Exhibit 10.2

Loan No.: 6326048-001

SECURITY AGREEMENT

(1550 Buckeye Drive, Milpitas, Santa Clara County, California)

 

Debtor:

  

Name:

  

NANOMETRICS INCORPORATED, a Delaware corporation

Address:

  

1550 Buckeye Drive, Milpitas, California 95035-7418

Secured Party:

  

Name:

  

GE COMMERCIAL FINANCE BUSINESS PROPERTY CORPORATION,

  

A Delaware corporation, its successors and assigns

Address:

  

Middle Market Risk

  

10900 Northeast Fourth Street, Suite 500

  

Bellevue, Washington 98004

THIS SECURITY AGREEMENT is made, given, and entered into as of July 25, 2008, by
the Debtor named above to and for the benefit of the Secured Party. Debtor, for
valuable consideration, hereby grants to Secured Party a security interest in
the property listed on Exhibit B hereto, and any and all additions and
substitutions thereto (the “Collateral”) (i) to secure payment of the
indebtedness evidenced by that certain Balloon Promissory Note of even date
herewith, payable to the order of Secured party, in the principal amount of
Thirteen Million Five Hundred Thousand and no hundredths Dollars
($13,500,000.00.00) (the “Note”) and (ii) to secure all other obligations of
Debtor arising under all documents (collectively, the “Loan Documents”) securing
or executed in connection with the Note, except the Environmentally Indemnity
Agreement Regarding Hazardous Substances (“Indemnity”).

Debtor expressly warrants and covenants:

 

  1. Except for the security interest granted hereby, Debtor is, or to the
extent that this Security Agreement states that the Collateral is to be acquired
after the date hereof, will be, the owner of the Collateral free from any lien,
security interest or encumbrance, other than the Permitted Exceptions (as
defined in the Security Instrument as hereinafter defined). Debtor understands
that any further encumbrance of the Collateral is prohibited. Debtor shall
defend the Collateral against all claims and demands of all persons at any time
claiming the same of any interest therein by, through or under Debtor.

 

  2. The Collateral is used or brought primarily for use in the business of
Debtor and not for consumer purposes.

 

  3. The Collateral is located at or on or is used or owned for or in connection
with the real estate situated in Milpitas, Santa Clara County, California,
commonly known as 1550 Buckeye Drive, and described on the attached Exhibit A
herein incorporated by this reference (the “Property”). Debtor shall promptly
notify Secured Party of any change in the location of the Collateral.

 

  4. Debtor is a corporation formed under the laws of the State of Delaware.
Debtor’s business address is as stated above. Debtor shall promptly notify
Secured Party of any change in Debtor’s principal place of business or
organizational status.

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  5. Debtor shall pay when due, prior to delinquency, all taxes and assessments
of every nature which may be levied or assessed against the Collateral.

 

  6. Except for liens in favor of Secured Party, without Secured Party’s prior
written consent, Debtor shall not permit or allow any lien, security interest or
encumbrance whatsoever upon the Collateral (other than the Permitted Exceptions
described in the Security Instrument and any other liens permitted under the
Loan Documents) and shall not permit the Collateral to be attached or replevied.
Secured Party’s consent to a junior lien by an entity owned by, or under common
control with, Secured Party shall not be unreasonably withheld.

 

  7. The Collateral is in good condition and Debtor shall keep the Collateral in
good condition (reasonable wear and tear expected) and from time to time,
forthwith, replace and repair all such parts of the Collateral as may be broken,
worn out, or damaged without allowing any lien to be created upon the Collateral
on account of such replacement or repairs. Secured Party may examine and inspect
the Collateral at any time, wherever located, subject to reasonable prior
notice.

 

  8. Debtor will not use the Collateral in violation of any applicable statutes,
regulations or ordinances.

Notwithstanding anything else contained herein or in any of the Loan Documents
to the contrary, if any personal property for use on the Property will be leased
to Debtor, Secured Party’s interest therein shall be subordinate to lessor’s
interest therein.

Until the occurrence of an “Event of Default” (as hereinafter defined), Debtor
may have possession of the Collateral and use it in any lawful manner, and upon
the occurrence of an Event of Default Secured Party shall have the immediate
right to the possession of the Collateral to the extent and in the manner
provided by applicable law.

Debtor shall be in default under this Security Agreement upon the happening of
any of the following events (an “Event of Default”):

 

  (a) default in the payment or performance of any obligation, covenant or
liability contained or referred to in this Security Agreement (provided,
however, that Debtor shall have been given as to Nos. 5, 6, 7 and 8 above,
thirty (30) days written notice and opportunity to cure, or if the default
cannot be cured within such thirty (30)-day period, such additional time as may
be reasonably required to commence and pursue curative action with reasonable
diligence); provided, however, that no notice of default and no opportunity to
cure shall be required with respect to defaults under Nos. 6 and 7 if during the
prior twelve (12) months Secured Party has already sent more than one (1) notice
to Debtor concerning default in performance of the same obligation); or

 

  (b) the occurrence of an “Event of Default” as defined under the Note (which
defined term includes applicable notice and grace periods), any instrument
securing the Note, including the Commercial Deed of Trust, Security Agreement,
Assignment of Leases and Rents, Financing Statement and Fixture Filing securing
the Note (the “Security Instrument”), or any other Loan Document; or

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  (c) the loss, theft, damage or destruction to or of any of the Collateral as
to which adequate insurance has not been provided which shall materially and
substantially diminish the aggregate value of the Collateral, if the lost,
stolen, damaged or destroyed items are not repaired or replaced within thirty
(30) days after the date of the loss, theft, damage or destruction and, in the
case of any replacement, with new items which are comparable in value to the
items lost, stolen, damaged or destroyed and with respect to which Secured Party
is granted a security interest; or

 

  (d) the sale of the encumbrance of any of the Collateral except in the
ordinary course of business or except Collateral which is immediately replaced
with similar collateral of equal or greater value; or

 

  (e) the making of any levy, seizure or attachment on or to the Collateral
which is not released or dismissed within ninety (90) days.

Upon the occurrence of an Event of Default, Secured Party may declare the Note
immediately due and payable and shall have the remedies of a secured party under
the Articles of the Uniform Commercial Code as adopted in the State of
California (the “UCC”). Secured Party may require Debtor to assemble the
Collateral and deliver or make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both parties.

Secured Party may require that the Collateral be sold at a public sale at the
same time and place as the sale of the Property, or Secured Party may sell the
Collateral at one or more other public or private sales in accordance with the
UCC. The Collateral shall not be required to be exhibited, presented or
displayed at any sale. In the event that the Collateral is sold under the
Security Instrument, Secured Party hereby assigns its security interest in the
Collateral to the trustee or sheriff selling the Property under the Security
Instrument. Debtor agrees that a sale of the Collateral under the Security
Instrument and the notices required under the laws of the State of California
for the sale of real property are commercially reasonable and adequate under the
UCC.

Debtor agrees to pay to Secured Party in addition to the indebtedness secured
hereby, all expenses of retaking, holding, preparing for sale and selling
incurred by Secured Party in connection with realization on the Collateral
including reasonable attorneys’ fees and costs. In addition, in the event suit
or action is instituted to enforce or interpret this Security Agreement
(including without limitation efforts to modify or vacate any automatic stay or
injunction), the prevailing party shall be entitled to recover all expenses
reasonably incurred at, before or after trial and on appeal whether or not
taxable as costs, or in any bankruptcy proceeding, including, without
limitation, reasonable attorneys’ fees, witness fees (expert and otherwise),
deposition costs, copying charges and other expenses.

Secured Party may at any time and from time to time, file financing statements,
continuation statements and amendments thereto that describe the Collateral as
set forth in Exhibit B or words of similar effect and which contain any other
information required for the sufficiency of any financing statement,
continuation statement or amendment, including whether the Debtor is an
organization, the type of organization and any organization identification
number issued to the Debtor. Debtor agrees to furnish any such information to
Secured Party promptly upon request. Any such financing statements, continuation
statements or amendments may be signed by Secured Party on behalf of Debtor, and
may be filed at any time in any jurisdiction.

In addition, Debtor shall at any time and from time to time take such steps as
Secured Party may reasonably request for Secured party (a) to obtain an
acknowledgement, in form and substance satisfactory to Secured Party, of any
bailee having possession of any of the Collateral that the bailee holds such
Collateral for Secured Party, (b) to obtain “control” of any investment
property, deposit accounts, letter of credit rights or electronic chattel paper
(as such terms are defined in the UCC), with any agreements establishing control
to be in form and substance satisfactory to Secured Party, and (c) to otherwise
insure the continued perfection and priority of Secured Party’s security
interest in any of the Collateral and the preservation of its right therein.

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Nothing contained herein shall be construed to narrow the scope of Secured
Party’s security interest in any of the Collateral or the perfection of priority
thereof or to impair or otherwise limit any of the rights, powers, privileges or
remedies of Secured Party hereunder except (and then only to the extent)
mandated by the UCC.

No waiver by Secured Party of an Event of Default shall operate as a waiver of
any other default or of the same default on a future occasion. The taking of
this Security Agreement shall not waive or impair any other security said
Secured Party may have or hereafter acquire for the payment of the Note nor
shall the taking of any such additional security waive or impair this Security
Agreement. Secured Party may resort to any security it may have in the order it
may deem proper.

All rights of Secured Party hereunder shall inure to the benefit of its
successors and assigns. All promises and duties of Debtor shall bind its
successors and assigns.

Any and all notices, elections, demands, or requests permitted or required to be
made under this Security Agreement shall be in writing, signed by the party
giving such notice, election, demand or request, and shall be delivered
personally, or sent by registered, certified, or Express United States mail,
postage prepaid, or by Federal Express or similar service requiring a receipt,
to the other party at the address set forth above or to such other party and at
such other address within the United States of America as any party may
designate as provided herein. The date of receipt of such notice, election,
demand or request shall be the earliest of (i) the date of actual receipt,
(ii) three (3) business days after the date of mailing by registered or
certified mail, (iii) one (1) business day after the date of mailing by Express
Mail, or the delivery (for redelivery) to Federal Express or another similar
service requiring a receipt, or (iv) the date of personal delivery (or refusal
upon presentation for delivery).

This Security Agreement shall be governed and construed in accordance with the
laws of the State of California applicable to contracts made and to be performed
therein (without regard to choice of law principles).

To the extent of any conflict between the provisions of this Security Agreement
and the provisions of Section 14 of the Security Instrument, the provisions of
this Security Agreement shall control.

WAIVER OF JURY TRIAL. DEBTOR AND SECURED PARTY HEREBY KNOWINGLY, VOLUNTARILY AND
INTELLIGENTLY WAIVE ANY AND ALL RIGHTS THAT EACH PARTY TO THIS SECURITY
AGREEMENT MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES OF
AMERICA OR THE STATE OF CALIFORNIA, TO A TRIAL BY JURY OF ANY AND ALL ISSUES
ARISING DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING RELATING TO THIS
SECURITY AGREEMENT, THE LOAN DOCUMENTS OR ANY TRANSACTIONS CONTEMPLATED THEREBY
OR RELATED THERETO. IT IS INTENDED THAT THIS WAIVER SHALL APPLY TO ANY AND ALL
DEFENSES, RIGHTS, CLAIMS AND/OR COUNTERCLAIMS IN ANY SUCH ACTION OR PROCEEDING.
DEBTOR UNDERSTANDS THAT THIS WAIVER IS A WAIVER OF A CONSTITUTIONAL SAFEGUARD,
AND EACH PARTY INDIVIDUALLY BELIEVES THAT THERE ARE SUFFICIENT ALTERNATE
PROCEDURAL AND SUBSTANTIVE SAFEGUARDS, INCLUDING, A TRIAL BY AN IMPARTIAL JUDGE,
THAT ADEQUATELY OFFSET THE WAIVER CONTAINED HEREIN.

TIME IS OF THE ESSENCE UNDER THIS SECURITY AGREEMENT.

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IN WITNESS WHEREOF, Debtor has executed or caused this Security Agreement to be
executed as of the year and day first written above.

 

DEBTOR:

NANOMETRICS INCORPORATED,

A Delaware corporation

By:   /s/ Gary Schaefer

Printed Name:   Gary Schaefer

Title:   Chief Financial Officer

EXHIBITS:

Exhibit A – Legal Description

Exhibit B – Personal Property

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Loan No.: 6326048-001

EXHIBIT A

(1550 Buckeye Drive, Milpitas, Santa Clara County, California)

Legal Description:

Real property in the City of Milpitas, County of Santa Clara, State of
California, described as follows:

PARCEL ONE:

PARCEL 1, AS SHOWN ON PARCEL MAP FILED NOVEMBER 4, 1998 IN BOOK 709 OF MAPS, AT
PAGE(S) 41 AND 42, SANTA CLARA COUNTY RECORDS.

PARCEL TWO:

PERMANENT NON-BUILDING EASEMENT OVER A PORTION OF PARCEL 3, AS SHOWN ON PARCEL
MAP ABOVE REFERRED TO.

PARCEL THREE:

TWO 10’ WIDE PRIVATE STORM DRAINAGE EASEMENTS OVER PARCEL 3, AS SHOWN ON PARCEL
MAP ABOVE REFERRED TO.

PARCEL FOUR:

RECIPROCAL EMERGENCY ACCESS EASEMENT OVER PARCEL 3, AS SHOWN ON PARCEL MAP ABOVE
REFERRED TO.

APN: 086-03-093

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EXHIBIT B

(1550 Buckeye Drive, Milpitas, Santa Clara County, California)

 

Secured Party:    GE COMMERCIAL FINANCE BUSINESS PROPERTY CORPORATION,    A
Delaware corporation, its successors and assigns Debtor:    NANOMETRICS
INCORPORATED, a Delaware corporation Loan No.:    6326048-001

The collateral includes all of the right, title and interest of Debtor in, to
and under:

1. All fixtures, landscaping, equipment, and articles of property now or
hereafter attached to, or used or adapted for use in the operation of buildings,
structures, improvements, and parking areas located on the real estate (herein
the “Premises”) described in Exhibit A, including but without being limited to,
all heating, air conditioning, lighting, and incinerating apparatus and
equipment; all boilers, engines, motors, dynamos, generating equipment, piping
and plumbing fixtures, water heaters, cooling, ventilating, sprinkling and
vacuum cleaning systems, fire extinguishing apparatus, gas and electric
fixtures, carpeting, floor covering, underpadding, elevators, escalators,
partitions, mantels, built-in mirrors, window shades, blinds, draperies,
screens, storm sash, awnings, and shrubbery and plats, and including also all
interest of any owner of the Premises in any of such items hereafter at any time
acquired under conditional sale contract, chattel mortgage or other title
retaining or security instrument, all of which property mentioned in this
paragraph 1 shall be referred to as the “Improvements” and shall be deemed part
of the realty and not severable wholly or in part without material injury to the
freehold of the Premises.

