, terminate or cancel one or more of the Franchise Agreements with respect to the applicable Property or Properties provided that (a) Borrower shall enter into a new Franchise Agreement with an Approved Franchisor which new agreement shall be on such Approved Franchisor's then-current standard for or otherwise reasonably satisfactory to Lender and (B) such new agreement shall become effective immediately upon the expiration of Franchise Agreement which is being replaced and (C) Borrowers shall provide Lender with security to ensure the payment of any cancellation, termination or any other fees or costs fees payable in connection with the Franchise Agreement which is being replaced, together with any fees, expenses or costs (including PIP costs) incurred or payable in connection with the entry into the new Franchise Agreement, which security shall not be less than 125% of Lender's reasonable estimate of all such fees, expenses or costs. 5.32 Operating Lease. Each Borrower shall (i) promptly perform and observe all of the covenants required to be performed and observed by it under the applicable Operating Lease and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (iii) promptly notify Lender of any default under any Operating Lease of which it is aware; (iv) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, notice, report and estimate received or sent by it under the Operating Lease; and (v) promptly enforce in accordance with commercially reasonable practices the performance and observance of all of the material covenants required to be performed and observed by it under the Operating Lease. Without Lender's prior consent, no Borrower shall (i) surrender, terminate or cancel any Operating Lease; (ii) reduce or consent to the reduction of the term of any Operating Lease; (iii) increase or consent to the increase of the amount of any charges under any Operating Lease ; (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, any Operating Lease or (v) suffer or permit the occurrence of continuance a default beyond any applicable cure period under any Operating Lease if such default permits any party thereto to terminate or cancel such Operating Lease. 5.33 Ground Lease. 5.33.1 Borrower shall: 54 (a) pay when due any installment of fixed rent payable under the Ground Lease; (b) pay additional rent or other charge payable under the Ground Lease prior to the expiration of the applicable grace period, and (c) observe and perform all other terms, covenants and conditions of the Ground Lease prior to the expiration of any applicable grace period provided therein. 5.33.2 Borrower shall not: (a) cause or permit the occurrence of any event that would cause the Ground Lease to terminate without notice or action by the landlord thereunder or would entitle such landlord to terminate the Ground Lease and the term thereof by giving notice to Borrower; (b) surrender the leasehold estate created by the Ground Lease; (c) cause or permit the termination of Ground Lease; or (d) cause or permit any term of the Ground Lease to be modified or supplemented without Lender's consent. 6. NOTICES AND REPORTING 6.1 Notices. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (a "Notice") shall be given in writing and shall be effective for all purposes if either hand delivered with receipt acknowledged, or by a nationally recognized overnight delivery service (such as Federal Express), or by certified or registered United States mail, return receipt requested, postage prepaid, or by facsimile and confirmed by facsimile answer back, in each case addressed as follows (or to such other address or Person as a party shall designate from time to time by notice to the other party): If to Lender: Greenwich Capital Financial Products, Inc., 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Mortgage Loan Department, Telecopier (203) 618-2052, with a copy to: Kaye Scholer LLP, 425 Park Avenue, New York, New York 10022, Attention: Stephen Gliatta, Esq., Telecopier: (212) 836-8689; if to Borrowers: c/o Humphrey Hospitality Limited Partnership, 7170 Riverwood Drive, Columbia, Maryland 21043, Attention: Chief Financial Officer, Telecopier: (443) 259-4999, with a copy to: Gallagher, Evelius & Jones, 218 N. Charles Street, Suite 400, Baltimore, Maryland 21201, Attention: Kevin J. Davidson, Esq., Telecopier: (410) 468-2786. 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 overnight delivery, upon the first attempted delivery on a Business Day; or in the case of facsimile, upon the confirmation of such facsimile transmission. 6.2 Borrower Notices and Deliveries. Borrowers shall (a) give prompt written notice to Lender of: (i) any litigation, governmental proceedings or claims or investigations pending or threatened against any Borrower or any Borrower Representative which might 55 materially adversely affect any Borrower's or any Borrower Representative's condition (financial or otherwise) or business or any Property; (ii) any material adverse change in any Borrower's or any Borrower Representative's condition, financial or otherwise, or of the occurrence of any Default or Event of Default of which any Borrower has knowledge; and (b) furnish and provide to Lender: (i) any Securities and Exchange Commission or other public filings, if any, of any Borrower, any Borrower Representative, Manager, or any Affiliate of any of the foregoing within two (2) Business Days of such filing and (ii) all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, reasonably requested, from time to time, by Lender. In addition, after request by Lender (but no more frequently than twice in any year), Borrowers shall furnish to Lender (x) within ten days, a certificate addressed to Lender, its successors and assigns reaffirming all representations and warranties of each Borrower set forth in the 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, and (y) within 30 days, tenant estoppel certificates addressed to Lender, its successors and assigns from each tenant at each Property in form and substance reasonably satisfactory to Lender. 6.3 Financial Reporting. 6.3.1 Bookkeeping. Each Borrower shall keep on a calendar year basis, in accordance with GAAP, proper and accurate books, records and accounts reflecting all of the financial affairs of such Borrower and all items of income and expense and any services, Equipment or furnishings provided in connection with the operation of the Property owned by such Borrower, whether such income or expense is realized by such Borrower, Manager or any Affiliate of such Borrower. Lender shall have the right from time to time during normal business hours upon reasonable notice to examine such books, records and accounts at the office of such Borrower or other Person maintaining them, and to make such copies or extracts thereof as Lender shall desire. After an Event of Default, Borrowers shall pay any costs incurred by Lender to examine such books, records and accounts, as Lender shall determine to be necessary or appropriate in the protection of Lender's interest. 6.3.2 Annual Reports. Key Principal shall furnish to Lender annually, within 120 days after each calendar year, a complete copy of Key Principal's consolidated annual financial statements audited by a "big four" accounting firm or another independent certified public accountant (accompanied by an unqualified opinion from such accounting firm or other independent certified public accountant) reasonably acceptable to Lender, each in accordance with GAAP and containing balance sheets and statements of profit and loss for each Borrower and the Property owned by Borrower in such detail as Lender may request. Each such statement (x) shall be in form and substance satisfactory to Lender, (y) shall set forth the financial condition and the income and expenses for the Property owned by Borrower for the immediately preceding calendar year, including statements of annual Net Operating Income as well as (1) a list of tenants, if any, occupying more than twenty percent of the rentable space of the Property owned by such Borrower, (2) a breakdown showing (a) the year in which each Lease then in effect expires, (b) the percentage of rentable space covered by such Lease, (c) the percentage of base rent with respect to which Leases shall expire in each such year, expressed both on a per year and a cumulative basis and (z) shall be accompanied by an Officer's Certificate certifying (1) that such statement is true, correct, complete and accurate and presents fairly the financial 56 condition of the Property owned by such Borrower and has been prepared in accordance with GAAP and (2) whether there exists a Default or Event of Default, and if so, the nature thereof, the period of time it has existed and the action then being taken to remedy it. 6.3.3 Monthly Reports. Each Borrower shall furnish to Lender within 30 days after the end of each calendar month or calendar quarter (as indicated below) the following items: (i) monthly and year-to-date operating statements, noting Net Operating Income and other information necessary and sufficient under GAAP to fairly represent the financial position and results of operation of the Property owned by such Borrower during such calendar month, all in form satisfactory to Lender; (ii) a balance sheet for such calendar month; (iii) a comparison of the budgeted income and expenses and the actual income and expenses for each month and year-to-date for the Property owned by such Borrower, together with a detailed explanation of any variances of 10% or more between budgeted and actual amounts for such period and year-to-date; (iv) a statement of the actual Capital Expenses made by such Borrower during each calendar quarter as of the last day of such calendar quarter; (v) a statement that such Borrower has not incurred any indebtedness other than indebtedness permitted hereunder; (vi) an aged receivables report and (vii) 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, material special provisions, concessions or inducements granted to tenants, and a year-by-year schedule showing by percentage the rentable area of the Improvements and the total base rent attributable to Leases expiring each year) and a delinquency report for the Property owned by such Borrower. Each such statement shall be accompanied by an Officer's Certificate certifying (1) that such items are true, correct, accurate, and complete and fairly present the financial condition and results of the operations of such Borrower and such Property in accordance with GAAP (subject to normal year-end adjustments) and (2) whether there exists a Default or Event of Default, and if so, the nature thereof, the period of time it has existed and the action then being taken to remedy it. 6.3.4 Other Reports. Each Borrower shall furnish to Lender, within ten Business Days after request, such further detailed information with respect to the operation of the Property owned by such Borrower and the financial affairs of such Borrower or Manager as may be reasonably requested by Lender or any applicable Rating Agency. 6.3.5 Annual Budget. During any Cash Management Period, each Borrower shall prepare and submit (or shall cause Manager to prepare and submit) to Lender within forty five (45) days of the commencement of such Cash Management Period and on each November 30th of each subsequent year during the Term while such Cash Management Period continues, for approval by Lender, which approval shall not be unreasonably withheld or delayed, a proposed pro forma budget for the Property owned by such Borrower for the succeeding (or remaining, as the case may be)calendar year (the "Annual Budget", and each Annual Budget approved by Lender is referred to herein as the "Approved Annual Budget")), and, promptly after preparation thereof, any revisions to such Annual Budget. The Annual Budget shall consist of (i) an operating expense budget showing, on a month-by-month basis, in reasonable detail, each line item of such Borrower's anticipated operating income and operating expenses (on a cash and accrual basis), including amounts required to establish, maintain and/or increase any monthly payments required hereunder (and once such Annual Budget has been approved by Lender, such operating expense budget shall be referred to herein as the "Approved 57 Operating Budget"), and (ii) a Capital Expense budget showing, on a month-by-month basis, in reasonable detail, each line item of anticipated Capital Expenses (and once such Annual Budget has been approved by Lender, such Capital Expense budget shall be referred to herein as the "Approved Capital Budget"). Until such time that any Annual Budget has been approved by Lender, the prior Approved Annual Budget shall apply for all purposes hereunder (with such adjustments as reasonably determined by Lender (including increases for any non-discretionary expenses)). 6.3.6 Breach. If any Borrower fails to provide to Lender or its designee any of the financial statements, certificates, reports or information (the "Required Records") required by this Section 6.3.6 within 45 days after the date upon which such Required Record is due, Borrowers shall pay to Lender, at Lender's option and in its discretion, an amount equal to $150 for each day and for each Required Record that is not delivered; provided Lender has given Borrowers at least 15 days prior notice of such failure. In addition, 45 days after any Borrower's failure to deliver any Required Records, Lender shall have the option, upon 15 days notice to Borrowers to gain access to such Borrower's books and records and prepare or have prepared at Borrowers' expense, any Required Records not delivered by such Borrower. 6.3.7 Hotel Accounting. All monthly and other operating statements to be delivered by Borrowers hereunder shall be (and all accompanying Officer's Certificates shall state that they have been) prepared based upon the Uniform System of Accounts for Hotels, current edition. 7. INSURANCE; CASUALTY; AND CONDEMNATION 7.1 Insurance. 7.1.1 Coverage. Subject to Section 7.1.3, each Borrower, at its sole cost, for the mutual benefit of each Borrower and Lender, shall obtain and maintain during the Term the following policies of insurance with respect to the Property or Properties owned by such Borrower: (a) Property insurance insuring against loss or damage customarily included under so called "all risk" or "special form" policies including fire, lightning, flood, earthquake, vandalism, and malicious mischief, boiler and machinery and, if available and subject to subsection (j) below, coverage for damage or destruction caused by "War" or the acts of "Terrorists" (or such policies shall have no exclusion from coverage with respect thereto) and such other insurable hazards as, under good insurance practices, from time to time are insured against for other property and buildings similar to the premises in nature, use, location, height, and type of construction. Such insurance policy shall also insure costs of demolition and increased cost of construction (which insurance for demolition and increased cost of construction may contain a sub-limit satisfactory to Lender). Each such insurance policy shall (i) be in an amount equal to the greatest of (A) 100% of the then replacement cost of the Improvements without deduction for physical depreciation, (B) 125% of the Allocated Loan Amount for such Property, and (C) such amount as is necessary so that the insurer would not deem Borrower a co-insurer under such policies, (ii) have deductibles no greater than the lesser of $50,000 or 15% of the Allocated Loan Amount per occurrence (or, with respect to the Pella, Iowa Property, 58 $50,000), (iii) be paid annually in advance and (iv) contain an agreed amount replacement cost endorsement with a waiver of depreciation, and shall cover, without limitation, all tenant improvements and betterments that Borrower is required to insure on a replacement cost basis. If the insurance required under this subparagraph is not obtained by blanket insurance policies, the insurance policy shall be endorsed to also provide guaranteed building replacement cost to the Improvements and such tenant improvements in an amount to be subject to the consent of Lender, which consent shall not be unreasonably withheld. Lender shall be named Loss Payee on a Standard Mortgagee Endorsement. Notwithstanding anything to the contrary in this clause (a), Lender confirms that the current property insurance policy with respect to the Key Largo, Florida Property is acceptable to Lender prior to the renewal date of such policy, provided that upon renewal such policy shall comply with the provisions of this clause (a). (b) Flood insurance if such Property is in an area now or hereafter designated by the Federal Emergency Management Agency as a Zone "A" & "V" Special Hazard Area, or such other Special Hazard Area if Lender so requires in its sole discretion. Such policy shall (i) be in an amount equal to the greater of (A) 100% of the full replacement cost of the Improvements on such Property (without any deduction for depreciation) (B) the maximum limit of coverage available and (ii) have a maximum permissible deductible of $3,000. (c) Public liability insurance, including (i) "Commercial General Liability Insurance", (ii) "Owned", "Hired" and "Non Owned Auto Liability"; and (iii) umbrella liability coverage for personal injury, bodily injury, death, accident and property damage, such insurance providing in combination no less than containing minimum limits per occurrence of $1,000,000 and $2,000,000 in the aggregate for any policy year; together with at least $50,000,000 excess and/or umbrella liability insurance for any and all claims with deductibles no greater than $5,000; provided, however, that, with respect to any Property subject to the Federal Employers Liability Act, such deductibles shall be no greater than $25,000. The policies described in this subsection shall also include coverage for elevators, escalators, independent contractors, "Contractual Liability" (covering, to the maximum extent permitted by law, Borrower's obligation to indemnify Lender as required under this Agreement and the other Loan Documents), "Products" and "Completed Operations Liability" coverage.1 (d) Rental loss and/or business interruption insurance (i) with Lender being named as "Lender Loss Payee", (ii) in an amount equal to one hundred percent (100%) of the projected Net Operating Income from such Property during the period of restoration; and (iii) containing an extended period of indemnity endorsement which provides that after the physical loss to such Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of eighteen (18) months from the date that such Property is repaired or replaced and operations are resumed, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period. The amount of such insurance shall be increased from time to time during the Term as and when the estimated or actual Rents increase. Notwithstanding anything to the contrary in this clause (d), Lender confirms that Borrower's current rental loss and/or business _________________ /1/ GC to advise re limits and deductible. 59 interruption insurance policy is acceptable to Lender prior to the renewal date of such policy, provided that upon renewal such policy shall comply with the provisions of this clause (d). (e) Comprehensive boiler and machinery insurance covering all mechanical and electrical equipment against physical damage, rent loss and improvements loss and covering, without limitation, all tenant improvements and betterments that Borrower is required to insure pursuant to the lease on a replacement cost basis and in an amount equal to the greater of (i) $2,000,000. and (ii) 100% of the full replacement cost of the Improvements on such Property (without any deduction for depreciation). (f) Worker's compensation and disability insurance with respect to any employees of Borrower, as required by any Legal Requirement. (g) During any period of repair or restoration, builder's "all-risk" insurance in an amount equal to not less than the full insurable value of such 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. (h) Coverage to compensate for the cost of demolition and the increased cost of construction in an amount satisfactory to Lender. (i) Such other insurance (including environmental liability insurance, earthquake insurance, mine subsidence insurance and windstorm insurance) as may from time to time be reasonably required by Lender in order to protect its interests. (j) Notwithstanding anything in subsection (a) above to the contrary, Borrowers shall be required to obtain and maintain coverage in their respective property insurance Policy (or by a separate Policy) against loss or damage by terrorist acts provided that such coverage is commercially available. Borrowers shall obtain such coverage from a carrier which otherwise satisfies the rating criteria specified in Section 7.1.2 (a "Qualified Carrier") or in the event that such coverage is not available from a Qualified Carrier, Borrowers shall obtain such coverage from the highest rated insurance company providing such coverage. If such coverage with respect to terrorist acts is available as aforesaid, Borrowers shall obtain and maintain such coverage in an amount equal to 100% of the "Full Replacement Cost" of such Borrower's Property. 7.1.2 Policies. Subject to Section 7.1.3, all policies of insurance (the "Policies") required pursuant to Section 7.1.1 shall (i) be issued by companies approved by Lender and licensed to do business in the State, with a claims paying ability rating of "A" or better by S&P (and the equivalent by any other Rating Agency) and a rating of A:X or better in the current Best's Insurance Reports; (ii) name Lender and its successors and/or assigns as their interest may appear as the mortgagee (in the case of property insurance) or an additional insured (in the case of liability insurance); (iii) contain (in the case of property insurance) a Non-Contributory Standard Mortgagee 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) contain a waiver of subrogation against Lender; (v) be assigned and the originals thereof delivered to Lender; (vi) contain such provisions as Lender deems 60 reasonably necessary or desirable to protect its interest, including (A) endorsements providing that neither any Borrower, Lender nor any other party shall be a co-insurer under the Policies, (B) that Lender shall receive at least 30 days' prior written notice of any modification, reduction or cancellation of any of the Policies, (C) an agreement whereby the insurer waives any right to claim any premiums and commissions against Lender, provided that the policy need not waive the requirement that the premium be paid in order for a claim to be paid to the insured and (D) providing that Lender is permitted to make payments to effect the continuation of such policy upon notice of cancellation due to non-payment of premiums; (vii) in the event any insurance policy (except for general public and other liability and workers compensation insurance) shall contain breach of warranty provisions, such policy shall provide that with respect to the interest of Lender, such insurance policy shall not be invalidated by and shall insure Lender regardless of (A) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (B) the occupancy or use of the premises for purposes more hazardous than permitted by the terms thereof, or (C) any foreclosure or other action or proceeding taken by Lender pursuant to any provision of the Loan Documents; and (viii) be satisfactory in form and substance to Lender and approved by Lender as to amounts, form, risk coverage, deductibles, loss payees and insured. Borrowers shall pay the premiums for such Policies (the "Insurance Premiums") as the same become due and payable and furnish to Lender evidence of the renewal of each of the Policies together with (unless such Insurance Premiums have been paid by Lender pursuant to Section 3.3) receipts for or other evidence of the payment of the Insurance Premiums reasonably satisfactory to Lender. If Borrowers do not furnish such evidence and receipts at least 30 days prior to the expiration of any expiring Policy, then Lender may, but shall not be obligated to, procure such insurance and pay the Insurance Premiums therefor, and Borrowers shall reimburse Lender for the cost of such Insurance Premiums promptly on demand, with interest accruing at the Default Rate. Borrowers shall deliver to Lender a certified copy of each Policy within 30 days after its effective date. Within 30 days after request by Lender, Borrowers 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. 7.1.3 Modification of Insurance Requirements. Notwithstanding anything to the contrary in Sections 7.1.1 or 7.1.2, in the event that after the date hereof any of the requirements relating to the insurance coverage or companies issuing the Policies set forth in such Sections 7.1.1 or 7.1.2 (collectively, "Insurance Requirements") cannot be complied with by Borrowers on a commercially available basis, Lender may, in its sole and absolute discretion, agree to waive or reduce such Insurance Requirements, based upon insurance requirements that are then being required by Lender for comparable properties with financing arrangements similar to those set forth in this Agreement which are intended to be sold by Lender into a securitization. 7.2 Casualty. 7.2.1 Notice; Restoration. If any Property is damaged or destroyed, in whole or in part, by fire or other casualty (a "Casualty"), Borrowers shall give prompt notice thereof to Lender. Following the occurrence of a Casualty, Borrowers, regardless of whether insurance proceeds are available, shall promptly proceed to restore, repair, replace or rebuild the affected 61 Property in accordance with Legal Requirements to be of at least equal value and of substantially the same character as prior to such damage or destruction. 7.2.2 Settlement of Proceeds. If a Casualty covered by any of the Policies (an "Insured Casualty") occurs where the loss does not exceed $500,000, provided no Default or Event of Default has occurred and is continuing, Borrowers may settle and adjust any claim without the prior consent of Lender; provided such adjustment is carried out in a competent and timely manner, and Borrowers are hereby authorized to collect and receipt for the insurance proceeds (the "Proceeds"). In the event of an Insured Casualty where the loss equals or exceeds $500,000 (a "Significant Casualty"), Lender may, subject to the Ground Lease and otherwise in its commercially reasonable discretion, settle and adjust any claim without the consent of any Borrower and agree with the insurer(s) on the amount to be paid on the loss, and the Proceeds shall be due and payable solely to Lender and held by Lender in the Casualty/Condemnation Subaccount and disbursed in accordance herewith. If any Borrower or any party other than Lender is a payee on any check representing Proceeds with respect to a Significant Casualty, such Borrower shall immediately endorse, and cause all such third parties to endorse, such check payable to the order of Lender. Each Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to endorse such check payable to the order of Lender. The reasonable expenses incurred by Lender in the settlement, adjustment and collection of the Proceeds shall become part of the Debt and shall be reimbursed by Borrowers to Lender upon demand, but only to the extent such expenses exceed the amount of such Proceeds. Notwithstanding anything to the contrary contained herein, if in connection with a Casualty any insurance carrier makes a payment under a property insurance Policy that Borrowers propose be treated as business or rental interruption insurance, then, notwithstanding any designation (or lack of designation) by the insurance carrier as to the purpose of such payment, as between Lender and Borrowers, such payment shall not be treated as business or rental interruption insurance proceeds unless Borrowers have demonstrated to Lender's satisfaction that the remaining net Proceeds that will be received from the property insurance carriers are sufficient to pay 100% of the cost of fully restoring the Improvements or, if such net Proceeds are to be applied repay the Debt in accordance with the terms hereof, that such remaining Net Proceeds will be sufficient to pay the Debt in full. 7.3 Condemnation. 7.3.1 Notice; Restoration. Borrowers shall promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding affecting any 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, Borrowers, regardless of whether an Award is available, shall promptly proceed to restore, repair, replace or rebuild the affected Property in accordance with Legal Requirements to the extent practicable to be of at least equal value and of substantially the same character (and to have the same utility) as prior to such Condemnation. 7.3.2 Collection of Award. Subject to the Ground Lease, Lender is hereby irrevocably appointed as each 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, adjustment or settlement in 62 connection with such Condemnation. Notwithstanding anything to the contrary in the immediately preceding sentence, Lender shall not execute any document as attorney-in-fact of Borrowers unless (x) Borrowers shall have failed or refused to execute the same within five (5) Business Days after Lender's request therefor, or (y) in Lender's good faith determination it would be materially prejudiced by the delay involved in making such a request. Notwithstanding any Condemnation (or any transfer made in lieu of or in anticipation of such Condemnation), Borrowers shall continue to pay the Debt at the time and in the manner provided for in the 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. 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. If any 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 the Award sufficient to pay the Debt. Borrowers shall cause any Award that is payable to Borrower to be paid directly to Lender. Subject to the Ground Lease, Lender shall hold such Award in the Casualty/Condemnation Subaccount and disburse such Award in accordance with the terms hereof. 7.4 Application of Proceeds or Award. 7.4.1 Application to Restoration. Subject to the provisions of the Ground Lease, if an Insured Casualty or Condemnation occurs where (i) the loss is in an aggregate amount less than the 15% of the Allocated Loan Amount for the affected Property, (ii) in the reasonable judgment of Lender, the affected Property can be restored within eighteen months, and prior to six months before the Stated Maturity Date and prior to the expiration of the rental or business interruption insurance with respect thereto, to the affected Property's pre-existing condition and utility as existed immediately prior to such Insured Casualty or Condemnation and to an economic unit not less valuable and not less useful than the same was immediately prior to the Insured Casualty or Condemnation, and after such restoration will adequately secure the Debt and (iii) no Default or Event of Default shall have occurred and be then continuing, then the Proceeds or the Award, as the case may be (after reimbursement of any expenses incurred by Lender), shall be applied to reimburse Borrowers for the cost of restoring, repairing, replacing or rebuilding the affected Property (the "Restoration"), in the manner set forth herein. Borrowers shall commence and diligently prosecute such Restoration. Notwithstanding the foregoing, in no event shall Lender be obligated to apply the Proceeds or Award to reimburse any Borrower for the cost of Restoration unless, in addition to satisfaction of the foregoing conditions, both (x) Borrowers shall pay (and if required by Lender, Borrowers shall deposit with Lender in advance) all costs of such Restoration in excess of the net amount of the Proceeds or the Award made available pursuant to the terms hereof; and (y) Lender shall have received evidence reasonably satisfactory to it that during the period of the Restoration, the Rents for such Property will be at least equal to the sum of the operating expenses and Debt Service for such Property, as reasonably determined by Lender. 7.4.2 Application to Debt. Except as provided in Section 7.4.1 or in the Ground Lease, any Proceeds and/or Award may, at the option of Lender in its discretion, be applied to the payment of (i) accrued but unpaid interest on the Note, (ii) the unpaid Principal 63 and (iii) other charges due under the Note and/or any of the other Loan Documents, or applied to reimburse Borrowers for the cost of any Restoration, in the manner set forth in Section 7.4.3. Any such prepayment of the Loan shall be without any Yield Maintenance Premium, unless an Event of Default has occurred and is continuing at the time the Proceeds are received from the insurance company or the Award is received from the condemning authority, as the case may be, in which event Borrowers shall pay to Lender an additional amount equal to the Yield Maintenance Premium, if any, that may be required with respect to the amount of the Proceeds or Award applied to the unpaid Principal. 7.4.3 Procedure for Application to Restoration. If any Borrower is entitled to reimbursement out of the Proceeds or an Award held by Lender, such Proceeds or Award shall be disbursed from time to time from the Casualty/Condemnation Subaccount upon Lender being furnished with (i) evidence satisfactory to Lender of the estimated cost of completion of the Restoration, (ii) a fixed price or guaranteed maximum cost construction contract for Restoration satisfactory to Lender, (iii) prior to the commencement of Restoration, all immediately available funds in addition to the Proceeds or Award that in Lender's judgment are required to complete the proposed Restoration, (iv) such architect's certificates, waivers of lien, contractor's sworn statements, title insurance endorsements, bonds, plats of survey, permits, approvals, licenses and such other documents and items as Lender may reasonably require and approve in Lender's discretion, and (v) all plans and specifications for such Restoration, such plans and specifications to be approved by Lender prior to commencement of any work. Lender may, at Borrowers' expense, retain a consultant to review and approve all requests for disbursements, which approval shall also be a condition precedent to any disbursement. No payment made prior to the final completion of the Restoration shall exceed 90% of the value of the work performed from time to time; funds other than the Proceeds or Award shall be disbursed prior to disbursement of such Proceeds or Award; and at all times, the undisbursed balance of such Proceeds or Award 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 Borrowers 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. Provided no Default or Event of Default then exists, any surplus that remains out of the Proceeds held by Lender after payment of such costs of Restoration shall be paid to Borrowers. Any surplus that remains out of the Award received by Lender after payment of such costs of Restoration shall, in the discretion of Lender, be retained by Lender and applied to payment of the Debt or returned to Borrowers. 7.4.4 Ground Lease. If Lender shall have the right or option hereunder to apply Proceeds or an Award to payment of the Debt, but, because of any controlling provision in the Ground Lease that requires application thereof to restoration of the Property, such Proceeds or Award must be applied to restoration, then any such application to restoration shall constitute an Event of Default hereunder. 8. DEFAULTS 8.1 Events of Default. An "Event of Default" shall exist with respect to the Loan if any of the following shall occur: 64 (a) any portion of the Debt is not paid when due or any other amount under Section 3.11(a)(i) through (viii) is not paid in full on each Payment Date (provided, however, if adequate funds are available in the Deposit Account for such payments, the failure by the Deposit Bank to allocate such funds into the appropriate Subaccounts shall not constitute an Event of Default); (b) any of the Taxes are not paid when due (unless Lender is paying such Taxes pursuant to Section 3.3), subject to Borrowers' right to contest Taxes in accordance with Section 5.2; (c) the Policies are not kept in full force and effect, or are not delivered to Lender upon request (unless Lender has failed to pay Insurance Premiums as provided in Section 3.3); (d) a Transfer other than a Permitted Transfer occurs; (e) any representation or warranty made by any Borrower or Guarantor or in any Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished by any Borrower or Guarantor in connection with any Loan Document, shall be false or misleading in any material respect as of the date the representation or warranty was made; (f) any Borrower or any Borrower Representative or Guarantor shall make an assignment for the benefit of creditors, or shall generally not be paying its debts as they become due; (g) a receiver, liquidator or trustee shall be appointed for any Borrower or any Borrower Representative or Guarantor; or any Borrower or any Borrower Representative or Guarantor shall be adjudicated a bankrupt or insolvent; or 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 Borrower or any Borrower Representative or Guarantor, as the case may be; or any proceeding for the dissolution or liquidation of any Borrower or any Borrower Representative or Guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by such Borrower or its respective Borrower Representative or Guarantor, as the case may be, only upon the same not being discharged, stayed or dismissed within 90 days; (h) any Borrower breaches any covenant contained in Sections 5.12.1 (a) - (f), 5.13, 5.15, 5.22, 5.25 or 5.28; (i) except as expressly permitted hereunder, the actual or threatened alteration, improvement, demolition or removal of all or any of portion of any of the Improvements without the prior written consent of Lender; (j) an Event of Default as defined or described elsewhere in this Agreement or in any other Loan Document occurs; or any other event shall occur or condition shall exist, if 65 the effect of such event or condition is to accelerate or to permit Lender to accelerate the maturity of any portion of the Debt; (k) a default occurs under any term, covenant or provision set forth herein or in any other Loan Document which specifically contains a notice requirement or grace period and such notice has been given and such grace period has expired; (l) a default has occurred and continues beyond any applicable cure period under any Franchise Agreement (or any successor franchise agreement) if such default permits the Franchisor to terminate or cancel such Franchise Agreement (or any successor franchise agreement), unless Borrower has replaced such Franchise Agreement with a Franchise Agreement with an Approved Franchisor in accordance with the provisions of Section 5.31; (m) a default has occurred and continues beyond any applicable cure period under any Operating Lease if such default permits any party thereto to terminate or cancel such Operating Lease; (n) failure of Borrower or Manager to cause Rents to be deposited into the Clearing Account in accordance with Section 3.1; (o) any of the assumptions contained in any substantive non-consolidation opinion, delivered to Lender by Borrowers' counsel in connection with the Loan or otherwise hereunder, were not true and correct as of the date of such opinion or thereafter became untrue or incorrect; (p) Borrower shall default in the observance or performance of any other term, covenant or condition of the Ground Lease and such default is not cured within 20 days prior to the expiration of any applicable grace period provided therein; or any event shall occur that would cause the Ground Lease to terminate without notice or action by the landlord thereunder or would entitle such landlord to terminate the Ground Lease and the term thereof by giving notice to Borrower; or the leasehold estate created by the Ground Lease shall be surrendered or the Ground Lease shall be terminated or cancelled for any reason or under any circumstance whatsoever; or any term of the Ground Lease shall be modified or supplemented without Lender's consent; (q) a default shall be continuing under any of the other terms, covenants or conditions of this Agreement or any other Loan Document not otherwise specified in this Section 8.1, for ten days after notice to Borrowers (and Guarantor, if applicable) from Lender, in the case of any default which can be cured by the payment of a sum of money, or for 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 Borrowers (or Guarantor, if applicable) 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 Borrowers (or Guarantor, if applicable) in the exercise of due diligence to cure such default, such additional period not to exceed 90 days. 66 8.2 Remedies. 8.2.1 Acceleration. Upon the occurrence of an Event of Default (other than an Event of Default described in paragraph (f) or (g) of Section 8.1) and at any time and from time to time thereafter, in addition to any other rights or remedies available to it pursuant to the 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 any or all Borrowers and in and to the Properties; including declaring the Debt to be immediately due and payable (including unpaid interest), Default Rate interest, Late Payment Charges, Yield Maintenance Premium and any other amounts owing by Borrowers), without notice or demand; and upon any Event of Default described in paragraph (f) or (g) of Section 8.1, the Debt (including unpaid interest, Default Rate interest, Late Payment Charges, Yield Maintenance Premium and any other amounts owing by Borrowers) shall immediately and automatically become due and payable, without notice or demand, and each Borrower hereby expressly waives any such notice or demand, anything contained in any Loan Document to the contrary notwithstanding. 8.2.2 Remedies Cumulative. Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrowers under the Loan Documents 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, or be automatically, 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. 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 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 in the Loan Documents. Without limiting the generality of the foregoing, each 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, the Mortgages have been foreclosed, the Properties have been sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. To the extent permitted by applicable law, nothing contained in any Loan Document shall be construed as requiring Lender to resort to any particular Property or any portion of any Property for the satisfaction of any of the Debt in preference or priority to any other portion, and Lender may seek satisfaction out of all or less than all of the Properties or any part of any Property, in its discretion. 8.2.3 Severance. Upon the occurrence of an Event of Default, 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 and priorities of payment and liens as Lender shall determine in its discretion for purposes of evidencing and enforcing its rights and remedies. Each 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. Each Borrower 67 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 such severance, each Borrower ratifying all that such attorney shall do by virtue thereof. Notwithstanding anything to the contrary in the immediately preceding sentence, Lender shall not execute any document as attorney-in-fact of Borrowers unless (x) Borrowers shall have failed or refused to execute the same within five (5) Business Days after Lender's request therefor, or (y) in Lender's good faith determination it would be materially prejudiced by the delay involved in making such a request. 8.2.4 Delay. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default, or the granting of any indulgence or compromise by Lender shall impair any such remedy, right or power hereunder or 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 shall not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon. Notwithstanding any other provision of this Agreement, Lender reserves the right to seek a deficiency judgment or preserve a deficiency claim in connection with the foreclosure of any Mortgage to the extent necessary to foreclose on all or less than all or less than all of any portion of any Property, the Rents, the Cash Management Accounts or any other collateral. 8.2.5 Lender's Right to Perform. Upon the occurrence of an Event of Default, if any Borrower fails to perform any covenant or obligation contained herein and such failure shall continue for a period of five Business Days after Borrowers' receipt of written notice thereof from Lender, without in any way limiting Lender's right to exercise any of its rights, powers or remedies as provided hereunder, or under any of the other Loan Documents, Lender may, but shall have no obligation to, perform, or cause performance of, such covenant or obligation, and all costs, expenses, liabilities, penalties and fines of Lender incurred or paid in connection therewith shall be payable by Borrowers to Lender upon demand and if not paid shall be added to the Debt (and to the extent permitted under applicable laws, secured by the Mortgage and other Loan Documents) and shall bear interest thereafter at the Default Rate. Notwithstanding the foregoing, Lender shall have no obligation to send notice to any Borrower of any such failure. 9. SPECIAL PROVISIONS 9.1 Sale of Note and Secondary Market Transaction. 9.1.1 General; Borrower Cooperation. Lender shall have the right at any time and from time to time (i) to sell or otherwise transfer the Loan or any portion thereof or the Loan Documents or any interest therein to one or more investors, (ii) to sell participation interests in the Loan to one or more investors or (iii) to securitize the Loan or any portion thereof in a single asset securitization or a pooled loan securitization of rated single or multi-class securities (the "Securities") secured by or evidencing ownership interests in the Note and the Mortgages (each such sale, assignment, participation and/or securitization is referred to herein as a "Secondary Market Transaction"). In connection with any Secondary Market Transaction, Borrowers shall, use all reasonable efforts and cooperate fully and in good faith with Lender and otherwise assist 68 Lender in satisfying the market standards to which Lender customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies in connection with any such Secondary Market Transactions, including: (a) to (i) provide such financial and other information with respect to the Properties, Borrowers and their Affiliates, Manager and any tenants of the Properties, (ii) provide business plans and budgets relating to the Properties and (iii) perform or permit or cause to be performed or permitted such site inspection, appraisals, surveys, market studies, environmental reviews and reports, engineering reports and other due diligence investigations of the Properties, as may be reasonably requested from time to time by Lender or the Rating Agencies or as may be necessary or appropriate in connection with a Secondary Market Transaction or Exchange Act requirements (the items provided to Lender pursuant to this paragraph (a) being called the "Provided Information"), together, if customary, with appropriate verification of and/or consents to the Provided Information through letters of auditors or opinions of counsel of independent attorneys acceptable to Lender and the Rating Agencies; (b) cause counsel to render opinions as to non-consolidation and any other opinion customary in securitization transactions with respect to the Properties, Borrowers and their Affiliates, which counsel and opinions shall be reasonably satisfactory to Lender and the Rating Agencies; (c) make such representations and warranties as of the closing date of any Secondary Market Transaction with respect to the Properties, Borrowers and the Loan Documents as are customarily provided in such transactions and as may be reasonably requested by Lender 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; (d) provide current certificates of good standing and qualification with respect to Borrowers and each Borrower Representative from appropriate Governmental Authorities; and (e) execute such amendments to the Loan Documents and Borrowers' organizational documents, as may be requested by Lender or the Rating Agencies or otherwise to effect a Secondary Market Transaction, provided that nothing contained in this subsection (e) shall result in a material economic change in the transaction. Borrowers shall not be required to incur any material cost or expense in connection with a Secondary Market Transaction. Borrowers' cooperation obligations set forth herein shall continue until the Loan has been paid in full. 9.1.2 Use of Information. Borrowers understand that all or any portion of the Provided Information and the Required Records may be included in disclosure documents in connection with a Secondary Market Transaction, 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 or other parties relating to the Secondary Market Transaction. If the Disclosure Document is required to be revised, Borrowers shall cooperate with Lender in updating the Provided Information or Required Records for inclusion or summary in the Disclosure Document or for other use reasonably required in connection with a Secondary Market Transaction by providing all current information pertaining to Borrowers, Manager and the Properties necessary to keep the Disclosure Document accurate and complete in all material respects with respect to such matters. 9.1.3 Borrower Obligations Regarding Disclosure Documents. In connection with a Disclosure Document, Borrowers shall: (a) if requested by Lender, certify in 69 writing that Borrowers have carefully examined those portions of such Disclosure Document, pertaining to Borrowers, the Properties, Manager and the Loan, and that such portions 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; and (b) indemnify (in a separate instrument of indemnity, if so requested by Lender) (i) any underwriter, syndicate member or placement agent (collectively, the "Underwriters") retained by Lender or its issuing company affiliate (the "Issuer") in connection with a Secondary Market Transaction, (ii) Lender and (iii) the Issuer that is named in the Disclosure Document or registration statement relating to a Secondary Market Transaction (the "Registration Statement"), and each of the Issuer's directors, each of its officers who have signed the Registration Statement and each person or entity who controls the Issuer or the Lender within the meaning of Section 15 of the Securities Act or Section 30 of the Exchange Act (collectively within (iii), the "GCM Group"), and each of its directors and each person who controls each of the Underwriters, 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 (the "Liabilities") to which Lender, the GCM Group or the Underwriter Group may become subject (including reimbursing all of them for any legal or other expenses actually incurred in connection with investigating or defending the Liabilities) insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any of the Provided Information or in any of the applicable portions of such sections of the Disclosure Document applicable to Borrowers, Manager, 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 in light of the circumstances under which they were made, not misleading; provided, however, that Borrowers shall not be required to indemnify Lender for any Liabilities relating to untrue statements or omissions which Borrowers identified to Lender in writing at the time of Borrowers' examination of such Disclosure Document. 9.1.4 Borrower Indemnity Regarding Filings. In connection with filings under the Exchange Act, Borrowers shall (i) indemnify Lender, the GCM Group and the Underwriter Group for any Liabilities to which Lender, the GCM Group or the Underwriter Group may become subject insofar as the Liabilities arise out of or are based upon the omission or alleged omission to state in the Provided Information a material fact required to be stated in the Provided Information in order to make the statements in the Provided Information, in light of the circumstances under which they were made not misleading and (ii) reimburse Lender, the GCM Group or the Underwriter Group for any legal or other expenses actually incurred by Lender, GCM Group or the Underwriter Group in connection with defending or investigating the Liabilities. 9.1.5 Indemnification Procedure. Promptly after receipt by an indemnified party under Section 9.1.3 or 9.1.4 of notice of the commencement of any action for which a claim for indemnification is to be made against Borrowers, such indemnified party shall notify Borrowers in writing of such commencement, but the omission to so notify Borrowers will not relieve Borrowers from any liability that they may have to any indemnified party hereunder except to the extent that failure to notify causes prejudice to Borrowers. If any action is brought against any indemnified party, and it notifies Borrowers of the commencement thereof, 70 Borrowers 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 of commencement, to assume the defense thereof with counsel satisfactory to such indemnified party in its discretion. After notice from Borrowers to such indemnified party under this Section 9.1.5, Borrowers shall not be responsible for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, if the defendants in any such action include both Borrowers and an indemnified party, and any indemnified party shall have reasonably concluded that there are any legal defenses available to it and/or other indemnified parties that are different from or additional to those available to Borrowers, then 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. Borrowers shall not be liable for the expenses of more than one separate counsel unless there are legal defenses available to it that are different from or additional to those available to another indemnified party. 9.1.6 Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 9.1.3 or 9.1.4 is for any reason held to be unenforceable by an indemnified party in respect of any Liabilities (or action in respect thereof) referred to therein which would otherwise be indemnifiable under Section 9.1.3 or 9.1.4, Borrowers shall contribute to the amount paid or payable by the indemnified party as a result of such Liabilities (or action in respect thereof); provided, however, that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person 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 GCM Group's and Borrowers' relative knowledge and access to information concerning the matter with respect to which the 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 Borrowers hereby agree that it may not be equitable if the amount of such contribution were determined by pro rata or per capita allocation. 9.1.7 Rating Surveillance. Lender will retain the Rating Agencies to provide rating surveillance services on Securities. The pro rata expenses of such surveillance will be paid for by Borrowers based on the applicable percentage of such expenses determined by dividing the then outstanding Principal by the then aggregate outstanding amount of the pool created in the Secondary Market Transaction which includes the Loan. 9.1.8 Severance of Loan. Lender shall have the right, at any time (whether prior to, in connection with, or after any Secondary Market Transaction), with respect to all or any portion of the Loan, to modify, split and/or sever all or any portion of the Loan as hereinafter provided. Without limiting the foregoing, Lender may (i) cause the Note and the Mortgages to be split into a first and second mortgage loan, (ii) create one more senior and subordinate notes (i.e., an A/B or A/B/C structure), (iii) create multiple components of the Note or Notes (and allocate or reallocate the principal balance of the Loan among such components) or (iv) otherwise sever the Loan into two or more loans secured by mortgages and by a pledge of partnership or membership interests (directly or indirectly) in Borrowers (i.e., a senior 71 loan/mezzanine loan structure), in each such case, in whatever proportion and whatever priority Lender determines; provided, however, in each such instance the outstanding principal balance of all the Notes evidencing the Loan (or components of such Notes) immediately after the effective date of such modification equals the outstanding principal balance of the Loan immediately prior to such modification and the weighted average of the interest rates for all such Notes (or components of such Notes) immediately after the effective date of such modification equals the interest rate of the original Note immediately prior to such modification. If requested by Lender, Borrowers (and Borrowers' constituent members, if applicable, and Guarantor) shall execute within two (2) Business Days after such request, such documentation as Lender may reasonably request to evidence and/or effectuate any such modification or severance. 10. MISCELLANEOUS 10.1 Exculpation. Subject to the qualifications below, Lender shall not enforce the liability and obligation of any Borrower to perform and observe the obligations contained in the Loan Documents by any action or proceeding wherein a money judgment shall be sought against such 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 and rights under the Loan Documents, or in all or any of 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 a Borrower only to the extent of such Borrower's interest in the Properties, in the Rents and in any other collateral given to Lender, and Lender shall not sue for, seek or demand any deficiency judgment against a Borrower in any such action or proceeding under or by reason of or under or in connection with any Loan Document. The provisions of this Section shall not, however, (i) constitute a waiver, release or impairment of any obligation evidenced or secured by any Loan Document; (ii) impair the right of Lender to name one or more Borrowers as a party defendant in any action or suit for foreclosure and sale under any Mortgage; (iii) affect the validity or enforceability of any of the Loan Documents or any guaranty made in connection with the Loan or any of the rights and remedies of Lender thereunder; (iv) impair the right of Lender to obtain the appointment of a receiver; (v) impair the enforcement of the Assignment of Leases; (vi) constitute a prohibition against Lender to commence any other appropriate action or proceeding in order for Lender to fully realize the security granted by any Mortgage or to exercise its remedies against all or any of the Properties; or (vii) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrowers, by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including attorneys' fees and costs reasonably incurred) arising out of or in connection with the following (all such liability and obligation of Borrower for any or all of the following being referred to herein as "Borrowers' Recourse Liabilities"): (a) fraud or intentional misrepresentation by any Borrower, any Borrower Representative or Guarantor in connection with obtaining the Loan; (b) physical waste of any Property or any portion thereof (to the extent committed by, on behalf of, or with the express or implied consent of any Borrower or Manager), or after an Event of Default, the removal or disposal of any portion of any Property; (c) any Proceeds paid by reason of any Insured Casualty or any Award received in connection with a Condemnation or other sums or payments attributable to any Property not applied in accordance with the provisions of the Loan Documents (except to the extent that a Borrower did not have the legal right, because of a 72 bankruptcy, receivership or similar judicial proceeding, to direct disbursement of such sums or payments); (d) all Rents of any Property received or collected by or on behalf of any Borrower after an Event of Default and not applied to payment of Principal and interest due under the Note, and to the payment of actual and reasonable operating expenses of such Property, as they become due or payable (except to the extent that such application of such funds is prevented by bankruptcy, receivership, or similar judicial proceeding in which such Borrower is legally prevented from directing the disbursement of such sums); (e) misappropriation (including failure to turn over to Lender on demand following an Event of Default) of tenant security deposits and rents collected in advance, or of funds held by any Borrower for the benefit of another party; (f) the failure to pay Taxes, provided Borrowers shall not be liable to the extent funds to pay such amounts are available in the Tax and Insurance Subaccount and Lender failed to pay same; or (g) the breach of any representation, warranty, covenant or indemnification in any Loan Document concerning Environmental Laws or Hazardous Substances, including Sections 4.21 and 5.8, and clauses (viii) through (xi) of Section 5.30. Notwithstanding anything to the contrary in this Agreement or any of the Loan Documents, (A) 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 or to require that all collateral shall continue to secure all of the Debt in accordance with the Loan Documents, and (B) Lender's agreement not to pursue personal liability of Borrowers as set forth above SHALL BECOME NULL AND VOID and shall be of no further force and effect, and the Debt shall be fully recourse to Borrowers in the event that one or more of the following occurs (each, a "Springing Recourse Event"): (i) an Event of Default described in Section 8.1(d) shall have occurred or (ii) a breach of the covenants set forth in Section 5.13, or (iii) the occurrence of any condition or event described in either Section 8.1(f) or Section 8.1(g) and, with respect to such condition or event described in Section 8.1(g), either any Borrower, any Borrower Representative, Guarantor or any Person owning an interest (directly or indirectly) in any Borrower, any Borrower Representative or Guarantor consents to, aids, solicits, supports, or otherwise cooperates or colludes to cause such condition or event or fails to contest such condition or event. 10.2 Brokers and Financial Advisors. Each Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the Loan other than Preston Partners, Inc., whose fee shall be paid by Borrowers. Borrowers shall indemnify and hold Lender harmless from and against any and all claims, liabilities, costs and expenses (including attorneys' fees, whether incurred in connection with enforcing this indemnity or defending claims of third parties) of any kind in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrowers in connection with the transactions contemplated herein. The provisions of this Section 10.2 shall survive the expiration and termination of this Agreement and the repayment of the Debt. 10.3 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, any pooling and servicing agreement or similar agreement entered into as a result of a Secondary Market Transaction, the Deposit Account Agreement or otherwise, together with such other powers as are reasonably incidental thereto. Borrowers shall pay any reasonable fees and expenses of the Servicer in connection with a 73 release of any Property, assumption or modification of the Loan, enforcement of the Loan Documents or any other action taken by Servicer hereunder on behalf of Lender. 10.4 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 any of the Debt is unpaid or such longer period if expressly set forth in this Agreement. All Borrowers' covenants and agreements in this Agreement shall inure to the benefit of the respective legal representatives, successors and assigns of Lender. 10.5 Lender's Discretion. Whenever pursuant to this Agreement or any other Loan Document, Lender exercises any right given to it to approve or disapprove, or consent or withhold consent, or any arrangement or term is to be satisfactory to Lender or is to be in Lender's discretion, the decision of Lender to approve or disapprove, to consent or withhold consent, or to decide whether arrangements or terms are satisfactory or not satisfactory, or acceptable or unacceptable or in Lender's discretion shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. 10.6 Governing Law. (a) THIS AGREEMENT WAS NEGOTIATED 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 CREATED PURSUANT TO THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE PROPERTY IS LOCATED, 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 THE DEBT. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH 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 ss. 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. (b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR ANY BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK COUNTY, NEW 74 YORK AND EACH BORROWER WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. EACH BORROWER DOES HEREBY DESIGNATE AND APPOINT CT CORPORATION SYSTEM AT 111 EIGHTH AVENUE, NEW YORK, NEW YORK 10011, 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 SUCH BORROWER MAILED OR DELIVERED TO SUCH BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON SUCH BORROWER (UNLESS LOCAL LAW REQUIRES ANOTHER METHOD OF SERVICE), IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. EACH 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. 10.7 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement or of any other Loan Document, nor consent to any departure by any 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 Borrower shall entitle any Borrower to any other or future notice or demand in the same, similar or other circumstances. 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 any other Loan Document, 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 any 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 the Loan Documents, or to declare an Event of Default for failure to effect prompt payment of any such other amount. 10.8 Trial by Jury. EACH BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN 75 KNOWINGLY AND VOLUNTARILY BY EACH BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EITHER PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER. 10.9 Headings/Exhibits. The Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. The Exhibits attached hereto, are hereby incorporated by reference as a part of the Agreement with the same force and effect as if set forth in the body hereof. 10.10 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. 10.11 Preferences. Upon the occurrence and continuance of an Event of Default, Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrowers to any portion of the Debt. To the extent Borrowers make a payment to Lender, or Lender receives proceeds of any collateral, which is in whole or part 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 Debt 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. This provision shall survive the expiration or termination of this Agreement and the repayment of the Debt. 10.12 Waiver of Notice. No Borrower shall be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or any other Loan Document specifically and expressly requires the giving of notice by Lender to such Borrower and except with respect to matters for which such Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Each Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which no Loan Document specifically and expressly requires the giving of notice by Lender to such Borrower. 10.13 Remedies of Borrower. If a claim or adjudication is made that Lender or any of its agents, including Servicer, has acted unreasonably or unreasonably delayed acting in any case where by law or under any Loan Document, Lender or any such agent, as the case may be, has an obligation to act reasonably or promptly, Borrowers agree that neither Lender nor its agents, including Servicer, shall be liable for any monetary damages, and Borrowers' sole remedy shall be to commence an action seeking injunctive relief or declaratory judgment. Any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. Each Borrower specifically waives any claim against Lender and its agents, including Servicer, with respect to actions taken by Lender or its agents on Borrowers' behalf. 76 10.14 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, understandings and negotiations among or between such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents. 10.15 Offsets, Counterclaims and Defenses. Each Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against one or more Borrowers by Lender or its agents, including Servicer, or otherwise offset any obligations to make payments required under the Loan Documents. Any assignee of Lender's interest in and to the Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which one or more Borrowers may otherwise have against any assignor of such documents, and no such offset, counterclaim or defense shall be interposed or asserted by one or more Borrowers in any action or proceeding brought by any such assignee upon such documents, and any such right to interpose or assert any such offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrowers. 10.16 Publicity. All news releases, publicity or advertising by any Borrower or its Affiliates through any media intended to reach the general public, which refers to the Loan Documents, the Loan, Lender or any member of the GCM Group, a Loan purchaser, the Servicer or the trustee in a Secondary Market Transaction, shall be subject to the prior written approval of Lender. Lender shall have the right to issue any of the foregoing without any Borrower's approval. 10.17 No Usury. Borrowers and Lender intend at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under state law) and that this Section 10.17 shall control every other agreement in the Loan Documents. If the applicable law (state or federal) is ever judicially interpreted so as to render usurious any amount called for under the Note or any other Loan Document, or contracted for, charged, taken, reserved or received with respect to the Debt, or if Lender's exercise of the option to accelerate the maturity of the Loan or any prepayment by Borrowers results in Borrowers having paid any interest in excess of that permitted by applicable law, then it is Borrowers' and Lender's express intent that all excess amounts theretofore collected by Lender shall be credited against the unpaid Principal and all other Debt (or, if the Debt has been or would thereby be paid in full, refunded to Borrowers), and the provisions of the Loan Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with applicable law, but so as to permit the recovery of the fullest amount otherwise called for thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the Loan shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. Notwithstanding anything to the contrary contained in any Loan Document, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration. 77 10.18 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 each is represented by separate counsel in connection with the negotiation and drafting of the Loan Documents and that the Loan Documents shall not be subject to the principle of construing their meaning against the party that drafted them. 10.19 No Third Party Beneficiaries. The Loan Documents are solely for the benefit of Lender and Borrowers and nothing contained in any Loan Document shall be deemed to confer upon anyone other than the Lender and Borrowers any right to insist upon or to enforce the performance or observance of any of the obligations contained therein. 