PROMISSORY NOTE

Exhibit 10.2

 

PROMISSORY NOTE

	Dated as of January 5, 2007
$15,600,000.00	Scottsdale, Arizona

 

SUPERTEL LIMITED PARTNERSHIP , a Virginia limited partnership (“Borrower”), for value received, hereby promises to pay to GENERAL ELECTRIC CAPITAL CORPORATION , a Delaware corporation (“Lender”), whose address is 8377 East Hartford Drive, Suite 200, Scottsdale, Arizona 85255, or order, on or before February 1, 2017 (the “Maturity Date”), the principal sum of $15,600,000.00 (“Loan Amount”), as herein provided. Initially capitalized terms which are not otherwise defined in this Note shall have the meanings set forth in that certain Loan Agreement dated as of the date of this Note between Borrower and Lender, as such agreement may be amended, restated and/or supplemented from time to time (the “Loan Agreement”).

In addition, the following terms shall have the following meanings for all purposes of this Note.

“ Adjustable Rate ” means an annual interest rate equal to the sum of the Adjustable Rate Basis plus 1.70%.

“ Adjustable Rate Basis ” means, for any Interest Period, the annual interest rate (rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to the three month London Interbank Offered Rate (“LIBOR”) on the Adjustable Rate Reset Date as published in The Wall Street Journal. If for any reason such rate is no longer published in The Wall Street Journal, Lender shall select such replacement index as Lender in its sole discretion determines most closely approximates such rate.

“ Adjustable Rate Reset Date ” means the last Business Day of each calendar month, prior to the next Interest Period.

“ Amortization Period ” means two hundred forty months.

“ First Payment Date ” means March 1, 2007.

“ Interest Period ” means (a) initially, the period beginning on the date of this Note and ending on the last day of the calendar month in which such date occurs, and (b) thereafter, the period beginning on the first day of the calendar month and ending on the last day of such calendar month.

“ Payment Period ” means (a) initially, the twelve-month period beginning on the First Payment Date and ending on the day immediately prior to the first Payment Reset Date, and (b) thereafter, the twelve-month period beginning on each Payment Reset Date and ending on the day immediately prior to the next Payment Reset Date.

“ Payment Reset Calculation ” means the level monthly payment calculated by the full amortization of the outstanding principal amount of this Note on the Payment Reset Date at the Adjustable Rate (with the definition of “Adjustable Rate Reset Date” defined to mean the last Business Day of the calendar month two months prior to the next Payment Reset Date) over the remaining originally scheduled term of this Note.

 

“ Payment Reset Date ” means each anniversary of the First Payment Date.

Borrower shall pay interest on the outstanding principal amount of this Note at the Adjustable Rate, determined monthly as described above, on the basis of a 360-day year for the actual number of days elapsed, in arrears, provided, that, interest on the principal amount of this Note for the period commencing with the date such principal amount is advanced by Lender through the last day in the month in which this Note is dated shall be due and payable upon delivery of this Note.

Commencing on the First Payment Date until and including February 1, 2009, Borrower shall pay consecutive monthly installments on the first day of each calendar month of interest only at the Adjustable Rate in lawful money of the United States. Commencing on March 1, 2009 until and including February 1, 2010, Borrower shall pay consecutive monthly installments of interest on the Loan Amount at the Adjustable Rate and principal payments equal to one-twelfth of one percent (1%) of the Loan Amount. Commencing on March 1, 2010 until the Maturity Date, Borrower shall pay consecutive monthly installments of principal and interest at the Adjustable Rate in arrears on the first day of each calendar month amortized over the Amortization Period. The monthly installments shall be level during a Payment Period. The monthly payments for the Payment Period shall be in equal amounts until the Payment Reset Date, at which time, and on each succeeding Payment Reset Date thereafter, the level monthly payment to be paid by Borrower shall be adjusted for the next succeeding Payment Period based on the Payment Reset Calculation. All outstanding principal and unpaid accrued interest shall be paid on the Maturity Date.

Upon execution of this Note, Borrower shall authorize Lender to establish arrangements whereby all payments of principal and interest hereunder are transferred by Automated Clearing House Debit initiated by Lender directly from an account at a U.S. bank in the name of Borrower to an account designated by Lender. Each payment of principal and interest hereunder shall be applied first toward any past due payments under this Note (including payment of all Costs (as herein defined), then to accrued interest at the Adjustable Rate, and the balance, after the payment of such accrued interest, if any, shall be applied to the unpaid principal balance of this Note; provided, however, each payment hereunder after an Event of Default has occurred under this Note shall be applied as Lender in its sole discretion may determine. After application of any monthly payment in the above manner, in the event that the outstanding principal amount of this Note exceeds 110% of the original principal balance of this Note, Borrower shall prepay, without premium or penalty, on the first day of the next succeeding calendar month after each such occurrence, a principal amount equal to the difference between the outstanding principal balance of this Note and the original principal balance of this Note (the “Negative Amortization Amount”). Lender shall notify Borrower in writing on or before the twenty-fifth day of each calendar month during the term of this Note of Lender’s determination of the Negative Amortization Amount, if any, payable on the first day of the next succeeding calendar month. Lender shall also notify Borrower in writing on or before the twenty-fifth day of the calendar month prior to the next Payment Reset Date during the term of this Note of Lender’s determination of the level monthly payment to be paid by Borrower based on the Payment Reset Calculation for the next Payment Period.

Provided no Event of Default shall have occurred and be continuing, Borrower shall have an option (the “Conversion Option”), exercisable only once between the seventh (7th) and thirty-sixth (36th) month following the Closing Date, to convert the interest rate accruing under this Note (the “Conversion”) from the Adjustable Rate to a fixed rate of interest (the “Base Interest Rate”). Borrower shall exercise the Conversion Option by providing Lender written notice of Borrower’s election (the “Conversion Notice”). The Conversion shall be deemed effective on the

 

first day of the second calendar month following delivery of the Conversion Notice to Lender (the “Conversion Date”), and this Note shall be deemed modified as of the Conversion Date to reflect the Conversion. Lender shall notify Borrower ten (10) days following delivery of Conversion Notice of the Base Interest Rate, which Base Interest Rate shall be equal to the seven (7) year weekly U.S. Dollar Interest Rate Swap (as published in Federal Reserve Statistical Release H.15[519] http://www.federalreserve.gov/releases/H15/) plus 1.98%. From and after the Conversion Date, fixed equal monthly payments, based on the amortization of the outstanding principal amount of this Note as of the Conversion Date (including any accrued interest at the Adjustable Rate) over the period from and after the Conversion Date until the Maturity Date at the Base Interest Rate shall be due and payable commencing on the first day of the calendar month following the month in which the Conversion Date occurs and continuing on the first day of each month thereafter until the Maturity Date, at which time the outstanding principal balance of this Note and unpaid interest accrued at the Base Interest Rate shall be due and payable. Lender shall provide Borrower with an amortization schedule setting forth the principal and interest payments due under this Note from and after the Conversion Date, and such amortization schedule shall be prima facie evidence of such principal and interest payments.

Borrower may prepay this Note in full, but not in part (except as otherwise set forth below), including all accrued but unpaid interest hereunder and all sums advanced by Lender pursuant to the Loan Documents and any Other Agreements, provided that (a) no Event of Default has occurred under any of the Loan Documents or any Other Agreements and is continuing, and (b) any such prepayment shall only be made on a regularly scheduled payment date upon not less than 30 days prior written notice from Borrower to Lender.