2. All compensation, awards, damages, rights of action and proceeds, including
interest thereon and/or the proceeds of any policies of insurance therefor,
arising out of or relating to a (a) taking or damaging of the Premises or
Improvements thereon by reason of any public or private improvement,
condemnation proceeding (including change of grade), sale or transfer in lieu of
condemnation, or fire, earthquake or other casualty, or (b) any injury to or
decrease in the value of the Premises or the Improvements for any reason
whatsoever.

3. Return premiums or other payments upon any insurance any time provided for
the benefit of or naming Secured Party with respect to the Premises,
Improvements and other collateral described herein, and refunds or rebates of
taxes or assessments on the Premises.

4. All written and oral leases and rental agreements (including extensions,
renewals and subleases; all of the foregoing shall be referred to collectively
herein as the “Leases”) now or hereafter affecting the Premises including,
without limitation, all rents, issues, profits and other revenues and income
therefrom and from the renting, leasing or bailment of Improvements, all
guaranties of tenants’ performance under the Leases, and all rights and claims
of any kind that Debtor may have against any tenant under the Leases or in
connection with the termination or rejection of the Leases in a bankruptcy or
insolvency proceeding.

5. Plans, specifications, contracts and agreements relating to the design or
construction of the Improvements; Debtor’s rights under any payment,
performance, or other bond in connection with the design or construction of the
Improvements; all landscaping and construction materials, supplies, and
equipment used or to be used or consumed in connection with construction of the
Improvements, whether stored on the Premises or at some other location; and
contracts, agreements, and purchase orders with contractors, subcontractors,
suppliers, and materialmen incidental to the design or construction of the
Improvements.

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Secured Party:    GE COMMERCIAL FINANCE BUSINESS PROPERTY CORPORATION,    A
Delaware corporation, its successors and assigns Debtor:    NANOMETRICS
INCORPORATED, a Delaware corporation Loan No.:    6326048-001

6. all contracts, deposits, rights, claims or causes of action pertaining to the
operation, sale or leasing of the Premises or the Improvements, including,
without limitation, all options or contracts to acquire other property for use
in connection with operation or development of the Premises or Improvements,
management contracts, service or supply contracts, permits, licenses, franchises
and certificates, and all commitments or agreements, now or hereafter in
existence, intended by the obligor thereof to provide Debtor with proceeds to
satisfy the loan evidenced hereby or improve the Premises or Improvements, and
the right to receive all proceeds due under such commitments or agreements
including refundable deposits and fees.

7. All books, records, surveys, reports and other documents related to the
Premises, the Improvements, the Leases, or other items of collateral described
herein.

8. All additions, accessions, replacements, substitutions, proceeds and products
of the real and personal property, tangible and intangible, described herein,
including but not limited to lease and real-estate proceeds and other amounts
relating to the use, disposition, or sale of the collateral described herein
which proceeds or other amounts are characterized as general intangibles.

All of the foregoing described collateral is exclusive of any goods, inventory,
equipment, furniture, furnishings, trade fixtures, and other personal property
owned or supplied by Debtor or tenants of the Premises.

FURTHER ENCUMBRANCE OF THE ABOVE COLLATERAL IS PROHIBITED.

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Loan No.: 6326048-001

BALLOON PROMISSORY NOTE

(Rate Reset)

(1550 Buckeye Drive, Milpitas, Santa Clara County, California)

 

$13,500,000.00    July 25, 2008

FOR VALUE RECEIVED, NANOMETRICS INCORPORATED, a Delaware corporation
(“Borrower”), promises to pay to the order of GE COMMERCIAL FINANCE BUSINESS
PROPERTY COPORATION, a Delaware corporation (“Payee”; Payee and any subsequent
holder of this Balloon Promissory Note (this “Note”) being referred to herein as
“Holder”), at Payee’s office at 10900 Northeast Fourth Street, Suite 500,
Bellevue, Washington 98004, attention: Middle Market Risk, or at such other
address as Holder may form time to time designate in writing, the principal sum
of Thirteen Million Five Hundred Thousand and no hundredths Dollars ($13,
500,000.00) together with interest from the date the proceeds of the loan (the
“Loan”) evidenced by this Note are initially disbursed (including, without
limitation, disbursement into an escrow for the benefit of Borrower) until
Maturity (as defined below) on the principal balance from time to time remaining
unpaid hereon at the rates set forth below.

A single payment of interest only in advance at the rate of $2,692.50 per day,
representing interest through July 31, 2008, at the Initial Rate (as defined
below) shall be due and payable on the date that funds are advanced hereunder.
Sixty (60) consecutive monthly installments of principal and interest at the
Initial Rate in the about of $106,946.68 each (which represents an amount which
would amortize the principal face amount of this Note in full at the Initial
Rate over a period of two hundred forty (240) months), shall be due and payable,
commencing on September 1, 2008, and continuing on the first day of each and
every succeeding month thereafter through August 1, 2013 (the “Re-Amortization
Date”). As of the Re-Amortization Date, the principal balance remaining
hereunder shall be re-amortized at the Reset Rate (as defined below), over a
period of one hundred eighty (180) months. Fifty-nine (59) payments of principal
and interest as computed above at the Reset Rate shall be due and payable,
commencing on September 1, 2013 and continuing on the first day of each and
every succeeding month thereafter through July 1, 2018, and on August 1, 2018
(“Maturity”), all unpaid principal and interest hereon shall be due and payable.

The Initial Rate shall be Seven and eighteen hundredths percent (7.18%) per
annum. The Reset Rate shall be equal to the weekly average yield of five
(5)-year U.S. Dollar Interest Rate Swaps in effect as of the Re-Amortization
Date (as published in Federal Reserve Statistical Release H.15[519]) (the
“Index”), plus three hundred three (303) basis points. If the Index is no longer
published in Federal Reserve Statistical Release H.15[519] or if the method for
compiling the Index is (as determined in Holder’s reasonable discretion)
materially altered, then Holder shall select such replacement index as Holder in
its sole discretion determines most closely approximates the Index. Interest
shall be computed on the basis of a 360-day year and actual days elapsed up to a
maximum of 365 days.

All payments of the principal and interest on this Note shall be made in coin or
currency of the United States of America which at the time shall be the legal
tender for the payment of public and private debts.

Borrower shall authorize and make such arrangements as may be necessary to
enable Holder to obtain payments due under this Note and the other Loan
Documents through the automated clearing house system (“ACH System”). Such
authorizations and arrangements shall include, without limitation, establishing
and maintaining an account with a commercial bank that is a member of the ACH
System and entering into an ACH System agreement with Holder.

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If any payment (other than the final, balloon payment, if any) shall not be
received by Holder within ten (10) days after its due date, Borrower shall pay
an additional charge equal to five percent (5.00%) of the delinquent payment or
the highest additional charge permitted by law, whichever is less. A late charge
of $1,000.00 will be assessed with respect to any delinquent balloon payment.

Except as is expressly provided for herein, this Note may not be prepaid in
whole or in part without the prior written consent of Holder. Upon payment of a
“Prepayment Fee” calculated as set forth below (the “Prepayment Fee”), Borrower
shall have the right to prepay all, but not less than all, of the outstanding
balance of this Note. The Prepayment Fee shall be determined by calculating the
“Base Fee” by multiplying the “Base Fee Factor” set forth below by the principal
balance to be prepaid and, if the Fixed Rate shall have been elected, adding it
to the “Variable Fee”, which is determined by (i) calculating the decrease
(expressed in basis points) in the current weekly average yield of Five (5)-year
U.S. Dollar Interest Rate Swaps (as published in Federal Reserve Statistical
Release H.15[519]) (the “Index”) from Friday, April 4, 2008, or the
Re-Amortization Date, as applicable, to the prepayment date, (ii) dividing the
decrease by 100, (iii) multiplying the result by the following described
“Variable Fee Factor”, and (iv) multiplying the product by the principal balance
to be prepaid. If the Index is unchanged or has increased from Friday, April 4,
2008, or the Re-Amortization Date, as applicable, to the prepayment date, no
Variable Fee shall be due. The Base Fee Factor and the Variable Fee Factor shall
be as shown on the following chart for the month in which prepayment occurs:

 

No. Mos. Remaining

   (Years)     Base Fee
Factor    Variable Fee
Factor

120 – 109

   (10 )   .050    .044

108 – 97

   (9 )   .040    .037

96 – 85

   (8 )   .030    .030

84 – 73

   (7 )   .020    .022

72 – 61

   (6 )   .010    .014

60 – 49

   (5 )   .0    .044

48 – 37

   (4 )   .0    .037

36 – 25

   (3 )   .0    .030

24 – 13

   (2 )   .0    .022

12 – 1

   (1 )   .0    .014

If the Federal Reserve Board ceases to publish Statistical Release H.15 [519],
or if the method for compiling the Index is (as determined in Holder’s sole
discretion) materially altered, then Holder shall select such replacement index
as Holder in its reasonable discretion determines most closely approximates the
Index.

Notwithstanding any prepayment requirement or restriction to the contrary in
this Note, and provided no Event of Default has occurred and remains uncured,
Borrower may partially prepay this Note from time to time on the due date for
any scheduled installment of principal and interest, so long as any such partial
prepayment (i) does not occur within twelve (12) months of any other such
partial prepayment and (ii) does not exceed twenty percent (20%) of the
principal balance of this Note outstanding at the time of such prepayment. Any
such partial prepayment shall be without obligation for any Prepayment Fee.

If Holder at any time accelerates this Note after an Event of Default (defined
below), then Borrower shall be obligated to pay the Prepayment Fee calculated as
set forth above. The Prepayment Fee shall not be payable in the case of an
assumption of the Loan (if permitted by Holder pursuant to the terms

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of the Security Instrument (as hereinafter defined)), nor with respect to
condemnation awards or insurance proceeds from fire or other casualty which
Holder applies to prepayment, nor with respect to Borrower’s prepayment of the
Note in full during the last 90 days preceding the Re-Amortization Date or
during the last 90 days of the term of this Note unless an Event of Default has
occurred and remains uncured. Borrower expressly acknowledges that such
Prepayment Fee is not a penalty but is intended solely to compensate Holder for
the loss of its bargain and the reimbursement of internal expenses and
administrative fees and expenses incurred by Holder.

BORROWER HEREBY EXPRESSLY (1) WAIVES ANY RIGHTS IT MAY HAVE UNDER CALIFORNIA
CIVIL CODE SECTION 2954.10 TO PREPAY THIS NOTE, IN WHOLE OR IN PART, WITHOUT
PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THIS NOTE, AND (2) AGREES
THAT IF, FOR ANY REASON, A PREPAYMENT OF ANY OR ALL OF THIS NOTE IS MADE,
WHETHER VOLUNTARY OR UPON OR FOLLOWING ANY ACCELERATION OF THE MATURITY DATE OF
THIS NOTE BY HOLDER ON ACCOUNT OF ANY EVENT OF DEFAULT BY BORROWER UNDER THIS
NOTE, THE SECURITY INSTRUMENT OR ANY OTHER DOCUMENT EVIDENCING OR SECURING THE
LOAN, INCLUDING, BUT NOT LIMITED TO, ANY TRANSFER OR DISPOSITION AS PROHIBITED
OR RESTRICTED BY THE PROVISIONS OF THE SECURITY INSTRUMENT, THEN BORROWER SHALL
BE OBLIGATED TO PAY, CONCURRENTLY THEREWITH, THE PREPAYMENT FEE. BY SIGNING THIS
PROVISION IN THE SPACE PROVIDED BELOW, BORROWER AGREES THAT HOLDER’S AGREEMENT
TO MAKE THE LOAN EVIDENCED BY THIS NOTE AT THE INTEREST RATE AND FOR THE TERM
SET FORTH IN THIS NOTE CONSTITUTES ADEQUATE CONSIDERATION, GIVEN INDIVIDUAL
WEIGHT BY BORROWER FOR THIS WAIVER AND AGREEMENT.

BORROWER ______________

The Loan is secured, in part, by a certain Commercial Deed of Trust, Security
Agreement, Assignment of Leases and Rents, Financing Statement and Fixture
Filing (the “Security Instrument”) covering the real property and other assets
(the “Property”) described therein, and by certain other documents executed and
delivered in connection herewith (this Note, the Security Instrument and such
other documents are collectively called the “Loan Documents”).

To the extent permitted by applicable law, Holder shall have full recourse
against Borrower for all sums due under this Note and for all the
representations, warranties, indemnities and covenants in the Security
Instrument and all other Loan Documents.

Each of the following shall constitute an Event of Default (“Event of Default”)
hereunder and under the Security Instrument:

 

  (a) Failure of Holder to receive any payment of principal, interest, or
Prepayment Fee upon this Note when due, and such failure shall continue for ten
(10) days after written notice is given to Borrower of the same; or

 

  (b) The occurrence of an “Event of Default” as defined in any Loan Document
(other than this Note).

Upon this occurrence of any Event of Default, Holder shall have the option to
declare the entire amount of principal and interest due under this Note
immediately due and payable without notice or demand, and Holder may exercise
any of its rights under this Note and any document executed or delivered
herewith. After acceleration or Maturity, Borrower shall pay interest on the
outstanding principal balance of this Note at the rate of fifteen percent
(15.00%) per annum or the maximum interest rate permitted by law, whichever is
less (the “Default Rate”).

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If this Note is placed in the hands of an attorney for collection, Borrower
shall pay reasonable attorneys’ fees and costs incurred by Holder in connection
therewith, and in the event suit or action is instituted to enforce or interpret
this Note (including without limitation efforts to modify or vacate any
automatic stay or injunction), the prevailing party shall be entitled to recover
all expenses reasonably incurred at, before or after trial and on appeal,
whether or not taxable as costs, or in any bankruptcy proceeding, or in
connection with post-judgment collection efforts, including, without limitation,
reasonable attorneys’ fees, witness fees (expert and otherwise), deposition
costs, copying charges and other expenses.

This Note shall be governed and construed in accordance with the laws of the
State of California applicable to contracts made and to be performed therein
(excluding choice-of-law principles). Borrower hereby irrevocably submits to the
jurisdiction of any state or federal court sitting in California in any action
or proceeding brought to enforce or otherwise arising out of or relating to this
Note, and hereby waives any objection to venue in any such court and any claim
that such forum is an inconvenient forum.

This Note is given in a commercial transaction for business purposes.

This Note may be declared due prior to its expressed Maturity, all in the
events, on the terms, and in the manner provided for in the Security Instrument.

Borrower and all sureties, endorsers, guarantors and other parties now or
hereafter liable for the payment of this Note, in whole or in part, hereby
severally (i) waive demand, notice of demand, presentment for payment, notice of
nonpayment, notice of default, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices except those for which
the Loan Documents expressly provide, and further waive diligence in collecting
this Note or in enforcing any of the security for this Note; (ii) agree to any
substitution, subordination, exchange or release of any security for this note
or the release of any party primarily or secondarily liable for the payment of
this note; (iii) agree that, to the extent permitted under applicable law,
Holder shall not be required to first institute suit or exhaust it remedies
hereon against Borrower or other liable or to become liable for the payment of
this Note or to enforce its rights against any security for the payment of this
Note; and (iv) consent to any extension of time for the payment of this Note, or
any installment hereof, made by agreement by Holder with any person now or
hereafter liable for the payment of this Note, even if Borrower is not a party
to such agreement.