10.20 Yield Maintenance Premium. Borrowers acknowledge that (a) Lender is making the Loan in consideration of the receipt by Lender of all interest and other benefits intended to be conferred by the Loan Documents and (b) if payments of Principal are made to Lender prior to the Stated Maturity Date, for any reason whatsoever, whether voluntary, as a result of Lender's acceleration of the Loan after an Event of Default, by operation of law or otherwise, Lender will not receive all such interest and other benefits and may, in addition, incur costs. For these reasons, and to induce Lender to make the Loan, Borrowers agree that, except as expressly provided in Section 7, all prepayments, if any, whether voluntary or involuntary, will be accompanied by the Yield Maintenance Premium. Such Yield Maintenance Premium shall be required whether payment is made by one or more Borrowers, by a Person on behalf of one or more Borrowers, or by the purchaser at any foreclosure sale, and may be included in any bid by Lender at such sale. Borrowers further acknowledge that (A) they are knowledgeable real estate developers and/or investors; (B) they fully understand the effect of the provisions of this Section 10.20, as well as the other provisions of the Loan Documents; (C) the making of the Loan by Lender at the Interest Rate and other terms set forth in the Loan Documents are sufficient consideration for Borrowers' obligation to pay a Yield Maintenance Premium (if required); and (D) Lender would not make the Loan on the terms set forth herein without the inclusion of such provisions. Borrowers also acknowledge that the provisions of this Agreement limiting the right of prepayment and providing for the payment of the Yield Maintenance Premium and other charges specified herein were independently negotiated and bargained for, and constitute a specific material part of the consideration given by Borrowers to Lender for the making of the Loan except as expressly permitted hereunder. 10.21 Assignment. The Loan, the Note, the Loan Documents and/or Lender's rights, title, obligations and interests therein may be assigned by Lender and any of its successors and assigns to any Person at any time in its discretion, in whole or in part, whether by operation of law (pursuant to a merger or other successor in interest) or otherwise. Upon such assignment, all references to Lender in this Loan Agreement and in any Loan Document shall be deemed to refer to such assignee or successor in interest and such assignee or successor in interest shall thereafter stand in the place of Lender. No Borrower may assign its rights, title, interests or obligations under this Loan Agreement or under any of the Loan Documents. 10.22 Cross Default; Cross Collateralization. Each Borrower acknowledges that Lender has made the Loan to Borrowers upon the security of its collective interest in the Properties and in reliance upon the aggregate of the Properties taken together being of greater 78 value as collateral security than the sum of the Properties taken separately. Each 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. 10.23 Joint and Several. Each of the Borrowers shall be jointly and severally liable for payment of the Debt and performance of all other obligations of Borrowers (or any of them) under this Agreement or any other Loan Document. 10.24 Set-Off. In addition to any rights and remedies of Lender provided by this Loan Agreement and by law, Lender shall have the right, without prior notice to any Borrower, any such notice being expressly waived by each Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by any Borrower hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Lender or any Affiliate thereof to or for the credit or the account of Borrowers. Lender agrees promptly to notify Borrowers after any such set-off and application made by Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application. 10.25 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. [No Further Text on This Page] 79 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. SOLOMONS BEACON INN LIMITED PARTNERSHIP, a Maryland limited partnership By: Solomons GP, LLC, its general partner By: /s/ George R. Whittemore ------------------------------------- Name: George R. Whittemore Title: President TRS SUBSIDIARY, LLC, a Delaware limited liability company By: TRS Leasing, Inc., its sole member By: /s/ George R. Whittemore ------------------------------------- Name: George R. Whittemore Title: President GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation By: /s/ Brett R. Kaplan -------------------------------- Name: Brett R. Kaplan Title: Senior Vice President 80 EX-10.2 4 dex102.txt EXHIBIT 10.2 PROMISSORY NOTE $40,000,000 November 26, 2002 FOR VALUE RECEIVED, SOLOMONS BEACON INN LIMITED PARTNERSHIP, a Maryland limited partnership, and TRS SUBSIDIARY, LLC, a Delaware limited liability company, each having an address at 7170 Riverwood Drive, Columbia, Maryland 21046 (collectively, "Maker"), hereby promises to pay to the order of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation, at its principal place of business at 600 Steamboat Road, Greenwich, Connecticut 06830 (together with its successors and assigns "Payee") or at such place as the holder hereof may from time to time designate in writing, the principal sum of Forty Million and NO/00 Dollars ($40,000,000) (the "Principal"), in lawful money of the United States of America, with interest on the unpaid principal balance from time to time outstanding at the Interest Rate, in installments as follows: A. A payment of $50,000 on the date hereof, representing interest from the date of funding through November 30, 2002; B. On January 1, 2003 (which shall be the first Payment Date hereunder) and each Payment Date thereafter through and including November 1, 2012, the Principal and interest thereon at the Interest Rate shall be payable in equal monthly installments of $322,237.28 (the "Monthly Debt Service Payment Amount"); which is based on the Interest Rate and a 20-year amortization schedule; each of such payments, subject to the provisions of Section 3.11 of the Loan Agreement (hereinafter defined), to be applied (a) to the payment of interest computed at the rate aforesaid; and (b) the balance applied toward the reduction of the principal sum; and C. The balance of the principal sum of this Note together with all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. 1. Definitions. Capitalized terms used but not otherwise defined herein shall have the meanings given in that certain Loan Agreement (the "Loan Agreement") dated the date hereof between Maker and Payee. The following terms have the meanings set forth below: Business Day: any day other than a Saturday, Sunday or any day on which commercial banks in New York, New York are authorized or required to close. Default Rate: a rate per annum equal to the lesser of (i) the maximum rate permitted by applicable law, or (ii) 5% above the Interest Rate, compounded monthly. Interest Period: (i) the period from the date hereof through the first day thereafter that is the last day of a calendar month and (ii) each period thereafter from the 1st day of each calendar month through the last day of each such calendar month; except that the Interest Period, if any, that would otherwise commence before and end after the Maturity Date shall end on the Maturity Date. Interest Rate: a rate of interest equal to 7.50% per annum (or, when applicable pursuant to this Note or any other Loan Document, the Default Rate). Maturity Date: the date on which the final payment of principal of this Note (or the Defeased Note, if applicable) becomes due and payable as therein provided, whether at the Stated Maturity Date, by declaration of acceleration, or otherwise. Payment Date: the 1st day of each calendar month or, upon Payee's exercise of its right to change the Payment Date in accordance with Section 2.2.4 of the Loan Agreement, the New Payment Date (in either case, if such day is not a Business Day, the Payment Date shall be the first Business Day thereafter). The first Payment Date hereunder shall be January 1, 2003. Stated Maturity Date: December 1, 2012, as such date may be changed in accordance with Section 2.2.4 of the Loan Agreement. Yield Maintenance Premium: an amount which, when added to the outstanding Principal, would be sufficient to purchase U.S. Obligations which provide payments (a) on or prior to, but as close as possible to, all successive scheduled payment dates under this Note through the Stated Maturity Date and (b) in amounts equal to the Monthly Debt Service Payment Amount required under this Note through the Stated Maturity Date together with the outstanding principal balance of this Note as of the Stated Maturity Date assuming all such Monthly Debt Service Payments are made (including any servicing costs associated therewith). In no event shall the Yield Maintenance Premium be less than zero. 2. Payments and Computations. Interest on the unpaid Principal shall be computed on the basis of the actual number of days elapsed over a 360-day year. All amounts due under this Note shall be payable without setoff, counterclaim or any other deduction whatsoever and are payable without relief from valuation and appraisement laws and with all costs and charges incurred in the collection or enforcement hereof, including, attorneys' fees and court costs. 3. Loan Documents. This Note is evidence of that certain loan made by Payee to Maker contemporaneously herewith and is executed pursuant to the terms and conditions of the Loan Agreement. This Note is secured by and entitled to the benefits of, among other things, the Mortgages and the other Loan Documents. Reference is made to the Loan Documents for a description of the nature and extent of the security afforded thereby, the rights of the holder hereof in respect of such security, the terms and conditions upon which this Note is secured and the rights and duties of the holder of this Note. No reference herein to and no provision of any other Loan Document shall alter or impair the obligation of Maker, which is absolute and unconditional (except for Section 10.1 of the Loan Agreement), to pay the principal of and interest on this Note at the time and place and at the rates and in the monies and funds described 2 herein. All of the agreements, conditions, covenants, provisions and stipulations contained in the Loan Documents to be kept and performed by Maker are by this reference hereby made part of this Note to the same extent and with the same force and effect as if they were fully set forth in this Note, and Maker covenants and agrees to keep and perform the same, or cause the same to be kept and performed, in accordance with their terms. 4. Loan Acceleration; Prepayment. The Debt, shall without notice become immediately due and payable at the option of Payee if any payment required in this Note is not paid on the date on which it is due or upon the happening of any other Event of Default. Maker shall have no right to prepay or defease all or any portion of the Principal except in accordance with Sections 2.3.2, 2.3.3, 2.3.4, 2.4 and 2.5 of the Loan Agreement. If prior to the third Payment Date Prior to the Stated Maturity Date (i) Maker shall (notwithstanding such prohibition of prepayment) tender, and Payee shall, in its sole discretion, elect to accept, payment of the Debt, or (ii) the Debt is accelerated by reason of an Event of Default, then the Debt shall include, and Payee shall be entitled to receive, in addition to the outstanding principal and accrued interest and other sums due under the Loan Documents, an amount equal to the Yield Maintenance Premium, if any, that would be required in connection with a Defeasance if a Defeasance were to occur at the time of Payee's acceptance of such tender or other receipt of the Debt (through foreclosure or otherwise), as the case may be. The principal balance of this Note is subject to mandatory prepayment, without premium or penalty, in certain instances of Insured Casualty or Condemnation, as more particularly set forth in Sections 2.3.2 and 7.4.2 of the Loan Agreement. Except during the continuance of an Event of Default, all proceeds of any repayment, including permitted prepayments, of Principal shall be applied in accordance with Section 2.3.1 of the Loan Agreement. During the continuance of an Event of Default, all proceeds of repayment, including any payment or recovery on the Property (whether through foreclosure, deed-in-lieu of foreclosure, or otherwise) shall, unless otherwise provided in the Loan Documents, be applied in such order and in such manner as Payee shall elect in Payee's discretion. 5. Default Rate. After the occurrence and during the continuance of an Event of Default, the entire unpaid Debt shall bear interest at the Default Rate, and shall be payable upon demand from time to time, to the extent permitted by applicable law. 6. Late Payment Charge. If any Monthly Debt Service Payment Amount is not paid by Maker on the date on which it is due, Maker shall pay to Payee upon demand an amount equal to the lesser of 2% of such unpaid sum or the maximum amount permitted by applicable law, in order to defray the expense incurred by Payee in handling and processing such delinquent payment and to compensate Payee for the loss of the use of such delinquent payment. 7. Amendments. This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Maker or Payee, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. Whenever used, the singular number shall include the plural, the plural the singular, and the words "Payee" and "Maker" shall include their respective successors, assigns, heirs, executors and administrators. If Maker consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. 3 8. Waiver. Maker and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest, notice of protest, notice of nonpayment, notice of intent to accelerate the maturity hereof and of acceleration. No release of any security for the Debt or any person liable for payment of the Debt, no extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of the Loan Documents made by agreement between Payee and any other person or party shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Maker, and any other person or party who may become liable under the Loan Documents, for the payment of all or any part of the Debt. 9. Exculpation. It is expressly agreed that recourse against Maker for failure to perform and observe its obligations contained in this Note shall be limited as and to the extent provided in Section 10.1 of the Loan Agreement. 10. Notices. All notices or other communications required or permitted to be given pursuant hereto shall be given in the manner specified in the Loan Agreement directed to the parties at their respective addresses as provided therein. 11. Joint and Several. Each Person constituting Maker hereunder shall have joint and several liability for the obligations of Maker hereunder. 12. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. [Signature Page Follows] 4 IN WITNESS WHEREOF, Maker has executed this Promissory Note as of the day and year first written. SOLOMONS BEACON INN LIMITED PARTNERSHIP, a Maryland limited partnership By: Solomons GP, LLC, its general partner By: /s/ Michael M. Schurer ------------------------- Name: Michael M. Schurer Title: Secretary TRS SUBSIDIARY, LLC, a Delaware limited liability company By: TRS Leasing, Inc., its sole member By: /s/ Michael M. Schurer ------------------------- Name: Michael M. Schurer Title: Secretary 5 EX-10.3 5 dex103.txt EXHIBIT 10.3 ================================================================================ GUARANTY OF RECOURSE OBLIGATIONS made by HUMPHREY HOSPITALITY TRUST, INC., as guarantor, in favor of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. Dated as of November 26, 2002 GUARANTY OF RECOURSE OBLIGATIONS This GUARANTY (this "Guaranty"), dated as of November 26, 2002, made by HUMPHREY HOSPITALITY TRUST, INC., a Virginia corporation, having an address at c/o Humphrey Hospitality Limited Partnership, 7170 Riverwood Drive, Columbia, Maryland 21046 ("Guarantor"), in favor of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation (together with its successors and assigns, hereinafter referred to as "Lender"), having an address at 600 Steamboat Road, Greenwich, Connecticut 06830. R E C I T A L S: A. Pursuant to that certain Loan Agreement dated as of the date hereof (as the same may be amended, modified, supplemented or replaced from time to time, the "Loan Agreement") between Solomons Beacon Inn Limited Partnership and TRS Subsidiary, LLC (collectively, "Borrowers") and Lender, Lender has agreed to make a loan (the "Loan") to Borrowers in an aggregate principal amount not to exceed $40,000,000, subject to the terms and conditions of the Loan Agreement; B. As a condition to Lender's making the Loan, Lender is requiring that Guarantor execute and deliver to Lender this Guaranty; and C. Guarantor hereby acknowledges that Guarantor will materially benefit from Lender's agreeing to make the Loan; NOW, THEREFORE, in consideration of the premises set forth herein and as an inducement for and in consideration of the agreement of Lender to make the Loan pursuant to the Loan Agreement, Guarantor hereby agrees, covenants, represents and warrants to Lender as follows: 1. Definitions. (a) All capitalized terms used and not defined herein shall have the respective meanings given such terms in the Loan Agreement. (b) The term "Guaranteed Obligations" means (i) Borrowers' Recourse Liabilities and (ii) from and after the date that any Springing Recourse Event occurs, payment of all the Debt. 2. Guaranty. (a) Guarantor hereby irrevocably, absolutely and unconditionally guarantees to Lender the full, prompt and complete payment when due of the Guaranteed Obligations. 2 (b) All sums payable to Lender under this Guaranty shall be payable on demand and without reduction for any offset, claim, counterclaim or defense. (c) Guarantor hereby agrees to indemnify, defend and save harmless Lender from and against any and all costs, losses, liabilities, claims, causes of action, expenses and damages, including reasonable attorneys' fees and disbursements, which Lender may suffer or which otherwise may arise by reason of Borrowers' failure to pay any of the Guaranteed Obligations when due, irrespective of whether such costs, losses, liabilities, claims, causes of action, expenses or damages are incurred by Lender prior or subsequent to (i) Lender's declaring the Principal, interest and other sums evidenced or secured by the Loan Documents to be due and payable, (ii) the commencement or completion of a judicial or non-judicial foreclosure of any Mortgage or (iii) the conveyance of all or any portion of any Property by deed-in-lieu of foreclosure. (d) Guarantor agrees that no portion of any sums applied (other than sums received from Guarantor in full or partial satisfaction of its obligations hereunder), from time to time, in reduction of the Debt shall be deemed to have been applied in reduction of the Guaranteed Obligations until such time as the Debt has been paid in full, or Guarantor shall have made the full payment required hereunder, it being the intention hereof that the Guaranteed Obligations shall be the last portion of the Debt to be deemed satisfied. 3. Representations and Warranties. Guarantor hereby represents and warrants to Lender as follows (which representations and warranties shall be given as of the date hereof and shall survive the execution and delivery of this Guaranty): (a) Organization, Authority and Execution. Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Virginia, and has all necessary power and authority to own its properties and to conduct its business as presently conducted or proposed to be conducted and to enter into and perform this Guaranty and all other agreements and instruments to be executed by it in connection herewith. This Guaranty has been duly executed and delivered by Guarantor. (b) Enforceability. This Guaranty constitutes a legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally. (c) No Violation. The execution, delivery and performance by Guarantor of its obligations under this Guaranty has been duly authorized by all necessary action, and do not and will not violate any law, regulation, order, writ, injunction or decree of any court or governmental body, agency or other instrumentality applicable to Guarantor, or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the assets of Guarantor pursuant to the terms of Guarantor's articles of organization, or any mortgage, indenture, agreement or instrument to which Guarantor is a party or by which it or any of its properties is bound. Guarantor is not in default under any other guaranty which it has provided to Lender. 3 (d) No Litigation. There are no actions, suits or proceedings at law or at equity, pending or, to Guarantor's best knowledge, threatened against or affecting Guarantor or which involve or might involve the validity or enforceability of this Guaranty or which might materially adversely affect the financial condition of Guarantor or the ability of Guarantor to perform any of its obligations under this Guaranty. Guarantor is not in default beyond any applicable grace or cure period with respect to any order, writ, injunction, decree or demand of any Governmental Authority which might materially adversely affect the financial condition of Guarantor or the ability of Guarantor to perform any of its obligations under this Guaranty. (e) Consents. All consents, approvals, orders or authorizations of, or registrations, declarations or filings with, all Governmental Authorities (collectively, the "Consents") that are required in connection with the valid execution, delivery and performance by Guarantor of this Guaranty have been obtained and Guarantor agrees that all Consents required in connection with the carrying out or performance of any of Guarantor's obligations under this Guaranty will be obtained when required. (f) Financial Statements and Other Information. All financial statements of Guarantor heretofore delivered to Lender are true and correct in all material respects and fairly present the financial condition of Guarantor as of the respective dates thereof, and no materially adverse change has occurred in the financial conditions reflected therein since the respective dates thereof. None of the aforesaid financial statements or any certificate or statement furnished to Lender by or on behalf of Guarantor in connection with the transactions contemplated hereby, and none of the representations and warranties in this Guaranty contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein not misleading. Guarantor is not insolvent within the meaning of the United States Bankruptcy Code or any other applicable law, code or regulation and the execution, delivery and performance of this Guaranty will not render Guarantor insolvent. (g) Consideration. Guarantor is the owner, directly or indirectly, of a majority of the legal and beneficial equity interests in Borrowers. 4. Financial Statements. Guarantor shall deliver to Lender, (a) within 90 days after the end of each fiscal year of Guarantor, a complete copy of Guarantor's annual financial statements audited by a "big four" accounting firm or another independent certified public accountant reasonably acceptable to Lender, (b) within 30 days after the end of each fiscal quarter of Guarantor, financial statements (including a balance sheet as of the end of such fiscal quarter and a statement of income and expense for such fiscal quarter) certified by the chief financial officer of Guarantor and in form, content, level of detail and scope reasonably satisfactory to Lender, and (c) 20 days after request by Lender, such other financial information with respect to Guarantor as Lender may reasonably request. 5. Unconditional Character of Obligations of Guarantor. (a) The obligations of Guarantor hereunder shall be irrevocable, absolute and unconditional, irrespective of the validity, regularity or enforceability, in whole or in part, of the other Loan Documents or any provision thereof, or the absence of any action to 4 enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against Borrowers, Guarantor or any other Person or any action to enforce the same, any failure or delay in the enforcement of the obligations of Borrowers under the other Loan Documents or Guarantor under this Guaranty, or any setoff, counterclaim, and irrespective of any other circumstances which might otherwise limit recourse against Guarantor by Lender or constitute a legal or equitable discharge or defense of a guarantor or surety. Lender may enforce the obligations of Guarantor under this Guaranty by a proceeding at law, in equity or otherwise, independent of any loan foreclosure or similar proceeding or any deficiency action against Borrowers or any other Person at any time, either before or after an action against any Property or any part thereof, Borrowers or any other Person. This Guaranty is a guaranty of payment and performance and not merely a guaranty of collection. Guarantor waives diligence, notice of acceptance of this Guaranty, filing of claims with any court, any proceeding to enforce any provision of any other Loan Document, against Guarantor, Borrowers or any other Person, any right to require a proceeding first against Borrowers or any other Person, or to exhaust any security (including, without limitation, any Property) for the performance of the Guaranteed Obligations or any other obligations of Borrowers or any other Person, or any protest, presentment, notice of default or other notice or demand whatsoever (except to the extent expressly provided to the contrary in this Guaranty). (b) The obligations of Guarantor under this Guaranty, and the rights of Lender to enforce the same by proceedings, whether by action at law, suit in equity or otherwise, shall not be in any way affected by any of the following: (i) any insolvency, bankruptcy, liquidation, reorganization, readjustment, composition, dissolution, receivership, conservatorship, winding up or other similar proceeding involving or affecting Borrowers, any Property or any part thereof, Guarantor or any other Person; (ii) any failure by Lender or any other Person, whether or not without fault on its part, to perform or comply with any of the terms of the Loan Agreement, or any other Loan Documents, or any document or instrument relating thereto; (iii) the sale, transfer or conveyance of any Property or any interest therein to any Person, whether now or hereafter having or acquiring an interest in any Property or any interest therein and whether or not pursuant to any foreclosure, trustee sale or similar proceeding against Borrowers or any Property or any interest therein; (iv) the conveyance to Lender, any Affiliate of Lender or Lender's nominee of the Any Property or any interest therein by a deed-in-lieu of foreclosure; (v) the release of Borrowers or any other Person from the performance or observance of any of the agreements, covenants, terms or conditions contained in any of the Loan Documents by operation of law or otherwise; or 5 (vi) the release in whole or in part of any collateral for any or all Guaranteed Obligations or for the Loan or any portion thereof. (c) Except as otherwise specifically provided in this Guaranty, Guarantor hereby expressly and irrevocably waives all defenses in an action brought by Lender to enforce this Guaranty based on claims of waiver, release, surrender, alteration or compromise and all setoffs, reductions, or impairments, whether arising hereunder or otherwise. (d) Lender may deal with Borrowers and Affiliates of Borrowers in the same manner and as freely as if this Guaranty did not exist and shall be entitled, among other things, to grant Borrowers or any other Person such extension or extensions of time to perform any act or acts as may be deemed advisable by Lender, at any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of Guarantor hereunder. (e) No compromise, alteration, amendment, modification, extension, renewal, release or other change of, or waiver, consent, delay, omission, failure to act or other action with respect to, any liability or obligation under or with respect to, or of any of the terms, covenants or conditions of, the Loan Documents shall in any way alter, impair or affect any of the obligations of Guarantor hereunder, and Guarantor agrees that if any Loan Document are modified with Lender's consent, the Guaranteed Obligations shall automatically be deemed modified to include such modifications. (f) Lender may proceed to protect and enforce any or all of its rights under this Guaranty by suit in equity or action at law, whether for the specific performance of any covenants or agreements contained in this Guaranty or otherwise, or to take any action authorized or permitted under applicable law, and shall be entitled to require and enforce the performance of all acts and things required to be performed hereunder by Guarantor. Each and every remedy of Lender shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. (g) No waiver shall be deemed to have been made by Lender of any rights hereunder unless the same shall be in writing and signed by Lender, and any such waiver shall be a waiver only with respect to the specific matter involved and shall in no way impair the rights of Lender or the obligations of Guarantor to Lender in any other respect or at any other time. (h) At the option of Lender, Guarantor may be joined in any action or proceeding commenced by Lender against Borrowers in connection with or based upon any other Loan Documents and recovery may be had against Guarantor in such action or proceeding or in any independent action or proceeding against Guarantor to the extent of Guarantor's liability hereunder, without any requirement that Lender first assert, prosecute or exhaust any remedy or claim against Borrowers or any other Person, or any security for the obligations of Borrowers or any other Person. (i) Guarantor agrees that this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment is made by Borrowers or 6 Guarantor to Lender and such payment is rescinded or must otherwise be returned by Lender (as determined by Lender in its sole and absolute discretion) upon insolvency, bankruptcy, liquidation, reorganization, readjustment, composition, dissolution, receivership, conservatorship, winding up or other similar proceeding involving or affecting Borrowers or Guarantor, all as though such payment had not been made. (j) In the event that Guarantor shall advance or become obligated to pay any sums under this Guaranty or in connection with the Guaranteed Obligations or in the event that for any reason whatsoever Borrowers or any subsequent owner of any Property or any part thereof is now, or shall hereafter become, indebted to Guarantor, Guarantor agrees that (i) the amount of such sums and of such indebtedness and all interest thereon shall at all times be subordinate as to lien, the time of payment and in all other respects to all sums, including principal and interest and other amounts, at any time owed to Lender under the Loan Documents, and (ii) Guarantor shall not be entitled to enforce or receive payment thereof until all principal, Interest and other sums due pursuant to the Loan Documents have been paid in full. Nothing herein contained is intended or shall be construed to give Guarantor any right of subrogation in or under the Loan Documents or any right to participate in any way therein, or in the right, title or interest of Lender in or to any collateral for the Loan, notwithstanding any payments made by Guarantor under this Guaranty, until the actual and irrevocable receipt by Lender of payment in full of all principal, Interest and other sums due with respect to the Loan or otherwise payable under the Loan Documents. If any amount shall be paid to Guarantor on account of such subrogation rights at any time when any such sums due and owing to Lender shall not have been fully paid, such amount shall be paid by Guarantor to Lender for credit and application against such sums due and owing to Lender. (k) Guarantor's obligations hereunder shall survive a foreclosure, deed-in-lieu of foreclosure or similar proceeding involving any Property and the exercise by Lender of any of all of its remedies pursuant to the Loan Documents. 6. Covenants. (a) Until all of the Guaranteed Obligations have been paid in full, Guarantor shall (i) pay any installment of interest on any debentures now or hereafter issued by Guarantor (any such debentures, each or collectively, the "Debentures") pursuant to any indenture (any such indenture, an "Indenture") as and when the same becomes due and payable (subject to any stated grace period applicable thereto); (ii) pay all or any part of the principal of, or premium, if any, on the Debentures as and when the same becomes due and payable at maturity, redemption, by acceleration or otherwise; (iii) perform any required conversion of the Debentures (subject to any stated grace period applicable thereto); (iv) observe or perform any other covenant or agreement contained in the Debentures or an Indenture (subject to any stated grace period applicable thereto); (v) not suffer any other "Event of Default" under the applicable Indenture or otherwise pertaining to any of the Debentures to exist or occur; and (vi) cause any Indenture to provide that Guarantor may not, directly or indirectly, consolidate with or merge with or into another person or sell, lease, convey or transfer all or substantially all of its assets (computed on a consolidated basis), whether in a single transaction or a series of related transactions, to another person or group of affiliated persons, unless (A) either (1) in the case of a merger or consolidation Guarantor is the surviving entity or (2) the resulting, surviving or 7 transferee entity is a corporation organized under the laws of the United States, any state thereof or the District of Columbia and expressly assumes by written agreement all of the obligations of Guarantor in connection with the Debentures and the Indenture; and (B) no "Event of Default" under the applicable Indenture or otherwise pertaining to any of the Debentures shall exist or shall occur immediately after giving effect to such transaction. (b) Until all of the Guaranteed Obligations have been paid in full, (i) Guarantor shall not (A) sell, pledge, mortgage or otherwise transfer any of its assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction or (B) suffer a default in the payment of principal, premium or interest when due that extends beyond any stated grace period applicable thereto or an acceleration for any other reason of the maturity of any indebtedness of Guarantor or any of its subsidiaries with an aggregate principal amount in excess of $10 million and (ii) .there shall be no final judgments not covered by insurance aggregating in excess of $2 million, at any one time rendered against Guarantor or any of its significant subsidiaries which not satisfied, stayed, bonded or discharged within 60 days. (c) Guarantor shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing, sell, pledge, mortgage or otherwise transfer to any Person any of Guarantor's assets, or any interest therein. (d) Guarantor understands and agrees that, without limiting any provision of any other Loan Documents, the breach of any covenant contained in this Section 6 shall constitute an Event of Default. 7. Entire Agreement/Amendments. This instrument represents the entire agreement between the parties with respect to the subject matter hereof. The terms of this Guaranty shall not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by written instrument signed by Lender and Guarantor. 8. Successors and Assigns. This Guaranty shall be binding upon Guarantor, and Guarantor's estate, heirs, personal representatives, successors and assigns, may not be assigned or delegated by Guarantor and shall inure to the benefit of Lender and its successors and assigns. 9. Applicable Law and Consent to Jurisdiction. This Guaranty shall be governed by, and construed in accordance with, the substantive laws of the State of New York. Guarantor irrevocably (a) agrees that any suit, action or other legal proceeding arising out of or relating to this Guaranty may be brought in a court of record in the City and County of New York or in the Courts of the United States of America located in the Southern District of New York, (b) consents to the jurisdiction of each such court in any such suit, action or proceeding and (c) waives any objection which it may have to the laying of venue of any such suit, action or proceeding in any of such courts and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. Guarantor irrevocably consents to the service of any and all process in any such suit, action or proceeding by service of copies of such process to Guarantor at its address provided in Section 14 hereof. Nothing in this Section 9, however, shall affect the right of Lender to serve legal process in any other manner permitted by law or affect the right of 8 Lender to bring any suit, action or proceeding against Guarantor or its property in the courts of any other jurisdictions. 10. Section Headings. The headings of the sections and paragraphs of this Guaranty have been inserted for convenience of reference only and shall in no way define, modify, limit or amplify any of the terms or provisions hereof. 11. Severability. Any provision of this Guaranty which may be determined by any competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, Guarantor hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. 12. WAIVER OF TRIAL BY JURY. GUARANTOR HEREBY WAIVES THE RIGHT OF TRIAL BY JURY IN ANY LITIGATION, ACTION OR PROCEEDING ARISING HEREUNDER OR IN CONNECTION THEREWITH. 13. Other Guaranties. The obligations of Guarantor hereunder are separate and distinct from, and in addition to, the obligations of Guarantor now or hereafter arising under any other Guaranties, pursuant to which Guarantor has guaranteed payment and performance of certain other obligations of Borrowers described therein. 14. Notices. All notices, consents, approvals and requests required or permitted hereunder (a "Notice") shall be given in writing and shall be effective for all purposes if either hand delivered with receipt acknowledged, or by a nationally recognized overnight delivery service (such as Federal Express), or by certified or registered United States mail, return receipt requested, postage prepaid, or by facsimile and confirmed by facsimile answer back, in each case addressed as follows (or to such other address or Person as a party shall designate from time to time by notice to the other party): If to Lender: Greenwich Capital Financial Products, Inc., 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Mortgage Loan Department, Telecopier (203) 618-2052 and to Greenwich Capital Financial Products, Inc., 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Legal Department, Telecopier (203) 629-5718, with a copy to: Kaye Scholer LLP, 425 Park Avenue, New York, New York 10022, Attention: Stephen Gliatta, Esq., Telecopier: (212) 836-8689; if to Guarantor: c/o Humphrey Hospitality Limited Partnership, 7170 Riverwood Drive, Columbia, Maryland 21046, Attention: Chief Financial Officer, Telecopier: (443) 259-4999; with a copy to: Gallagher, Evelius & Jones, 218 N. Charles Street, Suite 400, Baltimore, Maryland 21201 Attention: Kevin J. Davidson, Esq., Telecopier: (410) 468-2786. 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 overnight delivery, upon the first attempted delivery on a Business Day. 15. Guarantor's Receipt of Loan Documents. Guarantor by its execution hereof acknowledges receipt of true copies of all of the Loan Documents, the terms and conditions of which are hereby incorporated herein by reference. 9 16. Interest; Expenses. (a) If Guarantor fails to pay in full all or any sums due hereunder within thirty (30) days of demand by Lender, the amount of such sums payable by Guarantor to Lender shall bear interest from the date of demand until paid at the Default Rate in effect from time to time. (b) Guarantor hereby agrees to pay all reasonable costs, charges and expenses, including reasonable attorneys' fees and disbursements, that may be incurred by Lender in enforcing the covenants, agreements, obligations and liabilities of Guarantor under this Guaranty. [Signature Page Follows] 10 IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first above written. HUMPHREY HOSPITALITY TRUST, INC., a Virginia corporation By: /s/ George R. Whittemore ----------------------------------------------------- Name: George R. Whittemore Title: President 11 EX-10.4 6 dex104.txt EXHIBIT 10.4 PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement"), is made as of November 26, 2002, by HUMPHREY HOSPITALITY TRUST, INC., a Virginia corporation ("HH Trust"), HUMPHREY HOSPITALITY LIMITED PARTNERSHIP, a Virginia limited partnership ("HHLP"), TRS LEASING, INC., a Virginia corporation ("TRS Leasing"), and SOLOMONS GP, LLC, a Delaware limited liability company ("Solomons GP", and together with HH Trust, HHLP and TRS Leasing, each a "Pledgor" or, collectively, "Pledgors"), each having an address at c/o Humphrey Hospitality Limited Partnership, 7170 Riverwood Drive, Columbia, Maryland 21043, for the benefit of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation, having an address at 600 Steamboat Road, Greenwich, Connecticut 06830 (together with its successors and assigns, collectively, "Lender"). RECITALS A. Pursuant to that certain Loan Agreement (as same may be amended, restated, replaced, supplemented, consolidated or otherwise modified, the "Loan Agreement") dated as of the date hereof between the Lender, as lender, Solomons Beacon Inn Limited Partnership ("Solomons Borrower") and TRS Subsidiary, LLC ("TRS Borrower" and together with Solomons Borrower, collectively, "Borrower"), as borrower, the Lender has agreed to make a loan to Borrower in the principal amount of $40,000,000 (the "Loan"). B. Pursuant to that certain Amended and Restated Agreement of Limited Partnership of Solomons Borrower dated November 26, 2002, HH Trust is the owner of a one percent (1%) limited partnership interest in Solomons Borrower, and Solomons GP is the owner of a ninety-nine percent (99%) general partnership interest in Solomons Borrower. C. Pursuant to that certain Limited Liability Company Agreement of Solomons GP dated November 26, 2002, HHLP is the one hundred percent (100%) shareholder in Solomons GP. D. Pursuant to that certain Limited Liability Company Agreement of TRS Borrower dated November 26, 2002, TRS Leasing is the owner of a one hundred percent (100%) membership interest in TRS Borrower. E. To induce the Lender to make the Loan to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor has agreed to pledge and grant a first priority security interest in the Collateral (as defined below) as security for the Obligations (as defined below). NOW, THEREFORE, for Ten Dollars ($10.00) and in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which being hereby acknowledged, Pledgor agrees as follows: Section 1. Defined Terms. Unless otherwise provided herein, all capitalized terms used but not defined in this Agreement shall have the respective meanings ascribed thereto in the Loan Agreement and, for the purposes of this Agreement, the following capitalized terms shall have the following meanings: 1.1 "Assignment of Interest" shall have the meaning ascribed thereto in Section 2 hereof. 1.2 "Charter Documents" shall mean the agreements and instruments listed on Exhibit A hereto, as each of the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time. 1.3 "Collateral" shall have the meaning ascribed thereto in Section 2 hereof. 1.4 "Obligations" shall mean all of the obligations of Borrower to Lender under the Loan. 1.5 "Other Collateral" shall have the meaning ascribed thereto in Section 4.7 hereof. 1.6 "Other Security Documents" shall have the meaning ascribed thereto in Section 4.7 hereof. 1.7 "Pledged Interests" shall have the meaning ascribed thereto in Section 2 hereof. 1.8 "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. Section 2. Pledge and Delivery of Collateral. 2.1 The Pledge. As continuing collateral security for the prompt payment and performance in full when due (whether at stated maturity, by acceleration or otherwise) of the Obligations, each Pledgor hereby irrevocably grants, pledges and assigns, subject to the terms of this Agreement and the other Loan Documents, a continuing first priority lien on and security interest in, and, as part of such grant, pledge and assignment, hereby assigns to Lender as collateral security, all of such Pledgor's right, title and interest in the following property, whether now owned by such Pledgor or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to herein as "Collateral"): i. a one percent (1%) limited partnership interest in Solomons Borrower held by HH Trust, together with the certificates (if any) evidencing the same (the "Solomons Borrower LP Interests"); ii. a ninety-nine percent (99%) general partnership interest in Solomons Borrower held by Solomons GP, together with the certificates (if any) evidencing the same (the "Solomons Borrower GP Interests"); 2 iii. a one hundred percent (100%) shareholder interest in Solomons GP held by HHLP, together with the certificates (if any) evidencing the same (the "Solomons GP Shareholder Interests"); iv. a one hundred percent (100%) membership interest in TRS Borrower held by TRS Leasing, together with the certificates (if any) evidencing the same (the "TRS Borrower Interests", and together with the Solomons Borrower LP Interests, the Solomons Borrower GP Interests and the Solomons GP Shareholder Interests, collectively, the "Pledged Interests"); v. all ownership interests, membership interests, shares, securities, moneys, instruments or property representing a dividend, a distribution or return of capital upon or in respect of the Pledged Interests, or otherwise received in exchange therefor, and any warrants, rights or options issued to the holders of, or otherwise in respect of, the Pledged Interests; vi. all rights of such Pledgor under the applicable Charter Documents or any other agreement or instrument relating to Solomons Borrower or TRS Borrower, or the Pledged Interests, including, without limitation, (i) all rights of such Pledgor to receive moneys or distributions with respect to the Pledged Interests due and to become due under or pursuant to the Charter Documents, (ii) all rights of such Pledgor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Pledged Interests, (iii) all claims of such Pledgor for damages arising out of or for breach of or default under a Charter Document, and (iv) any right of such Pledgor to perform thereunder and to compel performance and otherwise exercise all rights and remedies thereunder; and vii. all proceeds of and to any of the property of such Pledgor described in clauses (i) through (v) above and, to the extent related to any property described in said clauses or such proceeds, all books, correspondence, credit files, records, invoices and other papers. 2.2 Delivery of the Collateral. All certificates or instruments, if any, representing or evidencing the Collateral shall be delivered to and held by or on behalf of Lender pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer, stock powers endorsed by each Pledgor, as applicable, in blank, or assignments in blank, all in form and substance satisfactory to Lender. Upon the occurrence and during the continuance of an Event of Default, Lender shall have the right, at any time, in its discretion upon notice to Pledgors, to transfer to or to register in the name of Lender or its nominee any or all of the Collateral. Prior to or concurrently with the execution and delivery of this Agreement, each Pledgor shall deliver to Lender an assignment of interest endorsed by such Pledgor in blank in the form set forth on Exhibit B hereto (an "Assignment of Interest"), for the Pledged Interests owned by each Pledgor, respectively, transferring all of such Pledged Interests in blank, duly executed by each respective Pledgor and undated. Lender shall have the right, at any time in its discretion upon the occurrence and during the continuance of an Event of Default and without notice to Pledgors, to transfer to, and to designate on such Pledgor's Assignment of Interest, any Person to whom the Pledged Interests are sold in accordance with the provisions hereof. In addition, Lender shall have the right at any time to exchange any Assignment of Interest representing or evidencing the Pledged Interests or any 3 portion thereof for one or more additional or substitute Assignments of Interest representing or evidencing smaller or larger percentages of the Pledged Interests represented or evidenced thereby, subject to the terms thereof. 2.3 Obligations Unconditional. The obligations of each Pledgor hereunder are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the Guaranty, the Loan Agreement, the Note, any other Loan Documents, or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or Pledgor, it being the intent of this Section 2.4 that the obligations of each Pledgor hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not affect the liability of each Pledgor hereunder: i. at any time or from time to time, without notice to such Pledgor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived; ii. any of the acts mentioned in any of the provisions of the Guaranty,. the Loan Agreement, the Note, or any other Loan Documents, or any other agreement or instrument referred to herein or therein shall be done or omitted; iii. the maturity of any of the Obligations shall be accelerated, or any of the Obligations shall be modified, supplemented or amended in any respect, or any right under the Loan Agreement, the Note, or any other Loan Documents, or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Obligations or any security or collateral therefor shall be terminated, released or exchanged in whole or in part or otherwise dealt with; or iv. any lien or security interest granted to, or in favor of Lender as security for any of the Obligations shall fail to be perfected or shall be released. Section 3. Reinstatement. The obligations of each Pledgor under this Agreement shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of such Pledgor in respect of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and such Pledgor agrees that it will indemnify Lender on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by Lender in connection with such rescission or restoration. Section 4. Representations, Warranties of Pledgor. Each Pledgor represents, warrants and covenants that: 4 4.1 Existence. i. HH Trust (a) is a corporation duly organized and validly existing under the laws of Virginia; (b) has all requisite power, and has all governmental licenses, authorizations, consents and approvals necessary, to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary. ii. Solomons GP (a) is a limited liability company duly organized and validly existing under the laws of Delaware; (b) has all requisite power, and has all governmental licenses, authorizations, consents and approvals necessary, to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary. iii. TRS Leasing (a) is a corporation duly organized and validly existing under the laws of Virginia; (b) has all requisite power, and has all governmental licenses, authorizations, consents and approvals necessary, to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary. iv. HHLP (a) is a limited partnership duly organized and validly existing under the laws of Virginia; (b) has all requisite power, and has all governmental licenses, authorizations, consents and approvals necessary, to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary. v. Solomons Borrower (a) is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Maryland; (b) has all requisite power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary. vi. TRS Borrower (a) is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) has all requisite power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary. 4.2 Litigation. Except as disclosed to Lender in writing prior to the date of this Agreement, there are no legal or arbitral proceedings or any proceedings by or before any Governmental Authority or agency, now pending or (to the knowledge of such Pledgor) 5 threatened against such Pledgor, the Collateral, TRS Leasing, TRS Manager and/or Borrower, the outcome of which is likely to have a material adverse effect on the financial condition of such entity or the transactions contemplated by this Agreement or any other Loan Document. 4.3 No Breach. None of the execution and delivery of this Pledge or any other Loan Document to which such Pledgor is a party, the consummation of the transactions herein or therein contemplated and compliance with the terms and provisions hereof or thereof will conflict with or result in a breach of, or require any consent (except such consents as have been obtained) under the organizational documents of such Pledgor, TRS Leasing, TRS Manager or Borrower, or any applicable law or regulation, or any order, writ, injunction or decree of any court or Governmental Authority, or any agreement or instrument to which such Pledgor is a party or by which it is bound or to which it is subject, or constitute a default under any such agreement or instrument, or (except for the lien arising pursuant to this Agreement) result in the creation or imposition of any lien upon any of the revenues or assets of such Pledgor pursuant to the terms of any such agreement or instrument. 4.4 Necessary Action. Such Pledgor has all necessary power and authority to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance by such Pledgor of this Agreement has been duly authorized by all necessary action on its part; and this Agreement has been duly and validly executed and delivered by such Pledgor and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, subject to bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights in general and to general principles of equity. 4.5 Approvals. No authorizations, approvals and consents of, and no filings and registrations with, any governmental or regulatory authority or agency are necessary for (a) the execution, delivery or performance by such Pledgor of this Agreement or for the validity or enforceability thereof, (b) the grant by such Pledgor of the assignments and security interests granted hereby, or the pledge by such Pledgor of the Collateral pursuant hereto, (c) the perfection or maintenance of the pledge, assignment and security interest created hereby (including the first priority nature of such pledge, assignment and security interest) except for the filing of financing statements under the Uniform Commercial Code or (d) the exercise by Lender of all rights and remedies in respect of the Collateral pursuant to this Agreement. 4.6 Ownership. HH Trust owns a one percent (1%) limited partnership interest in Solomons Borrower, which interests in Solomons Borrower are not subject to any security interests, liens, encumbrances or adverse claims. Solomons GP owns a ninety-nine percent (99%) general partnership interest in Solomons Borrower, which interest in Solomons Borrower is not subject to any security interests, liens, encumbrances or adverse claims. HHLP is the one-hundred percent (100%) shareholder of Solomons GP, which interests in Solomons GP are not subject to any security interests, liens, encumbrances or adverse claims. TRS Leasing owns a one-hundred percent (100%) membership interest in TRS Borrower, which interest in TRS Borrower is not subject to any security interests, liens, encumbrances or adverse claims. 6 4.7 Pledged Interest and Contract Rights. i. Pledgors are the sole beneficial and legal owners of and have good and indefeasible title to the Collateral and no Lien exists or will exist upon the Collateral at any time (and no right or option to acquire the same exists in favor of any other Person), except for the pledge and security interest in favor of the Lender created or provided for herein. ii. The Pledged Interests are not and will not be subject to any contractual restriction upon the transfer thereof (except for any such restrictions contained herein). 4.8 Principal Place of Business and State of Organization. No Pledgor will change its principal place of business or state of organization unless such Pledgor has previously notified Lender thereof and taken such action as is necessary or reasonably requested by Lender to cause the security interest of Lender in the Collateral to continue to be perfected. 4.9 Valid Security Interest. This Agreement creates a valid security interest in the Collateral, securing the payment of the Obligations, and upon the filing in the appropriate filing offices of the financing statements to be delivered pursuant to this Agreement, such security interests will be perfected, first priority security interests, and all filings and other actions necessary to perfect such security interests will have been duly taken. Section 5. Covenants of Pledgor. 5.1 No Transfer. Unless expressly permitted under the Loan Agreement, Pledgors will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, nor will they create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any Collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Agreement. 5.2 No Waiver, Amendment, Etc. No Pledgor shall directly or indirectly, without the prior written consent of Lender, attempt to waive, alter, amend, modify, supplement or change in any way, or release, subordinate, terminate or cancel in whole or in part, or give any consent under, any of the instruments, documents, policies or agreements constituting the Collateral or any of the rights or interests of such Pledgor as party, holder, mortgagee or beneficiary thereunder. Each Pledgor agrees that all rights to do any and all of the foregoing have been assigned to Lender, but such Pledgor agrees that, upon request from Lender from time to time, such Pledgor shall do any of the foregoing or shall join Lender in doing so or shall confirm the right of Lender to do so and shall execute such instruments and undertake such actions as Lender may reasonably request in connection therewith. 5.3 Settlement and Release. Pledgors shall not make any election, compromise, adjustment or settlement in respect of any of the Collateral. 5.4 Preservation of Collateral. Lender may, in its discretion, for the account and expense of either Pledgor pay any amount or do any act required of such Pledgor hereunder or requested by Lender to preserve, protect, maintain or enforce the Obligations, the 7 Collateral or the security interests granted herein, provided such Pledgor has failed to pay such amount or take such action within ten (10) days after written demand by Lender. Any such payment shall be deemed an advance by Lender to such Pledgor and shall be payable by such Pledgor within twenty (20) days after written demand together with interest thereon at the Default Rate from the date expended by Lender until paid. 5.5 Warranty of Title. Pledgors shall warrant and defend the right, title and interest of Lender in and to the Collateral and the proceeds thereof against the claims and demands of all persons whomsoever. 5.6 Files and Records. Pledgors shall maintain, at their principal office, and, upon request, make available to Lender the originals, or copies in any case where the originals have been delivered to Lender of the instruments, documents, policies and agreements constituting the Collateral (to the extent not held by Lender) and related documents and instruments, and all files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records and other information and data relating to the Collateral. 5.7 Litigation. Pledgors shall promptly give to Lender notice of all pending legal or arbitration proceedings, and of all proceedings pending by or before any governmental or regulatory authority or agency, affecting Pledgors, TRS Leasing, TRS Manager or Borrower, if such proceedings are likely to have a material adverse effect on the financial condition of such entity or the transactions contemplated by this Agreement or any other Loan Document. 5.8 Existence, etc. Pledgors shall and shall cause Borrower, Solomons GP, TRS Leasing and TRS Manager to preserve and maintain their existence and all of their material rights, privileges and franchises. 5.9 Charter Documents. Each Pledgor shall, at its expense: i. perform and observe all the terms and provisions of the applicable Charter Documents to be performed or observed by it, maintain the applicable Charter Documents in full force and effect, enforce the applicable Charter Documents in accordance with their respective terms, and to take all such action to such end as may be from time to time reasonably requested by Lender; and ii. furnish to Lender promptly upon receipt thereof copies of all notices, requests and other documents received by such Pledgor under or pursuant to the Charter Documents, and from time to time furnish to Lender such information and reports regarding the Collateral as Lender may reasonably request. 5.10 Financing Statements. Each Pledgor hereby (a) authorizes Lender to execute and file at any time or times, one or more UCC financing statements covering the Collateral and UCC assignment financing statements assigning the UCC financing statements which constitute part of the Collateral; and (b) appoints Lender as its agent and attorney-in-fact to execute in the name of such Pledgor any UCC financing statement or amendment, or collateral assignment of any instrument, document, policy or agreement constituting the Collateral or other 8 instrument or filing or recordation to perfect or continue the perfection of the security interest so long as any Obligation remains unpaid. Section 6. Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 2 hereof, each Pledgor hereby agrees with Lender as follows: 6.1 Delivery and Other Perfection. Each Pledgor shall: i. if any of the above-described Collateral required to be pledged by such Pledgor under Section 2.1 hereof is received by such Pledgor, forthwith either (x) transfer and deliver to Lender such Collateral so received by such Pledgor (together with the certificates (if any) for any such Collateral, including assignments duly endorsed in blank and accompanied in the case of shares by undated stock powers duly executed in blank) all of which thereafter shall be held by Lender, pursuant to the terms of this Agreement, as part of the Collateral or (y) take such other action as Lender shall deem reasonably necessary or appropriate to duly record the lien created hereunder in such Collateral referred to in said Section 2.1; ii. give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the reasonable judgment of Lender) to create, preserve, perfect or validate the security interest granted pursuant hereto or to enable Lender to exercise and enforce its rights hereunder with respect to such pledge and security interest, including, without limitation, causing any or all of the Collateral to be transferred of record into the name of Lender or its nominee (and Lender agrees that if any Collateral is transferred into its name or the name of its nominee, Lender will thereafter promptly give to Pledgor copies of any notices and communications received by it with respect to the Collateral); and iii. permit representatives of Lender, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of Lender to be present at such Pledgor's place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications received by such Pledgor with respect to the Collateral, all in such manner as Lender may reasonably require. 6.2 Preservation of Rights. Except in accordance with applicable law, Lender shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral. 6.3 Pledged Collateral. i. Each Pledgor shall not and shall not have the right to directly or indirectly, without the prior written consent of Lender, attempt to waive, alter, amend, modify, supplement or change in any way, or release, subordinate, terminate or cancel in whole or in part, or give any consent under, any of the instruments, documents, policies or agreements constituting the Collateral or exercise any of the rights, options or interests of 9 such Pledgor as party, holder, mortgagee or beneficiary thereunder except as otherwise expressly permitted under the Loan Agreement. Each Pledgor agrees that all rights to do any and all of the foregoing have been assigned to and may be exercised by Lender but such Pledgor agrees that, upon request from Lender from time to time, such Pledgor shall do any of the foregoing or shall join Lender in doing so or shall confirm the right of Lender to do so and shall execute such instruments and undertake such actions as Lender may request in connection therewith. Each Pledgor shall not make any election, compromise, adjustment or settlement in respect of any of the Collateral. Notwithstanding anything herein to the contrary, so long as no Event of Default shall have occurred and be continuing, each Pledgor shall have the right to exercise all of such Pledgor's rights under the Charter Documents to which it is a party for all purposes not inconsistent with any of the terms of this Agreement, the Loan Agreement or any other Loan Document or any other instrument or agreement referred to herein or therein, provided that such Pledgor agrees that it will not take any action in any manner that is inconsistent with the terms of this Agreement, the Loan Agreement or any other Loan Document or any such other instrument or agreement. Lender shall execute and deliver to each Pledgor or cause to be executed and delivered to each Pledgor all such proxies, powers of attorney, distribution and other orders, and all such instruments, without representation, recourse or warranty, as such Pledgor may reasonably request for the purpose of enabling such Pledgor to exercise the rights and powers which it is entitled to exercise pursuant to this Section 6.3. ii. Anything to the contrary notwithstanding, (i) Pledgors shall remain liable under the applicable Charter Documents to perform all of their duties and obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by Lender of any of the rights hereunder shall not release Pledgors from any of their duties or obligations under the Charter Documents, and (iii) Lender shall have no obligation or liability under the Charter Documents by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Pledgors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 6.4 Events of Default, etc. During the period during which an Event of Default shall have occurred and be continuing: i. Lender shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if Lender were the sole and absolute owner thereof (and each Pledgor agrees to take all such action as may be appropriate to give effect to such right); ii. Lender in its discretion may, in its name or in the name of either Pledgor or otherwise, demand, sue for, collect or receive any money or property at any time payable 10 or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; iii. Lender may, at its option, apply all or any part of the Collateral to the Obligations in such order and priority as shall be selected by Lender; iv. Lender may, upon ten (10) days' prior written notice to either Pledgor of the time and place, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of Lender or any of its agents, sell, assign or otherwise dispose of all or any part of such Collateral, at such place or places as Lender deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and cannot be waived) and Lender or anyone else may be the purchaser, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of such Pledgor, any such demand, notice or right and equity being hereby expressly waived and released. Unless prohibited by applicable law, Lender may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned; v. Lender may exercise all membership rights, powers and privileges to the same extent as Pledgor is entitled to exercise such rights, powers and privileges; vi. Lender may accelerate the indebtedness secured hereby; vii. Lender may, in connection with a sale of the Pledged Interests, cause each purchaser of all or any part of any Pledged Interests to be admitted as a new member or owner of Solomons Borrower, Solomons GP or TRS Borrower to the extent of such Pledged Interests, and cause such Pledgor to withdraw as a member or owner of such Borrower to the extent such Pledged Interests are sold, and complete by inserting the Effective Date (as defined therein) and the name of the assignee thereunder and deliver to such assignee each Assignment of Interest executed and delivered by such Pledgor and, if appropriate, cause one or more amended or restated certificates of limited partnership, certificates of limited liability company or articles of incorporation to be filed with respect to Borrower; viii. Lender may exercise any and all rights and remedies of each Pledgor under or in connection with the applicable Charter Documents or otherwise in respect of the Collateral, including, without limitation, any and all rights of such Pledgor to demand or otherwise require payment of any amount under, or performance of any provisions of, the Charter Documents; and 11 ix. all payments received, directly or indirectly, by either Pledgor under or in connection with the Charter Documents or otherwise in respect of the Collateral shall be received in trust for the benefit of Lender, shall be segregated from other funds of such Pledgor and shall be forthwith paid over to Lender in the same form as so received (with any necessary endorsement). The proceeds of each collection, sale or other disposition under this Section 6.4 shall be applied by Lender to the Obligations pursuant to Section 6.6 hereof. Pledgors recognize that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, Lender may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgors acknowledge that any such private sales may be at prices and on terms less favorable to Lender than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Lender shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the issuer thereof to register it for public sale. 6.5 Private Sale. Lender shall not incur any liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 6.4 hereof conducted in a commercially reasonable manner. Pledgors hereby waive any claims against Lender arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if Lender accepts the first offer received and does not offer the Collateral to more than one offeree. 6.6 Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by Lender under this Section 6, shall be applied by Lender: First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of Lender and the fees and expenses of their respective agents and counsel, and all expenses, and advances made or incurred by Lender in connection therewith; Next, to the payment in full of the Obligations; and Finally, to the payment to Pledgors, or their successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. As used in this Section 6, "proceeds" of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received 12 under any reorganization, liquidation or adjustment of debt of Pledgors or any issuer of or obligor on any of the Collateral. 6.7 Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement to Lender while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default Lender is hereby appointed the attorney-in-fact of each Pledgor for the purpose of carrying out the provisions of this Section 6 and taking any action and executing any instruments which Lender may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as Lender shall be entitled under this Section 6 to make collections in respect of the Collateral, Lender shall have the right and power to receive, endorse and collect all checks made payable to the order of such Pledgor representing any payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. 6.8 Enforcement Expenses. Pledgors agree to pay to Lender all out-of-pocket expenses (including reasonable expenses for legal services of every kind) of, or incident to, the enforcement of any of the provisions of this Section 6, or performance by Lender of any obligations of Pledgors in respect of the Collateral which Pledgors have failed or refused to perform, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of Lender in respect thereof, by litigation or otherwise and all such expenses shall be Obligations to Lender secured under Section 2 hereof. Section 7. Termination. Upon the payment and performance in full of all Obligations, this Agreement shall terminate and Lender shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of Pledgors. Section 8. Miscellaneous. 