LOAN AGREEMENT by xiuliliaofz

VIEWS: 51 PAGES: 58

									                     Current Issues in the Negotiation of Hotel Loan Agreements -- 2008


         Financing a hotel is more challenging today than it has been at any time in recent experience. In
part the difficulties arise in the melting down of the market for securitized loans, just as a record volume of
existing hotel loans approach maturity. In equal or larger part, however, the contraction of securitized
lending has brought back to our attention more fundamental issues. CMBS lenders, based on a growing
aversion to hotel assets by rating analysts, were losing enthusiasm for hotel lending well before the
current deterioration of liquidity and credit markets. Analysts had finally noticed that hotel loans in CMBS
portfolios were particularly toxic assets, rivaling and in recent years outdoing health care assets in their
poor performance. A comprehensive study of multiyear performance of CMBS asset classes had gained
notice within the industry in 2007, chilling interest in hotel loans and related assets by year end. Interest
has not yet revived. Regional and foreign banks are currently active in the market, but bank regulators
seem to be directing banks to limit or avoid increased exposure. The industry is at a pause, with more
and more loan maturities in prospect and in need of refinancing.

         How did we get to this point? Hotel loan documents, as in use among major commercial lenders,
have changed relatively little in recent years. Loan documents had responded to substantial changes in
the business of the hotel industry, and in how capital and debt financing were raised for investment.
Financing and investment for mid-size and smaller projects found their primary funding in the CMBS or
securitization markets, whose requirements added to the high degree of standardization of the
documentation. Conventional bank lenders continued to be active in hotel lending, but also followed the
CMBS style of documentation format. This was done to protect exit strategies, which may include future
sale of the debt or participation interests to other lenders.

         Unfortunately, hotels and related development projects were far less standardized than the loan
documents. At their core, hotels were and are complex, multi-party operating businesses with material
long term contracts essential to operation but not governed by real estate or lien law. The documents
and operating realities must be understood as an integrated arrangement, and not the consequence of
completing a checklist. The most substantive issues in hotel lending now arise in new products such as
condo hotels, in hybrid or multiuse projects combining multiple business types and ownership structures,
and in the use of multiple tiers of debt and/or preferred equity to fund complex projects. In many cases,
the issues are not dealt with in the documentation of the loans or projects, but in their restructuring.

         The basic structure for a conventional loan secured by an existing hotel remains the standard
package of note, mortgage, UCC security agreement, and documents sufficient to establish collateral
interests in bank accounts in which hotel revenues may be received or held. Where the hotel is operated
under third party franchise or management agreement, additional collateral pledges and security
instruments are added, most commonly with the franchisor or management entity becoming a signatory to
a “comfort letter” and/or “tri-party agreement” which addresses operation of the hotel through default and
enforcement, and through a transition to new ownership. Additional material contracts may become
collateral for the loan or subject to three-party agreements with the contract counterparty. If true leases
form part of the collateral or business of the hotel, there may be an assignment of leases and rent
separate from the assignment of revenues of hotel operation. These documents and collateral
arrangements are integrated in and refer back to a loan agreement, which deals with procedural issues,
information reporting and covenants applicable to multiple classes of collateral, such as insurance.

         A surprising number of lenders, including some in the CMBS market, have documented hotel
loans without separate loan agreements. Looking back from experience after default, foreclosure and
bankruptcy, this may not be the best practice. Absent a loan agreement, the lender must rely on the note
default remedies (e.g., foreclosure) as the primary control on borrowers. This may be necessary or
advisable in jurisdictions applying a one-action rule. It may not impede the parties if the hotel in question
is owner-operated with few third parties involved. A lender is, however, unlikely to see foreclosure as the
generally preferred path after an actual default. The lender may find itself concluding that a foreclosure
will not maximize its recovery on hotel assets. For those making small hotel loans or lenders who make
few loans secured by hotels, one reported explanation for proceeding without a loan agreement has been
that administering the covenants of a few hotel loan agreements would result in a cost to the lender that is
likely to exceed what is lost by having few covenants and limited remedies. Thus, such lenders will prefer
to go to foreclosure without any attempt to restructure or work out the loan. Some of these lenders are
currently active in the hotel market. However, rising rates of default – usually due to failure to refinance
upon debt maturity -- may be driving even these lenders to want more flexibility. They may also change
their views on loan agreements as they encounter the reality that bankruptcy judges and courts dealing
with foreclosure are not inclined to allow summary remedies such as foreclosure to roll out quickly or at all
when employees and local businesses are affected. Hotels remain operating businesses and are not real
estate in many important ways, including in bankruptcy and in the reality of enforcement in a local court.
The powers to enforce information, reporting and other covenants through a loan agreement are seen as
increasingly valuable. Also, loan agreements are increasingly important in organizing complex
transactions, and transactions are certainly increasing in complexity.

         As the hotel market matures, developers of new projects push into new areas. Elements of
unconventional hotel financing and new exit strategies are incorporated in the documents. Of these
projects, the condo hotel is one notable example that has now experienced equally notable levels of
failure. New-build luxury hotels projects had been increasingly difficult to justify where the development
plan was the structure used for decades in conventional development: 1) raise equity, conventional debt
and a construction loan, 2) acquire land and complete the project, 3) replace the construction debt with a
short term permanent loan, 4) stabilize the operation of the hotel, and 5) sell or refinance the permanent
loan at or before the maturity of the permanent loan, seven or more years after completion. This plan,
typical a few years ago, does not result in adequate return on investment for equity investors in most
luxury projects. Among other factors, the amount of equity needed for a luxury project, the low margin of
profit on luxury properties, and the five to seven years needed to sell or refinance a hotel in the ordinary
cycle all culminate in a prohibitively low internal rate of return (IRR) on the invested equity.

        To make a luxury project work for the equity investor, there needed to be a much faster exit for
the investor. The sooner the capital could be returned, the higher the IRR. If some or all of the rooms
could be sold as condos, the sales could be used to accelerate the return of capital. Thus, if the equity in
the overall project could be repaid from condo sales, an unworkable luxury hotel project might become
financeable and thus able to attract equity investment. Of course, the change in format also added sales
risk, marketing issues, third party advisers and sales agents, securities and regulatory concerns, and
issues of future demand for condos. The project in fact became more expensive in total. On paper,
however, the model seemed to work and to turn a bad project into a golden opportunity. Lenders were
eager for loan volume and not reluctant to see ever larger deal size. They made far more loan than were
probably justified. More to the point, the lenders made loans without understanding and addressing the
risks.

         Multi-use projects also raise other new issues. A number of major urban hotel projects have
been undertaken as part of larger commercial developments with office, residential, parking, medical,
sports and other facilities in relatively densely built-up areas. This pattern has now expanded to suburban
and resort projects linked to specific facilities such theme parks, hospital centers, and colleges. Complex
connections have been planned or exist de facto between the operating segments of these projects, with
substantial interdependence of the parts. Their successful coordination is needed to achieve overall
economic success. Lawyers are asked to craft enforceable legal connections between separately owned
and financed projects to preserve their value for the lenders. As examples of this, there have been theme
parks linked to surrounding hotels, hotels built in sports facilities, and hospitals seeking to establish for-
profit centers for services to international patients with hotels linked to supply the needs of patients and
their families. The lawyer’s job is made more difficult by the legal reality that the more operating
conditions or covenants are added, the less likely that the overall transaction will remain a real estate
transaction for foreclosure and bankruptcy purposes. There is also a greater risk that elements of the
project will be recharacterized as a joint venture or other arrangement with potentially hazardous
implications for the lender. Financing of such complex projects was even shoehorned into the same
CMBS pools as more normal real estate loans. This suggests the width of the gap between the rating
model and reality when risks of recharacterization are disregarded.
         Public-private projects have also increased in number, in part because they include below-market
financing or land costs essential to making marginal deals succeed. They present additional issues if a
portion of the land, permitting or financing depends on some element of governmental affiliation. We are
seeing hotels use TIF (tax incremental financing), historic credits, infrastructure financing and guarantees,
development bonds, public subsidies and other sources of government-linked financing. All of these, with
their attendant costs and complexities, may be used in one project, because the underlying project is not
feasible if it must depend on conventional sources of funds. Also, these projects often relate to some
form of public amenity or facility expected to provide some financial return -- such as a convention center
or sports arena – but which are notoriously hard to run profitably and generate only erratic demand to
support hotels. A lawyer representing the lender may need to take into account the reality of what it
means to have the public authorities in multiple roles and the practical difficulty of moving to enforce any
rights against a public authority on its home ground or in regard to a politically sensitive high-profile
project. The obstacles are such that private financing may simply not be available where entanglement
with public agencies is deemed excessive.

         We also see expanded use of multiple levels of debt or “preferred equity” in addition to the first
lien mortgage. This pattern exists in both new development and redevelopment projects, and is to some
degree a sign of the overheating of hotel development. The lender’s issues may arise prospectively, as
when equity investors ask the lender for advance consent to investors taking a mezzanine position in the
event that they are required to advance more funds into the project. Unless the first-lien lender is
prepared to fund all overruns itself, it must deal with whether and how new debt or equity might be added
and how it may be held, transferred or foreclosed. For this purpose, and whether the mezzanine debt
exists or may be contingent on future events, an intercreditor agreement between the first lien holder and
any actual or prospective mezzanine lender is becoming a routine part of the initial documentation of a
hotel development loan. Substantial projects may have multiple intercreditor issues.

         Brand-related collateral also continues to raise new issues. Forms of management agreements
drafted by management companies are primarily focused on restricting or frustrating the rights of owners
against the management company. As a practical matter the same terms may equally impede the lender
in controlling the project. Understanding, defining and controlling the roles of the brand group in, for
example, a condo hotel project or one tied to a time share project can be extremely difficult. The brand
group or its members may be partner, developer, service provider, vendor, construction representative,
permit holder, technical advisor, arbiter of brands standards and budget requirements, marketing
representative, trademark owner, sales representative, a broker where securities are involved, and
decision maker on capital calls. All this may be done without coherent and separate documentation of the
rights and multiple roles. Restrictions or operating covenants imposed on a hotel for the benefit of a time
share project may suck the hotel dry in practice, without respect for the lender’s interest. Many key
services are left to be performed by unnamed and unknown affiliates. The rapid expansion of the projects
and their complexity seem to leave some or all of the parties scrambling to analyze how the structures will
hold up in the event of a delay, overrun, or adverse market, and how to approach the risks in the loan
documentation. Some project participants do not scramble successfully.

         Another emerging issue for lenders is the quality of financial reporting. Hotel loan documentation
has made use of a rapid expansion in the availability and quality of statistical information about hotels and
their performance. Such information has been developed primarily from databases of Smith Travel
Research (known in the industry as “STR” a/k/a “Star” reports) and other reporting sources that track real
estate financing transactions, deal volume and development pipeline. These sources of information have
brought hotel lending to a higher level of financial sophistication in the modeling of value. The information
has also contributed to underwriting that is overly dependent on theoretical models that ignore or obscure
reality. Lenders accustomed to modeling value based on long term commercial leases began to have
greater confidence in their ability to quantify and project hotel performances. Wisely or not, they
underwrote loans on more narrow pricing and margins. Lenders also became more focused on the ratio
of projected available cash flow to debt service as the basic metric of value. They were much less
interested in traditional metrics such as appraised valuation and loan-to value ratios. These have been
reduced to checklist items with less real underwriting significance. By this change, hotel lending is
moving in the direction of conventional lending to operating businesses, and away from traditional real
estate lending models. Unfortunately, the quality of the projections may not justify the faith put in them.
Loan documentation has followed this trend with more emphasis on accounting, audited information and
information reporting obligations and less on asset management. This has been a consistent trend in
hotel financing for at least two decades.

        Running contrary to this trend is increasing concern that the accounting standards of the industry
are inadequate. The accounting presentation format most commonly used by hotels – known as the
Uniform System of Accounts – is perceived to have been distorted by its authors, an accounting
standards group dominated by brand-affiliated management and franchise companies and their
accountants. In theory, Uniform System presents GAAP information under headings specific to the hotel
industry. The terms developed in Uniform Systems are routinely used in contracts throughout the
industry, but may not be adequate to present the information that owners and lenders need and expect.
We are seeing more effort by lenders and owners to clarify the significance of operating results and to get
behind the reality of accounting practices, particularly as those practices may obscure related party
transactions, true levels of cash flow, and the base on which fees are paid.

         There is also concern that hotel audits have not been conducted with the independence and
thoroughness expected and needed, with several large audit firms serving as primary auditors of major
brand groups in regard to SEC reporting while also doing audits of the accounts given by those same
companies to owners and lenders. Charges to hotels by affiliates of the management company – called
allocations or chain expenses, or hidden within “program” charges – have come to exceed disclosed fees
in some hotels. Few owners and fewer lenders grasp the scope of affiliate transactions potentially
affecting value. A new wave of litigation has begun against accounting firms and brand groups. This may
force substantial reconsideration of accounting provisions in loan underwriting and documentation. This
will require, at a minimum, that lawyers to become more informed about specialized issues of hotel
accounting and operations.

         The hotel industry had enjoyed a long period of improving performance and low interest rates into
2007. New developments, renovations and conversions have made use of new forms of financing. The
upward curve of performance has come to an end in the national market with occupancies beginning to
decline year to year in even major markets. Historically, this has been a precursor of declining room
rates, revenues and profits. Such a decline would be consistent with the oversupply of rooms in some
markets. It is generally thought that established lenders with large portfolios have anticipated the major
issues, are well placed to administer their collateral and prepared to take over projects if needed. But it is
also thought that the lenders to some of the more aggressive and complex hotel projects -- incorporating
some or all of gaming, condo, multiuse and convention or sports facilities as elements of the hotel
business plan -- face greater challenges. As these are the projects most likely to have used public
market debt, government-enhanced credit, municipal ground leased land, mezzanine debt, affiliate
guarantees, and other creative structures, their successes or failures will create new legal precedent.
HOTEL LOAN AGREEMENT

   BY AND BETWEEN



        and




    DATED AS OF:
                                                            TABLE OF CONTENTS

                                                                                                                                                         Page

ARTICLE 1. -- AGREEMENT TO BORROW AND LEND ............................................................................. 1
     1.1         Agreement to Borrow and Lend................................................................................................. 1
ARTICLE 2. -- DEFINITIONS ........................................................................................................................ 1
     2.1         Defined Terms ........................................................................................................................... 1
     2.2         Use of Defined Terms.............................................................................................................. 13
ARTICLE 3. -- TERMS OF LOAN AND LOAN DOCUMENTS ................................................................... 13
     3.1         Use of Proceeds ...................................................................................................................... 13
     3.2         Note 13
     3.3         Optional Amortization Payments ............................................................................................. 14
     3.4         Mandatory Amortization Payments ......................................................................................... 14
     3.5         Yield Protection ....................................................................................................................... 15
ARTICLE 4. -- LOAN EXPENSES AND ADVANCES ................................................................................. 16
     4.1         Loan Expenses ........................................................................................................................ 16
     4.2         Time of Payment of Fees ........................................................................................................ 16
     4.3         Expenses and Advances Secured by Loan Documents ......................................................... 16
     4.4         Loan Fee.................................................................................................................................. 16
     4.5         Appraisals ................................................................................................................................ 17
ARTICLE 5. -- REPRESENTATIONS AND WARRANTIES ....................................................................... 17
     5.1         Existence, Authorization, Etc. .................................................................................................. 17
     5.2         Real Estate .............................................................................................................................. 18
     5.3         Personal Property .................................................................................................................... 18
     5.4         Operations ............................................................................................................................... 19
     5.5         Default ..................................................................................................................................... 25
     5.6         Other Representations ............................................................................................................ 25
ARTICLE 6. -- CONDITIONS PRECEDENT TO CLOSING AND DISBURSEMENT ................................. 26
     6.1         Conditions Precedent to Closing and Disbursement ............................................................... 26
     6.2         Deliveries at Closing ................................................................................................................ 28
ARTICLE 7. -- ACCOUNTS; RESERVES; APPLICATION OF CASH FLOW ............................................ 29
     7.1         Operating Account ................................................................................................................... 29
     7.2         Payroll Account ........................................................................................................................ 29
     7.3         FF&E Reserve Account ........................................................................................................... 30
     7.4         Deposits for Taxes and Insurance Premiums. ........................................................................ 30
     7.5         Application and Use of Cash Flow........................................................................................... 31
     7.6         Shortfalls in Cash Flow. ........................................................................................................... 32
ARTICLE 8. -- BUDGETS, PLANS, REPORTS AND NOTICES ................................................................ 32
     8.1         Budgets .................................................................................................................................... 32
     8.2         Books and Records ................................................................................................................. 34
     8.3         Monthly Reports ...................................................................................................................... 34
     8.4         Annual Statements .................................................................................................................. 35
     8.5         Furnishing Notices ................................................................................................................... 35
     8.6         Inspection by Lender ............................................................................................................... 36
     8.7         Furnishing Information ............................................................................................................. 36
ARTICLE 9. -- INSURANCE ....................................................................................................................... 36
                                                                                                                                                        Page


     9.1        Insurance ................................................................................................................................. 36
     9.2        General Requirements ............................................................................................................ 37
     9.3        Insurance Certification ............................................................................................................. 37
     9.4        Insurance Reporting Requirements ......................................................................................... 37
     9.5        Renewal of Insurance .............................................................................................................. 37
ARTICLE 10. -- BORROWER'S ADDITIONAL COVENANTS.................................................................... 38
     10.1       Representations and Warranties ............................................................................................. 38
     10.2       Negative Covenants ................................................................................................................ 38
     10.3       Actions to Maintain Project ...................................................................................................... 39
     10.4       Mechanics' Liens Contest Thereof; Other Liens. .................................................................... 40
     10.5       Settlement of Lien Claims........................................................................................................ 40
     10.6       Proceedings ............................................................................................................................. 41
     10.7       Correction of Defects ............................................................................................................... 41
     10.8       Payment of Taxes .................................................................................................................... 41
     10.9       Personal Property .................................................................................................................... 41
     10.10      Limitation on Distributions. ...................................................................................................... 41
     10.11      Transactions with Affiliates ...................................................................................................... 42
     10.12      Hazardous Material ................................................................................................................. 42
     10.13      Asbestos .................................................................................................................................. 43
     10.14      Indemnification ........................................................................................................................ 43
     10.15      Change of Management of the Project. ................................................................................... 43
ARTICLE 11. -- CASUALTY LOSS ............................................................................................................. 44
     11.1       Lender's Election to Apply Insurance Proceeds to Indebtedness. .......................................... 44
     11.2       Borrower's Obligation to Rebuild and Use of Proceeds Therefor ........................................... 44
ARTICLE 12. -- CONDEMNATION ............................................................................................................. 45
     12.1       Condemnation ......................................................................................................................... 45
ARTICLE 13. -- ASSIGNMENTS ................................................................................................................ 45
     13.1       Prohibition of Assignments by Borrower or of Interests in Borrower ....................................... 45
     13.2       Successors and Assigns ......................................................................................................... 45
ARTICLE 14. -- EVENTS OF DEFAULT ..................................................................................................... 45
     14.1       Events of Default ..................................................................................................................... 45
ARTICLE 15. -- LENDER'S REMEDIES IN EVENT OF DEFAULT ............................................................ 47
     15.1       Remedies Conferred Upon Lender ......................................................................................... 47
     15.2       Non-Waiver of Remedies; No Election .................................................................................... 48
ARTICLE 16. -- GENERAL PROVISIONS .................................................................................................. 48
     16.1       Captions; Incorporation of Recitals and Exhibits ..................................................................... 48
     16.2       Entire Agreement ..................................................................................................................... 48
     16.3       Notices ..................................................................................................................................... 48
     16.4       No Oral Modification, Waiver ................................................................................................... 48
     16.5       Governing Law ........................................................................................................................ 48
     16.6       Acquiescence Not to Constitute Waiver of Lender's Requirements ........................................ 48
     16.7       Disclaimer by Lender ............................................................................................................... 48
     16.8       Lender's Action for its Own Protection Only ............................................................................ 48
     16.9       Right of Lender to Make Advances to Cure Borrower's Defaults ............................................ 49
     16.10      Definitions Included in Agreement ........................................................................................... 49
     16.11      Time Is of the Essence. ........................................................................................................... 49
     16.12      Execution in Counterparts ....................................................................................................... 49
     16.13      Waiver of Jury Trial .................................................................................................................. 49
     16.14      Conflicts ................................................................................................................................... 49
                                                                                                                                               Page


16.15   Election of Jurisdiction ............................................................................................................. 49
16.16   Set-Offs.................................................................................................................................... 49
16.17   Recourse Liability .................................................................................................................... 50
                                         LOAN AGREEMENT

              This Loan Agreement (this "Loan Agreement") is made as of the [__] day of
[_______________]_, 199[_], by and between [__________________], a [_________________]
("Borrower"), which has its principal place of business at [______________________], and
[___________________________], a [_____________________] ("Lender"), which has an office at
[___________________________].