Borrower authorizes Holder or its agent to insert in the spaces provided herein
the appropriate interest rate and the payment amounts as of the date of the
initial advance hereunder.

All agreements between Borrower and Holder, whether now existing or hereafter
arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of demand or acceleration of the final maturity
of this Note or otherwise, shall the interest contracted for, charged, received,
paid or agreed to be paid to Holder exceed the maximum amount permissible under
the applicable law. If, from any circumstance whatsoever, interest would
otherwise be payable to Holder in excess of the maximum amount permissible under
applicable law, the interest payable to Holder shall be reduced to the maximum
amount permissible under applicable law; and if from any circumstance Holder
shall ever receive anything of value deemed interest by applicable law in excess
of the maximum amount permissible under applicable law, an amount equal to the
excessive interest shall be applied to the outstanding principal balance hereof,
or if such excessive amount of interest exceeds the unpaid balance of principal
hereof, such excess shall be refunded to Borrower. All interest paid or agreed
to be paid to Holder shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full period (including
any renewal or extension) until payment in full of the principal so that the
interest hereon for

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such full period shall not exceed the maximum amount permissible under
applicable law. Holder expressly disavows any intent to contract for, charge or
receive interest in an amount which exceeds the maximum amount permissible under
applicable law. This paragraph shall control all agreements between Borrower and
Holder.

WAIVER OF JURY TRIAL. BORROWER AND PAYEE HEREBY KNOWINGLY, VOLUNTARILY AND
INTELLIGENTLY WAIVE ANY AND ALL RIGHTS THAT EACH PARTY TO THIS NOTE MAY NOW OR
HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATESOF AMERICA OR THE STATE OF
CALIFORNIA, TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING DIRECTLY OR
INDIRECTLY IN ANY ACTION OR PROCEEDING RELATING TO THIS NOTE, THE LOAN DOCUMENTS
OR ANY TRANSACTIONS CONTEMPLATED THEREBY OR RELATED THERETO. IT IS INTENDED THAT
THIS WAIVER SHALL APPLY TO ANY AND ALL DEFENSES, RIGHTS, CLAIMS AND/OR
COUNTERCLAIMS IN ANY SUCH ACTION OR PROCEEDING. BORROWER UNDERSTANDS THAT THIS
WAIVER IS A WAIVER OF A CONSTITUTIONAL SAFEGUARD, AND EACH PARTY INDIVIDUALLY
BELIEVES THAT THERE ARE SUFFICIENT ALTERNATE PROCEDURAL AND SUBSTANTIVE
SAFEGUARDS, INCLUDING, A TRIAL BY AN IMPARTIAL JUDGE, THAT ADEQUATELY OFFSET THE
WAIVER CONTAINED HEREIN.

IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.

TIME IS OF THE ESSENCE HEREUNDER.

IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its duly
authorized representative as of the year and day first written above.

 

BORROWER:

NANOMETRICS INCORPORATED,

a Delaware corporation

By:   /s/ Gary Schaefer

Printed Name:   Gary Schaefer

Title:   Chief Financial Officer

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THIS DEED OF TRUST (herein “Instrument”), made and given as of July 25, 2008, by
the Trustor, NANOMETRICS INCORPORATED, a Delaware corporation,
successor-by-merger to Nanometrics, Inc., a California corporation, whose
address is 1550 Buckeye Drive, Milpitas, California 95035-7418 (herein
“Borrower”), in favor of FIRST AMERICAN TITLE COMPANY, whose address is 1737
North First Street, San Jose, California 95112, Attention: Linda Tugade (herein
“Trustee”), for the benefit of the Beneficiary, GE COMMERCIAL FINANCE BUSINESS
PROPERTY CORPORATION, a Delaware corporation, whose address is Middle Market
Risk, 10900 Northeast Fourth Street, Suite 500, Bellevue, Washington 98004
(herein “Lender”), as beneficiary,

WITNESSETH:

THAT, WHEREAS, Borrower is justly indebted to Lender in the principal sum of
$13,500,000.00, pursuant to a certain Balloon Promissory Note of even date
herewith, more particularly described below,

NOW, THEREFORE, in consideration of the indebtedness herein recited and the
trust herein created, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower irrevocably grants,
bargains, sells, conveys and assigns to Trustee, in trust, WITH POWER OF SALE,
all of Borrower’s estate, right, title and interest, now owned or hereafter
acquired, including any reversion or remainder interest, in the real property
located in the City of Milpitas, County of Santa Clara, State of California,
commonly known as 1550 Buckeye Drive, and more particularly described on Exhibit
A attached hereto and incorporated herein including all heretofore or hereafter
vacated alleys and streets abutting the property, and all easements, rights,
appurtenances, tenements, hereditaments, rents, royalties, mineral, oil and gas
rights and profits, water, water rights, and water stock appurtenant to the
property (collectively “Premises”);

TOGETHER with all of Borrower’s estate, right, title, and interest, now owned or
hereafter acquired, in, under, and to:

(a) all buildings, structures, improvements, parking areas, landscaping,
equipment, fixtures and articles of property now or hereafter erected on,
attached to, or used or adapted for use in the operation of the Premises;
including but without being limited to, all heating, air conditioning, lighting,
and incinerating apparatus and equipment; all boilers, engines, motors, dynamos,
generating equipment, piping and plumbing fixtures, water heaters, cooling,
ventilating, sprinkling and vacuum cleaning systems, fire extinguishing
apparatus, gas and electric fixtures, carpeting, floor coverings, underpadding,
elevators, escalators, partitions, mantels, built-in mirrors, window shades,
blinds, draperies, screens, storm sash, awnings, and shrubbery and plants, and
including also all interest of any owner of the Premises in any of such items
hereafter at any time acquired under conditional sale contract, chattel mortgage
or other title retaining or security instrument, all of which property mentioned
in this clause (a) shall be deemed part of the realty covered by this Instrument
and not severable wholly or in part without material injury to the freehold of
the Premises (all of the foregoing together with replacements and additions
thereto are referred to herein as “Improvements”); and

(b) all compensation, awards, damages, rights of action and proceeds, including
interest thereon and/or the proceeds of any policies of insurance therefor,
arising out of or relating to (i) a taking or damaging of the Premises or
Improvements thereon by reason of any

 

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public or private improvement, condemnation proceeding (including change of
grade), sale or transfer in lieu of condemnation, or fire, earthquake or other
casualty, or (ii) any injury to or decrease in the value of the Premises or the
Improvements for any reason whatsoever;

(c) return premiums or other payments upon any insurance any time provided with
respect to the Premises, Improvements, and other collateral described herein for
the benefit of or naming Lender, and refunds or rebates of taxes or assessments
on the Premises;

(d) all written and oral leases and rental agreements (including extensions,
renewals, and subleases; all of the foregoing shall be referred to collectively
herein as the “Leases”) now or hereafter affecting the Premises, and including,
without limitation, all rents, issues, income, profits and other revenues and
income therefrom and from the renting, leasing or bailment of Improvements and
equipment (“Rents”), all guaranties of tenants’ performance under the Leases
(including but not limited to rights under any letter of credit given as
security for such tenant’s obligations), and all rights and claims of any kind
that Borrower may have against any tenant under the Leases or in connection with
the termination or rejection of the Leases in a bankruptcy or insolvency
proceeding;

(e) plans, specifications, contracts and agreements relating to the design or
construction of the Improvements; Borrower’s rights under any payment,
performance, or other bond in connection with the design or construction of the
Improvements; all landscaping and construction materials, supplies, and
equipment used or to be used or consumed in connection with construction of the
Improvements, whether stored on the Premises or at some other location; and
contracts, agreements, and purchase orders with contractors, subcontractors,
suppliers, and materialmen incidental to the design or construction of the
Improvements;

(f) all contracts, deposits, rights, claims or causes of action pertaining to
the operation, sale or leasing of the Premises or the Improvements, including,
without limitation, all options or contracts to acquire other property for use
in connection with operation or development of the Premises or Improvements,
management contracts, service or supply contracts, permits, licenses, franchises
and certificates, and all commitments or agreements, now or hereafter in
existence, intended by the obligor thereof to provide Borrower with proceeds to
satisfy the loan evidenced hereby or improve the Premises or Improvements, and
the right to receive all proceeds due under such commitments or agreements
including refundable deposits and fees;

(g) all books, records, surveys, reports and other documents related to the
Premises, the Improvements, the Leases, or other items of collateral described
herein: and

(h) all additions, accessions, replacements, substitutions, proceeds and
products of the real and personal property, tangible and intangible, described
herein, including but not limited to lease and real-estate proceeds and other
amounts relating to the use, disposition, or sale of the collateral described
herein which proceeds or other amounts are characterized as general intangibles.

All of the foregoing described collateral is exclusive of any goods, inventory,
equipment, furniture, furnishings, trade fixtures, and other personal property
owned or supplied by Borrower or tenants of the Premises. The Premises, the
Improvements, the Leases and all of the rest of the foregoing collateral are
herein referred to as the “Property.”

 

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TO HAVE AND TO HOLD the above-described Property unto Trustee in trust for the
benefit of Lender and its successors and assigns forever.

BUT THIS IS A TRUST DEED

TO SECURE TO Lender (a) the repayment of the indebtedness evidenced by that
certain Balloon Promissory Note dated of even date herewith from Borrower, as
maker, to Lender, as payee, in the principal sum of Thirteen Million Five
Hundred Thousand and no hundredths Dollars ($13,500,000.00), with interest
thereon as set forth therein, having a maturity date of August 1, 2018, and all
renewals, extensions and modifications thereof (herein “Note”); (b) the
repayment of any future advances, with interest thereon, made by Lender to
Borrower pursuant to Section 30 hereof (herein “Future Advances”); (c) the
payment of all other sums, with interest thereon, advanced in accordance
herewith to protect the security of this Instrument or to fulfill any of
Borrower’s obligations hereunder or under the other Loan Documents (as defined
below); (d) the performance of the covenants and agreements of Borrower
contained herein or in the other Loan Documents; and (e) the repayments of all
sums now or hereafter owing to Lender by Borrower pursuant to any instrument
which recites that it is secured hereby. The indebtedness and obligations
described in clauses (a)-(e) above are collectively referred to herein as the
“Indebtedness.” The Note, this Instrument, and all other documents evidencing,
securing or guaranteeing the Indebtedness (except the Environmental Indemnity
Agreement Regarding Hazardous Materials (“Indemnity”)), as the same may be
modified or amended from time to time, are referred to herein as the “Loan
Documents.” The terms of the Note secured hereby may provide that the interest
rate or payment terms or balance due may be indexed, adjusted, renewed, or
renegotiated from time to time, and this instrument shall continue to secure the
Note notwithstanding any such indexing, adjustment, renewal or renegotiation.

Borrower represents and warrants that Borrower has good, marketable and
insurable title to, and has the right to grant, convey and assign an
indefeasible fee simple estate in, the Premises, Improvements, Rents and Leases
and the right to convey the other Property, that the Property is unencumbered
except as disclosed in writing to and approved by Lender prior to the date
hereof, and that Borrower will warrant and forever defend unto Trustee the title
to the Property against all claims and demands of all persons claiming by,
through or under Borrower, subject only to the exceptions set forth in Schedule
1 attached hereto, the lien of taxes and assessments not yet delinquent and
liens and encumbrances otherwise permitted under the Loan Documents or the
Indemnity (collectively, “Permitted Exceptions”).

Borrower represents, warrants, covenants and agrees for the benefit of Lender as
follows:

1. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall promptly pay when due the
principal of and interest on the Indebtedness, any prepayment and other charges
provided in the Loan Documents and all other sums secured by this Instrument.

2. IMPOUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Except as is hereinafter
provided with respect to the impounding of such payments by Lender following the
occurrence of an Event of Default, Borrower shall pay or cause to be paid when
due, prior to delinquency, all annual real estate taxes, insurance premiums,
assessments, water and sewer rates, ground rents and other charges (herein
“Impositions”) payable with respect to

 

3

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the Property. Upon the occurrence of an Event of Default (hereinafter defined),
and at Lender’s sole option at any time thereafter, Borrower shall pay in
addition to each monthly payment on the Note, one-twelfth of the annual
Impositions (as estimated by Lender in its sole discretion), to be held by
Lender without interest to Borrower, for the payment of such Impositions (such
payments being referred to herein as “Impounds”).

Annually during the term of this Instrument, if Lender shall have required
Impounds following an Event of Default, Lender shall compare the Impounds
collected to the Impositions paid or to be paid. If the amount of such Impounds
held by Lender at such time shall exceed the amount deemed necessary by Lender
to provide for the payment of Impositions as they fall due, if no Event of
Default shall have occurred and be continuing, such excess shall be at
Borrower’s option, either repaid to Borrower or credited to Borrower on the next
monthly installment or installments of Impounds due. If at any time the amount
of the Impounds held by Lender shall be less than the amount deemed necessary by
Lender to pay Impositions as the fall due, Borrower shall pay to Lender any
amount necessary to make up the deficiency within thirty (30) days after notice
from Lender to Borrower requesting payment thereof. If an Event of Default shall
have occurred and be continuing, Lender may apply, in any amount and in any
order as Lender shall determine in Lender’s sole discretion, any Impounds held
by Lender at the time of application (i) to pay impositions which are now or
will hereafter become due, or (ii) as a credit against sums secured by this
Instrument. Upon payment in full of all sums secured by this Instrument, Lender
shall refund to Borrower any Impounds then held by Lender. If requested by
Lender, Borrower shall promptly furnish to Lender all notices of Impositions
which become due, and in the event Borrower shall make payment directly,
Borrower shall promptly furnish to Lender receipts evidencing such payments.

3. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise, each
complete installment payment received by Lender from Borrower under the Note or
this Instrument shall be applied by Lender first in payment of amounts payable
to Lender by Borrower under Section 2 hereof, then to interest payable on the
Note, then to principal of the Note, and then to interest and principal on any
Future Advances in such order as Lender, at Lender’s sole discretion, shall
determine. If an Event of Default shall have occurred and be continuing, Lender
may apply, in any amount and in any order as Lender shall determine in Lender’s
sole discretion, any payments received by the Lender under the Note or this
instrument. Any partial payment received by Lender shall, at Lender’s option, be
held in a non-interest bearing account until Lender receives funds sufficient to
equal a complete installment payment.

4. CHARGES, LIENS. Borrower shall promptly discharge or bond off any lien which
has, or may have, priority over or equality with, the lien of this Instrument,
and Borrower shall pay, when due, the claims of all persons supplying labor or
materials to or in connection with the Property. Without Lender’s prior written
permission, Borrower shall not allow any lien inferior to this Instrument to be
perfected against the Property. If any lien inferior to this instrument is filed
against the Property without Lender’s prior written permission and without the
consent of Borrower, Borrower shall, within thirty (30) days after receiving
notice of the filing of such lien, cause such lien to be released of record or
bonded off and deliver evidence of such release or bonding to Lender. Borrower
may contest any such lien by appropriate proceedings in good faith, timely
filed, provided that enforcement of the lien is stayed pending such contest.
Lender may require that Borrower post security for payment of such lien.