Except as otherwise set forth herein, while the Note is at the Adjustable Rate, any such prepayment shall be made together with payment of a prepayment premium equal to:

(a)          2% of the principal amount prepaid if the prepayment is made on or following the date of this Note but prior to the first anniversary of the date of this Note; or

(b)          1% of the principal amount prepaid if the prepayment is made on or following the first anniversary of the date of this Note but prior to the second anniversary of the date of this Note.

Except as otherwise set forth herein, from and after the Conversion Date, any such prepayment shall be made together with payment of an amount equal to the sum of:

(a)

a prepayment fee equal to 1% of the principal amount prepaid; and

(b)          a prepayment premium equal to the positive difference (if any) between (i) the present value of the stream of monthly principal and interest payments due under this Note from the date of such prepayment through the scheduled Maturity Date (the “Remaining Scheduled Term”), calculated using the interpolated yield, at the time of such prepayment, of the two U.S. Dollar Interest Rate Swaps (as published in Federal Reserve Statistical Release H.15[519]) whose terms most closely match the Remaining Scheduled Term, and (ii) the present value of the stream of monthly principal and interest payments due under this Note from the date of such prepayment through the scheduled Maturity Date, calculated using the interpolated yield, as of the Conversion Date, of the two U.S. Dollar Interest Rate Swaps whose terms most closely match the term commencing on the Conversion Date and ending on the scheduled Maturity Date.

 

The foregoing prepayment fee and prepayment premium, as applicable, shall be due and payable regardless of whether such prepayment is the result of a voluntary prepayment by Borrower or as a result of Lender declaring the unpaid principal balance of this Note, accrued interest and all other sums due under this Note, the Mortgage, the other Loan Documents, and any Other Agreements, due and payable as contemplated below; provided, however, the prohibition on a partial prepayment and the prepayment fee and the prepayment premium, as applicable, shall not be applicable with respect to a prepayment of this Note in connection with an application of condemnation proceeds as contemplated by the Mortgage or if exception is otherwise made in the Loan Documents.

This Note is secured by the Mortgage and the other Loan Documents. Upon the occurrence of an Event of Default, Lender may declare the entire unpaid principal balance of this Note, accrued interest, if any, and all other sums due under this Note and any Loan Documents or Other Agreements due and payable at once without notice to Borrower. All past-due principal and/or interest shall bear interest from the due date to the date of actual payment at a rate (the “Default Rate”) equal to the lesser of (a) the highest rate for which the undersigned may legally contract or (b) the greater of 14% and the rate which is 6% per annum above the Adjustable Rate (or 14% per annum in the event the Conversion Option has been exercised), and such Default Rate shall continue to apply following a judgment in favor of Lender under this Note. If Borrower fails to make any payment or installment due under this Note within five days of its due date, Borrower shall pay to Lender, in addition to any other sum due Lender under this Note or any other Loan Document, a late charge equal to 5% of such past-due payment or installment (the “Late Charge”), which Late Charge is a reasonable estimate of the loss that may be sustained by Lender due to the failure of Borrower to make timely payments. All payments of principal and interest due hereunder shall be made (a) without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Borrower, and (b) without any other right of abatement, reduction, setoff, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. Borrower will pay the amounts necessary such that the gross amount of the principal and interest received by Lender is not less than that required by this Note.

No delay or omission on the part of Lender in exercising any remedy, right or option under this Note shall operate as a waiver of such remedy, right or option. In any event, a waiver on any one occasion shall not be construed as a waiver or bar to any such remedy, right or option on a future occasion. Borrower hereby waives presentment, demand for payment, notice of dishonor, notice of protest, and protest, notice of intent to accelerate, notice of acceleration and all other notices or demands in connection with delivery, acceptance, performance, default or endorsement of this Note. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Note shall be given in accordance with the notice provisions in the Loan Agreement. Should any indebtedness represented by this Note be collected at law or in equity, or in bankruptcy or other proceedings, or should this Note be placed in the hands of attorneys for collection after default, Borrower shall pay, in addition to the principal and interest due and payable hereon, all costs of collecting or attempting to collect this Note (the “Costs”), including reasonable outside attorneys’ fees and expenses of Lender (including those fees and expenses incurred in connection with any appeal) and court costs whether or not a judicial action is commenced by Lender. This Note may not be amended or modified except by a written agreement duly executed by the party against whom enforcement of this Note is sought. In the event that any one or more of the provisions contained in this Note shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, and this Note shall be construed as if such provision had never been contained herein or therein. Time is of the essence in the performance of each and every obligation under this Note.

 

Notwithstanding anything to the contrary contained in any of the Loan Documents, the obligations of Borrower to Lender under this Note and any other Loan Documents are subject to the limitation that payments of interest and late charges to Lender shall not be required to the extent that receipt of any such payment by Lender would be contrary to provisions of applicable law limiting the maximum rate of interest that may be charged or collected by Lender. The portion of any such payment received by Lender that is in excess of the maximum interest permitted by such provisions of law shall be credited to the principal balance of this Note or if such excess portion exceeds the outstanding principal balance of this Note, then such excess portion shall be refunded to Borrower. All interest paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and/or spread throughout the full term of this Note (including, without limitation, the period of any renewal or extension thereof) so that interest for such full term shall not exceed the maximum amount permitted by applicable law.

This obligation shall bind Borrower and its successors and assigns, and the benefits hereof shall inure to Lender and its successors and assigns.

IN WITNESS WHEREOF, Borrower has executed and delivered this Note effective as of the date first set forth above.

	BORROWER:
	SUPERTEL LIMITED PARTNERSHIP,
	a Virginia limited partnership
	By SUPERTEL HOSPITALITY REIT TRUST,
	a Maryland real estate investment trust,
	Its General Partner
	By /s/ Donavon A. Heimes
	Donavon A. Heimes, Vice President/Treasurer

 

 

LOAN AGREEMENT

THIS LOAN AGREEMENT (this “Agreement”) is made as of January 5, 2007 (the “Closing Date”), by and between GENERAL ELECTRIC CAPITAL CORPORATION , a Delaware corporation (“Lender”), and SUPERTEL LIMITED PARTNERSHIP , a Virginia limited partnership (“Borrower”).

AGREEMENT:

In consideration of the mutual covenants and provisions of this Agreement, the parties agree as follows:

1.            Definitions. The following terms shall have the following meanings for all purposes of this Agreement:

“ ADA ” means the Americans with Disabilities Act of 1990, as such act may be amended from time to time.

“ Affiliate ” means any Person that directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, “controls”, “under common control with” and “controlled by” mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or otherwise.

“ Anti-Money Laundering Laws ” means all applicable laws, regulations and government guidance on the prevention and detection of money laundering, including 18 U.S.C. § § 1956 and 1957, and the BSA.

“ Applicable Regulations ” means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of each Governmental Authority having jurisdiction over the Premises, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements, and all applicable standards of the National Board of Fire Underwriters and the ADA in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment applicable to any of the Borrower Parties or any of the Lessee Parties.

“ Borrower Parties ” means, collectively, Borrower and any guarantors of the Loan (including, in each case, any predecessors-in-interest).

“ BSA ” means the Bank Secrecy Act (31 U.S.C. § § 5311 et. seq.), and its implementing regulations, Title 31 Part 103 of the U.S. Code of Federal Regulations.

“ Business Day ” means any day on which Lender is open for business other than a Saturday, Sunday or a legal holiday, ending at 5:00 P.M. Phoenix, Arizona time.