                                             Background
                                                                                            1
         A. Borrower is the owner [and operator directly or through its manager as agent ] of a certain
hotel project commonly known as the [Hotel Name] and located at [include street address];
                                                        2
         B. Borrower has applied to Lender for a loan in the principal amount of ________________
Dollars ($[___________]_); and

       C. Lender is presently willing to extend such a loan to Borrower, upon and subject to the terms
and conditions contained herein.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained,
the parties hereto agree as follows:

                    ARTICLE 1. -- AGREEMENT TO BORROW AND LEND

          1.1     Agreement to Borrow and Lend. Subject to the terms, provisions and conditions set
forth in this Agreement, Lender hereby agrees to make, and Borrower hereby agrees to accept, a loan, in
the aggregate principal amount of [_______________] Dollars ($[___________]) (the "Loan") to be
advanced on [___________________] (the "Closing Date") at the Closing.

                                 ARTICLE 2. -- DEFINITIONS

       2.1     Defined Terms. The following terms as used herein shall have the following meanings:
                                                                                                3
               Accounts: Accounts as that term is defined in the Uniform Commercial Code.

              ADA: The Americans with Disabilities Act of 1990, 42 U.S.C. §12101, as from time to
       time amended, together with other Laws requiring access and facilities for disabled individuals.

              ADA Plan: All plans, studies and reports prepared in connection with the Project's
       compliance or plan for compliance with the ADA.

________________________

1
       If the relationship between owner and manager is not one of agency, the ability of the owner to
       perform covenants related to operation, access and delivery of information may be in question.
       The existence of agency and any limitations on the owner's agency rights will also be relevant to
       the lender.
2
       This form of agreement does not provide for a revolving credit facility or multiple advances and
       requires modification to be used for such facilities.
3
       Note that this U.C.C. definition does not include bank and similar deposit accounts or cash.




                                                   1
                                                                                            4
               Affiliate Debt: As defined in the description of Exhibit C in Section 5.4.

                Affiliates: With respect to an individual, any relative of such individual; and with respect
       to any Person, any other Person: (i) directly or indirectly controlling, controlled by or under direct
       or indirect common control with, such Person or (ii) that directly or indirectly owns more than five
       percent (5%) of the voting securities or capital stock of such person. A Person shall be deemed
       to control another Person if such Person possesses, directly or indirectly, the power to direct or
       cause the direction of the management and policies of such other Person, whether through the
                                                                 5
       ownership of voting securities, by contract or otherwise.

              Agreement: This Loan Agreement, supplemented or amended from time to time
       pursuant to Section 16.4.

               ALTA: American Land Title Association.

               Annual Budget: As defined in Section 8.1(b).

               Annual Loan Debt Service: As defined in Section 3.4(b).

               Annual Statement: As defined in Section 8.4.

                Appraisal: An appraisal of the value of the Hotel, [determined on a going-concern
       basis/an orderly liquidation basis,] performed by an independent appraiser selected by Lender
       who is not employed by, or an Affiliate of, Borrower or Lender, the form and substance of such
       appraisal to be in accordance with [FIRREA] requirements and otherwise in a form acceptable to
               6
       Lender.

________________________

4
       Substantial portions of the Collateral (including revenues of operation, Accounts and other
       Personal Property) may not be treated as "rents" for bankruptcy and U.C.C. purposes. Whether
       or not they are "rents" for purposes of foreclosure, receivership or U.C.C. filings continue to be
       questions of state law which the appeals courts of few states have resolved. Such collateral is
       reserved to the secured mortgage lender in bankruptcy only to the extent that it is "hotel
       revenues" under the amended Bankruptcy Code. To the extent that the collateral is not "hotel
       revenues" within the Code, it may be exposed to the competing claims of subordinate and
       unsecured creditors in bankruptcy. The creation of any class of junior creditors (other than trade
       creditors in the normal course) presents a serious risk to secured lenders even if the debt is
       affiliate debt that is otherwise subordinate. Therefore, lenders are requiring intercreditor
       agreements binding all classes of permitted creditors. These may include provisions in Tri-Party
       Agreements with operators or franchisors.
5
       Unless the borrower also operates the hotel as manager, the lender must concern itself with
       potential “leakage” of value in transactions with affiliates of both borrower and its manager. Both
       have potential for self-dealing to the lender's detriment. In some situations, an owner
       unsophisticated in hotel investment and asset management or preoccupied with short-term cash
       distributions may not adequately protect its interests or those of the lender in long term value of
       the hotel when negotiating the management agreement. This places the lender under some
       pressure to require a reexamination and renegotiation of the agreement for the protection of its
       collateral and exit strategy.
6
       Little consensus exists on the best method of hotel appraisal. In the current market, replacement
       cost, historic cost and comparable sale prices after foreclosure have not been considered reliable
       indicators of value. Discounted projected cash flow has been deemed a better basis for

(continued)


                                                     2
                Approved Budget: As defined in Section 8.1(b).

                 Available Cash: As of the end of any Month, the cash held in the Operating Account
        less: (i) all Project Expenses then accrued whether or not due for payment, (ii) all cash
        transferred or to be transferred on account of that Month to any Reserve pursuant to Sections 7.3
        and 7.4, (iii) amounts paid on account of future services or reservations, and (iv) insurance and
                                                                                                      7
        condemnation proceeds. Amounts held in the Reserves shall not be deemed Available Cash.

                Bankruptcy Code: Title 11 of the United States Code, as amended from time to time.

                Books and Records: As defined in Section 8.2(a).

                Borrower: As defined in the preamble to this Agreement.

                 Business Day: Any day other than a Saturday, Sunday or any day which shall be in
        [state of Lender's office] a legal holiday or day on which the banking institutions are authorized or
        are required by law or other governmental action to close.

                 Business Plan: A projection by Borrower of its best estimate of the financial
                                                   8
        performance of the Project in the [five (5) ] years following the last fiscal year for which audited
        statements are available, together with a narrative description of the intended operation of the
                              9
        Project in that period .

________________________
(continued from previous page . . .)

        valuation, but the assumptions used to project performance are obviously open to speculation
        and exaggeration. Valuations based on projected revenue growth over multiple years at twice the
        rate of increases of expense deserve no credibility, but are not uncommon in the present market.
        Further, a large component of value is likely to be based on intangibles, such as client loyalty,
        name recognition, goodwill and other elements of a "going business". Standards for acceptable
        hotel appraisals are likely to change, and perhaps to change radically, over the next decade. For
        that reason, highly specific appraisal procedures are not advisable.
7
        "Available Cash" refers to cash flow rather than accrued income. In normal hotel operation, these
        are materially different amounts because cash is usually taken in before associated expenses are
        paid out. For example, cash is received from credit card sales in a few days but vendors are paid
        on a thirty to sixty-day cycle. This definition reduces the distortion but does not eliminate it. It
        also does not deal with the practice of some hotel managers of booking an expense and
        transferring cash to themselves for what are actually estimated or accrued amounts. Disguised
        self insurance may create similar problems.
8
        While lenders may request a business plan over a multi-year period, few if any such business
        plans are routinely produced by hotel operators. Even fewer have any real predictive value. In
        general, plans produced under management agreements are bonus driven, have proven
        unreliable and have failed to identify anticipated problems. Lenders may need to insist on multi-
        year capital budgets and to impose some accountability for meeting those budgets. Review of
        historic capital expenditures, brand standard expenditure, and property condition analysis are
        receiving increased attention as more loans are made on older hotels.
9
        The issue of how a property is intended to be used arises in several clauses in this form of loan
        agreement. See, e.g., Sections 5.2(a), 5.2, 5.3(b), and first unnumbered provision in Section 5.4
        under heading "Laws, Licenses and Permits." The Business Plan or chain standards may be the
        only reference points available to establish the standard for future operation. Because disputes
        over operating standards and associated funding obligations are increasingly frequent, some

(continued)


                                                     3
                Capital Budget: As defined in Section 8.1(a)(2).

                Chattel Paper: Chattel Paper as that term is defined in the Uniform Commercial Code.

               Closing: The closing of the Loan as contemplated by and in accordance with the terms
        and provisions of this Agreement.

                Closing Date: [____________________], 20[_].
                                                                                          10
                 Collateral: All of Borrower's right, title and interest in the Project , including without
        limitation all Real Estate, Accounts, Chattel Paper, Contracts, Documents, Equipment, General
        Intangibles, Instruments, Inventory, Trademarks, Trademark Licenses, Vehicles, Depositary
        Accounts and cash on hand of Borrower, and any Proceeds of the foregoing.

                  Contracts: All contracts, agreements, warranties and representations relating to or
        governing the use, occupancy, operation, management, hotel group, name or chain affiliation
        and/or guest reservation, repair and service of the Project, and all leases, occupancy
        agreements, concession agreements, and commitments to provide rooms or facilities in the
        future, including all amendments, modifications and supplements to any of the foregoing.

                Contract Rate: As defined in Section 3.2(b)(1).

                Coverage Ratio: As defined in Section 3.4(b).

                 Current Rate: An interest rate equal to the prevailing rate (at the time such Current Rate
        is to be determined) paid on United States Treasury obligations having a maturity date equal to
        the [_____] ([___]) anniversary of the Closing Date.

                Default: Any event which, if it were to continue uncured, would, with notice or lapse of
        time or both, constitute an Event of Default (as such term is defined in Article 14 of this
        Agreement) and shall also mean any event or circumstance which immediately upon occurrence
        without notice and/or lapse of time constitutes an Event of Default.

                Default Rate: The interest rate specified as such in Section 3.2(b)(3).




________________________
(continued from previous page . . .)

        effort to define future operations is advisable. References to "five star" or "luxury" or specific
        chain standards are unlikely to be adequate.
10
        Note that this is limited to the borrower's interest. If the borrower has conveyed some portion of
        its rights to a third party, they do not pass to the lender without a separate agreement with the
        current holder of the rights. A common situation is a borrower/owner who has conveyed a prior
        right to collect and use cashflow to the operator or manager. Without separate agreement, the
        lender may acquire only the right to collect the net proceeds, if any, from the contract. This
        places greater significance on representations and warranties of title to assets that are not classic
        real estate interests. Lenders cannot afford to ignore the implications of third party agreements to
        undercut ownership or priority of interest in assets, particularly where any title or U.C.C.
        insurance excepts matters which are “to the knowledge of the insured.”




                                                      4
                                                                                            11
              Deficiency Rate: The interest rate specified as such in Section 3.2(b)(2).
                                                                 12
              Deposit Account: As defined in Section 7.4(a).

              Depository Accounts: Any deposit, time or other account in which Project Revenues
      are deposited or held with Lender's approval, including without limitation the Operating Account,
                                                                                  13
      the Payroll Account, the FF&E Reserve Account, and the Deposit Account.

               Distribution: The declaration or payment of any dividend or distribution on or in respect
      of any shares of any class of stock of Borrower or any distribution of cash or cash flow in respect
      of any equity interest or other ownership interest in Borrower; or the purchase, redemption, or
      other retirement of any shares of any class of stock of any Person or equity interests in Borrower,
      directly or indirectly through an affiliate or otherwise; the making of any loans to any shareholder,
      equity holder or Affiliate of Borrower; the return of capital by Borrower to its shareholders or
      holders of equity interests; or any other distribution on or in respect of any shares of any class of
                                                                                          14
      stock of Borrower or any equity interest or other ownership interest in Borrower.

              Environmental Laws: The Comprehensive Environmental Response, Compensation
      and Liability Act of 1980, 42 U.S.C. § 9061 et seq., as amended by The Superfund Amendments
      and Reauthorization Act of 1986, Pub. L. No. 99-499 (100 Stat. 1613), the Hazardous Materials
      Transportation Act, 49 U.S.C. § 1802, The Resource Conversation and Recovery Act, 42 U.S.C.
      § 6901 et seq., the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. § 2601 et seq.,
      Water Pollution Control Act, 33 U.S.C. § 1251 et seq. as amended, the Clean Air Act, 42 U.S.C. §
      7401 et seq. as amended, the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq. as
      amended, and any other Laws relevant to Hazardous Materials.
                                                                                                    15
              Equipment: Equipment as that term is defined in the Uniform Commercial Code.

               ERISA: Employee Retirement Income Security Act of 1974, as amended, and the
      regulations promulgated thereunder from time to time.

              Event of Default: As defined in Article 14 hereof.

________________________

11
      This rate is intended to apply prior to default but after the borrower or the property fails to achieve
      or maintain some performance threshold. See the definition of "Triggering Event" in Section
      3.4(b) and footnote 31.
12
      These are intended to be tax and insurance premium escrow accounts. Such escrows are often
      incompatible with normal hotel operations. See Section 7.4 and footnote 79.
13
      Cash management by hotel operators may conflict with provisions for both the ownership and
      priority of the lender’s lien. How cash is in fact owned, held and handled is a major diligence and
      opinion issue for lenders. It is also an issue for Tri-Party Agreements.
14
      This definition is intended to include other means by which a borrower can transfer value to
      affiliates to the detriment of its creditors. Surprisingly, hotel lenders seem blind to the
      intercompany and unsecured transactions that can affect value. This is one area in which hotel
      lenders have failed to incorporate prudent practices from corporate lenders.
15
      The Uniform Commercial Code definitions of Inventory and Equipment are not consistent with
      definitions in the Uniform System of Accounts for Hotels. This Agreement attempts to use
      Uniform Commercial Code definitions for operative clauses relating to the creation of security
      interests, and Uniform System of Accounts terminology for reports and accounting requirements.




                                                    5
                                        16
              FF&E Reserve Account:          As defined in Section 7.3.

               FF&E: All fixtures, furnishings, equipment, furniture, and other items of tangible personal
      property now or hereafter located on the Land or in the Hotel or used in connection with the use,
      occupancy, operation and maintenance of all or any part of the Project, other than stocks of food
      and other supplies held for consumption in normal operation but including, without limitation,
      appliances, machinery, equipment, signs, artwork, [including the paintings, prints, sculpture and
      other fine art described on Exhibit J attached hereto,] office furnishings and equipment, guest
      room furnishings, and specialized equipment for kitchens, laundries, bars, restaurants, public
      rooms, health and recreational facilities, linens, dishware, all partitions, screens, awnings,
      shades, blinds, floor coverings, hall and lobby equipment, heating, lighting, plumbing, ventilating,
      refrigerating, incinerating, elevators, escalators, air conditioning and communication plants or
      systems with appurtenant fixtures, vacuum cleaning systems, call or beeper systems, security
      systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials;
      reservation system computer and related equipment; all equipment, manual, mechanical or
      motorized, for the construction, maintenance, repair and cleaning of parking areas, walks,
      underground ways, truck ways, driveways, common areas, roadways, highways and streets; and
                   17
      the Vehicles .
                                                                          18
              Formation Documents: As defined in Section 5.1(b).

              GAAP: Generally accepted accounting principles, consistently applied, as supplemented
                                         19
      by the Uniform System of Accounts.

           General Intangibles:         General Intangibles as that term is defined in the Uniform
      Commercial Code.

                Governmental Authority: Any federal, state, county or municipal government, or
      political subdivision thereof; any governmental or quasi-governmental agency, authority, board,




________________________

16
      As noted in the Standard Form of Hotel Management Agreement, owners and operators may
      want to treat FF&E expenditure and other capital expenditure separately with separate reserve
      requirements. From the lender's point of view, the issue of capital replacement is one of overall
      adequacy factoring in repair, maintenance and additional costs imposed by operator or franchisor
      as part of brand standards.
17
      "Vehicles" is a Uniform Systems of Accounts definition.
18
      These documents are specified on an exhibit and required to be produced to verify several
      representations, such as due authority and the special or limited purpose of a corporation or
      venture. In the case of a partnership, joint venture or limited liability company, inquiry may need
      to extend beyond the organizational documents to evidence of authorization under contract and
      statute.
19
      Uniform Systems of Accounts for the Lodging Industry is an industry-sponsored refinement of
      GAAP used for reports from a single property, reporting as if it were a distinct entity. GAAP
      continues to govern intercompany and entity-level accounting. Uniform Systems does not
      address issues such as affiliate transactions, creation of inter-company credits or sweep
      accounts. Uniform Systems is primarily the product of operators and their accounting firms, and
      is not always adequate as a standard to protect lenders and investors.




                                                    6
        bureau, commission, department, instrumentality, or public body, or any court or administrative
                                                                              20
        tribunal thereof; and each insurer providing any part of the Insurance .
                                      21
               Hazardous Material : Any (a) crude oil, petroleum or any fraction thereof, flammable
      substances, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or
      substances or any other wastes, materials or pollutants which cause the Project or any part
      thereof to be in violation of any Environmental Laws; (b) friable or potentially friable asbestos or
                                      22
      asbestos-containing material (as those terms are defined in any Environmental Laws now in
      effect or hereafter enacted or amended), urea formaldehyde foam insulation, transformers or
      other equipment which contain dielectric fluid containing levels of polychlorinated byphenyls, or
      radon gas; (c) chemical, material or substance defined as or included in the definition of
      "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous
      waste," "pollutant," "restricted hazardous waste," or "toxic substances" or words of similar import
      under any applicable local, state or federal law now in effect or hereafter enacted or amended or
      under regulations now or hereafter promulgated pursuant thereto, including, but not limited to, the
      Comprehensive Environmental Response, Compensation and Liability Act of 1980, et seq., as
      amended (42 U.S.C. § 9601, et seq.), particularly as amended by the Superfund Amendment and
      Reauthorization Act; the Federal Water Pollution Control Act, as amended, 33 U.S.C. § 1251, et
      seq.; 40 C.F.R. §§ 261.20-261.24, inclusive; and the Resource Conservation and Recovery Act,
      as amended (42 U.S.C. § 6901, et. seq.), the Clean Air Act, as amended (42 U.S.C. § 7401, et
      seq.), the Occupational Safety and Health Act, as amended (29 U.S.C. § 651 et seq.); (d) other
      chemical, material or substance, including bacteria, spores or other indoor airborne microbial
                     23
      contaminants, exposure to which is now or hereafter prohibited, limited or regulated by any
      Governmental Authority or is likely to pose a material hazard to the health and safety of the
      employees or occupants of the Project or the owners and/or occupants of property adjacent to or
      surrounding the Project, or any other Person coming upon the Project or adjacent property; and
      (e) other chemical, material or substance which is likely to pose a material hazard to the
      environment, or the removal of which is required, or the use, production, storage, handling,
      labeling, sale, transfer, refinement, manufacturing, maintenance, ownership, presence, treatment,
      processing, transport, generation, emission, removal, remediation, manufacture, discharge,
      release or threatened release, control, disposal or other management of which is restricted,
      prohibited, regulated or penalized by any Environmental Laws (including, without limitation, the
      Occupational Safety and Health Act and 29 C.F.R. Part 1910 subpart z).
________________________

20
        Hotel insurers are included as primary regulators because they generally impose requirements
        more stringent than local building codes and fire regulations. Tort cases concerning hotels
        suggest that code compliance is and will continue to be less relevant to liability than will be
        compliance with industry practice and insurance standards. Indeed, the cases suggest that the
        industry may approach a strict liability standard for some elements of life safety systems.
21
        Hotels present substantial environmental issues. Operating supplies usually include several
        listed chemicals used for cleaning and equipment operation. Landscaping, and in particular golf
        courses and other resort features, often involve intense use of agricultural chemicals.
22
        Hotels were particularly intensive users of asbestos for fire safety purposes. ADA compliance
        and renovation programs that involve opening the walls of older hotels are likely to produce more
        asbestos issues than work in an office building of similar age.
23
        Hotels unfortunately remain on the cutting edge of contamination issues. Recent issues include
        life-threatening bacterial contamination resulting from water-logged storage areas, bacterial
        material in air conditioning systems, and variations on Legionnaires' disease. Legionnaires'
        disease was first identified in an outbreak at the Hotel Bellevue, Philadelphia, and contributed to
        its bankruptcy. What is an acceptable level of mold activity appears to be driven by the location
        of the property, with different expectations for a tropic resort and an urban hotel.