 

4

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5. INSURANCE. Borrower shall obtain and maintain the following types of
insurance upon and relating to the Property:

(a) “Special Form” property and fire insurance (with extended coverage
endorsement including malicious mischief and vandalism) in an amount not less
than the full replacement value of the Property (with a deductible not to exceed
$10,000), naming the Lender as mortgagee under the policy and as loss payee
under a lender’s loss payable endorsement and including agreed amount, inflation
guard, replacement cost and waiver of subrogation endorsements;

(b) Commercial general liability insurance in an amount not less than $2,000,000
per occurrence and on an occurrence basis, insuring against personal injury,
death and property damage and naming Lender as additional insured;

(c) Business interruption insurance or rent-loss insurance, as applicable
covering loss of rental or other income (including all expenses by tenants) for
up to twelve (12) months;

(d) Flood hazard insurance with respect to the Property in amounts not less than
the maximum limit of coverage then available with respect to the Property or the
amount of the Indebtedness, whichever is less if the Property is located in an
area designated by the Federal Emergency Management Act or is hereafter
designated or identified as an area having special flood hazards by the
Department of Housing and Urban Development or such other official as shall from
time to time be authorized by federal or state law to make such designation
pursuant to any national or state program of flood insurance; and

(e) Such other types of insurance or endorsements to existing insurance as may
be required from time to time by Lender in accordance with standard commercial
lending practices for similar properties and transactions.

Upon the request of Lender, Borrower shall increase the coverages under any of
the insurance policies required to be maintained hereunder or otherwise modify
such policies in accordance with standard commercial lending practices for
similar properties and transactions. All of the insurance policies required
hereunder shall be issued by corporate insurers licensed to do business in the
state in which the Property is located and having a Best’s Rating-Financial Size
Rating of A:VIII or better as determined and published by A.M. Best Company, and
shall be in form acceptable to Lender. Certificates of all insurance required to
be maintained hereunder shall be delivered to Lender (which may include the
requirement of an Acord 28 “Evidence of Property Insurance” form as to property
insurance) prior to or contemporaneously with Borrower’s execution of this
Instrument. All such certificates shall be in form acceptable to Lender and
shall require the insurance company to give to Lender at least thirty (30) days’
prior written notice before cancelling the policy for nay reason or materially
amending it. Certificates evidencing all renewal and substitute policies of
insurance shall be delivered to Lender at least fifteen (15) days before
termination of the policies being renewed or substituted. If any loss shall
occur at any time while an Event of Default shall have occurred and shall be
continuing hereunder, Lender shall be entitled to the benefit of all insurance
policies held or maintained by Borrower, to the same extent as if same had been
made payable to Lender, and upon foreclosure hereunder, Lender shall become the
owner thereof. Lender shall have the right, but not the obligation, to make
premium payments, at Borrower’s expense, to prevent any cancellation,

 

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endorsement, alteration or reissuance of any policy of insurance maintained by
Borrower, and such payments shall be accepted by the insurer to prevent same.
Lender shall have the right, in its sole and absolute discretion, upon written
notice, to require Borrower furnish to Lender a copy of any insurance policy
required to be carried hereunder (including endorsements), and Borrower shall
furnish the requested policy or policies and all applicable endorsements within
thirty (30) days of such request.

If any act or occurrence of any kind or nature (including any casualty for which
insurance was not obtained or obtainable) shall result in damage to or
destruction of the Property (such event being called a “Loss”), Borrower will
give prompt written notice thereof to Lender. If no Event of Default has
occurred hereunder and is continuing, Lender shall apply all such insurance
proceeds to the restoration, replacement and rebuilding of the damaged portion
of the property, and such restoration, replacement and rebuilding shall be
accomplished, upon satisfaction of each and all of the following conditions:
(i) except as provided in (ii) below, Lender shall be satisfied that by the
expenditure of such insurance proceeds the Property will be fully restored
within a reasonable period of time to its value immediately preceding the loss
or damage, free and clear of all liens, except the lien of this Instrument, the
Permitted Exceptions set forth in Schedule 1 attached hereto, and such other
liens as are specifically approved by Lender in writing under this Instrument;
(ii) in the event such proceeds shall be insufficient to restore or rebuild the
Property, Borrower shall deposit promptly with Lender funds which, together with
the insurance proceeds, shall be insufficient in Lender’s reasonable judgment to
restore and rebuild the Property; (iii) Borrower shall make reasonable efforts
to obtain a waiver of the right of subrogation from any insurer under such
policies of insurance who, at that time, claims that no liability exists as to
Borrower or the then owner or the assured under such policies; (iv) the excess
of such insurance proceeds above the amount necessary to complete such
restoration and compensate Borrower for all other insured losses shall be
applied on account of the Indebtedness (first to interest, then to expenses
reimbursable to Lender and then to principal amounts falling due under the Note
without Prepayment Fee (as defined in the Note)); (v) Lender reviews and
reasonably approves in writing the plans and specifications for the restoration
work and Lender receives written evidence satisfactory to Lender that the same
have been approved by all governmental authorities having jurisdiction;
(vi) Borrower shall have furnished to Lender, for Lender’s approval, a detailed
budget and cost breakdown for said restoration work signed by Borrower and
describing the nature and type of expenses and amounts thereof estimated by
Borrower for said restoration work including, but not limited to, the cost of
material and supplies, architect and designer fees, general contractor’s fees,
and the anticipated monthly disbursement schedule, and Lender shall have
reasonably given to Borrower written approval of such budget and cost breakdown
(if Borrower determines at any time that its actual expenses materially differ
or will materially differ from its estimated budget, it will so advise Lender
promptly); (vii) Borrower has delivered to Lender evidence satisfactory to
Lender that any Credit Lease (defined below) existing at the time of the Loss
will remain in full force and effect subject only to abatement of rent in
accordance with the terms of the Leases until completion of such repair and
restoration; and (viii) in Lender’s reasonable judgment, such restoration work
can be completed at least six (6) months prior to the maturity of the Note. As
used herein, the term, “Credit Lease” shall refer to a Lease on which Lender has
relied either in its initial underwriting the Loan (it being acknowledged that
there is no Credit Lease in effect as of the date of this Instrument) or on
which Lender has relied in connection with any modification of the Loan.

 

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In the event any of such conditions are not or cannot be satisfied, then all of
the insurance proceeds payable with respect to such Loss will be applied to the
payment of the Indebtedness in such order as Lender may elect.

Under no circumstances shall Lender become obligated to take any action to
restore the Property; all proceeds released or applied by Lender to the
restoration of the Property pursuant to the provisions of this Section 5 shall
be released and/or applied to the cost of restoration (including within the term
“restoration” any repair, reconstruction or alteration) as such restoration
progresses, in amounts which shall equal ninety percent (90%) of the amounts
from time to time certified by an architect reasonably approved by Lender to
have been incurred in such restoration of any and all of the Property (i.e., 90%
of the total amount expended by the contractor for the project under a contract
reasonably approved by Lender and billed by the contractor to Borrower) and
performed by a contractor reasonably satisfactory to Lender and who shall
furnish such corporate surety bond, if any, as may be reasonably required by
Lender in accordance with the plans and specifications therefore approved by
Lender and the remaining ten percent (10%) upon completion of such restoration
and delivery to Lender of evidence reasonably satisfactory to Lender that no
mechanics’ lien exists with respect to the work of such restoration; that the
restoration work has been completed and fully paid for in accordance with plans
and specifications for said work approved by Lender; and that all Credit Leases
existing at the time the Loss occurred are in full force and effect with all
tenants in possession and paying full Lease rental; and that all governmental
approvals required for the completion of said restoration work and occupancy of
the Property have been obtained and the same are in form and substance
satisfactory to Lender.

If within a reasonable period of time after the occurrence of any Loss, Borrower
shall not have submitted to Lender and received Lender’s approval of plans and
specifications for the repair, restoration or rebuilding of such Loss or shall
not have obtained approval of such plans and specifications from all
governmental authorities whose approval is required, or if, after such plans and
specifications are approved by Lender and by all such governmental authorities,
Borrower shall fail to commence promptly such repair, restoration or rebuilding,
or if thereafter Borrower fails to carry out diligently such repair, restoration
or rebuilding or is delinquent in the payment to mechanics, materialmen or
others of the costs incurred in connection with such work (subject to Borrower’s
right to contest in good faith any claims for such costs provided that any lien
for such costs is stayed pending such contest), or if any other condition of
this Section 5 is not satisfied within a reasonable period of time after the
occurrence of any such Loss, then Lender may, in addition to all other rights
herein set forth, at Lender’s option, (A) declare that an Event of Default has
occurred and/or apply all of the insurance proceeds payable with respect to such
Loss to the payment of the Indebtedness in such order as Lender may elect,
and/or (B) Lender, or any lawfully appointed receiver of the Property may at
their respective options, perform or cause to be performed such repair,
restoration or rebuilding, and may take such other steps as they deem advisable
to carry out such repair, restoration or rebuilding, and may enter upon the
Property for any of the foregoing purposes, and Borrower hereby waives, for
itself and all others holding under it, any claim against Lender and such
receiver (other than a claim based upon the alleged gross negligence or
intentional misconduct of Lender or any such receiver) arising out of anything
done by them or any of them pursuant to this Section 5 and Lender may in its
discretion apply any proceeds held by it to reimburse itself and/or such
receiver for all amounts expended or incurred by it in connection with the
performance of such work, including attorneys’ fees, and any excess costs shall
be paid by Borrower to Lender and Borrower’s obligation to pay such excess costs
shall be secured by the lien of this Instrument and shall bear

 

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interest at the Default Rate set forth in the Note, until paid. Notwithstanding
anything in this Instrument or any of the other Loan Documents to the contrary,
Borrower shall not be required to pay any Prepayment Fee (as defined in the
Note) in connection with any insurance proceeds retained by Lender.

Nothing herein, and no authority given to Borrower to repair, rebuild or restore
the Property or any portion thereof, shall be deemed to constitute Borrower the
agent of Lender for any purpose, or to create, either expressly or by
implication, any liens or claims or rights on behalf of laborers, mechanics,
materialmen or other lien holders which could in any way be superior to the lien
or claim of Lender, or which could be construed as creating any third party
rights of any kind or nature to the insurance funds. At reasonable times during
the work of restoration, and upon reasonable notice, Lender, either personally
or by duly authorized agents, shall have the right to enter upon the Property
for inspection of the work. Borrower expressly assumes all risk of loss,
including a decrease in the use, enjoyment or value of the Property from any
casualty whatsoever, whether or not insurable or insured against.

Borrower waives any and all right to claim or recover against Lender or its
officers, employees, agents and representatives, for loss of or damage to
Borrower, the Property, Borrower’s property or the property of others under
Borrower’s control from any cause insured against or required to be insured
against under this Section 5.

6. PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower (a) shall not commit waste
or permit impairment or deterioration of the Property, (b) shall not abandon the
Property, (c) shall restore or repair promptly and in a good and workmanlike
manner all or any part of the Property to the equivalent of its original
condition, or such other condition as Lender may approve in writing, in the
event of any damage, injury or loss thereto, whether or not insurance proceeds
are available to cover in whole or in part the costs of such restoration or
repair, (d) shall keep the Property, including all Improvements thereon, in good
repair and shall replace fixtures, equipment, machinery and appliances on the
Property when necessary to keep such items in good repair, (e) shall comply in
all material respects with all laws, ordinances, regulations and requirements of
any governmental body applicable to the Property, (f) if all or part of the
Property is for rent or lease, then Lender, at its option after the occurrence
and during the continuance of an Event of Default, may require Borrower to
provide for professional management of the Property by a property manager
satisfactory to Lender pursuant to a contract approved by Lender in writing,
unless such requirement shall be waived by Lender in writing (provided, however,
that Lender may require such professional management following a subsequent
Event of Default, even after such Event of Default shall have been cured), and
(g) shall give notice in writing to Lender of and, unless otherwise directed in
writing by Lender, appear in and defend any action or proceeding purporting to
affect the Property, the security of this Instrument or the rights or powers of
Lender hereunder. Neither Borrower nor any tenant or other person, without the
written approval of Lender, shall remove, demolish or structurally alter any
Improvement now existing or hereafter erected on the Premises or any Property,
except when incident to the replacement of fixtures, equipment, machinery and
appliances with items of like kind.

Borrower represents, warrants and covenants that the Property is and shall be in
substantial compliance with the Americans with Disabilities Act of 1990 and all
of the regulations promulgated thereunder, as the same may be amended from time
to time.

 

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7. USE OF PROPERTY. Unless required by applicable law or unless Lender has
otherwise agreed in writing, Borrower shall not allow changes in the use for
which all or any part of the Property was intended at the time this Instrument
was executed. Borrower shall not, without Lender’s prior written consent,
(i) initiate or acquiesce in a change in the zoning classification (including
any variance under any existing zoning ordinance applicable to the Property),
(ii) permit the use of the Property to become a non-conforming use under
applicable zoning ordinances, (iii) file any subdivision or parcel map affecting
the Property, or (iv) materially amend, modify or consent to any easement or
covenants, conditions and restrictions pertaining to the Property.

8. PROTECTION OF LENDER’S SECURITY. If an Event of Default occurs due to
Borrower’s failure to perform any of the covenants and agreements contained in
this Instrument, or if any action or proceeding is commenced which affects the
Property or title thereto or the interest of Lender therein, including, but not
limited to, eminent domain, insolvency, code enforcement, or arrangements or
proceedings involving a bankrupt or decedent, then Lender at Lender’s option may
make such appearances, disburse such sums and take such action as Lender deems
necessary, in it sole discretion, to protect Lender’s interest, including, but
not limited to, (i) disbursement of attorneys’ fees, (ii) entry upon the
Property to make repairs, and (iii) procurement of satisfactory insurance as
provided in Section 5 hereof.

Any amounts disbursed by Lender pursuant to this Section 8, with interest
thereon, shall become additional Indebtedness of Borrower secured by this
Instrument. Unless Borrower and Lender agree to other terms of payment, such
amounts shall be immediately due and payable and shall bear interest from the
date of disbursement at the Default Rate (as defined in the Note). Borrower
hereby covenants and agrees that Lender shall be subrogated to the lien of any
mortgage or other lien discharged, in whole or in part, by the Indebtedness.
Nothing contained in this Section 8 shall require Lender to incur any expense or
take any action hereunder.

9. INSPECTION. Lender may make or cause to be made reasonable entries upon the
Property to inspect the interior and exterior thereof. Except in the case of
emergency, such inspection shall be with reasonable prior notice and shall in
any case be with due regard to rights of tenants and Borrower’s operations.