8.1 No Waiver. No failure on the part of Lender or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by Lender or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided herein are cumulative and are not exclusive of any remedies provided by law. 8.2 Governing Law. i. THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY PLEDGORS AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE NOTE SECURED HEREBY 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 13 HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, 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 (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, PLEDGORS HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, AND THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. ii. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR PLEDGORS ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY AT LENDER'S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND PLEDGORS WAIVE ANY OBJECTIONS WHICH THEY MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND PLEDGORS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. EACH PLEDGOR DOES HEREBY DESIGNATE AND APPOINT CT Corporation System 111 8/th/ Avenue New York, New York 10011 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 MAILED OR DELIVERED TO SUCH PLEDGOR IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON SUCH PLEDGOR IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. EACH PLEDGOR (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 SUBSTITUTE AGENT AND OFFICE SHALL BE 14 DESIGNATED AS THE PERSON AND 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. 8.3 Notices. All notices, consents, approvals and requests required or permitted hereunder (a "Notice") shall be given in writing and shall be effective for all purposes if either hand delivered with receipt acknowledged, or by a nationally recognized overnight delivery service (such as Federal Express), or by certified or registered United States mail, return receipt requested, postage prepaid, or by facsimile and confirmed by facsimile answer back, in each case addressed as follows (or to such other address or Person as a party shall designate from time to time by notice to the other party): If to Lender: Greenwich Capital Financial Products, Inc., 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Mortgage Loan Department, Telecopier (203) 618-2052, with a copy to: Kaye Scholer LLP, 425 Park Avenue, New York, New York 10022, Attention: Stephen Gliatta, Esq., Telecopier: (212) 836-8689; if to any Pledgor: c/o Humphrey Hospitality Limited Partnership, 7170 Riverwood Drive, Columbia, Maryland 21043, Attention: Chief Financial Officer, Telecopier: (443) 259-4999, with a copy to: Gallagher, Evelius & Jones, 218 N. Charles Street, Suite 400, Baltimore, Maryland 21201, Attention: Kevin J. Davidson, Esq., Telecopier: (410) 468-2786. 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; in the case of overnight delivery, upon the first attempted delivery on a Business Day; or in the case of facsimile, upon the confirmation of such facsimile transmission. 8.4 Waivers, etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by Pledgors and Lender. Any such amendment or waiver shall be binding upon Lender and Pledgors. 8.5 Successors and Assigns. This Agreement shall be binding upon the successors and assigns of Pledgors and inure to the benefit of the successors and assigns of Lender (provided, however, that Pledgors shall not assign or transfer their rights hereunder without the prior written consent of Lender). Without limiting the foregoing, Lender may at any time and from time to time without the consent of Pledgors, assign or otherwise transfer all or any portion of its rights and remedies under this Agreement to any other person or entity, either separately or together with other property of Pledgors for such purposes in connection with a transfer of Lender's interest in the other Loan Documents and on such terms as Lender shall elect, and such other person or entity shall thereupon become vested with all of the rights and obligations in respect thereof granted to Lender herein or otherwise. Without limiting the foregoing, in connection with any assignment of the Loan, Lender may assign or otherwise transfer all of its rights and remedies under this Agreement to the assignee and such assignee shall thereupon become vested with all of the rights and obligations in respect thereof granted to Lender herein or otherwise. Each representation and agreement made by each Pledgor in this Agreement shall be deemed to run to, and each reference in this Agreement to Lender shall be deemed to refer to, Lender and each of its successors and assigns. 15 8.6 Expenses, Indemnification. i. Pledgors agree to pay or reimburse Lender for paying: (1) all reasonable out-of-pocket expenses of Lender (including, without limitation, the reasonable fees and expenses of counsel to Lender), in connection with (A) the negotiation, preparation, execution and delivery of this Agreement and (B) any amendment, modification or waiver of any of the terms of this Agreement requested or initiated by Pledgors; (2) all costs and expenses of Lender (including reasonable counsel's fees) in connection with any Event of Default and any enforcement or collection proceedings resulting therefrom; and (3) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement, or any other document referred to herein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement or any document referred to herein. ii. Pledgors hereby agree to indemnify Lender and its directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any claim of any Person (1) relating to or arising out of the acts or omissions of Pledgors under this Agreement or the Charter Documents (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified), or (2) resulting from the ownership of or lien on any Collateral, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 8.7 No Liability on Part of Lender. Lender, by its acceptance of this Agreement, the Collateral and any payments on account thereof, shall not be deemed to have assumed or to have become liable for any of the obligations or liabilities of Pledgors. Lender shall have no duty to collect any sums due in respect of any of the Collateral in its possession or control, or to enforce, protect or preserve any rights pertaining thereto, and Lender shall not be liable for failure to collect or realize upon the Collateral, or any part thereof, or for any delay in so doing, nor shall Lender be under any obligation to take any action whatsoever with regard thereto. Lender shall, if requested by the payor of any Revenue Payment, give receipts for any payments received by Lender on account of the Collateral. 8.8 Further Assurances. Pledgors agree that, from time to time upon the written request of Lender, Pledgors will execute and deliver such further documents and do such other acts and things as Lender may reasonably request in order fully to effect the purposes of this Agreement. 8.9 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, shall operate as or constitute a 16 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. 8.10 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 8.11 Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of Lender in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 8.12 Limitation of Liability. The liability of Pledgors hereunder shall be subject to the provisions of Section of the Loan Agreement. [Remainder of Page Intentionally Left Blank] 17 IN WITNESS WHEREOF, Pledgors have caused this Pledge and Security Agreement to be duly executed as of the day and year first above written. HUMPHREY HOSPITALITY TRUST, INC., a Virginia corporation By: /s/ George R. Whittemore ---------------------------------------- Name: George R. Whittemore Title: President SOLOMONS GP, LLC, a Delaware limited liability company By: /s/ George R. Whittemore ----------------------------------------- Name: George R. Whittemore Title: President TRS LEASING, INC., a Virginia corporation By: /s/ George R. Whittemore ----------------------------------------- Name: George R. Whittemore Title: President HUMPHREY HOSPITALITY LIMITED PARTNERSHIP, a Virginia limited partnership By: Humphrey Hospitality REIT Trust, a Maryland trust By: Humphrey Hospitality Trust, Inc., a Virginia corporation By: /s/ George R. Whittemore ------------------------------------ Name: George R. Whittemore Title: President 18 SCHEDULE OF EXHIBITS -------------------- Exhibit A - Charter Documents Exhibit B - Form of Assignment of Interest (HH Trust) EX-10.5 7 dex105.txt EXHIBIT 10.5 MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 26, 2002 BETWEEN SOLOMONS BEACON INN LIMITED PARTNERSHIP AS LESSOR AND TRS SUBSIDIARY, LLC AS LESSEE TABLE OF CONTENTS ARTICLE I .................................................................... 1 1.1 Leased Property ...................................................... 1 --------------- 1.2 Term ................................................................. 2 ---- ARTICLE II ................................................................... 2 2.1 Definitions .......................................................... 2 ----------- ARTICLE III .................................................................. 11 3.1 Rent ................................................................. 11 ---- 3.2 Additional Charges ................................................... 12 ------------------ 3.3 Lease Provision ...................................................... 12 --------------- 3.4 Conversion of Property ............................................... 12 ---------------------- 3.5 Books and Records .................................................... 12 ----------------- ARTICLE IV ................................................................... 13 4.1 Payment of Impositions ............................................... 13 ---------------------- 4.2 Notice of Impositions ................................................ 14 --------------------- 4.3 Adjustment of Impositions ............................................ 14 ------------------------- 4.4 Maintenance .......................................................... 14 ----------- 4.5 Insurance Premiums ................................................... 14 ------------------ ARTICLE V .................................................................... 14 5.1 No Termination ....................................................... 14 -------------- ARTICLE VI ................................................................... 15 6.1 Ownership of the Leased Property ..................................... 15 -------------------------------- 6.2 Lessee's Personal Property ........................................... 15 -------------------------- 6.3 Lessor's Lien ........................................................ 16 ------------- ARTICLE VII .................................................................. 16 7.1 Condition of the Leased Property ..................................... 16 -------------------------------- 7.2 Use of the Leased Property ........................................... 17 -------------------------- 7.3 Lessor to Grant Easements, etc. ...................................... 17 ------------------------------- ARTICLE VIII ................................................................. 18 8.1 Compliance with Legal and Insurance Requirements, etc. ............... 18 ------------------------------------------------------ 8.2 Legal Requirement Covenants .......................................... 18 --------------------------- 8.3 Environmental Covenants .............................................. 19 ----------------------- ARTICLE IX ................................................................... 21 9.1 Capital Improvements, Maintenance and Repair ......................... 21 -------------------------------------------- 9.2 Encroachments, Restrictions, Etc. .................................... 22 --------------------------------- ARTICLE X .................................................................... 22 10.1 Alterations .......................................................... 22 ----------- 10.2 Salvage .............................................................. 23 ------- 10.3 Joint Use Agreements ................................................. 23 -------------------- ARTICLE XI ................................................................... 23 11.1 Liens ................................................................ 23 ----- ARTICLE XII .................................................................. 23 12.1 Permitted Contests ................................................... 23 ------------------ ARTICLE XIII ................................................................. 24 13.1 General Insurance Requirements ....................................... 24 ------------------------------
i 13.2 Replacement Cost ................................................................... 25 ---------------- 13.3 Worker's Compensation .............................................................. 26 --------------------- 13.4 Waiver of Subrogation .............................................................. 26 --------------------- 13.5 Form Satisfactory, etc. ............................................................ 26 ----------------------- 13.6 Change in Limits ................................................................... 26 ---------------- 13.7 Blanket Policy ..................................................................... 26 -------------- 13.8 Separate Insurance ................................................................. 27 ------------------ 13.9 Reports On Insurance Claims ........................................................ 27 --------------------------- ARTICLE XIV ................................................................................ 27 14.1 Insurance Proceeds ................................................................. 27 ------------------ 14.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance .......... 27 ------------------------------------------------------------------------- 14.3 Reconstruction in the Event of Damage or Destruction Not Covered by Insurance ...... 29 ----------------------------------------------------------------------------- 14.4 Lessee's Property .................................................................. 29 ----------------- 14.5 Damage Near End of Term ............................................................ 29 ----------------------- 14.6 Waiver ............................................................................. 29 ------ ARTICLE XV ................................................................................. 29 15.1 Definitions ........................................................................ 29 ----------- 15.2 Parties' Rights and Obligations .................................................... 30 ------------------------------- 15.3 Total Taking ....................................................................... 30 ------------ 15.4 Allocation of Award ................................................................ 30 ------------------- 15.5 Partial Taking ..................................................................... 30 -------------- 15.6 Temporary Taking ................................................................... 30 ---------------- 15.7 Lessee's Offer ..................................................................... 31 -------------- ARTICLE XVI ................................................................................ 31 16.1 Events of Default .................................................................. 31 ---------------- 16.2 Surrender .......................................................................... 32 --------- 16.3 Damages ............................................................................ 33 ------- 16.4 Waiver ............................................................................. 33 ------ 16.5 Application of Funds ............................................................... 33 -------------------- ARTICLE XVII ............................................................................... 34 17.1 Lessor's Right to Cure Lessee's Default ............................................ 34 --------------------------------------- ARTICLE XVIII .............................................................................. 34 18.1 Provisions Relating to Purchase of the Leased Property ............................. 34 ------------------------------------------------------ ARTICLE XIX ................................................................................ 35 19.1 Personal Property Limitation ....................................................... 35 ---------------------------- 19.2 Sublease Rent Limitation ........................................................... 35 ------------------------ 19.3 Sublease Tenant Limitation ......................................................... 35 -------------------------- 19.4 TRS Election and Limitations ....................................................... 35 ---------------------------- 19.5 Manager Officer and Employee Limitation ............................................ 36 --------------------------------------- ARTICLE XX ................................................................................. 36 20.1 Holding Over ....................................................................... 36 ------------ ARTICLE XXI ................................................................................ 37 21.1 Risk of Loss ....................................................................... 37 ------------ ARTICLE XXII ............................................................................... 37 22.1 Indemnification .................................................................... 37 --------------- ARTICLE XXIII .............................................................................. 38
ii 23.1 Subletting and Assignment .................................................... 38 ------------------------- 23.2 Attornment ................................................................... 38 ---------- ARTICLE XXIV ....................................................................... 39 24.1 Officer's Certificates; Lessor's Estoppel Certificates and Covenants ......... 39 -------------------------------------------------------------------- ARTICLE XXV ........................................................................ 39 25.1 Lessor's Right to Inspect .................................................... 39 ------------------------- ARTICLE XXVI ....................................................................... 39 26.1 No Waiver .................................................................... 39 --------- ARTICLE XXVII ...................................................................... 39 27.1 Remedies Cumulative .......................................................... 39 ------------------- ARTICLE XVIII ...................................................................... 40 28.1 Acceptance of Surrender ...................................................... 40 ----------------------- ARTICLE XXIX ....................................................................... 40 29.1 No Merger of Title ........................................................... 40 ------------------ ARTICLE XXX ........................................................................ 40 30.1 Conveyance by Lessor ......................................................... 40 -------------------- 30.2 Other Interests .............................................................. 40 --------------- 30.3 Greenwich Loan ............................................................... 41 -------------- ARTICLE XXXI ....................................................................... 41 31.1 Quiet Enjoyment .............................................................. 41 --------------- ARTICLE XXXII ...................................................................... 41 32.1 Notices ...................................................................... 41 ------- ARTICLE XXXIII ..................................................................... 42 33.1 Appraisers ................................................................... 42 ---------- ARTICLE XXXIV ...................................................................... 42 34.1 Lessor May Grant Liens ....................................................... 42 ---------------------- 34.2 Lessee's Right to Cure ....................................................... 43 ---------------------- 34.3 Breach by Lessor ............................................................. 43 ---------------- ARTICLE XXXV ....................................................................... 43 35.1 Miscellaneous ................................................................ 43 ------------- 35.2 Transition Procedures ........................................................ 44 --------------------- 35.3 Waiver of Presentment, etc. .................................................. 44 --------------------------- ARTICLE XXXVI ...................................................................... 44 36.1 Memorandum of Lease .......................................................... 44 ------------------- ARTICLE XXXVII ..................................................................... 45 37.1 Lessor's Option to Purchase Assets of Lessee ................................. 45 -------------------------------------------- ARTICLE XXXVIII .................................................................... 45 38.1 Lessor's Option to Terminate Lease ........................................... 45 ---------------------------------- ARTICLE XXXIX ...................................................................... 46 39.1 Compliance with Franchise Agreement .......................................... 46 ----------------------------------- ARTICLE XL ......................................................................... 46 40.1 Room Set-Aside ............................................................... 46 -------------- 40.2 Capital Expenditures ......................................................... 47 -------------------- 40.3 Prohibited Expenditures ...................................................... 47 ----------------------- Exhibit A - Hotel Properties
iii MASTER LEASE AGREEMENT THIS MASTER LEASE AGREEMENT (hereinafter called "Lease"), made as of the 26th day of November, 2002 by and between Solomons Beacon Inn Limited Partnership, a Maryland limited partnership (hereinafter called "Lessor"), and TRS Subsidiary, LLC, a Delaware limited liability company (hereinafter called "Lessee"), provides as follows. W I T N E S S E T H: Lessor owns fee title to, or a leasehold interest in, the "Leased Property" (as hereinafter defined). Lessor and Lessee wish to enter into this Lease which shall constitute a separate lease for each Leased Property. NOW, THEREFORE, Lessor, in consideration of the payment of rent by Lessee to Lessor, the covenants and agreements to be performed by Lessee, and upon the terms and conditions hereinafter stated, does hereby rent and lease unto Lessee, and Lessee does hereby rent and lease from Lessor, the Leased Property. ARTICLE I 1.1 Leased Property. The leased property (the "Leased Property") is comprised of Lessor's interest in each of the hotel properties described in Exhibit "A" attached hereto, as it may be amended from time to time (each a "Leased Property"), as follows: (a) the land or ground leasehold interests described in Exhibit "A" attached hereto and by reference incorporated herein (the "Land"); (b) all buildings, structures and other improvements of every kind including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and offsite), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land (collectively, the "Leased Improvements"); (c) all easements, rights and appurtenances relating to the Land or the Leased Improvements; (d) all equipment, machinery, fixtures, and other items of property required for or incidental to the use of the Leased Improvements as a hotel, including all components thereof, now and hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which to the greatest extent permitted by law are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto (collectively, the "Fixtures"); (e) all furniture and furnishings and all other items of personal property (excluding Inventory and personal property owned by Lessee) located on, and used in connection with, the operation of the Leased Improvements as a hotel, together with all replacements, modifications, alterations and additions thereto; and (f) all existing leases of space within the Leased Property (including any security deposits or collateral held by Lessor pursuant thereto). THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS, MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF. 1.2 Term. The term of the Lease (the "Term") shall commence on the date hereof (the "Commencement Date") and shall end on the tenth anniversary of the last day of the month in which the Commencement Date occurs unless sooner terminated in accordance with the provisions hereof. ARTICLE II 2.1 Definitions. For all purposes of this Lease, except as otherwise expressly provided or unless the context otherwise requires, (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as are at the time applicable, (c) all references in this Lease to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Lease and (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Lease as a whole and not to any particular Article, Section or other subdivision: Additional Charges: As defined in Section 3.2. Affiliate: As to any Person, (a) any other Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (b) any other Person that owns, beneficially, directly or indirectly, five percent or more of the outstanding capital stock, shares or equity interests of such Person, or (c) any officer, director, employee, partner or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and Persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, "control" (including the correlative 2 meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests. Award: As defined in Section 15.1(c). Base Rate: The rate of interest announced publicly by Citibank, N.A., in New York, New York, or any successor bank from time to time, as such bank's base rate. If no such rate is announced or becomes discontinued, then such other rate as Lessor may reasonably designate. Percentage Rent: As defined in Section 3.1(a). Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which national banks in the City of Washington, D.C., or in the municipality wherein the Leased Property is located, are closed. Capitalization Date: The effective date, as determined by Lessor, of the transfer, directly or indirectly, by Lessor to Lessee of all of Lessor's right, title and interest in and to all Furniture and Equipment and other items of personal property owned by Lessor and located on, and used in connection with, the operation of the Leased Improvements as a hotel. CERCLA: The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. Code: The Internal Revenue Code of 1986, as amended. Commencement Date: As defined in Section 1.2. Condemnation, Condemnor: As defined in Section XV. Date of Taking: As defined in Section 15.1(b). Encumbrance: As defined in Section XXXIV. Environmental Authority: Any department, agency or other body or component of any Government that exercises any form of jurisdiction or authority under any Environmental Law. Environmental Authorization: Any license, permit, order, approval, consent, notice, registration, filing or other form of permission or authorization required under any Environmental Law. Environmental Laws: All applicable federal, state, local and foreign laws and regulations relating to pollution of the environment (including without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including without limitation laws and regulations relating to emissions, discharges, Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, 3 storage, disposal, transport or handling of Hazardous Materials. Environmental Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA. Environmental Liabilities: Any and all obligations to pay the amount of any judgment or settlement, the cost of complying with any settlement, judgment or order for injunctive or other equitable relief, the cost of compliance or corrective action in response to any notice, demand or request from an Environmental Authority, the amount of any civil penalty or criminal fine, and any court costs and reasonable amounts for attorney's fees, fees for witnesses and experts, and costs of investigation and preparation for defense of any claim or any Proceeding, regardless of whether such Proceeding is threatened, pending or completed, that may be or have been asserted against or imposed upon Lessor, Lessee, the Leased Property or any property used therein and arising out of: (a) Failure of Lessee, or Lessor to comply at any time with all Environmental Laws; (b) Presence of any Hazardous Materials on, in, under, at or in any way affecting the Leased Property; (c) A Release at any time of any Hazardous Materials on, in, at, under or in any way affecting the Lease Property; (d) Identification of Lessee or Lessor as a potentially responsible party under CERCLA or under any Environmental Law similar to CERCLA; (e) Presence at any time of any above-ground and/or underground storage tanks, as defined in RCRA or in any applicable Environmental Law on, in, at or under the Leased Property; or (f) Any and all claims for injury or damage to persons or property arising out of exposure to Hazardous Materials originating or located at the Leased Property, or resulting from operation thereof. Event of Default: As defined in Section XVI. Facility: The hotel and/or other facility offering lodging and other services or amenities being operated or proposed to be operated on the Leased Property. Fair Market Rental: The fair market rental of the Leased Property means the rental which a willing tenant not compelled to rent would pay a willing landlord not compelled to lease for the use and occupancy of such Leased Property pursuant to the Lease for the term in question, (a) assuming that Lessee is not in default thereunder and (b) determined in accordance with the appraisal procedures set forth in Article XXXIII or in such other manner as shall be mutually acceptable to Lessor and Lessee. Fair Market Value: The fair market value of the Leased Property means an amount equal to the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for such Leased Property, (a) assuming the same is unencumbered by this Lease, 4 (b) determined in accordance with the appraisal procedures set forth in Article XXXIII or in such other manner as shall be mutually acceptable to Lessor and Lessee, (c) assuming that such seller must pay customary closing costs and title premiums, and (d) taking into account the positive or negative effect on the value of the Leased Property attributable to the interest rate, amortization schedule, maturity date, prepayment penalty and other terms and conditions of any encumbrance that is assumed by the transferee. In addition, in determining the Fair Market Value with respect to damaged or destroyed Leased Property such value shall be determined as if such Leased Property had not been so damaged or destroyed. FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as amended. Fiscal Year: The 12-month period from January 1 through December 31, except for the Fiscal Year ending December 31, 2002, which shall mean the period from the Commencement Date through December 31, 2002. Fixtures: As defined in Section 1.1. Franchise Agreement: Any franchise agreement or license agreement with a franchisor under which the Facility is operated. Furniture and Equipment: Collectively, all carpet, furniture, furnishings, wall coverings, fixtures and hotel equipment and systems located at, or used in connection with, the Facility, together with all replacements therefor and additions thereto, including, without limitation, (i) all equipment and systems required for the operation of kitchens, bars, if any, restaurants, if any, and laundry and dry cleaning facilities, (ii) dining room wagons, materials handling equipment, cleaning and engineering equipment, (iii) telephone and computerized accounting systems, and (iv) vehicles. Government: The United States of America, any state, district or territory thereof, any foreign nation, any state, district, department, territory or other political division thereof, or any political subdivision of any of the foregoing. Gross Operating Expenses: All of the following with respect to the Facility: reasonable and customary salaries and employee expense and payroll taxes (including salaries, wages, bonuses and other compensation of all employees at the Facility, and benefits including life, medical and disability insurance and retirement benefits), expenditures described in Section IX, operational supplies, utilities, insurance to be provided by Lessee under the terms of this Agreement, governmental fees and assessments, food, beverages, laundry service expense, the cost of Inventories and fixed asset supplies, license fees, advertising, marketing, reservation systems and any and all other operating expenses as are reasonably necessary for the proper and efficient operation of the Facility incurred by Lessee in accordance with the provisions hereof (excluding, however, (i) federal, state and municipal excise, sales and use taxes collected directly from patrons and guests or as a part of the sales price of any goods, services or displays, such as gross receipts, admissions, cabaret or similar or equivalent taxes paid over to federal, state or municipal governments, (ii) the cost of insurance to be provided under Article XIII, (iii) expenditures by Lessor pursuant to Article XIII and (iv) payments on any Mortgage or other mortgage or security instrument on the Facility); all determined in accordance with generally 5 accepted accounting principles and the Uniform System. No part of Lessee's central office overhead or general or administrative expense (as opposed to that of the Facility) shall be deemed to be a part of Gross Operating Expenses, as herein provided. Reasonable out-of-pocket expenses of Lessee incurred for the account of or in connection with the Facility operations, including but not limited to postage, telephone charges and reasonable travel expenses of employees, officers and other representatives and consultants of Lessee and its Affiliates, shall be deemed to be a part of Gross Operating Expenses and such persons shall be afforded reasonable accommodations, food, beverages, laundry, valet and other such services by and at the Facility without charge to such persons or Lessee. Gross Operating Profit: For any Fiscal Year, the excess of Gross Revenues for such Fiscal Year over Gross Operating Expenses for such Fiscal Year. Gross Revenues: All revenues, receipts, and income of any kind derived directly or indirectly by Lessee from or in connection with the Facility (including rentals or other payments from tenants, lessees, licensees or concessionaires but not including their gross receipts unless such party is an Affiliate of the Lessee in which case the gross receipts shall be included) whether on a cash basis or credit, paid or collected, determined in accordance with generally accepted accounting principles and the Uniform System, excluding, however: (i) funds furnished by Lessor, (ii) federal, state and municipal excise, sales, and use taxes collected directly from patrons and guests or as a part of the sales price of any goods, services or displays, such as gross receipts, admissions, cabaret or similar or equivalent taxes and paid over to federal, state or municipal governments, (iii) gratuities, (iv) proceeds of insurance and condemnation, (v) proceeds from sales other than sales in the ordinary course of business, (vi) all loan proceeds from financing or refinancings of the Facility or interests therein or components thereof, (vii) judgments and awards, except any portion thereof arising from normal business operations of the hotel, and (viii) items constituting "allowances" under the Uniform System. Hazardous Materials: All chemicals, pollutants, contaminants, wastes and toxic substances, including without limitation: (a) Solid or hazardous waste, as defined in RCRA or in any Environmental Law; (b) Hazardous substances, as defined in CERCLA or in any Environmental Law; (c) Toxic substances, as defined in TSCA or in any Environmental Law; (d) Insecticides, fungicides, or rodenticides, as defined in FIFRA or in any Environmental Law; and (e) Gasoline or any other petroleum product or byproduct, polychlorinated biphenols, asbestos and urea formaldehyde. 6 Hotel Property: All Furniture and Equipment and other personal property required to operate the Leased Property in the manner contemplated by this Lease from and after the Capitalization Date. Impositions: Collectively, all taxes (including, without limitation, all ad valorem, sales and use, single business, gross receipts, transaction privilege, rent or similar taxes as the same relate to or are imposed upon Lessee or its business conducted upon the Leased Property) including Real Estate Taxes and Personal Property Taxes, assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the Term), ground rents, water, sewer or other rents and charges, excises, tax inspection, authorization and similar fees and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Leased Property or the business conducted thereon by Lessee (including all interest and penalties thereon caused by any failure in payment by Lessee), which at any time prior to, during or with respect to the Term hereof may be assessed or imposed on or with respect to or be a lien upon (a) Lessor's interest in the Leased Property, (b) the Leased Property, or any part thereof or any rent therefrom or any estate, right, title or interest therein, (c) the Hotel Property, or (d) any occupancy, operation, use or possession of, or sales from, or activity conducted on or in connection with the Leased Property, or the leasing or use of the Leased Property or any part thereof by Lessee. Indemnified Party: Either of a Lessee Indemnified Party or a Lessor Indemnified Party. Indemnifying Party: Any party obligated to indemnify an Indemnified Insurance Requirements: All terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy. Inventory: All "Inventories of Merchandise" and "Inventories of Supplies" as defined in the Uniform System, including, but not limited to, linens and other non-depreciable personal property. Land: As defined in Article I. Lease: This Lease. Leased Improvements; Leased Property: Each as defined in Article I. Legal Requirements: All federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting either the Leased Property or the maintenance, construction, use or alteration thereof (whether by Lessee or otherwise), whether or not hereafter enacted and in force, including (a) all laws, rules or regulations pertaining to the environment, occupational health and safety and public health, safety or welfare, and (b) any laws, rules or regulations that may (1) require repairs, modifications or alterations in or to the Leased Property or (2) in any way adversely affect the use and enjoyment thereof; and all permits, licenses and authorizations and regulations relating 7 thereto and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Lessee (other than encumbrances created by Lessor without the consent of Lessee), at any time in force affecting the Leased Property. Lending Institution: Any insurance company, credit company, federally insured commercial or savings bank, national banking association, savings and loan association, employees welfare, pension or retirement fund or system, corporate profit sharing or pension trust, college or university, or real estate investment trust, including any corporation qualified to be treated for federal tax purposes as a real estate investment trust, such trust having a net worth of at least $10,000,000. Lessee: The Lessee designated on this Lease and its respective permitted successors and assigns. Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other Person against whom any claim for indemnification may be asserted hereunder as a result of a direct or indirect ownership interest (including a stockholder's interest) in Lessee, the officers, directors, stockholders, employees, agents and representatives of Lessee and any corporate stockholder, agent, or representative of Lessee, and the respective heirs, personal representatives, successors and assigns of any such officer, director, stockholder, employee, agent or representative. Lessee's Personal Property: As defined in Section 6.2. Lessor: The Lessor designated on this Lease and its respective successors and assigns. Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any other Person against whom any claim for indemnification may be asserted hereunder as a result of a direct or indirect ownership interest (including a stockholder's or partnership interest) in Lessor, the officers, directors, stockholders, employees, agents and representatives of the general partner of Lessor and any partner, agent, or representative of Lessor, and the respective heirs, personal representatives, successors and assigns of any such officer, director, partner, stockholder, employee, agent or representative. Minimum Price: The sum of (a) the equity in the Leased Property at the time of acquisition of the Leased Property by Lessor (i.e., that portion of the purchase price of the Leased Property paid by Lessor in cash or exchange for partnership interests in the Lessor) plus (b) other capital expenditures on the Leased Property made by Lessor after the date hereof plus (c) the unpaid principal balance of all encumbrances against the Leased Property at the time of purchase of the Leased Property by Lessee, less (x) all proceeds received by Lessor from any financing or refinancing of the Leased Property after the date hereof (after payment of any debt refinanced and net of any costs and expenses incurred in connection with such financing or refinancing, including, without limitation, loan points, commitment fees and commissions and legal fees) and (y) the net amount (after deduction of all reasonable legal fees and other costs and expenses, including without limitation expert witness fees, incurred by Lessor in connection with obtaining any such proceeds or award) of all insurance proceeds received by Lessor and awards received by Lessor from any partial Taking of the Leased Property that are not applied to restoration. 8 Mortgage: As defined in Section 30.2. Notice: A notice given pursuant to Article XXXII. Officer's Certificate: A certificate of Lessee reasonably acceptable to Lessor, signed by the chief financial officer or another officer authorized so to sign by the board of directors or limited liability company agreement of Lessee, or any other person whose power and authority to act has been authorized by delegation in writing by any such officer. Overdue Rate: On any date, a rate equal to the Base Rate plus 5% per annum, but in no event greater than the maximum rate then permitted under applicable law. Other Revenues: Gross revenue from the operation of the Facility excluding: (a) Room Revenues; (b) the amount of all credit, rebates or refunds to customers, guests or patrons; (c) all sales taxes or any other taxes imposed on such revenues. Payment Date: Any due date for the payment of any installment of Percentage Rent. Percentage Rent: As defined in Section 3.1(a). Person: Any Government, natural person, corporation, partnership, limited liability company, joint venture, association, trust, or other legal entity. Personal Property Taxes: All personal property taxes imposed on the furniture, furnishings or other items of personal property located on, and used in connection with, the operation of the Leased Improvements as a hotel (other than Inventory and other personal property owned by the Lessee), together with all replacement, modifications, alterations and additions thereto. Primary Intended Use: As defined in Section 7.2(b). Proceeding: Any judicial action, suit or proceeding (whether civil or criminal), any administrative proceeding (whether formal or informal), any investigation by a governmental authority or entity (including a grand jury), and any arbitration, mediation or other non-judicial process for dispute resolution. RCRA: The Resource Conservation and Recovery Act, as amended. Real Estate Taxes: All real estate taxes, including general and special assessments, if any, which are imposed upon the Land and any improvements thereon. Rejectable Offer Price: An amount equal to the greater of (a) the Fair Market Value, determined as of the applicable purchase date, or (b) the Minimum Price. 9 Release: A "Release" as defined in CERCLA or in any Environmental Law, unless such Release has been properly authorized and permitted in writing by all applicable Environmental Authorities or is allowed by such Environmental Law without authorizations or permits. Rent: Collectively, the Percentage Rent and Additional Charges. Room Revenues: Gross revenue from the rental of guest rooms, whether to individuals, groups or transients, at the Facility, excluding the following: (a) the amount of all credits, rebates or refunds to customers, guests or patrons; (b) all sales taxes or any other taxes imposed on the rental of such guest rooms; and (c) any fees collected for amenities including, but not limited to: telephone, laundry, movies or concessions. SARA: The Superfund Amendments and Reauthorization Act of 1986, as amended. State: The State or Commonwealth of the United States in which the Leased Property is located Subsidiaries: Corporations in which Lessee owns, directly or indirectly, more than 50% of the voting stock or control, as applicable (individually, a "Subsidiary"). Taking: A taking or voluntary conveyance during the Term hereof of all or part of the Leased Property, or any interest therein or right accruing thereto or use thereof, as the result of, or in settlement of, any Condemnation or other eminent domain proceeding affecting the Leased Property whether or not the same shall have actually been commenced. Term: As defined in Section 1.2. TSCA: The Toxic Substances Control Act, as amended. Unavoidable Delays: Delays due to strikes, lock-outs, labor unrest, inability to procure materials, power failure, acts of God, governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or other causes beyond the control of the party responsible for performing an obligation hereunder, provided that lack of funds shall not be deemed a cause beyond the control of either party hereto unless such lack of funds is caused by the failure of the other party hereto to perform any obligations of such party under this Lease or any guaranty of this Lease. Uneconomic for its Primary Intended Use: A state or condition of the Facility (after the application of any insurance proceeds if any) such that, in the good faith judgment of Lessee, reasonably exercised and evidenced by the resolution of the board of directors or other governing body of Lessee, the Facility cannot be operated on a commercially practicable basis for its Primary Intended Use, taking into account, among other relevant factors, the number of usable 10 rooms and projected revenues, such that Lessee intends to, and shall, complete the cessation of operations from the Facility. Uniform System: The Uniform System of Accounts for Hotels (8th Revised Edition, 1986) as published by the Hotel Association of New York City, Inc., as same may hereafter be revised. Unsuitable for its Primary Intended Use: A state or condition of the Facility (after the application of insurance proceeds if any) such that, in the good faith judgment of Lessee, reasonably exercised and evidenced by the resolution of the board of directors or other governing body of Lessee, due to casualty damage or loss through Condemnation, the Facility cannot function as an integrated hotel facility consistent with standards applicable to a well maintained and operated hotel. ARTICLE III 3.1 Rent. Lessee covenants and agrees to pay to Lessor in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, in immediately available funds without deduction or offset, at Lessor's address set forth in Article XXXII hereof or at such other place or to such other Person as Lessor from time to time may designate in a Notice, all Percentage Rent and Additional Charges, during the Term, for each Leased Property as set forth on Exhibit "A" hereto. (a) Percentage Rent. During the Term, Lessee shall pay percentage rent ("Percentage Rent") quarterly in arrears in an amount equal to 30% of all quarterly Room Revenue; provided, however, that, on the Capitalization Date, Percentage Rent shall be reduced to an amount equal to 25% of all quarterly Room Revenue, and such reduction shall be effective retroactive to the Capitalization Date, if the Capitalization Date occurs in 2002, or to January 1 of the year in which the Capitalization Date occurs, if the Capitalization Date occurs after 2002. (b) Officer's Certificates. An Officer's Certificate shall be delivered to Lessor quarterly setting forth the calculation of the related quarterly Percentage Rent payments 30 days after the end of each such period of each Fiscal Year (or part thereof) in the Term. The Percentage Rent payments for the periods to which the Officer's Certificates relate shall accompany such Officer's Certificate. Such quarterly payments shall be based on the formula set forth in Section 3.1(a). If Percentage Rent is reduced from 30% to 25% as provided in Section 3.1(a), then, not later than 30 days after the Capitalization Date, Lessee shall deliver to Lessor an Officer's Certificate setting forth the recalculation of all Percentage Rent payments previously paid for the year in which the Capitalization Date occurred. If Lessee has paid to Lessor Percentage Rent payments in excess of the recalculated Percentage Rent payments, then the amount of such excess shall be credited against the next Percentage Rent payments due from Lessee to Lessor until the amount of such excess has been credited in full. The obligation to pay Percentage Rent shall survive the expiration or earlier termination of the Term, and a final reconciliation, taking into account, among other relevant adjustments, any adjustments which are accrued after such expiration or termination date but which related to Percentage Rent accrued prior to such termination date, and Lessee's good faith 11 allowances, shall be made not later than two years after such expiration or termination date, but Lessee shall advise Lessor within 60 days after such expiration or termination date of Lessee's best estimate at that time of the approximate amount of such adjustments, which estimate shall not be binding on Lessee or have any legal effect whatsoever. The accrual of Percentage Rent shall cease with the termination of the Lease. 3.2 Additional Charges. In addition to the Percentage Rent, (a) Lessee also will pay and discharge as and when due and payable all other amounts, liabilities, obligations and Impositions that Lessee assumes or agrees to pay under this Lease, and (b) in the event of any failure on the part of Lessee to pay any of those items referred to in clause (a) of this Section 3.2, Lessee also will promptly pay and discharge every fine, penalty, interest and cost that may be added for non-payment or late payment of such items (the items referred to in clauses (a) and (b) of this Section 3.2 being additional rent hereunder and being referred to herein collectively as the "Additional Charges"), and Lessor shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Percentage Rent. The Lessee's obligations regarding the payment of Impositions are set out in Section 4.1. If any installment of Percentage Rent or Additional Charges (but only as to those Additional Charges that are payable directly to Lessor) shall not be paid on its due date, Lessee will pay Lessor on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Lessee pays any Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of its obligation to pay such Additional Charges to the entity to which they would otherwise be due and Lessor shall pay same from monies received from Lessee. 3.3 Lease Provision. The Rent shall be paid so that this Lease shall yield to Lessor the full amount of the installments of Percentage Rent and Additional Charges throughout the Term, all as more fully set forth in Article V, but subject to any other provisions of this Lease that expressly provide for adjustment of Rent or other charges or expressly provide that certain expenses or maintenance shall be paid or performed by Lessor. 3.4 Conversion of Property. If, during the Term, Lessee desires to provide food and beverage operations at the Facility (other than complimentary continental breakfast), Lessee shall give notice of such desire to Lessor. Lessor and Lessee shall then commence negotiations to adjust Rent to reflect the proposed change to the operation of the Facility, each acting reasonably and in good faith. All other terms of this Lease will remain substantially the same. During negotiations, which shall not extend beyond 60 days, Lessee shall not "convert" the Facility and shall continue fulfilling its obligations under the existing terms of this Lease. If no agreement is reached after such 60-day period, Lessee shall withdraw such notice and this Lease shall continue in full force. Once the "conversion" is approved or the Lessor has approved such operations, the Lessee may lease such converted facilities. If the Lessee desires to relet such facilities, the Lessor shall approve the terms of such lease unless its terms are the same or more advantageous to the Lessor than those of the prior lease. 3.5 Books and Records. Lessee shall keep full and adequate books of account and other records reflecting the results of operation of the Facility on an accrual basis, all in 12 accordance with the Uniform System and generally accepted accounting principles and the obligations of Lessee under this Lease. The books of account and all other records relating to or reflecting the operation of the Facility shall be kept either at the Facility or at Lessee's offices in Columbia, Maryland, or Norfolk, Nebraska and shall be available to Lessor and its representatives and its auditors or accountants, at all reasonable times for examination, audit, inspection, and transcription. All of such books and records pertaining to the Facility including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessor and shall not be removed from the Facility or Lessee's offices without the approval of Lessor. ARTICLE IV 4.1 Payment of Impositions. Subject to Article VII relating to permitted contests, Lessee will pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost may be added for non-payment, such payments to be made directly to the taxing or other authorities where feasible, and will promptly furnish to Lessor copies of official receipts or other satisfactory proof evidencing such payments. Lessee's obligation to pay such Impositions shall be deemed absolutely fixed upon the date such Impositions become a lien upon the Leased Property or any part thereof. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Lessee may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and in such event, shall pay such installments during the Term hereof (subject to Lessee's right of contest pursuant to the provisions of Article XII as the same respectively become due and before any fine, penalty, premium, further interest or cost may be added thereto. Lessor, at its expense, shall, to the extent required or permitted by applicable law, prepare and file all tax returns in respect of Lessor's net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock, and Lessee, at its expense, shall, to the extent required or permitted by applicable laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by governmental authorities. If any refund shall be due from any taxing authority in respect of any Imposition paid by Lessee, the same shall be paid over to or retained by Lessee if no Event of Default shall have occurred hereunder and be continuing. If an Event of Default shall have occurred and be continuing, any such refund shall be paid over to or retained by Lessor. Any such funds retained by Lessor due to an Event of Default shall be applied as provided in Article XVI. Lessor and Lessee shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. Lessee shall file all Personal Property Tax returns in such jurisdictions where it is legally required to so file. Lessor, to the extent it possesses the same, and Lessee, to the extent it possesses the same, will provide the other party, upon request, with cost and depreciation records necessary for filing returns for any property classified as personal property. Where Lessor is legally required to file Personal Property Tax returns, Lessee shall provide Lessor with copies of assessment notices in sufficient time for Lessor to file a protest. Lessor may, upon notice to Lessee, at Lessor's option and at Lessor's sole expense, protest, appeal, or institute such other proceedings (in its or Lessee's name) as Lessor may deem appropriate to effect a reduction for those Impositions to be paid by Lessor, and Lessee, at Lessor's expense as aforesaid, shall fully cooperate with Lessor in 13 such protest, appeal, or other action. Lessee may, at its sole expense, and upon notice to Lessor, protest, appeal or institute such other proceedings (in its or in Lessor's name) as Lessee may deem appropriate to effect a reduction for these Impositions to be paid by the Lessee, and Lessor, at Lessee's expense, shall fully cooperate with Lessee in such protest, appeal or other action. Lessor hereby agrees to indemnify, defend, and hold harmless Lessee from and against any claims, obligations, and liabilities against or incurred by Lessee in connection with such cooperation. Lessor, however, reserves the right to effect any such protest, appeal or other action and, upon notice to Lessee, shall control any such activity, which shall then go forward at Lessor's sole expense. Upon such notice, Lessee, at Lessor's expense, shall cooperate fully with such activities. If requested by any lender of the Lessor relating to the Leased Property, the Lessee shall provide any funds for the escrow of any Imposition, and the Lessee shall received any income on such escrowed funds and shall receive any funds released from such escrow. 4.2 Notice of Impositions. Lessor shall give prompt Notice to Lessee of all Impositions payable by Lessee hereunder of which Lessor at any time has knowledge, provided that Lessor's failure to give any such Notice shall in no way diminish Lessee's obligations hereunder to pay such Impositions, but such failure shall obviate any default hereunder for a reasonable time after Lessee receives Notice or has otherwise acquired knowledge of any Imposition which it is obligated to pay during the first taxing period applicable thereto. 4.3 Adjustment of Impositions. Impositions imposed in respect of the tax-fiscal period during which the Term terminates shall be adjusted and prorated between Lessor and Lessee, whether or not such Imposition is imposed before or after such termination, and Lessee's obligation to pay its prorated share thereof after termination shall survive such termination. 4.4 Maintenance. Lessee will be solely responsible for obtaining and maintaining utility services to the Leased Property and will pay or cause to be paid all charges for electricity, gas, oil, water, sewer and other utilities used in the Leased Property during the Term. 4.5 Insurance Premiums. To the extent provided in Section 13.1(b), Lessee will pay or cause to be paid all premiums for the insurance coverages required to be maintained by it under Article XIII. ARTICLE V 5.1 No Termination. Except as otherwise specifically provided in this Lease, and except for loss of the Franchise Agreement solely by reason of any action or inaction by Lessor, Lessee, to the extent permitted by law, shall remain bound by this Lease in accordance with its terms and shall neither take any action without the written consent of Lessor to modify, surrender or terminate the same, nor seek nor be entitled to any abatement, deduction, deferment or reduction of the Rent, or setoff against the Rent, nor shall the obligations of Lessee be otherwise affected by reason of (a) any damage to, or destruction of, any Leased Property or any portion thereof from whatever cause or any Taking of the Leased Property or any portion thereof, (b) the lawful or unlawful prohibition of, or restriction upon, Lessee's use of the Leased Property, or any portion thereof, or the interference with such use by any Person, corporation, partnership or other entity, (c) any claim which Lessee has or might have against Lessor by reason of any default or breach of any warranty by Lessor under this Lease or any other agreement between Lessor and 14 Lessee, or to which Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for any other cause whether similar or dissimilar to any of the foregoing other than a discharge of Lessee from any such obligations as a matter of law. Lessee hereby specifically waives all rights, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to (1) modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof, or (2) entitle Lessee to any abatement, reduction, suspension or deferment of the Rent or other sums payable by Lessee hereunder, except as otherwise specifically provided in this Lease. The obligations of Lessee hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease or by termination of this Lease other than by reason of an Event of Default. ARTICLE VI 6.1 Ownership of the Leased Property. Lessee acknowledges that the Leased Property is the property of Lessor and that Lessee has only the right to the possession and use of the Leased Property upon the terms and conditions of this Lease. 6.2 Lessee's Personal Property. (a) Lessee will acquire and maintain throughout the Term such Inventory as is required to operate the Leased Property in the manner contemplated by this Lease and, from and after the Capitalization Date, all Hotel Property. Lessee may (and shall as provided herein below), at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements, any items of personal property (including Inventory and Hotel Property) owned by Lessee. Lessee, at the commencement of the Term, and from time to time thereafter, shall provide Lessor with an accurate list of all such items of Lessee's personal property (collectively, the "Lessee's Personal Property"). Lessee may, subject to the first sentence of this Section 6.2 and the conditions set forth below, remove any of Lessee's Personal Property set forth on such list at any time during the Term or upon the expiration or any prior termination of the Term. All of Lessee's Personal Property, other than Inventory, not removed by Lessee within ten days following the expiration or earlier termination of the Term shall be considered abandoned by Lessee and may be appropriated, sold, destroyed or otherwise disposed of by Lessor without first giving Notice thereof to Lessee, without any payment to Lessee and without any obligation to account therefor. Lessee will, at its expense, restore the Leased Property to the condition required by Section 9.1(a), including repair of all damage to the Leased Property caused by the removal of Lessee's Personal Property, effected by Lessee. Upon the expiration or earlier termination of the Term, Lessor or its designee shall have the option to purchase all Inventory and any or all Hotel Property on hand at the Leased Property at the time of such expiration or termination for a sale price equal to the fair market value of such Inventory. Lessee may make such financing arrangements, title retention agreements, leases or other agreements with respect to the Lessee's Personal Property as it sees fit provided that Lessee first advises Lessor of any such arrangement and such arrangement expressly provides that in the 15 event of Lessee's default thereunder, Lessor (or its designee) may assume Lessee's obligations and rights under such arrangement. (b) From and after the Capitalization Date, Lessee, at its expense, shall acquire and maintain, and install, affix or assemble or place on the Land and in the Leased Improvements, all Hotel Property, all of which shall be deemed to be part of Lessee's Personal Property for all purposes hereunder, and none of which shall be deemed to be Leased Property with respect to any period after the Capitalization Date. 6.3 Lessor's Lien. To the fullest extent permitted by applicable law, Lessor is granted a lien and security interest on all Lessee's Personal Property now or hereinafter placed in or upon the Leased Property and the Lessee's bank accounts, with the exception of the Lessee's central disbursement, payroll and concentration bank accounts (the "Depository Accounts"), and such lien and security interest shall remain attached to such Lessee's Personal Property and Depository Accounts until payment in full of all Rent and satisfaction of all of Lessee's obligations hereunder; provided, however, Lessor shall subordinate its lien and security interest to that of any non-Affiliate of Lessee which finances such Lessee's Personal Property or any non-Affiliate conditional seller of such Lessee's Personal Property, the terms and conditions of such subordination to be satisfactory to Lessor in the exercise of reasonable discretion. Lessee shall, upon the request of Lessor, title the Depository Accounts in the name of the Lessor or execute such financing statements or other documents or instruments reasonably requested by Lessor to perfect the lien and security interests herein granted. In addition, the Lessor shall have unrestricted access to the Depository Accounts. To the extent that the Lessor withdraws from the Depository Accounts more than the rent and other obligations of the Lessee to the Lessor, the excess shall be a loan from the Lessee to the Lessor, repayable upon demand by the Lessee. ARTICLE VII 7.1 Condition of the Leased Property. Lessee acknowledges receipt and delivery of possession of the Leased Property. Lessee has examined and otherwise has knowledge of the condition of the Leased Property and has found the same to be satisfactory for its purposes hereunder. Lessee is leasing the Leased Property "as is" in its present condition. Lessee waives any claim or action against Lessor in respect of the condition of the Leased Property. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Provided, however, to the extent permitted by law, Lessor shall allow Lessee the benefit of all of Lessor's rights to proceed against any predecessor in title other than Lessee (or an Affiliate of Lessee which conveyed the Property to Lessor) for breaches of warranties or representations or for latent defects in the Leased Property. Lessor shall fully cooperate with Lessee in the prosecution of any such claim, in Lessor's or Lessee's name, all at Lessee's sole cost and expense. Lessee hereby agrees to indemnify, defend and hold harmless Lessor from and against any claims, obligations and liabilities against or incurred by Lessor in connection with such cooperation. 16 Provided, however, that nothing herein shall be deemed to limit Lessor's obligations under Section XL and 40.2. 7.2 Use of the Leased Property. (a) Lessee covenants that it will obtain and to maintain all approvals needed to use and operate the Leased Property and the Facility under applicable local, state and federal law. (b) Lessee shall use or cause to be used the Leased Property only as a hotel facility, and for such other uses as may be necessary or incidental to such use (the "Primary Intended Use"). Lessee shall not use the Leased Property or any portion thereof for any other use without the prior written consent of Lessor, which consent may be granted, denied or conditioned in Lessor's sole discretion. No use shall be made or permitted to be made of the Leased Property, and no acts shall be done, which will cause the cancellation or substantially increase the premium of any insurance policy covering the Leased Property or any part thereof (unless another adequate policy satisfactory to Lessor is available and Lessee pays any premium increase), nor shall Lessee sell or permit to be kept, used or sold in or about the Leased Property any article which may be prohibited by law or fire underwriter's regulations. Lessee shall, at its sole cost, comply with all of the requirements pertaining to the Leased Property of any insurance board, association, organization or company necessary for the maintenance of insurance, as herein provided, covering the Leased Property and Lessee's Personal Property. (c) Subject to the provisions of Articles XIV and XV, Lessee covenants and agrees that during the Term it will (1) operate continuously the Leased Property as a hotel facility, (2) keep in full force and effect and materiallycomply with all the provisions of the Franchise Agreement (except that Lessee shall have no obligation to complete any improvements to the Leased Property required by the franchisor unless the Lessor funds the cost thereof), (3) not terminate or amend the Franchise Agreement without the consent of Lessor, (4) maintain appropriate certifications and licenses for such use and (5) will seek to maximize the Gross Revenues generated therefrom consistent with sound business practices. (d) Lessee shall not commit or suffer to be committed any waste on the Leased Property, or in the Facility, nor shall Lessee cause or permit any nuisance thereon. (e) Lessee shall neither suffer nor permit the Leased Property or any portion thereof, or Lessee's Personal Property, to be used in such a manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case may be) title thereto or to any portion thereof, or (2) may reasonably make possible a claim or claims of adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof, except as necessary in the ordinary and prudent operation of the Facility on the Leased Property. 