“ Change of Control ” means the occurrence of any of the following: (a) any merger or consolidation by Supertel Hospitality, Inc. with or into any other entity (other than any Affiliates of Supertel Hospitality, Inc.) where Supertel Hospitality, Inc. is not the surviving party; (b) any merger or consolidation by the Borrower with or into any other entity (other than any Affiliates of the Borrower) where, following consummation of such merger or consolidation, Supertel Hospitality, Inc. ceases to be the “beneficial owner” (as defined in Rule 13d-3 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) of 50% or more of the

 

combined voting power of the outstanding securities of the surviving party to such merger or consolidation; or (c) if any “person” (as defined in Section 3(a)(9) of the Exchange Act and as used in Section 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) of the Exchange Act, but excluding the Borrower Parties and their Affiliates) becomes, subsequent to the Closing, the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act) of securities of any of the Borrower Parties, as applicable, representing 50% or more of the combined voting power of such Borrower Party’s then outstanding securities (other than indirectly as a result of the redemption by any of the Borrower Parties, as applicable, of its securities).

“ Closing ” means the disbursement of the Loan Amount by Title Company as contemplated by this Agreement.

“ Code ” means Title 11 of the United States Code, 11 U.S.C. Sec. 101 et seq., as amended.

“ Default Rate ” has the meaning set forth in the Note.

“ Entity ” means any entity that is not a natural person.

“ Environmental Indemnity Agreement ” means the environmental indemnity agreement dated as of the date of this Agreement executed by Borrower for the benefit of the Indemnified Parties and such other parties as are identified in such agreement with respect to the Premises, as the same may be amended from time to time.

“ Event of Default ” has the meaning set forth in Section 9.

“ Fee ” means an underwriting, site assessment, valuation, processing and commitment fee equal to 0% of the Loan Amount.

“ Fixed Charge Coverage Ratio ” has the meaning set forth in Section 6.J.

“ Franchise Agreement ” means the franchise, license or area development agreements with Franchisor for the conduct of business at the Premises as a Permitted Concept, together with all amendments, modifications and supplements thereto.

“ Franchisor ” means Super 8 Motels, Inc., Choice Hotels International, Inc., or any other franchisor reasonably acceptable to Lender, and its successors.

“ GAAP ” means generally accepted accounting principles consistently applied.

“ Governmental Authority ” means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi-governmental authority having jurisdiction or supervisory or regulatory authority over the Premises or any of the Borrower Parties.

“ Indemnified Parties ” means Lender, the trustees under the Mortgage, if applicable, and any person or entity who is or will have been involved in the origination of the Loan, any person or entity who is or will have been involved in the servicing of the Loan, any person or entity in whose name the encumbrance created by the Mortgage is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan (including, but not limited to, investors or prospective investors in any Securitization, Participation or Transfer, as well as custodians, trustees and other fiduciaries who hold or have

 

held a full or partial interest in the Loan for the benefits of third parties), as well as the respective directors, officers, shareholders, partners, members, employees, lenders, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including, but not limited to, any other person or entity who holds or acquires or will have held a participation or other full or partial interest in the Loan or the Premises, whether during the term of the Loan or as a part of or following a foreclosure of the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Lender’s assets and business).

“ Indemnity Agreements ” means all indemnity agreements executed for the benefit of any of the Borrower Parties, Lessee Parties or any prior owner, lessee or occupant of the Premises in connection with Hazardous Materials, including, without limitation, the right to receive payments under such indemnity agreements.

“ Lease ” means the lease between Borrower, as lessor, and Lessee, as lessee, with respect to the Premises together with all amendments, modifications and supplements thereto.

“ Lender Entities ” means, collectively, Lender (including any predecessor-in-interest to Lender) and any Affiliate of Lender (including any Affiliate of any predecessor-in-interest to Lender).

“ Lessee ” means TRS Leasing, Inc., a Virginia corporation, and its successors.

“ Lessee Parties ” means, collectively, Lessee and any guarantors of the Lease (including, in each case, any predecessors in interest).

“ Loan ” means the loan for the Premises described in Section 2.

“ Loan Amount ” means $15,600,000.00.

“ Loan Documents ” means, collectively, this Agreement, the Note, the Mortgage, the Environmental Indemnity Agreement, the Subordination Agreement, the UCC-1 Financing Statements, the Authorization Regarding Information form previously delivered on behalf of the Borrower Parties to Lender and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, as the same may be amended from time to time.

“ Loan Pool ” means: (a) in the context of a Securitization, any pool or group of loans that are a part of such Securitization; (b) in the context of a Transfer, all loans which are sold, transferred or assigned to the same transferee; and (c) in the context of a Participation, all loans as to which participating interests are granted to the same participant.

“ Management Agreement ” means a management agreement relating to the Premises and reasonably acceptable to Lender between Lessee and Manager.

“ Manager ” means Royal Host Management, Inc. or any other manager reasonably acceptable to Lender.

“ Material Adverse Effect ” means a material adverse effect on (a) the Premises, including, without limitation, the operation of the Premises as a Permitted Concept, or (b) Borrower’s ability to perform its obligations under the Loan Documents.

 

“ Mortgage ” means the Mortgages, Deeds of Trust and Deed to Secure Debt dated as of the date of this Agreement executed by Borrower for the benefit of Lender with respect to the Premises, as the same may be amended from time to time.

“ Note ” means the promissory note dated as of the date of this Agreement executed by Borrower in favor of Lender evidencing the Loan, as the same may be amended, restated or substituted from time to time.

“ Obligations ” has the meaning set forth in the Mortgage.

“ OFAC Laws and Regulations ” means Executive Order 13224 issued by the President of the United States of America, the Terrorism Sanctions Regulations (Title 31 Part 595 of the U.S. Code of Federal Regulations), the Terrorism List Governments Sanctions Regulations (Title 31 Part 596 of the U.S. Code of Federal Regulations), the Foreign Terrorist Organizations Sanctions Regulations (Title 31 Part 597 of the U.S. Code of Federal Regulations), and the Cuban Assets Control Regulations (Title 31 Part 515 of the U.S. Code of Federal Regulations), and all other present and future federal, state and local laws, ordinances, regulations, policies, lists (including, without limitation, the Specially Designated Nationals and Blocked Persons List) and any other requirements of any Governmental Authority (including, without limitation, the United States Department of the Treasury Office of Foreign Assets Control) addressing, relating to, or attempting to eliminate, terrorist acts and acts of war, each as hereafter supplemented, amended or modified from time to time, and the present and future rules, regulations and guidance documents promulgated under any of the foregoing, or under similar laws, ordinances, regulations, policies or requirements of other states or localities.

“ Other Agreements ” means, collectively, all agreements and instruments between or among (a) any of the Borrower Parties or any Affiliate of any of the Borrower Parties (including any Affiliate of any predecessor-in-interest to any of the Borrower Parties)and, (b) any of the Lender Entities, including, without limitation, promissory notes and guaranties; provided, however, the term “Other Agreements” shall not include the agreements and instruments defined as the Loan Documents.

“ Participation ” means one or more grants by Lender or any of the other Lender Entities to a third party of a participating interest in notes evidencing obligations to repay secured or unsecured loans owned by Lender or any of the other Lender Entities or any or all servicing rights with respect thereto.

“ Permitted Concept ” means a hotel using the Super 8 or Comfort Inn trade names or any other trade name reasonably acceptable to Lender and related operations.

“ Permitted Exceptions ” means (a) the lien for current real property taxes and assessments, not yet due and payable; (b) liens and security interests in favor of Lender; (c) those easements, restrictions, liens and encumbrances set forth as exceptions in the title insurance policy issued by Title Company to Lender and approved by Lender in its sole discretion; (d) the Lease; (e) purchase money security interests not to exceed $100,000 in the aggregate on all the Premises, and (f) any other matters which have been approved in writing by Lender.