10. FINANCIAL DATA. Unless Borrower shall be a publicly reporting company under
the Securities Exchange Act of 1934, as amended (the “1934 Act”), Borrower shall
furnish to Lender, and will cause any guarantor of the Indebtedness to furnish
to Lender, within one hundred twenty (120) days after the close of its fiscal
year (i) annual balance sheet and profit and loss statements prepared in
accordance with generally accepted accounting principles and practices
consistently applied and (unless Lender shall have otherwise agreed in writing),
accompanied by the annual audit report of an independent certified public
accountant reasonably acceptable to Lender, (ii) an annual operating statement,
together with a complete rent roll and other supporting data reflecting all
material information with respect to the operation of the Property and
Improvements, and (iii) all other financial information and reports that Lender
may from time to time reasonably request, including, if Lender so requires,
income tax returns of Borrower, and any guarantor of any portion of the
Indebtedness. In addition, within one hundred twenty (120) days after the close
of such tenant’s fiscal year, Borrower shall furnish to Lender the financial
statements of all tenants under Credit Leases of the Property (and lease
guarantors, if applicable) on whose credit Lender has relied in connection with
the Loan, unless such tenant (or lease guarantor) shall be a publicly reporting
company under the 1934 Act. If Borrower shall fail to provide any of the
financial information described in this Section 10, Borrower shall pay to Lender
an administrative fee of $250.00 per month for each month that such information
remains outstanding.

 

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11. CONDEMNATION. If the Property, or any part thereof, shall be condemned for
any reason, including without limitation fire or earthquake damage, or otherwise
taken for public or quasi-public use under the power of eminent domain, or be
transferred in lieu thereof, (such event being called a “Taking”) and if an
Event of Default has not occurred hereunder and is not continuing, Lender shall
apply all such proceeds to the restoration, replacement and rebuilding of the
Property, and such restoration, replacement and rebuilding shall be
accomplished, upon satisfaction of each and all of the following conditions:
(i) except as provided in (ii) below, Lender shall be satisfied that by the
expenditure of such proceeds the Property will be fully restored within a
reasonable period of time to its value immediately preceding the Taking, free
and clear of all liens, except the lien of this instrument, the Permitted
Exceptions set forth in Schedule 1 attached hereto, and such other liens as are
specifically approved by Lender in writing under this Instrument; (ii) in the
event such proceeds shall be insufficient to restore or rebuild the Property,
Borrower shall deposit promptly with Lender funds which, together with the
proceeds, shall be sufficient in Lender’s reasonable judgment to restore and
rebuild the Property; (iii) the excess of such proceeds above the amount
necessary to complete such restoration and compensate Borrower for all other
losses shall be applied on account of the Indebtedness (first to interest, then
to expenses reimbursable to Lender and then to principal amounts falling due
under the Note without Prepayment Fee); (iv) Lender reviews and approves in
writing the plans and specifications for the restoration work and Lender
receives written evidence satisfactory to Lender that the same have been
approved by all governmental authorities having jurisdiction; (v) Borrower shall
have furnished to Lender, for Lender’s approval, a detailed budget and cost
breakdown for said restoration work signed by Borrower and describing the nature
and type of expenses and amounts thereof estimated by Borrower for said
restoration work including, but not limited to, the cost of material and
supplies, architect and designer fees, general contractor’s fees, and the
anticipated monthly disbursement schedule, and Lender shall have reasonably
given to Borrower written approval of such budget and cost breakdown (if
Borrower determines at any time that its actual expenses materially differ or
will materially differ from its estimated budget, it will so advise Lender
promptly); (vi) Borrower has delivered to Lender evidence satisfactory to Lender
that all Credit Leases existing at the time of the Taking will remain in full
force and effect subject only to abatement of rent in accordance with the terms
of the Leases until completion of such repair and restoration; and (vii) in
Lender’s reasonable judgment, such restoration work can be completed at least
six (6) months prior to the maturity of the Note.

In the event any of such conditions are not or cannot be satisfied, then all of
the proceeds payable with respect to such Taking will be applied to the payment
of the indebtedness in such order as Lender may elect.

Under no circumstances shall Lender become obligated to take any action to
restore the Property; all proceeds released or applied by Lender to the
restoration of the Property pursuant to the provisions of this Section 11 shall
be released and/or applied on the cost of restoration (including within the term
“restoration” any repair, reconstruction or alteration) as such restoration
progresses, in amounts which shall equal ninety percent (90%) of the amounts
from time to time certified by an architect reasonably approved by Lender to
have been incurred in such restoration of any and all of the Property (i.e., 90%
of the total amount expended by the

 

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contractor for the project under a contract reasonably approved by Lender and
billed by the contractor to Borrower) and performed by a contractor reasonably
satisfactory to Lender and who shall furnish such corporate surety bond, if any,
as may be reasonably required by Lender in accordance with the plans and
specifications therefore approved by Lender and the remaining ten percent
(10%) upon completion of such restoration and delivery to Lender of evidence
reasonably satisfactory to Lender that no mechanics’ lien exists with respect to
the work of such restoration; that the restoration work has been completed and
fully paid for in accordance with plans and specifications for said work
approved by Lender; and that all Credit Leases existing at the time the Taking
occurred are in full force and effect with all tenants in possession and paying
full Lease rental; and that all governmental approvals required for the
completion of said restoration work and occupancy of the Property have been
obtained and the same are in form and substance satisfactory to Lender.

If within a reasonable period of time after the occurrence of any Taking,
Borrower shall not have submitted to Lender and received Lender’s approval of
plans and specifications for the repair, restoration or rebuilding of the
Property or shall not have obtained approval of such plans and specifications
from all governmental authorities whose approval is required, or if, after such
plans and specifications are approved by Lender and by all such governmental
authorities, Borrower shall fail to commence promptly such repair, restoration
or rebuilding, or if thereafter Borrower fails to carry out diligently such
repair, restoration or rebuilding or is delinquent in the payment to mechanics,
materialmen or others of the costs incurred in connection with such work,
(subject to Borrower’s right to contest in good faith any claims for such costs
provided that any lien for such costs is stayed pending such contest), or if any
other condition of this Section 11 is not satisfied within a reasonable period
of time after the occurrence of any such Taking, then Lender may, in addition to
all other rights herein set forth, at Lender’s option, (A) declare that an Event
of Default has occurred and/or apply all of the proceeds of the Taking to the
payment of the Indebtedness in such order as Lender may elect, and/or
(B) Lender, or any lawfully appointed receiver of the Property may at their
respective options, perform or cause to be performed such repair, restoration or
rebuilding, and may take such other steps as they deem advisable to carry out
such repair, restoration or rebuilding, and may enter upon the Property for any
of the foregoing purposes, and Borrower hereby waives, for itself and all others
holding under it, any claim against Lender and such receiver (other than a claim
based upon the alleged gross negligence or intentional misconduct of Lender or
any such receiver) arising out of anything done by them or any of them pursuant
to this Section 11 and Lender may in its discretion apply any proceeds held by
it to reimburse itself and/or such receiver for all amounts expended or incurred
by it in connection with the performance of such work, including attorneys’
fees, and any excess costs shall be paid by Borrower to Lender and Borrower’s
obligation to pay such excess costs shall be secured by the lien of this
Instrument and shall bear interest at the Default Rate set forth in the Note,
until paid. Notwithstanding anything in this Instrument or any of the other Loan
Documents to the contrary, Borrower shall not be required to pay any Prepayment
Fee (as defined in the Note) in connection with any proceeds of any Taking
retained by Lender.

Nothing herein, and no authority given to Borrower to repair, rebuild or restore
the Property or any portion thereof, shall be deemed to constitute Borrower the
agent of Lender for any purpose, or to create, either expressly or by
implication, any liens or claims or rights on behalf of laborers, mechanics,
materialmen or other lien holders which could in any way be superior to the lien
or claim of Lender, or which could be construed as creating any third party
rights of any kind or nature to the proceeds. At reasonable times during the
work of restoration,

 

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and upon reasonable notice, Lender, either personally or by duly authorized
agents, shall have the right to enter upon the Property for inspection of the
work. Borrower expressly assumes all risk of loss, including a decrease in the
use, enjoyment or value of the Property from any casualty whatsoever, whether or
not insurable or insured against.

12. BORROWER AND LIEN NOT RELEASED. From time to time, Lender may, at Lender’s
option, without giving notice to or obtaining the consent of the Borrower,
Borrower’s successors or assigns or of any junior lienholder or guarantors,
without liability on Lender’s part and notwithstanding the occurrence of an
Event of Default, extend the time for payment of the Indebtedness of any part
thereof, reduce the payments thereon, release anyone liable on any of the
Indebtedness (including but not limited to any guarantor), accept an extension
or modification or renewal note or notes therefor, modify the terms and time of
payment of the Indebtedness, enter into a loan modification agreement with
Borrower, release from the lien of the Instrument any part of the Property,
accept or release other or additional security, reconvey any part of the
Property, consent to any map or plan of the Property, consent to the granting of
any easement, join in any extension or subordination agreement, and agree in
writing with Borrower to modify the rate of interest or period of amortization
of the Note or change the amount of the monthly installments payable thereunder.
Any actions taken by Lender pursuant to the terms of this Section 12 shall not
affect the obligation of Borrower or Borrower’s successors or assigns to pay the
sums secured by this Instrument and to observe the covenants of Borrower
contained herein, shall not affect the guaranty of any person, corporation,
partnership or other entity for payment of the Indebtedness, and shall not
affect the lien or priority of the lien hereof on the Property. Borrower shall
pay Lender a reasonable service charge, together with such title insurance
premiums and attorneys’ fees as may be incurred at Lender’s option (based on
Lender’s then-current fee schedule for such matters), for any such action if
taken at Borrower’s request or for other servicing requests, including but not
limited to name changes, prepayments of the Indebtedness, and loan pay off
statement requests. Such service charge is exclusive of any legal fees which may
be incurred by Lender in connection with Borrower’s request.

13. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in exercising
any right or remedy hereunder, or otherwise afforded by applicable law, shall
not be a waiver of or preclude the exercise of any other right or remedy. The
acceptance by Lender of payment of any sum secured by this Instrument after the
due date of such payment shall not be a waiver of Lender’s right to either
require prompt payment when due of all other sums so secured or to declare a
default for failure to make prompt payment (after expiration of applicable
notice and cure periods). The procurement of insurance or the payment of taxes
or other liens or charges by Lender shall not be a waiver of Lender’s right to
accelerate the maturity of the Indebtedness secured by this Instrument, nor
shall Lender’s receipt of any awards, proceeds or damages under Sections 5 and
11 hereof operate to cure or waive Borrower’s default in payment of sums secured
by this Instrument.

14. CALIFORNIA COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is intended
to be a security agreement pursuant to the California Commercial Code for any of
the items specified above as part of the Property which, under applicable law,
may be subject to a security interest pursuant to the California Commercial
Code, and Borrower hereby grants and conveys to Lender a first and prior
security interest in all of the property that constitutes personal property
(“Collateral”, for purposes of this Section 14), whether now owned or hereafter
acquired. Borrower agrees that Lender may file this Instrument, or a
reproduction

 

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thereof, in the real estate records or other appropriate index, as a financing
statement for any of the items specified above as part of the Collateral. Any
reproduction of this Instrument or of any other security agreement or financing
statement shall be sufficient as a financing statement. In addition, Lender may
submit for filing any financing statements, as well as extensions, renewals and
amendments thereof, and reproductions of this Instrument in such form as Lender
may deem appropriate to perfect a security interest with respect to the
foregoing items. Borrower shall pay all costs of filing such financing
statements and any extensions, renewals, amendments and releases thereof, and
shall pay all costs and expenses of any record searches for financing statements
Lender may require.

Borrower expressly warrants and covenants:

(a) Except for the security interest granted hereby and the Permitted
Exceptions, Borrower is the owner of the Collateral free from any lien, security
interest or encumbrance. Borrower understands that any further encumbrance of
the Collateral is prohibited. Borrower shall defend the Collateral against all
claims and demands of all persons at any time claiming the same or any interest
therein by, through or under Borrower.

(b) The Collateral is used or bought primarily for use in the business of
Borrower and not for consumer purposes.

(c) Borrower’s business address is as stated above. The Collateral is located at
or on or is used or owned for or in connection with the Premises and other
Property.

(d) Borrower shall promptly notify Lender of any change in the location of the
Collateral or any change in Borrower’s principal place of business.

(e) Borrower shall pay when due, prior to delinquency, all taxes and assessments
of every nature which may be levied or assessed against the Collateral.

(f) Except for liens in favor of Lender, without Lender’s prior written consent,
Borrower shall not permit or allow any lien, security interest or encumbrance
whatsoever upon the Collateral and shall not permit the Collateral to be
attached or replevied. Lender’s consent to a junior lien by an entity owned by,
or under common control with, Lender shall not be unreasonably withheld.

(g) The Collateral is in good condition and Borrower shall keep the Collateral
in good condition (reasonable wear and tear expected) and from time to time,
forthwith, replace and repair all such parts of the Collateral as may be broken,
worn out, or damaged without allowing any lien to be created upon the Collateral
on account of such replacement or repairs. Lender may examine and inspect the
Collateral at any time, wherever located, subject to reasonable prior notice.

(h) Borrower will not use the Collateral in violation of any applicable
statutes, regulations or ordinances.

Until the occurrence of an Event of Default, Borrower may have possession of the
Collateral and use it in any lawful manner. If an Event of Default shall have
occurred and be continuing, Lender shall have the immediate right to the
possession of the Collateral.

 

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If an Event of Default shall have occurred and be continuing, Lender shall have
the remedies of a secured party under the California Commercial Code, and Lender
may also invoke the remedies provided in Section 26 of this Instrument as to
such items. In exercising any of said remedies Lender may, to the extent
permitted by applicable law, proceed against the items of real property and any
items of Collateral specified above separately or together and in any order
whatsoever, without in any way affecting the availability of Lender’s remedies
under the California Commercial Code or of the remedies provided in Section 26
of this Instrument. Within ten (10) days following any request therefor by
Lender, Borrower shall prepare and deliver to Lender a written inventory
specifically listing all of the Collateral covered by the security interest
herein granted, which inventory shall be certified by Borrower as being true,
correct, and complete.

FIXTURE FILING. Portions of the Collateral are goods which are or are to become
fixtures relating to the Property, and Borrower covenants and agrees that the
filing of this Instrument in the real estate records of the county where the
Property is located shall also operate from the time of filing as a fixture
filing in accordance with Section 9502(c) of the California Commercial Code.

FIXTURE FILING. The following information is provided in order that this
Instrument shall comply with the requirements of the Uniform Commercial Code, as
enacted in the State where the Premises are located, for instruments to be filed
as financing statements and with other requirements of applicable law:

 

(a)     Name of Borrower (Debtor):

   NANOMETRICS INCORPORATED

Type of Organization:

   corporation

Address of Borrower:

   1550 Buckeye Drive    Milpitas, California 95035-7418

Jurisdiction of Borrower’s Organization:

   Delaware

Borrower’s Organizational ID No.