7.3 Lessor to Grant Easements, etc. Lessor will, from time to time, so long as no Event of Default has occurred and is continuing, at the request of Lessee and at Lessee's cost and expense (but subject to the approval of Lessor, which approval shall not be unreasonably withheld or delayed), (a) grant easements and other rights in the nature of easements with respect to the Leased Property to third parties, (b) release existing easements or other rights in the nature 17 of easements which are for the benefit of the Leased Property, (c) dedicate or transfer unimproved portions of the Leased Property for road, highway or other public purposes, (d) execute petitions to have the Leased Property annexed to any municipal corporation or utility district, (e) execute amendments to any covenants and restrictions affecting the Leased Property and (f) execute and deliver to any person any instrument appropriate to confirm or effect such grants, releases, dedications, transfers, petitions and amendments (to the extent of its interests in the Leased Property), but only upon delivery to Lessor of an Officer's Certificate stating that such grant, release, dedication, transfer, petition or amendment does not interfere with the proper conduct of the business of Lessee on the Leased Property and does not materially reduce the value of the Leased Property. ARTICLE VIII 8.1 Compliance with Legal and Insurance Requirements, etc. Subject to Section 8.3(b) below and Article XII relating to permitted contests, Lessee, at its expense, will promptly (a) comply with all applicable Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair and restoration of the Leased Property, and (b) procure, maintain and comply with all appropriate licenses and other authorizations required for any use of the Leased Property and Lessee's Personal Property then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof. 8.2 Legal Requirement Covenants. Subject to Section 8.3(b) below, Lessee covenants and agrees that the Leased Property and Lessee's Personal Property shall not be used for any unlawful purpose, and that Lessee shall not permit or suffer to exist any unlawful use of the Leased Property by others. Lessee shall acquire and maintain all appropriate licenses, certifications, permits and other authorizations and approvals needed to operate the Leased Property in its customary manner for the Primary Intended Use, and any other lawful use conducted on the Leased Property as may be permitted from time to time hereunder. Lessee further covenants and agrees that Lessee's use of the Leased Property and maintenance, alteration, and operation of the same, and all parts thereof, shall at all times materially conform to all Legal Requirements, unless the same are finally determined by a court of competent jurisdiction to be unlawful (and Lessee shall cause all such sub-tenants, invitees or others to so materially comply with all Legal Requirements). Lessee may, however, upon prior Notice to Lessor, contest the legality or applicability of any such Legal Requirement or any licensure or certification decision if Lessee maintains such action in good faith, with due diligence, without prejudice to Lessor's rights hereunder, and at Lessee's sole expense. If by the terms of any such Legal Requirement compliance therewith pending the prosecution of any such proceeding may legally be delayed without the incurrence of any lien, charge or liability of any kind against the Facility or Lessee's leasehold interest therein and without subjecting Lessee or Lessor to any liability, civil or criminal, for failure so to comply therewith, Lessee may delay compliance therewith until the final determination of such proceeding. If any lien, charge or civil or criminal liability would be incurred by reason of any such delay, Lessee, on the prior written consent of Lessor, which consent shall not be unreasonably withheld, may nonetheless contest as aforesaid and delay as aforesaid provided that such delay would not subject Lessor to criminal liability and Lessee both (a) furnishes to Lessor security reasonably satisfactory to Lessor against any loss or 18 injury by reason of such contest or delay and (b) prosecutes the contest with due diligence and in good faith. 8.3 Environmental Covenants. Lessor and Lessee (in addition to, and not in diminution of, Lessee's covenants and undertakings in Sections 8.1 and 8.2 hereof) covenant and agree as follows: (a) At all times hereafter until the later of (i) such time as all liabilities, duties or obligations of Lessee to the Lessor under the Lease have been satisfied in full and (ii) such time as Lessee completely vacates the Leased Property and surrenders possession of the same to Lessor, Lessee shall fully comply with all Environmental Laws applicable to the Leased Property and the operations thereon. Lessee agrees to give Lessor prompt written notice of (1) all Environmental Liabilities; (2) all pending, threatened or anticipated Proceedings, and all notices, demands, requests or investigations, relating to any Environmental Liability or relating to the issuance, revocation or change in any Environmental Authorization required for operation of the Leased Property; (3) all Releases at, on, in, under or in any way affecting the Leased Property, or any Release known by Lessee at, on, in or under any property adjacent to the Leased Property; and (4) all facts, events or conditions that could reasonably lead to the occurrence of any of the above-referenced matters. (b) Lessor hereby agrees to defend, indemnify and save harmless any and all Lessee Indemnified Parties from and against any and all Environmental Liabilities other than Environmental Liabilities which were caused by the acts or grossly negligent failures to act of Lessee. (c) Lessee hereby agrees to defend, indemnify and save harmless any and all Lessor Indemnified Parties from and against any and all Environmental Liabilities which were caused by the acts or grossly negligent failures to act of Lessee. (d) If any Proceeding is brought against any Indemnified Party in respect of an Environmental Liability with respect to which such Indemnified Party may claim indemnification under either Section 8.3(b) or 8.3(c), the Indemnifying Party, upon request, shall at its sole expense resist and defend such Proceeding, or cause the same to be resisted and defended by counsel designated by the Indemnified Party and approved by the Indemnifying Party, which approval shall not be unreasonably withheld; provided, however, that such approval shall not be required in the case of defense by counsel designated by any insurance company undertaking such defense pursuant to any applicable policy of insurance. Each Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel will be at the sole expense of such Indemnified Party unless such counsel has been approved by the Indemnifying Party, which approval shall not be unreasonably withheld. The Indemnifying Party shall not be liable for any settlement of any such Proceeding made without its consent, which shall not be unreasonably withheld, but if settled with the consent of the Indemnifying Party, or if settled without its consent (if its consent shall be unreasonably withheld), or if there be a final, nonappealable judgment for an adversary party in any such Proceeding, the Indemnifying Party shall indemnify and hold harmless the Indemnified Parties from and against any liabilities incurred by such Indemnified Parties by reason of such settlement or judgment. 19 (e) At any time any Indemnified Party has reason to believe circumstances exist which could reasonably result in an Environmental Liability, upon reasonable prior written notice to Lessee stating such Indemnified Party's basis for such belief, an Indemnified Party shall be given immediate access to the Leased Property (including, but not limited to, the right to enter upon, investigate, drill wells, take soil borings, excavate, monitor, test, cap and use available land for the testing of remedial technologies), Lessee's employees, and to all relevant documents and records regarding the matter as to which a responsibility, liability or obligation is asserted or which is the subject of any Proceeding; provided that such access may be conditioned or restricted as may be reasonably necessary to ensure compliance with law and the safety of personnel and facilities or to protect confidential or privileged information. All Indemnified Parties requesting such immediate access and cooperation shall endeavor to coordinate such efforts to result in as minimal interruption of the operation of the Leased Property as practicable. (f) The indemnification rights and obligations provided for in this Article VIII shall be in addition to any indemnification rights and obligations provided for elsewhere in this Lease. (g) The indemnification rights and obligations provided for in this Article VIII shall survive the termination of this Agreement. For purposes of this Section 8.3, all amounts for which any Indemnified Party seeks indemnification shall be computed net of (a) any actual income tax benefit resulting therefrom to such Indemnified Party, (b) any insurance proceeds received (net of tax effects) with respect thereto, and (c) any amounts recovered (net of tax effects) from any third parties based on claims the Indemnified Party has against such third parties which reduce the damages that would otherwise be sustained; provided that in all cases, the timing of the receipt or realization of insurance proceeds or income tax benefits or recoveries from third parties shall be taken into account in determining the amount of reduction of damages. Each Indemnified Party agrees to use its reasonable efforts to pursue, or assign to Lessee or Lessor, as the case may be, any claims or rights it may have against any third party which would materially reduce the amount of damages otherwise incurred by such Indemnified Party. Notwithstanding anything to the contrary contained in this Agreement, if Lessor shall become entitled to the possession of the Leased Property by virtue of the termination of the Lease or repossession of the Leased Property, then Lessor may assign its indemnification rights under Section 8.3 of this Agreement (but not any other rights hereunder) to any Person to whom the Lessor subsequently transfers the Leased Property, subject to the following conditions and limitations, each of which shall be deemed to be incorporated into the terms of such assignment, whether or not specifically referred to therein: (1) The indemnification rights referred to in this section may be assigned only if a known Environmental Liability then exists or if a Proceeding is then pending or, to the knowledge of Lessee or Lessor, then threatened with respect to the Leased Property. (2) Such indemnification rights shall be limited to Environmental Liabilities relating to or specifically affecting the Leased Property; and 20 (3) Any assignment of such indemnification rights shall be limited to the immediate transferee of Lessor, and shall not extend to any such transferree's successors or assigns. ARTICLE IX 9.1 Capital Improvements, Maintenance and Repair. (a) Subject to Section 9.1(b), Lessee will keep the Leased Property and all private roadways, sidewalks and curbs appurtenant thereto that are under Lessee's control, including windows and plate glass, parking lots, mechanical, electrical and plumbing systems and equipment (including conduit and ductware), and non-load bearing interior walls, and all Hotel Property in good order and repair, except for ordinary wear and tear (whether or not the need for such repairs occurred as a result of Lessee's use, any prior use, the elements or the age of the Leased Property, or any portion thereof), and, except as otherwise provided in Articles XIV or XV, with reasonable promptness, make all necessary and appropriate repairs thereto of every kind and nature, whether interior or exterior, ordinary or extraordinary, foreseen or unforeseen, or required by any governmental agency having jurisdiction over the Leased Property, except as to the structural elements of the Leased Improvements and underground utilities. (b) Notwithstanding any other provision of this Lease, unless the need for compliance with Section 9.1(a) is caused by Lessee's negligence or willful misconduct or that of its employees or agents, Lessee shall not be required to bear the costs of complying with Section 9.1(a) with respect to items classified as either (i) capital items under U.S. generally accepted accounting principles or (ii) Fixtures or, prior to the Capitalization Date, Furniture and Equipment in, on, or under the Facility or its components, except to the extent (X) that amounts are available therefor from Lessor under Article XL or otherwise or (Y) required under Articles XIV and XV on the conditions set forth therein. (c) Article XL sets forth the only obligations of Lessor to fund the cost of any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, in connection with this Lease, or to maintain the Leased Property in any way. Lessee hereby waives, to the extent permitted by law, the right to make repairs at the expense of Lessor pursuant to any law in effect at the time of the execution of this Lease or hereafter enacted. Lessor shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic's lien laws now or hereafter existing. (d) Lessee shall be permitted to prosecute claims against Lessor's predecessors in title for breach of any representation or warranty or for any latent defects in the Leased Property to be maintained by Lessee unless Lessor is already diligently pursuing such a claim. All repairs shall, to the extent reasonably achievable, be at least equivalent in quality to the original work. Lessee will not take or omit to take any action, the taking or omission of which might materially impair the value or the usefulness of the Leased Property or any part thereof for its Primary Intended Use. 21 (e) Intentionally Omitted. (f) Lessee will, upon the expiration or prior termination of the Term, vacate and surrender the Leased Property to Lessor in the condition in which the Leased Property was originally received from Lessor, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Lease and except for ordinary wear and tear (subject to the obligation of Lessee to maintain the Leased Property in accordance with Section 9.1(a) above during the entire Term of the Lease), or damage by casualty or Condemnation (subject to the obligations of Lessee to restore or repair as set forth in the Lease). 9.2 Encroachments, Restrictions, Etc. If any of the Leased Improvements, at any time, materially encroach upon any property, street or right-of-way adjacent to the Leased Property, or violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting the Leased Property, or any part thereof, or impair the rights of others under any easement or right-of-way to which the Leased Property is subject, then promptly upon the request of Lessor or at the behest of any person affected by any such encroachment, violation or impairment, Lessee shall, at its expense, subject to its right to contest the existence of any encroachment, violation or impairment and, in such case, in the event of an adverse final determination, either (a) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation or impairment, whether the same shall affect Lessor or Lessee or (b) make such changes in the Leased Improvements, and take such other actions, as Lessee in the good faith exercise of its judgment deems reasonably practicable to remove such encroachment, and to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements, and in any event take all such actions as may be necessary in order to be able to continue the operation of the Leased Improvements for the Primary Intended Use substantially in the manner and to the extent the Leased Improvements were operated prior to the assertion of such violation, impairment or encroachment. Any such alteration shall be made in conformity with the applicable requirements of Article X. Lessee's obligations under this Section 9.2 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer under any policy of title or other insurance held by Lessor. ARTICLE X 10.1 Alterations. After receiving approval of Lessor, which approval shall not be unreasonably withheld, Lessee shall have the right to make such additions, modifications or improvements to the Leased Property from time to time as Lessee deems desirable for its permitted uses and purposes, provided that such action will not significantly alter the character or purposes or significantly detract from the value or operating efficiency thereof and will not significantly impair the revenue-producing capability of the Leased Property or adversely affect the ability of the Lessee to comply with the provisions of this Lease. The cost of such additions, modifications or improvements to the Leased Property shall be paid by Lessee, and all such additions, modifications and improvements shall, without payment by Lessor at any time, be included under the terms of this Lease and upon expiration or earlier termination of this Lease shall pass to and become the property of Lessor. 22 10.2 Salvage. All materials which are scrapped or removed in connection with the making of repairs required by Articles IX or X shall be or become the property of Lessor or Lessee depending on which party is paying for or providing the financing for such work. 10.3 Joint Use Agreements. If Lessee constructs additional improvements that are connected to the Leased Property or share maintenance facilities, HVAC, electrical, plumbing or other systems, utilities, parking or other amenities, the parties shall enter into a mutually agreeable cross-easement or joint use agreement, the form of which has been approved in advance by Lessor, to make available necessary services and facilities in connection with such additional improvements, to protect each of their respective interests in the properties affected, and to provide for separate ownership, use, and/or financing of such improvements. ARTICLE XI 11.1 Liens. Subject to the provision of Article XII relating to permitted contests, Lessee will not directly or indirectly create or allow to remain and will promptly discharge at its expense any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or any attachment, levy, claim or encumbrance in respect of the Rent, not including, however, (a) this Lease, (b) the matters, if any, included as exceptions in the title policy insuring Lessor's interest in the Leased Property, (c) restrictions, liens and other encumbrances which are consented to in writing by Lessor or any easements granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for those taxes upon Lessor which Lessee is not required to pay hereunder, (e) subleases permitted by Article XXIII hereof, (f) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (1) the same are not yet payable or are payable without the addition of any fine or penalty or (2) such liens are in the process of being contested as permitted by Article XII, (g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums either disputed or not yet due provided that (1) the payment of such sums shall not be postponed under any related contract for more than 60 days after the completion of the action giving rise to such lien and such reserve or other appropriate provisions as shall be required by law or generally accepted accounting principles shall have been made therefor and (2) any such liens are in the process of being contested as permitted by Article XII hereof, (h) any liens which are the responsibility of Lessor pursuant to the provisions of Article XXXIV of this Lease. ARTICLE XII 12.1 Permitted Contests. Lessee shall have the right to contest the amount or validity of any Imposition to be paid by Lessee or any Legal Requirement or Insurance Requirement or any lien, attachment, levy, encumbrance, charge or claim ("Claims") not otherwise permitted by Article XI, by appropriate legal proceedings in good faith and with due diligence (but this shall not be deemed or construed in any way to relieve, modify or extend Lessee's covenants to pay or its covenants to cause to be paid any such charges at the time and in the manner as in this Article provided), on condition, however, that such legal proceedings shall not operate to relieve Lessee from its obligations hereunder and shall not cause the sale or risk the loss of any portion of the Leased Property, or any part thereof, or cause Lessor or Lessee to be in default under any mortgage, deed of trust, security deed or other agreement encumbering the Leased Property or any interest therein. Upon the request of Lessor, Lessee shall either (a) provide a bond or other 23 assurance reasonably satisfactory to Lessor that all Claims which may be assessed against the Leased Property together with interest and penalties, if any, thereon will be paid, or (b) deposit within the time otherwise required for payment with a bank or trust company as trustee upon terms reasonably satisfactory to Lessor, as security for the payment of such Claims, money in an amount sufficient to pay the same, together with interest and penalties in connection therewith, as to all Claims which may be assessed against or become a Claim on the Leased Property, or any part thereof, in said legal proceedings. Lessee shall furnish Lessor and any lender of Lessor with reasonable evidence of such deposit within five days of the same. Lessor agrees to join in any such proceedings at Lessee's expense if the same be required to legally prosecute such contest of the validity of such Claims; provided, however, that Lessor shall not thereby be subjected to any liability for the payment of any costs or expenses in connection with any proceedings brought by Lessee; and Lessee covenants to indemnify and save harmless Lessor from any such costs or expenses. Lessee shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Lessee or paid by Lessor and for which Lessor has been fully reimbursed. In the event that Lessee fails to pay any Claims when due or to provide the security therefor as provided in this paragraph and to diligently prosecute any contest of the same, Lessor may, upon ten days advance Notice to Lessee, pay such charges together with any interest and penalties and the same shall be repayable by Lessee to Lessor as Additional Charges at the next Payment Date provided for in this Lease. Provided, however, that should Lessor reasonably determine that the giving of such Notice would risk loss to the Leased Property or cause damage to Lessor, then Lessor shall give such Notice as is practical under the circumstances. Lessor reserves the right to contest any of the Claims at its expense not pursued by Lessee. Lessor and Lessee agree to cooperate in coordinating the contest of any claims. ARTICLE XIII 13.1 General Insurance Requirements. (a) Coverages. During the Term of this Lease, Lessee shall at all times keep the Leased Property and Hotel Property insured with the kinds and amounts of insurance described below provided, however, that the Lessor shall be responsible for payment of any insurance requested by it pursuant to paragraph (ix) of Section 13.1(a) of this Lease if not of a type customarily kept by similar business and properties. This insurance shall be written by companies licensed and authorized to issue insurance in the State. The policies must name Lessor as the insured or as an additional named insured, as the case may be. Losses shall be payable to Lessor or Lessee as provided in this Lease. Any loss adjustment shall require the written consent of Lessor and Lessee, each acting reasonably and in good faith. Evidence of insurance shall be deposited with Lessor. The policies on the Leased Property, including the Leased Improvements, Fixtures and Lessee's Personal Property, shall include: (i) Building insurance on the "Special Form" (formerly "All Risk" form) (which may include earthquake and flood in reasonable amounts as determined by Lessor) in an amount not less than 100% of the then full replacement cost thereof (as defined in Section 13.2) or such other amount which is acceptable to Lessor, and personal property insurance on the "Special Form" in the full amount of the replacement cost thereof; 24 (ii) Insurance for loss or damage (direct and indirect) from steam boilers, pressure vessels or similar apparatus, now or hereafter installed in the Facility, in the minimum amount of $5,000,000 or in such lesser or greater amounts as are then customary or as may be reasonably requested by Lessor from time to time; (iii) Loss of income insurance on the "Special Form", in the amount of one year of Percentage Rent for the benefit of Lessor, and business interruption insurance on the "Special Form" in the amount of one year of gross profit, for the benefit of Lessor or Lessee; (iv) Commercial general liability insurance, with amounts not less than $10,000,000 covering each of the following: bodily injury, death, or property damage liability per occurrence, personal and advertising injury, general aggregate, products and completed operations, with respect to Lessor, and "all risk legal liability" (including liquor law or "dram shop" liability, if liquor or alcoholic beverages are served on the Leased Property) with respect to Lessor and Lessee; (v) Insurance covering such other hazards and in such amounts as may be customary for comparable properties in the area of the Leased Property and is available from insurance companies, insurance pools or other appropriate companies authorized to do business in the State at rates which are economically practicable in relation to the risks covered as may be reasonably requested by Lessor; (vi) Fidelity bonds with limits and deductibles as may be reasonably requested by Lessor, covering Lessee's employees in job classifications normally bonded under prudent hotel management practices in the United States or otherwise required by law; (vii) Workmen's compensation insurance to the extent necessary to protect Lessor and the Leased Property against Lessee's workman's compensation claims; (viii) Vehicle liability insurance for owned, non-owned, and hired vehicles, in the amount of $1,000,000; and (ix) Such other insurance as Lessor may reasonably request for facilities such as the Leased Property and the operation thereof. (b) Responsibility for Premiums. Lessee shall keep in force the foregoing insurance coverages at its expense; provided, however, that Lessor shall reimburse Lessee for any other casualty coverages required by Lessor not specifically required in (i) - (viii) of subsection (a) above. If requested by any Lender of the Lessor relating to the Leased Property, the Lessee shall provide any funds for the escrow of any insurance premiums, and the Lessee shall receive any income on such escrowed funds and shall receive any funds released from such account. 13.2 Replacement Cost. The term "full replacement cost" as used herein shall mean the actual replacement cost of the Leased Property requiring replacement from time to time including an increased cost of construction endorsement, if available, and the cost of debris removal. In the event either party believes that full replacement cost (the then-replacement cost 25 less such exclusions) has increased or decreased at any time during the Lease Term, it shall have the right to have such full replacement cost re-determined. 13.3 Worker's Compensation. Lessee, at its sole cost, shall at all times maintain adequate worker's compensation insurance coverage for all persons employed by Lessee on the Leased Property. Such worker's compensation insurance shall be in accordance with the requirements of applicable local, state and federal law. 13.4 Waiver of Subrogation. All insurance policies carried by Lessor or Lessee covering the Leased Property, the Fixtures, the Facility or Lessee's Personal Property, including, without limitation, contents, fire and casualty insurance shall expressly waive any right of subrogation on the part of the insurer against the other party. The parties hereto agree that their policies will include such waiver clause or endorsement so long as the same are obtainable without extra cost, and in the event of such an extra charge the other party, at its election, may pay the same, but shall not be obligated to do so. Each party agrees to seek recovery from any applicable insurance coverage available to such party prior to seeking recovery against the other. 13.5 Form Satisfactory, etc. All of the policies of insurance referred to in this Article XIII shall be written in a form, with deductibles and by insurance companies satisfactory to Lessor and also shall meet and satisfy the requirements of any ground lessor, lender or franchisor having any interest in the Leased Premises. Subject to the right to reimbursement or credit specified in Section XIII, Lessee shall pay all of the premiums therefor, and deliver such policies or certificates thereof to Lessor prior to their effective date (and, with respect to any renewal policy, 30 days prior to the expiration of the existing policy), and in the event of the failure of Lessee either to effect such insurance as herein called for or to pay the premiums therefor, or to deliver such policies or binding certificates thereof to Lessor at the times required, Lessor shall be entitled, but shall have no obligation, to effect such insurance and pay the premiums therefor, and Lessee shall reimburse Lessor for any premium or premiums paid by Lessor for the coverages required under this Section (other than the premiums required to be paid or reimbursed to Lessee by Lessor in accordance with Section 13.1(b)) upon written demand therefor, and Lessee's failure to repay the same within 30 days after Notice of such failure from Lessor shall constitute an Event of Default within the meaning of Section 16.1(c). Each insurer mentioned in this Article XIII shall agree, by endorsement to the policy or policies issued by it, or by independent instrument furnished to Lessor, that it will give to Lessor 30 days' written notice before the policy or policies in question shall be materially altered, allowed to expire or canceled. 13.6 Change in Limits. If either Lessor or Lessee at any time deems the limits of the personal injury or property damage under the comprehensive public liability insurance then carried to be either excessive or insufficient, Lessor and Lessee shall endeavor in good faith to agree on the proper and reasonable limits for such insurance to be carried and such insurance shall thereafter be carried with the limits thus agreed on until further change pursuant to the provisions of this Section. 13.7 Blanket Policy. Notwithstanding anything to the contrary contained in this Article XIII, Lessee or Lessor may bring the insurance provided for herein within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Lessee or Lessor; 26 provided, however, that the coverage afforded to Lessor and Lessee will not be reduced or diminished or otherwise be different from that which would exist under a separate policy meeting all other requirements of this Lease by reason of the use of such blanket policy of insurance, and provided further that the requirements of this Article XIII are otherwise satisfied. 13.8 Separate Insurance. Lessee shall not on Lessee's own initiative or pursuant to the request or requirement of any third party, take out separate insurance concurrent in form or contributing in the event of loss with that required in this Article to be furnished, or increase the amount of any then existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of the insurance, including in all cases Lessor, are included therein as additional insureds, and the loss is payable under such additional separate insurance in the same manner as losses are payable under this Lease. Lessee shall immediately notify Lessor that Lessee has obtained any such separate insurance or of the increasing of any of the amounts of the then existing insurance. 13.9 Reports On Insurance Claims. Lessee shall promptly investigate and make a complete and timely written report to the appropriate insurance company as to all accidents, claims for damage relating to the ownership, operation, and maintenance of the Facility, any damage or destruction to the Facility and the estimated cost of repair thereof and shall prepare any and all reports required by any insurance company in connection therewith. All such reports shall be timely filed with the insurance company as required under the terms of the insurance policy involved, and a final copy of such report shall be furnished to Lessor. Lessee shall be authorized to adjust, settle, or compromise any insurance loss, or to execute proofs of such loss, in the aggregate amount of $5,000 or less, with respect to any single casualty or other event. ARTICLE XIV 14.1 Insurance Proceeds. Subject to the provisions of Section 14.6, and the senior rights of any lender, all proceeds payable by reason of any loss or damage to the Leased Property, or any portion thereof, and insured under any policy of insurance required by Article XIII of this Lease shall be paid to Lessor and held in trust by Lessor in an interest-bearing account, shall be made available, if applicable, for reconstruction or repair, as the case may be, of any damage to or destruction of the Leased Property, or any portion thereof, and, if applicable, shall be paid out by Lessor from time to time for the reasonable costs of such reconstruction or repair upon satisfaction of reasonable terms and conditions specified by Lessor. Any excess proceeds of insurance remaining after the completion of the restoration or reconstruction of the Leased Property shall be paid to Lessee. If neither Lessor nor Lessee is required or elects to repair and restore, and the Lease is terminated without purchase by Lessee as described in Section 14.2, all such insurance proceeds shall be retained by Lessor. All salvage resulting from any risk covered by insurance shall belong to Lessor. 14.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance. (a) Except as provided in Section 14.5, if during the Term the Leased Property is totally or partially destroyed by a risk covered by the insurance described in Article XIII and the Facility thereby is rendered Unsuitable for its Primary Intended Use, Lessee shall, at Lessee's option, either (1) restore the Facility to substantially the same condition as existed 27 immediately before the damage or destruction and otherwise in accordance with the terms of the Lease, or (2) offer to acquire the Leased Property from Lessor for a purchase price equal to the Rejectable Offer Price of the Leased Property. If Lessee restores the Facility, the insurance proceeds shall be paid out by Lessor from time to time for the reasonable costs of such restoration upon satisfaction of reasonable terms and conditions, and any excess proceeds remaining after such restoration shall be paid to Lessee. If Lessee acquires the Leased Property, Lessee shall receive the insurance proceeds. If Lessor does not accept Lessee's offer so to purchase the Leased Property within 90 days, Lessee may withdraw its offer to purchase the Leased Property and, if so withdrawn, Lessee may terminate the Lease with respect to the Leased Property without further liability hereunder and Lessor shall be entitled to retain all insurance proceeds. (b) Except as provided in Section 14.5, if during the Term the Leased Property is partially destroyed by a risk covered by the insurance described in Article XIII, but the Facility is not thereby rendered Unsuitable for its Primary Intended Use, Lessee shall restore the Facility to substantially the same condition as existed immediately before the damage or destruction and otherwise in accordance with the terms of the Lease. Such damage or destruction shall not terminate this Lease; provided, however, that if Lessee cannot within a reasonable time obtain all necessary government approvals, including building permits, licenses and conditional use permits, after diligent efforts to do so, to perform all required repair and restoration work and to operate the Facility for its Primary Intended Use in substantially the same manner as that existing immediately prior to such damage or destruction and otherwise in accordance with the terms of the Lease, Lessee may make a written offer to Lessor to purchase the Leased Property for a purchase price equal to the Rejectable Offer Price of the Leased Property determined without regard to such damage or destruction. If Lessee makes such offer and Lessor does not accept the same within 30 days after Lessee delivers its offer to Lessor, Lessee shall withdraw such offer, in which event this Lease shall remain in full force and effect and Lessee shall immediately proceed to restore the Facility to substantially the same condition as existed immediately before such damage or destruction and otherwise in accordance with the terms of the Lease. If Lessee restores the Facility, the insurance proceeds shall be paid out by Lessor from time to time for the reasonable costs of such restoration upon satisfaction of reasonable terms and conditions specified by Lessor, and any excess proceeds remaining after such restoration shall be paid to Lessee. (c) If the cost of the repair or restoration exceeds the amount of proceeds received by Lessor from the insurance required under Article XIII, Lessee shall be obligated to contribute any excess amounts needed to restore the Facility prior to commencing work thereon. Such difference shall be paid by Lessee to Lessor promptly after Lessee receives Lessor's written invoice therefore, to be held in trust, together with any other insurance proceeds, for application to the cost of repair and restoration. (d) If Lessor accepts Lessee's offer to purchase the Leased Property under this Article, this Lease shall terminate as to the Leased Property upon payment of the purchase price, and Lessor shall remit to Lessee all insurance proceeds pertaining to the Leased Property being held in trust by Lessor. 28 14.3 Reconstruction in the Event of Damage or Destruction Not Covered by Insurance. Except as provided in Section 14.5, if during the Term the Facility is totally or materially destroyed by a risk not covered by the insurance described in Article XIII, whether or not such damage or destruction renders the Facility Unsuitable for its Primary Intended Use, Lessee at its option shall either, (a) at Lessee's sole cost and expense, restore the Facility to substantially the same condition it was in immediately before such damage or destruction and such damage or destruction shall not terminate this Lease, or (b) make a written offer to purchase the Leased Property for a purchase price equal to the Rejectable Offer Price of the Leased Property without regard to such damage or destruction. If Lessor does not accept Lessee's offer so to purchase the Leased Property within 90 days after Lessee delivers its offer to Lessor, Lessee may withdraw its offer to purchase the Leased Property and, if so withdrawn, Lessee may terminate the Lease with respect to the Leased Property without further liability hereunder. If such damage or destruction is not material, Lessee shall, at Lessee's sole cost and expense, restore the Facility to substantially the same condition as existed immediately before the damage or destruction and otherwise in accordance with the terms of the Lease, and such damage or destruction shall not terminate the Lease. 14.4 Lessee's Property. All insurance proceeds payable by reason of any loss of or damage to any of Lessee's Personal Property shall be paid to Lessee; provided, however, no such payments shall diminish or reduce the insurance payments otherwise payable to or for the benefit of Lessor hereunder. 14.5 Damage Near End of Term. Notwithstanding any provisions of Section 14.2 or 14.3 appearing to the contrary, if damage to or destruction of the Facility rendering it unsuitable for its Primary Intended Use occurs during the last 24 months of the Term, then either party shall have the right to terminate this Lease by giving written notice to the other within 30 days after the date of damage or destruction, whereupon all accrued Rent shall be paid immediately, and this Lease shall automatically terminate five days after the date of such notice. 14.6 Waiver. Lessee hereby waives any statutory rights of termination that may arise by reason of any damage or destruction of the Facility that Lessor is obligated to restore or may restore under any of the provisions of this Lease. ARTICLE XV 15.1 Definitions. (a) "Condemnation" means a Taking resulting from (1) the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending. (b) "Date of Taking" means the date the Condemnor has the right to possession of the property being condemned. 29 (c) "Award" means all compensation, sums or anything of value awarded, paid or received on a total or partial Condemnation. (d) "Condemnor" means any public or quasi-public authority, or private corporation or individual, having the power of Condemnation. 15.2 Parties' Rights and Obligations. If during the Term there is any Condemnation of all or any part of the Leased Property or any interest in this Lease, the rights and obligations of Lessor and Lessee shall be determined by this Article XV. 15.3 Total Taking. If title to the fee of the whole of the Leased Property is condemned by any Condemnor, subject to the provisions of Section 15.6, this Lease shall cease and terminate as of the Date of Taking by the Condemnor. If title to the fee of less than the whole of the Leased Property is so taken or condemned, which nevertheless renders the Leased Property Unsuitable or Uneconomic for its Primary Intended Use, Lessee and Lessor shall each have the option, by notice to the other, at any time prior to the Date of Taking, to terminate this Lease as of the Date of Taking. Upon such date, if such Notice has been given, this Lease shall thereupon cease and terminate. All Percentage Rent and Additional Charges paid or payable by Lessee hereunder shall be apportioned as of the Date of Taking, and Lessee shall promptly pay Lessor such amounts. In the event of any such termination, the provisions of Section 15.7 shall apply. 15.4 Allocation of Award. The total Award made with respect to the Leased Property or for loss of rent, or for Lessor's loss of business beyond the Term, shall be solely the property of and payable to Lessor. Any Award made for loss of Lessee's business during the remaining Term, if any, for the taking of Lessee's Personal Property, or for removal and relocation expenses of Lessee in any such proceedings shall be the sole property of and payable to Lessee. In any Condemnation proceedings Lessor and Lessee shall each seek its Award in conformity herewith, at its respective expense; provided, however, Lessee shall not initiate, prosecute or acquiesce in any proceedings that may result in a diminution of any Award payable to Lessor. 15.5 Partial Taking. If title to less than the whole of the Leased Property is condemned, and the Leased Property is still suitable for its Primary Intended Use, and not Uneconomic for its Primary Intended Use, or if Lessee or Lessor is entitled but neither elects to terminate this Lease as provided in Section 15.3, Lessee at the expense of the Lessor shall with all reasonable dispatch restore the untaken portion of any Leased Improvements so that such Leased Improvements constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as the Leased Improvements existing immediately prior to the Condemnation. In the event of any Condemnation as described in this Section 15.5, the entire amount of the Award shall be paid to the Lessor. 15.6 Temporary Taking. If the whole or any part of the Leased Property or of Lessee's interest under this Lease is condemned by any Condemnor for its temporary use or occupancy, this Lease shall not terminate by reason thereof, Lessee, however, shall be released from its obligations to pay, in the manner and at the terms herein specified, the Additional Charges. Except only to the extent that Lessee may be prevented from so doing pursuant to the terms of the order of the Condemnor, Lessee shall continue to perform and observe all of the other terms, covenants, conditions and obligations hereof on the part of the Lessee to be performed and 30 observed, as though such Condemnation had not occurred. In the event of any Condemnation as described this Section 15.6, the entire amount of any Award made for such Condemnation allocable to the Term of this Lease, whether paid by way of damages, rent or otherwise, shall be paid to Lessor. Lessor covenants that upon the termination of any such period of temporary use or occupancy it will, at its sole cost and expense, restore the Leased Property as nearly as may be reasonably possible to the condition in which the same was immediately prior to such Condemnation, unless such period of temporary use or occupancy extends beyond the expiration of the Term, in which case Lessor shall not be required to make such restoration. 15.7 Lessee's Offer. In the event of the termination of this Lease as provided in Section 15.3, Lessee shall offer to acquire the Leased Property from Lessor for a purchase price equal to the Rejectable Offer Price of the Leased Property without regard to such taking and, if accepted, Lessee shall receive the entire Award. If Lessor does not accept Lessee's offer to purchase the Leased Property, Lessee shall withdraw its offer to purchase the Leased Property and, if so withdrawn, Lessee may terminate the Lease with respect to the Leased Property without further liability hereunder, except for payment of Rent as provided in the penultimate sentence of Section 15.3 or for matters which by their express terms survive termination of this Lease, and Lessor shall be entitled to retain the Award except as provided in Section 15.4. ARTICLE XVI 16.1 Events of Default. If any one or more of the following events (individually, an "Event of Default") occurs: (a) if an event of default occurs, which is not cured, under any other lease between Lessor or any Affiliate of Lessor and Lessee or any Affiliate of Lessee; or (b) if Lessee fails to make payment of the Percentage Rent or Additional Charges within ten days after the same becomes due and payable; (c) if Lessee fails to observe or perform any other term, covenant or condition of this Lease and such failure is not cured by Lessee within a period of 30 days after receipt by the Lessee of Notice thereof from Lessor, unless such failure cannot with due diligence be cured within a period of 30 days, in which case it shall not be deemed an Event of Default if Lessee proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof provided, however, in no event shall such cure period extend beyond 90 days after such Notice; or (d) if the Lessee shall file a petition in bankruptcy or reorganization for an arrangement pursuant to any federal or state bankruptcy law or any similar federal or state law, or shall be adjudicated a bankrupt or shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts generally as they become due, or if a petition or answer proposing the adjudication of the Lessee as a bankrupt or its reorganization pursuant to any federal or state bankruptcy law or any similar federal or state law shall be filed in any court and the Lessee shall be adjudicated a bankrupt and such adjudication shall not be vacated or set aside or stayed within 60 days after the entry of an order in respect thereof, or if a receiver of the Lessee or of the whole or substantially all of the assets of the Lessee shall be appointed in any 31 proceeding brought by the Lessee or if any such receiver, trustee or liquidator shall be appointed in any proceeding brought against the Lessee and shall not be vacated or set aside or stayed within 120 days after such appointment; or (e) if Lessee is liquidated or dissolved, or begins proceedings toward such liquidation or dissolution, or, in any manner, permits the sale or divestiture of substantially all of its assets; or (f) if the estate or interest of Lessee in the Leased Property or any part thereof is voluntarily or involuntarily transferred, assigned, conveyed, levied upon or attached in any proceeding (unless Lessee is contesting such lien or attachment in good faith in accordance with Article XI hereof); or (g) if, except as a result of damage, destruction or a partial or complete Condemnation, Lessee voluntarily ceases operations on the Leased Property; or (h) if a material event of default has been declared by the franchisor under the Franchise Agreement with respect to the Facility on the Leased Premises which has not been cured within any applicable cure period or such Franchise Agreement has been terminated as a result of any action or failure to act by the Lessee; then, and in any such event, Lessor may exercise one or more remedies available to it herein or at law or in equity, including but not limited to its right to terminate this Lease by giving Lessee not less than ten days' Notice of such termination except in the case of a default under Sections 16.1(e), 16.1(f), or 16.1(g), in which case notice shall not be required. If litigation is commenced with respect to any alleged default under this Lease, the prevailing party in such litigation shall receive, in addition to its damages incurred, such sum as the court shall determine as its reasonable attorneys' fees, and all costs and expenses incurred in connection therewith. No Event of Default (other than a failure to make a payment of money) shall be deemed to exist under clause (d) during any time for up to one year the curing thereof is prevented by an Unavoidable Delay, provided that upon the cessation of such Unavoidable Delay, Lessee remedies such default or Event of Default without further delay. 16.2 Surrender. If an Event of Default occurs (and the event giving rise to such Event of Default has not been cured within the curative period relating thereto as set forth in Section XVI) and is continuing, whether or not this Lease has been terminated pursuant to Section XVI, Lessee shall, if requested by Lessor so to do, immediately surrender and assign to Lessor or Lessor's designee the Leased Property including, without limitation, any and all books, records, files, licenses, permits and keys relating thereto, and quit the same and Lessor may enter upon and repossess the Leased Property by reasonable force, summary proceedings, ejectment or otherwise, and may remove Lessee and all other persons and any and all personal property from the Leased Property, subject to rights of any hotel guests and to any requirement of law. Lessee hereby waives any and all requirements of applicable laws for service of notice to re-enter the Leased Property. Lessor shall be under no obligation to, but may if it so chooses, relet the Leased Property or otherwise mitigate Lessor's damages. 32 16.3 Damages. Neither (a) the termination of this Lease, (b) the repossession of the Leased Property, (c) the failure of Lessor to relet the Leased Property, nor (d) the reletting of all or any portion thereof, shall relieve Lessee of its liability and obligations hereunder, all of which shall survive any such termination, repossession or reletting. In the event of any such termination, Lessee shall forthwith pay to Lessor all Rent due and payable with respect to the Leased Property to and including the date of such termination. Lessee shall forthwith pay to Lessor, at Lessor's option, as and for liquidated and agreed current damages for Lessee's default, either: (1) Without termination of Lessee's right to possession of the Leased Property, each installment of Rent and other sums payable by Lessee to Lessor under the Lease as the same becomes due and payable, which Rent and other sums shall bear interest at the Overdue Rate, and Lessor may enforce, by action or otherwise, any other term or covenant of this Lease; (2) the sum of: (A) the unpaid Rent which had been earned at the time of termination, repossession or reletting, and (B) the worth at the time of termination, repossession or reletting of the amount by which the unpaid Rent for the balance of the Term after the time of termination, repossession or reletting, exceeds the amount of such rental loss that Lessee proves could be reasonably avoided and as reduced for rentals received after the time of termination, repossession or reletting, if and to the extent required by applicable law, the worth at the time of termination, repossession or reletting of the amount referred to in this subparagraph 16.3(2)(B) is computed by discounting such amount at the discount rate of the Federal Reserve Bank of New York at the time of award plus 1%, and (C) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things, would be likely to result therefrom. 16.4 Waiver. If this Lease is terminated pursuant to Article XVI, Lessee waives, to the extent permitted by applicable law, (a) any right to a trial by jury in the event of summary proceedings to enforce the remedies set forth in this Article XVI, and (b) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt and Lessor waives any right to "pierce the corporate veil" of Lessee other than to the extent funds shall have been inappropriately paid any Affiliate of Lessee following a default resulting in an Event of Default. 16.5 Application of Funds. Any payments received by Lessor under any of the provisions of this Lease during the existence or continuance of any Event of Default shall be 33 applied to Lessee's obligations in the order that such obligations are due or as may be prescribed by the laws of the State. ARTICLE XVII 17.1 Lessor's Right to Cure Lessee's Default. If Lessee fails to make any payment or to perform any act required to be made or performed under this Lease including, without limitation, Lessee's failure to comply with the terms of any Franchise Agreement other than a failure to complete improvements required by the franchisor because the Lessor has not provided Lessee with the funds therefor, and fails to cure the same within the relevant time periods provided in Article XVI, Lessor, without waiving or releasing any obligation of Lessee, and without waiving or releasing any obligation or default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of Lessee, and may, to the extent permitted by law, enter upon the Leased Property for such purpose and, subject to Section 16.4, take all such action thereon as, in Lessor's reasonable opinion, may be necessary or appropriate therefore. Before entering the Leased Property for the purposes provided in this Article XVI, Lessor shall notify the Lessee of its intention to enter the Leased Property unless such Notice would be impractical. No such entry shall be deemed an eviction of Lessee. All sums so paid by Lessor and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses, in each case to the extent permitted by law) so incurred, together with a late charge thereon (to the extent permitted by law) at the Overdue Rate from the date on which such sums or expenses are paid or incurred by Lessors, shall be paid by Lessee to Lessor on demand. The obligations of Lessee and rights of Lessor contained in this Article shall survive the expiration or earlier termination of this Lease. ARTICLE XVIII 18.1 Provisions Relating to Purchase of the Leased Property. If Lessee purchases the Leased Property from Lessor pursuant to any of the terms of this Lease, the closing of the purchase shall occur 90 days after Lessor accepts Lessee's offer to purchase the Leased Property, unless the provision of the Lease under which such offer was made specifies a different closing date, in which case the date set forth in such provision shall be the closing date. At such closing, Lessor shall, upon receipt from Lessee of the applicable purchase price, together with full payment of any unpaid Rent due and payable with respect to any period ending on or before the date of the purchase, deliver to Lessee an appropriate limited or special warranty deed or other conveyance conveying the entire interest of Lessor in and to the Leased Property to Lessee free and clear of all encumbrances other than (a) those that Lessee has agreed hereunder to pay or discharge, (b) those mortgage liens, if any, that Lessee has agreed in writing to accept and to take title subject to, (c) encumbrances, easements, licenses or rights of way required to be imposed on the Leased Property under Section 7.3, (d) any other encumbrances permitted to be imposed on the Leased Property under the provisions of Article XXXIV that are assumable at no cost to Lessee or to which Lessee may take subject without cost to Lessee and relating to the period of time after the purchase (e) any taxes not yet due and payable; and (f) those encumbrances created, requested or consented to by Lessee. The difference between the applicable purchase price and the total of the encumbrances assumed or taken subject to shall be paid in cash to Lessor or as Lessor may direct, in federal or other immediately available funds, except as otherwise mutually agreed by Lessor and Lessee. All expenses of such conveyance, including, 34 without limitation, the cost of title examination or title insurance, if desired by Lessee, Lessee's attorneys' fees incurred in connection with such conveyance and release, and transfer taxes and recording fees, shall be paid by Lessee. Lessor shall pay its attorney's fees. This Article XVIII is subject to the prior rights of any lender whose lien is secured by the Leased Premises. ARTICLE XIX 19.1 Personal Property Limitation. Anything contained in this Lease to the contrary notwithstanding, the average of the fair market values of the items of personal property that are leased to the Lessee under this Lease at the beginning and at the end of any Fiscal Year shall not exceed 15% of the average of the fair market values of the Leased Property at the beginning and at the end of such Fiscal Year. This Section 19.1 is intended to ensure that the Rent qualifies as "rents from real property," within the meaning of Section 856(d) of the Code, or any similar or successor provisions thereto, and shall be interpreted in a manner consistent with such intent. 19.2 Sublease Rent Limitation. Anything contained in this Lease to the contrary notwithstanding, Lessee shall not sublet the Leased Property on any basis such that the rental or other amounts to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the net income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the Rent would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto. 19.3 Sublease Tenant Limitation. Anything contained in this Lease to the contrary notwithstanding, Lessee shall not sublease the Leased Property or any portions thereof to any Person in which Humphrey Hospitality Trust, Inc. owns, directly or indirectly, a 10% or more interest, within the meaning of Section 856(d)(2)(B) of the Code, or any similar or successor provisions thereto. 19.4 TRS Election and Limitations. Lessee agrees to make an election to be and to operate as a "taxable REIT subsidiary" of Humphrey Hospitality Trust, Inc. within the meaning of Section 856(1) of the Code. Lessee shall not (A) directly or indirectly operate or manage a "lodging facility" within the meaning of Section 856(d)(9)(D)(ii) of the Code or a "health care facility" within the meaning of Section 856(e)(6)(D)(ii) of the Code or (B) directly or indirectly provide to any other person (under a franchise, license, or otherwise) rights to any brand name under which any lodging facility or health care facility is operated; provided, however, that Lessee may provide such rights to a manager to operate or manage a lodging facility as long as such rights are held by Lessee as a franchisee, licensee, or in a similar capacity and such lodging facility is either owned by Lessee or is leased to Lessee by Lessor or one of its Affiliates. Lessee agrees that it will, at all times during the Term, cause the Leased Property to be operated and managed by a manager that meets all of the following requirements (a) The manager does not own, directly or indirectly, more than 35% of the outstanding stock of Humphrey Hospitality Trust, Inc. (b) If the manager is a corporation, no more than 35% of the total combined voting power of its outstanding stock (or 35% of the total shares of all classes of its outstanding 35 stock) or, if it is not a corporation, no more than 35% of the ownership interest in its assets or net profits is owned, directly or indirectly, by one or more Persons owning 35% or more of the outstanding stock of Humphrey Hospitality Trust, Inc. (c) Neither Humphrey Hospitality Trust, Inc., the Lessor, the Lessee, nor any Affiliate thereof derives any income from the manager, except for income from the leasing of the Norfolk, Nebraska office building. (d) At the time that the manager enters into a management agreement with the Lessee to operate the Leased Property, the manager (or any "related person" within the meaning of Section 856(d)(9)(F) of the Code) is actively engaged in the trade or business of operating "qualified lodging facilities" within the meaning of Section 856(d)(9)(D) of the Code for any Person who is not a "related person" within the meaning of Section 856(d)(9)(F) of the Code with respect to Humphrey Hospitality Trust, Inc or the Lessee (an "Unrelated Person"). For purposes of determining whether the requirement of this paragraph (d) has been met, a manager shall be treated as being actively engaged in such a trade or business if the manager (i) derives at least 10% of both its profits and revenue from operating "qualified lodging facilities" within the meaning of Section 856(d)(9)(D) of the Code for Unrelated Persons or (ii) complies with any regulations or other administrative guidance under Section 856(d)(9) of the Code that provide a "safe harbor " rule with respect to the amount of hotel management business with Unrelated Persons that is necessary to qualify as an "eligible independent contractor" within the meaning such Code section. 19.5 Manager Officer and Employee Limitation. Anything contained in this Lease to the contrary notwithstanding, none of the officers or employees of the manager (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property) shall be officers or employees of Humphrey Hospitality Trust, Inc. In addition, if a Person serves as both (a) a director of the manager (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property) and (b) a trustee and officer (or employee) of Humphrey Hospitality Trust, Inc. that Person shall not receive any compensation for serving as a director of the manager (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property). Furthermore, if a Person serves as both (a) a trustee of Humphrey Hospitality Trust, Inc. and (b) a director and officer (or employee) of the manager (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property), that Person shall not receive any compensation for serving as a trustee of Humphrey Hospitality Trust, Inc. ARTICLE XX 20.1 Holding Over. If Lessee for any reason remains in possession of the Leased Property after the expiration or earlier termination of the Term, such possession shall be as a tenant at sufferance during which time Lessee shall pay as rental each month two times the aggregate of (a) one-twelfth of the aggregate Percentage Rent payable with respect to the last Fiscal Year of the Term, (b) all Additional Charges accruing during the applicable month and (c) all other sums, if any, payable by Lessee under this Lease with respect to the Leased Property. During such period, Lessee shall be obligated to perform and observe all of the terms, 36 covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by law to tenancies at sufferance, to continue its occupancy and use of the Leased Property. Nothing contained herein shall constitute the consent, express or implied, of Lessor to the holding over of Lessee after the expiration or earlier termination of this Lease. ARTICLE XXI 21.1 Risk of Loss. During the Term, the risk of loss or of decrease in the enjoyment and beneficial use of the Leased Property in consequence of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures, attachments, levies or executions (other than those caused by Lessor and those claiming from, through or under Lessor) is assumed by Lessee, and, in the absence of gross negligence, willful misconduct or breach of this Lease by Lessor pursuant to Section 34.3, Lessor shall in no event be answerable or accountable therefor, nor shall any of the events mentioned in this Section entitle Lessee to any abatement of Rent except as specifically provided in this Lease. ARTICLE XXII 22.1 Indemnification. Notwithstanding the existence of any insurance, and without regard to the policy limits of any such insurance or self-insurance, but subject to the last sentence of Section 13.4 if any insurance coverage is applicable, Section 16.4 and Article VII, Lessee will protect, indemnify, hold harmless and defend Lessor Indemnified Parties from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorney's fees and expenses) to the extent permitted by law imposed upon or incurred or asserted against Lessor Indemnified Parties by reason of: any accident, injury to or death of persons or loss of or damage to property occurring on or about the Leased Property or adjoining sidewalks, including without limitation any claims under liquor liability, "dram shop" or similar laws, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Lessee or any of its agents, employees or invitees of the Leased Property or Lessee's Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which a Lessor Indemnified Party is made a party or participant related to such use, misuse, non-use, condition, management, maintenance, or repair thereof by Lessee or any of its agents, employees or invitees, including any failure of Lessee or any of its agents, employees or invitees to perform any obligations under this Lease or imposed by applicable law (other than arising out of Condemnation proceedings), (c) any Impositions that are the obligations of Lessee pursuant to the applicable provisions of this Lease, (d) any failure on the part of Lessee to perform or comply with any of the terms of this Lease, and (e) the non-performance of any of the terms and provisions of any and all existing and future subleases of the Leased Property to be performed by the landlord thereunder and (f) the gross negligent acts and omissions and willful misconduct of Lessee. Lessor shall indemnify, save harmless and defend Lessee Indemnified Parties from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses imposed upon or incurred by or asserted against Lessee Indemnified Parties as a result of the gross negligence or willful misconduct of Lessor arising in connection with this Lease. The Lessor's obligations to indemnify Lessee Indemnified Parties shall be limited to the value of Lessor's equity interest in the Facilities. Nothing herein shall be construed as requiring Lessor to 37 indemnify a Lessee Indemnified Party against its own grossly negligent acts and omissions and willful misconduct. Any amounts that become payable by an Indemnifying Party under this Section shall be paid within ten days after liability therefor on the part of the Indemnifying Party is determined by litigation or otherwise, and if not timely paid, shall bear a late charge (to the extent permitted by law) at the Overdue Rate from the date of such determination to the date of payment. An Indemnifying Party, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against the Indemnified Party. The Indemnified Party, at its expense, shall be entitled to participate in any such claim, action, or proceeding, and neither the Indemnifying Party nor the Indemnified Party may compromise or otherwise dispose of the same without the consent of the Indemnified Party or the Indemnifying Party, which may not be unreasonably withheld. Nothing herein shall be construed as indemnifying a Lessor Indemnified Party against its own grossly negligent acts or omissions or willful misconduct. Lessee's or Lessor's liability for a breach of the provisions of this Article shall survive any termination of this Lease. ARTICLE XXIII 23.1 Subletting and Assignment. Subject to the provisions of Article XIX and Section 23.2 and any other express conditions or limitations set forth herein, Lessee may not without the consent of Lessor, which consent may be withheld in Lessor's sole discretion, (a) assign this Lease or sublet all or any part of the Leased Property or (b) sublet any retail or restaurant portion of the Leased Improvements in the normal course of the Primary Intended Use; provided that any subletting to any party other than an Affiliate of Lessee shall not individually as to any one such subletting, or in the aggregate, materially diminish the Rent payable under this Lease. In the case of a subletting, the sublessee shall comply with the provisions of Section 23.2, and in the case of an assignment, the assignee shall assume in writing and agree to keep and perform all of the terms of this Lease on the part of Lessee to be kept and performed and shall be, and become, jointly and severally liable with Lessee for the performance thereof. In case of either an assignment or subletting made during the Term, Lessee shall remain primarily liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and conditions to be performed by Lessee hereunder. An original counterpart of each such sublease and assignment and assumption, duly executed by Lessee and such sublessee or assignee, as the case may be, in form and substance satisfactory to Lessor, shall be delivered promptly to Lessor. 23.2 Attornment. Lessee shall insert in each sublease permitted under Article XXIII provisions to the effect that (a) such sublease is subject and subordinate to all of the terms and provisions of this Lease and to the rights of Lessor hereunder, (b) if this Lease terminates before the expiration of such sublease, the sublessee thereunder will, at Lessor's option, attorn to Lessor and waive any right the sublessee may have to terminate the sublease or to surrender possession thereunder as a result of the termination of this Lease, and (c) if the sublessee receives a written Notice from Lessor or Lessor's assignees, if any, stating that an uncured Event of Default exists under this Lease, the sublessee shall thereafter be obligated to pay all rentals accruing under said sublease directly to the party giving such Notice, or as such party may direct. All rentals 38 received from the sublessee by Lessor or Lessor's assignees, if any, as the case may be, shall be credited against the amounts owing by Lessee under this Lease. ARTICLE XXIV 24.1 Officer's Certificates; Lessor's Estoppel Certificates and Covenants. (a) At any time and from time to time upon not less than 30 days Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, whether to the knowledge of Lessee there is any existing default or Event of Default hereunder by Lessor or Lessee, and such other information as may be reasonably requested by Lessor. Any such certificate furnished pursuant to this Section may be relied upon by Lessor, any lender and any prospective purchaser of the Leased Property. (b) At any time and from time to time upon not less than 10 days Notice by Lessee, Lessor will furnish to Lessee or to any person designated by Lessee an estoppel certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which Rent has been paid, whether to the knowledge of Lessor there is any existing default or Event of Default on Lessee's part hereunder, and such other information as may be reasonably requested by Lessee. ARTICLE XXV 25.1 Lessor's Right to Inspect. Lessee shall permit Lessor and its authorized representatives as frequently as reasonably requested by Lessor to inspect the Leased Property and Lessee's accounts and records pertaining thereto and make copies thereof, during usual business hours upon reasonable advance notice, subject only to any business confidentiality requirements reasonably requested by Lessee. ARTICLE XXVI 26.1 No Waiver. No failure by Lessor or Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term. To the extent permitted by law, no waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach. ARTICLE XXVII 27.1 Remedies Cumulative. To the extent permitted by law, each legal, equitable or contractual right, power and remedy of Lessor or Lessee now or hereafter provided either in this Lease or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Lessor or 39 Lessee of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Lessor or Lessee of any or all of such other rights, powers and remedies. ARTICLE XXVIII 28.1 Acceptance of Surrender. No surrender to Lessor of this Lease or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Lessor and no act by Lessor or any representative or agent of Lessor, other than such a written acceptance by Lessor, shall constitute an acceptance of any such surrender. ARTICLE XXIX 29.1 No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same person or entity may acquire, own or hold, directly or indirectly: (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (b) the fee estate in the Leased Property. ARTICLE XXX 30.1 Conveyance by Lessor. If Lessor or any successor owner of the Leased Property conveys the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of the Leased Property expressly assumes all obligations of Lessor hereunder arising or accruing from and after the date of such conveyance or transfer, Lessor or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Lessor under this Lease arising or accruing from and after the date of such conveyance or other transfer as to the Leased Property and all such future liabilities and obligations shall thereupon be binding upon the new owner. 