                                                     7
               Hotel: All buildings, structures, improvements and appurtenances located on the Land
      presently consisting of [____] guest rooms, each with bath; all restaurants, bars and banquet,
      meeting and other public rooms; shop units and all other space and concessions for the sale of
      merchandise, goods and services; garage and parking spaces; support and back of the house
      areas, including kitchens, storerooms and maintenance workshops; recreational, health club and
      other health facilities including the swimming pool; parking facilities; public grounds and gardens
      located on or constituting all or a portion of the Land, and any rooms, public or private areas or
      garage space which may be added to the Land or to any of the foregoing in the future.

              Instruments: Instruments as that term is defined in the Uniform Commercial Code.
                                                                                              24
              Insurance: The insurance required to be maintained pursuant to Article 9.

               Internal Revenue Code: The Internal Revenue Code of 1986, as amended, and the
      regulations promulgated thereunder from time to time.

               Inventory: Inventory as that term is defined in the Uniform Commercial Code, and
      including within that term items which would be entered on a balance sheet under the line items
      for "Inventories" or "China, glassware, silver, linen and uniforms" under the Uniform Systems of
                 25
      Accounts.

               Land: The land described in Exhibit A hereto, together with all easements, servitudes,
      rights of way, gores of land, streets, ways, alleys, passages, sewer rights, waters, water courses,
      water rights and powers, and all estates, rights, titles, interests, privileges, liberties, tenements,
      hereditaments and appurtenances whatsoever, in any way now or hereafter belonging, relating or
      appertaining to the Land, and the revisions, remainder, rents, issues and profits thereof, and all
      the estate, right, title, interest, property, possession, claim and demand whatsoever, at law as
      well as in equity, of the Borrower of, in and to the same.

              Laws: Collectively, all laws, statutes, codes, ordinances, orders, rules, regulations,
      binding policies or interpretations of Governmental Authorities [, requirements of License &
      Permits][ or conditions of Insurance] which are in effect from time to time, including judicial
      opinions or precedential authority in the applicable jurisdiction, and including, without limitation, all
      Environmental Laws, all rules and regulations relating to life safety and the ADA.

              Lender: [______________________], together with its successors and assigns.

              Licenses & Permits: All building permits, certificates of occupancy and other permits,
      licenses, approvals and authorizations of any Governmental Authority, including all amendments,
      supplements and modifications thereto, necessary to own, use, occupy, operate or maintain the




________________________

24
      As indicated in Article 9, reference should be made to the Standard Form of Hotel Management
      Agreement for a standard hotel insurance provision. Coverage, rating standards and exclusions
      for special risks are evolving relatively quickly. In general, insurance for hotels is not available at
      the same quality as for other types of investment real estate.
25
      "Inventory" under Uniform System of Accounts is "inventory" for the purposes of the Uniform
      Commercial Code. The Uniform Commercial Code also includes certain equipment and FF&E
      within its definition.




                                                     8
       Project or any part thereof as presently and as projected to be operated, including any license
                                                      26
       required for the service of alcoholic beverages .

               Lien:      Any mortgage, pledge, hypothecation, assignment, deposit arrangement,
       encumbrance, lien (statutory or otherwise), preference, priority or other security agreement or
       preferential arrangement of any kind or nature whatsoever (including, without limitation, any
       conditional sale or other title retention agreement, any Capital Lease having substantially the
       same economic effect as any of the foregoing, and the filing of any financing statement under the
       Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the
       foregoing). For the purposes of this definition, "Capital Lease" shall mean (a) any lease of
       property, real or personal, the obligations of which are capitalized on a balance sheet of Borrower
       and (b) any other such lease to the extent that the then present value of the minimum rental
       commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of
       the lessee.

               Loan: As defined in Section 1.1.

               Loan Documents: This Agreement, the Note, the Security Agreement, and any and all
       other documents delivered by Borrower or others to Lender pursuant to this Agreement or to
       secure the Loan, the Obligations or any other liabilities thereunder.

               Loan Expenses: As defined in Section 4.1.

               Loan Fee: As defined in Section 4.4.

               Loan Maturity:     The date described in Section 3.2(a) unless sooner accelerated or
       required to be prepaid.

              Management Agreement: The agreement, dated [___________________________],
       between Borrower and Manager.

               Manager: [__________________________________].

               Mandatory Amortization Payments: As defined in Section 3.4.

                Month: A periodic reporting period of approximately 30 days used with the consent of
       Lender in writing as a fiscal reporting period for the operations of the Hotel commencing on or
                                                                                          27
       after the Closing Date. Such period may or may not coincide with a calendar month.


________________________

26
       Liquor licensing is not treated in any detail in this form agreement because local regulations
       require widely differing procedures. In New York, for example, a mortgage lender may take over
       control of a liquor license through the appointment of a receiver, but the collateral pledge and
       order appointing the receiver must recite the specific language required by the alcoholic beverage
       commission if the lender is to obtain an "endorsement" of the license to its receiver.
27
       Several major hotel management groups have placed their accounting schedule on a cycle
       unrelated to calendar months, and provide reports and information according to their own
       accounting periods. The borrower will be dependent on its manager for information and will not
       be able to produce reports on a calendar basis. For asset management purposes, the lender
       may need to adjust performance tests, coverage ratios and similar financial standards to the
       reporting schedule actually in use at the hotel. This form of loan agreement follows the property-

(continued)


                                                   9
                Monthly Reports: As defined in Section 8.3.

                Mortgage: As defined in Section 6.2(a)(1).

                Net Cash Flow: As defined in Section 3.4(b).

                Note: As defined in Section 3.2.

                Obligations: All of the indebtedness, obligations and liabilities of Borrower to Lender
        under this Agreement, the Note, or any of the other Loan Documents, or in respect of the Loan or
        the Note or other instruments at any time evidencing any thereof, whether existing on the date of
        this Agreement or arising or incurred hereafter, direct or indirect, joint or several, absolute or
        contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by
        contract, operating of law or otherwise arising or incurred.

                Operating Account: As defined in Section 7.1.

                Operating Budget: As defined in Section 8.1(a)(1).

              Operating Expenses: Project Expenses other than interest, amortization and late fee
        payments on the Loan.

                 Operating Revenues: All Project Revenues, excluding therefrom: (i) proceeds of
        insurance payable on account of physical damage to or destruction of the Project and (ii) all
        awards made to or consideration received by, Borrower in connection with the exercise of or
        arising out of condemnation or eminent domain powers.

                 Outside Sources: A source or sources of funds other than: (i) the proceeds of the Loan,
        (ii) Project Revenues or other revenues or funds generated by or in respect of the Project,
        including, without limitation, insurance proceeds and condemnation awards, (iii) proceeds of
        indebtedness secured by any of the Collateral or any interest therein, or the Project or any equity
        interest in Borrower or the Collateral, including without limitation, the Project, and (iv) proceeds of
                                                28
        unsecured indebtedness of Borrower.

                Permitted Exceptions: Those matters listed in Exhibit P hereto.

                Person:    Any individual, sole proprietorship, partnership, joint venture, trust,
        unincorporated organization, association, corporation, institution, entity, party or government

________________________
(continued from previous page . . .)

        level definition of "Month" throughout, but a lender may need to use a combination of the
        manager's schedule for reports and a calendar schedule for loan payments.
28
        This definition is relevant to how operating cash or capital budget shortfalls are to be funded if
        any arise. See Section 7.6. Experience indicates that cash flow shortfalls occur routinely on a
        seasonal basis, and are not always fully anticipated and reserved. Larger shortfalls may arise if
        the property requires a material capital improvement or replacement beyond normal FF&E
        requirements. The arrival of a new competitor often creates such a need. Often, owners meet
        these shortfalls by borrowing from managers or using their equity interests as collateral. Either
        solution may endanger the solvency of the borrower and the health of the hotel operation. When
        the funding is provided in the management agreement, the management company may claim a
        position prior to the secured lender in regard to future income.




                                                     10
      (whether territorial, national, federal, state, county, city, municipal or otherwise, including, without
      limitation, any instrumentality, division, agency, body or department thereof).

                Personal Property: That portion of the Project constituting interests other than in Real
      Estate.

               Plans & Specification: All building and furnishing plans, specifications, diagrams,
      drawings, studies and data of whatever past or future date related to the construction, renovation
      or alteration of the Hotel, including, without limiting the generality of the foregoing, the ADA Plan.

                Proceeds: Proceeds as that term is defined in the Uniform Commercial Code.

               Project: The Land, the Hotel, the Accounts, the Chattel Paper, the Contracts, the
      Documents, the Equipment, the General Intangibles, the Instruments, the Inventory, the Licenses
      and Permits, the FF&E, the Vehicles, the Trademarks and Trademark Licenses, the Plans and
      Specifications, the Depository Accounts and Reserves and all other property of every kind and
      description used or useful in the ownership, occupancy, operation and maintenance of the Land
      and Hotel as a hotel as they are currently operated and proposed to be operated in future [as set
                                   29
      forth in the Business Plan ]; together with any and all proceeds of the foregoing, including,
      without limitation, any and all cash and non-cash consideration received from the sale, exchange,
      lease, collection or other disposition of any of the foregoing, any value received as a
      consequence of the possession of any of the foregoing, any payment received from any insurer
      or other person or entity as a result of the destruction, loss, theft, damage or other involuntary
      conversion of whatever nature of any of the foregoing, and all property of any kind or nature
      which are acquired with any proceeds of any of the foregoing.

               Project Expenses: The reasonable and authorized operating, maintenance and other
      costs and expenses, whether deemed capital or ordinary, resulting from the operation of the
      Project incurred by or on behalf of Borrower in the ordinary course of business of the Project
      including, without limitation, the costs of food and beverages sold or consumed; reasonable
      salaries, wages, and other remuneration to on-site full time Project personnel; the costs of repairs
      and maintenance to the Project (except costs funded from Reserves); the funding of the
      Reserves for the purposes and the amounts described in Sections 7.3 and 7.4; amounts payable
      under any franchise agreement; amounts payable under the Management Agreement; premiums
      for Insurance; real and personal property taxes; reasonable advertising, marketing, sales
      promotion and public relations for the Project (to the extent actually incurred exclusively for the
      Project); costs for security services, exterminating services, guest transportation, trash disposal
      services, utilities, permit and license fees; payments under the Contracts; debt service on the
      Loan; and Mandatory Amortization Payments. "Project Expenses" shall not include Distributions,
      taxes imposed on Borrower measured by Borrower's income, optional amortization of the Loan,
      debt service or amortization on indebtedness other than the Obligations, and off-site or overhead
      expenses of Borrower or its Affiliate.

              Project Revenues: All income and revenue of every kind and description (net of sales
      and similar tax collections) received or receivable by Borrower or (unless expressly disclosed and
      consented to by Lender) any Affiliate of Borrower resulting or arising from the ownership, use,
      occupancy or operation of the Project and all of its facilities, as determined in accordance with the
      Uniform System of Accounts, and including, without limiting the generality of the foregoing: (a) all
      income received from tenants, transient guests, lessees, licensees, concessionaires or owners of
      other rentable properties (but not including the gross receipts of such lessees, licensees,
________________________

29
      See discussion in footnote 8.




                                                    11
concessionaires or owners) and any other person occupying space at the Project and or
rendering services to the Project guests, (b) all subsidy payments, governmental allowances and
awards, and any other incentive payments or awards from any source whatsoever, which are
attributable to the ownership or operation of the Project, and (c) the proceeds of Insurance.

        Real Estate: That portion of the Project constituting interests in real property under
applicable Laws.

        Reserves: FF&E Reserve Account, Deposit Account and other reserve accounts
required to be funded from time to time under this Agreement.

        Security Agreement: The security agreement to be delivered at Closing pursuant to
Section 6.2(a)(2) and in the form attached as Exhibit Y.

         Survey: As defined in Section 5.2 [omitted with other purely real estate provision from
this form].

         Tanks: As defined in Section 5.2 [omitted with other purely real estate provision from this
form].

         Taxes: As defined in Section 10.8.

      Title Insurer:    Such title insurance company licensed [in the State                       of
______________________], as may be approved by Lender in connection with the Loan.

         Title Policy: As defined in Section 6.1(c)(1).

          Trademarks: Trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, service marks, logos and other source or business
affiliation identifiers, and the goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in connection with the
foregoing, whether in the United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country or any political subdivision
thereof, including, any renewals of any of the foregoing.

        Trademark License: A Contract providing for the grant by or to Borrower or Manager of
any right to use any Trademark in regard to the Project or a portion thereof.

         Triggering Event: As defined in Section 3.4(b).

         Uniform Commercial Code: The Uniform Commercial Code as from time to time in
effect in the [State of _______________________].

         Uniform System of Accounts: Uniform System of Accounts for Hotels, 8th Edition,
International Association of Hospitality Accountants (1986), as from time to time amended.

         Vehicles: All vehicles[, aircraft and boats], manual, mechanical or motorized, used or
useful in the operation of the Hotel.




                                              12
         2.2     Use of Defined Terms. Defined terms may be used in the singular or the plural. When
used in the singular preceded by "a,” "an,” or "any,” such term shall be taken to indicate one or more
members of the relevant class. When used in the plural, such term shall be taken to indicate all members
of the relevant class.

                  ARTICLE 3. -- TERMS OF LOAN AND LOAN DOCUMENTS

        3.1      Use of Proceeds. The proceeds of the Loan shall be used solely for [the acquisition of
the Project/refinancing of all existing liens upon the Project/Closing Expenses/etc.].
                      30
        3.2     Note.     The Loan will be evidenced by a Promissory Note (the "Note") made by
Borrower and payable to the order of Lender in the original principal amount of $[_________________].
The Note shall contain (and/or be subject to) the following terms and conditions and the terms specified in
Sections 3.4 and 3.5:

        (a)      The unpaid principal balance, all accrued and unpaid interest, and all other sums due and
payable under the Note or the Loan Documents, if not sooner paid, shall be due and payable on
[________________________] or such earlier date to which the maturity may be accelerated pursuant to
the Note or this Agreement (the effective date of such maturity by acceleration or otherwise being "Loan
Maturity").

        (b)     The Loan shall bear interest at the rate per annum set forth below:

                (1)     In the absence of any occurrence and continuation uncured of a Default or a
        Triggering Event as set forth in Section 3.4(b), at the rate per annum defined in the Note as the
        then-applicable "Contract Rate."

               (2)     Upon the occurrence of a Triggering Event and until such Triggering Event has
        been cured pursuant to Section 3.4(c), at the rate per annum equal to the Contract Rate plus
        hundred basis points (the "Deficiency Rate").

                (3)      Upon the occurrence of a Default and until such Default has been cured, the
        outstanding balance of the Loan shall bear interest at a rate per annum equal to the lesser of the
        Contract Rate plus [___] hundred basis points or the greatest amount allowed by law (the
        "Default Rate").

         (c)    Borrower shall make payments of principal and interest on the Loan as set forth in the
Note. Interest shall be calculated for actual days elapsed on the basis of a [360-day] year. Interest shall
be payable for the Closing Date, but not for the day of any payment on the amount paid if such payment
is received by Lender prior to 12:00 p.m. [E.S.T.] If any payment of principal or interest shall be due on a
day which is not a Business Day, such payment shall be made on the next succeeding Business Day,


________________________

30
        This provision is inserted as a demonstration of how provisions for interest rate adjustment and
        acceleration of mandatory amortization can be used as sanctions for poor performance. These
        also create a self-operative response to the issues of reducing loan balances and increasing
        effective interest rates when performance levels indicate that the collateral may be inadequate.
        These techniques are frequently used in venture capital lending where enforced progress toward
        adequate performance is far more important than the lenders' remedies in the event of default.
        Such clauses had a role in the orderly handling of cash flow disruption as the impact of 9/11
        worked through the industry.




                                                    13
and in the case of a principal payment, such extension of time shall be included in computing interest in
connection with such payment.

        (d)      All payments of principal, interest or any other sums due under the Note, this Agreement
or any of the other Loan Documents shall be made without setoff, deduction or counterclaim of any kind
whatsoever and in immediately available U.S. funds to Lender at its address specified in Section 16.3 or
at such other business location of the Lender within the United States which is specified in writing by
Lender to Borrower at least two (2) Business Days prior to the payment due date.

        (e)     In the event that any [installment of principal or interest] due under the Note is made
more than fifteen (15) days after its due date, then Lender shall be entitled, at its option, to collect a "late
charge" in an amount equal to the lesser of five percent (5%) of the installment then due or the maximum
rate provided by law.

        3.3      Optional Amortization Payments. (a) Borrower shall have no right or privilege to
prepay the Note, in whole or in part (other than the scheduled periodic payments of principal and interest
as required by the Note), on or prior to the [_____] anniversary of the Closing Date.

          (b)    During the period commencing on the first day following the [______] anniversary of the
Closing Date through and including the [_____] anniversary of the Closing Date, Borrower shall have the
right to prepay the Loan in whole or in part (but if in part, not in increments of less than
$[_________________]) upon at least [_________] ([__]) days' prior written notice to Lender, by payment
to Lender of: (i) all amounts of accrued and unpaid interest on the outstanding balance of the Loan,
(ii) the amount to be prepaid, and (iii) a prepayment charge equal to 100% of the present value of the
difference between:

               (1)     The interest due at the Contract Rate on the amount prepaid, from the
        prepayment date through the [______] anniversary of the Closing Date, had the prepayment not
        occurred, LESS

               (2)     The interest on the same prepaid amount, from the prepayment date through the
        [______] anniversary of the Closing Date, calculated by using the then-applicable Current Rate.

       The discount rate for making the foregoing present value determination will be a rate equal to the
then Current Rate.

        (c)     At any time after the [_____] ([______]) anniversary of the Closing Date, Borrower shall
have the right to prepay the Loan in whole or in part (but if in part, not in increments of less than
$[____________]) without cost or penalty, upon at least [________] ([__]) days' prior written notice to
Lender.

         3.4     Mandatory Amortization Payments. (a) Notwithstanding the limitations upon optional
amortization payments set forth in Section 3.3, Borrower shall be obligated to make payments in
reduction of the outstanding principal balance of the Loan (each a "Mandatory Amortization Payment")
as set forth in Section 3.4(d) upon the deemed occurrence of a Triggering Event and for so long as such
Triggering Event is deemed uncured.

         (b)      A "Triggering Event" shall be deemed to have occurred on the last day of a Month if the
ratio of (i) the positive Net Cash Flow during the twelve Months then ending to (ii) the Annual Loan Debt




                                                      14
                                                                              31
Service (such ratio being the "Coverage Ratio") is less than [1.25] to 1 . For the purposes of this
calculation, (i) "Annual Loan Debt Service" shall mean as of the last day of a Month, the total amount of
interest that would accrue in a [360]-day year on the then-outstanding principal balance of the Loan at the
Contract Rate. "Net Cash Flow" shall mean for any period for which Net Cash Flow of the Hotel is to be
determined, the Operating Revenues collected during such period, less the Operating Expenses accrued
during such period (but which may not be then due and payable) and less an amount equal to the
interest, principal, and other debt service payable on the Obligations and any other outstanding
indebtedness (whether or not actually paid).

        (c)     A Triggering Event shall be deemed to be cured if on the last day of a Month the
                                                    32
Coverage Ratio calculated for the twelve Months then ending equals or exceeds [1.25] 33 to 1. Such
cure shall be deemed to occur as of the first day of the next Month.

        (d)     Commencing on the [last] day of the Month following the Triggering Event and continuing
to and including the last day of the Month in which the Triggering Event is deemed cured, Borrower shall
pay to Lender a Monthly Mandatory Amortization Payment equal to [$           ][  percent ( %) of Project
                                                   34
Revenues] [Net Cash Flow in excess of $           ] for the prior Month.