   3913131

(b)     Name of Lender (Secured Party):

   GE COMMERCIAL FINANCE BUSINESS PROPERTY CORPORATION

Address of Lender:

   10900 Northeast Fourth Street, Suite 500    Bellevue, Washington 98004   
Attention: Middle Market Risk

(c)     Record Owner of Real Estate Described on Exhibit A hereto:

   BORROWER

 

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15. LEASES OF THE PROPERTY. As used in this Section 15, the word “Lease” shall
include subleases. Borrower shall comply with and observe Borrower’s obligations
as landlord under all Leases of the Property or any part thereof. All Leases now
or hereafter entered into will be in form and substance subject to the approval
of Lender based on Lender’s then-current underwriting criteria for similar
properties and transactions. That certain Lease between Borrower and Master
Kraft Machining, Inc., a California corporation, date November 12, 2007 (“Master
Kraft Lease”), has been approved by Lender and Lender agrees that the Master
Kraft Lease is not a Credit Lease. Borrower shall pay all attorneys’ fees
incurred by Lender in reviewing any Lease or proposed Lease. All Leases of the
Property shall specifically provide that such Leases are subordinate to this
Instrument; that the tenant attorns to Lender, such attornment to be effective
upon Lender’s acquisition of title to the Property; that the tenant agrees to
execute such further evidences of attornment as Lender may from time to time
request; that the attornment of the tenant shall not be terminated by
foreclosure; and that Lender may, at Lender’s option, accept or reject such
attornments (except as to third-party credit tenants unrelated to Borrower, as
to which lender shall grant a non-disturbance provision). Borrower shall not,
without Lender’s written consent, request or consent to the subordination of any
Lease of all or any part of the Property to any lien subordinate to this
Instrument. If Borrower becomes aware that any tenant under a Credit Lease
proposes to do, or is doing, any act or thing which may give rise to any right
of set-off against rent, Borrower shall (i) take such steps as shall be
reasonably calculated to prevent the accrual of any right to a set-off against
rent, (ii) immediately notify Lender thereof in writing and of the amount of
said set-offs, and (iii) within ten (10) days after such accrual, reimburse the
tenant who shall have acquired such right to set-off or take such other steps as
shall effectively discharge such setoff and as shall assure that Rents
thereafter due shall continue to be payable without set-off or deduction. Upon
Lender’s receipt of notice of the occurrence of any material default or
violation by Borrower of any of its obligations under the Leases beyond
applicable periods for notice and cure, Lender shall have the immediate right,
but not the duty or obligation, without prior written notice to Borrower or to
any third party (but with due regard for rights of tenants under Leases), to
enter upon the Property and to take such actions as Lender may deem necessary to
cure the default or violation by Borrower under the Leases. The costs incurred
by Lender in taking any such actions pursuant to this paragraph shall become
part of the Indebtedness, shall bear interest at the Default Rate provided in
the Note, and shall be payable by Borrower to Lender on demand. Lender shall
have no liability to Borrower or to any third party for any actions taken by
Lender or not taken pursuant to this paragraph.

16. REMEDIES CUMULATIVE. Each remedy provided in this Instrument is distinct and
cumulative to all other rights or remedies under this Instrument or afforded by
law or equity, and may be exercised concurrently, independently, or
successively, in any order whatsoever.

17. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER; SUBORDINATE
FINANCING PROHIBITED; ASSUMPTION. Lender may, at its option, declare all sums
secured by this Instrument to be immediately due and payable, and Lender may
invoke any remedies permitted by Section 26 of this Instrument, if title to the
Property is changed without the prior written consent of Lender, which consent
shall be at Lender’s sole discretion. Any transfer of any interest in the
Property or in the income therefrom, by sale, lease (except for Leases to
tenants in the ordinary course of managing income property which are approved by
lender pursuant to Section 15 of this Instrument), contract, mortgage, deed of
trust, further encumbrance or otherwise (including any such transfers as
security for additional financing of the Property), and any change in the
majority ownership interest in

 

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Borrower (including any transfer, pledge, assignment, or hypothecation thereof),
shall be considered a change of title, except changes in ownership resulting
from transfers to the parents, spouses, siblings, and/or lineal descendents of
the current owner(s) of such interests upon the death of the current owner[s].
Leasehold deeds of trust and collateral assignments of any Lease of the Property
given by tenants of the Property are prohibited without the prior written
consent of Lender, which consent may be withheld in Lender’s sole discretion.
Notwithstanding the foregoing, additional but subordinate deeds of trust may be
granted to Lender and, subject to the prior written consent of Lender, which
consent may be withheld in Lender’s sole discretion, may be granted to entities
owned by or under common control with Lender.

Lender shall have the right to condition its consent to any proposed sale or
transfer described in this Section 17 upon, among other things, Lender’s
approval of the transferee’s creditworthiness and management ability, and the
transferee’s execution, prior to the sale or transfer, of a written assumption
agreement containing such terms as Lender may require, including, if required by
Lender, the imposition of an assumption fee of one percent (1%) of the then
outstanding balance of the Indebtedness. Consent by Lender to one transfer of
the Property shall not constitute consent to subsequent transfers or waiver of
the provisions of this Section 17. No transfer by Borrower shall relieve
Borrower of liability for payment of the Indebtedness, unless Lender shall
otherwise agree in writing at the time of such transfer. Borrower shall pay any
recording tax, recording cost, title insurance premium, attorneys’ fees, or
other third-party expenses incurred by Lender in connection with any transfer,
whether or not consent is required.

Notwithstanding the foregoing, Lender acknowledges that Borrower is a
publicly-held company and that purchases and sales of its common stock from time
to time on a generally recognized United States Stock exchange or national
market system and in the ordinary course of business shall not constitute a
transfer of the Property or a change in the direct or indirect ownership
interest in Borrower for purposes of this Section 17. Further, offerings and
sales of additional securities of Borrower, payment of stock dividends,
redemptions of stock, issuance of securities pursuant to stock options, bonus or
incentive plans or other common uses of publicly traded securities shall not be
considered to be changes in the direct or indirect ownership interests in
Borrower under this Section 17.

The transfer to and assumption by an approved transferee of the Borrower’s
obligations under the Loan shall not constitute a “prepayment” of the Loan
requiring payment of a “Prepayment Fee” (as defined in the Note).

18. NOTICE. Except for any notice required under applicable law to be given in
another manner, any and all notices, elections, demands, or requests permitted
or required to be made under this Instrument or under the Note shall be in
writing, signed by the party giving such notice, election, demand or request,
and shall be delivered personally, or sent by registered, certified, or Express
United States mail, postage prepaid, or by Federal Express or similar nationally
recognized delivery service requiring a receipt, to the other party at the
address stated above, or to such other party and at such other address within
the United States of America as any party may designate in writing as provided
herein. The date of receipt of such notice, election, demand or request shall be
the earliest of (i) the date of actual receipt, (ii) three (3) business days
after the date of mailing by registered or certified mail, (iii) one
(1) business day after the date of sending via overnight delivery by Express
Mail, Federal Express, or another similar service requiring a receipt, or
(iv) the date of personal delivery (or refusal by or on behalf of the addressee
upon presentation for delivery of a properly addressed notice).

 

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19. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS; CAPTIONS.
The covenants and agreements herein contained shall bind, and the rights
hereunder shall injure to, the respective heirs, successors and assigns of
Lender and Borrower, subject to the provisions of Section 17 hereof. If Borrower
is comprised of more than one person or entity, whether as individuals,
partners, partnerships, limited liability companies, or corporation, each such
person or entity shall be jointly and severally liable for Borrower’s
obligations hereunder. In exercising any rights hereunder or taking any actions
provided for herein, Lender may act through its employees, agents or independent
contractors as authorized by Lender. The captions and headings of the sections
of this Instrument are for convenience only and are not to be used to interpret
or define the provisions hereof.

20. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right to assert
any statute of limitations as a bar to the enforcement of the lien of this
Instrument or to any action brought to enforce the Note or any other obligation
secured by this Instrument.

21. WAIVER OF MARSHALLING. Notwithstanding the existence of any other security
interests in the Property held by Lender or by any other party, Lender shall
have the right to determine the order in which any or all of the Property shall
be subjected to the remedies provided herein. Lender shall have the right to
determine the order in which any or all portions of the Indebtedness secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Borrower, any party who consents to this Instrument
and any party who now or hereafter acquires a security interest in the Property
and who has actual or constructive notice hereof hereby waives any and all right
to require the marshalling of assets in connection with the exercise of any of
the remedies permitted by applicable law or provided herein.

22. HAZARDOUS WASTE. Lender has obtained and Borrower has reviewed a Phase I
Environmental Site Assessment date October 26, 2007, prepared by Eras
Environmental, Inc. (the “Report”). Except as disclosed to Lender in the Report
or otherwise previously disclosed to Lender, Borrower has received no
notification and has no actual knowledge of any kind suggesting that the
Property or any adjacent property is or may be contaminated with any hazardous
waste or materials or is or may be required to be cleaned up in accordance with
any applicable law or regulation; and Borrower further represents and warrants
that, except as previously disclosed to Lender in writing, to the best of its
actual knowledge as of the date hereof, there are no hazardous waste or
materials located in, on or under the Property or any adjacent property, or
incorporated in and Improvements, nor has the Property or any adjacent property
ever been used as a landfill or a waste disposal site, or a manufacturing,
handling, storage, distribution or disposal facility for hazardous waste or
materials, except for reasonable quantities of ordinary office supplies,
cleaning supplies, insecticides, pesticides, and paint used in the normal
operation and maintenance of the Property and any other substances or materials
used by borrower or tenants of the Property in the design or manufacture of
process control metrology systems, provided that the same are used, stored,
handled, and disposed of in accordance with applicable laws (“Permitted
Substances”). As used herein, the term “hazardous waste or materials” includes
any substance or material defined in or designated as hazardous or toxic wastes,
hazardous or toxic materials, a hazardous, toxic or radioactive substance, or
other similar term, by any federal, state or local statute, regulation and
ordinance now or hereafter in effect. Borrower shall promptly comply with all
statutes, regulations and ordinances, and with

 

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all orders, decrees or judgments of governmental authorities or courts having
jurisdiction, relating to the use, collection, treatment, disposal, storage,
control, removal or cleanup of hazardous waste or materials in, on or under the
Property or incorporated in any Improvements, at Borrower’s expense. In the
event that Lender at any time has reason to believe that the Property is not
free of all hazardous waste or materials other than Permitted Substances or that
Borrower has violated any applicable environmental law with respect to the
Property, then immediately, upon request by Lender, Borrower shall promptly
order, diligently pursue obtaining and furnish to Lender, at Borrower’s sole
cost and expense, an environmental audit and inspection of the Property from an
expert satisfactory to Lender. In the event that Borrower fails to immediately
obtain such audit or inspection, Lender or its agents may perform or obtain such
audit or inspection at Borrower’s sole cost and expense. Lender may, but is not
obligated to, enter upon the Property and take such actions and incur such costs
and expenses to effect such compliance as it deems advisable to protect its
interest in the Property; and whether or not Borrower has actual knowledge of
the existence of hazardous waste or materials on the Property or any adjacent
property as of the date hereof, Borrower shall reimburse Lender as provided in
Section 23 below for the full amount of all costs and expenses incurred by
Lender prior to Lender acquiring title to the Property through foreclosure or
acceptance of a deed in lieu of foreclosure or such earlier time as Lender
obtains control of the Property, in connection with such compliance activities.
Neither this provision nor any of the other Loan Documents shall operate to put
Lender in the position of an owner of the Property prior to any acquisition of
the Property by Lender. The rights granted to Lender herein and in the other
Loan Documents are granted solely for the protection of Lender’s lien and
security interest covering the Property, and do not grant to Lender the right to
control Borrower’s actions, decisions or policies regarding hazardous waste or
materials.

In the event that nay portion of the property is determined to be
“environmentally impaired” (as “environmentally impaired” is defined in
California Code of Civil Procedure Section 726.5(e)(3)) or to be an “affected
parcel” (as “affected parcel” is defined in California Code of Civil Procedure
Section 726.5(e)(1)), then, without otherwise limiting or in any way affecting
Lender’s or Trustee’s rights and remedies under this Instrument upon the
occurrence and during the continuance of an Event of Default, Lender may elect
to exercise its right under California Code of Civil Procedure Section 726.5(a)
to (1) waive it lien on such environmentally impaired or affected parcel portion
of the Property and (2) exercise (i) the rights and remedies of an unsecured
creditor, including reduction of its claim against Borrower to judgment, and
(ii) any other rights and remedies permitted by law. For purposes of determining
Lender’s right to proceed as an unsecured creditor under California Code of
Civil Procedure Section 726.5(a), Borrower shall be deemed to have a willfully
permitted or acquiesced in a release or threatened release of hazardous
materials, within the meaning of California Code of Civil Procedure
Section 726.5(d)(1), if the release or threatened release of hazardous materials
was knowingly or negligently cause or contributed to by any lessee, occupant or
user which caused or contributed to the release or threatened release. All costs
and expenses, including, but not limited to, attorneys’ and paralegals’ fees and
costs and court costs incurred by Lender in connection with any action commenced
under this Section 22, including any action required by California Code of Civil
Procedure Section 726.5(b) to determine the degree to which the Property is
environmentally impaired, plus interest thereon at the Default Rate specified in
the note, provided that such interest rate shall not exceed the maximum interest
rate permitted by law, until paid, shall be added to the Indebtedness secured by
this Instrument and shall be due and payable to Lender upon its demand made at
any time following the conclusion of such action.

 

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23. ADVANCES, COSTS AND EXPENSES. Borrower shall pay within ten (10) days after
written demand from lender all sums advanced by Lender and all costs and
expenses incurred by lender in taking any actions pursuant to the Loan Documents
including attorneys’ fees and disbursements, accountants’ fees, appraisal and
inspection fees and the costs for title reports and guaranties, together with
interest thereon at the rate applicable under the Note after and Event of
Default from the date such costs were advanced or incurred. All such costs and
expenses incurred by Lender, and advances made, shall constitute advances under
this Instrument to protect the Property and shall be secured by and have the
same priority as the lien of this Instrument. If Borrower fails to pay any such
advances, costs and expenses and interest thereon, to the extent permitted by
applicable law, Lender may apply any undisbursed loan proceeds to pay the same,
and, without foreclosing the lien of this Instrument, may at its option commence
an independent action against Borrower for the recovery of the costs, expenses
and/or advances, with interest, together with costs of suit, costs of title
reports and guaranty of title, disbursements of counsel and reasonable
attorneys’ fees incurred therein or in any appeal therefrom. If any check
delivered by or on behalf of Borrower in payment of any monthly installment due
on the Indebtedness or any other payment due hereunder shall be returned on
account of insufficient funds, or if Lender is unable to debit Borrower’s
account for such payment in accordance with previously agreed automated funds
withdrawal mechanism, Borrower shall pay a service charge in accordance with
Lender’s the-current fee schedule.

24. ASSIGNMENT OF LEASES AND RENTS. Borrower, for good and valuable
consideration, the receipt of which is hereby acknowledged, to secure the
Indebtedness, does hereby absolutely and unconditionally grant, bargain, sell,
transfer, assign, convey, set over and deliver unto Lender all right, title and
interest of Borrower in, to and under the Leases of the Property, whether now in
existence or hereafter entered into, and all guaranties, amendments, extensions
and renewals of said Leases and any of them, and all Rents which may now or
hereafter be or become due or owing under the Leases, and any of them, or on
account of the use of the Property.