30.2 Other Interests. This Lease and Lessee's interest hereunder shall at all times be subject and subordinate to the lien and security title of any deeds to secure debt, deeds of trust, mortgages, or other interests heretofore or hereafter granted by Lessor or which otherwise encumber or affect the Leased Property and to any and all advances to be made thereunder and to all renewals, modifications, consolidations, replacements, substitutions, and extensions thereof (all of which are herein called the "Mortgage"). In confirmation of such subordination, however, Lessee shall, at Lessor's request, promptly execute, acknowledge and deliver any instrument which may be required to evidence subordination to any Mortgage and attornment to the holder thereof, conditioned upon receipt of a nondisturbance clause. In the event of Lessee's failure to deliver such subordination and if the Mortgage does not change any term of the Lease, Lessor may, in addition to any other remedies for breach of covenant hereunder, execute, acknowledge, and deliver the instrument as the agent or attorney-in-fact of Lessee, and Lessee hereby irrevocably constitutes Lessor its attorney-in-fact for such purpose, Lessee acknowledging that the appointment is coupled with an interest and is irrevocable. Lessee hereby waives and releases any claim it might have against Lessor or any other party for any actions lawfully taken by the holder of any Mortgage. 40 30.3 Greenwich Loan. Reference is made to that certain Loan Agreement (the "Loan Agreement"), dated as of the Commencement Date, among Lessee and Lessor, collectively, as the borrower, and Greenwich Capital Financial Products, Inc. (together with its successors and assigns, the "Lender"). Without limiting the generality of Section 30.2, this Lease is and shall be subject and subordinate in all respects to (a) the Mortgage (and to the lien of the Mortgage), (b) the Loan Documents, and (c) any and all modifications, amendments, renewals and/or substitutions of the Mortgage and/or the other Loan Documents. To the extent of any conflict between the provisions of this Lease and those of the Loan Agreement, the provisions of the Loan Agreement shall control. The provisions of this Section 30.3 shall be self-operative and no further instrument of subordination shall be required; however, if requested by the Lender, Lessor and Lessee shall execute and deliver such further instruments as the Lender may deem reasonably necessary to effectuate the subordination provided by this Section 30.3. For purposes of this Section 30.3 only, the terms "Mortgage" and "Loan Documents" are used as defined in the Loan Agreement. The provisions of this Section 30.3 shall apply only for so long as any indebtedness, liabilities or obligations of Lessee or Lessor remain outstanding under the Loan Documents. ARTICLE XXXI 31.1 Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes due and complies with all of the terms of this Lease and performs its obligations hereunder, in each case within the applicable grace periods, if any, Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for the Term hereof, free of any claim or other action by Lessor or anyone claiming by, through or under Lessor, but subject to all liens and encumbrances subject to which the Leased Property was conveyed to Lessor or hereafter consented to by Lessee or provided for herein and free and clear of any interference by Lessor with Lessee's use and occupancy of the premises. Notwithstanding the foregoing, Lessee shall have the right by separate and independent action to pursue any claim it may have against Lessor as a result of a breach by Lessor of the covenant of quiet enjoyment contained in this Section. ARTICLE XXXII 32.1 Notices. All notices, demands, requests, consents approvals and other communications ("Notice" or "Notices") hereunder shall be in writing and personally served or mailed (by registered or certified mail, return receipt requested and postage prepaid or by overnight courier), if to Lessor at 7170 Riverwood Drive, Columbia, Maryland 21046, and if to Lessee 7170 Riverwood Drive, Columbia, Maryland 21046 at or to such other address or addresses as either party may hereafter designate. Personally delivered Notice shall be effective upon receipt, and Notice given by mail shall be complete at the time of deposit in the U.S. Mail system, but any prescribed period of Notice and any right or duty to do any act or make any response within any prescribed period or on a date certain after the service of such Notice given by mail shall be extended five days. 41 ARTICLE XXXIII 33.1 Appraisers. If it becomes necessary to determine the Fair Market Value or Fair Market Rental of the Leased Property for any purpose of this Lease, the party required or permitted to give Notice of such required determination shall include in the Notice the name of a person selected to act as appraiser on its behalf. Within 20 days after Notice, Lessor (or Lessee, as the case may be) shall by Notice to Lessee (or Lessor, as the case may be) appoint a second person as appraiser on its behalf. The appraisers thus appointed, each of whom must be a member of the American Institute of Real Estate Appraisers (or any successor organization thereto) with at least five years experience in the State appraising property similar to the Leased Property, shall, within 45 days after the date of the Notice appointing the first appraiser, proceed to appraise the Leased Property to determine the Fair Market Value or Fair Market Rental thereof as of the relevant date (giving effect to the impact, if any, of inflation from the date of their decision to the relevant date); provided, however, that if only one appraiser shall have been so appointed, then the determination of such appraiser shall be final and binding upon the parties. To the extent consistent with sound appraisal practice as then existing at the time of any such appraisal, such appraisal shall be made on a basis consistent with the basis on which the Leased Property was appraised for purposes of determining its Fair Market Value at the time the Leased Property was acquired by Lessor. If two appraisers are appointed and if the difference between the amounts so determined does not exceed 5% of the lesser of such amounts, then the Fair Market Value or Fair Market Rental shall be an amount equal to 50% of the sum of the amounts so determined. If the difference between the amounts so determined exceeds 5% of the lesser of such amounts, then such two appraisers shall have 20 days to appoint a third appraiser. If no such appraiser shall have been appointed within such 20 days or within 90 days of the original request for a determination of Fair Market Value or Fair Market Rental, whichever is earlier, either Lessor or Lessee may apply to any court having jurisdiction to have such appointment made by such court. Any appraiser appointed by the original appraisers or by such court shall be instructed to determine the Fair Market Value or Fair Market Rental within 45 days after appointment of such appraiser. The determination of the appraiser which differs most in the terms of dollar amount from the determinations of the other two appraisers shall be excluded, and 50% of the sum of the remaining two determinations shall be final and binding upon Lessor and Lessee as the Fair Market Value or Fair Market Rental of the Leased Property, as the case may be. This provision for determining by appraisal shall be specifically enforceable to the extent such remedy is available under applicable law, and any determination hereunder shall be final and binding upon the parties except as otherwise provided by applicable law. Lessor and Lessee shall each pay the fees and expenses of the appraiser appointed by it and each shall pay one-half of the fees and expenses of the third appraiser and one-half of all other costs and expenses incurred in connection with each appraisal. ARTICLE XXXIV 34.1 Lessor May Grant Liens. Without the consent of Lessee, Lessor may, subject to the terms and conditions set forth below in this Section 34.1, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased Property, or any portion thereof or interest therein, whether to secure any borrowing or other means of financing or refinancing. Any such Encumbrance shall (a) contain the right to prepay (whether or not subject to a prepayment penalty); (b) provide that it is subject to the rights of Lessee under this Lease and (c) contain the Agreement by the holder 42 of the Encumbrance that it will (1) give Lessee the same notice, if any, given to Lessor of any default or acceleration of any obligation underlying any such Encumbrance or any sale in foreclosure under such Encumbrance, (2) permit Lessee to cure any such default on Lessor's behalf within any applicable cure period, and Lessee shall be reimbursed by Lessor for any and all costs incurred in effecting such cure, including without limitation out-of-pocket costs incurred to effect any such cure (including reasonable attorneys' fees) and (3) permit Lessee to appear by its representative and to bid at any sale in foreclosure made with respect to any such Encumbrance. Upon the request of Lessor, Lessee shall subordinate this Lease to the lien of a new mortgage on the Leased Property and agree to attorn to the new mortgagee, on the condition that the proposed mortgagee executes a non-disturbance agreement recognizing this Lease, and agreeing, for itself and its successors and assigns, to comply with the provisions of this Article XXXIV. 34.2 Lessee's Right to Cure. Subject to the provisions of Section 34.3, if Lessor breaches any covenant to be performed by it under this Lease, Lessee, after Notice to and demand upon Lessor, without waiving or releasing any obligation hereunder, and in addition to all other remedies available to Lessee, may (but shall be under no obligation at any time thereafter to) make such payment or perform such act for the account and at the expense of Lessor. All sums so paid by Lessee and all costs and expenses (including, without limitation, reasonable attorneys' fees) so incurred, together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid or incurred by Lessee, shall be paid by Lessor to Lessee on demand or, following entry of a final, nonappealable judgment against Lessor for such sums, may be offset by Lessee against the Rent payments next accruing or coming due. The rights of Lessee hereunder to cure and to secure payment from Lessor in accordance with this Section 34.2 shall survive the termination of this Lease with respect to the Leased Property. 34.3 Breach by Lessor. It shall be a breach of this Lease if Lessor fails to observe or perform any term, covenant or condition of this Lease on its part to be performed and such failure continues for a period of 30 days after Notice thereof from Lessee, unless such failure cannot with due diligence be cured within a period of 30 days, in which case such failure shall not be deemed to continue if Lessor, within such 30-day period, proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof within 90 days. The time within which Lessor shall be obligated to cure any such failure also shall be subject to extension of time due to the occurrence of any Unavoidable Delay. ARTICLE XXXV 35.1 Miscellaneous. Anything contained in this Lease to the contrary notwithstanding, all claims against, and liabilities of, Lessee or Lessor arising prior to any date of termination of this Lease shall survive such termination. If any term or provision of this Lease or any application thereof is invalid or unenforceable, the remainder of this Lease and any other application of such term or provisions shall not be affected thereby. If any late charges or any interest rate provided for in any provision of this Lease are based upon a rate in excess of the maximum rate permitted by applicable law, the parties agree that such charges shall be fixed at the maximum permissible rate. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated except by a written instrument in recordable form signed by Lessor and Lessee. All the terms and provisions of this Lease shall be binding upon and inure to 43 the benefit of the parties hereto and their respective successors and assigns. The headings in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Lease shall be governed by and construed in accordance with the laws of the State, but not including its conflicts of laws rules. 35.2 Transition Procedures. Upon the expiration or termination of the Term of this Lease, for whatever reason, Lessor and Lessee shall do the following (and the provisions of this Section 35.2 shall survive the expiration or termination of this Agreement until they have been fully performed) and, in general, shall cooperate in good faith to effect an orderly transition of the management lease or of the Facility. (a) Transfer of Licenses. Upon the expiration or earlier termination of the Term, Lessee shall use its best efforts (i) to transfer to Lessor or Lessor's nominee all licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental entities, that may be necessary for the operation of the Facility, including any Franchise Agreement (collectively, "Licenses"), or (ii) if such transfer is prohibited by law or Lessor otherwise elects, to cooperate with Lessor or Lessor's nominee in connection with the processing by Lessor or Lessor's nominee of any applications for, all Licenses; provided, in either case, that the costs and expenses of any such transfer or the processing of any such application shall be paid by Lessor or Lessor's nominee (b) Leases and Concessions. Lessee shall assign to Lessor or Lessor's nominee simultaneously with the termination of this Agreement, and the assignee shall assume all leases and concession agreements in effect with respect to the Facility then in Lessee's name. (c) Books and Records. All books and records for the Facility kept by Lessee pursuant to Section 3.5 shall be delivered promptly to Lessor or Lessor's nominee, simultaneously with the termination of this Agreement, but such books and records shall thereafter be available to Lessee at all reasonable times for inspection, audit, examination, and transcription for a period of one (1) year and Lessee may retain (on a confidential basis) copies or computer records thereof (d) Remittance. Lessee shall remit to Lessor or Lessor's nominee, simultaneously with the termination of this Lease, all funds remaining, if any, after payment of all accrued Gross Operating Expenses, and other amounts due Lessee and after deducting the costs of any scheduled repair, replacement, or refurbishment of Furniture and Equipment with respect to which deposits have been made. 35.3 Waiver of Presentment, etc. Lessee waives all presentments, demands for payment and for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance and waives all notices of the existence, creation, or incurring of new or additional obligations, except as expressly granted herein ARTICLE XXXVI 36.1 Memorandum of Lease. Lessor and Lessee shall promptly upon the request of either enter into a short form memorandum of this Lease, in form suitable for recording under the 44 laws of the State in which reference to this Lease, and all options contained herein, shall be made. Lessee shall pay all costs and expenses of recording such memorandum of this Lease. ARTICLE XXXVII 37.1 Lessor's Option to Purchase Assets of Lessee. Effective on not less than 90 days prior Notice given at any time within 180 days before the expiration of the Term, but not later than 90 days prior to such expiration, or upon such shorter Notice period as shall be appropriate if this Lease is terminated prior to its expiration date, Lessor shall have the option to purchase all (but not less than all) of the assets of Lessee, tangible and intangible, relating to the Leased Property (other than this Lease), at the expiration or termination of this Lease for an amount (payable in cash on the expiration date of this Lease) equal to the fair market value thereof as appraised in conformity with Article XXXIII, except that the appraisers need not be members of the American Institute of Real Estate Appraisers, but rather shall be appraisers having at least ten years experience in valuing similar assets. Notwithstanding any such purchase, Lessor shall obtain no rights to any trade name or logo used in connection with the Franchise Agreement unless separate agreement as to such use is reached with the applicable franchisor. ARTICLE XXXVIII 38.1 Lessor's Option to Terminate Lease. In the event Lessor enters into a bona fide contract to sell the Leased Property to a non-Affiliate, Lessor may terminate the Lease by giving not less than 30 days prior Notice to Lessee of Lessor's election to terminate the Lease effective upon the closing under such contract or Lessor may convey the Lease pursuant to Article XXX. Effective upon such closing, this Lease shall terminate and be of no further force and effect except as to any obligations of the parties existing as of such date that survive termination of this Lease. As compensation for the early termination of its leasehold estate under this Article XXVIII, Lessor shall within six months of such closing either (a) pay to Lessee the fair market value of the Lessee's leasehold estate hereunder as the Lease Termination Payment or (b) offer to lease to Lessee one or more substitute hotel facilities pursuant to one or more leases that would create for the Lessee leasehold estates that have an aggregate fair market value of no less than the fair market value of Lessee's leasehold estate hereunder, with the fair market value of Lessee's leasehold estate hereunder determined as of the closing of the sale of the Lease Property. If Lessor elects and complies with the option described in (b) above, regardless of whether Lessee enters into the lease(s) described therein, Lessor shall have no further obligations to Lessee with respect to compensation for the early termination of this Lease. In the event Lessor and Lessee are unable to agree upon the fair market value of an original or replacement leasehold estate within 30 days, it shall be determined by appraisal using the appraisal procedure set forth in Article XXXIII. For the purposes of this Section, fair market value of the leasehold estate means, as applicable, an amount equal to the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for Lessee's leasehold estate under this Lease or an offered replacement leasehold estate. 45 ARTICLE XXXIX 39.1 Compliance with Franchise Agreement. To the extent any of the provisions of the Franchise Agreement impose a greater obligation on Lessee than the corresponding provisions of the Lease, then Lessee shall be obligated to comply with, and to take all reasonable actions necessary to prevent breaches or defaults under, the provisions of the Franchise Agreement. It is the intent of the parties hereto that, except as otherwise specifically provided by this Lease, Lessee shall comply in every respect with the provisions of the Franchise Agreement so as to avoid any default thereunder during the term of this Lease. Lessor and Lessee agree to cooperate fully with each other in the event it becomes necessary to obtain a franchise extension or modification or a new franchise for the Leased Property. ARTICLE XL 40.1 Room Set-Aside. (a) Lessee is obligated to repair or replace in any Fiscal Year Fixtures and Furniture and Equipment (i) as required by the terms of any Franchise Agreement, (ii) as required by Article IX and Article XXXIX and (iii) otherwise when and in a manner it deems fit, to the extent funds are available therefor from amounts the Lessor is obligated to make available to Lessee under this Section 40.1 or otherwise makes available to Lessee. During the Term Lessor shall be obligated to make available to Lessee for repairing or replacing Fixtures and Furniture and Equipment an amount equal to 4% of Room Revenues from the Facility for each twelve month period. Lessor shall be required to make such amounts available to Lessee on a quarterly basis. Upon written request by Lessee to Lessor stating the specific use to be made and the reasonable approval thereof by Lessor, such funds shall be made available by Lessor for use by Lessee for periodic repairing or replacement of Fixtures and Furniture and Equipment that constitute Leased Property in connection with the Primary Intended Use. Lessor's obligation shall be cumulative, but not compounded, and any amounts that have accrued hereunder shall be payable in future periods for such uses and in accordance with the procedure set forth herein. Lessee shall be obligated to return any funds forwarded by Lessor pursuant to this Article XL, but not spent for (i) repair or replacement of Fixtures and Furniture and Equipment that constitute Leased Property in connection with the Primary Intended Use or (ii) Capital Expenditures pursuant to Section 40.2. Other than as specifically set forth above in this Article XL, Lessee shall have no interest in any accrued obligation of Lessor hereunder and Lessor shall have no obligation to segregate or separate any such funds for the benefit of Lessee. (b) Notwithstanding any provision of Section 40.1(a) to the contrary, after the Capitalization Date: (i) Lessee is obligated to repair or replace Hotel Property (x) as required by the terms of any Franchise Agreement, (y) as required by Article IX and Article XXXIX, and (z) otherwise when and in a manner it deems fit in order to operate the Leased Property in the manner contemplated by this Lease; and (ii) Lessee is obligated to pay all costs and expenses of any and all repairs and replacements required to be made pursuant to this Section 40.1(b). 46 40.2 Capital Expenditures. Lessor shall be obligated to pay the actual costs of any items that are classified as capital items under U.S. generally accepted accounting principles which are necessary for the continued operation of the Facility and otherwise approved by Lessor. To the extent that at the end of a Fiscal Year the amount set aside exceeds the amount spent on repair or replacement of Fixtures and Furniture and Equipment, the Lessee may apply such excess amount towards Lessor's obligations under Article XL. 40.3 Prohibited Expenditures. No amounts made available under this Article shall be used to purchase property (other than "real property" within the meaning of Treasury Regulations Section 1.856-3(d)), to the extent that doing so would cause the Lessor to recognize income other than "rents from real property" as defined in Section 856(d) of the Code. 47 IN WITNESS WHEREOF, the parties have executed this Lease by their duly authorized officers as of the date first above written. SOLOMONS BEACON INN LIMITED PARTNERSHIP By: Humphrey Hospitality Limited Partnership, its general partner By: Humphrey Hospitality REIT Trust, its general partner By: /s/ George R. Whittemore ----------------------------- Name: George R. Whittemore Title: President TRS SUBSIDIARY, LLC By: /s/ George R. Whittemore ----------------------------- Name: George R. Whittemore Title: President EX-10.6 8 dex106.txt EXHIBIT 10.6 FIRST AMENDED AND RESTATED MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 26, 2002 BETWEEN HUMPHREY HOSPITALITY LIMITED PARTNERSHIP AND E & P FINANCING LIMITED PARTNERSHIP AS LESSOR AND TRS LEASING SUBSIDIARY, LLC AS LESSEE AND SOLOMONS BEACON INN LIMITED PARTNERSHIP AS WITHDRAWING LESSOR TABLE OF CONTENTS ARTICLE I ............................................................................. 1 1.1 Leased Property ................................................................ 1 --------------- 1.2 Term ........................................................................... 2 ---- ARTICLE II ............................................................................ 2 2.1 Definitions .................................................................... 2 ----------- ARTICLE III .......................................................................... 11 3.1 Rent .......................................................................... 11 ---- 3.2 Additional Charges ............................................................ 12 ------------------ 3.3 Lease Provision ............................................................... 12 --------------- 3.4 Conversion of Property ........................................................ 12 ---------------------- 3.5 Books and Records ............................................................. 13 ----------------- ARTICLE IV ........................................................................... 13 4.1 Payment of Impositions ........................................................ 13 ---------------------- 4.2 Notice of Impositions ......................................................... 14 --------------------- 4.3 Adjustment of Impositions ..................................................... 14 ------------------------- 4.4 Maintenance ................................................................... 14 ----------- 4.5 Insurance Premiums ............................................................ 14 ------------------ ARTICLE V ............................................................................ 14 5.1 No Termination ................................................................ 14 -------------- ARTICLE VI ........................................................................... 15 6.1 Ownership of the Leased Property .............................................. 15 -------------------------------- 6.2 Lessee's Personal Property .................................................... 15 -------------------------- 6.3 Lessor's Lien ................................................................. 16 ------------- ARTICLE VII .......................................................................... 16 7.1 Condition of the Leased Property .............................................. 16 -------------------------------- 7.2 Use of the Leased Property .................................................... 17 -------------------------- 7.3 Lessor to Grant Easements, etc. ............................................... 18 ------------------------------- ARTICLE VIII ......................................................................... 18 8.1 Compliance with Legal and Insurance Requirements, etc. ........................ 18 ------------------------------------------------------ 8.2 Legal Requirement Covenants ................................................... 18 --------------------------- 8.3 Environmental Covenants ....................................................... 19 ----------------------- ARTICLE IX ........................................................................... 21 9.1 Capital Improvements, Maintenance and Repair .................................. 21 -------------------------------------------- 9.2 Encroachments, Restrictions, Etc. ............................................. 22 --------------------------------- ARTICLE X ............................................................................ 22 10.1 Alterations ................................................................. 22 ----------- 10.2 Salvage ..................................................................... 23 ------- 10.3 Joint Use Agreements ........................................................ 23 -------------------- ARTICLE XI ........................................................................... 23 11.1 Liens ....................................................................... 23 ----- ARTICLE XII .......................................................................... 23 12.1 Permitted Contests .......................................................... 23 ------------------ ARTICLE XIII ......................................................................... 24 13.1 General Insurance Requirements .............................................. 24 ------------------------------
i 13.2 Replacement Cost ................................................................. 26 ---------------- 13.3 Worker's Compensation ............................................................ 26 --------------------- 13.4 Waiver of Subrogation ............................................................ 26 --------------------- 13.5 Form Satisfactory, etc. .......................................................... 26 ----------------------- 13.6 Change in Limits ................................................................. 27 ---------------- 13.7 Blanket Policy ................................................................... 27 -------------- 13.8 Separate Insurance ............................................................... 27 ------------------ 13.9 Reports On Insurance Claims ...................................................... 27 --------------------------- ARTICLE XIV .............................................................................. 27 14.1 Insurance Proceeds ............................................................... 27 ------------------ 14.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance ........ 28 ------------------------------------------------------------------------- 14.3 Reconstruction in the Event of Damage or Destruction Not Covered by Insurance .... 29 ----------------------------------------------------------------------------- 14.4 Lessee's Property ................................................................ 29 ----------------- 14.5 Damage Near End of Term .......................................................... 29 ----------------------- 14.6 Waiver ........................................................................... 29 ------ ARTICLE XV ............................................................................... 29 15.1 Definitions ...................................................................... 29 ----------- 15.2 Parties' Rights and Obligations .................................................. 30 ------------------------------- 15.3 Total Taking ..................................................................... 30 ------------ 15.4 Allocation of Award .............................................................. 30 ------------------- 15.5 Partial Taking ................................................................... 30 -------------- 15.6 Temporary Taking ................................................................. 31 ---------------- 15.7 Lessee's Offer ................................................................... 31 -------------- ARTICLE XVI .............................................................................. 31 16.1 Events of Default ................................................................ 31 ----------------- 16.2 Surrender ........................................................................ 32 --------- 16.3 Damages .......................................................................... 33 ------- 16.4 Waiver ........................................................................... 33 ------ 16.5 Application of Funds ............................................................. 34 -------------------- ARTICLE XVII ............................................................................. 34 17.1 Lessor's Right to Cure Lessee's Default .......................................... 34 --------------------------------------- ARTICLE XVIII ............................................................................ 34 18.1 Provisions Relating to Purchase of the Leased Property ........................... 34 ------------------------------------------------------ ARTICLE XIX .............................................................................. 35 19.1 Personal Property Limitation ..................................................... 35 ---------------------------- 19.2 Sublease Rent Limitation ......................................................... 35 ------------------------ 19.3 Sublease Tenant Limitation ....................................................... 35 -------------------------- 19.4 TRS Election and Limitations ..................................................... 35 ---------------------------- 19.5 Manager Officer and Employee Limitation .......................................... 36 --------------------------------------- ARTICLE XX ............................................................................... 36 20.1 Holding Over ..................................................................... 37 ------------ ARTICLE XXI .............................................................................. 37 21.1 Risk of Loss ..................................................................... 37 ------------ ARTICLE XXII ............................................................................. 37 22.1 Indemnification .................................................................. 37 --------------- ARTICLE XXIII ............................................................................ 38
ii 23.1 Subletting and Assignment ................................................... 38 ------------------------- 23.2 Attornment .................................................................. 38 ---------- ARTICLE XXIV ......................................................................... 39 24.1 Officer's Certificates; Lessor's Estoppel Certificates and Covenants ........ 39 -------------------------------------------------------------------- ARTICLE XXV .......................................................................... 39 25.1 Lessor's Right to Inspect ................................................... 39 ------------------------- ARTICLE XXVI ......................................................................... 39 26.1 No Waiver ................................................................... 39 --------- ARTICLE XXVII ........................................................................ 40 27.1 Remedies Cumulative ......................................................... 40 ------------------- ARTICLE XVIII ........................................................................ 40 28.1 Acceptance of Surrender ..................................................... 40 ----------------------- ARTICLE XXIX ......................................................................... 40 29.1 No Merger of Title .......................................................... 40 ------------------ ARTICLE XXX .......................................................................... 40 30.1 Conveyance by Lessor ........................................................ 40 -------------------- 30.2 Other Interests ............................................................. 40 --------------- ARTICLE XXXI ......................................................................... 41 31.1 Quiet Enjoyment ............................................................. 41 --------------- ARTICLE XXXII ........................................................................ 41 32.1 Notices ..................................................................... 41 ------- ARTICLE XXXIII ....................................................................... 41 33.1 Appraisers .................................................................. 41 ---------- ARTICLE XXXIV ........................................................................ 42 34.1 Lessor May Grant Liens ...................................................... 42 ---------------------- 34.2 Lessee's Right to Cure ...................................................... 43 ---------------------- 34.3 Breach by Lessor ............................................................ 43 ---------------- ARTICLE XXXV ......................................................................... 43 35.1 Miscellaneous ............................................................... 43 ------------- 35.2 Transition Procedures ....................................................... 43 --------------------- 35.3 Waiver of Presentment, etc. ................................................. 44 --------------------------- ARTICLE XXXVI ........................................................................ 44 36.1 Memorandum of Lease ......................................................... 44 ------------------- ARTICLE XXXVII ....................................................................... 44 37.1 Lessor's Option to Purchase Assets of Lessee ................................ 44 -------------------------------------------- ARTICLE XXXVIII ...................................................................... 45 38.1 Lessor's Option to Terminate Lease .......................................... 45 ---------------------------------- ARTICLE XXXIX ........................................................................ 45 39.1 Compliance with Franchise Agreement ......................................... 45 ----------------------------------- ARTICLE XL ........................................................................... 46 40.1 Room Set-Aside .............................................................. 46 -------------- 40.2 Capital Expenditures ........................................................ 46 -------------------- 40.3 Prohibited Expenditures ..................................................... 46 ----------------------- ARTICLE XLI .......................................................................... 47 - ----------- 41.1 SBILP ....................................................................... 47 ----- Exhibit A - Hotel Properties Exhibit B - Excluded Properties Schedule 1 to Exhibit B
iii FIRST AMENDED AND RESTATED MASTER LEASE AGREEMENT THIS FIRST AMENDED AND RESTATED MASTER LEASE AGREEMENT (hereinafter called "Lease"), made as of the 26th day of November, 2002 by and between Humphrey Hospitality Limited Partnership, a Virginia limited partnership and E&P Financing Limited Partnership, a Maryland limited partnership (hereinafter called "Lessor"), and TRS Leasing Inc., a Virginia corporation (hereinafter called "Lessee"), provides as follows. W I T N E S S E T H: Lessor and Solomons Beacon Inn Limited Partnership, a Maryland limited partnership (hereinafter called "SBILP"), as lessor, and Lessee, as lessee, are the parties to that Master Lease Agreement dated as of January 1, 2002 (the "Original Lease"), pursuant to which Lessee leases the Leased Property and the Excluded Property (as such terms are hereinafter defined). Lessor, Lessee and SBILP desire to amend and restate the Original Lease on the terms set forth herein in order, among other things, to reflect the withdrawal of SBILP as a party to the Original Lease and the exclusion of the Excluded Property from the property subject to the Original Lease, all effective as of the Commencement Date (as hereinafter defined). Lessor owns fee title to, or a leasehold interest in, the Leased Property. Lessor and Lessee wish to enter into this Lease which shall constitute a separate lease for each Leased Property. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby amend and restate the Original Lease, and Lessor, in consideration of the payment of rent by Lessee to Lessor, the covenants and agreements to be performed by Lessee, and upon the terms and conditions hereinafter stated, does hereby rent and lease unto Lessee, and Lessee does hereby rent and lease from Lessor, the Leased Property. ARTICLE I 1.1 Leased Property. The leased property (the "Leased Property") is comprised of Lessor's interest in each of the hotel properties described in Exhibit "A" attached hereto, as it may be amended from time to time (each a "Leased Property"), as follows: (a) the land or ground leasehold interests described in Exhibit "A" attached hereto and by reference incorporated herein (the "Land"); (b) all buildings, structures and other improvements of every kind including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and offsite), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land (collectively, the "Leased Improvements"); (c) all easements, rights and appurtenances relating to the Land or the Leased Improvements; (d) all equipment, machinery, fixtures, and other items of property required for or incidental to the use of the Leased Improvements as a hotel, including all components thereof, now and hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which to the greatest extent permitted by law are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto (collectively, the "Fixtures"); (e) all furniture and furnishings and all other items of personal property (excluding Inventory and personal property owned by Lessee) located on, and used in connection with, the operation of the Leased Improvements as a hotel, together with all replacements, modifications, alterations and additions thereto; and (f) all existing leases of space within the Leased Property (including any security deposits or collateral held by Lessor pursuant thereto). THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS, MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF. 1.2 Term. The term of the Lease (the "Term") shall commence on the date hereof (the "Commencement Date") and shall end on the tenth anniversary of the last day of the month in which the Commencement Date occurs unless sooner terminated in accordance with the provisions hereof. ARTICLE II 2.1 Definitions. For all purposes of this Lease, except as otherwise expressly provided or unless the context otherwise requires, (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as are at the time applicable, (c) all references in this Lease to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Lease and (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Lease as a whole and not to any particular Article, Section or other subdivision: 2 Additional Charges: As defined in Section 3.2. Affiliate: As to any Person, (a) any other Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (b) any other Person that owns, beneficially, directly or indirectly, five percent or more of the outstanding capital stock, shares or equity interests of such Person, or (c) any officer, director, employee, partner or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and Persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests. Award: As defined in Section 15.1(c). Base Rate: The rate of interest announced publicly by Citibank, N.A., in New York, New York, or any successor bank from time to time, as such bank's base rate. If no such rate is announced or becomes discontinued, then such other rate as Lessor may reasonably designate. Percentage Rent: As defined in Section 3.1(a). Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which national banks in the City of Washington, D.C., or in the municipality wherein the Leased Property is located, are closed. Capitalization Date: The effective date, as determined by Lessor, of the transfer, directly or indirectly, by Lessor to Lessee of all of Lessor's right, title and interest in and to all Furniture and Equipment and other items of personal property owned by Lessor and located on, and used in connection with, the operation of the Leased Improvements as a hotel. CERCLA: The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. Code: The Internal Revenue Code of 1986, as amended. Commencement Date: As defined in Section 1.2. Condemnation, Condemnor: As defined in Section XV. Date of Taking: As defined in Section 15.1(b). Encumbrance: As defined in Section XXXIV. Environmental Authority: Any department, agency or other body or component of any Government that exercises any form of jurisdiction or authority under any Environmental Law. 3 Environmental Authorization: Any license, permit, order, approval, consent, notice, registration, filing or other form of permission or authorization required under any Environmental Law. Environmental Laws: All applicable federal, state, local and foreign laws and regulations relating to pollution of the environment (including without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including without limitation laws and regulations relating to emissions, discharges, Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. Environmental Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA. Environmental Liabilities: Any and all obligations to pay the amount of any judgment or settlement, the cost of complying with any settlement, judgment or order for injunctive or other equitable relief, the cost of compliance or corrective action in response to any notice, demand or request from an Environmental Authority, the amount of any civil penalty or criminal fine, and any court costs and reasonable amounts for attorney's fees, fees for witnesses and experts, and costs of investigation and preparation for defense of any claim or any Proceeding, regardless of whether such Proceeding is threatened, pending or completed, that may be or have been asserted against or imposed upon Lessor, Lessee, the Leased Property or any property used therein and arising out of: (a) Failure of Lessee, or Lessor to comply at any time with all Environmental Laws; (b) Presence of any Hazardous Materials on, in, under, at or in any way affecting the Leased Property; (c) A Release at any time of any Hazardous Materials on, in, at, under or in any way affecting the Lease Property; (d) Identification of Lessee or Lessor as a potentially responsible party under CERCLA or under any Environmental Law similar to CERCLA; (e) Presence at any time of any above-ground and/or underground storage tanks, as defined in RCRA or in any applicable Environmental Law on, in, at or under the Leased Property; or (f) Any and all claims for injury or damage to persons or property arising out of exposure to Hazardous Materials originating or located at the Leased Property, or resulting from operation thereof. Event of Default: As defined in Section XVI. Facility: The hotel and/or other facility offering lodging and other services or amenities being operated or proposed to be operated on the Leased Property. 4 Fair Market Rental: The fair market rental of the Leased Property means the rental which a willing tenant not compelled to rent would pay a willing landlord not compelled to lease for the use and occupancy of such Leased Property pursuant to the Lease for the term in question, (a) assuming that Lessee is not in default thereunder and (b) determined in accordance with the appraisal procedures set forth in Article XXXIII or in such other manner as shall be mutually acceptable to Lessor and Lessee. Fair Market Value: The fair market value of the Leased Property means an amount equal to the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for such Leased Property, (a) assuming the same is unencumbered by this Lease, (b) determined in accordance with the appraisal procedures set forth in Article XXXIII or in such other manner as shall be mutually acceptable to Lessor and Lessee, (c) assuming that such seller must pay customary closing costs and title premiums, and (d) taking into account the positive or negative effect on the value of the Leased Property attributable to the interest rate, amortization schedule, maturity date, prepayment penalty and other terms and conditions of any encumbrance that is assumed by the transferee. In addition, in determining the Fair Market Value with respect to damaged or destroyed Leased Property such value shall be determined as if such Leased Property had not been so damaged or destroyed. FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as amended. Fiscal Year: The 12-month period from January 1 through December 31, except for the Fiscal Year ending December 31, 2002, which shall mean the period from the Commencement Date through December 31, 2002. Fixtures: As defined in Section 1.1. Franchise Agreement: Any franchise agreement or license agreement with a franchisor under which the Facility is operated. Furniture and Equipment: Collectively, all carpet, furniture, furnishings, wall coverings, fixtures and hotel equipment and systems located at, or used in connection with, the Facility, together with all replacements therefor and additions thereto, including, without limitation, (i) all equipment and systems required for the operation of kitchens, bars, if any, restaurants, if any, and laundry and dry cleaning facilities, (ii) dining room wagons, materials handling equipment, cleaning and engineering equipment, (iii) telephone and computerized accounting systems, and (iv) vehicles. Government: The United States of America, any state, district or territory thereof, any foreign nation, any state, district, department, territory or other political division thereof, or any political subdivision of any of the foregoing. Gross Operating Expenses: All of the following with respect to the Facility: reasonable and customary salaries and employee expense and payroll taxes (including salaries, wages, bonuses and other compensation of all employees at the Facility, and benefits including life, medical and disability insurance and retirement benefits), expenditures described in Section IX, operational supplies, utilities, insurance to be provided by Lessee under the terms of this 5 Agreement, governmental fees and assessments, food, beverages, laundry service expense, the cost of Inventories and fixed asset supplies, license fees, advertising, marketing, reservation systems and any and all other operating expenses as are reasonably necessary for the proper and efficient operation of the Facility incurred by Lessee in accordance with the provisions hereof (excluding, however, (i) federal, state and municipal excise, sales and use taxes collected directly from patrons and guests or as a part of the sales price of any goods, services or displays, such as gross receipts, admissions, cabaret or similar or equivalent taxes paid over to federal, state or municipal governments, (ii) the cost of insurance to be provided under Article XIII, (iii) expenditures by Lessor pursuant to Article XIII and (iv) payments on any Mortgage or other mortgage or security instrument on the Facility); all determined in accordance with generally accepted accounting principles and the Uniform System. No part of Lessee's central office overhead or general or administrative expense (as opposed to that of the Facility) shall be deemed to be a part of Gross Operating Expenses, as herein provided. Reasonable out-of-pocket expenses of Lessee incurred for the account of or in connection with the Facility operations, including but not limited to postage, telephone charges and reasonable travel expenses of employees, officers and other representatives and consultants of Lessee and its Affiliates, shall be deemed to be a part of Gross Operating Expenses and such persons shall be afforded reasonable accommodations, food, beverages, laundry, valet and other such services by and at the Facility without charge to such persons or Lessee. Gross Operating Profit: For any Fiscal Year, the excess of Gross Revenues for such Fiscal Year over Gross Operating Expenses for such Fiscal Year. Gross Revenues: All revenues, receipts, and income of any kind derived directly or indirectly by Lessee from or in connection with the Facility (including rentals or other payments from tenants, lessees, licensees or concessionaires but not including their gross receipts unless such party is an Affiliate of the Lessee in which case the gross receipts shall be included) whether on a cash basis or credit, paid or collected, determined in accordance with generally accepted accounting principles and the Uniform System, excluding, however: (i) funds furnished by Lessor, (ii) federal, state and municipal excise, sales, and use taxes collected directly from patrons and guests or as a part of the sales price of any goods, services or displays, such as gross receipts, admissions, cabaret or similar or equivalent taxes and paid over to federal, state or municipal governments, (iii) gratuities, (iv) proceeds of insurance and condemnation, (v) proceeds from sales other than sales in the ordinary course of business, (vi) all loan proceeds from financing or refinancings of the Facility or interests therein or components thereof, (vii) judgments and awards, except any portion thereof arising from normal business operations of the hotel, and (viii) items constituting "allowances" under the Uniform System. Hazardous Materials: All chemicals, pollutants, contaminants, wastes and toxic substances, including without limitation: (a) Solid or hazardous waste, as defined in RCRA or in any Environmental Law; (b) Hazardous substances, as defined in CERCLA or in any Environmental Law; 6 (c) Toxic substances, as defined in TSCA or in any Environmental Law; (d) Insecticides, fungicides, or rodenticides, as defined in FIFRA or in any Environmental Law; and (e) Gasoline or any other petroleum product or byproduct, polychlorinated biphenols, asbestos and urea formaldehyde. Hotel Property: All Furniture and Equipment and other personal property required to operate the Leased Property in the manner contemplated by this Lease from and after the Capitalization Date. Impositions: Collectively, all taxes (including, without limitation, all ad valorem, sales and use, single business, gross receipts, transaction privilege, rent or similar taxes as the same relate to or are imposed upon Lessee or its business conducted upon the Leased Property) including Real Estate Taxes and Personal Property Taxes, assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the Term), ground rents, water, sewer or other rents and charges, excises, tax inspection, authorization and similar fees and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Leased Property or the business conducted thereon by Lessee (including all interest and penalties thereon caused by any failure in payment by Lessee), which at any time prior to, during or with respect to the Term hereof may be assessed or imposed on or with respect to or be a lien upon (a) Lessor's interest in the Leased Property, (b) the Leased Property, or any part thereof or any rent therefrom or any estate, right, title or interest therein, (c) the Hotel Property, or (d) any occupancy, operation, use or possession of, or sales from, or activity conducted on or in connection with the Leased Property, or the leasing or use of the Leased Property or any part thereof by Lessee. Indemnified Party: Either of a Lessee Indemnified Party or a Lessor Indemnified Party. Indemnifying Party: Any party obligated to indemnify an Indemnified Party pursuant to Section 8.3 or Article XXII. Insurance Requirements: All terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy. Inventory: All "Inventories of Merchandise" and "Inventories of Supplies" as defined in the Uniform System, including, but not limited to, linens and other non-depreciable personal property. Land: As defined in Article I. Lease: This Lease. Leased Improvements; Leased Property: Each as defined in Article I. 7 Legal Requirements: All federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting either the Leased Property or the maintenance, construction, use or alteration thereof (whether by Lessee or otherwise), whether or not hereafter enacted and in force, including (a) all laws, rules or regulations pertaining to the environment, occupational health and safety and public health, safety or welfare, and (b) any laws, rules or regulations that may (1) require repairs, modifications or alterations in or to the Leased Property or (2) in any way adversely affect the use and enjoyment thereof; 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 Lessee (other than encumbrances created by Lessor without the consent of Lessee), at any time in force affecting the Leased Property. Lending Institution: Any insurance company, credit company, federally insured commercial or savings bank, national banking association, savings and loan association, employees welfare, pension or retirement fund or system, corporate profit sharing or pension trust, college or university, or real estate investment trust, including any corporation qualified to be treated for federal tax purposes as a real estate investment trust, such trust having a net worth of at least $10,000,000. Lessee: The Lessee designated on this Lease and its respective permitted successors and assigns. Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other Person against whom any claim for indemnification may be asserted hereunder as a result of a direct or indirect ownership interest (including a stockholder's interest) in Lessee, the officers, directors, stockholders, employees, agents and representatives of Lessee and any corporate stockholder, agent, or representative of Lessee, and the respective heirs, personal representatives, successors and assigns of any such officer, director, stockholder, employee, agent or representative. Lessee's Personal Property: As defined in Section 6.2. Lessor: The Lessor designated on this Lease and its respective successors and assigns. Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any other Person against whom any claim for indemnification may be asserted hereunder as a result of a direct or indirect ownership interest (including a stockholder's or partnership interest) in Lessor, the officers, directors, stockholders, employees, agents and representatives of the general partner of Lessor and any partner, agent, or representative of Lessor, and the respective heirs, personal representatives, successors and assigns of any such officer, director, partner, stockholder, employee, agent or representative. Minimum Price: The sum of (a) the equity in the Leased Property at the time of acquisition of the Leased Property by Lessor (i.e., that portion of the purchase price of the Leased Property paid by Lessor in cash or exchange for partnership interests in the Lessor) plus (b) other capital expenditures on the Leased Property made by Lessor after the date hereof plus (c) the unpaid principal balance of all encumbrances against the Leased Property at the time of purchase of the Leased Property by Lessee, less (x) all proceeds received by Lessor from any 8 financing or refinancing of the Leased Property after the date hereof (after payment of any debt refinanced and net of any costs and expenses incurred in connection with such financing or refinancing, including, without limitation, loan points, commitment fees and commissions and legal fees) and (y) the net amount (after deduction of all reasonable legal fees and other costs and expenses, including without limitation expert witness fees, incurred by Lessor in connection with obtaining any such proceeds or award) of all insurance proceeds received by Lessor and awards received by Lessor from any partial Taking of the Leased Property that are not applied to restoration. Mortgage: As defined in Section 30.2. Notice: A notice given pursuant to Article XXXII. Officer's Certificate: A certificate of Lessee reasonably acceptable to Lessor, signed by the chief financial officer or another officer authorized so to sign by the board of directors or limited liability company agreement of Lessee, or any other person whose power and authority to act has been authorized by delegation in writing by any such officer. Overdue Rate: On any date, a rate equal to the Base Rate plus 5% per annum, but in no event greater than the maximum rate then permitted under applicable law. Other Revenues: Gross revenue from the operation of the Facility excluding: (a) Room Revenues; (b) the amount of all credit, rebates or refunds to customers, guests or patrons; (c) all sales taxes or any other taxes imposed on such revenues. Payment Date: Any due date for the payment of any installment of Percentage Rent. Percentage Rent: As defined in Section 3.1(a). Person: Any Government, natural person, corporation, partnership, limited liability company, joint venture, association, trust, or other legal entity. Personal Property Taxes: All personal property taxes imposed on the furniture, furnishings or other items of personal property located on, and used in connection with, the operation of the Leased Improvements as a hotel (other than Inventory and other personal property owned by the Lessee), together with all replacement, modifications, alterations and additions thereto. Primary Intended Use: As defined in Section 7.2(b). Proceeding: Any judicial action, suit or proceeding (whether civil or criminal), any administrative proceeding (whether formal or informal), any investigation by a governmental authority or entity (including a grand jury), and any arbitration, mediation or other non-judicial process for dispute resolution. 9 RCRA: The Resource Conservation and Recovery Act, as amended. Real Estate Taxes: All real estate taxes, including general and special assessments, if any, which are imposed upon the Land and any improvements thereon. Rejectable Offer Price: An amount equal to the greater of (a) the Fair Market Value, determined as of the applicable purchase date, or (b) the Minimum Price. Release: A "Release" as defined in CERCLA or in any Environmental Law, unless such Release has been properly authorized and permitted in writing by all applicable Environmental Authorities or is allowed by such Environmental Law without authorizations or permits. Rent: Collectively, the Percentage Rent and Additional Charges. Room Revenues: Gross revenue from the rental of guest rooms, whether to individuals, groups or transients, at the Facility, excluding the following: (a) the amount of all credits, rebates or refunds to customers, guests or patrons; (b) all sales taxes or any other taxes imposed on the rental of such guest rooms; and (c) any fees collected for amenities including, but not limited to: telephone, laundry, movies or concessions. SARA: The Superfund Amendments and Reauthorization Act of 1986, as amended. State: The State or Commonwealth of the United States in which the Leased Property is located. Subsidiaries: Corporations in which Lessee owns, directly or indirectly, more than 50% of the voting stock or control, as applicable (individually, a "Subsidiary"). Taking: A taking or voluntary conveyance during the Term hereof of all or part of the Leased Property, or any interest therein or right accruing thereto or use thereof, as the result of, or in settlement of, any Condemnation or other eminent domain proceeding affecting the Leased Property whether or not the same shall have actually been commenced. Term: As defined in Section 1.2. TSCA: The Toxic Substances Control Act, as amended. Unavoidable Delays: Delays due to strikes, lock-outs, labor unrest, inability to procure materials, power failure, acts of God, governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or other causes beyond the control of the party responsible for performing an obligation hereunder, provided that lack of funds shall not be deemed a cause beyond the control of either party hereto unless such lack of funds is caused by the failure of the 10 other party hereto to perform any obligations of such party under this Lease or any guaranty of this Lease. Uneconomic for its Primary Intended Use: A state or condition of the Facility (after the application of any insurance proceeds if any) such that, in the good faith judgment of Lessee, reasonably exercised and evidenced by the resolution of the board of directors or other governing body of Lessee, the Facility cannot be operated on a commercially practicable basis for its Primary Intended Use, taking into account, among other relevant factors, the number of usable rooms and projected revenues, such that Lessee intends to, and shall, complete the cessation of operations from the Facility. Uniform System: The Uniform System of Accounts for Hotels (8th Revised Edition, 1986) as published by the Hotel Association of New York City, Inc., as same may hereafter be revised. Unsuitable for its Primary Intended Use: A state or condition of the Facility (after the application of insurance proceeds if any) such that, in the good faith judgment of Lessee, reasonably exercised and evidenced by the resolution of the board of directors or other governing body of Lessee, due to casualty damage or loss through Condemnation, the Facility cannot function as an integrated hotel facility consistent with standards applicable to a well maintained and operated hotel. ARTICLE III 3.1 Rent. Lessee covenants and agrees to pay to Lessor in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, in immediately available funds without deduction or offset, at Lessor's address set forth in Article XXXII hereof or at such other place or to such other Person as Lessor from time to time may designate in a Notice, all Percentage Rent and Additional Charges, during the Term, for each Leased Property as set forth on Exhibit "A" hereto. (a) Percentage Rent. During the Term, Lessee shall pay percentage rent ("Percentage Rent") quarterly in arrears in an amount equal to 30% of all quarterly Room Revenue; provided, however, that, on the Capitalization Date, Percentage Rent shall be reduced to an amount equal to 25% of all quarterly Room Revenue, and such reduction shall be effective retroactive to the Capitalization Date, if the Capitalization Date occurs in 2002, or to January 1 of the year in which the Capitalization Date occurs, if the Capitalization Date occurs after 2002. (b) Officer's Certificates. An Officer's Certificate shall be delivered to Lessor quarterly setting forth the calculation of the related quarterly Percentage Rent payments 30 days after the end of each such period of each Fiscal Year (or part thereof) in the Term. The Percentage Rent payments for the periods to which the Officer's Certificates relate shall accompany such Officer's Certificate. Such quarterly payments shall be based on the formula set forth in Section 3.1(a). If Percentage Rent is reduced from 30% to 25% as provided in Section 3.1(a), then, not later than 30 days after the Capitalization Date, Lessee shall deliver to Lessor an Officer's Certificate setting forth the recalculation of all Percentage Rent payments previously paid for the year in which the Capitalization Date occurred. If Lessee has paid to 11 Lessor Percentage Rent payments in excess of the recalculated Percentage Rent payments, then the amount of such excess shall be credited against the next Percentage Rent payments due from Lessee to Lessor until the amount of such excess has been credited in full. The obligation to pay Percentage Rent shall survive the expiration or earlier termination of the Term, and a final reconciliation, taking into account, among other relevant adjustments, any adjustments which are accrued after such expiration or termination date but which related to Percentage Rent accrued prior to such termination date, and Lessee's good faith allowances, shall be made not later than two years after such expiration or termination date, but Lessee shall advise Lessor within 60 days after such expiration or termination date of Lessee's best estimate at that time of the approximate amount of such adjustments, which estimate shall not be binding on Lessee or have any legal effect whatsoever. The accrual of Percentage Rent shall cease with the termination of the Lease. 3.2 Additional Charges. In addition to the Percentage Rent, (a) Lessee also will pay and discharge as and when due and payable all other amounts, liabilities, obligations and Impositions that Lessee assumes or agrees to pay under this Lease, and (b) in the event of any failure on the part of Lessee to pay any of those items referred to in clause (a) of this Section 3.2, Lessee also will promptly pay and discharge every fine, penalty, interest and cost that may be added for non-payment or late payment of such items (the items referred to in clauses (a) and (b) of this Section 3.2 being additional rent hereunder and being referred to herein collectively as the "Additional Charges"), and Lessor shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Percentage Rent. The Lessee's obligations regarding the payment of Impositions are set out in Section 4.1. If any installment of Percentage Rent or Additional Charges (but only as to those Additional Charges that are payable directly to Lessor) shall not be paid on its due date, Lessee will pay Lessor on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Lessee pays any Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of its obligation to pay such Additional Charges to the entity to which they would otherwise be due and Lessor shall pay same from monies received from Lessee. 3.3 Lease Provision. The Rent shall be paid so that this Lease shall yield to Lessor the full amount of the installments of Percentage Rent and Additional Charges throughout the Term, all as more fully set forth in Article V, but subject to any other provisions of this Lease that expressly provide for adjustment of Rent or other charges or expressly provide that certain expenses or maintenance shall be paid or performed by Lessor. 3.4 Conversion of Property. If, during the Term, Lessee desires to provide food and beverage operations at the Facility (other than complimentary continental breakfast), Lessee shall give notice of such desire to Lessor. Lessor and Lessee shall then commence negotiations to adjust Rent to reflect the proposed change to the operation of the Facility, each acting reasonably and in good faith. All other terms of this Lease will remain substantially the same. During negotiations, which shall not extend beyond 60 days, Lessee shall not "convert" the Facility and shall continue fulfilling its obligations under the existing terms of this Lease. If no agreement is 12 reached after such 60-day period, Lessee shall withdraw such notice and this Lease shall continue in full force. Once the "conversion" is approved or the Lessor has approved such operations, the Lessee may lease such converted facilities. If the Lessee desires to relet such facilities, the Lessor shall approve the terms of such lease unless its terms are the same or more advantageous to the Lessor than those of the prior lease. 3.5 Books and Records. Lessee shall keep full and adequate books of account and other records reflecting the results of operation of the Facility on an accrual basis, all in accordance with the Uniform System and generally accepted accounting principles and the obligations of Lessee under this Lease. The books of account and all other records relating to or reflecting the operation of the Facility shall be kept either at the Facility or at Lessee's offices in Columbia, Maryland, or Norfolk, Nebraska and shall be available to Lessor and its representatives and its auditors or accountants, at all reasonable times for examination, audit, inspection, and transcription. All of such books and records pertaining to the Facility including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessor and shall not be removed from the Facility or Lessee's offices without the approval of Lessor. ARTICLE IV 4.1 Payment of Impositions. Subject to Article VII relating to permitted contests, Lessee will pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost may be added for non-payment, such payments to be made directly to the taxing or other authorities where feasible, and will promptly furnish to Lessor copies of official receipts or other satisfactory proof evidencing such payments. Lessee's obligation to pay such Impositions shall be deemed absolutely fixed upon the date such Impositions become a lien upon the Leased Property or any part thereof. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Lessee may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and in such event, shall pay such installments during the Term hereof (subject to Lessee's right of contest pursuant to the provisions of Article XII as the same respectively become due and before any fine, penalty, premium, further interest or cost may be added thereto. Lessor, at its expense, shall, to the extent required or permitted by applicable law, prepare and file all tax returns in respect of Lessor's net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock, and Lessee, at its expense, shall, to the extent required or permitted by applicable laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by governmental authorities. If any refund shall be due from any taxing authority in respect of any Imposition paid by Lessee, the same shall be paid over to or retained by Lessee if no Event of Default shall have occurred hereunder and be continuing. If an Event of Default shall have occurred and be continuing, any such refund shall be paid over to or retained by Lessor. Any such funds retained by Lessor due to an Event of Default shall be applied as provided in Article XVI. Lessor and Lessee shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. Lessee shall file all Personal Property Tax returns in such jurisdictions where it is legally required to so 13 file. Lessor, to the extent it possesses the same, and Lessee, to the extent it possesses the same, will provide the other party, upon request, with cost and depreciation records necessary for filing returns for any property classified as personal property. Where Lessor is legally required to file Personal Property Tax returns, Lessee shall provide Lessor with copies of assessment notices in sufficient time for Lessor to file a protest. Lessor may, upon notice to Lessee, at Lessor's option and at Lessor's sole expense, protest, appeal, or institute such other proceedings (in its or Lessee's name) as Lessor may deem appropriate to effect a reduction for those Impositions to be paid by Lessor, and Lessee, at Lessor's expense as aforesaid, shall fully cooperate with Lessor in such protest, appeal, or other action. Lessee may, at its sole expense, and upon notice to Lessor, protest, appeal or institute such other proceedings (in its or in Lessor's name) as Lessee may deem appropriate to effect a reduction for these Impositions to be paid by the Lessee, and Lessor, at Lessee's expense, shall fully cooperate with Lessee in such protest, appeal or other action. Lessor hereby agrees to indemnify, defend, and hold harmless Lessee from and against any claims, obligations, and liabilities against or incurred by Lessee in connection with such cooperation. Lessor, however, reserves the right to effect any such protest, appeal or other action and, upon notice to Lessee, shall control any such activity, which shall then go forward at Lessor's sole expense. Upon such notice, Lessee, at Lessor's expense, shall cooperate fully with such activities. If requested by any lender of the Lessor relating to the Leased Property, the Lessee shall provide any funds for the escrow of any Imposition, and the Lessee shall received any income on such escrowed funds and shall receive any funds released from such escrow. 4.2 Notice of Impositions. Lessor shall give prompt Notice to Lessee of all Impositions payable by Lessee hereunder of which Lessor at any time has knowledge, provided that Lessor's failure to give any such Notice shall in no way diminish Lessee's obligations hereunder to pay such Impositions, but such failure shall obviate any default hereunder for a reasonable time after Lessee receives Notice or has otherwise acquired knowledge of any Imposition which it is obligated to pay during the first taxing period applicable thereto. 4.3 Adjustment of Impositions. Impositions imposed in respect of the tax-fiscal period during which the Term terminates shall be adjusted and prorated between Lessor and Lessee, whether or not such Imposition is imposed before or after such termination, and Lessee's obligation to pay its prorated share thereof after termination shall survive such termination. 4.4 Maintenance. Lessee will be solely responsible for obtaining and maintaining utility services to the Leased Property and will pay or cause to be paid all charges for electricity, gas, oil, water, sewer and other utilities used in the Leased Property during the Term. 4.5 Insurance Premiums. To the extent provided in Section 13.1(b), Lessee will pay or cause to be paid all premiums for the insurance coverages required to be maintained by it under Article XIII. ARTICLE V 5.1 No Termination. Except as otherwise specifically provided in this Lease, and except for loss of the Franchise Agreement solely by reason of any action or inaction by Lessor, Lessee, to the extent permitted by law, shall remain bound by this Lease in accordance with its terms and shall neither take any action without the written consent of Lessor to modify, surrender 14 or terminate the same, nor seek nor be entitled to any abatement, deduction, deferment or reduction of the Rent, or setoff against the Rent, nor shall the obligations of Lessee be otherwise affected by reason of (a) any damage to, or destruction of, any Leased Property or any portion thereof from whatever cause or any Taking of the Leased Property or any portion thereof, (b) the lawful or unlawful prohibition of, or restriction upon, Lessee's use of the Leased Property, or any portion thereof, or the interference with such use by any Person, corporation, partnership or other entity, (c) any claim which Lessee has or might have against Lessor by reason of any default or breach of any warranty by Lessor under this Lease or any other agreement between Lessor and Lessee, or to which Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for any other cause whether similar or dissimilar to any of the foregoing other than a discharge of Lessee from any such obligations as a matter of law. Lessee hereby specifically waives all rights, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to (1) modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof, or (2) entitle Lessee to any abatement, reduction, suspension or deferment of the Rent or other sums payable by Lessee hereunder, except as otherwise specifically provided in this Lease. The obligations of Lessee hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease or by termination of this Lease other than by reason of an Event of Default. ARTICLE VI 6.1 Ownership of the Leased Property. Lessee acknowledges that the Leased Property is the property of Lessor and that Lessee has only the right to the possession and use of the Leased Property upon the terms and conditions of this Lease. 6.2 Lessee's Personal Property. (a) Lessee will acquire and maintain throughout the Term such Inventory as is required to operate the Leased Property in the manner contemplated by this Lease and, from and after the Capitalization Date, all Hotel Property. Lessee may (and shall as provided herein below), at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements, any items of personal property (including Inventory and Hotel Property) owned by Lessee. Lessee, at the commencement of the Term, and from time to time thereafter, shall provide Lessor with an accurate list of all such items of Lessee's personal property (collectively, the "Lessee's Personal Property"). Lessee may, subject to the first sentence of this Section 6.2 and the conditions set forth below, remove any of Lessee's Personal Property set forth on such list at any time during the Term or upon the expiration or any prior termination of the Term. All of Lessee's Personal Property, other than Inventory, not removed by Lessee within ten days following the expiration or earlier termination of the Term shall be considered abandoned by Lessee and may be appropriated, sold, destroyed or otherwise disposed of by Lessor without first giving Notice thereof to Lessee, without any payment to Lessee and without any obligation to account therefor. Lessee will, at its expense, restore the Leased Property to the condition required by Section 9.1(a), including repair of all damage to the Leased 15 Property caused by the removal of Lessee's Personal Property, effected by Lessee. Upon the expiration or earlier termination of the Term, Lessor or its designee shall have the option to purchase all Inventory and any or all Hotel Property on hand at the Leased Property at the time of such expiration or termination for a sale price equal to the fair market value of such Inventory. Lessee may make such financing arrangements, title retention agreements, leases or other agreements with respect to the Lessee's Personal Property as it sees fit provided that Lessee first advises Lessor of any such arrangement and such arrangement expressly provides that in the event of Lessee's default thereunder, Lessor (or its designee) may assume Lessee's obligations and rights under such arrangement. (b) From and after the Capitalization Date, Lessee, at its expense, shall acquire and maintain, and install, affix or assemble or place on the Land and in the Leased Improvements, all Hotel Property, all of which shall be deemed to be part of Lessee's Personal Property for all purposes hereunder, and none of which shall be deemed to be Leased Property with respect to any period after the Capitalization Date. 6.3 Lessor's Lien. To the fullest extent permitted by applicable law, Lessor is granted a lien and security interest on all Lessee's Personal Property now or hereinafter placed in or upon the Leased Property and the Lessee's bank accounts, with the exception of the Lessee's central disbursement, payroll and concentration bank accounts (the "Depository Accounts"), and such lien and security interest shall remain attached to such Lessee's Personal Property and Depository Accounts until payment in full of all Rent and satisfaction of all of Lessee's obligations hereunder; provided, however, Lessor shall subordinate its lien and security interest to that of any non-Affiliate of Lessee which finances such Lessee's Personal Property or any non-Affiliate conditional seller of such Lessee's Personal Property, the terms and conditions of such subordination to be satisfactory to Lessor in the exercise of reasonable discretion. Lessee shall, upon the request of Lessor, title the Depository Accounts in the name of the Lessor or execute such financing statements or other documents or instruments reasonably requested by Lessor to perfect the lien and security interests herein granted. In addition, the Lessor shall have unrestricted access to the Depository Accounts. To the extent that the Lessor withdraws from the Depository Accounts more than the rent and other obligations of the Lessee to the Lessor, the excess shall be a loan from the Lessee to the Lessor, repayable upon demand by the Lessee. ARTICLE VII 7.1 Condition of the Leased Property. Lessee acknowledges receipt and delivery of possession of the Leased Property. Lessee has examined and otherwise has knowledge of the condition of the Leased Property and has found the same to be satisfactory for its purposes hereunder. Lessee is leasing the Leased Property "as is" in its present condition. Lessee waives any claim or action against Lessor in respect of the condition of the Leased Property. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Provided, however, 16 to the extent permitted by law, Lessor shall allow Lessee the benefit of all of Lessor's rights to proceed against any predecessor in title other than Lessee (or an Affiliate of Lessee which conveyed the Property to Lessor) for breaches of warranties or representations or for latent defects in the Leased Property. Lessor shall fully cooperate with Lessee in the prosecution of any such claim, in Lessor's or Lessee's name, all at Lessee's sole cost and expense. Lessee hereby agrees to indemnify, defend and hold harmless Lessor from and against any claims, obligations and liabilities against or incurred by Lessor in connection with such cooperation. Provided, however, that nothing herein shall be deemed to limit Lessor's obligations under Section XL and 40.2. 7.2 Use of the Leased Property. (a) Lessee covenants that it will obtain and to maintain all approvals needed to use and operate the Leased Property and the Facility under applicable local, state and federal law. (b) Lessee shall use or cause to be used the Leased Property only as a hotel facility, and for such other uses as may be necessary or incidental to such use (the "Primary Intended Use"). Lessee shall not use the Leased Property or any portion thereof for any other use without the prior written consent of Lessor, which consent may be granted, denied or conditioned in Lessor's sole discretion. No use shall be made or permitted to be made of the Leased Property, and no acts shall be done, which will cause the cancellation or substantially increase the premium of any insurance policy covering the Leased Property or any part thereof (unless another adequate policy satisfactory to Lessor is available and Lessee pays any premium increase), nor shall Lessee sell or permit to be kept, used or sold in or about the Leased Property any article which may be prohibited by law or fire underwriter's regulations. Lessee shall, at its sole cost, comply with all of the requirements pertaining to the Leased Property of any insurance board, association, organization or company necessary for the maintenance of insurance, as herein provided, covering the Leased Property and Lessee's Personal Property. (c) Subject to the provisions of Articles XIV and XV, Lessee covenants and agrees that during the Term it will (1) operate continuously the Leased Property as a hotel facility, (2) keep in full force and effect and materially comply with all the provisions of the Franchise Agreement (except that Lessee shall have no obligation to complete any improvements to the Leased Property required by the franchisor unless the Lessor funds the cost thereof), (3) not terminate or amend the Franchise Agreement without the consent of Lessor, (4) maintain appropriate certifications and licenses for such use and (5) will seek to maximize the Gross Revenues generated therefrom consistent with sound business practices. (d) Lessee shall not commit or suffer to be committed any waste on the Leased Property, or in the Facility, nor shall Lessee cause or permit any nuisance thereon. (e) Lessee shall neither suffer nor permit the Leased Property or any portion thereof, or Lessee's Personal Property, to be used in such a manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case may be) title thereto or to any portion thereof, or (2) may reasonably make possible a claim or claims of adverse usage or adverse possession by 17 the public, as such, or of implied dedication of the Leased Property or any portion thereof, except as necessary in the ordinary and prudent operation of the Facility on the Leased Property. 7.3 Lessor to Grant Easements, etc. Lessor will, from time to time, so long as no Event of Default has occurred and is continuing, at the request of Lessee and at Lessee's cost and expense (but subject to the approval of Lessor, which approval shall not be unreasonably withheld or delayed), (a) grant easements and other rights in the nature of easements with respect to the Leased Property to third parties, (b) release existing easements or other rights in the nature of easements which are for the benefit of the Leased Property, (c) dedicate or transfer unimproved portions of the Leased Property for road, highway or other public purposes, (d) execute petitions to have the Leased Property annexed to any municipal corporation or utility district, (e) execute amendments to any covenants and restrictions affecting the Leased Property and (f) execute and deliver to any person any instrument appropriate to confirm or effect such grants, releases, dedications, transfers, petitions and amendments (to the extent of its interests in the Leased Property), but only upon delivery to Lessor of an Officer's Certificate stating that such grant, release, dedication, transfer, petition or amendment does not interfere with the proper conduct of the business of Lessee on the Leased Property and does not materially reduce the value of the Leased Property. ARTICLE VIII 8.1 Compliance with Legal and Insurance Requirements, etc. Subject to Section 8.3(b) below and Article XII relating to permitted contests, Lessee, at its expense, will promptly (a) comply with all applicable Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair and restoration of the Leased Property, and (b) procure, maintain and comply with all appropriate licenses and other authorizations required for any use of the Leased Property and Lessee's Personal Property then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof. 8.2 Legal Requirement Covenants. Subject to Section 8.3(b) below, Lessee covenants and agrees that the Leased Property and Lessee's Personal Property shall not be used for any unlawful purpose, and that Lessee shall not permit or suffer to exist any unlawful use of the Leased Property by others. Lessee shall acquire and maintain all appropriate licenses, certifications, permits and other authorizations and approvals needed to operate the Leased Property in its customary manner for the Primary Intended Use, and any other lawful use conducted on the Leased Property as may be permitted from time to time hereunder. Lessee further covenants and agrees that Lessee's use of the Leased Property and maintenance, alteration, and operation of the same, and all parts thereof, shall at all times materially conform to all Legal Requirements, unless the same are finally determined by a court of competent jurisdiction to be unlawful (and Lessee shall cause all such sub-tenants, invitees or others to so materially comply with all Legal Requirements). Lessee may, however, upon prior Notice to Lessor, contest the legality or applicability of any such Legal Requirement or any licensure or certification decision if Lessee maintains such action in good faith, with due diligence, without prejudice to Lessor's rights hereunder, and at Lessee's sole expense. If by the terms of any such Legal Requirement compliance therewith pending the prosecution of any such proceeding may legally be delayed without the incurrence of any lien, charge or liability of any kind against the Facility or Lessee's leasehold interest therein and without subjecting Lessee or Lessor to any 18 liability, civil or criminal, for failure so to comply therewith, Lessee may delay compliance therewith until the final determination of such proceeding. If any lien, charge or civil or criminal liability would be incurred by reason of any such delay, Lessee, on the prior written consent of Lessor, which consent shall not be unreasonably withheld, may nonetheless contest as aforesaid and delay as aforesaid provided that such delay would not subject Lessor to criminal liability and Lessee both (a) furnishes to Lessor security reasonably satisfactory to Lessor against any loss or injury by reason of such contest or delay and (b) prosecutes the contest with due diligence and in good faith. 8.3 Environmental Covenants. Lessor and Lessee (in addition to, and not in diminution of, Lessee's covenants and undertakings in Sections 8.1 and 8.2 hereof) covenant and agree as follows: (a) At all times hereafter until the later of (i) such time as all liabilities, duties or obligations of Lessee to the Lessor under the Lease have been satisfied in full and (ii) such time as Lessee completely vacates the Leased Property and surrenders possession of the same to Lessor, Lessee shall fully comply with all Environmental Laws applicable to the Leased Property and the operations thereon. Lessee agrees to give Lessor prompt written notice of (1) all Environmental Liabilities; (2) all pending, threatened or anticipated Proceedings, and all notices, demands, requests or investigations, relating to any Environmental Liability or relating to the issuance, revocation or change in any Environmental Authorization required for operation of the Leased Property; (3) all Releases at, on, in, under or in any way affecting the Leased Property, or any Release known by Lessee at, on, in or under any property adjacent to the Leased Property; and (4) all facts, events or conditions that could reasonably lead to the occurrence of any of the above-referenced matters. (b) Lessor hereby agrees to defend, indemnify and save harmless any and all Lessee Indemnified Parties from and against any and all Environmental Liabilities other than Environmental Liabilities which were caused by the acts or grossly negligent failures to act of Lessee. (c) Lessee hereby agrees to defend, indemnify and save harmless any and all Lessor Indemnified Parties from and against any and all Environmental Liabilities which were caused by the acts or grossly negligent failures to act of Lessee. (d) If any Proceeding is brought against any Indemnified Party in respect of an Environmental Liability with respect to which such Indemnified Party may claim indemnification under either Section 8.3(b) or 8.3(c), the Indemnifying Party, upon request, shall at its sole expense resist and defend such Proceeding, or cause the same to be resisted and defended by counsel designated by the Indemnified Party and approved by the Indemnifying Party, which approval shall not be unreasonably withheld; provided, however, that such approval shall not be required in the case of defense by counsel designated by any insurance company undertaking such defense pursuant to any applicable policy of insurance. Each Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel will be at the sole expense of such Indemnified Party unless such counsel has been approved by the Indemnifying Party, which approval shall not be unreasonably withheld. The Indemnifying Party shall not be liable for any 19 settlement of any such Proceeding made without its consent, which shall not be unreasonably withheld, but if settled with the consent of the Indemnifying Party, or if settled without its consent (if its consent shall be unreasonably withheld), or if there be a final, nonappealable judgment for an adversary party in any such Proceeding, the Indemnifying Party shall indemnify and hold harmless the Indemnified Parties from and against any liabilities incurred by such Indemnified Parties by reason of such settlement or judgment. (e) At any time any Indemnified Party has reason to believe circumstances exist which could reasonably result in an Environmental Liability, upon reasonable prior written notice to Lessee stating such Indemnified Party's basis for such belief, an Indemnified Party shall be given immediate access to the Leased Property (including, but not limited to, the right to enter upon, investigate, drill wells, take soil borings, excavate, monitor, test, cap and use available land for the testing of remedial technologies), Lessee's employees, and to all relevant documents and records regarding the matter as to which a responsibility, liability or obligation is asserted or which is the subject of any Proceeding; provided that such access may be conditioned or restricted as may be reasonably necessary to ensure compliance with law and the safety of personnel and facilities or to protect confidential or privileged information. All Indemnified Parties requesting such immediate access and cooperation shall endeavor to coordinate such efforts to result in as minimal interruption of the operation of the Leased Property as practicable. (f) The indemnification rights and obligations provided for in this Article VIII shall be in addition to any indemnification rights and obligations provided for elsewhere in this Lease. (g) The indemnification rights and obligations provided for in this Article VIII shall survive the termination of this Agreement. For purposes of this Section 8.3, all amounts for which any Indemnified Party seeks indemnification shall be computed net of (a) any actual income tax benefit resulting therefrom to such Indemnified Party, (b) any insurance proceeds received (net of tax effects) with respect thereto, and (c) any amounts recovered (net of tax effects) from any third parties based on claims the Indemnified Party has against such third parties which reduce the damages that would otherwise be sustained; provided that in all cases, the timing of the receipt or realization of insurance proceeds or income tax benefits or recoveries from third parties shall be taken into account in determining the amount of reduction of damages. Each Indemnified Party agrees to use its reasonable efforts to pursue, or assign to Lessee or Lessor, as the case may be, any claims or rights it may have against any third party which would materially reduce the amount of damages otherwise incurred by such Indemnified Party. Notwithstanding anything to the contrary contained in this Agreement, if Lessor shall become entitled to the possession of the Leased Property by virtue of the termination of the Lease or repossession of the Leased Property, then Lessor may assign its indemnification rights under Section 8.3 of this Agreement (but not any other rights hereunder) to any Person to whom the Lessor subsequently transfers the Leased Property, subject to the following conditions and limitations, each of which shall be deemed to be incorporated into the terms of such assignment, whether or not specifically referred to therein: 20 (1) The indemnification rights referred to in this section may be assigned only if a known Environmental Liability then exists or if a Proceeding is then pending or, to the knowledge of Lessee or Lessor, then threatened with respect to the Leased Property. (2) Such indemnification rights shall be limited to Environmental Liabilities relating to or specifically affecting the Leased Property; and (3) Any assignment of such indemnification rights shall be limited to the immediate transferee of Lessor, and shall not extend to any such transferree's successors or assigns. ARTICLE IX 9.1 Capital Improvements, Maintenance and Repair. (a) Subject to Section 9.1(b), Lessee will keep the Leased Property and all private roadways, sidewalks and curbs appurtenant thereto that are under Lessee's control, including windows and plate glass, parking lots, mechanical, electrical and plumbing systems and equipment (including conduit and ductware), and non-load bearing interior walls, and all Hotel Property in good order and repair, except for ordinary wear and tear (whether or not the need for such repairs occurred as a result of Lessee's use, any prior use, the elements or the age of the Leased Property, or any portion thereof), and, except as otherwise provided in Articles XIV or XV, with reasonable promptness, make all necessary and appropriate repairs thereto of every kind and nature, whether interior or exterior, ordinary or extraordinary, foreseen or unforeseen, or required by any governmental agency having jurisdiction over the Leased Property, except as to the structural elements of the Leased Improvements and underground utilities. (b) Notwithstanding any other provision of this Lease, unless the need for compliance with Section 9.1(a) is caused by Lessee's negligence or willful misconduct or that of its employees or agents, Lessee shall not be required to bear the costs of complying with Section 9.1(a) with respect to items classified as either (i) capital items under U.S. generally accepted accounting principles or (ii) Fixtures or, prior to the Capitalization Date, Furniture and Equipment in, on, or under the Facility or its components, except to the extent (X) that amounts are available therefor from Lessor under Article XL or otherwise or (Y) required under Articles XIV and XV on the conditions set forth therein. (c) Article XL sets forth the only obligations of Lessor to fund the cost of any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, in connection with this Lease, or to maintain the Leased Property in any way. Lessee hereby waives, to the extent permitted by law, the right to make repairs at the expense of Lessor pursuant to any law in effect at the time of the execution of this Lease or hereafter enacted. Lessor shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic's lien laws now or hereafter existing. 21 (d) Lessee shall be permitted to prosecute claims against Lessor's predecessors in title for breach of any representation or warranty or for any latent defects in the Leased Property to be maintained by Lessee unless Lessor is already diligently pursuing such a claim. All repairs shall, to the extent reasonably achievable, be at least equivalent in quality to the original work. Lessee will not take or omit to take any action, the taking or omission of which might materially impair the value or the usefulness of the Leased Property or any part thereof for its Primary Intended Use. (e) Intentionally Omitted. (f) Lessee will, upon the expiration or prior termination of the Term, vacate and surrender the Leased Property to Lessor in the condition in which the Leased Property was originally received from Lessor, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Lease and except for ordinary wear and tear (subject to the obligation of Lessee to maintain the Leased Property in accordance with Section 9.1(a) above during the entire Term of the Lease), or damage by casualty or Condemnation (subject to the obligations of Lessee to restore or repair as set forth in the Lease). 9.2 Encroachments, Restrictions, Etc. If any of the Leased Improvements, at any time, materially encroach upon any property, street or right-of-way adjacent to the Leased Property, or violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting the Leased Property, or any part thereof, or impair the rights of others under any easement or right-of-way to which the Leased Property is subject, then promptly upon the request of Lessor or at the behest of any person affected by any such encroachment, violation or impairment, Lessee shall, at its expense, subject to its right to contest the existence of any encroachment, violation or impairment and, in such case, in the event of an adverse final determination, either (a) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation or impairment, whether the same shall affect Lessor or Lessee or (b) make such changes in the Leased Improvements, and take such other actions, as Lessee in the good faith exercise of its judgment deems reasonably practicable to remove such encroachment, and to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements, and in any event take all such actions as may be necessary in order to be able to continue the operation of the Leased Improvements for the Primary Intended Use substantially in the manner and to the extent the Leased Improvements were operated prior to the assertion of such violation, impairment or encroachment. Any such alteration shall be made in conformity with the applicable requirements of Article X. Lessee's obligations under this Section 9.2 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer under any policy of title or other insurance held by Lessor. ARTICLE X 10.1 Alterations. After receiving approval of Lessor, which approval shall not be unreasonably withheld, Lessee shall have the right to make such additions, modifications or improvements to the Leased Property from time to time as Lessee deems desirable for its permitted uses and purposes, provided that such action will not significantly alter the character or purposes or significantly detract from the value or operating efficiency thereof and will not 22 significantly impair the revenue-producing capability of the Leased Property or adversely affect the ability of the Lessee to comply with the provisions of this Lease. The cost of such additions, modifications or improvements to the Leased Property shall be paid by Lessee, and all such additions, modifications and improvements shall, without payment by Lessor at any time, be included under the terms of this Lease and upon expiration or earlier termination of this Lease shall pass to and become the property of Lessor. 10.2 Salvage. All materials which are scrapped or removed in connection with the making of repairs required by Articles IX or X shall be or become the property of Lessor or Lessee depending on which party is paying for or providing the financing for such work. 10.3 Joint Use Agreements. If Lessee constructs additional improvements that are connected to the Leased Property or share maintenance facilities, HVAC, electrical, plumbing or other systems, utilities, parking or other amenities, the parties shall enter into a mutually agreeable cross-easement or joint use agreement, the form of which has been approved in advance by Lessor, to make available necessary services and facilities in connection with such additional improvements, to protect each of their respective interests in the properties affected, and to provide for separate ownership, use, and/or financing of such improvements. ARTICLE XI 11.1 Liens. Subject to the provision of Article XII relating to permitted contests, Lessee will not directly or indirectly create or allow to remain and will promptly discharge at its expense any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or any attachment, levy, claim or encumbrance in respect of the Rent, not including, however, (a) this Lease, (b) the matters, if any, included as exceptions in the title policy insuring Lessor's interest in the Leased Property, (c) restrictions, liens and other encumbrances which are consented to in writing by Lessor or any easements granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for those taxes upon Lessor which Lessee is not required to pay hereunder, (e) subleases permitted by Article XXIII hereof, (f) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (1) the same are not yet payable or are payable without the addition of any fine or penalty or (2) such liens are in the process of being contested as permitted by Article XII, (g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums either disputed or not yet due provided that (1) the payment of such sums shall not be postponed under any related contract for more than 60 days after the completion of the action giving rise to such lien and such reserve or other appropriate provisions as shall be required by law or generally accepted accounting principles shall have been made therefor and (2) any such liens are in the process of being contested as permitted by Article XII hereof, (h) any liens which are the responsibility of Lessor pursuant to the provisions of Article XXXIV of this Lease. ARTICLE XII 12.1 Permitted Contests. Lessee shall have the right to contest the amount or validity of any Imposition to be paid by Lessee or any Legal Requirement or Insurance Requirement or any lien, attachment, levy, encumbrance, charge or claim ("Claims") not otherwise permitted by Article XI, by appropriate legal proceedings in good faith and with due diligence (but this shall 23 not be deemed or construed in any way to relieve, modify or extend Lessee's covenants to pay or its covenants to cause to be paid any such charges at the time and in the manner as in this Article provided), on condition, however, that such legal proceedings shall not operate to relieve Lessee from its obligations hereunder and shall not cause the sale or risk the loss of any portion of the Leased Property, or any part thereof, or cause Lessor or Lessee to be in default under any mortgage, deed of trust, security deed or other agreement encumbering the Leased Property or any interest therein. Upon the request of Lessor, Lessee shall either (a) provide a bond or other assurance reasonably satisfactory to Lessor that all Claims which may be assessed against the Leased Property together with interest and penalties, if any, thereon will be paid, or (b) deposit within the time otherwise required for payment with a bank or trust company as trustee upon terms reasonably satisfactory to Lessor, as security for the payment of such Claims, money in an amount sufficient to pay the same, together with interest and penalties in connection therewith, as to all Claims which may be assessed against or become a Claim on the Leased Property, or any part thereof, in said legal proceedings. Lessee shall furnish Lessor and any lender of Lessor with reasonable evidence of such deposit within five days of the same. Lessor agrees to join in any such proceedings at Lessee's expense if the same be required to legally prosecute such contest of the validity of such Claims; provided, however, that Lessor shall not thereby be subjected to any liability for the payment of any costs or expenses in connection with any proceedings brought by Lessee; and Lessee covenants to indemnify and save harmless Lessor from any such costs or expenses. Lessee shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Lessee or paid by Lessor and for which Lessor has been fully reimbursed. In the event that Lessee fails to pay any Claims when due or to provide the security therefor as provided in this paragraph and to diligently prosecute any contest of the same, Lessor may, upon ten days advance Notice to Lessee, pay such charges together with any interest and penalties and the same shall be repayable by Lessee to Lessor as Additional Charges at the next Payment Date provided for in this Lease. Provided, however, that should Lessor reasonably determine that the giving of such Notice would risk loss to the Leased Property or cause damage to Lessor, then Lessor shall give such Notice as is practical under the circumstances. Lessor reserves the right to contest any of the Claims at its expense not pursued by Lessee. Lessor and Lessee agree to cooperate in coordinating the contest of any claims. ARTICLE XIII 13.1 General Insurance Requirements. (a) Coverages. During the Term of this Lease, Lessee shall at all times keep the Leased Property and Hotel Property insured with the kinds and amounts of insurance described below provided, however, that the Lessor shall be responsible for payment of any insurance requested by it pursuant to paragraph (ix) of Section 13.1(a) of this Lease if not of a type customarily kept by similar business and properties. This insurance shall be written by companies licensed and authorized to issue insurance in the State. The policies must name Lessor as the insured or as an additional named insured, as the case may be. Losses shall be payable to Lessor or Lessee as provided in this Lease. Any loss adjustment shall require the written consent of Lessor and Lessee, each acting reasonably and in good faith. Evidence of 24 insurance shall be deposited with Lessor. The policies on the Leased Property, including the Leased Improvements, Fixtures and Lessee's Personal Property, shall include: (i) Building insurance on the "Special Form" (formerly "All Risk" form) (which may include earthquake and flood in reasonable amounts as determined by Lessor) in an amount not less than 100% of the then full replacement cost thereof (as defined in Section 13.2) or such other amount which is acceptable to Lessor, and personal property insurance on the "Special Form" in the full amount of the replacement cost thereof; (ii) Insurance for loss or damage (direct and indirect) from steam boilers, pressure vessels or similar apparatus, now or hereafter installed in the Facility, in the minimum amount of $5,000,000 or in such lesser or greater amounts as are then customary or as may be reasonably requested by Lessor from time to time; (iii) Loss of income insurance on the "Special Form", in the amount of one year of Percentage Rent for the benefit of Lessor, and business interruption insurance on the "Special Form" in the amount of one year of gross profit, for the benefit of Lessor or Lessee; (iv) Commercial general liability insurance, with amounts not less than $10,000,000 covering each of the following: bodily injury, death, or property damage liability per occurrence, personal and advertising injury, general aggregate, products and completed operations, with respect to Lessor, and "all risk legal liability" (including liquor law or "dram shop" liability, if liquor or alcoholic beverages are served on the Leased Property) with respect to Lessor and Lessee; (v) Insurance covering such other hazards and in such amounts as may be customary for comparable properties in the area of the Leased Property and is available from insurance companies, insurance pools or other appropriate companies authorized to do business in the State at rates which are economically practicable in relation to the risks covered as may be reasonably requested by Lessor; (vi) Fidelity bonds with limits and deductibles as may be reasonably requested by Lessor, covering Lessee's employees in job classifications normally bonded under prudent hotel management practices in the United States or otherwise required by law; (vii) Workmen's compensation insurance to the extent necessary to protect Lessor and the Leased Property against Lessee's workman's compensation claims; (viii) Vehicle liability insurance for owned, non-owned, and hired vehicles, in the amount of $1,000,000; and (ix) Such other insurance as Lessor may reasonably request for facilities such as the Leased Property and the operation thereof. (b) Responsibility for Premiums. Lessee shall keep in force the foregoing insurance coverages at its expense; provided, however, that Lessor shall reimburse Lessee for any other casualty coverages required by Lessor not specifically required in (i) - (viii) of 25 subsection (a) above. If requested by any Lender of the Lessor relating to the Leased Property, the Lessee shall provide any funds for the escrow of any insurance premiums, and the Lessee shall receive any income on such escrowed funds and shall receive any funds released from such account. 13.2 Replacement Cost. The term "full replacement cost" as used herein shall mean the actual replacement cost of the Leased Property requiring replacement from time to time including an increased cost of construction endorsement, if available, and the cost of debris removal. In the event either party believes that full replacement cost (the then-replacement cost less such exclusions) has increased or decreased at any time during the Lease Term, it shall have the right to have such full replacement cost re-determined. 13.3 Worker's Compensation. Lessee, at its sole cost, shall at all times maintain adequate worker's compensation insurance coverage for all persons employed by Lessee on the Leased Property. Such worker's compensation insurance shall be in accordance with the requirements of applicable local, state and federal law. 13.4 Waiver of Subrogation. All insurance policies carried by Lessor or Lessee covering the Leased Property, the Fixtures, the Facility or Lessee's Personal Property, including, without limitation, contents, fire and casualty insurance shall expressly waive any right of subrogation on the part of the insurer against the other party. The parties hereto agree that their policies will include such waiver clause or endorsement so long as the same are obtainable without extra cost, and in the event of such an extra charge the other party, at its election, may pay the same, but shall not be obligated to do so. Each party agrees to seek recovery from any applicable insurance coverage available to such party prior to seeking recovery against the other. 13.5 Form Satisfactory, etc. All of the policies of insurance referred to in this Article XIII shall be written in a form, with deductibles and by insurance companies satisfactory to Lessor and also shall meet and satisfy the requirements of any ground lessor, lender or franchisor having any interest in the Leased Premises. Subject to the right to reimbursement or credit specified in Section XIII, Lessee shall pay all of the premiums therefor, and deliver such policies or certificates thereof to Lessor prior to their effective date (and, with respect to any renewal policy, 30 days prior to the expiration of the existing policy), and in the event of the failure of Lessee either to effect such insurance as herein called for or to pay the premiums therefor, or to deliver such policies or binding certificates thereof to Lessor at the times required, Lessor shall be entitled, but shall have no obligation, to effect such insurance and pay the premiums therefor, and Lessee shall reimburse Lessor for any premium or premiums paid by Lessor for the coverages required under this Section (other than the premiums required to be paid or reimbursed to Lessee by Lessor in accordance with Section 13.1(b)) upon written demand therefor, and Lessee's failure to repay the same within 30 days after Notice of such failure from Lessor shall constitute an Event of Default within the meaning of Section 16.1(c). Each insurer mentioned in this Article XIII shall agree, by endorsement to the policy or policies issued by it, or by independent instrument furnished to Lessor, that it will give to Lessor 30 days' written notice before the policy or policies in question shall be materially altered, allowed to expire or canceled. 26 13.6 Change in Limits. If either Lessor or Lessee at any time deems the limits of the personal injury or property damage under the comprehensive public liability insurance then carried to be either excessive or insufficient, Lessor and Lessee shall endeavor in good faith to agree on the proper and reasonable limits for such insurance to be carried and such insurance shall thereafter be carried with the limits thus agreed on until further change pursuant to the provisions of this Section. 13.7 Blanket Policy. Notwithstanding anything to the contrary contained in this Article XIII, Lessee or Lessor may bring the insurance provided for herein within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Lessee or Lessor; provided, however, that the coverage afforded to Lessor and Lessee will not be reduced or diminished or otherwise be different from that which would exist under a separate policy meeting all other requirements of this Lease by reason of the use of such blanket policy of insurance, and provided further that the requirements of this Article XIII are otherwise satisfied. 13.8 Separate Insurance. Lessee shall not on Lessee's own initiative or pursuant to the request or requirement of any third party, take out separate insurance concurrent in form or contributing in the event of loss with that required in this Article to be furnished, or increase the amount of any then existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of the insurance, including in all cases Lessor, are included therein as additional insureds, and the loss is payable under such additional separate insurance in the same manner as losses are payable under this Lease. Lessee shall immediately notify Lessor that Lessee has obtained any such separate insurance or of the increasing of any of the amounts of the then existing insurance. 13.9 Reports On Insurance Claims. Lessee shall promptly investigate and make a complete and timely written report to the appropriate insurance company as to all accidents, claims for damage relating to the ownership, operation, and maintenance of the Facility, any damage or destruction to the Facility and the estimated cost of repair thereof and shall prepare any and all reports required by any insurance company in connection therewith. All such reports shall be timely filed with the insurance company as required under the terms of the insurance policy involved, and a final copy of such report shall be furnished to Lessor. Lessee shall be authorized to adjust, settle, or compromise any insurance loss, or to execute proofs of such loss, in the aggregate amount of $5,000 or less, with respect to any single casualty or other event. ARTICLE XIV 14.1 Insurance Proceeds. Subject to the provisions of Section 14.6, and the senior rights of any lender, all proceeds payable by reason of any loss or damage to the Leased Property, or any portion thereof, and insured under any policy of insurance required by Article XIII of this Lease shall be paid to Lessor and held in trust by Lessor in an interest-bearing account, shall be made available, if applicable, for reconstruction or repair, as the case may be, of any damage to or destruction of the Leased Property, or any portion thereof, and, if applicable, shall be paid out by Lessor from time to time for the reasonable costs of such reconstruction or repair upon satisfaction of reasonable terms and conditions specified by Lessor. Any excess proceeds of insurance remaining after the completion of the restoration or reconstruction of the Leased Property shall be paid to Lessee. If neither Lessor nor Lessee is required or elects to 27 repair and restore, and the Lease is terminated without purchase by Lessee as described in Section 14.2, all such insurance proceeds shall be retained by Lessor. All salvage resulting from any risk covered by insurance shall belong to Lessor. 14.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance. (a) Except as provided in Section 14.5, if during the Term the Leased Property is totally or partially destroyed by a risk covered by the insurance described in Article XIII and the Facility thereby is rendered Unsuitable for its Primary Intended Use, Lessee shall, at Lessee's option, either (1) restore the Facility to substantially the same condition as existed immediately before the damage or destruction and otherwise in accordance with the terms of the Lease, or (2) offer to acquire the Leased Property from Lessor for a purchase price equal to the Rejectable Offer Price of the Leased Property. If Lessee restores the Facility, the insurance proceeds shall be paid out by Lessor from time to time for the reasonable costs of such restoration upon satisfaction of reasonable terms and conditions, and any excess proceeds remaining after such restoration shall be paid to Lessee. If Lessee acquires the Leased Property, Lessee shall receive the insurance proceeds. If Lessor does not accept Lessee's offer so to purchase the Leased Property within 90 days, Lessee may withdraw its offer to purchase the Leased Property and, if so withdrawn, Lessee may terminate the Lease with respect to the Leased Property without further liability hereunder and Lessor shall be entitled to retain all insurance proceeds. (b) Except as provided in Section 14.5, if during the Term the Leased Property is partially destroyed by a risk covered by the insurance described in Article XIII, but the Facility is not thereby rendered Unsuitable for its Primary Intended Use, Lessee shall restore the Facility to substantially the same condition as existed immediately before the damage or destruction and otherwise in accordance with the terms of the Lease. Such damage or destruction shall not terminate this Lease; provided, however, that if Lessee cannot within a reasonable time obtain all necessary government approvals, including building permits, licenses and conditional use permits, after diligent efforts to do so, to perform all required repair and restoration work and to operate the Facility for its Primary Intended Use in substantially the same manner as that existing immediately prior to such damage or destruction and otherwise in accordance with the terms of the Lease, Lessee may make a written offer to Lessor to purchase the Leased Property for a purchase price equal to the Rejectable Offer Price of the Leased Property determined without regard to such damage or destruction. If Lessee makes such offer and Lessor does not accept the same within 30 days after Lessee delivers its offer to Lessor, Lessee shall withdraw such offer, in which event this Lease shall remain in full force and effect and Lessee shall immediately proceed to restore the Facility to substantially the same condition as existed immediately before such damage or destruction and otherwise in accordance with the terms of the Lease. If Lessee restores the Facility, the insurance proceeds shall be paid out by Lessor from time to time for the reasonable costs of such restoration upon satisfaction of reasonable terms and conditions specified by Lessor, and any excess proceeds remaining after such restoration shall be paid to Lessee. (c) If the cost of the repair or restoration exceeds the amount of proceeds received by Lessor from the insurance required under Article XIII, Lessee shall be obligated to contribute any excess amounts needed to restore the Facility prior to commencing work thereon. 28 Such difference shall be paid by Lessee to Lessor promptly after Lessee receives Lessor's written invoice therefore, to be held in trust, together with any other insurance proceeds, for application to the cost of repair and restoration. (d) If Lessor accepts Lessee's offer to purchase the Leased Property under this Article, this Lease shall terminate as to the Leased Property upon payment of the purchase price, and Lessor shall remit to Lessee all insurance proceeds pertaining to the Leased Property being held in trust by Lessor. 14.3 Reconstruction in the Event of Damage or Destruction Not Covered by Insurance. Except as provided in Section 14.5, if during the Term the Facility is totally or materially destroyed by a risk not covered by the insurance described in Article XIII, whether or not such damage or destruction renders the Facility Unsuitable for its Primary Intended Use, Lessee at its option shall either, (a) at Lessee's sole cost and expense, restore the Facility to substantially the same condition it was in immediately before such damage or destruction and such damage or destruction shall not terminate this Lease, or (b) make a written offer to purchase the Leased Property for a purchase price equal to the Rejectable Offer Price of the Leased Property without regard to such damage or destruction. If Lessor does not accept Lessee's offer so to purchase the Leased Property within 90 days after Lessee delivers its offer to Lessor, Lessee may withdraw its offer to purchase the Leased Property and, if so withdrawn, Lessee may terminate the Lease with respect to the Leased Property without further liability hereunder. If such damage or destruction is not material, Lessee shall, at Lessee's sole cost and expense, restore the Facility to substantially the same condition as existed immediately before the damage or destruction and otherwise in accordance with the terms of the Lease, and such damage or destruction shall not terminate the Lease. 14.4 Lessee's Property. All insurance proceeds payable by reason of any loss of or damage to any of Lessee's Personal Property shall be paid to Lessee; provided, however, no such payments shall diminish or reduce the insurance payments otherwise payable to or for the benefit of Lessor hereunder. 14.5 Damage Near End of Term. Notwithstanding any provisions of Section 14.2 or 14.3 appearing to the contrary, if damage to or destruction of the Facility rendering it unsuitable for its Primary Intended Use occurs during the last 24 months of the Term, then either party shall have the right to terminate this Lease by giving written notice to the other within 30 days after the date of damage or destruction, whereupon all accrued Rent shall be paid immediately, and this Lease shall automatically terminate five days after the date of such notice. 14.6 Waiver. Lessee hereby waives any statutory rights of termination that may arise by reason of any damage or destruction of the Facility that Lessor is obligated to restore or may restore under any of the provisions of this Lease. ARTICLE XV 15.1 Definitions. 29 (a) "Condemnation" means a Taking resulting from (1) the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending. (b) "Date of Taking" means the date the Condemnor has the right to possession of the property being condemned. (c) "Award" means all compensation, sums or anything of value awarded, paid or received on a total or partial Condemnation. (d) "Condemnor" means any public or quasi-public authority, or private corporation or individual, having the power of Condemnation. 15.2 Parties' Rights and Obligations. If during the Term there is any Condemnation of all or any part of the Leased Property or any interest in this Lease, the rights and obligations of Lessor and Lessee shall be determined by this Article XV. 15.3 Total Taking. If title to the fee of the whole of the Leased Property is condemned by any Condemnor, subject to the provisions of Section 15.6, this Lease shall cease and terminate as of the Date of Taking by the Condemnor. If title to the fee of less than the whole of the Leased Property is so taken or condemned, which nevertheless renders the Leased Property Unsuitable or Uneconomic for its Primary Intended Use, Lessee and Lessor shall each have the option, by notice to the other, at any time prior to the Date of Taking, to terminate this Lease as of the Date of Taking. Upon such date, if such Notice has been given, this Lease shall thereupon cease and terminate. All Percentage Rent and Additional Charges paid or payable by Lessee hereunder shall be apportioned as of the Date of Taking, and Lessee shall promptly pay Lessor such amounts. In the event of any such termination, the provisions of Section 15.7 shall apply. 15.4 Allocation of Award. The total Award made with respect to the Leased Property or for loss of rent, or for Lessor's loss of business beyond the Term, shall be solely the property of and payable to Lessor. Any Award made for loss of Lessee's business during the remaining Term, if any, for the taking of Lessee's Personal Property, or for removal and relocation expenses of Lessee in any such proceedings shall be the sole property of and payable to Lessee. In any Condemnation proceedings Lessor and Lessee shall each seek its Award in conformity herewith, at its respective expense; provided, however, Lessee shall not initiate, prosecute or acquiesce in any proceedings that may result in a diminution of any Award payable to Lessor. 15.5 Partial Taking. If title to less than the whole of the Leased Property is condemned, and the Leased Property is still suitable for its Primary Intended Use, and not Uneconomic for its Primary Intended Use, or if Lessee or Lessor is entitled but neither elects to terminate this Lease as provided in Section 15.3, Lessee at the expense of the Lessor shall with all reasonable dispatch restore the untaken portion of any Leased Improvements so that such Leased Improvements constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as the Leased Improvements existing immediately prior to the Condemnation. In the event of any Condemnation as described in this Section 15.5, the entire amount of the Award shall be paid to the Lessor. 30 15.6 Temporary Taking. If the whole or any part of the Leased Property or of Lessee's interest under this Lease is condemned by any Condemnor for its temporary use or occupancy, this Lease shall not terminate by reason thereof, Lessee, however, shall be released from its obligations to pay, in the manner and at the terms herein specified, the Additional Charges. Except only to the extent that Lessee may be prevented from so doing pursuant to the terms of the order of the Condemnor, Lessee shall continue to perform and observe all of the other terms, covenants, conditions and obligations hereof on the part of the Lessee to be performed and observed, as though such Condemnation had not occurred. In the event of any Condemnation as described this Section 15.6, the entire amount of any Award made for such Condemnation allocable to the Term of this Lease, whether paid by way of damages, rent or otherwise, shall be paid to Lessor. Lessor covenants that upon the termination of any such period of temporary use or occupancy it will, at its sole cost and expense, restore the Leased Property as nearly as may be reasonably possible to the condition in which the same was immediately prior to such Condemnation, unless such period of temporary use or occupancy extends beyond the expiration of the Term, in which case Lessor shall not be required to make such restoration. 15.7 Lessee's Offer. In the event of the termination of this Lease as provided in Section 15.3, Lessee shall offer to acquire the Leased Property from Lessor for a purchase price equal to the Rejectable Offer Price of the Leased Property without regard to such taking and, if accepted, Lessee shall receive the entire Award. If Lessor does not accept Lessee's offer to purchase the Leased Property, Lessee shall withdraw its offer to purchase the Leased Property and, if so withdrawn, Lessee may terminate the Lease with respect to the Leased Property without further liability hereunder, except for payment of Rent as provided in the penultimate sentence of Section 15.3 or for matters which by their express terms survive termination of this Lease, and Lessor shall be entitled to retain the Award except as provided in Section 15.4. ARTICLE XVI 16.1 Events of Default. If any one or more of the following events (individually, an "Event of Default") occurs: (a) if an event of default occurs, which is not cured, under any other lease between Lessor or any Affiliate of Lessor and Lessee or any Affiliate of Lessee; or (b) if Lessee fails to make payment of the Percentage Rent or Additional Charges within ten days after the same becomes due and payable; (c) if Lessee fails to observe or perform any other term, covenant or condition of this Lease and such failure is not cured by Lessee within a period of 30 days after receipt by the Lessee of Notice thereof from Lessor, unless such failure cannot with due diligence be cured within a period of 30 days, in which case it shall not be deemed an Event of Default if Lessee proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof provided, however, in no event shall such cure period extend beyond 90 days after such Notice; or (d) if the Lessee shall file a petition in bankruptcy or reorganization for an arrangement pursuant to any federal or state bankruptcy law or any similar federal or state law, 31 or shall be adjudicated a bankrupt or shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts generally as they become due, or if a petition or answer proposing the adjudication of the Lessee as a bankrupt or its reorganization pursuant to any federal or state bankruptcy law or any similar federal or state law shall be filed in any court and the Lessee shall be adjudicated a bankrupt and such adjudication shall not be vacated or set aside or stayed within 60 days after the entry of an order in respect thereof, or if a receiver of the Lessee or of the whole or substantially all of the assets of the Lessee shall be appointed in any proceeding brought by the Lessee or if any such receiver, trustee or liquidator shall be appointed in any proceeding brought against the Lessee and shall not be vacated or set aside or stayed within 120 days after such appointment; or (e) if Lessee is liquidated or dissolved, or begins proceedings toward such liquidation or dissolution, or, in any manner, permits the sale or divestiture of substantially all of its assets; or (f) if the estate or interest of Lessee in the Leased Property or any part thereof is voluntarily or involuntarily transferred, assigned, conveyed, levied upon or attached in any proceeding (unless Lessee is contesting such lien or attachment in good faith in accordance with Article XI hereof); or (g) if, except as a result of damage, destruction or a partial or complete Condemnation, Lessee voluntarily ceases operations on the Leased Property; or (h) if a material event of default has been declared by the franchisor under the Franchise Agreement with respect to the Facility on the Leased Premises which has not been cured within any applicable cure period or such Franchise Agreement has been terminated as a result of any action or failure to act by the Lessee; then, and in any such event, Lessor may exercise one or more remedies available to it herein or at law or in equity, including but not limited to its right to terminate this Lease by giving Lessee not less than ten days' Notice of such termination except in the case of a default under Sections 16.1(e), 16.1(f), or 16.1(g), in which case notice shall not be required. If litigation is commenced with respect to any alleged default under this Lease, the prevailing party in such litigation shall receive, in addition to its damages incurred, such sum as the court shall determine as its reasonable attorneys' fees, and all costs and expenses incurred in connection therewith. No Event of Default (other than a failure to make a payment of money) shall be deemed to exist under clause (d) during any time for up to one year the curing thereof is prevented by an Unavoidable Delay, provided that upon the cessation of such Unavoidable Delay, Lessee remedies such default or Event of Default without further delay. 16.2 Surrender. If an Event of Default occurs (and the event giving rise to such Event of Default has not been cured within the curative period relating thereto as set forth in Section XVI) and is continuing, whether or not this Lease has been terminated pursuant to Section XVI, Lessee shall, if requested by Lessor so to do, immediately surrender and assign to Lessor or Lessor's designee the Leased Property including, without limitation, any and all books, 32 records, files, licenses, permits and keys relating thereto, and quit the same and Lessor may enter upon and repossess the Leased Property by reasonable force, summary proceedings, ejectment or otherwise, and may remove Lessee and all other persons and any and all personal property from the Leased Property, subject to rights of any hotel guests and to any requirement of law. Lessee hereby waives any and all requirements of applicable laws for service of notice to re-enter the Leased Property. Lessor shall be under no obligation to, but may if it so chooses, relet the Leased Property or otherwise mitigate Lessor's damages. 16.3 Damages. Neither (a) the termination of this Lease, (b) the repossession of the Leased Property, (c) the failure of Lessor to relet the Leased Property, nor (d) the reletting of all or any portion thereof, shall relieve Lessee of its liability and obligations hereunder, all of which shall survive any such termination, repossession or reletting. In the event of any such termination, Lessee shall forthwith pay to Lessor all Rent due and payable with respect to the Leased Property to and including the date of such termination. Lessee shall forthwith pay to Lessor, at Lessor's option, as and for liquidated and agreed current damages for Lessee's default, either: (1) Without termination of Lessee's right to possession of the Leased Property, each installment of Rent and other sums payable by Lessee to Lessor under the Lease as the same becomes due and payable, which Rent and other sums shall bear interest at the Overdue Rate, and Lessor may enforce, by action or otherwise, any other term or covenant of this Lease; (2) the sum of: (A) the unpaid Rent which had been earned at the time of termination, repossession or reletting, and (B) the worth at the time of termination, repossession or reletting of the amount by which the unpaid Rent for the balance of the Term after the time of termination, repossession or reletting, exceeds the amount of such rental loss that Lessee proves could be reasonably avoided and as reduced for rentals received after the time of termination, repossession or reletting, if and to the extent required by applicable law, the worth at the time of termination, repossession or reletting of the amount referred to in this subparagraph 16.3(2)(B) is computed by discounting such amount at the discount rate of the Federal Reserve Bank of New York at the time of award plus 1%, and (C) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things, would be likely to result therefrom. 16.4 Waiver. If this Lease is terminated pursuant to Article XXVI, Lessee waives, to the extent permitted by applicable law, (a) any right to a trial by jury in the event of summary 33 proceedings to enforce the remedies set forth in this Article XVI, and (b) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt and Lessor waives any right to "pierce the corporate veil" of Lessee other than to the extent funds shall have been inappropriately paid any Affiliate of Lessee following a default resulting in an Event of Default. 16.5 Application of Funds. Any payments received by Lessor under any of the provisions of this Lease during the existence or continuance of any Event of Default shall be applied to Lessee's obligations in the order that such obligations are due or as may be prescribed by the laws of the State. ARTICLE XVII 17.1 Lessor's Right to Cure Lessee's Default. If Lessee fails to make any payment or to perform any act required to be made or performed under this Lease including, without limitation, Lessee's failure to comply with the terms of any Franchise Agreement other than a failure to complete improvements required by the franchisor because the Lessor has not provided Lessee with the funds therefor, and fails to cure the same within the relevant time periods provided in Article XVI, Lessor, without waiving or releasing any obligation of Lessee, and without waiving or releasing any obligation or default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of Lessee, and may, to the extent permitted by law, enter upon the Leased Property for such purpose and, subject to Section 16.4, take all such action thereon as, in Lessor's reasonable opinion, may be necessary or appropriate therefore. Before entering the Leased Property for the purposes provided in this Article XVI, Lessor shall notify the Lessee of its intention to enter the Leased Property unless such Notice would be impractical. No such entry shall be deemed an eviction of Lessee. All sums so paid by Lessor and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses, in each case to the extent permitted by law) so incurred, together with a late charge thereon (to the extent permitted by law) at the Overdue Rate from the date on which such sums or expenses are paid or incurred by Lessors, shall be paid by Lessee to Lessor on demand. The obligations of Lessee and rights of Lessor contained in this Article shall survive the expiration or earlier termination of this Lease. ARTICLE XVIII 18.1 Provisions Relating to Purchase of the Leased Property. If Lessee purchases the Leased Property from Lessor pursuant to any of the terms of this Lease, the closing of the purchase shall occur 90 days after Lessor accepts Lessee's offer to purchase the Leased Property, unless the provision of the Lease under which such offer was made specifies a different closing date, in which case the date set forth in such provision shall be the closing date. At such closing, Lessor shall, upon receipt from Lessee of the applicable purchase price, together with full payment of any unpaid Rent due and payable with respect to any period ending on or before the date of the purchase, deliver to Lessee an appropriate limited or special warranty deed or other conveyance conveying the entire interest of Lessor in and to the Leased Property to Lessee free and clear of all encumbrances other than (a) those that Lessee has agreed hereunder to pay or discharge, (b) those mortgage liens, if any, that Lessee has agreed in writing to accept and to take title subject to, (c) encumbrances, easements, licenses or rights of way required to be imposed on the Leased Property under Section 7.3, (d) any other encumbrances permitted to be imposed on 34 the Leased Property under the provisions of Article XXXIV that are assumable at no cost to Lessee or to which Lessee may take subject without cost to Lessee and relating to the period of time after the purchase (e) any taxes not yet due and payable; and (f) those encumbrances created, requested or consented to by Lessee. The difference between the applicable purchase price and the total of the encumbrances assumed or taken subject to shall be paid in cash to Lessor or as Lessor may direct, in federal or other immediately available funds, except as otherwise mutually agreed by Lessor and Lessee. All expenses of such conveyance, including, without limitation, the cost of title examination or title insurance, if desired by Lessee, Lessee's attorneys' fees incurred in connection with such conveyance and release, and transfer taxes and recording fees, shall be paid by Lessee. Lessor shall pay its attorney's fees. This Article XVIII is subject to the prior rights of any lender whose lien is secured by the Leased Premises. ARTICLE XIX 19.1 Personal Property Limitation. Anything contained in this Lease to the contrary notwithstanding, the average of the fair market values of the items of personal property that are leased to the Lessee under this Lease at the beginning and at the end of any Fiscal Year shall not exceed 15% of the average of the fair market values of the Leased Property at the beginning and at the end of such Fiscal Year. This Section 19.1 is intended to ensure that the Rent qualifies as "rents from real property," within the meaning of Section 856(d) of the Code, or any similar or successor provisions thereto, and shall be interpreted in a manner consistent with such intent. 