“ Person ” means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity.

“ Personal Property ” has the meaning set forth in the Mortgage.

 

“ Premises ” means the parcel or parcels of real estate legally described on Exhibit A attached hereto, together with all rights, privileges and appurtenances associated therewith and all buildings, fixtures and other improvements now or hereafter located thereon (whether or not affixed to such real estate) and the Personal Property.

“ Restoration ” has the meaning set forth in the Mortgage.

“ Securitization ” means one or more sales, dispositions, transfers or assignments by Lender or any of the other Lender Entities to a special purpose corporation, trust or other entity identified by Lender or any of the other Lender Entities of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any of the other Lender Entities (and, to the extent applicable, the subsequent sale, transfer or assignment of such notes to another special purpose corporation, trust or other entity identified by Lender or any of the other Lender Entities), and the issuance of bonds, certificates, notes or other instruments evidencing interests in pools of such loans, whether in connection with a permanent asset securitization or a sale of loans in anticipation of a permanent asset securitization. Each Securitization shall be undertaken in accordance with all requirements which may be imposed by the investors or the rating agencies involved in each such sale, disposition, transfer or assignment or which may be imposed by applicable securities, tax or other laws or regulations.

“ Subordination Agreement ” means the subordination and attornment agreement dated as of the date of this Agreement executed by Borrower, Lessee and Lender with respect to the Lease as the same may be amended from time to time.

“ Substitute Documents ” has the meaning set forth in Section 11.

“ Substitute Premises ” means one or more parcels of real estate substituted for the Premises in accordance with the requirements of Section 11, together with all rights, privileges and appurtenances associated therewith and all buildings, fixtures and other improvements, equipment, trade fixtures, appliances and other personal property located thereon (whether or not affixed to such real estate). For purposes of clarity, where two or more parcels of real estate comprise a Substitute Premises, such parcels or interests shall be aggregated and deemed to constitute the Substitute Premises for all purposes of this Agreement.

“ Title Company ” means Lawyers Title Insurance Corporation.

“ Transfer ” means one or more sales, transfers or assignments by Lender or any of the other Lender Entities to a third party of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any of the other Lender Entities or any or all servicing rights with respect thereto.

“ UCC-1 Financing Statements ” means such UCC-1 Financing Statements as Lender shall file with respect to the transactions contemplated by this Agreement.

“ UCC ” has the meaning set forth in the Mortgage.

“ U.S. Publicly-Traded Entity ” is an Entity whose securities are listed on a national securities exchange or quoted on an automated quotation system in the U.S. or a wholly-owned subsidiary of such an Entity.

2.            Transaction . On the terms and subject to the conditions set forth in the Loan Documents, Lender shall make the Loan. The Loan will be evidenced by the Note and secured

 

by the Mortgage. Borrower shall repay the outstanding principal amount of the Loan together with interest thereon in the manner and in accordance with the terms and conditions of the Note and the other Loan Documents. The Premises shall be leased to the Lessee pursuant to the Lease and, at Closing, Borrower shall assign the Lease to Lender pursuant to the Mortgage. The Loan shall be advanced at the Closing in cash or otherwise immediately available funds subject to any prorations and adjustments required by this Agreement.

3.            Escrow Agent; Closing Costs . Borrower and Lender hereby employ Title Company to act as escrow agent in connection with the transactions described in this Agreement. Borrower and Lender will deliver to Title Company all documents, pay to Title Company all sums and do or cause to be done all other things necessary or required by this Agreement, in the reasonable judgment of Title Company, to enable Title Company to comply herewith and to enable any title insurance policy provided for herein to be issued. Title Company shall not cause the transaction to close unless and until it has received written instructions from Lender and Borrower to do so. Title Company is authorized to pay, from any funds held by it for Lender’s or Borrower’s respective credit all amounts necessary to procure the delivery of such documents and to pay, on behalf of Lender and Borrower, all charges and obligations payable by them, respectively. Borrower will pay all charges payable by it to Title Company. Title Company is authorized, in the event any conflicting demand is made upon it concerning these instructions or the escrow, at its election, to hold any documents or funds deposited hereunder until an action shall be brought in a court of competent jurisdiction to determine the rights of Borrower and Lender or to interplead such documents or funds in an action brought in any such court. Deposit by Title Company of such documents and funds shall relieve Title Company of all further liability and responsibility for such documents and funds. Title Company’s receipt of this Agreement and opening of an escrow pursuant to this Agreement shall be deemed to constitute conclusive evidence of Title Company’s agreement to be bound by the terms and conditions of this Agreement pertaining to Title Company. Disbursement of any funds shall be made by check, certified check or wire transfer, as directed by Borrower and Lender. Title Company shall be under no obligation to disburse any funds represented by check or draft, and no check or draft shall be payment to Title Company in compliance with any of the requirements hereof, until it is advised by the bank in which such check or draft is deposited that such check or draft has been honored. The employment of Title Company as escrow agent shall not affect any rights of subrogation under the terms of any title insurance policy issued pursuant to the provisions thereof.

4.            Closing Conditions . The obligation of Lender to consummate the transaction contemplated by this Agreement is subject to the fulfillment or waiver of each of the following conditions:

A.            Title Insurance Commitments . Lender shall have received for the Premises a preliminary title report and irrevocable commitment to insure title in the amount of the Loan, by means of a mortgagee’s, ALTA extended coverage policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the Premises is located) issued by Title Company showing Borrower vested with good and marketable fee title in the real property comprising such Premises, committing to insure Lender’s first priority lien upon and security interest in such real property subject only to Permitted Exceptions, and containing such endorsements as Lender may require.

B.            Survey . Lender shall have received a current ALTA survey of the Premises or its equivalent, the form and substance of which shall be satisfactory to Lender in its reasonable discretion. Lender shall have obtained a flood certificate indicating that the location of the Premises is not within the 100-year flood plain or identified as a special flood hazard area as

 

defined by the Federal Emergency Management Agency, or if the Premises is in such a flood plain or special flood hazard area, Borrower shall have provided Lender with evidence of flood insurance maintained on the Premises in an amount and on terms and conditions reasonably satisfactory to Lender.

C.            Environmental . Lender shall have completed such environmental due diligence of the Premises as it deems necessary or advisable in its sole discretion, and Lender shall have approved the environmental condition of the Premises in its sole discretion.

D.            Compliance With Representations, Warranties and Covenants . All of the representations and warranties set forth in Section 5 shall be true, correct and complete in all material respects as of the Closing Date, and Borrower shall be in compliance in all material respects with each of the covenants set forth in Section 6 as of the Closing Date. No event shall have occurred or condition shall exist or information shall have been disclosed by Borrower or discovered by Lender which has had or would be reasonably likely to have a Material Adverse Effect on the Premises, any of the Borrower Parties or Lessee Parties or Lender’s willingness to consummate the transaction contemplated by this Agreement, as determined by Lender in its sole and absolute discretion.

E.            Proof of Insurance . Borrower shall have delivered to Lender certificates of insurance and copies of insurance policies showing that all insurance required by the Loan Documents and providing coverage and limits satisfactory to Lender are in full force and effect.

F.            Legal Opinions . Borrower shall have delivered to Lender such legal opinions as Lender may reasonably require all in form and substance reasonably satisfactory to Lender and its counsel.