        (e)     No prepayment fee or penalty shall be due upon any Mandatory Amortization Payment.

        (f)     Upon the deemed occurrence of a Triggering Event and to and including the date on
which such Triggering Event is deemed cured, the provisions of Section 3.2(b)(2) [Deficiency Rate] and
Section 10.10 [Limitation on use of cash flow for Distributions] shall also apply.

        3.5      Yield Protection. If any treaty, law or any governmental rule, regulation, policy,
guideline or directive (whether or not having the force of law), or any interpretation thereof, or compliance
of Lender with such:

        (a)     Subjects Lender to any tax, duty, charge or withholding on or from payments due from
Borrower (excluding United States taxation of the net income of the Lender), or changes the basis of
taxation of payments to the Lender in respect of the Loan or other amounts due Lender hereunder; or



________________________

31
        This is one of a variety of performance indicators that can be used as a trigger to intensify
        scrutiny and increase interest rates and amortization. Other triggers might use comparisons of
        actual performance with budget projections or with competitors as determined by available
        performance indexes such as the Smith Travel Research (STR or "star") reports on average rate
        and occupancy levels.
32
        Cash flow in the majority of hotels is highly seasonal and can be drastically manipulated between
        months or quarters. A performance test based on monthly, quarterly or other periods less than a
        full-year cycle is potentially misleading and can offer opportunities for abuse.
33
        1.25 is used for illustration and has been within the range allowed in some recent transactions.
        What would be acceptable in a specific transaction would depend on many factors. No rule can
        be established for what would be reasonable.
34
        The bracketed language suggests some of the formulas that may be used to set mandatory
        amortization amounts. Some of these formulas may require that amortization payments be made
        from funds other than those from hotel operation, and may trigger defaults if such funds are not
        made available to the project. This type of provision may be useful in demonstrating at an early
        stage whether the borrower has sufficient confidence in its project.




                                                     15
         (b)    Imposes or increases or causes to be deemed applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against the non-physical assets of, deposits with
or for the account of, or credit extended by, Lender; or
                                                                                     35
        (c)     Imposes any other condition directly related to this Loan transaction or the process or
manner of making of funding the Loan under this Agreement or obtaining the sources of funds for such
Loan, the result of which is to increase the cost to Lender of making, funding or maintaining loans or
reduces any amount receivable by Lender in connection with U.S. Dollar loans, or requires Lender to
make any payment calculated by reference to the amount of loans held or interest received by it; or

        (d)     Affects the amount of capital required or expected to be maintained by Lender or any
corporation controlling Lender and Lender determines the amount of capital required is increased by or
based upon the existence of this Agreement;

then, within [ten (10)] days of demand by Lender, Borrower shall pay Lender that portion of such
increased expense incurred or reduction in an amount received which Lender determines is attributable to
making, funding and maintaining the Loan and this Agreement.

                      ARTICLE 4. -- LOAN EXPENSES AND ADVANCES

          4.1     Loan Expenses. Borrower agrees to pay when due all expenses of the Loan and the
Closing, including all costs of appraisals and studies, recording charges, title insurance charges, escrow
charges, transfer taxes, if any, mortgage taxes, if any, costs of surveys, costs for certified copies of
instruments, fees and expenses of Lender's attorneys and all costs and expenses incurred by Lender in
connection with the Loan or this Agreement, whether or not a Closing occurs. All of the foregoing
expenses that are incurred in connection with the Loan or may be hereinafter referred to collectively as
the "Loan Expenses." All Loan Expenses shall be the Borrower's obligation regardless of whether the
Loan is disbursed in whole or in part unless such failure to disburse is due solely to Lender's wrongful
failure to disburse hereunder.

        4.2      Time of Payment of Fees. Borrower shall pay all accrued Loan Expenses on or prior to
the Closing Date and Loan Expenses accruing thereafter upon demand at such subsequent times as
Lender may determine in its sole discretion. Lender may require the payment of such Loan Expenses as
a condition to any disbursement of the Loan.

         4.3      Expenses and Advances Secured by Loan Documents. Any and all advances,
payments, amounts expended or made by Lender under this Agreement from time to time, including
Lender's attorneys' fees and expenses, and all other Loan Expenses shall, as and when advanced or
incurred by Lender, constitute Obligations forming part of the Indebtedness evidenced by the Note and
secured by the Loan Documents to the same extent and effect as if set forth therein, whether or not the
aggregate of such indebtedness including the Loan Expenses shall exceed the face amount of the Note
or other recitation in the Loan Documents.

       4.4    Loan Fee. In consideration of Lender's undertaking to make the Loan to Borrower,
Borrower agrees to pay to Lender a non-refundable loan fee in an amount equal to [_____] percent

________________________

35
        Increased regulatory pressure to account for and reserve against risk of loss on a loan-by-loan
        and borrower-by-borrower basis suggests that yield maintenance clauses may be applied more
        frequently and on a loan-specific basis. The risks of hotel loans were apparently underestimated
        and insufficient reserves established in the last lending cycle; reserves may be required more
        quickly and in greater amounts in future hotel loans.




                                                   16
(___%) of the original principal amount of the Loan, or $[_____________] (the "Loan Fee"). The Loan
Fee shall be payable as follows: (a) [___] percent ([_]%) upon submission of Borrower's application for
the Loan, (b) [___] percent ([__]%) upon Borrower's execution and delivery to Lender of this Agreement
and (iii) the balance at the Closing.
                               36
         4.5      Appraisals. From time to time after the Closing Date, Lender, in its sole discretion and
at Borrower's expense, may order an Appraisal of the Project, and Borrower hereby agrees to pay all of
the costs of obtaining each such Appraisal. So long as no Default or Event of Default has occurred and is
continuing, Lender may not order or obtain such Appraisal more frequently than once in every twelve
month period, and the first such Appraisal shall not be obtained prior to [_________], subject to any
additional or different appraisal requirements of Governmental Authority to which Lender or the Loan is
subject.

                      ARTICLE 5. -- REPRESENTATIONS AND WARRANTIES

       Representations and Warranties of Borrower. Borrower hereby represents and warrants to
Lender as follows:

        5.1      Existence, Authorization, Etc. (a) [Insert representations as to existence and authority
appropriate to form of entity].

        (b)     Borrower has furnished to Lender true, correct and complete copies of all documents,
instruments and other papers constituting the [insert formation documents relevant to form of entity] of
Borrower (the "Formation Documents"). The Formation Documents are in full force and effect and have
not been modified, amended or terminated, and all fees due in connection therewith have been paid.
There exists no breach of obligation by any party or any failure of a condition to the effectiveness of the
Formation Documents, and no circumstance exists which given notice or the passage of time or both
would constitute a breach of obligation or failure of condition under the Formation Documents.

         (c)    The execution, delivery and performance of this Agreement does not, and the execution,
delivery and performance of the other Loan Documents will not (i) violate any Laws or (ii) conflict with, be
inconsistent with, or result in any breach or default of any of the terms, covenants, conditions, or
provisions of any indenture, mortgage, deed of trust, corporate charter or bylaws, instrument, document,
agreement or contract of any kind to which Borrower or any holder of an equity interest in Borrower is a
party or by which either of them may be bound.

          (d)       Borrower is a single-purpose entity whose sole assets are the Real Estate and Personal
Property and whose sole business and purpose is to own and operate the Project as a hotel[, all as more
                                              37
fully set forth in the Formation Documents].

           (e)     The principal place of business of Borrower is as stated in the preamble and Section 16.3
          38
hereof.


________________________

36
           See footnote 6 regarding appraisal standards and requirements.
37
           As noted in footnote 4, the potential for competing claims by other creditors is substantial when
           the hotel collateral include personal property and revenues other than rents. Therefore, the
           corporate lending techniques for protecting a borrower against external causes of bankruptcy are
           appropriate in hotel loans. Requirements for single-purpose operation by the borrower are
           relevant to those protections and to the lender's ability to monitor the solvency of its borrower.




                                                       17
         5.2      Real Estate. (a) The Land and Hotel constitute the Real Estate and include all of the
interests in real property used or proposed to be used in the Project. [Add representations appropriate to
                                           39
real estate in the relevant jurisdiction.]

         5.3      Personal Property. (a) The Personal Property consists of the Borrower's Accounts,
Chattel Paper, Contracts, Documents, Equipment, General Intangibles, Inventory, Trademarks,
                                                                                          40
Trademark Licenses, Vehicles, the Depository Accounts and cash on hand in the Hotel.         But for the
                                                  41
foregoing and property of transient hotel guests , no personal property is located within the Project, or
used or proposed to be used in the Project. Borrower has good title to all Personal Property free and
                                                     42
clear of all Liens, except the Permitted Exceptions.

        (b)    The FF&E and the Inventory are adequate and sufficient for the use, occupancy,
                                                                                     43               44
operation and maintenance of the Project as a [____-room/luxury/resort/franchise name ] hotel at [full ]
occupancy levels.



________________________
(continued from previous page . . .)

38
        Jurisdictional and venue requirements for non-real estate foreclosures and other litigation may
        impede a lender in pursuing all collateral in the location of the hotel. If the borrower does not
        have its principal place of business in the jurisdiction of the hotel's location, provisions should be
        inserted to avoid venue or jurisdictional disputes that borrowers use as delaying tactics.
39
        Construction or use of facilities located on other land is a frequent feature of resort development.
        In urban locations, significant support services such as parking may not be within the Land as
        defined. Support facilities may be located on property owned by an affiliate of the developer or
        manager, in a deliberate effort to create an opportunity for concealed profit. This form of loan
        agreements attempts to confirm that the necessary elements are within the Project by a variety of
        techniques, including surveys and representations. Problems may arise, however, if the site
        inspection and other property diligence are performed by someone other than the person
        reviewing the survey and documents. Lawyers reviewing surveys or property descriptions have
        been known to overlook the omission of a swimming pool or parking lot.
40
        This list is intended to include the assets in which security interests might be taken and which
        might be essential or useful in hotel operations. Note the issue in footnote 10.
41
        Hotel owners who hold safety deposit boxes or checked baggage have substantial common law
        and possible statutory obligations as a bailee. These obligations may be imposed upon
        successor owners or foreclosing lenders without any overt intention or agreement to assume the
        obligations.
42
        This and similar representations of title, together with recognition of the loan agreement by the
        manager in the Tri-Party Agreement, have proven important in defending the lender’s interest and
        priority in non-real estate assets against later claims of interests or liens by managers.
43
        As discussed in footnote 9, words such as "luxury" or "five-star" has proven inadequate to define
        a standard of operation. Reference to specific franchise standards has also proved problematic,
        because franchise identities and market positions can be anticipated to change over the life of a
        typical loan. A detailed narrative description may be useful in defining standards. Some lenders
        choose to specify a group of hotels to serve as the basis for comparison in the event that
        operating standards come into question. Lenders need to be concerned with the potential for too
        high a standard, with related costs, being imposed on a hotel. Erosion of profits and related
        impact on value are issues now giving rise to litigation between owners and operators and
        franchisors. Contributing to this problem are continuing efforts by operators to move to

(continued)


                                                      18
         5.4      Operations. (a) Attached to this Agreement as the Exhibits enumerated below are true,
correct and complete schedules of all items, interests or matters within the specified categories described
                                   45
opposite the title of each Exhibit. But for the items, interests or matters listed on the Exhibits, no other
items, interests or matters within the specified categories exist.

            Exhibit Name                         Included Items or Interests
                                                               46
            B - Accounts                         All Accounts of Borrower of a value in excess of
                                                 $[________] in aggregate as to any one account
                                                 obligor, noting each Account that is contested or in
                                                 default and/or involves an Affiliate of Borrower.

            C - Affiliate Debt                   All indebtedness of Borrower to any Affiliate of
                                                 Borrower, or any guarantee or assumption by Borrower
                                                 of indebtedness or obligation of any Affiliate of
                                                 Borrower, noting in each case the amount, obligee, date
                                                                            47
                                                 and status of any default.

            D - Affiliates of Borrower           All Persons controlling, controlled by, or under common
                                                 control with Borrower within the definition of Affiliate.

            E - Affiliates of Manager            All Persons controlling, controlled by, or under common
                                                 control with Manager within the definition of Affiliate.

            F - Budgets                          All written budgets, projections and business plans
                                                 used in the current operation of the Project or prepared
                                                 in connection with the Project's operation in this and
                                                 any subsequent year.

            G - Contracts                        All Contracts having a value in excess of
                                                 $[__________], or a term in excess of [_________],
                                                 excluding only ERISA Plans, Labor Contracts,
                                                 Insurance, contractual obligations contained in Licenses
                                                 & Permits, and Trademark Licenses separately


________________________
(continued from previous page . . .)

        compensation based predominantly on gross revenue levels, and not to share the risk of
        profitability.
44
        Few hotels operate at full occupancy or maintain stocks and inventory sufficient to do so
        throughout the entire year. A more accurate reference standard for stocks, etc., may be the
        historic levels maintained to support average occupancy in the same season and market in prior
        years. Seasonal variation in the value of stocks in a large property may be several hundred
        thousand dollars, up to more than $1,000,000 in seasonal resort properties. For a foreclosing
        lender, the low level of stocks at the time of takeover may be a significant expense. Therefore,
        representations regarding levels of stock and covenants to maintain stocks are very important.
45
        These include most of the schedules that would be required for a sale, plus schedules that relate
        to indebtedness and transactions with affiliates.
46
        This is intended to refer to the Uniform Commercial Code definition of Accounts.
47
        See footnote 4.




                                                    19
                                              scheduled on other Exhibits.

          H - Depository Accounts             All bank accounts, depository accounts, certificates of
                                                                               48
                                              deposit, intercompany balances or other accounts of
                                              any kind or description in which any Project Revenues
                                              are at any time deposited, held or maintained.

          I - ERISA Plans                     Any employee benefit plan within the meaning of
                                              Section 3(3) of ERISA maintained for employees of
                                              Borrower, any member of its controlled group or any
                                              trades or businesses (whether or not incorporated)
                                              under common control which are treated as a single
                                              employer under Section 41 of the Internal Revenue
                                              Code.

          J - FF&E                            All items within the definition of FF&E having a value in
                                                                  49
                                              excess of $[_____] .

          K - Financial Statements            All financial information provided by Borrower to Lender
                                              in relation to this Loan, including all statements of
                                                                         50
                                              operation since [______] .

          L - Formation Documents             Items furnished to Lender pursuant to Section 5.1(b).

          M - Insurance                       All policies of insurance currently in effect in connection
                                              with the Project.

          N - Labor Contracts                 All Contracts in the nature of union contracts, labor
                                              agreements, or employment agreements relating to any
                                              employees currently working at the Project, other than

________________________

48
      The use of centralized or commingled bank accounts to hold revenues or pay expenses is
      common in chain-managed hotels, notwithstanding provisions in management agreement that
      suggest the contrary. The accounts specified there may merely be treated as stops on the way to
      the management company’s own accounts. Expenses shown as deductions or paid amounts on
      operating statements are often only estimated accruals of those expenses used to debit the hotel
      and pay the cash to the accounts of the management company parent or other affiliate, which is
      expected to pay an equal amount out at a future date. Vacation accruals or central benefits are
      often handled in this manner. Interest is rarely if ever earned on these intercompany balances.
      The owner may not be aware that its "expenses" are actually payment to the management group
      and not the discharge of the actual obligation. This has proven one of the most complex
      accounting issues in bankruptcy and foreclosure, and one of the points of greatest dispute
      between lenders and managers.
49
      Hotels usually maintain a fixed asset register that lists the major items of FF&E with their
      acquisition or depreciated values. That register can be used as a basis for the FF&E exhibit, but
      may have to be supplemented if the fixed asset register is not sufficiently inclusive.
50
      Prior audited statements for two to three years, plus the current year-to-date information, are
      usually reviewed in diligence for an operating hotel. Whether statements are truly audited and
      complete under normal GAAP standards should be closely examined. Many statements do not in
      fact go beyond the numbers reported by the management company.




                                                 20
                                                ERISA Plans listed on Exhibit I.

          O - Licenses & Permits                All items within the definition of Licenses & Permits.

          P - Permitted Exceptions              All matters constituting Liens upon the Real Estate or
                                                the Personal Property.

          Q - Plans & Specifications            All items relating to the Project within the definition of
                                                Plans & Specifications.

          R - Proceedings                       All matters in the nature of litigation or civil, criminal or
                                                administrative proceedings or outstanding fines,
                                                penalties or any other obligations under any settlement
                                                or otherwise concluded such proceeding which are
                                                pending, threatened or remain unsatisfied against
                                                Borrower, its assets, any of its Affiliates, or the Project
                                                or which relate to health, safety and environmental
                                                                                 51
                                                matters affecting the Project [(i) which has or will
                                                affect the validity or priority of the liens and security
                                                interests granted to Lender under the Loan Documents,
                                                (ii) which could materially affect the ability of Borrower
                                                to perform its obligations under the terms and
                                                provisions of this Agreement or the other Loan
                                                Documents, (iii) which could materially affect the
                                                occupancy, use or operation of the Project as currently
                                                and proposed to be operated, or (iv) which could
                                                materially affect the operations or financial condition of
                                                Borrower or the Project].

          S - Reports                           All periodic reports on the financial condition and
                                                operation of the Project prepared by or for Borrower,
                                                                           52
                                                Manager or any franchisor.



________________________

51
      The level of on-going litigation, employee claims and code violation notices is generally higher in
      hotels than in some other types of properties. Relatively minor problems (such as a health
      department violation) can have substantial effect on reputation and business. Further, a detailed
      schedule of litigation or accident reports can often reveal operating problems. An exhibit listing all
      proceedings is usually advisable, with notations as to which matters are being defended by
      insurers or are otherwise less significant.
52
      Managers generally produce monthly and annual reports for the franchisor, if there is one. If the
      manager is a subsidiary of a chain, it would normally produce extensive reports at least monthly
      for its own head office. Many functions in a chain (such as national or group marketing) will be
      performed by affiliates of the management company who will produce their own reports to its
      head office. Owners rarely if ever receive or know the full range of existing reports. Rather,
      owners typically receive relatively uninformative summary reports. The lender may find it
      advisable to have the management company separately certify the accuracy of the representation
      and exhibit. Certification of important information by management companies in sales and loans
      is increasingly requested by purchasers and lenders, but relatively few owners have thought to
      provide for it in their management agreements.




                                                   21
            T - Taxes                            All Taxes routinely assessed or paid in connection with
                                                 the operation of the Project, the Real Estate or the
                                                 Personal Property, noting in regard to each Tax any
                                                 pending audit, dispute or notice of dispute, or any
                                                                                      53
                                                 extension or failure to file or pay.

            U - Trademark Licenses               All items within the definition of Trademark Licenses
                                                 used or proposed to be used in the Project.

            V - Trademarks                       All identifying names, logos or other marks within the
                                                 definition of Trademark used or proposed to be used in
                                                 the Project.

            W - Vehicles                         All Vehicles in which Borrower has an interest or which
                                                 are used or proposed to be used in the operation of the
                                                          54
                                                 Project.

            X - Violations                       All violations of or failures of compliance with Laws
                                                 known to exist or asserted by a Governmental Authority
                                                 to exist by reason of acts or omissions of Borrower, or
                                                 in connection with its assets or the Project; and all facts
                                                 or circumstances now existing and known to Borrower
                                                 after diligent inquiry which may give rise to future
                                                 Proceedings under any Environmental Laws or may bar
                                                 the continuation of the present or the proposed use of
                                                 Project.

Optional Additional Covenants

[CONTRACTS]

         ( ) Each Contract [including Affiliate Debt, Contracts as scheduled on Exhibit G, ERISA Plans,
Labor Contracts, Licenses & Permits and Trademark Licenses] in writing noted on an Exhibit constitutes
the entire agreement between the parties as to the subject matter of the Contract. True and complete
copies of each Contract in writing have been delivered to Lender. E[xcept as noted on an Exhibit, e]ach
Contract is in full force and effect and no default exists thereunder, and no condition exists which with the
passage of time or the giving of notice or both would constitute a default or failure of any condition
thereunder.