Borrower represents, warrants, covenants and agrees with Lender as follows:

(a) The sole ownership of the entire lessor’s interest in the Leases is vested
in Borrower, and Borrower has not, and shall not, perform any acts or execute
any other instruments which might prevent Lender from fully exercising its
rights with respect to the Leases under any of the terms, covenants and
conditions of this Instrument.

(b) Credit Leases shall not be altered, modified, amended, terminated, canceled,
renewed or surrendered except as approved in writing by Lender, which approval
shall not be unreasonably withheld or delayed, subject to Lender’s then-current
underwriting criteria for similar properties and transactions. The terms and
conditions of any Credit Leases shall not be waived in any manner whatsoever
except as approved in writing by Lender, which approval shall not be
unreasonably withheld or delayed, subject to Lender’s then-current underwriting
criteria for similar properties and transactions.

(c) Without limiting the foregoing: Borrower shall not decrease the term or the
amount of rent payable under any Credit Lease or amend the provisions in any
Credit Lease regarding assignment or subletting without prior written notice to
Lender and Lender’s consent.

 

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(d) There are not defaults now existing under any Credit Lease, and, to the best
of Borrower’s actual knowledge, there exists no state of facts which, with the
giving of notice or lapse of time or both, would constitute a default under any
Credit Lease.

(e) Borrower shall give prompt written notice to Lender of any notice received
by Borrower claiming that a default has occurred under any Credit Lease on the
part of Borrower, together with a complete copy of any such notice.

(f) Each Credit Lease shall remain in full force and effect irrespective of any
merger of the interest of lessor and any lessee under any Credit Lease.

(g) Borrower will not permit any Credit Lease to become subordinate to any lien
other than the lien of this Instrument.

(h) Borrower shall not permit the assignment of the lessee’s interest under any
Credit Lease without Lender’s prior written consent, which consent shall not be
unreasonably withheld or delayed, subject to Lender’s then-current underwriting
criteria for similar properties and transactions.

The assignment made hereunder is an absolute, present assignment from Borrower
to Lender, effective immediately, and is not merely an assignment for security
purposes but is irrevocable by Borrower so long as the Indebtedness remains
outstanding. Notwithstanding the foregoing, until a notice is sent to the
Borrower in writing that an Event of Default (as defined below) has occurred
under the terms and conditions of the Note or any instrument constituting
security for the Note (which notice is hereafter called a “Notice”), Borrower is
granted a license to receive, collect and enjoy the Rents accruing from the
Property.

If and Event of Default shall occur, Lender may, at it option, after service of
a Notice, receive and collect all such Rents as they become due, from the
Property. Lender shall thereafter continue to receive and collect all such
Rents, until Lender shall otherwise agree in writing. All sums received by
Borrower after service of such Notice shall be deemed received in trust and
shall be immediately turned over to Lender.

Borrower hereby irrevocably appoints Lender its true and lawful attorney-in-fact
with power of substitution and with full power for Lender in its own name and
capacity or in the name and capacity of Borrower, from and after service of
Notice, to demand, collect, receive and give complete acquittances for any and
all Rents accruing form the Property, either in its own name or in the name of
Borrower or otherwise, which Lender may deem necessary or desirable in order to
collect and enforce the payment of the Rents and to demand, correct, receive,
endorse, and deposit all checks, drafts, money orders or notes given in payment
of such Rents. Such appointment is coupled with and interest and is irrevocable.
Lender shall not be liable for or prejudiced by any loss of any note, checks,
drafts, etc., unless such loss is found by a court of competent jurisdiction to
have been due to the gross negligence or willful misconduct of Lender.

If Lender shall have sent a Notice and shall be collecting Rents under this
Section 23, Lender shall apply the Rents received from Borrower’s lessees to
accrued interest and principal under the Note. If no Event of Default remains
uncured, amounts received in excess of the aggregate monthly payment due under
the Note shall be remitted to Borrower in a timely manner. Nothing contained
herein shall be construed to constitute Lender as a mortgage-in-possession in
absence of its physically taking possession of the Property.

 

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Borrower also hereby irrevocably appoints Lender from and after service of a
Notice as its true and lawful attorney-in-fact to appear in any state or federal
bankruptcy, insolvency, or reorganization proceeding in any state or federal
court involving any of the tenants of the Leases. Lessees of the Property are
hereby expressly authorized and directed, from and after service of a Notice to
pay any and all amounts due Borrower pursuant to the Leases to Lender or such
nominee as Lender may designate in writing delivered to and received by such
lessees who are expressly relieved of any and all duty, liability or obligation
to Borrower in respect of all payments so made.

If an Event of Default shall occur, Lender is hereby vested with full power from
and after service of a Notice to use all measures, legal and equitable, to the
extent permitted by applicable law, deemed by it necessary or proper to enforce
the assignment granted hereunder and to collect the Rents assigned hereunder,
including the right of Lender or its designee, to enter upon the Property, or
any part thereof, and take possession of all or any part of the Property
together with all personal property, fixtures, documents, books, records, papers
and accounts of Borrower relating thereto, and may exclude the Borrower, its
agents and servants, wholly therefrom, but only to the extent permitted by and
in accordance with applicable law. Borrower hereby grants full power and
authority to Lender to exercise all rights, privileges and powers herein granted
at any and all times after service of a Notice, with full power to use and apply
all of the Rents and other income herein assigned to the payment of the costs of
managing and operation the Property and of any indebtedness or liability of
Borrower to Lender, including but not limited to the payment of taxes, special
assessments, insurance premiums, damage claims, the costs of maintaining,
repairing, rebuilding and restoring the Improvements on the premises or of
making the same rentable, reasonable attorneys’ fees incurred in connection with
the enforcement of the assignment granted hereunder, and of principal and
interest payments due from Borrower to Lender on the Note and this Instrument,
all in such order as Lender may determine. Lender shall be under no obligation
to exercise or prosecute any of the rights or claims assigned to it hereunder or
to perform or carry out any of the obligations of the lessor under any of the
Leases and does not assume any of the liabilities is connection with or arising
or growing out of the covenants and agreements of Borrower in the Leases. It is
further understood that the assignment granted hereunder shall not operate to
place responsibility for the control, care, management or repair of the
Property, or parts thereof, upon Lender, not shall it operate to make Lender
liable for the performance of any of the terms and conditions of any of the
Leases, or for any waste of the Property by any lessee under any of the Leases
or any other person, or for any dangerous or defective condition of the Property
or for any negligence in the management, upkeep repair or control of the
Property resulting in loss or injury or death to any lessee, licensee, employee
or stranger, unless the same shall have been found by a court of competent
jurisdiction to have been due to the gross negligence or willful misconduct of
Lender.

25. DEFAULT. The following shall each constitute an event of default (“Event of
Default”):

(a) The occurrence of an “Event of Default” under the Note.

(b) Failure of Borrower within the time required by this instrument to make any
payment for taxes, insurance or for reserves for such payments, or any other
payment necessary to prevent filing of or discharge of any lien, and such
failure shall continue for a period of ten (10) days after written notice is
given to Borrower by Lender specifying such failure.

 

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(c) Failure by Borrower or any guarantor of the Loan to observe or perform its
obligations to Lender on or with respect to any transactions, debts,
undertakings or agreements other than the transaction evidenced by the Note,
following the giving of any notice required thereunder and/or the expiration of
any applicable period of grace provided thereby.

(d) Failure of Borrower to make any payment or perform any obligation under any
superior liens or encumbrances on the Property, within the time required
thereunder, or commencement of any suit or other action to foreclose any
superior liens or encumbrances.

(e) Failure by Borrower to observe or perform any of its obligations under any
Credit Lease, following the giving of any notice required thereunder and/or the
expiration of any applicable period of grace provided thereby.

(f) The Property is transferred or any agreement to transfer any part or
interest in the Property in any manner whatsoever (other than an agreement that
contemplates payment of the Indebtedness in full upon consummation of such
agreement) is made or entered into without the prior written consent of Lender,
except as specifically allowed under this Instrument, including without
limitation creating or allowing any liens on the Property or leasing any portion
of the Property.

(g) Filing by Borrower of a voluntary petition in bankruptcy or filing by
Borrower of any petition or answer seeking or acquiescing in any reorganization,
arrangement, composition, readjustment, liquidation, or similar relief for
itself under any present or future federal, state or other statute, law or
regulation relating to bankruptcy, insolvency or other relief for debtors, or
the seeking, consenting to, or acquiescing by Borrower in the appointment of any
trustee, receiver, custodian, conservator or liquidator for Borrower, any part
of the Property, or any of the Rents of the Property, or the making by Borrower
of any general assignment for the benefit of creditors, or the inability of or
failure by Borrower to pay its debts generally as they become due, or the
insolvency on a balance sheet basis or business failure of borrower, or the
making or suffering of a preference within the meaning of federal bankruptcy law
or the making of a fraudulent transfer under applicable federal or state law, or
concealment by Borrower of any of its property in fraud of creditors, or the
imposition of a lien upon any of the property of Borrower which is not
discharged in the manner permitted by Section 4 of this Instrument, or the
giving of notice by Borrower to any governmental body of insolvency or suspicion
of operations.

(h) Filing a petition against Borrower seeking any reorganization, arrangement,
composition, readjustment, liquidation, or similar relief under any present or
future federal, state or other law or regulation relating to bankruptcy,
insolvency or other relief for debts, or the appointment of any trustee,
receiver, custodian, conservator or liquidator of Borrower, of any part of the
Property or of any of the Rents of the Property, unless such petition shall be
dismissed within sixty (60) days after such filing, but in any event prior to
the entry of an order, judgment or decree approving such petition.

(i) The institution of any proceeding for the dissolution or termination of
Borrower voluntarily, involuntarily, or by operation of law, unless such
proceeding shall be dismissed within sixty (60) days after such filing, but in
any event prior to the entry of an order, judgment or decree for relief, or the
death or legal adjudication of incompetence of Borrower.

 

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(j) A material adverse change occurs in the assets, liabilities or net worth of
Borrower from the assets, liabilities or net worth of Borrower previously
disclosed to Lender.

(k) Any material warranty, representation or statement furnished to Lender by or
on behalf of Borrower under the Note, this instrument, any of the other Loan
Documents of the Indemnity, shall prove to have been false or misleading in any
material respect when made.

(l) Failure of Borrower to observe or perform any other covenant or condition
contained herein and such default shall continue for thirty (30) days after
notice is given to Borrower specifying the nature of the failure, or if the
default cannot be cured within such applicable cure period, Borrower fails
within such time to commence and pursue curative action with reasonable
diligence or fails at any time after expiration of such applicable cure period
to continue with reasonable diligence all necessary curative actions; provided,
however, that no notice of default and no opportunity to cure shall be required
with respect to defaults under Section 17 hereof or if during the prior twelve
(12) months Lender has already sent more than one (1) notice to Borrower
concerning default in performance of the same obligation.

(m) Failure of Borrower to observe or perform any other obligation Under any
other Loan Document or the Indemnity when such observance or performance is due,
and such failure shall continue beyond the applicable cure period set forth in
such Loan Document, or if the default cannot be cured within such applicable
cure period, Borrower fails within such time to commence and pursue curative
action with reasonable diligence or fails at any time after expiration of such
applicable cure period to continue with reasonable diligence all necessary
curative actions. No notice of default and no opportunity to cure shall be
required if during the prior twelve (12) months Lender has already sent more
than one (1) notice to Borrower concerning default in performance of the same
obligation.

(n) Borrower’s abandonment of the Property, or the termination before the end of
the stated term of any Credit Lease.

(o) Any of the events specified in (g) – (j) above shall occur with Respect to
any tenant under a Credit Lease of the Property or with respect to any guarantor
of any tenant’s obligations relating to the Property.

(p) Any of the events specified in (g) – (j) above shall occur with respect to
any guarantor of any of Borrower’s obligations in connection with the
Indebtedness or such guarantor dies or is declared legally incompetent.

26. RIGHTS AND REMEDIES ON DEFAULT.

26.1 Remedies. Upon the occurrence of any Event of Default and at any time
thereafter, Trustee or Lender may exercise any one or more of the following
rights and remedies:

(a) Lender may declare all sums secured by this Instrument Immediately due and
payable, including any Prepayment Fee which Borrower would be required to pay.

 

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(b) The Trustee shall have the right to foreclose by notice and sale, or lender
shall have the right to foreclose by judicial foreclosure, in either case in
accordance with applicable law.

(c) In the event of any foreclosure, to the extent permitted by applicable law,
Lender will be entitled to a judgment which will provide that if the foreclosure
sale proceeds are insufficient to satisfy the judgment, execution may issue for
any amount by which the unpaid balance of the obligations secured by this
instrument exceeds the net sale proceeds payable to Lender.

(d) With respect to all or any part of the Property that constitutes personal
property, Lender shall have all rights and remedies of secured party under the
California Commercial Code.

(e) Lender shall have the right to petition to have a receiver appointed to take
possession of any or all of the Property, with the power to protect and preserve
the Property, to operate the Property preceding foreclosure or sale, to collect
all the Rents from the Property and apply the proceeds, over and above cost of
the receivership, against the sums due under this Instrument, and to exercise
all of the rights with respect to the Property described in Section 24 above.
The receiver may serve without bond if permitted by law. Lender’s right to the
appointment of a receiver shall exist whether or not apparent value of the
Property exceeds the sums due under his Instrument by a substantial amount.
Employment by Lender shall not disqualify a person from serving as a receiver.

(f) In the event Borrower remains in possession of the Property after the
property is sold as provided above or Lender otherwise becomes entitled to
possession of the Property upon default of Borrower, Borrower shall become a
tenant at will of Lender or the purchaser of the Property and shall pay a
reasonable rental for use of the Property while in Borrower’s possession.

(g) Trustee and Lender shall have any other right or remedy provided in this
instrument, the Note, or any other Loan Document or instrument delivered by
Borrower in connection therewith, or available at law, in equity or otherwise.

(h) Lender shall have all the rights and remedies set forth in Sections 23 and
24.

26.2 Sale of the Property. In exercising its rights and remedies, the Trustee or
Lender may, at Lender’s sole discretion, cause all or any part of the Property
to be sold as a whole or in parcels, and certain portions of the Property may be
sold without selling other portions. Lender may bid at any public sale on all or
any portion of the Property.

(a) If at the time of the sale the said Trustee, or the one acting, shall deem
it best for any reason to postpone or continue said sale for one or more days,
they or he may do so, in which event notice of such postponement or continuance
shall be made in such manner as the Trustee, or the one acting, may deem
sufficient under the laws of the state in which the Premises are located.