G.            Fee and Closing Costs . Borrower shall have paid the Fee to Lender and shall have paid all costs of the transactions described in this Agreement, including, without limitation, the cost of title insurance premiums and all endorsements required by Lender, survey charges, UCC and litigation search charges, the attorneys’ fees of Borrower, reasonable outside attorneys’ fees and expenses of Lender, the cost of the environmental due diligence undertaken pursuant to Section 4.C, Lender’s site inspection costs and fees, stamp taxes, mortgage taxes, transfer fees, escrow, filing and recording fees and UCC filing and recording fees (including preparation, filing and recording fees for UCC continuation statements). Borrower shall have also paid all real and personal property and other applicable taxes and assessments and other charges relating to the Premises which are due and payable on or prior to the Closing Date as well as taxes and assessments due and payable subsequent to the Closing Date but which Title Company requires to be paid at Closing as a condition to the issuance of the title insurance policy described in Section 4.A.

H.            Franchise Agreement . Lender shall have received a certificate (the “Franchisor Certificate”) from Franchisor in form and substance acceptable to Lender which provides that the Premises has been approved by Franchisor. The Franchisor Certificate shall also provide that the Franchise Agreement is valid, binding and in full force and effect, with a term (inclusive of existing annual renewal options) which will expire after the scheduled maturity date of the Note, and no events have occurred which could constitute a default under the Loan Documents, and, to the extent Franchisor has a right of first refusal in the Franchise Agreement that extends to the sale, transfer or conveyance of the Premises, Franchisor waives all such rights of first refusal set forth in the Franchise Agreement as to Lender and its successors and assigns.

 

I.              Lease and Subordination Agreement . Borrower and Lessee shall have executed and delivered the Lease and the Subordination Agreement. The Lease and the Subordination Agreement shall be in form and substance reasonably satisfactory to Lender.

J.             Management Agreement . The Management Agreement shall be in full force and effect. Lender shall have approved the Management Agreement in its reasonable discretion and Manager and Lessee shall have delivered to Lender such subordination agreements, collateral assignments of management agreement and consents to collateral assignment of management agreement as Lender may require in its sole discretion.

K.            Closing Documents . At or prior to the Closing Date, Lender or the Borrower Parties, as may be appropriate, shall have executed and delivered or shall have caused to be executed and delivered to Lender, or as Lender may otherwise direct, the Loan Documents and such other documents, payments, instruments and certificates, as Lender may require in form acceptable to Lender.

Upon fulfillment or waiver of all of the above conditions, Lender shall deposit funds necessary to close this transaction with the Title Company and this transaction shall close in accordance with the terms and conditions of this Agreement.

5.            Representations and Warranties of Borrower . The representations and warranties of Borrower contained in this Section are being made by Borrower as of the Closing Date to induce Lender to enter into this Agreement and consummate the transactions contemplated herein and shall survive the Closing. Borrower represents and warrants to Lender as follows:

A.            Financial Information . Borrower has delivered to Lender certain financial statements and other information concerning the Borrower Parties in connection with the transaction described in this Agreement (collectively, the “Financial Information”). The Financial Information is true, correct and complete in all material respects; there have been no amendments to the Financial Information since the date such Financial Information was prepared or delivered to Lender. Borrower understands that Lender is relying upon the Financial Information and Borrower represents that such reliance is reasonable. All financial statements included in the Financial Information were prepared in accordance with GAAP (except as otherwise noted) and fairly present as of the date of such financial statements the financial condition of each individual or entity to which they pertain. No change has occurred with respect to the financial condition of any of the Borrower Parties or the Premises as reflected in the Financial Information, which has had, or could reasonably be expected to result in, a Material Adverse Effect, and has not been disclosed in writing to Lender.

B.            Organization and Authority . Each of the Borrower Parties (other than individuals), as applicable, is duly organized or formed, validly existing and in good standing under the laws of its state of incorporation or formation. Borrower is qualified as a foreign corporation, partnership or limited liability company, as applicable, to do business in each state where the Premises are located, and each of the Borrower Parties is qualified as a foreign corporation, partnership or limited liability company, as applicable, to do business in any other jurisdiction where the failure to be qualified would reasonably be expected to result in a Material Adverse Effect. All necessary action has been taken to authorize the execution, delivery and performance by the Borrower Parties of this Agreement and the other Loan Documents. The person(s) who have executed this Agreement on behalf of Borrower are duly authorized so to do. Borrower is not a “foreign corporation”, “foreign partnership”, “foreign trust”, “foreign estate” or “foreign person” (as those terms are defined by the Internal Revenue Code of 1986, as

 

amended). Borrower’s U.S. Federal Tax Identification number, Organization Identification number and principal place of business are correctly set forth on the signature page of this Agreement. None of the Borrower Parties, and, to the best of their knowledge, no individual or entity owning directly or indirectly any interest in any of the Borrower Parties, is an individual or entity whose property or interests are subject to being blocked under any of the OFAC Laws and Regulations or is otherwise in violation of any of the OFAC Laws and Regulations; provided, however, the representation contained in this sentence shall not apply to any Person to the extent such Person’s interest is in or through a U.S. Publicly-Traded Entity.

C.            Enforceability of Documents . Upon execution by the Borrower Parties, this Agreement and the other Loan Documents shall constitute the legal, valid and binding obligations of the Borrower Parties, respectively, enforceable against the Borrower Parties in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and general principles of equity.

D.            Litigation . There are no suits, actions, proceedings or investigations pending, or to the best of its knowledge, threatened against or involving the Borrower Parties or the Premises before any arbitrator or Governmental Authority, except for such suits, actions, proceedings or investigations which, individually or in the aggregate, have not had, and would not reasonably be expected to result in, a Material Adverse Effect.

E.            Absence of Breaches or Defaults . The Borrower Parties are not, and the authorization, execution, delivery and performance of this Agreement and the other Loan Documents will not result, in any breach or default under any other document, instrument or agreement to which any of the Borrower Parties is a party or by which any of the Borrower Parties, the Premises or any of the property of any of the Borrower Parties is subject or bound, except for such breaches or defaults which, individually or in the aggregate, have not had, and would not reasonably be expected to result in, a Material Adverse Effect. The authorization, execution, delivery and performance of this Agreement and the other Loan Documents will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. The Premises is not subject to any right of first refusal, right of first offer or option to purchase or lease granted to a third party (other than the Lease and room rentals in the ordinary course of business).

F.            Utilities . Adequate public utilities are available at the Premises to permit utilization of the Premises as a Permitted Concept and all utility connection fees and use charges will have been paid in full prior to delinquency.

G.            Zoning; Compliance With Laws . The Premises is in compliance with all applicable zoning requirements, and the use of the Premises as a Permitted Concept does not constitute a nonconforming use under applicable zoning requirements. The Borrower Parties and the Premises are in compliance with all Applicable Regulations except for such noncompliance which has not had, and would not reasonably be expected to result in, a Material Adverse Effect.

H.            Area Development; Wetlands . No condemnation or eminent domain proceedings affecting the Premises have been commenced or, to the best of Borrower’s knowledge, are contemplated. Neither the Premises, nor to the best of Borrower’s knowledge, the real property bordering the Premises, are designated by any Governmental Authority as a wetlands.

 

I.              Licenses and Permits; Access . All required licenses and permits, both governmental and private, to use and operate the Premises as a Permitted Concept are in full force and effect, except for such licenses and permits the failure of which to obtain has not had, and would not reasonably be expected to result in, a Material Adverse Effect. Adequate rights of access to public roads and ways are available to the Premises for unrestricted ingress and egress and otherwise to permit utilization of the Premises for their intended purposes, and all such public roads and ways have been completed and dedicated to public use.

J.             Condition of Premises . The Premises, including the Personal Property, is in good condition and repair and well maintained, ordinary wear and tear excepted, fully equipped and operational, free from structural defects, safe and properly lighted.