        ( ) Except as set forth in any approved franchise agreement and the Management Agreement,
neither Manager, nor any other Person has any right or claim to any fees, commissions, compensation or
other remuneration in connection with or arising out of the use, occupancy and operation of the Project.
No brokerage commissions or similar compensation are or will become due to any Person in connection


________________________

53
        These can be predicted to include real estate taxes, personal property taxes, alcoholic beverage
        revenue taxes, sales taxes, room taxes and employee withholding taxes. Taxes in the nature of
        sales taxes are often treated as trust fund collections and give rise to statutory liens against
        revenues or other assets.
54
        These may include aircraft, boats and on-site vehicles such as golf carts and maintenance
        equipment.




                                                     22
with the leasing or operation of the Project, the performance of the Contracts, or the transactions
contemplated by this Agreement.
                                                                                                    55
       ( ) Except as specifically set forth on Exhibit G, all of the Contracts may be terminated         on not
more than [ninety (90)] days' notice without termination penalty or other cost.

       ( ) Neither Borrower, Manager nor any member of the controlled group of either for ERISA
                                                     56
purposes maintains or contributes to any ERISA Plan.

[BUDGETS]

         ( ) The Annual Budget and all of the amounts set forth therein, present a true, full and complete
line itemization (by category for the fiscal year to which such Annual Budget applies) of: (i) all reasonably
estimated Project Revenues; and (ii) all reasonably estimated Project Expenses which Borrower expects
to pay or anticipates becoming obligated to pay. No material capital expenditures with respect to the
                                                                           57
Project are being incurred, contemplated or are reasonably necessary , except as specified in the
current Annual Budget.

[FINANCIAL REPORTS]

        ( ) All financial statements, reports or other financial information of any kind or description of
Borrower and/or the Constituent Partners heretofore and hereafter delivered to Lender are true and
correct in all respects, have been prepared in accordance with GAAP, and fairly present the
representative financial conditions of the subject thereof as of the respective dates thereof. All financial
statements, reports or other financial information of any kind or description heretofore or hereafter
delivered to Lender are true, complete and accurate in all respects, conform to the Uniform System of
Accounts and fairly present the financial condition of the Project as of the date of thereof.

        ( ) No information, certification, report or financial information submitted to Lender by or on behalf
of Borrower pursuant to this Agreement or otherwise in connection with the Loan, or Borrower's request
or application therefor, contains any material misstatement of fact or knowingly relies upon an




________________________

55
        Termination rights held by a vendor or service provider may expose the property to an
        unacceptable risk or cost if there is no comparable source at a competitive price. A lender may
        require longer term contracts for items such as elevator and alarm maintenance, reservation
        systems, etc.
56
        Note that the status and activities of the manager may be relevant to the borrower's own ERISA
        obligations even if the manager is specified as the employer in the management agreement. If
        ERISA Plans do exist and this representation cannot be made, further detailed representations on
        the status of the ERISA Plans will be required. Covenants will then be needed to address risks
        associated with ERISA Plans. Samples of these additional provisions are appended to this
        Agreement as a rider.
57
        ADA compliance costs are frequently overlooked or omitted. It should be noted that the ADA, as
        it applies to hotels, has a significant operating component that may go to training, reservation
        procedures, etc. Changing environmental laws may also result in added costs; for example,
        hotels that installed halon and other environmentally problematic chemical fire suppression
        systems may be forced to replace the systems as manufacturers cease to supply the chemicals.




                                                     23
                          58
unreasonable assumption or omits to state a material fact or any fact necessary to make the information
not misleading in any material respect.

[LAWS, LICENSES AND PERMITS]

         ( ) All Licenses and Permits required to construct, occupy, maintain, use and operate the Project
have been obtained. There are no pending or threatened proceedings or actions to revoke, attack,
invalidate, rescind, or modify any of the Licenses and Permits, or asserting that such Licenses or Permits
do not permit the occupancy, maintenance, use or operation of the Project as currently and proposed to
be operated. Borrower and Project shall be able to comply with all currently proposed Laws as of their
effective date and any and all costs reasonably expected to be incurred, if any, in complying with such
currently proposed Laws have been taken into account in all relevant plans and projections, including
without limitation the Business Plan, Plans & Specifications, the Annual Budget and any calculation of
reserves for capital expenses.

        ( ) Borrower and the Project are in compliance with all current and, to the knowledge of Borrower,
all proposed Laws relating to the construction, occupation, use and operation of the Project. The
construction of the Project has been completed substantially in accordance with all Plans and
Specifications and Laws and in good and workmanlike manner. The Project is structurally sound, in good
working order and fit for use as a hotel and there are no material defects therein.

          ( ) The Project is in a clean, safe and healthful condition free of the presence of all potentially
unhealthy, harmful or unlawful Hazardous Material. Neither Borrower, nor to Borrower's best knowledge
after diligent inquiry, any other person, has ever caused or permitted any Hazardous Materials to be
used, handled, placed, held, stored, located, discharged, released, manufactured, treated, processed,
produced, generated, transported, suffered to exist or disposed or otherwise managed on, under or at the
                              59
Project, or any part thereof.

         ( ) E[xcept as indicated in Exhibit O, e]ach of the Licenses and Permits has been acquired by
Borrower and is in full force and effect. Borrower has not received any notice of a revocation, termination
or violation of any License or Permit. E[xcept as set forth in Exhibit O, e]ach of the Licenses and Permits
                                                                                                 60
is assignable as Collateral and transferable in the event of foreclosure of a security interest.




________________________

58
        Substantial disputes have arisen over liability for negligence in the assumptions used to prepare
        projections and feasibility studies. Some management companies take the position that any
        assumption that is disclosed or even apparent in the presentation of projections may be applied
        without liability, even if the assumption is unreasonable or contradicts known facts. The request
        that the owner and/or the manager producing projections certify the reasonableness of their
        assumptions for the benefit of the lender can result in a substantial negotiation.
59
        Few if any hotels should be able to make this representation without substantial qualification.
        Hotels tend to have very substantial stocks of regulated materials, such as solvents, fuels, waste
        materials, etc., handled by many employees with minimal supervision. Serious injuries are
        notably frequent. Expert surveys may include recommendations for abatement and changes in
        handling procedures.
60
        Permit requirements for hotels differ by jurisdiction and categories of operation. In contrast to
        other commercial real estate, relatively few permits can be assigned at will to a lender or
        successor.




                                                     24
               61
[INSURANCE]

         ( ) Borrower has not received any notice from any insurance company of any defects or
inadequacies in the Project which would adversely affect the insurability of the Project or materially
increase the cost of insuring the Project beyond that which is customarily charged for similar property in
the vicinity of the Project used for a similar purpose.

[TAXES]

         ( ) Borrower has filed or caused to be filed all tax returns required to be filed by it, has remitted all
trust fund or withholding taxes, and has paid all taxes shown to be due and payable by it on said returns
or on any assessments made against it or the Project, except those which are being contested in good
faith by appropriate proceedings and for which reasonable reserves as may be required by GAAP are
being maintained on its books.

[AFFILIATE DEBT]
                                                                                                             62
        ( ) All Affiliate Debt is subject and subordinate in all respects to the Loan and the Obligations.

        5.5     Default. (a) No event has occurred, and no condition exists, and is continuing which
with notice or the passage of time or both would constitute a Default or Event of Default under the
Agreement or any Loan Documents executed prior to or on the date of the Agreement.

         (b)     No material adverse change has occurred in the financial condition of any Person or the
Project reflected in any financial information given to Lender since the date of that information, and no
additional borrowings have been made by Borrower or other Person providing financial information since
the effective date of such information.

        5.6    Other Representations. (a) Borrower is not a "foreign person" within the meaning of
Sections 1445 or 7701 of the Internal Revenue Code.

        (b)      After giving effect to the execution and delivery of the Loan Documents and the making of
any disbursements under the Note, Borrower will not be "insolvent," within the meaning of such term as
defined in [state law] or as defined in [§ 101 of the Bankruptcy Code], or be unable to pay its debts
                                                                                63
generally as such debts become due, or have an unreasonably small capital.

         (c)    The Loan is not being made for the purpose of purchasing or carrying "margin stock"
within the meaning of Regulation G, T, U, or X issued by the Board of Governors of the Federal Reserve
System, as at any time amended, and the Borrower agrees to execute all instruments necessary to
comply with all the requirements of Regulation U of the Federal Reserve System, as at any time
amended.

________________________

61
        Requirements of insurers are Laws under the most inclusive definition. Therefore,
        representations on compliance with insurance requirements and Laws may be combined.
62
        See footnote 4. Mere subordination of such debt may not be sufficient protection for a lender.
        Subordination does not address the position of such debt in bankruptcy.
63
        If any portion of a hotel financing involves non-U.S. assets, consideration should be given to
        whether the relevant foreign jurisdiction limits the use of assets as collateral for affiliate
        obligations. These regulations are sometimes referred to as "Financial Assistance Acts,”
        referring to the U.K. law that established a requirement of post-transaction solvency.




                                                       25
         (d)     The Loan is an exempted transaction under the Truth in Lending Act, 12 U.S.C. § 1601
et seq.; and the Loan does not violate the provisions of applicable usury laws, any consumer credit laws
or the usury laws of any state which may have jurisdiction over the Loan, the Borrower or any Collateral
securing the Loan.

        (e)     The Borrower is not a [see relevant Patriot Act disclosures for borrower type].64

       ARTICLE 6. -- CONDITIONS PRECEDENT TO CLOSING AND DISBURSEMENT

         6.1     Conditions Precedent to Closing and Disbursement. Lender's obligation to close the
Loan and to disburse the proceeds thereof shall be conditioned upon Borrower's performance or
satisfaction of all following conditions precedent and Borrower shall use its best efforts to perform and
satisfy each of them:

        (a)      Each representation and warranty contained in Article 7 shall be true, correct and
complete as of the Closing Date and Lender shall have received such certification, results of searches, or
                                                                                65
other confirmation of each representation and warranty as Lender shall request.

         (b)      Borrower shall not be in Default under this Agreement or any of the Loan Documents and
Borrower shall have timely complied with and performed all of Borrower's obligations under this
Agreement which by their terms are required to have been complied with and performed by Borrower
prior to or at Closing.

         (c)     Borrower shall have furnished to Lender the following, all in form and substance
satisfactory to Lender:

                (1)       A paid Mortgagee's Title Insurance Policy (ALTA Form B-1987) (the "Title
        Policy") in the face amount of the Notes, issued by the Title Insurer, establishing that the Title
        Insurer insures the lien of the first mortgage to be a prior and paramount lien against the fee
        simple interest in the Project and the improvements located thereon subject only to the Permitted
        Exceptions. The Title Policy shall contain [(i) an ALTA Comprehensive 1 endorsement, (ii) an
        ALTA Form 3.1 zoning endorsement modified to cover parking and off-street loading, (iii) a survey
        endorsement specifically insuring the Lender that the Survey described in Section 5.2 is accurate
        and accurately depicts the same Real Estate covered by the Title Policy, (iv) an endorsement to
        the effect that the Project is assessed separately from all other lands for purposes of ad valorem
        taxation; (v) an access endorsement; (vi) a usury endorsement; and (vii) any other endorsements
                                66
        Lender may require. ] Such policy shall provide extended coverage over (A) standard

________________________

64
        The hotel industry has received specific attention for its money laundering and potential for
        concealed transfers under the Patriot Act regulations. Sufficient representations and diligence
        material should be obtained to meet requirements of law.
65
        This verification should include a certificate reconfirming the Exhibits as at the date of the
        Closing. Due to the complexity of operation, substantial amendments are usually required to
        update Exhibits to the Closing Date. Any concerns about the potential position of the
        management company as claiming an interest or prior lien which have arisen in diligence may
        need to be addressed. Certificates by the management company may be needed to validate
        information that it has provided or maintained.
66
        Lenders are increasingly concerned with affirmative assurance against claims by franchisors,
        management companies and other third parties to non-subordinated status or to liens upon the
        revenues that may constitute rents from real property.




                                                    26
      exceptions, (B) matters which would be shown by an inspection or an accurate survey of the
      Project, (C) rights of parties in possession, (D) easements not of record, and (E) past due real
      estate taxes and assessments, both general and special, and unpaid installments of special
      assessments.

              (2)      Such additional title insurance for personal property as Lender may require. 67

              (3)      A current version of the Survey, in triplicate.

              (4)    All policies of insurance required in accordance with Article 9, together with all
      required endorsements and proof that the premiums therefor have been paid.

               (5)    One or more opinions of independent [and local] counsel to Borrower acceptable
      to Lender, dated as of the Closing, and containing only such qualifications and assumptions as
      Lender and its counsel may approve and providing such opinions as Lender or its counsel shall
      request.

               (6)    Evidence satisfactory to Lender (including, but not limited to, certified resolutions
      and incumbency certificates) that the persons executing this Agreement and the other Loan
      Documents on behalf or for the benefit of Borrower, have been duly authorized by all appropriate
      action to execute and deliver this Agreement and the Loan Documents.

      (d)     Lender shall have obtained following, all in form and substance satisfactory to Lender:

            (1)        From each holder of Affiliate Debt, a subordination, standstill and intercreditor
                 68
      agreement.

               (2)     From Manager, any franchisor, and such other parties to Contracts as Lender
      shall specify, agreements providing for the Lender's direct rights in regard to remedies upon
                                                                                       69
      default, subordination, receipt of reports, cure of defaults, and other matters.

________________________

67
      Title insurers are offering a range of products to insure personal property within the scope of
      U.C.C. filings. Because hotels involve a relatively high percentage of value derived from non-real
      estate assets, hotel lenders have been one market for this product. It does not, however, insure
      against common law or possessory liens or against interests claimed to arise as a matter of
      contract or law under agreements of which the lender has knowledge.
68
      The secured lender may require affiliate creditors to forego any claims or action until the secured
      lender is repaid in full. Alternatively, the lender may require the affiliates to convert the debt into
      an equity investment in the borrower in the event that the borrower shows evidence of insolvency.
      The agreements imposing these requirements may be made directly between the secured lender
      and the subordinate creditor as intercreditor agreements to ensure that they are not a contract of
      the borrower directly affected by a bankruptcy.
69
      Inclusion of a sample agreement between lender and manager or franchisor is not feasible here
      due to the length and complexity of such agreements. These are highly negotiated and tailored
      to the specific management or franchise agreement and property. Currently, most lenders are
      requiring overriding termination rights, without penalty, in the event of the lender’s exercise of any
      remedies upon a monetary default by the borrower. For the purposes of a new hotel loan
      agreement, the lender can assume that the provisions in a standard form of franchise or
      management agreement relevant to secured lenders will not be adequate from the lender's point
      of view.




                                                    27
               (3)      A written report that at a minimum meets the Standard Practice for
       Environmental Site Assessments: Phase 1, Environmental Site Assessment Process, E1527-93,
       of the American Society for Testing and Materials, but which at Lender's request shall address
       any additional issues that Lender may require, and is otherwise satisfactory to Lender and
       prepared by a reputable consultant approved by Lender, and indicating that said consultant, in its
       professional judgment, has determined that there are no Hazardous Materials present or likely to
       be present in, on or at the Real Estate and that the Project is in compliance with all Environmental
       Laws.

                 (4)    A written report regarding the structural components of the Real Estate, and the
       integrity and condition thereof, prepared by a reputable consultant approved by Lender, and
       indicating that the Real Estate is structurally safe, sound and fit, and complies with applicable
              70
       Laws.

                 (5)   Copies of all underlying title documents requested by Lender or its counsel.

               (6)   A written report assessing the feasibility of the operation of the Project and the
       Business Plan as proposed by Borrower, prepared by a reputable consultant approved by
       Lender.

               (7)    All documents and other assurances required by Lender to evidence and secure
       the Loan and otherwise required in connection with the Loan pursuant to this Agreement.

        6.2     Deliveries at Closing. (a) Borrower shall execute and deliver a first priority and
perfected security interest in all of the Collateral and shall deliver at Closing the following Loan
Documents, all in scope, form, substance and legal sufficiency acceptable to Lender:

               (1)   A first priority mortgage and security agreement in the Real Estate (the
       "Mortgage") and assignment of leases and rents, including revenues which may be categorized
                71
       as such.

                 (2)    A first priority security agreement(s) in the form of the Security Agreement
       attached as Exhibit Y, and such collateral assignments, financing statements and other
       documents and instruments as Lender deems desirable to perfect first priority security interests in
                                     72
       all of the Personal Property.

                 (3)   Estoppel certificates from such parties to the Contracts as shall be specified by
                 73
       Lender.


________________________

70
       Seismic and life-safety studies are replacing asbestos and ADA studies as current lender
       favorites.
71
       Whether these are a single or separate documents is a question of local law and practice.
72
       Note that the Security Agreement addresses only property within the scope of Article 9 of the
       Uniform Commercial Code. This type of property does not include cash and bank accounts.
       Lockbox arrangements for direct deposit and restricted use may be appropriate.
73
       Generally, estoppels would be sought from the more unique or longer-term vendors and service
       suppliers. There may also be contract parties with obligations owed to the borrower, such as
       performance of services for which there has been pre-payments of future expenses. Hotel
       balance sheets usually indicate some of these amounts as assets, but the accounting is

(continued)


                                                   28
                 (4)     Subordination, non-disturbance and attornment agreements from such of the
        parties to the Contracts and such space tenants as shall be requested by Lender.

               (5)      An agreement providing environmental           representations,   warranties      and
        indemnities with respect to the Project from Borrower.

               (6)     Such agreements or other instruments in regard to the Depository Accounts as
                                                                                                     74
        may be required to affect the security interest of Lender in that portion of the Collateral.

                (7)      Such other documents as Lender or Lender's counsel may require.

           ARTICLE 7. -- ACCOUNTS; RESERVES; APPLICATION OF CASH FLOW

          7.1    Operating Account. Borrower shall establish and maintain a single bank account with a
depository institution approved by Lender into which all Project Revenues shall be promptly and directly
deposited upon receipt thereof (the "Operating Account"). No funds of Borrower shall be commingled
                                                                                 75
with any other funds, including without limitation, other funds held by Manager.    All Project Revenues
shall be billed and collected in the name of Borrower or its names which are Trademarks and in no other
       76
name.        So long as there is no Default hereunder, and no Default shall be created thereby,
disbursements may be made from the Operating Account to pay Project Expenses then authorized under
the Approved Budget. All checks drawn on the Operating Account shall require the signatures of [two]
appropriately insured representatives of Borrower approved by Lender.

        7.2    Payroll Account. Borrower may maintain a segregated account for payroll and other
employee payments included in Project Expenses. Such account shall be funded by transfers from the
Operating Account and shall be used solely for payments to employees at the Hotel.


________________________
(continued from previous page . . .)

        frequently inconsistent. Management staff at a particular hotel may be unaware of how their
        central office handles accrual and may provide a good faith but wrong account of its practices.
74
        Lenders who are also depository institutions may require the bank accounts to be maintained with
        the lender in order to enhance the lender's control, security interest, and set off rights. This
        requirement should not amount to an improper tying arrangement for regulatory purposes,
        because there is a valid collateral purpose.
75
        Notwithstanding express provisions of this type, managers routinely transfer funds to themselves
        or their controlled accounts and retain the float. This is particularly common where the manager
        pays some of the Project Expenses (e.g., employee benefits and costs) from its own accounts.
        Cash handling and intercompany transactions are extremely difficult to monitor. Among the more
        effective methods of control may be an exception from non-recourse provisions for any breach of
        covenants on cash handling and Depository Accounts (see Section 16.17(b)(i)(B)) and a
        requirement that the manager undertake by direct agreement the obligation to handle all funds as
        trust funds. While this may be treated casually or ignored by management companies in normal
        operation, it can become a very serious breach once a hotel is in default or bankruptcy.
76
        Among the accounts most frequently not collected in the borrower's name are credit card
        receivables (often swept through chain-controlled accounts) and corporate or convention
        accounts. These may be handled through a regional marketing office by an affiliate of the
        manager or franchisor and merely credited to the hotel as a book entry. A lender should take
        steps to verify how revenues are actually derived, and assure itself that liens attach when the
        borrower or its manager first has control of them.