 

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(b) At any such public sale, Trustee may execute and deliver to the purchaser a
conveyance of the Property or any part of the Property in fee simple by
Trustee’s deed and, to this end to the extend permitted by applicable law,
Borrower hereby constitutes and appoints Trustee the agent and attorney-in-fact
of Borrower to make such sale and conveyance, and thereby to divest Borrower of
all right, title or equity that Borrower may have in and to the Property and to
vest the same in the purchaser or purchasers at such sale or sales. Said
appointment is coupled with an interest and shall be irrevocable.

(c) Upon any public sale pursuant to the aforementioned power of sale and
agency, the proceeds of said sale shall be applied as provided by law. In the
event that such proceeds are insufficient to pay all costs and expenses of sale,
Lender may advance such sums as it in its sole and absolute discretion shall
determine for the purpose of paying all or any part of such costs and expenses,
and all such sums shall be a part of the indebtedness, payable on demand with
interest at the Default Rate provided in the Note. Subject to the limitations on
recourse set forth in the Note and subject to the applicable provisions of
California law, Borrower shall remain liable for any deficiency resulting if the
proceeds of sale are inadequate to repay the indebtedness.

26.3 Notice of Sale. Lender shall give Borrower reasonable notice of the time
and place of any public sale of any personal property or of the time after which
any private sale or other intended disposition of the personal property is to be
made. Reasonable notice shall mean notice given in accordance with applicable
law, including notices given in the manner and at the times required for notices
in nonjudicial foreclosure.

26.4 Waiver; Election of Remedies. A waiver by either party of a breach of a
provision of this instrument shall not constitute a waiver of or prejudice the
party’s right otherwise to demand strict compliance with that provision or any
other provision. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and all remedies of Lender under this instrument
are cumulative and not exclusive. An election to make expenditures or take
action to perform an obligation of Borrower shall not affect Lender’s right to
declare a default and exercise its remedies under this instrument.

27. RECONVEYANCE. Upon payment of all sums secured by this instrument, lender
shall request Trustee to reconvey the Property and shall surrender this
instrument and all notes evidencing indebtedness secured by this instrument to
Trustee. Trustee shall reconvey the Property without warranty to the person or
persons legally entitled thereto. Such person or persons shall pay Trustee’s
costs incurred in so reconveying the Property.

28. PROVISIONS REGARDING TRUSTEE. Trustee shall not be liable for any error of
judgment or act done by Trustee, or be otherwise responsible or accountable
under any circumstances whatsoever. Trustee shall not be personally liable in
case of entry by it or anyone acting by virtue of the powers herein granted it
upon the Property for debts contracted or liability or damages incurred in the
management or operation of the Property. All monies received by Trustee shall,
until used or applied as herein provided, be held in trust for the purposes for
which they were received, but need not be segregated in any manner from any
other monies (except to the extent required by law) and Trustee shall be under
no liability for interest on any monies received by it hereunder.

 

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Trustee may resign by giving of notice of such resignation in writing to Lender.
If Trustee shall die, resign or become disqualified from acting, or shall fail
or refuse to exercise its powers hereunder when requested by Lender so to do, or
if any reason and without cause Lender shall prefer to appoint a substitute
trustee to act instead of the original Trustee named herein, or any prior
successor or substitute trustee, Lender shall have full power to appoint a
substitute trustee and, if preferred, several substitute trustees in succession
who shall succeed to all the estate, rights, powers and duties of the forenamed
Trustee. Upon appointment by Lender and upon recording of the substitution in
the land records of the city or county in which the Premises are located, any
new Trustee appointed pursuant to any of the provisions hereof shall, without
any further act, deed or conveyance, become vested with all the estates,
properties, rights, powers and trusts of its predecessor in the rights hereunder
with the same effect as if originally named as Trustee herein.

29. USE OF PROPERTY. The Property is not currently used for residential,
agricultural, farming, timber or grazing purposes. Borrower warrants that this
instrument is and will at all times constitute a commercial trust deed, as
defined under appropriate state law.

30. FUTURE ADVANCES. Upon request of Borrower, Lender, at Lender’s option so
long as this instrument secures Indebtedness held by Lender, may make Future
Advances to Borrower. Such Future Advances, with interest thereon, shall be
secured by this Instrument when evidenced by promissory notes stating that said
notes are secured hereby.

31. IMPOSITION OF TAX BY STATE.

31.1 State Taxes Covered. The following constitute state taxes to which this
Section applies:

(a) A specific tax upon trust deeds or upon all or any part of the indebtedness
secured by a trust deed.

(b) A specific tax on a grantor which the taxpayer is authorized or required to
deduct from payments on the indebtedness secured by a trust deed.

(c) A specific tax on a trust deed chargeable against the beneficiary or the
holder of the note secured.

(d) A specific tax on all or any portion of the indebtedness or on payments of
principal and interest made by a grantor.

31.2 Remedies. If any state tax to which this Section applies is enacted
subsequent to the date of this instrument, this shall have the same effect as an
Event of Default, and Lender may exercise any or all of the remedies available
to it unless the following conditions are met:

(a) Borrower may lawfully pay the tax or charge imposed by state tax; and

(b) Borrower pays the tax or charge within thirty (30) days after notice from
Lender that the tax has been levied.

 

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32. ATTORNEYS’ FEES. In the event suit or action is instituted to enforce or
interpret any of the terms of this Instrument (including without limitation
efforts to modify or vacate any automatic stay or injunction), the prevailing
party shall be entitled to recover all expenses reasonably incurred at, before
and after trial and on appeal whether or not taxable as costs, or in any
bankruptcy proceeding including, without limitation, attorney’s fees, witness
fees (expert and otherwise), deposition costs, copying charges and other
expenses. Whether or not any court action is involved, all reasonable expenses,
including but not limited to the costs of searching records, obtaining title
reports, surveyor reports, title insurance, trustee fees, and other attorney
fees, incurred by Lender that are necessary at any time in Lender’s opinion for
the protection of its interest or enforcement of its rights shall become a part
of the Indebtedness payable on demand and shall bear interest from the date of
expenditure until repaid at the interest rate as provided in the Note. The term
“attorneys’ fees” as used in the Load Documents shall be deemed to mean such
fees as are reasonable and are actually incurred.

33. GOVERNING LAW; SEVERABILITY. This instrument shall be governed by the law of
the State of California applicable to contracts made and to be performed therein
(excluding choice-of-law principles). In the event that any provision or clause
of this Instrument or the Note conflicts with applicable law, such conflict
shall not affect other provisions of this Instrument or the Note conflicts with
applicable law, such conflict shall not affect other provisions of this
Instrument or the Note which can be given effect without the conflicting
provision, and to this end of the provisions of this Instrument and the Note are
declared to be severable.

34. TIME OF ESSENCE. Time is of the essence of this Instrument.

35. CHANGES IN WRITING. This Instrument and any of its terms may only be
changed, waived, discharged or terminated by an Instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought. Any agreement subsequently made by Borrower or Lender
relating to this Instrument shall be superior to the rights of the holder of any
intervening lien of encumbrance.

36. NO OFFSET. Borrower’s obligation to make payments and perform all
obligations, covenants and warranties under this instrument and under the Note
shall be absolute and unconditional and shall not be affected by any
circumstance, including without limitation any setoff, counterclaim, abatement,
suspension, recoupment, deduction, defense or other right that Borrower or any
guarantor may have or claim against Lender or any entity participating in making
the loan secured hereby. The foregoing provisions of this section, however, do
not constitute a waiver of any claim or demand which Borrower or any guarantor
may have in damages or otherwise against lender or any other person, or preclude
Borrower from maintaining a separate action thereon; provided, however, that
Borrower waives any right it may have at law or in equity to consolidate such
separate action with any action or proceeding brought by Lender.

37. WAIVER OF JURY TRAIL. THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTELLIGENTLY WAIVES ANY AND ALL RIGHTS THAT EACH PARTY TO THIS INSTRUMENT MAY
NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR THE
STATE OF CALIFORNIA, TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING DIRECTLY
OR INDIRECTLY IN ANY ACTION OR PROCEEDING RELATING TO THIS INSTRUMENT, THE LOAD
DOCUMENTS OR ANY TRANSACTIONS

 

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CONTEMPLATED THEREBY OR RELATED THERETO. IT IS INTENDED THAT THIS WAIVER SHALL
APPLY TO ANY AND ALL DEFENSES, RIGHTS, CLAIMS AND/OR COUNTERCLAIMS IN ANY SUCH
ACTION OR PROCEEDING. BORROWER UNDERSTANDS THAT THIS WAIVER IS A WAIVER OF A
CONSTITUTIONAL SAFEGUARD, AND EACH PARTY INDIVIDUALLY BELIEVES THAT THERE ARE
SUFFICIENT ALTERNATE PROCEDURAL AND SUBSTANTIVE SAFEGUARDS, INCLUDING A TRIAL BY
AN IMPARTIAL JUDGE, THAT ADEQUATELY OFFSET THE WAIVER CONTAINED HEREIN.

38. MAXIMUM INTEREST CHARGES. Notwithstanding anything contained herein or in
any of the Loan Documents to the contrary, in no event shall Lender be entitled
to receive interest on the loan secured by this Instrument (the “Loan”) in
amounts which, when added to all of the other interest charged, paid to or
received by Lender on the Loan, causes the rate of interest on the Loan to
exceed the highest lawful rate. Borrower and Lender intend to comply with the
applicable law governing the highest lawful rate and the maximum amount of
interest payable on or in connection with the Loan. If the applicable law is
ever judicially interpreted so as to render usurious any amount called for under
the Loan Documents, or contracted for, charged, taken, reserved or received with
respect to the Loan, or if acceleration of the final maturity date of the Loan
or if any prepayment by Borrower results in Borrower having paid or demand
having been made on Borrower to pay, any interest in excess of the amount
permitted by applicable law, then all excess amounts theretofore collected by
Lender shall be credited on the principal balance of the Note (or, if the Note
has been or would thereby be paid in full, such excess amounts shall be refunded
to Borrower), and the provisions of the Note, this Instrument and any demand on
Borrower shall immediately be deemed reformed and the amounts thereafter
collectible thereunder and hereunder shall be reduced, without the necessity of
the execution of any new document, so as to comply with the applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
thereunder and hereunder. The right to accelerate the final maturity date of the
Loan does not include the right to accelerate any interest which has not
otherwise accrued on the date of such acceleration, and Lender does not intend
to collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of the Loan
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread through the full term of the Loran until payment in full so
that the rate or amount of interest on account of the Loan does not exceed the
applicable usury ceiling. By execution of this Instrument, Borrower acknowledges
that it believes the Loan to be nonusurious and agrees that if, at any time,
Borrower should have reason to believe that the Loan is in fact usurious, it
will give Lender written notice of its belief and the reasons why Borrower
believes the Loan to be usurious, and Borrower aggress that the Lender shall
have ninety (90) days following its receipt of such written notice in which to
make appropriate refund or other adjustment in order to correct such condition
if it in fact exists.

39. REQUEST FOR NOTICE. Pursuant to California Government Code
Section 27321.5(b), Borrower hereby requests that a copy of any notice of
default and a copy of any notice of sale given pursuant to this Instrument be
mailed to Borrower at the address set forth herein above.

40. USE OF DISCRETION. Any provision of this Instrument permitting a party to
exercise its discretion shall require such discretion to be exercised
reasonably, except for those matters that are specifically reserved for Lender’s
sole discretion.

 

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IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.

 

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IN WITNESS WHEREOF, Borrower has caused this Instrument to be executed by its
representative(s) thereunto duly authorized.

 

BORROWER:

NANOMETRICS INCORPORATED,

A Delaware corporation

By:   /s/ Gary Schaefer

Printed Name:   Gary Schaefer

Title:   Chief Financial Officer

EXHIBITS:

Exhibit A – Description of Property

Schedule 1 – Permitted Exceptions

 

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STATE OF California

   )       )   

SS

COUNTY OF Santa Clara

   )   

ACKNOWLEDGMENT

On July 24, 2008, before me,                                         , a Notary
Public, personally appeared Gary C. Schaefer, who proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s)
on the instrument the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

 

   Signature

(Seal)

 

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Loan No.: 6326048-001

EXHIBIT A

(1550 Buckeye Drive, Milpitas, Santa Clara County, California)

Legal Description:

Real property in the City of Milpitas, County of Santa Clara, State of
California, described as follows:

PARCEL ONE:

PARCEL 1, AS SHOWN ON PARCEL MAP FILED NOVEMBER 4, 1998 IN BOOK 709 OF MAPS, AT
PAGE(S) 41 AND 42, SANTA CLARA COUNTY RECORDS.

PARCEL TWO:

PERMANENT NON-BUILDING EASEMENT OVER A PORTION OF PARCEL 3, AS SHOWN ON PARCEL
MAP ABOVE REFERRED TO.

PARCEL THREE:

TWO 10’ WIDE PRIVATE STORM DRAINAGE EASEMENTS OVER PARCEL 3, AS SHOWN ON PARCEL
MAP ABOVE REFERRED TO.

PARCEL FOUR:

RECIPROCAL EMERGENCY ACCESS EASEMENT OVER PARCEL 3, AS SHOWN ON PARCEL MAP ABOVE
REFERRED TO.

APN: 086-03-093

 

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Loan No.: 6326048-001

SCHEDULE 1

(1550 Buckeye Drive, Milpitas, Santa Clara County, California)

Permitted Exceptions:

The land lies within the boundaries of proposed community facilities District
No. 2005-1, as disclosed by a map filed April 08, 2005 in Book 41, Page 3 of
maps of assessment and community facilities districts recorded April 08, 2005 as
Document No. 18310933.

Covenants, conditions, restrictions and easements in the document recorded
June 5, 1979 as Book E545, Page 189 of Official Records, which provide that a
violation thereof shall not defeat or render invalid the lien of any first
mortgage or deed of trust made in good faith and for value, but deleting any
covenant, condition or restriction indicating a preference, limitation or
discrimination based on race, color, religion, sex, handicap, familial status,
national origin, sexual orientation, marital status, ancestry, source of income
or disability, to the extent such covenants, conditions or restrictions violate
Title 42, Section 3604(c), of the United States Codes or Section 12955 of the
California Government Code. Lawful restrictions under state and federal law on
the age of occupants in senior housing or housing for older persons shall not be
construed as restrictions based on familial status.

Document(s) declaring modifications thereof recorded June 15, 1979 as Book E571,
Page 359 of Official Records.

An easement for private storm drainage and incidental purposes, recorded
January 29, 1992 as Book M25, Page 1191 of Official Records.

 

In Favor of:    Confederation Life Insurance Company Affects:    As described
therein

An easement shown or dedicated on the map filed or recorded November 04, 1998 as
Book 709, Pages 41 and 42 of Maps

 

For:    Public Service utility and incidental purposes.

(Affects the Westerly 10 feet of said land)

An easement shown or dedicated on the map filed or recorded November 04, 1998 as
Book 709, Pages 41 and 42 of Maps

 

For:    Permanent non-building and incidental purposes.

(Affects as shown on said map)

An easement shown or dedicated on the map filed or recorded November 04, 1998 as
Book 709, Pages 41 and 42 of Maps

 

For:    Reciprocal emergency access and incidental purposes.

 

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