K.            Environmental. The representations and warranties of Borrower set forth in Section 2 of the Environmental Indemnity Agreement, together with the corresponding definitions, are incorporated by reference into this Agreement as if stated in full in this Agreement.

L.            Title to Premises; First Priority Lien . Fee title to the real property comprising the Premises is vested in Borrower, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions. Borrower is owner of all Personal Property, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions, and no Affiliate of Borrower owns any of the Personal Property. Upon Closing, Lender shall have a first priority lien upon and security interest in the Premises pursuant to the Mortgage and the UCC-1 Financing Statements, subject only to the Permitted Exceptions.

M.           No Mechanics’ Liens . There are no delinquent accounts payable or mechanics’ liens in favor of any materialman, laborer, or any other person or entity in connection with labor or materials furnished to or performed on any portion of the Premises; and no work has been performed or is in progress nor have materials been supplied to the Premises or agreements entered into for work to be performed or materials to be supplied to the Premises prior to the date hereof, which will be delinquent on or before the Closing Date.

N.            Franchisor Provisions . Borrower has delivered to Lender a true, correct and complete copy of the Franchise Agreement. The Franchise Agreement is the only agreement in effect with Franchisor with respect to the Premises. The Franchise Agreement is in full force and effect and constitutes the legal, valid and binding obligations of the parties to the Franchise Agreement, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and general principles of equity. None of the Borrower Parties or Manager has assigned, transferred, mortgaged, hypothecated or otherwise encumbered the Franchise Agreement or any rights thereunder or any interest therein, and none of the Borrower Parties or Manager has received any notice that Franchisor has made any assignment, pledge or hypothecation of all or any part of its rights or interest in the Franchise Agreement. No notice of default from Franchisor has been received under the Franchise Agreement which has not been cured and no notice of default to Franchisor has been given under the Franchise Agreement which has not been cured. No event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute a default under the Franchise Agreement.

O.           Lease . Borrower has delivered to Lender a true, correct and complete copy of the Lease. The Lease is the only lease with respect to the Premises (except room rentals in the

 

ordinary course of business), and is in full force and effect, and constitutes the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and general principles of equity. Except pursuant to the Loan Documents, Borrower has not assigned, transferred, mortgaged, hypothecated or otherwise encumbered the Lease or any rights thereunder or any interest therein, and Borrower has not received any notice that the Lessee has made any assignment, pledge or hypothecation of all or any part of its rights or interests in the Lease. Borrower has not received any notice of default from the Lessee which has not been cured or given any notice of default to the Lessee which has not been cured. No event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute a default by the Lessee or Borrower under the Lease.

P.            Money Laundering . Borrower is in full compliance with all Applicable Regulations relating to or attempting to eliminate, prevent, or detect money laundering, drug trafficking, terrorist acts and activities, and acts of war (collectively, the “Anti-Money Laundering and Anti-Terrorism Laws”). Neither Borrower nor any other Borrower Party is (a) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation; or (b) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation, or any other similar Executive Orders. All businesses in which Borrower and the other Borrower Parties are engaged are and will continue to be legitimate businesses, and all funds of Borrower and the other Borrower Parties have been and will continue to be derived from legitimate sources.

Q.            Management Agreement . Borrower has delivered to Lender a true, correct and complete copy of the Management Agreement. The Management Agreement is in full force and effect and constitutes the legal, valid and binding obligations of the parties to the Management Agreement, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and general principles of equity. Except pursuant to the Loan Documents, Borrower has not assigned, transferred, mortgaged, hypothecated or otherwise encumbered the Management Agreement or any rights thereunder or any interest therein, and Borrower has not received any notice that Manager has made any assignment, pledge or hypothecation of all or any part of its rights or interest in the Management Agreement. No notice of default from Manager has been received under the Management Agreement that has not been cured and no notice of default to Manager has been given under the Management Agreement which has not been cured. No event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute a default under the Management Agreement.

6.            Covenants . Borrower covenants to Lender from and after the Closing Date and until all of the Obligations are satisfied in full, as follows:

A.            Payment of the Note . Borrower shall punctually pay, or cause to be paid, the principal, interest and all other sums to become due in respect of the Note and the other Loan Documents in accordance with the Note and the other Loan Documents. Borrower shall authorize Lender to establish arrangements whereby all scheduled payments made in respect of the Obligations are transferred by Automated Clearing House Debit initiated by Lender directly from an account at a U.S. bank in the name of Borrower to such account as Lender may designate or as Lender may otherwise designate.

 

B.            Title. Borrower shall maintain good and marketable fee simple title to the real property comprising the Premises, and title to the Personal Property and the remainder of the Premises, free and clear of all liens, encumbrances, charges and other exceptions to title, except the Permitted Exceptions. Lender shall have valid first liens upon and security interests in the Premises, including the Personal Property, pursuant to the Mortgage and the UCC-1 Financing Statements, subject only to the Permitted Exceptions.

C.            Organization and Status of Borrower; Preservation of Existence . Each of the Borrower Parties (other than individuals), as applicable, shall be validly existing and in good standing under the laws of its state of incorporation or formation. Borrower shall be qualified as a foreign corporation, partnership or limited liability company to do business in each state where the Premises is located, and each of the Borrower Parties shall be qualified as a foreign corporation, partnership or limited liability company in any other jurisdiction where the failure to be qualified would reasonably be expected to result in a Material Adverse Effect. Borrower shall preserve its current form of organization and shall not change its legal name, its state of formation, nor, in one transaction or a series of related transactions, merge with or into, or consolidate with, any other entity without providing, in each case, Lender with 30 days’ prior written notice and obtaining Lender’s prior written consent (to the extent such consent is required under Section 7 of this Agreement).

D.            Licenses and Permits . All required licenses and permits, both governmental and private, to use and operate the Premises as a Permitted Concept shall be maintained in full force and effect.

E.            Compliance With Laws Generally . The use and occupation of the Premises, and the condition thereof, including, without limitation, any Restoration, shall comply with all Applicable Regulations now or hereafter in effect, including, without limitation, the OFAC Laws and Regulations and Anti-Money Laundering Laws. In addition, the Borrower Parties shall comply with all Applicable Regulations now or hereafter in effect. Without limiting the generality of the other provisions of this Section, Borrower shall materially comply with the ADA, and all regulations promulgated thereunder, as it affects the Premises.

F.            Compliance With Environmental Provisions . The covenants, obligations and agreements of Borrower set forth in Sections 3 through 7 of the Environmental Indemnity Agreement, together with the corresponding definitions, are incorporated by reference into this Agreement as if stated in full in this Agreement.

G.            Financial Statements . Within 45 days after the end of each fiscal quarter and within 120 days after the end of each fiscal year of Borrower, Borrower shall deliver to Lender (1) complete financial statements of the Borrower Parties including a balance sheet, profit and loss statement (for the individual sites as well as the consolidated statement for Borrower), statement of cash flows and all other related schedules for the fiscal period then ended; (2) income statements for the business at the Premises; (3) standard hotel data of rooms rented and rooms available, as well as gross revenue breakdown of room revenue from other revenue, so that occupancy ADR and RevPar Statistics can be calculated; and (4) such other financial information as Lender may reasonably request in order to establish compliance with the financial covenants in the Loan Documents, including, without limitation, Section 6.J of this Agreement. The quarterly and annual financial statements submitted by Borrower shall be both on individual sites financed by Lender, as well as aggregate Borrower level basis, where the fixed charge coverage ratio calculation in Section J below will be applied, to allow Lender to track performance of specific sites. All such financial statements shall be prepared in accordance with GAAP, or as otherwise allowed by Lender from period to period, and shall be

 

certified to be accurate and complete in all material respects by Borrower (or the Treasurer or other appropriate officer of Borrower). In the event the property and business at the Premises is ordinarily consolidated with other business for financial statement purposes, such financial statements shall be prepared on a consolidated basis and Borrower shall show separately the sales, profits and losses, assets and liabilities pertaining to the Premises with the basis for allocation of overhead of other charges being clearly set forth. The financial statements delivered to Lender need not be audited, but Borrower shall deliver to Lender copies of any audited financial statements of Borrower which may be prepared, as soon as they are available. Borrower shall also cause to be delivered to Lender copies of any financial statements required to be delivered to Borrower by any tenants of the Premises.