                                                    29
         7.3     FF&E Reserve Account. Borrower shall establish and maintain an interest-bearing
reserve account (the "FF&E Reserve Account") with an Approved Depository. On the [fifteenth (15th)]
day of each Month during the term of the Loan, Borrower shall deposit from the Operating Account into
                                                                     77
the FF&E Reserve Account an amount equal to [four] percent ([4%]) . Borrower shall establish and
maintain an interest-bearing reserve account (the "FF&E Reserve Account") with an Approved
Depository. On the [fifteenth (15th)] day of each Month during the term of the Loan, Borrower shall
deposit from the Operating Account into the FF&E Reserve Account an amount equal to [four] percent
      78
([4%]) of the Operating Revenues generated during the previous Month or such other amount as may
be specified in the current Approved Budget. Any interest accruing on the funds in the FF&E Reserve
Account, and all proceeds from the sale of obsolete or worn FF&E, shall be added to the FF&E Reserve
Account. The funds in the FF&E Reserve Account shall be used to replace and repair FF&E, and may be
used for such other items of maintenance, repair and replacement, of a capital nature or otherwise, as
may be specified in the Approved Budget.
                                                                   79
        7.4     Deposits for Taxes and Insurance Premiums.

       (a)     Borrower shall deposit, in an account with a depositary institution approved by Lender
and subject to Lender's control (the "Deposit Account"), on the first (1st) day of each Month (i) an
                                                                                                  80
amount equal to one-twelfth (1/12) of the periodic installments of real property and similar Taxes next to
become due upon the Project; and (ii) an amount equal to one-twelfth (1/12) of the annual premiums
coming due on the Insurance. The amount of such periodic deposits (herein called the "Deposits") shall
________________________

77
        The use of a single book entry reserve for all capital items is becoming more common, while older
        agreements provide for actual funded reserves and a separate reserve for non-FF&E capital
        items. Funded reserves are clearly preferable for collateral purposes.
78
        The amount of this reserve should be determined according to the total dollar value of the
        depreciable capital items, the owner's degree of willingness and ability to fund periodic capital
        calls, the level of expenditure on routine repair and maintenance, and the property's history of
        over- or under-investment in capital items. Many now feel that a dollar amount, subject to CPI
        escalator, is a more accurate standard for the reserves than a percentage of gross revenue,
        which may fluctuate wildly. Overall, correct reserve practices have been undercut by the
        assumption of some management companies that periodic calls for additional investment may be
        made either of right or under the threat of being found in breach of brand standards. Owners
        have been willing to underreserve to maintain higher cash flow. Lenders may need to impose
        appropriate reserve practices, particularly where the owner is an SPE and has no source of
        additional funding except sale or periodic refinancing with excess proceeds. In fact, hotels do not
        have a good record for refinancing out proceeds to make up deferred maintenance or unfunded
        cap ex reserves. When hotels are doing well is not usually when they are called for capital.
79
        In contrast to the FF&E reserve account, which varies with gross revenues, these tax and
        insurance accounts require fixed installment payments. Hotel cash flow varies widely by season,
        to the extent that hotels may routinely operate with negative cash flow for six or more months a
        year and may earn the majority of its profits in a single quarter. Extreme seasonality of cash flow
        may make regular fixed deposits in an installment account unreasonably onerous. As a result,
        tax and insurance reserves are not frequently required prior to default or failure to achieve a
        performance threshold. Guarantees or undertakings from affiliates to fund shortfalls may
        however be imposed. Smaller hotels loans destined for securitization will impose these reserves.
        Larger borrowers will generally escape them prior to default.
80
        Real estate and other fixed periodic taxes constitute a relatively small proportion of the total taxes
        paid or withheld by a hotel owner or its manager. Many of the taxes are based on payroll or
        gross revenues and must be remitted more frequently than real estate taxes, often within days of
        collection.




                                                     30
be set by Lender on the basis of its reasonable estimate as to the amount and schedule of Taxes and
premiums for Insurance next to be payable. Notwithstanding the preceding sentence, in the case of the
first Deposit, there shall be deposited, in addition to the specified periodic deposit, an amount which,
when added to the aggregate amount of the periodic sums next payable under this Section 7.4, will result
in a sufficient reserve to pay the Taxes and premiums on the Insurance next becoming due at least one
Month prior to the date when such Taxes or premiums are due and payable. Any interest accruing on the
funds in the Deposit Account shall be added to the Deposit Account.

        (b)     The aggregate of the periodic Deposits shall be accrued until the next date on which an
installment of Taxes or premium for Insurance is due and then to be applied by Lender, so long as no
Event of Default has occurred hereunder and is continuing, to the payment of Taxes and premiums for
Insurance.

         (c)      It shall be the responsibility of Borrower to furnish Lender with the bills for the Taxes and
premiums for Insurance no later than thirty (30) days prior to the last date on which the same are due and
payable without penalty or premium of any kind. If the Deposits then in the Deposit Account shall not be
sufficient to pay all of the Taxes and premiums for the Insurance when the same shall become due, then
Borrower shall immediately deposit in the Deposit Account an amount equal to the deficiency. If the total
of the Deposits exceeds the amount required to pay the Taxes and premiums for the Insurance, such
excess shall be held and credited against the obligation to make subsequent Deposits.

        7.5     Application and Use of Cash Flow. Payments from the Operating Account shall be
                                                  81
made in the priority specified in this Section 7.5 unless otherwise approved in advance of any obligation
being incurred or payment made, in writing by Lender. No payment shall be made from the Operating
                                                      82
Account if it would leave insufficient working capital to meet the obligations incurred for the Project as
they come due.

        (a)      Employee payroll, benefits and remittance of tax and other withholding mandated by Law;
then

        (b)      Tax and Insurance Deposits required by Section 7.4 hereof; then




________________________

81
        This priority is based on paying first the items that may result in liens, penalties or criminal/civil
        liability if not paid. Then payments are made to preserve the collateral or create needed
        reserves. The franchise and manager's base fees are then allowed, but the manager's incentive
        fee and other affiliate payments are deferred to a position behind debt service. A lender taking
        the most protective position would require the manager's base fee (which can be predicted to
        include a profit component) into a similarly junior position. The priority in this Agreement is
        actually less onerous to the manager, and would be offered in consideration for a low base fee. A
        manager can be expected to object strenuously to the priorities as set out here, even though its
        base fee is given some seniority. The management companies have not widely accepted the
        need to subordinate their income to debt service or other concerns of a lender.
82
        "Working capital" is not the equivalent of cash on hand. Rather, it is generally understood to be
        the net balance of current assets and current liabilities. Because revenues are usually collected
        faster than liabilities are paid, hotel working capital for GAAP purposes is frequently (and in some
        properties, almost always) a negative number. Notwithstanding this, management companies
        may use the term to mean a cash amount that the owner is expected to fund and keep on
        deposit.




                                                      31
        (c)     All other governmental impositions (other than Taxes for which deposits are made
pursuant to Section 7.4) and all other Taxes on or before the last date on which they can be paid without
penalty or premium; then

        (d)     Operating Expenses accrued and payable to non-Affiliates of Owner or Manager; then

      (e)     The fees due under any approved franchise agreement and the Base Fee component of
Manager's compensation; then

        (f)     The FF&E contribution required by Section 7.3; then

        (g)     Debt service payable on the Obligations; then

        (h)      Other Operating Expenses, including payments to Affiliates of Owner or Manager
including Incentive Fees and other compensation of Manager; and then

        (i)     Distributions to the extent permitted under Section 10.10.

        7.6   Shortfalls in Cash Flow. If at any time there are insufficient funds in the Operating
Account to make the required periodic deposits specified in Sections 7.3 or 7.4 or to pay Operating
                                                                                                       83
Expenses as set forth in Section 7.5(a) through (h), Borrower shall promptly fund from Outside Sources
the amounts necessary to make such required periodic deposits on the schedule specified and to pay all
Operating Expenses when due.

                 ARTICLE 8. -- BUDGETS, PLANS, REPORTS AND NOTICES

         8.1      Budgets. (a) Within [forty-five (45)] days prior to the end of each fiscal year, Borrower
shall deliver to Lender the following:

                 (1)     A projection of Project Income, Project Expenses and [cash flow] by Month for
        the next fiscal year presented in a form consistent with the Uniform System of Accounts and
        otherwise as approved by Lender (the "Operating Budget") and including projections of average
        daily room rates and occupancy levels. Any Project Expense that will involve a payment to or for
        the benefit of Borrower, Manager, or an Affiliate of either shall be noted as a separate line item in
        the Operating Budget. The Operating Budget will be presented in comparison with the budgeted
                                                                 84
        and actual performance for the fiscal year then ending.


________________________

83
        An obligation to fund cash shortfalls may be in effect a guarantee of the cashflow needed to
        operate. Unlimited shortfall guarantees may not be available, but guarantees may be appropriate
        up to the level of, for example, cash requirements resulting from the current budget authorized by
        the borrower, cash previously used for Distributions, or specified dollar levels. Given the
        extremely cyclical nature of hotel revenues, the volatility of market conditions (e.g., the Gulf War
        impact) and the periodic need for substantial renovation or capital investment above the level of
        reserves, provision for covering cash shortfalls should be made in the loan documents.
        This requirement is imposed to prevent the borrower from incurring subordinate or unsecured
        debt. The shortfalls are required to be funded without adverse impact on the borrower's solvency
        or creation of potentially competing creditors
84
        The simplest method of specifying the form of reports may be to attach a pro forma report
        package acceptable to the lender's loan administrators or asset managers. The loan agreement

(continued)


                                                     32
               (2)       A projection by Month of FF&E and capital expenditures for the next fiscal year
        presented in a form approved by Lender (the "Capital Budget").

                 (3)     A narrative description, in scope and form approved by Lender, of Borrower's
        plans and goals (the "Business Plan"), including a detailed marketing plan (specifying, among
        other things, rack rates being charged at hotels similar in nature and in the general vicinity of the
        Project) for the Project for the next fiscal year and, with respect to the [two (2)] fiscal years
        thereafter, including a projection by summary category of Operating Revenues, Operating
                                                         85
        Expenses, FF&E costs and capital requirements.

          (b)     The Operating Budget and the Capital Budget shall constitute the "Annual Budget." The
delivery of the Annual Budget shall be deemed a certification by Borrower that it contains only information
and relies only upon assumptions reasonably believed to be correct and achievable by Borrower and
Manager. Lender shall promptly review the Annual Budget and shall endeavor to advise Borrower, within
[thirty (30)] days of receipt of the Annual Budget and Business Plan, of the portions as to which Lender
has no objection (such portions having being thereafter the "Approved Budget"). If requested by
Lender, Borrower and Manager shall meet with Lender to explain and discuss the Annual Budget. If
Lender shall object to the Annual Budget or any portion thereof, Lender shall specify its objections and
Borrower shall submit to Lender a new proposed Annual Budget or relevant portion thereof within [fifteen
(15)] days after notice of Lender's objections. This procedure shall be repeated until a complete
Approved Budget exists. So long as Lender objects to a portion of the Annual Budget, the portion
approved, if any, shall be the Approved Budget and the Approved Budget for the fiscal year then ending,
with such changes as Lender specifies, shall be in effect in place of the portion of the Annual Budget to
                        86
which Lender objects.

         (c)     The Annual Budget for the current fiscal year, attached hereto as part of Exhibit F, has
been approved by Lender [subject to the objections set forth on Exhibit F], and shall[, subject to deletion
of any portion as to which Lender so objects,] constitute the Approved Budget for the balance of the
current fiscal year.

         (d)     Borrower shall use its best efforts to comply with each Approved Budget in regard to
Project Revenues and shall not incur any expense not included in the Approved Budget except in the
event of an emergency requiring an expenditure for the preservation of the Collateral or prevention of
                               87
injury to guests or employees.

________________________
(continued from previous page . . .)

        should provide the lender with a right to require modifications or supplements to the reporting
        package in the future.
85
        This business plan and the proposed current or pro forma budgets should be available to the
        expert preparing the lender's valuation and feasibility analysis.
86
        This provision should explicitly override the budget provisions in any management contract, which
        are likely to be far more favorable to the manager. This Section specifies controls and reviews far
        beyond those that owners are routinely offered by managers. Owners also have a substantial
        interest in distributions being made available to their investors. Such cash distributions are often
        made pari passu with payment of incentive fees to managers. Owners may not apply the same
        scrutiny as lenders to its manager's proposals for low capital investment or deferred
        maintenance, because they result in more money for both owner and manager. Therefore, the
        lender cannot rely on the owner to act in the best interest of the collateral value of the Project.
87
        Restrictions on variation from budgeted amounts are usually hotly disputed by the manager.
        Managers usually seek the freedom to overrun any line item by a substantial percentage and to

(continued)


                                                     33
        8.2      Books and Records. (a) Borrower shall keep accurate, complete and detailed books
and records including, without limitation, books of account, tax records, guest records, front office records
and other records (collectively referred to as the "Books and Records") in which shall be entered fully
and adequately every transaction with respect to the operation of the Hotel, all substantially in
accordance with GAAP. The Books and Records shall be kept on the basis of a [calendar] accounting
                                                                 88
year. All of the Books and Records shall be kept at the Hotel unless otherwise approved in writing by
Lender.

        (b)       The Books and Records shall be available to Lender and its representatives at all times
for examination, audit, inspection, copying and transcription. Borrower and Borrower's agents shall
maintain such control over the Books and Records as is required to protect them from theft, error,
                                                                                 89
fraudulent activity or use for purposes other than the operation of the Project.

         8.3       Monthly Reports. (a) Borrower shall deliver or shall cause to be delivered to Lender on
or prior to the [fifteenth (15th)] day of each Month the following reports in respect of the Project in a form
consistent with the Uniform System of Accounts (such reports hereinafter collectively referred to as the
"Monthly Reports"):

               (1)    A balance sheet as of the end of the preceding Month, specifically identifying all
        prepayments and receipts in respect of future Project operations;

                  (2)      A statement of income and expense showing the results of the operation for the
        preceding Month and fiscal year-to-date, comparison with the same Month and year-to-date in the
        prior fiscal year, and in comparison with the Approved Budget;

               (3)       For the preceding Month and fiscal year-to-date, (i) a cash summary detailing all
        cash activity and reconciling beginning and end cash balances, (ii) aged accounts receivable and
        accounts payable and (iii) a summary of activity in the Reserves with a detailed schedule of
        computation, funding and uses of the Reserves with a comparison to the Approved Budget;


________________________
(continued from previous page . . .)

        shift allocations from other line items. Because managers usually build in a significant "fudge"
        factor in the budget as a whole, exceptions of this type usually render the budget control process
        ineffective. If the exceptions are not provided, the lender should be prepared to respond to
        frequent proposals for budget modification or to have a loan in which budget covenants are
        routinely breached in day-to-day operation.
88
        Brand-managed hotels may have substantial portions of their records off-site and under the
        control of an affiliate of its management company. This is a material loan administration and
        audit issue, as well as an issue of who owns and may use the records. Guest records and
        related customer relations information have become very valuable by-products of hotel operation.
        Management companies may seek to withhold, retain and use such intellectual property for their
        potential value. The management and franchise agreement should be reviewed to confirm that
        all relevant sources of value from the hotel will in fact transfer to the lender in a foreclosure or
        other exercise of rights.
89
        Many, and perhaps a majority of, accounting and contract disputes between owners and
        management companies involve intercompany transactions with affiliates of the manager. If the
        manager and its affiliates are not bound as agents with a fiduciary duty of disclosure, the access
        of the owner to necessary information may be limited and this covenant ineffective. This issue
        should be addressed in the Tri-Party Agreement by providing the lender with sufficient direct
        assurances and rights to make certain that it does not get caught in such an issue.




                                                     34
               (4)    Current cash flow projections for the balance of the period covered by the
        Approved Budget; and

                 (5)    To the extent not set forth above, those reports and other items described in
        Exhibit S attached hereto, if any, and all reports and other items from time to time prepared by or
        for Borrower, any franchisor or Manager in respect of the operation and financial condition of the
        Project.

        (b)      Upon request by Lender, Borrower shall deliver to Lender the following:

                 (1)     A true, correct and complete copy of the check register showing all paid invoices,
        indicating date paid, amount paid and check number;

                 (2)     A true, correct and complete copy of the cash disbursements journal;

               (3)     A reforecast of income and expenses for the remainder of the current fiscal year
        as compared to the Approved Budget;

               (4)     A report explaining variances, the basis for reforecasts, changes in competition
        and market conditions and other items; and

                 (5)     Evidence of the timely payment of all Taxes.

        (c)     The Monthly Reports shall (1) be [deemed] certified by the [chief financial officer] of
Borrower, (2) be derived from the Books and Records maintained by Borrower at the Hotel, (3) follow the
general form set forth in the Uniform System of Accounts, and (4) be accompanied with copies of
supporting documentation to the extent that Lender shall request.

          (d)    Each financial statement, report or other information required to be delivered by Borrower
to Lender under this Agreement and required [deemed] hereunder to be certified by the [chief financial
                                                      90
officer] of Borrower shall also [be deemed to] certify that: (i) all of the covenants set forth in Article 5 are
fully performed and (ii) the representations and warranties set forth in Articles 7, 8, 9 and 10 are and
remain true, correct and complete except as disclosed in writing in the certificate.

         8.4      Annual Statements. Within [forty-five (45)] days after the end of each fiscal year,
Borrower shall deliver to Lender a balance sheet, a statement of income, a statement of sources and
application of cash flow, and a statement of Net Cash Flow, including all supporting departmental
schedules of revenues and expenses, certified as true, correct and complete by the [chief financial officer]
of Borrower, together with an opinion thereon after a certified audit rendered by a firm of independent
certified public accountants approved by Lender (collectively, the "Annual Statement").

        8.5     Furnishing Notices. Borrower shall deliver to Lender copies of all notices of default or
termination received or given by Borrower (or its agents or representatives) under any of the Licenses &
________________________

90
        The use of certification (or deemed certification) requirements has proven relatively effective in
        controlling borrowers. Affirmative obligations to give notice of default conditions have proven less
        effective. To be effective, a certification requirement should identify an officer of sufficient
        seniority and spell out the terms of the certification. On large hotel loans, certification of
        compliance with covenants may be required quarterly or biannually. "Deemed" certification may
        be preferable because the absence of a certificate may be overlooked and a breach waived. By
        deeming the certification to be made absent action by the borrower, this provision is intended to
        place the consequences of an omitted certificate on the borrower.




                                                      35
Permits, Contracts, and/or Insurance within three (3) Business Days after such notice is given or
received, as the case may be. Borrower shall also provide Lender with copies of all notices and
                91
correspondence pertaining to the Project or any part thereof received by Borrower (or any of Borrower's
agents or employees) from any Governmental Authority or from any company providing Insurance and all
other material notices, within three (3) business days after such notices are received.

        8.6      Inspection by Lender. Borrower will cooperate (and will use its best efforts to cause
Manager, its other agents and its independent contractors to cooperate) with Lender in arranging the
inspections of the Project or any part thereof or any of the other Collateral by Lender and its agents and
representatives at such times as Lender shall determine in its reasonable discretion.

        8.7     Furnishing Information. Borrower will:

         (a)     Promptly supply Lender with such information concerning its affairs and properties
relating to the ownership, use, occupancy, operation and maintenance of the Project as Lender may
hereafter request from time to time.

         (b)     Promptly notify Lender of any condition or event which constitutes (or which upon the
giving of notice or lapse of time or both would constitute) a Default or an Event of Default in regard to any
term, condition, warranty, representation or provision of this Agreement or of any of the other Loan
Documents.

         (c)     Promptly after receipt or sending provide Lender with copies of all written inspections,
reports, test results, correspondence and management reports received or sent by Borrower from time to
time from its employees, agents, representatives, architects, engineers, contractors, consultants and any
other parties (including without limitation Governmental Authorities) involved in the operation,
maintenance, regulation, inspection or renovation of the Project, which in any way relate to the Project,
the operation of the Project, or any part thereof, including, without limitation, compliance with Laws, the
ADA Plan, the Licenses and Permits and provisions of this Agreement relating to Tanks and/or
Hazardous Materials.

        (d)     Promptly notify Lender of any materially adverse financial change with respect to
Borrower, any Person for whom financial information was delivered to Lender, or Manager, or otherwise
in connection with the operation of the Project.

                                   ARTICLE 9. -- INSURANCE

         9.1    Insurance. Borrower shall obtain or cause to be obtained, and shall cause to be
maintained at all times during the term of the Loan, such insurance as Lender may reasonably require
(the "Insurance"), including, but not limited to the following:

        [Refer to the Standard Form of Hotel Management Agreement for a description of standard
        insurance packages.]