19.2 Sublease Rent Limitation. Anything contained in this Lease to the contrary notwithstanding, Lessee shall not sublet the Leased Property on any basis such that the rental or other amounts to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the net income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the Rent would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto. 19.3 Sublease Tenant Limitation. Anything contained in this Lease to the contrary notwithstanding, Lessee shall not sublease the Leased Property or any portions thereof to any Person in which Humphrey Hospitality Trust, Inc. owns, directly or indirectly, a 10% or more interest, within the meaning of Section 856(d)(2)(B) of the Code, or any similar or successor provisions thereto. 19.4 TRS Election and Limitations. Lessee agrees to make an election to be and to operate as a "taxable REIT subsidiary" of Humphrey Hospitality Trust, Inc. within the meaning of Section 856(1) of the Code. Lessee shall not (A) directly or indirectly operate or manage a "lodging facility" within the meaning of Section 856(d)(9)(D)(ii) of the Code or a "health care facility" within the meaning of Section 856(e)(6)(D)(ii) of the Code or (B) directly or indirectly provide to any other person (under a franchise, license, or otherwise) rights to any brand name under which any lodging facility or health care facility is operated; provided, however, that Lessee may provide such rights to a manager to operate or manage a lodging facility as long as such rights are held by Lessee as a franchisee, licensee, or in a similar capacity and such lodging facility is either owned by Lessee or is leased to Lessee by Lessor or one of its Affiliates. Lessee 35 agrees that it will, at all times during the Term, cause the Leased Property to be operated and managed by a manager that meets all of the following requirements (a) The manager does not own, directly or indirectly, more than 35% of the outstanding stock of Humphrey Hospitality Trust, Inc. (b) If the manager is a corporation, no more than 35% of the total combined voting power of its outstanding stock (or 35% of the total shares of all classes of its outstanding stock) or, if it is not a corporation, no more than 35% of the ownership interest in its assets or net profits is owned, directly or indirectly, by one or more Persons owning 35% or more of the outstanding stock of Humphrey Hospitality Trust, Inc. (c) Neither Humphrey Hospitality Trust, Inc., the Lessor, the Lessee, nor any Affiliate thereof derives any income from the manager, except for income from the leasing of the Norfolk, Nebraska office building. (d) At the time that the manager enters into a management agreement with the Lessee to operate the Leased Property, the manager (or any "related person" within the meaning of Section 856(d)(9)(F) of the Code) is actively engaged in the trade or business of operating "qualified lodging facilities" within the meaning of Section 856(d)(9)(D) of the Code for any Person who is not a "related person" within the meaning of Section 856(d)(9)(F) of the Code with respect to Humphrey Hospitality Trust, Inc or the Lessee (an "Unrelated Person"). For purposes of determining whether the requirement of this paragraph (d) has been met, a manager shall be treated as being actively engaged in such a trade or business if the manager (i) derives at least 10% of both its profits and revenue from operating "qualified lodging facilities" within the meaning of Section 856(d)(9)(D) of the Code for Unrelated Persons or (ii) complies with any regulations or other administrative guidance under Section 856(d)(9) of the Code that provide a "safe harbor " rule with respect to the amount of hotel management business with Unrelated Persons that is necessary to qualify as an "eligible independent contractor" within the meaning such Code section. 19.5 Manager Officer and Employee Limitation. Anything contained in this Lease to the contrary notwithstanding, none of the officers or employees of the manager (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property) shall be officers or employees of Humphrey Hospitality Trust, Inc. In addition, if a Person serves as both (a) a director of the manager (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property) and (b) a trustee and officer (or employee) of Humphrey Hospitality Trust, Inc. that Person shall not receive any compensation for serving as a director of the manager (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property). Furthermore, if a Person serves as both (a) a trustee of Humphrey Hospitality Trust, Inc. and (b) a director and officer (or employee) of the manager (or any Person who furnishes or renders services to the tenants of the Leased Property, or manages or operates the Leased Property), that Person shall not receive any compensation for serving as a trustee of Humphrey Hospitality Trust, Inc. 36 ARTICLE XX 20.1 Holding Over. If Lessee for any reason remains in possession of the Leased Property after the expiration or earlier termination of the Term, such possession shall be as a tenant at sufferance during which time Lessee shall pay as rental each month two times the aggregate of (a) one-twelfth of the aggregate Percentage Rent payable with respect to the last Fiscal Year of the Term, (b) all Additional Charges accruing during the applicable month and (c) all other sums, if any, payable by Lessee under this Lease with respect to the Leased Property. During such period, Lessee shall be obligated to perform and observe all of the terms, covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by law to tenancies at sufferance, to continue its occupancy and use of the Leased Property. Nothing contained herein shall constitute the consent, express or implied, of Lessor to the holding over of Lessee after the expiration or earlier termination of this Lease. ARTICLE XXI 21.1 Risk of Loss. During the Term, the risk of loss or of decrease in the enjoyment and beneficial use of the Leased Property in consequence of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures, attachments, levies or executions (other than those caused by Lessor and those claiming from, through or under Lessor) is assumed by Lessee, and, in the absence of gross negligence, willful misconduct or breach of this Lease by Lessor pursuant to Section 34.3, Lessor shall in no event be answerable or accountable therefor, nor shall any of the events mentioned in this Section entitle Lessee to any abatement of Rent except as specifically provided in this Lease. ARTICLE XXII 22.1 Indemnification. Notwithstanding the existence of any insurance, and without regard to the policy limits of any such insurance or self-insurance, but subject to the last sentence of Section 13.4 if any insurance coverage is applicable, Section 16.4 and Article VII, Lessee will protect, indemnify, hold harmless and defend Lessor Indemnified Parties from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorney's fees and expenses) to the extent permitted by law imposed upon or incurred or asserted against Lessor Indemnified Parties by reason of: any accident, injury to or death of persons or loss of or damage to property occurring on or about the Leased Property or adjoining sidewalks, including without limitation any claims under liquor liability, "dram shop" or similar laws, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Lessee or any of its agents, employees or invitees of the Leased Property or Lessee's Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which a Lessor Indemnified Party is made a party or participant related to such use, misuse, non-use, condition, management, maintenance, or repair thereof by Lessee or any of its agents, employees or invitees, including any failure of Lessee or any of its agents, employees or invitees to perform any obligations under this Lease or imposed by applicable law (other than arising out of Condemnation proceedings), (c) any Impositions that are the obligations of Lessee pursuant to the applicable provisions of this Lease, (d) any failure on the part of Lessee to perform or comply with any of the terms of this Lease, and (e) the non-performance of any of the terms and provisions of any and all existing and future subleases of the Leased Property to be performed by the landlord thereunder and (f) the gross negligent acts and omissions and willful misconduct of Lessee. 37 Lessor shall indemnify, save harmless and defend Lessee Indemnified Parties from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses imposed upon or incurred by or asserted against Lessee Indemnified Parties as a result of the gross negligence or willful misconduct of Lessor arising in connection with this Lease. The Lessor's obligations to indemnify Lessee Indemnified Parties shall be limited to the value of Lessor's equity interest in the Facilities. Nothing herein shall be construed as requiring Lessor to indemnify a Lessee Indemnified Party against its own grossly negligent acts and omissions and willful misconduct. Any amounts that become payable by an Indemnifying Party under this Section shall be paid within ten days after liability therefor on the part of the Indemnifying Party is determined by litigation or otherwise, and if not timely paid, shall bear a late charge (to the extent permitted by law) at the Overdue Rate from the date of such determination to the date of payment. An Indemnifying Party, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against the Indemnified Party. The Indemnified Party, at its expense, shall be entitled to participate in any such claim, action, or proceeding, and neither the Indemnifying Party nor the Indemnified Party may compromise or otherwise dispose of the same without the consent of the Indemnified Party or the Indemnifying Party, which may not be unreasonably withheld. Nothing herein shall be construed as indemnifying a Lessor Indemnified Party against its own grossly negligent acts or omissions or willful misconduct. Lessee's or Lessor's liability for a breach of the provisions of this Article shall survive any termination of this Lease. ARTICLE XXIII 23.1 Subletting and Assignment. Subject to the provisions of Article XIX and Section 23.2 and any other express conditions or limitations set forth herein, Lessee may not without the consent of Lessor, which consent may be withheld in Lessor's sole discretion, (a) assign this Lease or sublet all or any part of the Leased Property or (b) sublet any retail or restaurant portion of the Leased Improvements in the normal course of the Primary Intended Use; provided that any subletting to any party other than an Affiliate of Lessee shall not individually as to any one such subletting, or in the aggregate, materially diminish the Rent payable under this Lease. In the case of a subletting, the sublessee shall comply with the provisions of Section 23.2, and in the case of an assignment, the assignee shall assume in writing and agree to keep and perform all of the terms of this Lease on the part of Lessee to be kept and performed and shall be, and become, jointly and severally liable with Lessee for the performance thereof. In case of either an assignment or subletting made during the Term, Lessee shall remain primarily liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and conditions to be performed by Lessee hereunder. An original counterpart of each such sublease and assignment and assumption, duly executed by Lessee and such sublessee or assignee, as the case may be, in form and substance satisfactory to Lessor, shall be delivered promptly to Lessor. 23.2 Attornment. Lessee shall insert in each sublease permitted under Article XXIII provisions to the effect that (a) such sublease is subject and subordinate to all of the terms and provisions of this Lease and to the rights of Lessor hereunder, (b) if this Lease terminates before 38 the expiration of such sublease, the sublessee thereunder will, at Lessor's option, attorn to Lessor and waive any right the sublessee may have to terminate the sublease or to surrender possession thereunder as a result of the termination of this Lease, and (c) if the sublessee receives a written Notice from Lessor or Lessor's assignees, if any, stating that an uncured Event of Default exists under this Lease, the sublessee shall thereafter be obligated to pay all rentals accruing under said sublease directly to the party giving such Notice, or as such party may direct. All rentals received from the sublessee by Lessor or Lessor's assignees, if any, as the case may be, shall be credited against the amounts owing by Lessee under this Lease. ARTICLE XXIV 24.1 Officer's Certificates; Lessor's Estoppel Certificates and Covenants. (a) At any time and from time to time upon not less than 30 days Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, whether to the knowledge of Lessee there is any existing default or Event of Default hereunder by Lessor or Lessee, and such other information as may be reasonably requested by Lessor. Any such certificate furnished pursuant to this Section may be relied upon by Lessor, any lender and any prospective purchaser of the Leased Property. (b) At any time and from time to time upon not less than 10 days Notice by Lessee, Lessor will furnish to Lessee or to any person designated by Lessee an estoppel certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which Rent has been paid, whether to the knowledge of Lessor there is any existing default or Event of Default on Lessee's part hereunder, and such other information as may be reasonably requested by Lessee. ARTICLE XXV 25.1 Lessor's Right to Inspect. Lessee shall permit Lessor and its authorized representatives as frequently as reasonably requested by Lessor to inspect the Leased Property and Lessee's accounts and records pertaining thereto and make copies thereof, during usual business hours upon reasonable advance notice, subject only to any business confidentiality requirements reasonably requested by Lessee. ARTICLE XXVI 26.1 No Waiver. No failure by Lessor or Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term. To the extent permitted by law, no waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach. 39 ARTICLE XXVII 27.1 Remedies Cumulative. To the extent permitted by law, each legal, equitable or contractual right, power and remedy of Lessor or Lessee now or hereafter provided either in this Lease or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Lessor or Lessee of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Lessor or Lessee of any or all of such other rights, powers and remedies. ARTICLE XXVIII 28.1 Acceptance of Surrender. No surrender to Lessor of this Lease or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Lessor and no act by Lessor or any representative or agent of Lessor, other than such a written acceptance by Lessor, shall constitute an acceptance of any such surrender. ARTICLE XXIX 29.1 No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same person or entity may acquire, own or hold, directly or indirectly: (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (b) the fee estate in the Leased Property. ARTICLE XXX 30.1 Conveyance by Lessor. If Lessor or any successor owner of the Leased Property conveys the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of the Leased Property expressly assumes all obligations of Lessor hereunder arising or accruing from and after the date of such conveyance or transfer, Lessor or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Lessor under this Lease arising or accruing from and after the date of such conveyance or other transfer as to the Leased Property and all such future liabilities and obligations shall thereupon be binding upon the new owner. 30.2 Other Interests. This Lease and Lessee's interest hereunder shall at all times be subject and subordinate to the lien and security title of any deeds to secure debt, deeds of trust, mortgages, or other interests heretofore or hereafter granted by Lessor or which otherwise encumber or affect the Leased Property and to any and all advances to be made thereunder and to all renewals, modifications, consolidations, replacements, substitutions, and extensions thereof (all of which are herein called the "Mortgage"). In confirmation of such subordination, however, Lessee shall, at Lessor's request, promptly execute, acknowledge and deliver any instrument which may be required to evidence subordination to any Mortgage and attornment to the holder thereof, conditioned upon receipt of a nondisturbance clause. In the event of Lessee's failure to deliver such subordination and if the Mortgage does not change any term of the Lease, Lessor may, in addition to any other remedies for breach of covenant hereunder, execute, acknowledge, 40 and deliver the instrument as the agent or attorney-in-fact of Lessee, and Lessee hereby irrevocably constitutes Lessor its attorney-in-fact for such purpose, Lessee acknowledging that the appointment is coupled with an interest and is irrevocable. Lessee hereby waives and releases any claim it might have against Lessor or any other party for any actions lawfully taken by the holder of any Mortgage. ARTICLE XXXI 31.1 Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes due and complies with all of the terms of this Lease and performs its obligations hereunder, in each case within the applicable grace periods, if any, Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for the Term hereof, free of any claim or other action by Lessor or anyone claiming by, through or under Lessor, but subject to all liens and encumbrances subject to which the Leased Property was conveyed to Lessor or hereafter consented to by Lessee or provided for herein and free and clear of any interference by Lessor with Lessee's use and occupancy of the premises. Notwithstanding the foregoing, Lessee shall have the right by separate and independent action to pursue any claim it may have against Lessor as a result of a breach by Lessor of the covenant of quiet enjoyment contained in this Section. ARTICLE XXXII 32.1 Notices. All notices, demands, requests, consents approvals and other communications ("Notice" or "Notices") hereunder shall be in writing and personally served or mailed (by registered or certified mail, return receipt requested and postage prepaid or by overnight courier), if to Lessor at 7170 Riverwood Drive, Columbia, Maryland 21046, and if to Lessee 7170 Riverwood Drive, Columbia, Maryland 21046 at or to such other address or addresses as either party may hereafter designate. Personally delivered Notice shall be effective upon receipt, and Notice given by mail shall be complete at the time of deposit in the U.S. Mail system, but any prescribed period of Notice and any right or duty to do any act or make any response within any prescribed period or on a date certain after the service of such Notice given by mail shall be extended five days. ARTICLE XXXIII 33.1 Appraisers. If it becomes necessary to determine the Fair Market Value or Fair Market Rental of the Leased Property for any purpose of this Lease, the party required or permitted to give Notice of such required determination shall include in the Notice the name of a person selected to act as appraiser on its behalf. Within 20 days after Notice, Lessor (or Lessee, as the case may be) shall by Notice to Lessee (or Lessor, as the case may be) appoint a second person as appraiser on its behalf. The appraisers thus appointed, each of whom must be a member of the American Institute of Real Estate Appraisers (or any successor organization thereto) with at least five years experience in the State appraising property similar to the Leased Property, shall, within 45 days after the date of the Notice appointing the first appraiser, proceed to appraise the Leased Property to determine the Fair Market Value or Fair Market Rental thereof as of the relevant date (giving effect to the impact, if any, of inflation from the date of their decision to the relevant date); provided, however, that if only one appraiser shall have been so appointed, then the determination of such appraiser shall be final and binding upon the parties. 41 To the extent consistent with sound appraisal practice as then existing at the time of any such appraisal, such appraisal shall be made on a basis consistent with the basis on which the Leased Property was appraised for purposes of determining its Fair Market Value at the time the Leased Property was acquired by Lessor. If two appraisers are appointed and if the difference between the amounts so determined does not exceed 5% of the lesser of such amounts, then the Fair Market Value or Fair Market Rental shall be an amount equal to 50% of the sum of the amounts so determined. If the difference between the amounts so determined exceeds 5% of the lesser of such amounts, then such two appraisers shall have 20 days to appoint a third appraiser. If no such appraiser shall have been appointed within such 20 days or within 90 days of the original request for a determination of Fair Market Value or Fair Market Rental, whichever is earlier, either Lessor or Lessee may apply to any court having jurisdiction to have such appointment made by such court. Any appraiser appointed by the original appraisers or by such court shall be instructed to determine the Fair Market Value or Fair Market Rental within 45 days after appointment of such appraiser. The determination of the appraiser which differs most in the terms of dollar amount from the determinations of the other two appraisers shall be excluded, and 50% of the sum of the remaining two determinations shall be final and binding upon Lessor and Lessee as the Fair Market Value or Fair Market Rental of the Leased Property, as the case may be. This provision for determining by appraisal shall be specifically enforceable to the extent such remedy is available under applicable law, and any determination hereunder shall be final and binding upon the parties except as otherwise provided by applicable law. Lessor and Lessee shall each pay the fees and expenses of the appraiser appointed by it and each shall pay one-half of the fees and expenses of the third appraiser and one-half of all other costs and expenses incurred in connection with each appraisal. ARTICLE XXXIV 34.1 Lessor May Grant Liens. Without the consent of Lessee, Lessor may, subject to the terms and conditions set forth below in this Section 34.1, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased Property, or any portion thereof or interest therein, whether to secure any borrowing or other means of financing or refinancing. Any such Encumbrance shall (a) contain the right to prepay (whether or not subject to a prepayment penalty); (b) provide that it is subject to the rights of Lessee under this Lease and (c) contain the Agreement by the holder of the Encumbrance that it will (1) give Lessee the same notice, if any, given to Lessor of any default or acceleration of any obligation underlying any such Encumbrance or any sale in foreclosure under such Encumbrance, (2) permit Lessee to cure any such default on Lessor's behalf within any applicable cure period, and Lessee shall be reimbursed by Lessor for any and all costs incurred in effecting such cure, including without limitation out-of-pocket costs incurred to effect any such cure (including reasonable attorneys' fees) and (3) permit Lessee to appear by its representative and to bid at any sale in foreclosure made with respect to any such Encumbrance. Upon the request of Lessor, Lessee shall subordinate this Lease to the lien of a new mortgage on the Leased Property and agree to attorn to the new mortgagee, on the condition that the proposed mortgagee executes a non-disturbance agreement recognizing this Lease, and agreeing, for itself and its successors and assigns, to comply with the provisions of this Article XXXIV. 42 34.2 Lessee's Right to Cure. Subject to the provisions of Section 34.3, if Lessor breaches any covenant to be performed by it under this Lease, Lessee, after Notice to and demand upon Lessor, without waiving or releasing any obligation hereunder, and in addition to all other remedies available to Lessee, may (but shall be under no obligation at any time thereafter to) make such payment or perform such act for the account and at the expense of Lessor. All sums so paid by Lessee and all costs and expenses (including, without limitation, reasonable attorneys' fees) so incurred, together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid or incurred by Lessee, shall be paid by Lessor to Lessee on demand or, following entry of a final, nonappealable judgment against Lessor for such sums, may be offset by Lessee against the Rent payments next accruing or coming due. The rights of Lessee hereunder to cure and to secure payment from Lessor in accordance with this Section 34.2 shall survive the termination of this Lease with respect to the Leased Property. 34.3 Breach by Lessor. It shall be a breach of this Lease if Lessor fails to observe or perform any term, covenant or condition of this Lease on its part to be performed and such failure continues for a period of 30 days after Notice thereof from Lessee, unless such failure cannot with due diligence be cured within a period of 30 days, in which case such failure shall not be deemed to continue if Lessor, within such 30-day period, proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof within 90 days. The time within which Lessor shall be obligated to cure any such failure also shall be subject to extension of time due to the occurrence of any Unavoidable Delay. ARTICLE XXXV 35.1 Miscellaneous. Anything contained in this Lease to the contrary notwithstanding, all claims against, and liabilities of, Lessee or Lessor arising prior to any date of termination of this Lease shall survive such termination. If any term or provision of this Lease or any application thereof is invalid or unenforceable, the remainder of this Lease and any other application of such term or provisions shall not be affected thereby. If any late charges or any interest rate provided for in any provision of this Lease are based upon a rate in excess of the maximum rate permitted by applicable law, the parties agree that such charges shall be fixed at the maximum permissible rate. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated except by a written instrument in recordable form signed by Lessor and Lessee. All the terms and provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The headings in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Lease shall be governed by and construed in accordance with the laws of the State, but not including its conflicts of laws rules. This Agreement, together with the Exhibits hereto, constitutes the entire Agreement between the parties relating to the subject matter hereof and supersedes all prior agreements and understandings (including the Original Lease), oral or written, between the parties relating to the subject matter hereof. 35.2 Transition Procedures. Upon the expiration or termination of the Term of this Lease, for whatever reason, Lessor and Lessee shall do the following (and the provisions of this Section 35.2 shall survive the expiration or termination of this Agreement until they have been fully performed) and, in general, shall cooperate in good faith to effect an orderly transition of the management lease or of the Facility. 43 (a) Transfer of Licenses. Upon the expiration or earlier termination of the Term, Lessee shall use its best efforts (i) to transfer to Lessor or Lessor's nominee all licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental entities, that may be necessary for the operation of the Facility, including any Franchise Agreement (collectively, "Licenses"), or (ii) if such transfer is prohibited by law or Lessor otherwise elects, to cooperate with Lessor or Lessor's nominee in connection with the processing by Lessor or Lessor's nominee of any applications for, all Licenses; provided, in either case, that the costs and expenses of any such transfer or the processing of any such application shall be paid by Lessor or Lessor's nominee (b) Leases and Concessions. Lessee shall assign to Lessor or Lessor's nominee simultaneously with the termination of this Agreement, and the assignee shall assume all leases and concession agreements in effect with respect to the Facility then in Lessee's name. (c) Books and Records. All books and records for the Facility kept by Lessee pursuant to Section 3.5 shall be delivered promptly to Lessor or Lessor's nominee, simultaneously with the termination of this Agreement, but such books and records shall thereafter be available to Lessee at all reasonable times for inspection, audit, examination, and transcription for a period of one (1) year and Lessee may retain (on a confidential basis) copies or computer records thereof (d) Remittance. Lessee shall remit to Lessor or Lessor's nominee, simultaneously with the termination of this Lease, all funds remaining, if any, after payment of all accrued Gross Operating Expenses, and other amounts due Lessee and after deducting the costs of any scheduled repair, replacement, or refurbishment of Furniture and Equipment with respect to which deposits have been made. 35.3 Waiver of Presentment, etc. Lessee waives all presentments, demands for payment and for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance and waives all notices of the existence, creation, or incurring of new or additional obligations, except as expressly granted herein ARTICLE XXXVI 36.1 Memorandum of Lease. Lessor and Lessee shall promptly upon the request of either enter into a short form memorandum of this Lease, in form suitable for recording under the laws of the State in which reference to this Lease, and all options contained herein, shall be made. Lessee shall pay all costs and expenses of recording such memorandum of this Lease. ARTICLE XXXVII 37.1 Lessor's Option to Purchase Assets of Lessee. Effective on not less than 90 days prior Notice given at any time within 180 days before the expiration of the Term, but not later than 90 days prior to such expiration, or upon such shorter Notice period as shall be appropriate if this Lease is terminated prior to its expiration date, Lessor shall have the option to purchase all (but not less than all) of the assets of Lessee, tangible and intangible, relating to the Leased Property (other than this Lease), at the expiration or termination of this Lease for an amount 44 (payable in cash on the expiration date of this Lease) equal to the fair market value thereof as appraised in conformity with Article XXXIII, except that the appraisers need not be members of the American Institute of Real Estate Appraisers, but rather shall be appraisers having at least ten years experience in valuing similar assets. Notwithstanding any such purchase, Lessor shall obtain no rights to any trade name or logo used in connection with the Franchise Agreement unless separate agreement as to such use is reached with the applicable franchisor. ARTICLE XXXVIII 38.1 Lessor's Option to Terminate Lease. In the event Lessor enters into a bona fide contract to sell the Leased Property to a non-Affiliate, Lessor may terminate the Lease by giving not less than 30 days prior Notice to Lessee of Lessor's election to terminate the Lease effective upon the closing under such contract or Lessor may convey the Lease pursuant to Article XXX. Effective upon such closing, this Lease shall terminate and be of no further force and effect except as to any obligations of the parties existing as of such date that survive termination of this Lease. As compensation for the early termination of its leasehold estate under this Article XXVIII, Lessor shall within six months of such closing either (a) pay to Lessee the fair market value of the Lessee's leasehold estate hereunder as the Lease Termination Payment or (b) offer to lease to Lessee one or more substitute hotel facilities pursuant to one or more leases that would create for the Lessee leasehold estates that have an aggregate fair market value of no less than the fair market value of Lessee's leasehold estate hereunder, with the fair market value of Lessee's leasehold estate hereunder determined as of the closing of the sale of the Lease Property. If Lessor elects and complies with the option described in (b) above, regardless of whether Lessee enters into the lease(s) described therein, Lessor shall have no further obligations to Lessee with respect to compensation for the early termination of this Lease. In the event Lessor and Lessee are unable to agree upon the fair market value of an original or replacement leasehold estate within 30 days, it shall be determined by appraisal using the appraisal procedure set forth in Article XXXIII. For the purposes of this Section, fair market value of the leasehold estate means, as applicable, an amount equal to the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for Lessee's leasehold estate under this Lease or an offered replacement leasehold estate. ARTICLE XXXIX 39.1 Compliance with Franchise Agreement. To the extent any of the provisions of the Franchise Agreement impose a greater obligation on Lessee than the corresponding provisions of the Lease, then Lessee shall be obligated to comply with, and to take all reasonable actions necessary to prevent breaches or defaults under, the provisions of the Franchise Agreement. It is the intent of the parties hereto that, except as otherwise specifically provided by this Lease, Lessee shall comply in every respect with the provisions of the Franchise Agreement so as to avoid any default thereunder during the term of this Lease. Lessor and Lessee agree to cooperate fully with each other in the event it becomes necessary to obtain a franchise extension or modification or a new franchise for the Leased Property. 45 ARTICLE XL 40.1 Room Set-Aside. (a) Lessee is obligated to repair or replace in any Fiscal Year Fixtures and Furniture and Equipment (i) as required by the terms of any Franchise Agreement, (ii) as required by Article IX and Article XXXIX and (iii) otherwise when and in a manner it deems fit, to the extent funds are available therefor from amounts the Lessor is obligated to make available to Lessee under this Section 40.1 or otherwise makes available to Lessee. During the Term Lessor shall be obligated to make available to Lessee for repairing or replacing Fixtures and Furniture and Equipment an amount equal to 4% of Room Revenues from the Facility for each twelve month period. Lessor shall be required to make such amounts available to Lessee on a quarterly basis. Upon written request by Lessee to Lessor stating the specific use to be made and the reasonable approval thereof by Lessor, such funds shall be made available by Lessor for use by Lessee for periodic repairing or replacement of Fixtures and Furniture and Equipment that constitute Leased Property in connection with the Primary Intended Use. Lessor's obligation shall be cumulative, but not compounded, and any amounts that have accrued hereunder shall be payable in future periods for such uses and in accordance with the procedure set forth herein. Lessee shall be obligated to return any funds forwarded by Lessor pursuant to this Article XL, but not spent for (i) repair or replacement of Fixtures and Furniture and Equipment that constitute Leased Property in connection with the Primary Intended Use or (ii) Capital Expenditures pursuant to Section 40.2. Other than as specifically set forth above in this Article XL, Lessee shall have no interest in any accrued obligation of Lessor hereunder and Lessor shall have no obligation to segregate or separate any such funds for the benefit of Lessee. (b) Notwithstanding any provision of Section 40.1(a) to the contrary, after the Capitalization Date: (i) Lessee is obligated to repair or replace all Fixtures, Furniture and Equipment and Hotel Property (x) as required by the terms of any Franchise Agreement, (y) as required by Article IX and Article XXXIX, and (z) otherwise when and in a manner it deems fit in order to operate the Leased Property in the manner contemplated by this Lease; and (ii) Lessee is obligated to pay all costs and expenses of any and all repairs and replacements required to be made pursuant to this Section 40.1(b). 40.2 Capital Expenditures. Lessor shall be obligated to pay the actual costs of any items that are classified as capital items under U.S. generally accepted accounting principles which are necessary for the continued operation of the Facility and otherwise approved by Lessor. To the extent that at the end of a Fiscal Year the amount set aside exceeds the amount spent on repair or replacement of Fixtures and Furniture and Equipment, the Lessee may apply such excess amount towards Lessor's obligations under Article XL. 40.3 Prohibited Expenditures. No amounts made available under this Article shall be used to purchase property (other than "real property" within the meaning of Treasury Regulations Section 1.856-3(d)), to the extent that doing so would cause the Lessor to recognize income other than "rents from real property" as defined in Section 856(d) of the Code. 46 ARTICLE XLI 41.1 SBILP. Lessor, Lessee and, by its signature below, SBILP hereby agree as follows: (a) SBILP hereby consents to the amendment and restatement of the Original Lease as set forth in this Lease. (b) Upon the execution and delivery of this Lease, Lessee shall, and does hereby, surrender to SBILP all right, title and interest of Lessee in and to that property, real or personal, tangible or intangible, described on Exhibit "B" attached hereto (the "Excluded Property"), free and clear of all liens and encumbrances of any nature whatsoever arising by through or under Lessee. (c) SBILP is hereby released from all liabilities and obligations of SBILP arising or accruing under the Original Lease from and after the Commencement Date. (d) Transfer of Licenses. Promptly upon request of SBILP from time to time made, Lessee shall use its best efforts (i) to transfer to SBILP or its nominee all licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental entities, that constitute Excluded Property or that may be necessary for the operation of any facility constituting Excluded Property (an "Excluded Facility"), including any franchise or license agreement with a franchisor under which any such Excluded Facility is operated (collectively, "Excluded Licenses"), or (ii) if such transfer is prohibited by law or SBILP otherwise elects, to cooperate with SBILP or SBILP's nominee in connection with the processing by SBILP or its nominee of any applications for, all Excluded Licenses; provided, in either case, that the costs and expenses of any such transfer or the processing of any such application shall be paid by SBILP or its nominee. (e) Leases and Concessions. Lessee shall assign to SBILP or its nominee simultaneously with the execution and delivery of this Lease, and the assignee shall assume, all leases and concession agreements in effect with respect to any Excluded Facility then in Lessee's name. (f) Books and Records. All books and records for any Excluded Facility kept by Lessee pursuant to Section 3.5 of the Original Lease shall be delivered promptly to SBILP or its nominee, simultaneously with the execution and delivery of this Lease, but such books and records shall thereafter be available to Lessee at all reasonable times for inspection, audit, examination, and transcription for a period of one (1) year and Lessee may retain (on a confidential basis) copies or computer records thereof. (g) Remittance. Lessee shall remit to SBILP or its nominee, promptly following the execution and delivery of this Lease, all funds remaining, if any, after payment of all accrued Gross Operating Expenses (as such term is defined in the Original Lease) with respect to the Excluded Facilities for the period prior to the Commencement Date, and other amounts due Lessee with respect to the Excluded Facilities for the period prior to the Commencement Date. 47 (h) Further Cooperation. Lessor and SBILP shall cooperate in good faith to effect an orderly transition of the Excluded Property. 48 IN WITNESS WHEREOF, the parties have executed this Lease by their duly authorized officers as of the date first above written. HUMPHREY HOSPITALITY LIMITED PARTNERSHIP By: Humphrey Hospitality REIT Trust, its general partner By: Humphrey Hospitality REIT Trust, its General Partner By: /s/ George R. Whittemore -------------------------------- Name: George R. Whittemore Title: President E&P FINANCING LIMITED PARTNERSHIP By: E&P REIT Trust, its General Partner By: /s/ George R. Whittemore -------------------------------- Name: George R. Whittemore Title: President TRS LEASING, INC. By: /s/ George R. Whittemore -------------------------------- Name: George R. Whittemore Title: President ACKNOWLEDGED AND AGREED: SOLOMONS BEACON INN LIMITED PARTNERSHIP By: Solomons GP, LLC, its general partner By: /s/ George R. Whittemore ------------------------- Name: George R. Whittemore Title: President EX-10.7 9 dex107.txt EXHIBIT 10.7 FIRST AMENDED AND RESTATED HOTEL MANAGEMENT AGREEMENT Between TRS LEASING, INC., TRS SUBSIDIARY, LLC and HUMPHREY HOSPITALITY MANAGEMENT, INC. Dated November 26, 2002 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS................................................................. 1 Section 1.01. Definitions.................................................... 1 ARTICLE II TERM OF AGREEMENT.......................................................... 9 Section 2.01. Term........................................................... 9 ARTICLE III OPERATION OF THE HOTEL.................................................... 11 Section 3.01. Representations by Operator; Engagement of Operator............ 11 Section 3.02. Standards of Operation......................................... 11 Section 3.03. Reservations Services.......................................... 12 Section 3.04. Marketing...................................................... 12 Section 3.05. Consultations Between Lessee and Operator...................... 12 Section 3.06. Transactions with Affiliates and Other Relationships........... 12 ARTICLE IV INDEPENDENT CONTRACTOR..................................................... 13 Section 4.01. Operator Status................................................ 13 Section 4.02. Employees...................................................... 13 Section 4.03. Employee Expenses.............................................. 14 Section 4.04. Employee Benefit Plans......................................... 14 Section 4.05. Execution of Agreements........................................ 15 ARTICLE V INDEMNIFICATION............................................................. 15 Section 5.01. Indemnification by Operator.................................... 15 Section 5.02. Limitations on Indemnification................................. 16 Section 5.03. Indemnification by Lessee...................................... 16 Section 5.04. Survival of Indemnity.......................................... 16 ARTICLE VI BUDGETS AND POLICY MEETINGS................................................ 16 Section 6.01. Budgets........................................................ 16 Section 6.02. Budget Meetings................................................ 17 Section 6.03. Approval by Lessee Required.................................... 18 ARTICLE VII OPERATING EXPENSES........................................................ 18 Section 7.01. Payment of Operating Expenses.................................. 18 Section 7.02. Operating Expenses Not an Obligation of Operator............... 18 ARTICLE VIII WORKING CAPITAL AND BANK ACCOUNTS........................................ 19 Section 8.01. Working Capital. .............................................. 19 Section 8.02. Bank Accounts.................................................. 19 Section 8.03. Authorized Signatures.......................................... 20 Section 8.04. Investment of Hotel Cash....................................... 20 ARTICLE IX BOOKS, RECORDS AND STATEMENTS.............................................. 20
i Section 9.01. Books and Records............................................. 20 Section 9.02. Statements.................................................... 21 Section 9.03. Costs......................................................... 22 ARTICLE X OPERATOR'S FEE AND TRANSFERS TO LESSEE..................................... 22 Section 10.01. Payment of Operator's Basic Fee............................... 22 Section 10.02. Payment of Operator's Incentive Fee........................... 22 Section 10.03. Distribution of Cash.......................................... 22 Section 10.04. Adjustments to Allocations.................................... 23 Section 10.05. Arbitration................................................... 23 Section 10.06. Other Fees.................................................... 24 ARTICLE XI REPAIRS AND MAINTENANCE................................................... 24 ARTICLE XII INSURANCE................................................................ 24 Section 12.01. General....................................................... 24 Section 12.02. Workers' Compensation Insurance............................... 24 Section 12.03. Approval of Companies and Cost by Owner and Lessee............ 25 Section 12.04. Maintenance of Coverages...................................... 25 Section 12.05. Waiver of Subrogation......................................... 25 Section 12.06. Blanket Coverage and Self-Insurance........................... 25 ARTICLE XIII PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS............... 25 Section 13.01. Property Taxes................................................ 25 Section 13.02. Lessee's Right to Contest..................................... 26 ARTICLE XIV DAMAGE OR DESTRUCTION - CONDEMNATION .................................... 26 Section 14.01. Damage........................................................ 26 Section 14.02. Condemnation.................................................. 26 ARTICLE XV USE OF NAME............................................................... 26 ARTICLE XVI OWNER'S RIGHT TO SELL.................................................... 26 ARTICLE XVII DEFAULT AND REMEDIES.................................................... 27 Section 17.01. Events of Default- Remedies................................... 27 Section 17.02. Rights Not Exclusive.......................................... 28 ARTICLE XVIII NOTICES................................................................ 29 Section 18.01. Notices....................................................... 29 ARTICLE XIX ASSIGNMENT............................................................... 30 Section 19.01. No Assignment by Operator..................................... 30 Section 19.02. Assignment by Lessee.......................................... 30 ARTICLE XX SUBORDINATION............................................................. 30 Section 20.01. Subordination To Mortgage..................................... 30
ii Section 20.02. Foreclosure....................................... 31 ARTICLE XXI MISCELLANEOUS................................................... 31 Section 21.01. Further Documentation............................. 31 Section 21.02. Captions.......................................... 31 Section 21.03. Successors and Assigns............................ 31 Section 21.04. Competitive Market Area........................... 32 Section 21.05. Assumption of Post Termination Obligations........ 32 Section 21.06. Entire Agreement.................................. 32 Section 21.07. Governing Law..................................... 32 Section 21.08. No Political Contributions........................ 32 Section 21.09. Eligible Independent Contractor................... 33 Section 21.10. Time of the Essence............................... 34 Section 21.11. Offsets........................................... 34 Section 21.12. Attorney's Fees................................... 34 Section 21.13. Final Accounting.................................. 34 Section 21.14. Non-Solicitation.................................. 34 Section 21.15. Franchisor Communications......................... 34
EXHIBIT A -- Hotel Properties and Owners EXHIBIT B -- Franchise Agreements EXHIBIT C -- [Intentionally Left Blank] EXHIBIT D -- [Intentionally Left Blank] EXHIBIT E -- Capital Expenditure Policy EXHIBIT F -- Marketing Services EXHIBIT G -- [Intentionally Left Blank] EXHIBIT H -- Form of Reports iii FIRST AMENDED AND RESTATED HOTEL MANAGEMENT AGREEMENT This HOTEL MANAGEMENT AGREEMENT is made and entered into effective as of November 26, 2002, by and among TRS Leasing, Inc., a Virginia corporation ("TRS"), TRS Subsidiary, LLC, a Delaware limited liability company ("TRS Sub" and, together with TRS, collectively, "Lessee") and Humphrey Hospitality Management, Inc., a Maryland corporation ("HHM" or the "Operator"), with reference to the following facts: A. Lessee leases from the entities described on Exhibit A (each, an "Owner" and collectively, the "Owners") the hotel properties described on Exhibit A (each, a "Hotel" and collectively, the "Hotels") pursuant to one or more Lease Agreements described on Exhibit A (each, a "Lease" and collectively, the "Leases"); B. HHM manages the Hotels pursuant to a Hotel Management Agreement dated as of January 1, 2002 between HHM and Lessee (the "Original Agreement"); C. HHM and Lessee desire to amend and restate the Original Agreement on the terms set forth herein; D. Lessee desires to engage HHM to operate and manage the Hotels listed on Exhibit A in accordance with the terms of this Agreement; E. Operator desires to supply the services and to operate the Hotels in accordance with the terms of this Agreement; and F. The parties desire that this Agreement represent an individual hotel management agreement for each Hotel described on Exhibit A, as it may be amended from time to time. NOW, THEREFORE, for and in consideration of the mutual covenants, conditions, stipulations, agreements and obligations hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, Lessee and Operator covenant and agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. (a) As used herein, the following terms shall have the indicated meanings: (1) "Affiliate" shall mean (a) any person that, directly or indirectly, controls or is controlled by or is under common control with such person, (b) any person that owns, beneficially, directly or indirectly, ten percent or more of the outstanding capital stock, shares or equity interests of such person, or (c) any officer, director, employee, partner or trustee of such person or any person controlling, controlled by, or under common control with such person. 1 (2) "Agreement" shall mean this First Amended and Restated Hotel Management Agreement and all amendments, modifications, supplements, consolidations, extensions and revisions to this First Amended and Restated Hotel Management Agreement approved by Lessee and Operator. (3) "Approved Budget" shall mean the Hotel Operating Budget prepared in accordance with Section 6.01 of this Agreement and approved in writing by Lessee. (4) "Base NOI" shall mean initially, the amount of $29,846,101, subject to adjustment as provided herein. (5) "CPI" shall mean the Consumer Price Index, all items for All Urban Consumers, published by the Bureau of Labor Statistics of the United States Department of Labor as reported in The Wall Street Journal. (6) "Event(s) of Default" shall mean one or more of the events or occurrences listed in Section 17.01 of this Agreement. (7) "Fiscal Year" shall mean each twelve (12) month calendar year ending December 31 during the Operating Term, except that the first Fiscal Year and the last Fiscal Year of the Operating Term may not be full calendar years. (It is understood and agreed that Lessee, in its discretion, shall have the right to change the Fiscal Year ending date at any time.) (8) "Franchisors" shall mean the franchisors under the Franchise Agreements. (9) "Franchisor Agreements" shall mean the franchise license agreements held by Lessee or Operator with respect to each Hotel as set forth in Exhibit B as it may be amended from time to time. (10) "GAAP" shall mean generally accepted accounting principles and procedures in the United States, based on the Uniform System. (11) "Gross Hotel Income" shall mean all income and proceeds of sales received by Operator for guest use, occupancy or enjoyment of the Hotel or for the sale of any goods, services or other items sold on or provided from the Hotel to guests in the ordinary course of the Hotel operation, net of changes in the month end balance of the reserve for uncollectible accounts receivable, and including gross receipts received by lessees, sub-lessees, licensees or concessionaires of the Hotel if Operator in fact performs all necessary oversight and management activities with respect thereto (unless Lessee specifically notifies Operator that Lessee no longer wants Operator to perform such oversight and management activities) but excluding the following: (i) any excise, sales or use taxes or similar government charges collected directly from patrons or guests, or as a part of the sales price of any goods, services or displays, such as gross receipts, admission, cabaret or similar or equivalent taxes; (ii) receipts from condemnation awards or sales in lieu of or under threat of condemnation; (iii) proceeds of insurance (other than proceeds from business interruption insurance payable to Lessee which shall be estimated and accrued by Lessee for any applicable periods); (iv) other allowances and deductions as provided by the Uniform System in determining the sum contemplated by this definition, by whatever name, it may be called; (v) adjustments made pursuant to Section 10.04; 2 (vi) proceeds of sales of capital assets, furniture and Hotel Operating Equipment; (vii) [Intentionally Left Blank]; (viii) consideration received at the Hotel for hotel accommodations, goods and services to be provided at other hotels although arranged by, for or on behalf of, Operator; (ix) gratuities collected for the benefit of employees; (x) proceeds of any financing; (xi) working capital provided by Lessee; (xii) any funds provided by Lessee to Operator whether for Operating Expenses or otherwise; (xiii) interest income and fees, rents and other revenues from telecommunications tower or similar leases or other leases or sub-leases of any part of the Property and (xiv) other income or proceeds resulting other than from guest use or occupancy of the Hotel or the Property, or any part thereof, or other than from the sale of goods, services or other items sold on or provided in connection with guest services at the Hotel in the ordinary course of business. (12) "Holder" shall mean the holder of any Mortgage and the indebtedness secured thereby, and such holder's successors and assigns. (13) "Hotel Capital Budget" shall mean the budget relating to capital expenditures at a Hotel as described in Section 6.01. (14) "Hotel FF&E" shall mean the furniture, furnishings, wall coverings, fixtures and hotel equipment for a Hotel and which includes equipment required for operation of the kitchens, restaurants and laundry, office equipment, material handling equipment, cleaning and engineering equipment and vehicles. (15) "Hotel Operating Account" shall mean the bank account opened and maintained in Lessee's name, or in a name designated by Lessee, with a banking institution selected by Lessee, into which all income, receipts and proceeds included in the definition of Gross Hotel Income (without exclusion of any of the items excluded from the definition of such term) shall be deposited and from which disbursements shall be made pursuant to the terms of this Agreement. (16) "Hotel Operating Budget" shall mean the budget relating to the operation of a Hotel as described in Section 6.01. (17) "Hotel Operating Equipment" shall mean linens, chinaware, glassware, silverware, uniforms, utensils and other non-consumable items of similar nature. (18) "Hotel Operating Supplies" shall mean paper supplies, cleaning materials and similar consumable items. (19) "Hotel Standards" shall mean the standards established by the respective Franchisors of the Hotels from time to time. (20) "Hotels" shall mean the hotel properties described in Exhibit A hereto, as it may be amended from time to time by mutual agreement of Lessee and Operator to add hotel properties or to delete hotel properties as a result of termination of this Agreement with respect to one or more hotel properties pursuant to the termination provisions set forth in this Agreement. "Hotel" shall mean any hotel set forth on Exhibit A as it may be amended from time to time. 3 (21) "Independent CPA" shall mean the firm of independent public accountants which is selected by Lessee from time to time. (22) "Land" shall mean the real property described in Exhibit A to the Lease. (23) "Lease" shall have the meaning set forth in the recitals. (24) "Lessee" shall have the meaning set forth in the recitals. (25) "Marketing Expenses" shall mean an amount up to $300,000 per Fiscal Year (pro rated for any partial Fiscal Year), for the Hotels, of documented reasonable out-of-pocket and compensation expenses for Operators' employees who oversee sales and marketing services for all the Hotels as described on Exhibit F for which Lessee will reimburse Operator pursuant to Section 10.06. Marketing Expenses shall not include the advertising, sales and marketing costs at the Hotel, which costs shall be set forth specifically in the Hotel Operating Budget. If, during the Operating Term, the number of Hotels subject to this Agreement exceeds 110 hotels or falls below 70 hotels, Lessee and Operator shall negotiate in good faith a new maximum amount of Marketing Expenses for which Lessee will reimburse Operator pursuant to Section 10.06. (26) "Marketing Plan" shall mean the marketing plan prepared and approved for each Hotel for each Fiscal Year pursuant to Section 3.04(a). (27) "Mortgage" shall mean any mortgage or deed of trust hereafter, from time to time, encumbering all or any portion of a Property, together with all other instruments evidencing or securing payment of the indebtedness secured by such mortgage or deed of trust and all amendments, modifications, supplements, extensions, and revisions of such mortgage, deed of trust and other instruments. (28) "NOI" shall mean Net Operating Income which shall be determined by deducting Operating Expenses from Gross Hotel Income; provided, however, that for purposes of determining NOI, real and personal property taxes and property and general liability insurance expense (including deductibles and uninsured casualties) shall be excluded from Operating Expenses. (29) "Operating Expenses" shall mean all costs and expenses of maintaining, conducting and supervising the operation of the Property, subject to the limitations set forth in an Approved Budget and the provisions of Section 6.03, incurred pursuant to this Agreement or as otherwise specifically provided herein which are properly attributable to the period under consideration under Lessee's system of accounting, including without limitation: (i) The cost of all food and beverages sold or consumed and of all Hotel Operating Equipment and Hotel Operating Supplies; (ii) Salaries and wages of on-site Hotel personnel, including costs of payroll taxes and employee benefits and amounts payable under bonus plans approved by Lessee. The salaries or wages of other employees or executives of Operator, or any Affiliate of Operator 4 shall in no event be Operating Expenses unless the specific position and specific cost are approved in advance by Lessee; (iii) The cost of all other goods and services obtained by Operator in connection with its operation of the Property including, without limitation, heat and utilities, office supplies and all services performed by third parties, including leasing expenses in connection with telephone and data processing equipment and such other equipment as Lessee shall designate; (iv) The cost of repairs to and maintenance of the Property to keep the Property in good condition (subject to the capital expenditure policy described in Exhibit E); (v) Insurance premiums for all insurance maintained with respect to the Property, including without limitation, property damage insurance, public liability insurance; workers' compensation insurance or insurance required by similar employee benefits acts and such business interruption or other insurance as may be provided for protection against claim, liabilities and losses arising from the use and operation of the Hotel and losses incurred with respect to deductibles applicable to the foregoing types of insurance; (vi) All taxes, assessments and other charges (other than federal, state or local income taxes and franchise taxes or the equivalent) payable by or assessed against Operator or Lessee with respect to the operation of the Hotel and water and sewer charges; (vii) Legal and accounting fees relating to Hotel operations, excluding corporate level legal and accounting expenses (unless directly related to provision of guest services), and real estate tax abatement and appeal services; (viii) The costs and expenses of technical consultants and specialized operational experts for specialized services in connection with non-recurring work on operational, functional, decorating, design or construction problems and activities, including reasonable third party fees reasonably deemed necessary by Lessee for the efficient operation of the Hotels if included in an Approved Budget; (ix) All expenses for marketing and sales, including all expenses of advertising, sales promotion and public relations activities for the Hotels, including the Marketing Expenses; (x) Municipal, county and state license and permit fees; 5 (xi) All normal and recurring fees, assessments and charges due and payable under Franchisor Agreements but excluding termination or assignment costs in connection with the assignment or transfer of franchise license agreements from Operator to Lessee; (xii) Credit card fees, travel agent commissions and other third party reservation fees and charges; (xiii) All parking charges and other expenses associated with revenues received by the Hotels related to parking operations, including valet services; (xiv) All expenses related to the revenues included in Gross Hotel Income, including without limitation, expenses relating to telephone, vending, television, cable television, pay television and similar services; and (xv) The costs of obtaining and keeping in force all licenses or permits (including liquor licenses, if any) necessary for the operation of the Hotel and in complying with governmental laws, rules, regulations, ordinances, orders and requirements. Operating Expenses shall not include (a) depreciation and amortization except as otherwise provided in this Agreement; (b) the cost of any other things specified herein to be done or provided at Lessee's or Operator's sole expense; (c) debt service; (d) Operator's Basic Fee and Operator's Incentive Fee, if any; (e) capital expenditures in accordance with Exhibit E; and (f) lease payments to Owner. (30) Operating Loss" shall mean for any period the amount by which Operating Expenses exceed Gross Hotel Income. (31) "Operating Term" shall mean, with respect to any Hotel, the term of this Agreement as set forth in Section 2.01. (32) "Operator" shall have the meaning set forth in the recitals. (33) "Operator's Basic Fee" shall mean, except as provided on Exhibit A-1, (i) a monthly accounting fee equal to 1/2% of Gross Hotel Income, (ii) a monthly fee of 1/2% of Gross Hotel Income to cover Operator's directors of operations and (iii)(A) for periods prior to December 31, 2003, a fee equal to four percent (4%) of Gross Hotel Income, plus an additional fee equal to one percent (1%) of Gross Hotel Income if no event of default exists under the Owners' loan agreements secured by mortgages on the Hotels and (B) for periods after January 1, 2004, a fee equal to four percent (4%) of Gross Hotel Income, which is payable as set forth in Section 10.01. (34) "Operator's Incentive Fee" shall mean the fee, if any, payable to Operator as an incentive fee and determined for each twelve month period ending September 30 during the Operating Term, beginning with the twelve month period ending December 31, 2003, as the 6 amount equal to twenty percent (20%) (the "Incentive Percentage") of the amount by which annual aggregate hotel level NOI for all the Hotels as of the date of this Agreement exceeds Base NOI, as it may be adjusted as provided below. In the event a hotel is added to this Agreement after the date hereof, (a) for purposes of calculating Operator's Incentive Fee for the period in which the new hotel is added, Base NOI shall be increased by the amount of the Approved Budget NOI for such hotel for the remainder of the period in which the hotel is added and (b) for purposes of calculating Operator's Incentive Fee each twelve month period thereafter, Base NOI shall be increased by the Approved Budget NOI for the new hotel for the first full twelve month period after being added. In the event this Agreement is terminated as to a Hotel after the date hereof, (c) for purposes of calculating Operator's Incentive Fee for the period in which the termination occurs, Base NOI shall be reduced by the amount of Base NOI attributable to such Hotel for the period following the date of termination date for the period in which the termination occurs and (d) for purposes of calculating Operator's Incentive Fee each twelve month period thereafter, Base NOI shall be reduced by the amount of the Base NOI attributable to the terminated Hotel. In addition, notwithstanding the foregoing, if, in the event Operator's Incentive Fee becomes payable hereunder for any period, the Incentive Percentage shall be subject to adjustment as follows: (i) In the event aggregate real and personal property taxes and property and general liability insurance expenses (including deductibles and uninsured casualties) for all the Hotels subject to this Agreement ("Taxes and Insurance"), for any measurement period used in determining the Operator's Incentive Fee, should exceed Taxes and Insurance for the comparable period during the immediately preceding 12 month period, the Operator's Incentive Fee shall be reduced by an amount determined by (A) multiplying the Incentive Percentage by (B) the percentage amount of the increase in Taxes and Insurance (up to a maximum of 100%), and the resulting percentage amount shall be multiplied by (C) the dollar amount by which Taxes and Insurance for the incentive fee measurement period exceed the comparable period Taxes and Insurance dollar amount. In no event shall this adjustment exceed the amount of the Operator's Incentive Fee before said adjustment. (ii) In the event Taxes and Insurance, for any incentive fee measurement period, are less than the amount of Taxes and Insurance for the comparable period during the immediately preceding 12 month period, the Operator's Incentive Fee shall be increased by an amount determined by (A) multiplying the Incentive Percentage by (B) the percentage amount of the decline in Taxes and Insurance (up to a maximum of 100%), and the resulting percentage amount shall be multiplied by (C) the dollar amount by which Taxes and Insurance for the incentive fee measurement period declined from the comparable period Taxes and Insurance dollar amount. In no event shall this adjustment exceed the dollar amount of any reduction to the Operator's 7 Incentive Fee experienced by Operator during the immediately preceding incentive fee measurement period. By way of example, if Taxes and Insurance for an incentive fee measurement period increase by 50% (or $10,000) over Taxes and Insurance for the immediately preceding twelve month period, the amount of the incentive fee reduction shall be determined by multiplying the 50% increase by the Incentive Percentage = 10%, which 10% shall then be multiplied by the dollar amount by which Taxes and Insurance during the measurement period exceeds Taxes and Insurance from the immediately preceding twelve month period (10% x $10,000 = $1,000, the amount of reduction of Operator's Incentive Fee). By way of further example, if in a subsequent incentive fee measurement period, Taxes and Insurance decline by 65% (or $15,000) over Taxes and Insurance for the immediately preceding 12 month period, the amount of the incentive fee increase shall be the lesser of (A) the amount determined by multiplying the 65% reduction by the Incentive Percentage = 13%, which 13% shall then be multiplied by the dollar amount by which Taxes and Insurance declined during the measurement period (13% x $15,000 = $1,950), or (B) the amount of incentive fee adjustment surrendered by Operator during the immediately preceding incentive fee measurement period (=$1,000). (35) "Owners" shall mean the entities described on Exhibit A as it may be amended from time to time as the owners of the Hotels. "Owner" shall mean any entity described on Exhibit A as it may be amended from time to time. (36) "Property" shall mean the Land, the Hotel, all real and personal property now or hereafter situated upon the Land and all appurtenant rights and easements thereto. (37) "RevPAR" shall mean Hotel occupancy percentage multiplied by average daily rate. (38) "Sale of a Hotel" shall have the meaning set forth in Article XVI. (39) "Uniform System" shall mean the then current edition of the "Uniform System of Accounts for the Lodging Industry" published by the American Hotel and Motel Association, with such modifications as may be required by the provisions of this Agreement. (40) "Unrelated Persons" shall have the meaning set forth in Section 21.09. (b) Terms with initial capital letters which appear within the foregoing definitions are defined in this Article I or as indicated in this Agreement. 