H.            Lost Note . Borrower shall, if the Note is mutilated, destroyed, lost or stolen (a “Lost Note”), promptly deliver to Lender, upon receipt from Lender of an affidavit and indemnity in a form reasonably acceptable to Lender and Borrower stipulating that the Note has been mutilated, destroyed, lost or stolen, in substitution therefor, a new promissory note containing the same terms and conditions as the Lost Note with a notation thereon of the unpaid principal and accrued and unpaid interest. Borrower shall provide fifteen (15) days’ prior notice to Lender before making any payments to third parties in connection with the Lost Note.

I.             Inspections . Borrower shall, during normal business hours (or at any time in the event of an emergency), (1) provide Lender and Lender’s officers, employees, agents, advisors, attorneys, accountants, architects, and engineers with access to the Premises, all drawings, plans, and specifications for the Premises in possession of any of the Borrower Parties, all engineering reports relating to the Premises in the possession of any of the Borrower Parties, the files, correspondence and documents relating to the Premises, and the financial books and records, including lists of delinquencies, relating to the ownership, operation, and maintenance of the Premises (including, without limitation, any of the foregoing information stored in any computer files), (2) allow such persons to make such inspections, tests, copies, and verifications as Lender considers necessary, and (3) if Borrower is in breach of the Fixed Charge Coverage Ratio requirement set forth in the following subsection J, pay expenses reasonably incurred by Lender from time to time in conducting such inspections, tests, copies and verifications upon demand (such amounts to bear interest at the Default Rate if not paid upon demand until paid).

J.             Fixed Charge Coverage Ratio . Borrower shall maintain a Fixed Charge Coverage Ratio that equals or exceeds 1.30 before dividend payouts, measured on an aggregate of all eleven Lender financed sites, as determined as of the last day of each fiscal year of Borrower. For purposes of this Section, the term “Fixed Charge Coverage Ratio” shall mean with respect to the twelve month period of time immediately preceding the date of determination, the ratio calculated for such period of time, each as determined in accordance with GAAP and calculated according to the Uniform System of Accounts for Hotels, of (a) the sum of net income, interest expense, income taxes, depreciation, amortization, management fees, replacement reserves, and operating lease expense with respect to the Premises, minus 4% of total room revenues with respect to the Premises as an assumed reserve for replacement (or actual reserve for replacement if greater) and 4% of total room revenues with respect to the Premises as an assumed management fee (or actual management fee if greater), plus or minus other non-cash adjustments or non-recurring items with respect to the Premises (as allowed by Lender), plus or minus dividends or distributions with respect to the Premises not otherwise expensed on the Borrower’s income statement, to (b) the sum of operating lease expense with respect to the Premises, principal payments under the Note, current portion of all capital leases with respect to the Premises, and interest expense under the Note (excluding non-cash interest expense and amortization of non-cash financing expenses). Attached hereto as Exhibit B is the

 

computation of the Fixed Charge Coverage Ratio as of February 28, 2006 agreed upon by Borrower and Lender.

K.            Affiliate Transactions . Unless otherwise approved by Lender, all transactions between Borrower and any of its Affiliates shall be on terms substantially as advantageous to Borrower as those which could be obtained by Borrower in a comparable arm’s length transaction with a non-Affiliate of Borrower.

L.            Compliance Certificates . Within 60 days after the end of each fiscal year of Borrower, Borrower shall deliver a compliance certificate to Lender in a form to be provided by Lender in order to establish that Borrower is in compliance in all material respects with all of its obligations, duties and covenants under the Loan Documents.

M.           Franchise Agreement . The Franchise Agreement shall be maintained in full force and effect. No event shall occur nor shall any condition exist which, with the giving of notice or the lapse of time or both, would constitute a breach or default under the Franchise Agreement. Borrower shall give prompt notice to Lender of any claim of default by or to the franchisee under the Franchise Agreement and shall provide Lender with a copy of any default notice given or received by the franchisee under the Franchise Agreement and any information submitted or referenced in support of such claim of default. Borrower shall also give prompt notice to Lender of any extensions or renewals of the Franchise Agreement and the expiration or termination of the Franchise Agreement.

N.            OFAC Laws and Regulations . Borrower will comply and will use its best efforts to cause each other Borrower Party to comply with the Anti-Money Laundering and Anti-Terrorism Laws, including ensuring that neither Borrower nor any other Borrower Party is or shall be (a) listed on the Specially Designated Nationals and Blocked Person List maintained by OFAC or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (b) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders.

O.            Management Agreement . The Management Agreement shall be maintained in full force and effect with regard to the Premises. No event shall occur nor shall any condition exist which, with the giving of notice or the lapse of time or both, would constitute a breach or default under the Management Agreement. Borrower shall give prompt notice to Lender of any claim of default by or to the Manager under the Management Agreement and shall provide Lender with a copy of any such default notice given or received by the Manager under the Management Agreement and any information submitted or referenced in support of such claim of default. Borrower shall also give prompt notice to Lender of the expiration or termination of the Management Agreement. Lender acknowledges that the Management Agreement is expected to be amended in one to three months and consents to such amendments, as were previously disclosed in writing to Lender.

7.            Prohibition on Change of Control and Pledge. A. Without limiting the terms and conditions of Section 3.09 of the Mortgage, Borrower agrees that, from and after the Closing Date and until all of the Obligations are satisfied in full, without the prior written consent of Lender: (1) no Change of Control shall occur; and (2) no interest in any of the Borrower Parties shall be pledged, encumbered, hypothecated or assigned as collateral for any obligation of any of the Borrower Parties (each, a “Pledge”). Notwithstanding the foregoing, individual stockholders or limited partners of the Borrower Parties may pledge their interests in the

 

Borrower Parties so long as such pledge does not, or could not potentially, result in a Change of Control or a change in ownership of a majority interest in the Borrower Parties.

B. Lender’s consent to a Change of Control or Pledge shall be subject to the satisfaction of such conditions as Lender shall determine in its sole discretion, including, without limitation, (1) the execution and delivery of such modifications to the terms of the Loan Documents as Lender shall request, (2) the proposed Change of Control or Pledge having been approved by each of the rating agencies which have issued ratings in connection with any Securitization of the Loan as well as any other rating agency selected by Lender, and (3) the proposed transferee having agreed to comply with all of the terms and conditions of the Loan Documents (including any modifications requested by Lender pursuant to clause (1) above). In addition, any such consent shall be conditioned upon payment by Borrower to Lender of (a) a fee equal to one percent (1%) of the then outstanding principal balance of the Note and (b) all out-of-pocket costs and expenses incurred by Lender in connection with such consent, including, without limitation, reasonable attorneys’ fees. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Obligations immediately due and payable upon a Change of Control or Pledge in violation of this Section. The provisions of this Section shall apply to every Change of Control or Pledge regardless of whether voluntary or not, or whether or not Lender has consented to any previous Change of Control or Pledge.