        (__) Such other insurance as may be requested by Lender.



________________________

91
        In the area of environmental and health/safety regulation, correspondence may often never rise to
        the level of official notice of violation but will reflect pending liability amounts and settlement
        proposals for resolution of violations.




                                                     36
         9.2      General Requirements. (a) All insurance acquired hereunder shall be with companies
and in form, amounts and with coverage and deductibles satisfactory to Lender. With respect to the
insurance described in Section 9.1(a), Lender shall be a certificate holder. With regard to the insurance
described in Section 9.1(b), (e) and (f), a mortgagee's loss payable clause shall be attached naming
Lender as mortgagee and loss payee. With respect to the insurance described in Section 9.1(c) (other
than contractual liability coverage), (d), (g) and (i), the policy shall contain an endorsement naming
Lender as an additional named insured thereunder. All insurers shall have a Best Insurance Guide
                         92
(____) rating of "___" or better (or the equivalent thereof if the rating designations in Best Insurance
Guide shall change subsequent to the date hereof) and shall be qualified to do business in the State of
[____________________]. All policies shall be written on a primary, not excess, basis. All policies
required hereunder shall provide that the insurance evidenced thereby shall not be cancelled or modified
without at least thirty (30) days' prior written notice from the insurance carrier to Lender and shall provide
that no claim shall be paid hereunder without ten (10) days' advance written notice to Lender. Upon any
renewal, Borrower shall deliver renewal policies of all insurance required hereunder. Borrower shall
deliver copies of all insurance policies to Lender at the Closing.

         (b)    Borrower shall maintain for its own benefit not less than the coverages described above.
Borrower shall not enter into any agreement or arrangement with any insurer to indemnify for covered
losses, vary the deductibles specified in the Insurance, or otherwise assume a risk required to be
         93
insured.

         9.3      Insurance Certification. Borrower shall deliver to Lender a certificate from an insurance
broker retained by Borrower and reasonably acceptable to Lender certifying that the insurance policies
presently in force with respect to Borrower and the Project satisfy the requirements above and certifying
as to such other matters pertaining to such policies as Lender may reasonably request. The certificate
must list the policy numbers, limits and deductibles.

        9.4     Insurance Reporting Requirements. Borrower shall promptly notify Lender and the
insurance carrier or agent therefor (with a copy of such notification being provided to Lender) if there is
any increase in hazard relating to the Project, or transfer of title to the Project or any part thereof.

         9.5     Renewal of Insurance. Borrower shall timely pay all premiums on the Insurance to the
extent not paid from the Deposit Account; and when and as additional insurance is required from time to
time during the term of the Loan and when and as any policies of Insurance may expire, (i) prior to the
expiration of any such policies furnish to Lender evidence of their renewal and (ii) not later than sixty (60)
days following the renewal of such policies furnish to Lender, additional and renewal insurance policies
(or certified copies thereof) issued by companies, and with coverage and amounts, reasonably
satisfactory to Lender. Notwithstanding this Section 9.5, in the event of Borrower's Default under this

________________________

92
        Rating standards for acceptable insurers have been forced down by market conditions. Today’s
        ratings may be an unattainable standard for hotel insurance in the future. Few if any top rated
        companies provide these coverages. Most lenders prefer to start at a high standard and
        negotiate downward. Some provide for arbitration based on prevailing market conditions in the
        event of a future dispute.
93
        The use of captive insurers controlled by management or franchise chains is endemic to the hotel
        industry and an unrecognized risk for many lenders. Some chain insurance programs offer
        owners the opportunity to accept higher deductibles or self insure the owner's risks, while issuing
        to the lender a policy showing substantially more coverage and smaller deductibles. Without the
        knowledge of the lender, the owner may take advantage of the short term savings that arise from
        the increased deductibles or self insurance. This may leave a potentially underinsured borrower.
        Hotel insurance and the use of insurers affiliated with managers should be reviewed in detail.




                                                     37
Agreement or a default under any of the Loan Documents, Lender shall have the right (but not the
obligation) to place and maintain Insurance required to be placed and maintained by Borrower hereunder
and treat the amounts expended therefor as additional indebtedness hereunder and under the Note.

                   ARTICLE 10. -- BORROWER'S ADDITIONAL COVENANTS

        Borrower further covenants and agrees as follows:

        10.1    Representations and Warranties. Borrower shall take no action that would cause any
of the representations or warranties contained in Article 5 to cease to be, and shall take each action
necessary to maintain each such representation and warranty as, true and complete.

        10.2     Negative Covenants. Without limiting the generality of Section 10.1, Borrower shall not:

       (a)      Cause, create, suffer or otherwise permit to exist, any Lien against any portion of the
Real Estate or Personal Property, the Project or any other Collateral.

        (b)      Enter into any Contract not provided in the Approved Budget or modify, amend,
supplement, waive any material provision of, terminate or cancel, or cause the termination and
cancellation of, any Contract unless such Contract provides for total payments to or by Borrower of less
than $1,000].

        (c)      Engage in any business other than the Project, create, incur, assume, guarantee,
become or remain liable for any obligation or indebtedness (whether personal or nonrecourse, secured or
unsecured, and whether owed to a third party or to an Affiliate) other than Project Expenses reasonably
incurred pursuant to an Approved Budget but not by the borrowing of money or obtaining of credit other
than on an open account basis customarily extended and in fact extended in connection with normal
                                    94
purchases of goods and services. References in this Agreement to the possibility of debt service
payable on other indebtedness is not intended and shall not be deemed to create, permit or grant to any
other obligation the consent of Lender on any priority over or in respect of the Loan or the Obligations.

         (d)   Permit or suffer any amendment or modification of the Formation Documents and shall
not permit or suffer the admission or withdrawal of any new shareholders, partners or other equity
holders.

        (e)      Make any material alterations to the Project.

       (f)    Use Project Revenues for Distributions or in payment of any obligations, debts or on the
Approved Budget, except as set forth in Sections 7.5 and 10.10.

       (g)      Enter into, or be a party to, any transaction with respect to the Project with any Affiliate of
                                                                             95
Borrower or of Manager without prior disclosure to and consent by Lender.

________________________

94
        Franchise and management agreements now routinely offer credit lines and loans to owners in
        their groups. A lender should not to consent to such arrangements as part of a general approval
        of a franchise or management relationship. In addition to problems of competing creditors
        generally, these loans may be repaid out of cash in the hands of the manager with setoff rights
        and in priority to other obligations, such as the mortgage debt.
95
        Current industry practices result in franchise and chain management companies deriving
        substantial profits from the provision of services by affiliates to chain hotels. The service may

(continued)


                                                      38
         (h)      Permit any of the FF&E, Inventory and other Personal Property to be removed at any
time from the Hotel unless the removed item is consumed or sold in the usual and customary course of
business, removed temporarily for maintenance and repair or, if removed permanently, replaced by an
                                                                                           96
article of equivalent suitability and not materially less value, owned by Borrower any Lien .

        (i)      Commit to sell or deliver rooms, suites or other classification of rooms and accept
payment therefor more than [thirty (30)] days in advance of delivery [in excess of the maximum amounts
                                   97
specified in the Approved Budget].

        (j)   Deposit, or permit or suffer the deposit of, any Project Revenues into, or their transfer to
or commingling in, any accounts other than the Depository Accounts disclosed to and approved by
Lender.

          (k)    Install, or permit to be installed, any Tanks or, in regard to any presently existing Tanks,
fail to remove or upgrade such Tanks in compliance with Laws or otherwise comply with such Laws.

         10.3    Actions to Maintain Project. Without limiting the generality of Section 10.1, Borrower
shall:

        (a)    Fund and operate the Project in a manner reasonably consistent with a [first-class] hotel
and in compliance with [the Management Agreement].

       (b)     Maintain Inventory in amounts sufficient to meet the hotel industry standard for hotels
                          98                                                                           99
comparable to the Project , and at levels sufficient for the operation of the Project at [full/historic ]
occupancy levels.


________________________
(continued from previous page . . .)

         include purchasing, reservations, design, employment supervision, benefit administration and
         central office accounting. While managers will usually request the right to enter into affiliate
         transactions so long as the cost is not more than the market, these loopholes have been widely
         abused. The absence of any duty to disclose has made effective review and control impossible.
         This form of loan agreement relies upon mandatory disclosure, an obligation to seek consent of
         the lender, and the threat of fiduciary liability (that is, the duty to disgorge profits) to discourage
         affiliate transactions. If the manager is not operating under an agency agreement or otherwise
         lacks the accountability of a fiduciary, affiliate transactions may be harder to control. Recently, a
         further issue has developed as to whether discounts and payments taken in these transactions
         have been properly booked or have been used to manipulate income. At least one hotel
         company has restated some of its financial reports as a result.
96
         A device for deferring capital expenditure or disguising underinvestment in capital items is the
         replacement of owned FF&E by leased equipment. This transforms a capital expense to a
         current operating expense. The amount of capital converted to current lease expense in this way
         has increased in recent years.
97
         While some pre-selling of rooms is routine and necessary in convention and seasonal hotels, pre-
         sales at a deep discount may be an act of desperation to disguise or defer a critical loss of cash
         flow. The problem is particularly egregious in seasonal hotel properties which may spend more
         than half the year in serious cash flow deficits. Large pre-sales may also be the forewarning of a
         manager's imminent departure. Pre-payments for room blocks are rarely escrowed or separately
         reserved. They are used spent to cover cash flow shortfalls in the seasonal lull before the high
         season in which the rooms are to be delivered. They may also be used to fund a war chest
         before bankruptcy.




                                                       39
         (c)    Make, or cause to be made, all renovations and capital improvements to the Project in a
good and workmanlike manner with materials of high quality, free of defects and liens, in accordance with
all Plans & Specifications and Laws.

          (d)     Promptly comply with all applicable Laws of any Governmental Authority having
jurisdiction over Borrower or the Project, including, without limitation, the ADA.

        (e)     Keep all Licenses & Permits in full force and effect and promptly comply with all
conditions thereof.

        (f)     Borrower shall, if the Note is mutilated, destroyed, lost, or stolen, promptly deliver to
Lender, in substitution therefor, a new promissory note containing the same terms and conditions as the
Note with a notation thereon of the unpaid principal and accrued and unpaid interest.

        (g)      Upon Lender's reasonable request, execute, deliver, record and furnish such documents
as Lender may reasonably deem necessary or desirable to (i) perfect and maintain perfected as valid
liens upon the Project and the other Collateral, the liens granted by Borrower to Lender under the Loan
Documents as contemplated by this Agreement, (ii) correct any errors of a typographical nature or
inconsistencies which may be contained in any of the other Loan Documents, and (iii) consummate fully
the transaction contemplated under this Agreement.
                                                                       100
         10.4    Mechanics' Liens Contest Thereof; Other Liens.           Borrower will not suffer or permit
any mechanics', suppliers' or other lien claims (including without limitation any liens arising from
environmental or other Proceedings) to be filed or otherwise asserted against the Project, and will
promptly discharge the same if any claims for lien or any proceedings for the enforcement thereof are
filed or commenced; provided, however, that Borrower shall have the right to contest in good faith and
with due diligence the validity of any such lien or claim upon furnishing to Lender a bond covering such
contested mechanics' or other lien in form, scope and substance satisfactory to Lender (and from a
bonding company approved by Lender) or by furnishing the Title Insurer such security or indemnity as it
may require to induce the Title Insurer to issue an endorsement to the Title Policy insuring against all
such claims, liens or proceedings. Except as expressly permitted by this Agreement or the other Loan
Documents, Borrower shall not cause, create, suffer or otherwise permit to exist, any Lien against any
portion of the Real Estate or Personal Property, the Project or any other Collateral.

         10.5     Settlement of Lien Claims. If Borrower shall fail promptly to discharge any lien claim
filed or otherwise asserted or to contest any such claims and give security or indemnity in the manner
provided in Section 10.4 hereof, or, having commenced to contest the same, and having given such
security or indemnity, shall thereafter fail to prosecute such contest in good faith or with due diligence, or
fail to maintain such indemnity or security so required by the Title Insurer for its full amount, or, upon
adverse conclusion of any such contest, shall fail to cause any judgment or decree to be satisfied and lien
to be promptly released, then, and in any such event, Lender may at its election (but shall not be required
to), with prior written notice to Borrower, (i) procure the release and discharge of any such claim and any
judgment or decree thereon, without inquiring into or investigating the amount, validity or enforceability of
such lien or claim and (ii) effect any settlement or compromise of the same, or may furnish such security
________________________
(continued from previous page . . .)

98
        The lender may want to specify the specific competitive reference group by naming five or six
        hotels, a majority of which can be expected to operate for the foreseeable future.
99
        This relates to the problem of seasonal variation in inventory or stocks. The reference period
        may need to be spelled out if a hotel has a history of variable stock levels through the year.
100
        This is intended to include environmental liens.




                                                     40
or indemnity to the Title Insurer, and any amounts so expended by Lender, including premiums paid or
security furnished in connection with the issuance of any surety company bonds, shall be deemed to
constitute advances under the Note. Such action by Lender shall not waive the Event of Default arising
from Borrower's failure to comply with this Section or Lender's remedies therefor.

         10.6     Proceedings. If any legal proceedings are commenced seeking to enjoin or otherwise
prevent or declare unlawful the use, occupancy, operation or maintenance of the Project or any portion
thereof, or if any other Proceedings are filed, Borrower shall give immediate notice thereof to Lender and,
to the extent permitted by Law and at its sole expense, (i) cause such proceedings to be vigorously
contested in good faith and (ii) in the event of an adverse ruling or decision, prosecute all allowable
appeals therefrom. Without limiting the generality of the foregoing, Borrower shall resist the entry or seek
the stay of any temporary or permanent injunction that may be entered and use its best efforts to bring
about a favorable and speedy disposition of all such proceedings, as well as any others.

          10.7    Correction of Defects. Within [five (5)] days after Borrower acquires knowledge of or is
given notice of a material defect in the Project or any departure from other requirements of this
Agreement, Borrower will commence and continue with diligence to correct all such defects and
departures. Borrower shall complete such corrections within [thirty (30)] days after Borrower acquires
such knowledge or is given such notice, or, if such corrections cannot reasonably be completed within
[thirty (30)] days, within such longer period as it shall require with diligence to complete such corrections
but in no event more than [ninety (90)] days in total. Upon Borrower acquiring knowledge of such defect
(other than as a result of written notice to Borrower from Lender), Borrower shall promptly advise Lender
in writing of such matter and the measures being taken to make such corrections, along with an estimate
of the time of completion.

        10.8     Payment of Taxes. To the extent not paid from the Deposit Account pursuant to Section
7.4, Borrower shall pay all special assessments and all real estate taxes and assessments, all personal
property taxes and assessments, and all other charges of every kind of any Governmental Authority upon
the Project (the "Taxes") when same are due, but subject to any right to contest such Taxes [as expressly
                                                                                   101
permitted by the Mortgage and in the manner expressly permitted by the Mortgage ].

        10.9     Personal Property. (i) All of Borrower's personal property, fixtures, furnishings, furniture,
attachments and equipment located on or used in connection with the Project, including FF&E and the
Inventory, shall always be located at the Project, except as expressly permitted by the terms of this Loan
Agreement, and shall also be kept free and clear of all Liens and (ii) Borrower shall, from time to time
upon request by Lender, furnish Lender with evidence of such ownership satisfactory to Lender, including
searches of applicable public records.
                                               102
         10.10 Limitation on Distributions.      Borrower shall apply all Project Revenues as set forth in
Section 7.5. Except as set forth in this Section 10.10, Project Revenues shall not be used for
Distributions or applied to the payment of any Borrower's obligations, debts or expenses not set forth on



________________________

101
        Even if real estate and similar installment Taxes are to be paid out of an escrow, the mortgage
        provisions will not deal with other Taxes, such as trust fund taxes, to be paid remitted directly by
        the borrower.
102
        This type of limitation is a common feature of venture capital lending and is mandated by the
        special purpose, non-recourse nature of this loan. It is designed to hold value in the borrower as
        the cushion against short term changes in the performance of the business, and to enforce
        progress toward long term stable profitability.




                                                     41
                                                          103
the then current Approved Budget. If, for any fiscal year of the Project during the term of this Loan, the
Coverage Ratio under Section 3.4 (as calculated from the Annual Statement required to be delivered to
                                                           104
Lender pursuant to Section 8.4 hereof) is greater than [1.5 ] to 1, then, provided that no Default or Event
of Default has occurred and is continuing hereunder or under any of the other Loan Documents, Borrower
shall have the right to use for Distribution an amount of [Available Cash] equal to the amount by which
Net Cash Flow for the fiscal period exceeds 1.5 multiplied by Annual Loan Debt Service as calculated on
the date of calculation. No Distributions shall occur until a date which is not less than thirty (30) days
after the submission of the Annual Statement to Lender. Borrower shall deliver to Lender, at the time of
its submission of the Annual Statement to Lender, Borrower's calculation of the cash available for
Distribution, if any.

         10.11 Transactions with Affiliates. Borrower shall not enter into, or be a party to, any
transaction with respect to the Project with any Affiliate of Borrower or Manager, except on terms which
are fully disclosed to Lender and consented to in writing by Lender in its sole discretion. Borrower shall
propose no transaction for Lender's consent unless its terms are no less favorable to Borrower than
would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate. In
seeking approval of any transaction with an Affiliate, Borrower shall disclose to Lender and identify such
proposed transaction as an Affiliate transaction.

          10.12 Hazardous Material. Borrower shall keep the Project free of any Hazardous Material
except in compliance with all Laws. Borrower shall comply with any and all Laws with respect to the
discharge, investigation, remediation, removal or other actions to address Hazardous Material, shall pay
immediately when due the costs of investigation, remediation, removal and otherwise addressing any
such Hazardous Material, and shall keep the Project free of any lien imposed pursuant to such Laws. In
the event Borrower fails to do so, after notice to Borrower, Lender at its sole discretion may declare an
Event of Default under this Agreement and/or cause Hazardous Material to be investigated, remediated,
removed or otherwise addressed and the lien, if any, to be removed and the fines or penalties, if any, to
be paid with the cost of any and all actions taken to be added to the indebtedness evidenced by the Note
and secured by the Mortgage (regardless of whether such indebtedness then increases the outstanding
balance of the Note to an amount in excess of the face amount thereof). Borrower further agrees not to
spill, release or dispose, or allow the spilling, release or disposal, of any Hazardous Material at the
Project. Lender at its sole discretion shall have the right (but not the obligation) at any time, following
notice to Borrower, to conduct an environmental audit of the Project and Borrower shall cooperate fully in
the conduct of such environmental audit. Borrower shall give Lender and its agents and employees
access to the Project in accord with Lender's rights hereunder and Borrower agrees to indemnify and hold
Lender free and harmless from and against all loss, costs (including consultants' and attorneys' fees and
expenses), damage (including consequential damages), and expenses asserted or proven against
Lender by any party as a result of the presence of such substances, and any investigation, removal or
compliance with Laws or Lender's actions with respect thereto. Such indemnification shall be made
regardless of whether the claims, costs, losses or expenses are actual or contingent, currently existing or
arising in future, regardless of when accrued or manifested. The foregoing indemnification shall survive
repayment of the Note, and shall be in addition to the separate indemnity and other agreements
contained in the environmental remediation and indemnification agreement executed and delivered by
Borrower at the Closing.
________________________

103
        A fiscal year test requires that eligibility for Distributions be determined on the basis of audited
        results. In contrast, the Coverage Ratio is calculated on monthly unaudited results. This
        distinction is based on the fact that Distributions may result in an irreversible removal of cash; the
        Coverage Ratio results at most in a redetermination of the applicable interest rate or halts on-
        going distributions.
104
        This ratio is to be compared to the minimum Coverage Ratio of [1.25] to 1. Between [1.25] and
        [1.5], this form of loan agreement in effect requires the borrower to retain the net cash flow.