8 ARTICLE II TERM OF AGREEMENT Section 2.01. Term. (a) The initial term of this Agreement shall commence on the date set forth at the beginning of this Agreement and shall terminate at midnight on December 1, 2007, subject to earlier termination as to one or more Hotels at any time as set forth herein. Except as provided on Exhibit A-1, if, during the initial term of this Agreement (i) Operator has not failed to achieve ninety percent (90%) of the Approved Budget Hotel NOI for all the Hotels in the aggregate for any calendar year and (ii) no Event of Default by Operator shall have occurred effective December 1, 2007, the term of this Agreement shall automatically be extended for an additional five (5) years unless Operator notifies Lessee on or prior to June 1, 2007 that Operator does not wish to extend the term hereof. The initial term, as it may be extended hereunder, is referred to herein as the "Operating Term." (b) This Agreement may be terminated by Lessee as to one or more Hotels at any time and from time to time upon the sale of such Hotel(s) by delivery of written notice by Lessee to Operator not less than sixty (60) days prior to the effective date of termination which notice shall set forth (i) the effective date of termination, and (ii) the Hotel or Hotels with respect to which this Agreement is being terminated. Subject to the terms of this Agreement, if Lessee terminates this Agreement upon sale of one or more Hotels prior to September 30, 2003, Lessee will pay Operator a termination fee (in lieu of other monetary damages and not as a penalty) equal to 33 1/3% of the sum of Operator's Basic Fee and Operator's Incentive Fee, if any, for the most recent twelve (12) month period ended prior to the date of termination. In addition, the Hotel's operations for the period prior to termination shall be included in the calculation of Operator's Incentive Fee, for the year in which the termination occurs, if any. Notwithstanding the foregoing, no termination fee will be payable by Lessee to Operator (i) upon the sale of Hotel if prior to the termination, or within sixty (60) days thereafter, Lessee offers to permit Operator to manage one or more hotels reasonably comparable to the Hotel for which this Agreement is terminated and having a substantially similar term, or (ii) for termination upon sale of a Hotel after September 30, 2003. (c) Lessee may terminate this Agreement with respect to any Hotel at any time (without payment of any termination fee) if (i) Operator fails to achieve ninety percent (90%) of the aggregate Approved Budget Hotel NOI for all Hotels for any calendar year commencing with the year 2003; provided, however, that Operator shall have the right, but not the obligation, to avoid termination by supplementing NOI by paying to Lessee an amount sufficient to increase aggregate NOI to ninety percent (90%) of Approved Budget NOI, (ii) a Franchise Agreement for such Hotel is terminated solely as a result of the failure of Operator to satisfy its obligations under this Agreement (provided that Lessee has timely given Operator copies of all deficiency notices received from Franchisors) or, (iii) Operator fails to achieve ninety percent (90%) of the Approved Budget Hotel NOI for all Hotels for two consecutive years during the Operating Term, regardless of whether Operator has supplemented NOI as described in (i) above. Notwithstanding the foregoing, Operator may only supplement NOI in accordance with subsection (i) above, one (1) time during the Operating Term after which, if Operator fails to 9 achieve 90% of Approved Budget Hotel NOI for all Hotels, this Agreement may be terminated by Lessee with respect to any one or more of the Hotels without payment of any fee or penalty to Operator. (d) This Agreement may be terminated by Lessee upon a change of control (as defined below) during the Operating Term, in which event Lessee will pay Operator a termination fee equal to 50% of the sum of Operator's Basic Fee and Operator's Incentive Fee for the most recent twelve (12) month period ended prior to the date of termination. For purposes hereof, a "change of control" shall be deemed to have occurred if, during the Operating Term, any of the following events occurs: (i) any "person", as that term is used in Section 13(d)and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes, is discovered to be, or files a report on Schedule 13D or 14D-1 (or any successor schedule, form or report) disclosing that such person is, a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of Humphrey Hospitality Trust, Inc., the parent of Lessee (the "Parent") representing 50% or more of the combined voting power of the Parent's then outstanding securities entitled to vote generally in the election of directors; (ii) individuals who, as of the date of this Agreement, constitute the Board of Directors of the Parent cease for any reason to constitute at least a majority of the Board of Directors of the Parent; (iii) the Parent is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of the Parent are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such transaction; (iv) the Parent in any transaction or series of related transactions, sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or sales are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such sale; (v) the Parent files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K (or any successor, form or report or item therein) that a change in control of the Parent has occurred; or 10 (vi) any other transaction or series of related transactions occur that have substantially the effect of the transactions specified in (i) through (v) above. ARTICLE III OPERATION OF THE HOTEL Section 3.01. Representations by Operator; Engagement of Operator. Operator hereby represents that Operator (i) is experienced and capable and will remain experienced and capable in the management and operation of hotels throughout the United States, (ii) has reviewed and understands the terms and provisions of the Lease and the Franchise Agreements and the Hotel Standards, and (iii) will, on the effective date of this Agreement, meet the requirements to be an "eligible independent contractor" under Section 856(d)(9) of the Internal Revenue Code. In reliance on the foregoing representations, Lessee hereby engages Operator to manage and operate the Hotels during the Operating Term and Operator agrees to manage and operate the Hotels during the Operating Term, in accordance with this Agreement. Operator will provide all property management, financial accounting, reporting, marketing and other operational services for each Hotel, including the services of a director of operations for each Hotel and will use commercially reasonable efforts to maximize the operating profitability thereof. Lessee and Operator acknowledge that it is the intention of the parties that the Hotels be operated in a profitable manner and in a manner for comparable hotels operated by a national operator within the Hotel's market segment, all in accordance with the Hotel Standards. Operator shall diligently pursue all feasible measures to enable the Hotels to adhere to the Approved Budget. Section 3.02. Standards of Operation. Operator agrees to diligently and efficiently operate each Hotel and all of its facilities and activities (i) at all times in accordance with the Hotel Standards; (ii) consistent with the terms of the Lease and Lessee's obligations thereunder; (iii) in the same manner as is customary and usual in the first-class operation of comparable hotels in its market; (iv) in compliance with this Agreement, all easements, covenants and restrictions affecting the Property (known or disclosed to Operator) and all applicable governmental laws, rules, regulations, ordinances, orders and requirements; (v) in accordance with the terms and conditions of any financing affecting the Property (known or disclosed to Operator) to the extent such terms and conditions can be complied with by Operator under the terms of this Agreement; and (vi) in accordance with the requirements of any carrier having insurance on the Hotel or any part thereof. Operator shall also obtain and keep in force any and all licenses or permits necessary for the operation of the Hotel (provided that, at Lessee's option, liquor licenses or other licenses or permits shall be obtained and held in Lessee's name). All such licenses and permits shall belong to Lessee and/or the Hotel and upon expiration or termination of this Agreement, Operator shall take any and all actions reasonably requested by Lessee to transfer such licenses and permits to Lessee or its designee. Operator also acknowledges and agrees that this Agreement is subject and subordinate to the Lease and liens, security interest and Mortgages in accordance with Article XX hereof. 11 Section 3.03. Reservations Services. Operator shall sell, represent and promote the Hotel through the respective Franchisors' sales and reservations systems and will encourage the use of the Hotel by all recognized sources of hotel business. Section 3.04. Marketing. (a) Operator shall provide the marketing services described in Exhibit F hereto. Sixty (60) days prior to the beginning of each Fiscal Year and in conjunction with preparation of the Hotel Operating Budget for the forthcoming Fiscal Year, Operator shall deliver to Lessee a proposed marketing plan for each Hotel for such Fiscal Year which shall be consistent with the Hotel Operating Budget. Operator shall review the marketing plan with Lessee and upon Lessee's written approval it shall represent the approved marketing plan (the "Marketing Plan") for the succeeding Fiscal Year and shall be implemented by Operator. (b) Operator shall arrange, contract for and carry out such advertising and promotion of the Hotel as Operator shall deem advisable and consistent with the Approved Budget and in accordance with the Hotel Standards. Funds for advertising and promotion of the Hotel may be expended exclusively for or with respect to the Hotel or in conjunction with the advertising or promotion of other properties managed by Operator, and in either case may be administered at or through Operator's regional or home office. Operator will make every effort to ensure that the Hotel shall receive an equitable share of the benefit of the cooperative advertising and promotion reasonably commensurate with its contribution to the costs thereof. The costs thereof shall be equitably allocated by Operator between the Hotel and other participating hotels, subject to Lessee's prior written approval. Upon Lessee's request, Operator shall provide reasonable documentation to support such allocations. (c) Operator, in its discretion, may cause the Hotel to participate in sales and promotional campaigns and activities involving complimentary rooms, food and beverages, consistent with customary practices in the travel industry. Section 3.05. Consultations Between Lessee and Operator. When requested by Lessee, Operator shall, from time to time, render advice and assistance to Lessee and Owner in the negotiation and prosecution of all claims for the reduction of real estate or other taxes or assessments affecting the Hotel and for any award for taking by condemnation or eminent domain affecting the Hotel. Section 3.06. Transactions with Affiliates and Other Relationships. (a) Operator shall obtain the prior written consent of Lessee (which Lessee may withhold in Lessee's sole and absolute discretion) prior to contracting with any Affiliate (or companies in which Operator has an ownership or other economic interest if such interest is not sufficient to make such a company an Affiliate) to provide goods and/or services to the Hotels. (b) Prior to entering into any contract, agreement or arrangement with respect to one or more of the Hotels pursuant to which Operator may receive rebates, cash incentives, 12 administration fees, concessions, profit participations, stock or stock options, investment rights or similar payments or economic consideration from or in, as applicable, vendors or suppliers of goods or services collectively, "Rebates", Operator shall promptly disclose to Lessee in writing the fact of and the estimated amount of such Rebates, and (i) the charges and other amounts expected to be incurred in connection with any such contracts or agreements (which shall not exceed prevailing market rates with respect to such goods or services) and Lessee shall approve in writing in advance (which approval may be withheld or granted in Lessee's sole discretion) any such contracts, agreements or arrangements. Operator hereby agrees that Lessee's approval of any such contract, agreement or arrangement, in Lessee's sole discretion, may be conditioned upon Lessee participating in any such Rebates. ARTICLE IV INDEPENDENT CONTRACTOR Section 4.01. Operator Status. In the performance of its duties in the administration, management and operation of the Hotel, Operator shall act solely as an independent contractor. Nothing herein shall constitute or be construed to be or create a partnership or joint venture between Lessee and Operator, or be construed to appoint or constitute Operator as an agent of Owner for any purpose, or be construed to create a lease by Operator of the Hotel or the Property and Operator shall not constitute a tenant or subtenant of Lessee or Owner. Operator's rights under this Agreement shall be those of an agent only and shall not constitute an interest in real property. Lessee or Owner shall have the right to lease, develop or sell excess land or structures not required for operation of the Hotel. It is expressly covenanted that this Agreement is no more than an agreement for the rendering of services by Operator on behalf of Lessee in the operation and management of the Hotel only. Section 4.02. Employees. (a) Each Hotel employee shall be the employee of Operator and not of Lessee, and every person performing services in connection with this Agreement shall be acting as the employee of Operator, but their salaries and other related expenses shall be an Operating Expense. (b) Operator shall provide evidence to Lessee of statutory Worker's Compensation Insurance and Employer's Liability Insurance for each such employee. The insurance coverages (including, without limitation, the carrier, policy limits of each and waiver of subrogation endorsements) must be in form, substance and amount satisfactory to Lessee in all respects. Upon request of Lessee, Operator will deliver to Lessee waiver of subrogation endorsements in favor of Lessee and Owner. (c) The hiring policies and the discharge of employees at the Hotel shall in all respects comply with all "applicable" laws and regulations, and Operator shall comply with all laws, regulations and ordinances regarding the employment and payment of persons engaged in the operation of each Hotel. 13 (d) Lessee shall have the right to participate in any negotiations with labor unions representing employees at the Hotel, and Operator shall not sign any union contracts covering such employees at the Hotel which have not been previously approved in writing by Lessee. (e) Operator shall submit to Lessee the resumes of any person proposed to serve as the Director of Marketing or Director of Sales of Operator or to serve as general manager of the Hotels in the mid-western United States. Lessee shall have five (5) business days following receipt of the resumes to reject each of the persons proposed for such positions prior to such persons being so assigned. Operator shall provide to Lessee at least fourteen (14) days prior notice of any proposed transfer by Operator of any persons holding the positions described above. Section 4.03. Employee Expenses. (a) All costs of every nature pertaining to all employees at the Hotel, including, without limitation, salaries, benefits, the terms of any bonus plan or arrangement, any relocation costs, employment-related legal costs, costs incurred in connection with governmental laws and regulations and insurance rules, shall be set forth in the Approved Budget as an Operating Expense. (b) Within limits set forth in the Approved Budget, employees of Operator other than those regularly employed at the Hotel shall be entitled to free room and the free use of all hotel facilities at such times as they visit the Hotel in connection with the management of the Hotel or are assigned temporarily to the Hotel to perform services for the Hotel not to exceed ten (10) room nights per Hotel per month (subject to longer stays to the extent key management positions at the Hotel remain unfilled). (c) Owner and Lessee shall be entitled to free room and the free use of all hotel facilities for their employees and other persons designated by Owner and Lessee (not to exceed ten (10) room nights per Hotel per month). (d) Compensation, overhead costs and other expenses of Operator and its Affiliates not specifically provided for herein shall not be Operating Expenses and shall not be payable or reimbursable by Lessee. Section 4.04. Employee Benefit Plans. Operator may enroll employees at the Hotels in pension, medical and health, life insurance and employee benefit plans which are joint plans for the benefit of non-Hotel employees. Operator's contributions to such plans, reasonable administrative fees, at cost, which may be expended in connection therewith, and reasonable expenses for such plans will be estimated and disclosed to Lessee in advance and provided for in the Approved Budget and will be an Operating Expense. The administration expenses of any joint plans will be equitably apportioned among the various Hotels and any other hotels operated by Operator or its affiliates whose employees participate in such plan. To the extent the actual costs under the employee benefit plans described in this Section 4.04 cannot be determined precisely because of uncertainty regarding the number of employees who will elect to participate in such plans, Operator shall use its reasonable good faith estimate as to participation and costs in preparing the 14 Hotel Operating Budget and will disclose to Lessee the variable costs involved in such plans based upon actual employee participation. Except for employer matching contributions under the 401(k) plan, Lessee, in its sole discretion shall determine whether to require employees at the Hotels to pay all or a portion of the costs of the employees' participation in such plans. Except as otherwise provided in Section 6.03, all costs referenced in Section 4.03 and this Section 4.04 will be the responsibility of Lessee only to the extent the same are provided for in the Approved Budget, otherwise all such costs shall be borne solely by Operator without reimbursement by Lessee. Section 4.05. Execution of Agreements. (a) Except as provided in Section 4.05(b), Operator shall execute as agent of Lessee all leases and other agreements relating to equipment and/or services provided to each Hotel, all of which, unless otherwise approved in writing in advance by Lessee, shall be cancelable upon not more than thirty (30) days' written notice by Operator or Lessee without the payment of a penalty or fee. Notwithstanding the foregoing, without the prior written approval of Lessee, Operator shall not enter into any agreement (i) which provides for the payment of sums not authorized by Lessee in an Approved Budget, (ii) which would give rise to a lien upon all or any part of the Property, (iii) which would result in liability to Lessee for sums other than as set forth in the applicable Approved Budget, (iv) to lease any part of any Property, (v) relating to alterations to the exterior, interior or structural design of the Hotel, (vi) which requires the payment of more than $5,000 per year or over the term of the agreement, or (vii) which is not cancelable by Lessee upon 30 days' notice or less. (b) Subject to Lessee's prior approval of the same and upon Lessee's request, Operator shall execute, as agent for Lessee, (i) all leases, as sub-lessor, of any space at any Property, and (ii) equipment rental and/or lease agreements which cannot be terminated upon thirty (30) days notice or less without the payment of a penalty or fee. Operator shall exercise its best efforts to obtain in each equipment agreement a right on the part of the lessee of such equipment to terminate the same on thirty (30) days notice or less without the payment of a penalty fee. Notwithstanding anything in this Section 4.05 to the contrary, Lessee reserves the right, exercisable at Lessee's option, to execute any lease or other agreement relating to equipment and/or services being provided to the Hotel. ARTICLE V INDEMNIFICATION Section 5.01. Indemnification by Operator. In addition to all other obligations of Operator to Lessee hereunder, Operator shall indemnify and hold Lessee harmless against all claims, demands, actions, liabilities, losses, damages, lawsuits and other proceedings at law or in equity, judgments, awards, commissions, fees, costs and expenses (including, without limitation, attorneys' fees and expenses), of every kind and nature whatsoever to or of any party connected with, or arising out of, or by reason of any negligent act or omission, breach of contract, willful misconduct, or tortious actions by Operator, or any Affiliate of Operator, or any officer, employee, agent, contractor, subcontractor, 15 or other person or entity working for Operator or any Affiliate of Operator other than employment related claims by hotel level employees (general manager of the hotel and below). The indemnification provisions of this Section 5.01 are subject to the limitations set forth in Section 5.02, as applicable. Section 5.02. Limitations on Indemnification. None of the indemnifications set forth in Section 5.01 shall be applicable to (1) liability resulting from the design or construction of the Hotel, or (2) that portion of a liability which is covered and paid for by insurance maintained for the Hotel. The standard of performance of which Operator is to be responsible under this Agreement shall be that, reasonably and diligently exercised, of a professional hotel operator. Settlement of a third party claim shall not be prima facie evidence that a party has triggered an indemnification obligation hereunder. Section 5.03. Indemnification by Lessee. Lessee shall indemnify and hold Operator harmless against all claims, demands, actions, liabilities, losses, damages, lawsuits and other proceedings at law or in equity, judgments, awards, commissions, fees, costs and expenses (including, without limitation, attorneys' fees and expenses), of every kind and nature whatsoever to or of any party connected with or arising out of, or by reason of any negligent act or omission, breach of contract, willful misconduct, or tortious actions by Lessee or any Affiliate of Lessee, or any officer, employee, agent, contractor, subcontractor, or other person or entity working for Lessee or any Affiliate of Lessee. The indemnification provisions of this Section 5.03 are subject to the limitations set forth in Section 5.02, as applicable. Section 5.04. Survival of Indemnity. The provisions of this Article V shall survive the expiration or sooner termination of this Agreement with respect to matters arising out of facts or circumstances occurring during the period prior to such expiration or termination. ARTICLE VI BUDGETS AND POLICY MEETINGS Section 6.01. Budgets. (a) No later than November 1 of each year, Operator will prepare and submit to Lessee an annual capital budget for each Fiscal Year for each Hotel (the "Hotel Capital Budget"). The Hotel Capital Budget will set forth all projected capital improvements and all projected expenditures for replacements, substitutions and additions to Hotel FF&E for such Fiscal Year, which budget shall also be month-to-month as well as annual. The Hotel Capital Budget will be subject to the approval of Lessee and Owner, in their sole and absolute discretion, provided however that Lessee agrees to budget for each Fiscal Year for capital improvements and capital expenditures at all the Hotels in the aggregate an amount at least equal to four percent (4%) of Gross Hotel Income for all the Hotels in the aggregate for the prior Fiscal Year (net of any Hotels which have been sold), but provided further that the actual amount of capital 16 improvements and capital expenditures at any Hotel or Hotels, in Lessee's or Owner's sole and absolute discretion, may be greater than or less than four percent (4%) of that Hotel's or Hotels' Gross Hotel Income. No later than November 1 of each year, Operator shall prepare and submit to Lessee an annual forecast for the operation of the Hotel for the forthcoming Fiscal Year containing detailed projections of Gross Hotel Income and budgets of Operating Expenses (the "Hotel Operating Budget"). The Hotel Operating Budget shall be month-to-month as well as annual and shall be in the form designated by Lessee. The Hotel Operating Budget and the Hotel Capital Budget shall provide for operating, equipping and maintaining the Hotel in accordance with the Hotel Standards. Additionally, before the commencement of each Fiscal Year, Operator shall submit to Lessee monthly budgeted occupancy, average daily rate and RevPAR statistics for each hotel. The Hotel Operating Budget and the monthly budgeted hotel operating statistics shall contain Operator's reasonable good faith estimates of the amounts set forth therein. Operator shall provide Lessee, upon request, all details, information and assumptions used in preparing the Hotel Capital Budget and the Hotel Operating Budget. At the same time, Operator shall also present the Marketing Plan. Subject to the provisions of the Administrative Services Agreement among Owner, Lessee and Operator of even date herewith, Owner shall be responsible for implementing the Hotel Capital Budget and may, in Owner's sole discretion, increase, decrease, delete or modify in any respect any capital expenditure in any Hotel Capital Budget subject to maintaining an annual Capital Budget for all Hotels of at least 4% of Gross Hotel Income in the aggregate. (b) Operator shall review the Hotel Operating Budget with Lessee, and upon Lessee's written approval of the Budget, it shall constitute the Approved Budget for the succeeding Fiscal Year and shall be implemented by Operator. If the parties cannot agree on one or more items in a proposed Hotel Operating Budget, Lessee and Operator agree to cooperate with each other in good faith to resolve the disputed proposed item(s). In the event Lessee and Operator are not able to reach mutual agreement concerning any item within a period of twenty (20) days after the date Lessee provides written notice of its objections to Operator, then either party shall be entitled to submit the dispute to arbitration in accordance with the provisions of Section 10.05. In the event that Lessee and Operator are unable to agree on the Hotel Operating Budget for a Hotel prior to the commencement of the applicable Fiscal Year, an interim operating budget shall be implemented which will reflect CPI increases for expenses and RevPAR increases based on the appropriate previous 12-month Market Tract RevPAR growth percentage for the sector in which the Hotel is included, as published by Smith Travel Research, for revenue growth over the prior year's actual amounts. Section 6.02. Budget Meetings. A budget meeting between Lessee and Operator will be held at least quarterly. At each budget meeting and at any additional meetings during a Fiscal Year reasonably called by Lessee, Operator shall consult with Lessee on matters of policy concerning management, sales, room rates, wage scales, personnel, general overall operating procedures, economics and operation and any other matters affecting the operation of the Hotel as requested by Lessee. 17 Section 6.03. Approval by Lessee Required. Any request by Operator for Lessee or a Hotel to make any expenditure or incur any obligations in excess of the Approved Budget shall be submitted to Lessee in writing with an explanation of and accompanied by supporting information for the request. Operator shall not make any such expenditure without Lessee's prior written consent, except as is necessary, in Operator's reasonable good faith judgment, for the immediate emergency protection of life or property. Lessee shall endeavor to respond to any such request within fifteen (15) days of the receipt thereof; provided, however, Lessee shall have no obligation to agree to any such request and no liability for failing to respond and failure to respond to such request within such fifteen (15) day period shall be deemed a denial of the request. Notwithstanding the foregoing, (i) specific Operating Expenses in excess of those set forth in the Approved Budget which result directly from (A) increased Hotel revenues, such as franchise fee costs or (B) employment related legal costs, cost incurred in connection with governmental laws and regulations and insurance rules, will not require Lessee's prior written consent and (ii) variances from the amounts set forth for the expense categories in the Approved Budget shall not require Lessee's prior written consent until such amounts exceed $1,000 and 107% of the amount set forth in the Approved Budget on a year-to-date basis, but, in any such event, Operator shall promptly provide to Lessee an explanation of any such variance from the Approved Budget. Any expenditure or obligation not approved by Lessee in accordance herewith shall be the responsibility of Operator which the Operator shall fund promptly following the end of the Fiscal Year. ARTICLE VII OPERATING EXPENSES Section 7.01. Payment of Operating Expenses. (a) In performing its authorized duties hereunder, Operator shall promptly pay all Operating Expenses, except that if requested by Lessee certain Operating Expenses shall be paid by Operator directly to Lessee for payment by Lessee to the appropriate lender, taxing authority, insurer or other party so identified by Lessee to Operator. (b) Subject to Article V, all reasonable third party Operating Expenses incurred by Operator in performing its authorized duties shall be reimbursed or borne by Lessee; provided that such Operating Expenses are incurred pursuant to and within the limits set forth in an Approved Budget or otherwise pursuant to the terms of this Agreement. Section 7.02. Operating Expenses Not an Obligation of Operator. Except as may be otherwise specifically provided in this Agreement, Operator shall in no event be required to advance any of its own funds for Operating Expenses of the Hotel, nor to incur any liability in connection therewith unless Lessee shall have furnished Operator with funds as required of Lessee under the terms of this Agreement. However, if Lessee has provided funds required of Lessee hereunder, Operator shall advance such funds and all other funds necessary to pay expenses incurred by Operator in performing its duties and obligations 18 hereunder. Unless agreed to by Lessee in this Agreement, in the Hotel Operating Budget or otherwise in writing in advance, compensation, overhead costs, and other expenses of Operator and its parents and Affiliates unrelated to the operation of the Hotels shall not be reimbursable to Operator by Lessee. ARTICLE VIII WORKING CAPITAL AND BANK ACCOUNTS Section 8.01. Working Capital. (a) Upon the close of each Accounting Period, if and as requested by Operator in writing on or before the tenth (10th) day of each calendar month, Lessee shall provide to Operator on or before the thirtieth (30th) day of the same calendar month additional working capital in an amount equal to the Gross Operating Loss for the immediately preceding month. (b) In the event of a dispute as to the amount of additional working capital required for the operation of the Hotel, Lessee shall have the right, in its sole discretion, to determine the amount of additional working capital required to be provided by Lessee. Each written request for additional working capital shall itemize and compare the request with the Approved Budget and shall be accompanied by a written explanation from Operator of any variance from the Approved Budget. Lessee shall have the right, in its reasonable discretion, to approve or disapprove any such request. Section 8.02. Bank Accounts. (a) All funds to be made available to Operator by Lessee for the operation of the Hotel, exclusive of funds designated as capital expenditures, shall be deposited in the Hotel Operating Account. Lessee may also establish one or more "sweep" accounts into which funds from one or more Hotel Operating Accounts may be deposited. The Hotel Operating Account and any sweep account made available to Operator are Lessee's accounts and the signing of the checks and handling of the Hotel Operating Account and any sweep account as long as such account remains open shall be subject to the check signing requirements of Section 8.03, and shall be effected exclusively by the individuals designated for such purposes by Operator and approved in writing by Lessee, and the signatures of such persons shall be formally and expressly recognized to this end by the bank in which such account or accounts are maintained. Designees of Operator shall only be authorized to draw upon the Hotel Operating Account for purposes authorized by this Agreement and in accordance with the terms of this Agreement. Operator shall have the responsibility for payment of all Operating Expenses (which may include Operator's Basic Fee and the monthly accruals of the Hotels) using Positive Pay fraud prevention services and shall be reimbursed by Lessee for such expenses (including the funding of monthly accruals of the Hotels that have been assumed by Operator) upon submission of receipts and documentation reasonably requested by Lessee. Lessee funds shall not be commingled with Operator's funds and Operator shall provide to Lessee weekly a detailed accounting of all Hotel Operating Account receipts and disbursements. Operator shall comply with Lessee's or Owner's or their lenders' requirements with respect to lock-box accounts provided that Lessee shall be 19 responsible for any incremental out-of-pocket costs of Operator resulting from any such lock-box arrangement (which shall not be an Operating Expense). (b) Operator may establish one or more separate bank accounts for handling payroll costs. Such accounts shall be in a bank selected by Lessee, and shall be handled exclusively by the individuals designated by Operator and approved in writing by Lessee. Funds shall be deposited in the payroll account or accounts from the Hotel Operating Account, as needed, in order to meet payroll requirements; provided, however, all expenditures from such accounts shall be subject to and in accordance with the terms of this Agreement. Section 8.03. Authorized Signatures. The Hotel Operating Account shall be under the day-to-day control of Operator, without prejudice, however, to Operator's obligation to account to Lessee as and when provided for herein. Lessee shall have signatory authority with respect to the Hotel Operating account. All receipts and income, including, without limitation, Gross Hotel Income shall be promptly deposited in the Hotel Operating Account. Operator will remit to Lessee such funds from the Hotel Operating Account as Lessee may request from time to time in accordance with Section 10.03. Checks or other documents of withdrawal shall be signed only by the individual representatives of Operator approved in writing by Lessee and duly recognized for such purpose by the bank or banks in which the referenced accounts are maintained. Operator shall supply Lessee with fidelity bonds or other insurance insuring the fidelity of authorized signatories to such accounts, unless said bonds or other insurance shall have been placed by Lessee and delivered directly by the bonding or insurance company to Lessee. The cost of such fidelity bonds or other insurance shall be an Operating Expense and subject to Lessee's approval. Neither Lessee nor Operator shall be responsible for any losses occasioned by the failure or insolvency of the bank or banks in which the referenced accounts are maintained. Upon expiration or termination of this Agreement and the payment to Operator of all amounts due Operator hereunder upon such expiration or termination, as provided in this Agreement, all remaining amounts in the referenced accounts shall be transferred forthwith to Lessee, or made freely available to Lessee. Section 8.04. Investment of Hotel Cash. Operator shall invest Hotel Operating Account balances in a cash management program approved in writing by Lessee and which provides for Lessee to receive the interest income thereon or as otherwise instructed by Lessee in writing. ARTICLE IX BOOKS, RECORDS AND STATEMENTS Section 9.01. Books and Records. (a) Operator shall keep full and adequate books of account and other records reflecting the results of operation of the Hotel on an accrual basis, all in accordance with the Uniform System and generally accepted accounting principles. 20 (b) Except for the books and records which may be kept in Operator's home office or other location approved by Lessee the books of account and all other records relating to or reflecting the operation of the Hotel shall be kept at the Hotel. All such books and records pertaining to the Hotel, including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessee and, except for books of account, accounts payable invoices, night audit packages, deposit records and similar documents which may be sent to Operator's accounting department (currently located in Norfolk, Nebraska) shall not be removed from the Hotel by Operator without Lessee's written approval and consent. All books and records pertaining to the Hotel and of Operator (including all budgetary records of Operator), wherever kept, shall be available to Lessee and its representatives at all reasonable times for examination, audit, inspection, transcription and copying. Operator shall not remove, destroy or delete any books and records of the Hotels without the prior written consent of Lessee. Upon any termination of this Agreement, all of such books and records pertaining to the Hotel forthwith shall be turned over to Lessee so as to insure the orderly continuance of the operation of the Hotel, but such books and records shall be available to Operator for a period of seven (7) years at all reasonable times for inspection, audit, examination, and transcription of particulars relating to the period in which Operator managed the Hotel. Section 9.02. Statements. (a) Operator shall deliver to Lessee by the first (1st) business day following the fifteenth (15th) calendar day of each month, for each Hotel, a monthly report of the state of the business and affairs of the operation of the Hotel for the immediately preceding month and for the Fiscal Year to date and within fifteen (15) days after the end of each quarter, a quarterly report with respect to the preceding quarter. Such reports shall include at least (i) a balance sheet, (ii) a profit and loss statement, comparing current month and Fiscal Year-to-date profit, loss, and operating expenses to the Approved Budget and the prior year and comparing current month, quarter and Fiscal Year-to-date average daily rate, occupancy and RevPAR to the Approved Budget and the prior year, (iii) a statement which details the computation of all fees payable to Operator for the month and quarter, (iv) the balance of all bank accounts, and (v) an adjusting statement showing the actual cash position of the Hotel for the month, quarter and Fiscal Year-to-date. Additionally, Operator shall deliver to Lessee fifteen (15) days following the end of each month and twenty-five (25) days following the end of each quarter a written narrative discussing any of the aforementioned reports and year-to-date variances exceeding 7% of the Approved Budget, without thereby implying Lessee's approval of such variance. (b) Such reports and statements (i) shall be in form and in detail satisfactory to Lessee, (ii) shall be taken from the books and records maintained by Operator in the manner hereinabove specified, (iii) shall follow the general form set forth in the Uniform System, (iv) shall be accompanied by copies of all paid receipts for the month, as requested by Lessee, and (v) if requested by Lessee, shall be in electronic form. (c) Within thirty (30) days after the end of each quarter of each Fiscal Year, Operator shall deliver to Lessee unaudited financial statements for Operator and within seventy-five (75) days after the end of each Fiscal Year audited financial statements for Operator. In the event of any amendments or modifications to Securities and Exchange Commission or stock exchange 21 reporting requirements which reduce the time available for period-end reporting, Operator agrees to expedite delivery of such information so as to permit timely reporting. (d) In addition, Operator shall timely deliver to Lessee a copy of (i) a monthly STAR report from Smith Travel Research for each Hotel, where available (which Operator hereby agrees to order with respect to each Hotel and provide to the REIT, at the REIT's request), (ii) each Guest Satisfaction report, (iii) a new competition report prepared with respect to each Hotel describing franchise changes, new groundbreakings, new openings and similar market supply changes, (iv) upon receipt, each Franchisor inspection report, and (v) such other reports or information in such form as may be reasonably requested by Lessee. (e) If requested by Lessee, Operator will deliver copies of daily, weekly or other reports with respect to hotel operations in the form of Exhibit H. Section 9.03. Costs. The cost of providing all financial and operating data and accounting services hereunder shall be included within Operator's Basic Fee. ARTICLE X OPERATOR'S FEE AND TRANSFERS TO LESSEE Section 10.01. Payment of Operator's Basic Fee. Effective December 1, 2002 and on the first (1st) day of each month thereafter during the Operating Term, Operator shall be paid out of the Hotel Operating Account the Operator's Basic Fee for the immediately prior month, based upon Gross Hotel Income for the immediately prior month, as determined from the books and records referred to in Article IX. Section 10.02. Payment of Operator's Incentive Fee. On or before each December 31 during the Operating Term, beginning with March 31, 2003, Lessee shall pay to Operator, the Operator's Incentive Fee, if any, for the prior twelve month period ended September 30 which shall be determined consistent with the audited annual financial statements. Section 10.03. Distribution of Cash. On or before the tenth (10th) day of each month during the Operating Term or as requested at any time by Lessee, Operator shall, after transferring to the Hotel Operating Account all funds held in other accounts which Lessee has permitted to be established for the efficient operation of the Hotels and after payment of Operator's Basic Fee pursuant to Sections 10.01 for the preceding month and retention of working capital sufficient, in the sole judgment of Lessee, to assure the uninterrupted operation of the Hotels for the next Accounting Period, remit to Lessee all remaining funds in the Hotel Operating Account, including but not limited to funds for items which are excluded from the definition of Gross Hotel Income. 22 Section 10.04. Adjustments to Allocations. If at the time calculations are made to determine amounts to be allocated or distributed in accordance with Sections 10.01, 10.02 and 10.03, or if at the end of each Fiscal Year and following receipt by Lessee of the annual audit, if any, it is determined that any amounts have been allocated or distributed in excess of the amounts properly allocable or distributable pursuant to Sections 10.01, 10.02 and 10.03, an adjustment will be made based on said calculations or audit, if necessary, so that the proper allocations and distributions will have been made. Such calculations or annual audit shall set forth the proper calculations, allocations and distributions required to implement such an adjustment. Within thirty (30) days of receipt by Lessee of such audit, Lessee or Operator, as the case may be, shall deposit in the Hotel Operating Account any excess amounts which may have been distributed to them. Section 10.05. Arbitration. (a) In the event of a dispute, controversy or difference between Operator and Lessee over (i) the proposed Hotel Operating Budget or (ii) the calculation of the amount of the Operator's Incentive Fee for any Fiscal Year, at the request of either party, the parties shall submit such dispute, controversy or difference to arbitration before an arbitrator who has knowledge and is experienced in ownership and management of hotels of similar size and class as the Hotel and who is selected by mutual agreement of Operator and Lessee from a list provided by the American Arbitration Association. In the event Operator and Lessee cannot mutually agree on an arbitrator on such list within fifteen (15) days of receipt of the list, the parties agree that the American Arbitration Association shall select a neutral arbitrator who shall make a final and binding determination of the matter in controversy. (b) Prior to the commencement of arbitration hearings, the arbitrator shall provide an oath or undertaking of impartiality. The arbitration shall be conducted in the city in which the REIT's principal executive offices are located, in accordance with Title 9 of the U.S. Code (the Federal Arbitration Act) and the Commercial Arbitration Rules of the American Arbitration Association and the arbitration session shall be held not later than twenty (20) days after the final selection of the arbitrator. The arbitration session shall be limited to a time period of forty-eight (48) hours from commencement of such session and the costs of arbitration shall be allocated by the arbitrator. The parties shall submit their positions on each disputed item in writing to the arbitrator. In so submitting their positions, each party shall state only one substantive proposal as a resolution for each disputed item. The arbitrator shall not consider multiple or alternative positions from either party with respect to a disputed item and shall vote only in the affirmative or negative on each item. The arbitrator shall be required to approve the substantive position of either Lessee or Operator with respect to each disputed item, and shall not be authorized to agree upon any alternative substantive position that has not been presented to the arbitrator by Lessee or Operator. The decision of the arbitrator so appointed and acting hereunder with respect to each disputed item shall in all cases be binding and conclusive upon Lessee and Operator and a copy of the arbitrator's decision shall be provided to the parties. Judgment on the award rendered by the arbitrator in accordance with this Section 10.05 may be entered in any court having jurisdiction thereof. 23 Section 10.06. Other Fees. Commencing with the execution of the new Administrative Services Agreement of even date herewith among Humphrey Hospitality Limited Partnership, E&P Financing Limited Partnership, Humphrey Hospitality Trust, Inc. and Humphrey Hospitality Management, Inc., upon presentation of documentation reasonably acceptable to Lessee, (i) Lessee will reimburse Operator for Marketing Expenses and (ii) Lessee will reimburse Operator for up to $150,000 per Fiscal Year (prorated for any partial Fiscal Year) for payroll processing services in connection with management of the Hotels hereunder. ARTICLE XI REPAIRS AND MAINTENANCE Subject to the provisions of the Approved Budget, Operator shall from time to time make such expenditures for repairs and maintenance as are necessary to keep the Hotel in good operating condition in accordance with the Hotel Standards. If any repairs or maintenance shall be made necessary by any condition against the occurrence of which Operator, Lessee or Owner has received the guaranty or warranty of any contractor for the building of the Hotel or of any supplier of labor or materials for the construction of the Hotel, then Operator shall, on Lessee's or Owner's request, cooperate with Lessee and Owner in invoking such guarantees or warranties. Notwithstanding the Approved Budget, Owner or Lessee may from time to time at its expense make such alterations, additions, or improvements (including structural changes or repairs) in or to the Hotel as they deem desirable, in their sole discretion, for the efficient operation of the Hotels. The policy for accounting for capital expenditures and improvements shall be as set forth on Exhibit E. ARTICLE XII INSURANCE Section 12.01. General. Owner and Lessee shall maintain insurance policies with respect to the Hotels as set forth in the Lease. Operator agrees to cooperate with Lessee and Owner in obtaining any such insurance. Section 12.02. Workers' Compensation Insurance. The Hotel Operating Budget shall include, as an Operating Expense, (i) workers' compensation insurance with respect to all Hotel employees in such amounts as may be required by applicable law, and (ii) crime insurance in connection with all operations, business and affairs arising out of or in connection with the Hotel, including coverage on persons employed by Operator in an amount specified by Lessee; provided that the cost of such insurance shall be reasonable and shall be approved by Lessee. 24 Section 12.03. Approval of Companies and Cost by Owner and Lessee. All insurance shall be with such insurance company or companies as may be selected by Owner or Lessee. Lessee will obtain all insurance but, upon the request of Lessee not less than one hundred twenty (120) days prior to the coverage date, Operator will obtain such insurance, subject to Lessee's approval of the insurance companies and coverages. If Lessee or Owner elects to obtain insurance and the premium therefor exceed the premiums obtainable by Operator for the same coverage from insurers of equal or greater financial rating, the excess amount shall not be included in calculating NOI. Comprehensive general liability insurance and such other liability insurance as may be obtained or afforded shall be in the name of Owner and Lessee, and shall name Operator as an additional named insured as respects liability arising from the operation, maintenance and use of the Hotel and operations incidental thereto. All property insurance policies shall be endorsed specifically to the effect that the proceeds of any building, contents or business interruption insurance shall be made payable to Lessee. Section 12.04. Maintenance of Coverages. Lessee shall hold all insurance policies obtained hereunder, and certificates of such policies, if any, shall be delivered to each of Lessee and Operator. Section 12.05. Waiver of Subrogation. To the extent obtainable from carriers and to the extent that endorsement forms are approved by the Insurance Commissioner (or comparable office or department) of the state in which the Hotel is located, all policies of property insurance shall provide that the insurance companies will have no rights to subrogation against Lessee or Operator or the agents or employees thereof. Section 12.06. Blanket Coverage and Self-Insurance. Owner and Lessee specifically reserve the right to self-insure against all hazards, perils, risks and liabilities referred to in this Article XII and reserve the right to provide any insurance referenced in this Article XII by one or more so-called "blanket" or "umbrella" policies of insurance. Operator further acknowledges that the insurance coverage of the Hotel may be part of the general insurance plan of Owner or Lessee or of any of their affiliates. Owner or Lessee may elect to obtain any of the insurance coverages set forth in this Article XII with a "deductible loss" clause providing for per occurrence deductibles. ARTICLE XIII PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS Section 13.01. Property Taxes. At Lessee's request, Operator shall pay from the Hotel Operating Account prior to the dates the same become delinquent, with the right upon Lessee's request to pay the same in installments to the extent permitted by law, all real and personal property taxes levied against the Property or any of its component parts. 25 Section 13.02. Lessee's Right to Contest. Notwithstanding the foregoing, Lessee or Owner may contest the validity or the amount of any real or personal tax or assessment. Operator agrees to cooperate with Lessee and Owner and execute any documents or pleadings required for such purpose. ARTICLE XIV DAMAGE OR DESTRUCTION - CONDEMNATION Section 14.01. Damage. If at any time during the Operating Term any Hotel or any portion thereof should be damaged or destroyed, Owner and Lessee shall have the respective rights and obligations set forth in the Lease with respect to damage or destruction. In the event the Hotel is not repaired, rebuilt or replaced, Lessee may terminate this Agreement by written notice to Operator, effective as of the date sent and the parties shall treat such termination as if it were in connection with the sale of the Hotel in accordance with Section 2.01(b). Section 14.02. Condemnation. If at any time during the Operating Term the whole or any part of the Property shall be taken or condemned in any eminent domain, condemnation, compulsory acquisition or like proceeding or sale in lieu thereof by any competent authority, or if such a portion thereof shall be taken or condemned as to make it imprudent or unreasonable to use the remaining portion as a hotel of the type and class immediately preceding such taking or condemnation, then this Agreement shall terminate as of the date of such taking or condemnation, and the parties shall treat such termination as if it were in connection with the sale of Hotel in accordance with Section 2.01(b). Operator shall have no right to the award from the taking or condemning authority in any such proceeding. ARTICLE XV USE OF NAME During the term of this Agreement, each Hotel shall at all times be known by such name as from time to time may be selected by Lessee or Owner. ARTICLE XVI OWNER'S RIGHT TO SELL At any time during the Operating Term, Owner may sell or otherwise dispose of one or more Hotels or enter into a ground lease with respect to one or more of the Hotels (hereinafter collectively referred to as "Sale of a Hotel"), to any other person, partnership, firm or corporation (hereinafter referred to as the "Purchaser"). In such event, Lessee may notify Operator in writing no less than sixty (60) days prior to any such Sale of a Hotel and this Agreement shall terminate 26 with respect to such Hotels upon the closing of the Sale of the Hotel, subject to the provisions of Section 2.01(b). ARTICLE XVII DEFAULT AND REMEDIES Section 17.01. Events of Default- Remedies. (a) The following shall constitute Events of Default: (1) The failure of Operator to diligently and efficiently operate the Hotel in accordance with the provisions of this Agreement; (2) The failure of Operator to pay any amount to Lessee provided for herein for a period of five (5) days after written notice by Lessee of failure to pay such sum when payable; (3) The failure of Lessee to pay any amount to Operator provided for herein for a period of five (5) days after written notice by Operator of failure to pay such sum when payable; (4) The filing of a voluntary petition in suspension of payments, bankruptcy or insolvency by either Lessee or Operator or any entity which owns or controls such party or if any such party otherwise voluntarily avails itself of any federal or state laws for the relief of debtors or admits in writing its inability to pay its debts as they become due; (5) The consent to an involuntary petition in bankruptcy or the failure to vacate within sixty (60) days from the date of entry thereof any order approving an involuntary petition by or against either Lessee or Operator; (6) The entering of an order, judgment or decree by any court of competent jurisdiction, on the application of a creditor, adjudicating Lessee or Operator a bankrupt or insolvent or appointing a judicial receiver, trustee or liquidator of all or a substantial part of such party's assets, and such order, judgment or decree shall continue unstayed and in effect for a period of one hundred twenty (120) consecutive days; (7) The failure of either Lessee or Operator to perform, keep or fulfill any of the other covenants, undertakings, obligations or conditions set forth in this Agreement, and the continuance of any such default for a period of thirty (30) days after written notice of such failure; (8) Loss of the franchise license for a Hotel solely as a result of any action, or failure to act, on the part of Operator; (9) Failure of either Lessee or Operator to comply with the provisions of Article XIX; 27 (10) Failure of Operator to pay, when due, all real property and personal property taxes in accordance with the provisions of Section 12(d) of the Lease Termination Agreement dated December 31, 2001 among Operator, Supertel Hospitality Management, Inc., Humphrey Hospitality Trust, Inc., Humphrey Hospitality Limited Partnership, E & P Financing Limited Partnership, Solomons Beacon Inn Limited Partnership and Lessee; or (11) Failure by Operator to pay, when due, the accounts payable for the Hotels for which Lessee had previously reimbursed Operator. (b) Upon the occurrence of any Event of Default, the nondefaulting party shall give to the defaulting party notice of its intention to terminate this Agreement after the expiration of a period of ten (10) days from such date of notice and, upon the expiration of such period, this Agreement shall terminate and expire without penalty. If, however, with respect to the Events of Default referred to in items (1), (4), (5), (6), (7), (10) and (11) of subsection (a) above, unless a specific right of termination is specified elsewhere in this Agreement for the breach in question, upon receipt of such notice, the defaulting party shall promptly and with all due diligence cure the default or take and continue action to cure such default within such ten (10) day period. If such default shall not be capable of being cured within such ten (10) day period, then provided the defaulting party diligently pursues the cure of such default, such party shall have an additional five (5) days to cure any such default unless otherwise extended by the non-defaulting party. The procedure set forth in the preceding two sentences shall not be available for the curing of any default under items (2), (3), (8) or (9) of subsection (a) above. In the event such default is not cured by the expiration of such period, the non-defaulting period may terminate this Agreement effective upon expiration of such period without penalty or payment of any fee. Section 17.02. Rights Not Exclusive. (a) The rights granted under this Article XVII shall not be in substitution for, but shall be, except as otherwise provided in this Agreement, in addition to any and all rights and remedies for breach of contract granted by applicable provisions of law; provided, however, upon any termination of this Agreement by Operator or Lessee as provided in this Agreement, Operator shall be entitled to recover only such sums as are owing to Operator under this Agreement on the date of any such termination and in no event will Operator have any claim or cause of action for "future profits," damages resulting from termination or otherwise under this Agreement. (b) No failure of Operator or Lessee to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term or condition. No covenant, agreement, term or condition of this Agreement and no breach thereof shall be waived, altered or modified except by written instrument signed by both Lessee and Operator. No waiver of any breach shall affect or alter this Agreement but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. 28 ARTICLE XVIII NOTICES Section 18.01. Notices. (a) Any notice, statement or demand required to be given under this Agreement shall be in writing and shall be delivered by certified or registered mail, postage prepaid, return receipt requested, or by overnight delivery with proof of delivery, or by facsimile with receipt of transmission, addressed to the parties hereto at their respective addresses listed below: (1) Notices to Lessee shall be addressed: TRS Leasing, Inc. 7170 Riverwood Drive, Suite A Columbia, MD 21046 Attention: President Facsimile: (443) 259-4999 and TRS Subsidiary, LLC 7170 Riverwood Drive, Suite A Columbia, MD 21046 Attention: President Facsimile: (443) 259-4999 (2) Notices to Operator shall be addressed: Humphrey Hospitality Management, Inc. 7170 Riverwood Drive, Suite A Columbia, MD 21046 Attention: President Facsimile: (443) 259-4999 (b) All notices, statements, demands and requests shall be effective three (3) days after being deposited in the United States mail or one day after being sent by overnight delivery or by facsimile. However, the time period in which a response to any such notice, statement, demand or request must be given shall commence to run from date of receipt by the addressee thereof as shown on the return receipt of the notice, statement, demand or request, but in all events not later than the tenth (10th) day after it shall have been mailed as required herein. (c) By giving to the other party at least thirty (30) days written notice thereof, either party shall have the right from time to time and at any time during the Operating Term to change their respective addresses for notices, statements, demands and requests, provided such new address shall be within the United States of America. 29 ARTICLE XIX ASSIGNMENT Section 19.01. No Assignment by Operator. (a) Notwithstanding anything to the contrary set forth in this Agreement, without the prior written consent of Lessee (which consent may be withheld in Lessee's sole and absolute discretion), Operator shall have no right to sell, transfer or assign (or permit the sale, transfer or assignment of) any of its rights, duties or obligations under this Agreement in any manner, either directly or indirectly, voluntarily, by operation of law, through a change in control of Operator, or otherwise. (b) Operator shall give Lessee not less than thirty (30) days written notice of any event which would result in James I. Humphrey, Jr. owning less than 51% of the equity interests in Operator. If, within thirty (30) days following delivery of such notice, Lessee does not consent to the occurrence of such event (which consent may be withheld in Lessee's sole and absolute discretion), and such event occurs, Lessee may terminate this Agreement as to one or more Hotels without any liability to Operator. Section 19.02. Assignment by Lessee. Lessee may transfer or assign its rights and obligations under this Agreement without the consent of Operator but shall deliver to Operator written notice of such transfer or assignment not less than ten (10) days prior to the effective date thereof; provided however, that without Operator's prior consent, effective upon any such assignment to a non-affiliate of Lessee, the provisions of the second sentence of Section 2.01(b) and clause (ii) of the last sentence of Section 2.01 (b) shall terminate and be of no further force and effect. Any transfer or assignment of this Agreement by Lessee shall include an express assumption by the transferee or assignee of Lessee's obligations hereunder. Nothing herein shall be deemed to require Lessee to assign or attempt to assign this Agreement to any third party, including any buyer of a Hotel. ARTICLE XX SUBORDINATION Section 20.01. Subordination To Mortgage. Operator hereby agrees that this Agreement, including, but not limited to Operator's Basic Fee and Operator's Incentive Fee, shall in all respects be and is hereby expressly made subordinate and inferior to the liens, security interest and/or any Mortgage and to any promissory note and other indebtedness secured or to be secured thereby and to all other instruments evidencing or securing or to evidence or secure indebtedness, and all amendments, modifications, supplements, consolidations, extensions and revisions of such note and other instruments and any other indebtedness of Lessee or Owner, secured or unsecured. Operator shall execute any and all subordination agreements, estoppel certificates and other documents requested by Lessee or Owner and/or the Holder to further evidence the subordination of this 30 Agreement and Operator's rights hereunder including without limitation providing any purchaser of a Hotel at a foreclosure sale or deed-in-lieu of foreclosure (including the lender) with the right to terminate this Agreement. Section 20.02. Foreclosure. Prior to termination of this Agreement by foreclosure under the Mortgage or by acquisition of the property to be covered by the Mortgage by deed in lieu of foreclosure, Operator shall have the right to enjoy all rights and privileges conferred upon it pursuant to this Agreement, including, without limitation the rights to the Operator's Basic Fee, Operator's Incentive Fee and amounts payable pursuant to Section 2.01(b) hereof, and Operator shall incur no liability to the Holder for acting pursuant to the terms of this Agreement; provided, however, Operator shall be required to (and does hereby agree to) repay to the Holder any Operator's Basic Fee, Operator's Incentive Fee and amounts payable pursuant to Section 2.01(b) paid to Operator under this Agreement from and after the date which is thirty (30) days after the date of receipt by Operator of a notice of default under the Mortgage, which default is not cured and results in the acceleration of the indebtedness secured by the Mortgage and the ultimate foreclosure of the liens and/or security interest under the Mortgage and/or other acquisition of the property covered thereby by the Holder in lieu of foreclosure. Notwithstanding the foregoing, Operator may pursue, as an unsecured creditor, a claim for all amounts due and owing to Operator under this Management Agreement in accordance with the terms of this Section 20.02. ARTICLE XXI MISCELLANEOUS Section 21.01. Further Documentation. Lessee and Operator shall execute and deliver all appropriate supplemental agreements and other instruments, and take any other action necessary to make this Agreement fully and legally effective, binding, and enforceable in accordance with the terms hereof as between them and as against third parties. Section 21.02. Captions. The titles to the several articles of this Agreement are inserted for convenience only and are not intended to affect the meaning of any of the provisions hereof. Section 21.03. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lessee, its successors and/or assigns, and subject to the provisions of Article XIX, shall be binding upon and inure to the benefit of Operator, its permitted successors and assigns. 31 Section 21.04. Competitive Market Area. Operator hereby agrees, for the benefit of Lessee, its successors and assigns, that Operator will not own, operate, lease or otherwise have an interest in, directly or indirectly, any hotel within a five (5) mile radius of any Hotel during the Operating Term unless expressly consented to in writing by Lessee in advance, which consent may be withheld in Lessee's sole and absolute discretion. Section 21.05. Assumption of Post Termination Obligations. In the event of termination of this Agreement, Lessee shall be responsible for assuming obligations under contracts entered into by Operator only to the extent that any such contract shall have been entered into in accordance with Section 4.05(a) and Lessee shall be responsible for the payment of obligations incurred by Operator in the operation of the Hotel only to the extent that such obligations shall have been incurred in accordance with the terms of this Agreement, and Operator hereby agrees to indemnify and to hold Lessee harmless from and against any liability in connection with any such contracts, agreements or obligations not so approved in writing by Lessee. Section 21.06. Entire Agreement. This Agreement, together with the Exhibits hereto, constitutes the entire Agreement between the parties relating to the subject matter hereof, superseding all prior agreements or undertakings, oral or written. This Agreement and the Exhibits hereto shall be construed and interpreted without reference to any canon or rule of law requiring interpretation against the party drafting or causing the drafting of this Agreement or the portions in question, it being agreed and understood that all parties have participated in the preparation of this Agreement. Section 21.07. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Virginia. Section 21.08. No Political Contributions. Any provision hereof to the contrary notwithstanding, no money or property of the Hotel shall be paid or used or offered, nor shall Lessee or Operator directly or indirectly pay or use or offer, consent or agree to pay or use or offer any money or property of the Hotel, for or in aid of any political party, committee or organization, or for or in aid of, any corporation, joint stock or other association organized or maintained for political purposes, or for, or in aid or, any candidate for political office or for nomination for such office, or in connection with any election including referendum for constitutional amendment, or for any political purpose whatever, or for lobbying in connection with legislation or regulation thereunder, or for the reimbursement for indemnification of any person for money or property so used. 32 Section 21.09. Eligible Independent Contractor. (a) At the effective time of this Agreement, Operator shall qualify as an "eligible independent contractor" as defined in Section 856(d)(9) of the Internal Revenue Code of 1986, as amended (the "Code"). To that end: (i) during the Operating Term, Operator shall not permit wagering activities to be conducted at or in connection with the Hotels; (ii) during the Operating Term, Operator shall not own, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), more than 35% of the shares of Humphrey Hospitality Trust, Inc.; (iii) during the Operating Term, no more than 35% of the total combined voting power of Operator's outstanding stock (or 35% of the total shares of all classes of its outstanding stock) shall be owned, directly or indirectly, by one or more persons owning 35% or more of the outstanding stock of Humphrey Hospitality Trust, Inc.; and (iv) At the effective time, Operator shall be actively engaged in the trade or business of operating "qualified lodging facilities" (defined below) for a person who is not a "related person" within the meaning of Section 856(d)(9)(F) of the Code with respect to Humphrey Hospitality Trust, Inc. or Lessee ("Unrelated Persons"). In order to meet this requirement, Operator agrees that it (i) shall derive at least 10% of both its revenue and profit from operating "qualified lodging facilities" for Unrelated Persons and (ii) shall comply with any regulations or other administrative guidance under Section 856(d)(9) of the Code with respect to the amount of hotel management business with Unrelated Persons that is necessary to qualify as an "eligible independent contractor" with the meaning of such Code Section. (b) A "qualified lodging facility" is defined in Section 856(d)(9)(D) of the Code and means a "lodging facility" (defined below), unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. A "lodging facility" is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, and includes customary amenities and facilities operated as part of, or associated with, the lodging facility so long as such amenities and facilities are customary for other properties of a comparable size and class owned by other owners unrelated to Humphrey Hospitality Trust, Inc. (c) Operator shall not sublet any Hotel or enter into any similar arrangement on any basis such that the rental or other amounts to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the net income or profits derived by the business 33 activities of the sublessee, or (b) any other formula such that any portion of the rent would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Internal Revenue Code, or any similar or successor provision thereto. Section 21.10. Time of the Essence. Time is of the essence of this Agreement. Section 21.11. Offsets. The parties hereto may offset amounts owed to the other parties hereunder against any amounts owed pursuant to any other agreements among the parties. Section 21.12. Attorney's Fees. If any party brings an action against another party to enforce any provision of this Agreement, the prevailing party in such action shall be entitled to recover its court costs, attorney's fees and expenses in the judgment rendered through such action. Section 21.13. Final Accounting. (a) Within sixty (60) days following the effective date of expiration or termination of this Agreement, Operator shall prepare and submit to Lessee a final accounting of Hotel operations through the effective date of such expiration or termination, which accounting shall be in the form of the financial statements required hereunder. (b) Upon the effective date of expiration or termination of this Agreement, Operator shall deliver possession of the Hotel, and any cash, property and other assets pertaining thereto, together with any and all keys or other access devices, to Lessee. (c) Upon the expiration or termination of this Agreement, Operator shall reasonably cooperate with and assist Lessee as may be necessary for the transfer of any and all Hotel licenses and permits to Lessee or Lessee's designee. Section 21.14. Non-Solicitation. Lessee shall not, during the Operating Term, or for a period of six (6) months thereafter, without the consent of Operator, solicit for employment any corporate level employee of Operator. The foregoing prohibition shall not apply to any employee at the Hotels and shall not prohibit Lessee from hiring any employee of Operator who solicits employment by Lessee or Lessee's affiliates. Section 21.15. Franchisor Communications. During the Operating Term, each party shall promptly deliver to the other party copies of any deficiency notices or similar notices received from a Franchisor and any response thereto. 34 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. LESSEE: TRS LEASING, INC. By: /s/ Michael M. Schurer ------------------------------------ Name: Michael M. Schurer Title: Secretary TRS SUBSIDIARY, LLC By: /s/ Michael M. Schurer ------------------------------------ Name: Michael M. Schurer Title: Secretary OPERATOR: HUMPHREY HOSPITALITY MANAGEMENT, INC. By: /s/ James Humphrey ------------------------------------ Name: James Humphrey Title: President 35 -----END PRIVACY-ENHANCED MESSAGE-----