8.            Transaction Characterization . A. It is the intent of the parties hereto that this Agreement and the other Loan Documents are a contract to extend a financial accommodation (as such term is used in the Code) for the benefit of Borrower and that the Loan Documents evidence one unitary, unseverable transaction pertaining to the Premises.

B. It is the intent of the parties hereto that the business relationship created by the Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership (either de jure or de facto) between Borrower and Lender, to make them joint venturers, to make Borrower an agent, legal representative, partner, subsidiary or employee of Lender, nor to make Lender in any way responsible for the debts, obligations or losses of Borrower.

9.            Default and Remedies . A. Each of the following shall be deemed an event of default by Borrower (each, an “Event of Default”):

(1)          If any representation or warranty of any of the Borrower Parties set forth in any of the Loan Documents is false in any material respect when made, or if any of the Borrower Parties renders any statement or account which is false in any material respect.

(2)          If any principal, interest or other monetary sum due under the Note, the Mortgage or any other Loan Document is not paid within five days after the date when due; provided, however, notwithstanding the occurrence of such an Event of Default, Lender shall not be entitled to exercise its rights and remedies set forth below unless and until Lender shall have given Borrower notice thereof and a period of five days from the delivery of such notice shall have elapsed without such Event of Default being cured.

(3)          If Borrower fails to observe or perform any of the other covenants, conditions, or obligations of this Agreement (except with respect to a breach of the Fixed Charge Coverage Ratio, which breach is addressed in subitem (7) below); provided, however, if any such failure

 

does not involve the payment of any monetary sum, is not willful or intentional, does not place any rights or interest in collateral of Lender in immediate jeopardy, and is within the reasonable power of Borrower to promptly cure after receipt of notice thereof, all as determined by Lender in its reasonable discretion, then such failure shall not constitute an Event of Default hereunder, unless otherwise expressly provided herein, unless and until Lender shall have given Borrower notice thereof and a period of 30 days shall have elapsed, during which period Borrower may correct or cure such failure, upon failure of which an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required. If such failure cannot reasonably be cured within such 30-day period, as determined by Lender in its reasonable discretion, and Borrower is diligently pursuing a cure of such failure, then Borrower shall have a reasonable period to cure such failure beyond such 30-day period, which shall not exceed 90 days after receiving notice of the failure from Lender. If Borrower shall fail to correct or cure such failure within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required.

(4)          If any of the Borrower Parties becomes insolvent within the meaning of the Code, files or notifies Lender that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, an “Action”), becomes the subject of either a petition under the Code or an Action, or is not generally paying its debts as the same become due.

(5)          If there is an “Event of Default” or a breach or default, after the passage of all applicable notice and cure or grace periods, under the Lease, any of the Other Agreements, or any other Loan Document.

(6)          If a final, nonappealable judgment is rendered by a court against any of the Borrower Parties which (a) has a Material Adverse Effect on the operation of the Premises as a Permitted Concept, or (b) is in an amount greater than $100,000.00 and not covered by insurance, and, in either case, is not discharged or provision made for such discharge within 60 days from the date of entry of such judgment.

(7)          If there is a breach of the Fixed Charge Coverage Ratio requirement and Lender shall have given Borrower notice thereof and Borrower shall have failed within a period of 30 days from the delivery of such notice to (a) pay to Lender the FCCR Amount (without premium or penalty), (b) prepay the Note in whole but not in part (without premium or penalty) or (c) notify Lender of Borrower’s election to substitute a Substitute Premises for the Premises in accordance with the terms of Section 11 (the failure of Borrower to complete such substitution within 60 days after Lender shall have given the notice discussed above shall be deemed to be an Event of Default without further notice or demand of any kind being required). For purposes of the preceding sentence, “FCCR Amount” means that sum of money which, when subtracted from the outstanding principal amount of the Note , and assuming the resulting principal balance is reamortized in equal monthly payments over the remaining term of the Note at the rate of interest set forth therein, will result in an adjusted Fixed Charge Coverage Ratio for the Premises of at least 1.3:1 prior to dividend payouts, measured on an aggregate of all eleven Lender financed sites, based on the prior year’s operations. Promptly after Borrower’s payment of the FCCR Amount, Borrower and Lender shall execute an amendment to the Note in form and substance reasonably acceptable to Lender reducing the principal amount payable to Lender under the Note and reamortizing the principal amount of the Note in equal monthly payments over the then remaining term of the Note at the rate of interest set forth therein.

(8)          If there is a breach or default, after the passage of all applicable notice and cure or grace periods, under the Management Agreement, or if the Management Agreement

 

terminates or expires prior to the payment in full of the Note in accordance with its terms and a substitute agreement for the terminated or expired agreement is not entered into with Manager prior to such expiration or termination, which substitute agreement shall be in form and substance reasonably satisfactory to Lender and shall expire after the scheduled maturity date of the Note.

(9)          If there is a breach or default, after the passage of all applicable notice and cure or grace periods, under the Franchise Agreement, or if the Franchise Agreement terminates or expires prior to the payment in full of the Note in accordance with its terms and a substitute agreement for the terminated or expired agreement is not entered into with Franchisor prior to such expiration or termination, which substitute agreement shall be in form and substance reasonably satisfactory to Lender and shall expire after the scheduled maturity date of the Note.

B. Upon the occurrence and during the continuance of an Event of Default, subject to the limitations set forth in subsection A, Lender may declare all or any part of the obligations of Borrower under the Note, this Agreement and any other Loan Document to be due and payable, and the same shall thereupon become due and payable without any presentment, demand, protest or notice of any kind except as otherwise expressly provided herein, and Borrower hereby waives notice of intent to accelerate the obligations secured by the Mortgage and notice of acceleration. Thereafter, Lender may exercise, at its option, concurrently, successively or in any combination, all remedies available at law or in equity, including without limitation any one or more of the remedies available under the Note, the Mortgage or any other Loan Document. Neither the acceptance of this Agreement nor its enforcement shall prejudice or in any manner affect Lender’s right to realize upon or enforce any other security now or hereafter held by Lender, it being agreed that Lender shall be entitled to enforce this Agreement and any other security now or hereafter held by Lender in such order and manner as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to Lender is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to Lender, or to which Lender may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Lender.

10.          Indemnity; Release . A. Initially capitalized terms in this Section that are not otherwise defined in this Agreement shall have the meanings set forth in the Environmental Indemnity Agreement. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless each of the Indemnified Parties for, from and against any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, reasonable attorneys’ fees, court costs and other costs of defense) (collectively, “Losses”) (excluding Losses suffered by an Indemnified Party directly arising out of such Indemnified Party’s gross negligence or willful misconduct; provided, however, that the term “gross negligence” shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Borrower’s interest in the Premises or Borrower’s failure to act in respect of matters which are or were the obligation of Borrower under the Loan Documents), and costs of Remediation (whether or not performed voluntarily), engineers’ fees, environmental consultants’ fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (1) any presence of any Hazardous Materials in, on, above, or under the Premises; (2) any past, present or Threatened Release in, on, above, under

 

or from the Premises; (3) any activity by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Premises of any Hazardous Materials at any time located in, under, on or above the Premises; (4) any activity by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises in connection with any actual or proposed Remediation of any Hazardous Materials at any time located in, under, on or above the Premises, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (5) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with the Premises or operations thereon, including but not limited to any failure by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises to comply with any order of any Governmental Authority in connection with any Environmental Laws; (6) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering the Premises; (7) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Agreement; (8) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Premises, including but not limited to costs to investigate and assess such injury, destruction or loss; (9) any acts of Borrower, any person or entity affiliated with Borrower or any tenant or other user