                                                     42
         10.13 Asbestos. Borrower shall not install nor permit to be installed in the Project any product
or material containing more than 0.1 percent asbestos by weight that when dry, may be crumbled,
pulverized or reduced to powder by hand pressure, or any substance containing asbestos and deemed
hazardous by Laws respecting such material, and with respect to any such material currently present in
the Project shall promptly either (i) remove any material which such Laws deem hazardous and require to
be removed or (ii) otherwise comply with such federal and state Laws, at Borrower's expense and sole
risk. If Borrower shall fail to so remove or otherwise comply, Lender may declare an Event of Default
under this Agreement and/or do whatever is necessary to eliminate said substances from the Project or
otherwise comply with applicable Law, and the costs thereof shall be added to the indebtedness
evidenced by the Note and secured by the Mortgage (regardless of whether such indebtedness then
increases the outstanding balance of the Note to an amount in excess of the face amount thereof).
Borrower shall give Lender and its agents and employees access to the Project to investigate and remove
such asbestos or substances. Borrower shall defend, indemnify, and hold Lender harmless from all loss,
costs (including consultants' and attorneys' fees and expenses), damages (including consequential
damages),losses or expenses asserted or proven against Lender by any party, as a result of the
presence of such substances, and any removal or compliance with Laws, regardless of whether the
claims, costs, damages, losses or expenses are actual or contingent, currently existing or arising in
future, regardless of when accrued or manifested. The foregoing indemnification shall survive repayment
of the Note.

        10.14 Indemnification. Borrower shall indemnify, defend and hold Lender, its successor and
assignees, harmless from and against all claims, injury, damage, loss, costs (including attorneys' fees
and costs) and liability of any and every kind to any persons or property by reason of (i) the ownership,
use, operation or maintenance of the Project; (ii) any other action or inaction by, or matter which is the
responsibility of, Borrower; and (iii) the breach of any representation or warranty or failure to fulfill any of
Borrower's obligations under this Agreement or any other Loan Document, unless caused solely by
Lender's gross negligence or willful misconduct.
                                                              105
        10.15 Change of Management of the Project.            Borrower acknowledges and confirms that
the Project is currently operated under a [name] franchise and is managed by __________ pursuant to
the Management Agreement. Subject to the provisions set forth below, Borrower shall not have any right
to, and shall not, pay to itself any management fees in connection therewith. Notwithstanding the
foregoing, Lender agrees that Borrower shall have the right, during the term of this Loan, to substitute
another franchise or manager provided that: (i) the franchise and/or manager shall have been approved
by Lender in advance (which approval may be withheld by Lender in its sole discretion), (ii) such
franchise and/or management arrangement shall be solely pursuant to a written agreement approved by
Lender in advance of its execution, and (iii) such agreement will specify the subordination of the rights of
such franchisor or management company on a basis no less favorable to lender than set forth in the
agreements specified in Article 6.2(a)(4).




________________________

105
        This provision is inserted as a reminder that lender may be placed at a disadvantage if its loan is
        dependent on a single management or franchise option. The questions of how to deal with an
        unsatisfactory manager, a failed franchise, a change in market position, or a change in ownership
        of the manager or franchise should be considered at the outset of the underwriting and loan
        documentation.




                                                      43
                                ARTICLE 11. -- CASUALTY LOSS
                                                                                           106
         11.1     Lender's Election to Apply Insurance Proceeds to Indebtedness.                In the event of
any loss or damage to any portion of the Project due to fire or other casualty, Lender shall have the right,
but not the obligation, in its sole discretion to settle insurance claims or to allow Borrower to settle claims.
In either case, Lender shall have the right (but not the obligation) to collect, retain and apply to the
Obligations all insurance proceeds (after deduction of all expenses of collection and settlement, including
attorneys' and adjusters' fees and expenses), and if such proceeds are insufficient to pay such amount of
the Obligations in full, to declare the balance remaining unpaid thereon to be due and payable forthwith
and to avail itself of any of the remedies afforded thereby as in the case of any Event of Default. Any
proceeds remaining after application to the Obligations shall be paid by Lender to Borrower or any other
party which may be entitled thereto.

          11.2   Borrower's Obligation to Rebuild and Use of Proceeds Therefor. Lender agrees,
that, in the event that the insurance proceeds payable as a result of such loss are equal to or less than
                    107
[ten percent (10%) ] of the outstanding principal balance of the Loan, to make such insurance proceeds
available to Borrower in installments from time to time to restore the Project upon the following terms and
conditions:

         (a)     Borrower shall expeditiously repair and restore all damage to any portion of the Project
resulting from such casualty, in accordance with plans and specifications approved by Lender.

        (b)     If at any time prior to or during such reconstruction or rebuilding, the amount of the
insurance proceeds is deemed insufficient, in the Lender's reasonable judgment, to complete such
reconstruction or rebuilding and performance of all Obligations during such period, Borrower shall
promptly deposit with Lender the amount of such projected deficiency in cash.

        (c)      No Default or Event of Default shall occur or be continuing.

       (d)      In Lender's sole judgment, restoration with normal diligence can be completed prior to the
Loan Maturity, and during the period of restoration, the Insurance is in full force and effect and is payable.

         (e)     Any request by Borrower for a disbursement by Lender of insurance proceeds and funds
deposited by Borrower pursuant to Section 11.2(b) above shall be conditioned upon Borrower's
compliance with all conditions precedent as are customarily required by construction lenders making
loans for construction of projects similar to the Project, to ensure that the repair and restoration are
completed within a time period, by contractors and in accordance with plans and specifications
satisfactory to Lender, all as if Lender were making and administering disbursements of a construction
loan.




________________________

106
        A management company will usually specify reconstruction even after a major casualty. The
        lenders' and management companies' requirements should be conformed.
107
        Hotel revenues may be materially impacted by relatively minor damage or interruptions.
        Reconstruction of building systems, while not excessive in cost, may be best done while the
        entire property is closed. Reputation and competitive position may also suffer disproportionately
        if the casualty is publicized. A lender may want the option not to rebuild at a relatively low level of
        loss. In contrast to other commercial property loans, reconstruction may be the exception for
        hotel casualty losses rather than the rule.




                                                      44
                                ARTICLE 12. -- CONDEMNATION

        12.1     Condemnation. In the event the Project or any portion thereof is taken or damaged by
eminent domain powers of any Governmental Authority, the award shall be paid to Lender (and Borrower
hereby assigns, transfers and sets over unto Lender its entire interest in any such award) and applied to
payment of the Obligations, after deducting any costs incurred by Lender in connection therewith, and the
Obligations, at the Lender's option may be declared immediately due and payable. Borrower hereby
waives all rights as property owner under the provisions of any Laws providing for the allocation of
condemnation proceeds between a property owner and lien holder.

        Notwithstanding the foregoing, Lender agrees not to declare the Loan in Default and to permit the
Borrower to use any award to repair the Project, provided, however, that the following terms and
conditions are satisfied:

        (a)     An insubstantial portion of the Project is the subject of the taking, which, in the sole
judgment of the Lender, does not materially adversely affect the use, occupancy, operation or
maintenance of the Project as a [luxury/full service/franchise name] hotel, and does not adversely affect
access to the Project; and

        (b)      The conditions set forth in Section 11.2(a) to (e) are satisfied.

                                  ARTICLE 13. -- ASSIGNMENTS

        13.1     Prohibition of Assignments by Borrower or of Interests in Borrower. (a) Borrower
shall not assign or attempt to assign its rights under this Agreement or under any other Loan Document,
and Borrower will not suffer or permit any of its interest or rights in the Project and the other Collateral to
be assigned, sold, pledged, encumbered, transferred, hypothecated or otherwise disposed of, whether or
not conditional upon the prior repayment of Lender.

         (b)    Any attempt to sell, assign, transfer, convey, pledge, encumber or otherwise hypothecate
any or all of equity interests in Borrower, direct or indirect, without the prior written consent of Lender,
shall be deemed an assignment within the prohibition and in breach of the covenant in Section 13.1(g).

        13.2     Successors and Assigns. Subject to the foregoing restrictions on transfer and
assignment contained in this Article 13, this Agreement shall inure to the benefit of and shall be binding
on the parties hereto and their respective successors and assigns.

                              ARTICLE 14. -- EVENTS OF DEFAULT

       14.1    Events of Default. The occurrence of any one or more of the following shall constitute
an "Event of Default," as such term is used herein:

        (a)      Borrower shall fail to pay, within ten (10) days after the same shall be due and payable,
any principal of the Loan or any Mandatory Amortization Payment, whether at the stated date of maturity
or any accelerated date of maturity or at any other date fixed for payment.

         (b)     Borrower shall fail to pay, within five (5) days after the same shall be due and payable,
any interest on the Loan or any other sums due hereunder or under any of the other Loan Documents
(including deposits into any Reserve), whether at the stated date of maturity or any accelerated date of
maturity or at any other date fixed for payment.

        (c)     Borrower shall fail to comply with any of its covenants contained in Sections 8.2, 8.3 and
8.4 hereof and such failure shall continue for ten (10) days after notice.




                                                      45
         (d)     Borrower shall fail to comply without notice with any of its covenants contained in Articles
7, 8, 9, 10, 11 and 13 hereof (other than those covenants mentioned in subsection (c) above).

        (e)      Borrower shall fail to perform any other term, covenant or agreement contained herein or
in any of the other Loan Documents (other than those specified elsewhere in this Article 14) for [fifteen
(15)] days after written notice of such failure has been given to the Borrower by Lender; provided,
however, that if such default is of a nature that it cannot be cured within [fifteen (15)] days and the
Borrower commences and diligently proceeds to cure such default, such cure period shall be extended for
such period of time as required to cure such default but in no event more than [thirty (30)] additional days
or such lesser period as may be specified by any franchise agreement, Management Agreement or any
Laws.

        (f)    Any representation or warranty of Borrower in this Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant to or in connection with this
Agreement shall prove to have been false in any material respect upon the date when made or deemed
to have been made or repeated[, as to which no cure is allowed].

        (g)      Borrower or any Affiliate controlling it shall fail to pay at maturity, or within any applicable
period of grace, any indebtedness in excess of [$20,000], or fail to observe or perform any material term,
covenant or agreement contained in any agreement by which it or its assets are bound, evidencing or
securing indebtedness in excess of [$20,000] for such period of time as would permit (assuming the
giving of appropriate notice if required) the holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof, and as to which the holder or holders thereof have
commenced legal action with respect thereto.

         (h)      Borrower or any Affiliate controlling it shall make an assignment for the benefit of
creditors; or admit in writing its inability to pay or generally fail to pay its debts as they mature or become
due; or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of
Borrower or of any substantial part of the assets of the Borrower; or shall commence any case or other
proceeding relating to Borrower under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect;
or shall take any action to authorize or further any of the foregoing; or if any such petition or application
shall be filed, or any such case of other proceeding shall be commenced against Borrower and Borrower
or shall indicate its approval thereof, consent thereto or acquiescence therein.

        (i)     A decree or order is entered appointing any such trustee, custodian, liquidator or receiver
or adjudicating Borrower bankrupt or insolvent, or approving a petition in any such case or other
proceeding; or a decree or order for relief is entered in respect of Borrower in an involuntary case under
federal bankruptcy laws as now or hereafter constituted and such decree or order for relief entered in an
involuntary case under federal bankruptcy laws remains undischarged for more than thirty (30) days.

         (j)       There shall remain in force, undischarged, unsatisfied and unstayed, for more than [thirty
(30)] days, whether or not consecutive, any uninsured final judgment against Borrower or any Person
controlling it that, with all other outstanding, uninsured, final judgments undischarged against Borrower or
any Affiliate controlling Borrower exceeds in the aggregate $[10,000].

        (k)      If any of the Loan Documents shall be cancelled, terminated, revoked or rescinded
otherwise than in accordance with the terms thereof or with the express prior written agreement, consent
or approval of Lender; or any action at law, suit or in equity or other legal proceeding to cancel, revoke or
rescind any of the Loan Documents shall be commenced by or on behalf of Borrower; or any court or any
other governmental or regulatory authority or agency of competent jurisdiction shall make a determination
that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan
Documents is illegal, invalid or unenforceable in accordance with the terms thereof.




                                                       46
         (l)        Borrower or any Affiliate controlling it shall be indicted for a federal crime, a punishment
for which could include the forfeiture of any assets of Borrower, of any equity interest in Borrower, or the
                                            108
loss of eligibility for Licenses & Permits.

        (m)     Borrower shall be in default or in breach of any term of any Contract or License & Permit
(after any requisite notice or cure periods contained in such Contract or applicable to such License &
Permit) and such default could, in Lender's reasonable judgment, have a materially adverse effect on the
use, occupancy, operation or maintenance of the Project as a [franchise name] hotel.

        (n)     If for any reason any of the liquor license(s) for the Hotel is revoked or if, for any reason,
the applicable Governmental Authorities, or any of them, requires the cessation of the sale of alcoholic
beverages at the Project for a period of more than [five (5)] consecutive days is required or if such
cessation otherwise occurs for a period of more than [five (5)] consecutive days.

        (o)     If (i) the Management Agreement or any approved franchise agreement is terminated for
any reason without the prior written consent of Lender and no comparable or superior substitute
agreement or other arrangement acceptable to Lender in its sole discretion is in place or (ii) any event
shall occur which gives the right to terminate any approved franchise agreement or the Management
Agreement to the counterparty and the counterparty has given notice of its election to terminate.

        (p)     If a default occurs under any of the other Loan Documents and continues beyond the
applicable grace period, if any, contained therein.

                ARTICLE 15. -- LENDER'S REMEDIES IN EVENT OF DEFAULT

         15.1    Remedies Conferred Upon Lender. Upon the occurrence of any Event of Default,
Lender shall, in addition to all remedies conferred upon Lender by Laws and by the terms of the Note,
Mortgage and the other Loan Documents, have the right but not the obligation to pursue any one or more
of the following remedies concurrently or successively, it being the intent hereof that all such remedies
shall be cumulative and that no such remedy shall be to the exclusion of any other:

         (a)      Take possession of and operate the Project, collect Project Revenues, whether or not
Lender shall take possession, make entry or engage in any other activity with respect to the Project, and
do any and every act which Borrower might do in its own behalf, and, Borrower hereby irrevocably
appoints and constitutes Lender its lawful attorney-in-fact, with full power of substitution for the purposes
aforesaid, it being understood and agreed that the foregoing power of attorney shall be a power coupled
with an interest and cannot be revoked.

        (b)      Withhold further disbursement, if any, of the proceeds of the Loan.

        (c)      Declare the Note and Obligations to be immediately due and payable.

        (d)     Use and apply any monies deposited by Borrower in the Reserves, regardless of the
purpose for which the same was deposited, to cure any such Event of Default or to apply on account of
any Obligations which is due and owing to Lender.



________________________

108
        Criminal charges, including tax fraud claims, against any material investor or lender may result in
        the loss of liquor licenses. For example, a 10% or greater interest in debt or equity held by a
        convicted person in New York may bar a liquor license.




                                                      47
        (e)     Exercise or pursue any other right or remedy permitted under this Agreement or any of
the other Loan Documents or conferred upon Lender by operation of Law.

         15.2    Non-Waiver of Remedies; No Election. No waiver of any breach or default hereunder
shall constitute or be construed as a waiver by Lender of any subsequent breach or default or of any
breach or default of any other provision of this Agreement. The election of any one or more remedies
shall not waive any right to another or different remedy.

                            ARTICLE 16. -- GENERAL PROVISIONS

        16.1    Captions; Incorporation of Recitals and Exhibits. [Omitted.]

        16.2    Entire Agreement. [Omitted.]

        16.3    Notices. [Omitted.]

        16.4    No Oral Modification, Waiver. [Omitted.]

        16.5    Governing Law. [Omitted.]

        16.6    Acquiescence Not to Constitute Waiver of Lender's Requirements. [Omitted.]

        16.7     Disclaimer by Lender. This Agreement is made for the sole benefit of Borrower and
Lender (and Lender's successors and assigns and participants, if any). No other person or persons shall
have any benefits, rights or remedies under or by reason of this Agreement. Lender shall not be liable to
any contractors, subcontractors, suppliers, laborers, architects, engineers, tenants, or other parties for
labor or services performed or materials supplied in connection any work done on or about or in respect
of the Project. Lender shall not be liable for any debts or claims accruing in favor of any such parties
against Borrower or others or against the Project. Borrower is not and shall not be an agent of Lender for
any purposes. Except as expressly set forth in the Loan Documents, Lender is not and shall not be an
agent of Borrower for any purposes. Lender, by making the Loan or any action taken pursuant to any of
the Loan Documents, shall not be deemed a partner or a joint venturer with Borrower. Lender shall not
be deemed to be in privity of contract with any contractor or provider of services to the Project, nor shall
any reference or payment of funds directly to a contractor, subcontractor or provider of services be
deemed to create any third-party beneficiary status or recognition by Lender. Any actions undertaken by
Lender pursuant to this Agreement or any other Loan Document including but not limited to monitoring of
the operation of the Project, requiring compliance with Laws and related activities, and undertaking other
actions that may affect the financial, management and operational aspects of the Project are undertaken
to protect Lender's security interest in the Project and not to control or otherwise direct, participate or
otherwise be involved in the management of the Project or Borrower or any aspect of either.

        16.8    Lender's Action for its Own Protection Only. The authority herein conferred upon
Lender, and any action taken by Lender to inspect the Project, and/or to exercise rights of approval, will
be exercised and taken by Lender and any of Lender's agents or independent contractors retained by
Lender for such purposes as aforesaid for their own protection only and may not be relied upon by
Borrower or any other party for any purposes whatever. Neither Lender nor any of Lender's agents or
independent contractors shall be deemed to have assumed any responsibility to Borrower or any other
party by reason of any such action herein authorized or taken by Lender or such agents or independent
contractors. Any review, investigation or inspection conducted by Lender or any agent or representative
of Lender in order to verify independently Borrower's satisfaction of any conditions precedent to the
Closing of the Loan under this Agreement, Borrower's performance of any of the covenants or obligations
of Borrower under this Agreement or under any of the other Loan Documents, or the truth of any
representations and warranties made by Borrower hereunder or under any of the other Loan Documents
(regardless of whether or not the party conducting such review, investigation or inspection should have
discovered that any of such conditions precedent were not satisfied or that any such covenants,



                                                    48
agreements or obligations were not performed or that any such representations or warranties were not
true) shall not affect (or constitute a waiver by Lender of) (i) any of Borrower's representations and
warranties under this Agreement or Lender's reliance thereon, or (ii) Lender's reliance upon any
certifications of Borrower or any other person or entity required or deemed to occur under this Agreement
or any other facts, information or reports furnished Lender in connection with the Loan.

        16.9    Right of Lender to Make Advances to Cure Borrower's Defaults. [Omitted.]

        16.10   Definitions Included in Agreement. [Omitted.]
                                            109
      16.11 Time Is of the Essence.               Time is hereby declared to be of the essence of this
Agreement and of every part hereof.

        16.12   Execution in Counterparts. [Omitted.]

        16.13   Waiver of Jury Trial. [Omitted.]

        16.14   Conflicts. [Omitted.]

        16.15   Election of Jurisdiction. [Omitted.]
                          110
         16.16 Set-Offs.       (i) From time to time in connection with the payment of interest due and
payable under the Notes, and (ii) in all other instances, after the occurrence and during the continuance
of an Event of Default, Borrower hereby irrevocably authorizes and directs Lender, to charge Borrower's
accounts and deposits, if any, with Lender (general or special, time or demand, provisional or final), other
than third party security accounts, and to pay over to Lender an amount equal to any amounts from time
to time due and payable to the Lender hereunder, under the Note or under any other Loan Document.
Borrower hereby grants to the Lender a security interest in and to all such accounts and deposits, if any,
maintained by the Borrower with Lender.




________________________

109
        Due to the complexity of hotel operation and the steps necessary to close a loan transaction, a
        "time is of the essence" provision may be less desirable than it would be in a more routine real
        estate transaction.
110
        This provision is a method of confirming that common law setoff rights that a lender may have
        against funds held in its depository accounts. It is included here as a confirmation of a remedy
        that is intended to be reserved, rather than created by these documents.




                                                    49
16.17   Recourse Liability. [Omitted.]

Borrower and Lender have executed this Agreement as of the day and year first set forth above.

                            BORROWER:


                            By:
                                  Title: [____________________]


                            LENDER:


                            By:
                                  Title: [____________________]




                                           50

								
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