Exhibit 10.(b)

PREPARED OUTSIDE THE COMMONWEALTH

OF VIRGINIA BY:

Seyfarth Shaw LLP

1075 Peachtree Street, N.E.

Suite 2500

Atlanta, Georgia 30309-3962

Attention: James H. Kaminer, Jr., Esq.

Prudential Deal Name: Clarendon Center

Prudential Loan Number: 706108495

RPC Nos.: 18012004 and 18013011

UPON RECORDATION RETURN TO:

Commonwealth Land Title Insurance Company

1015 15th Street, NW

Suite 300

Washington, DC 20005

Attn: David P. Nelson

 

 

 

CLARENDON CENTER LLC, as grantor

(Borrower)

to

LAWYERS TITLE REALTY SERVICES, INC., as trustee

(Trustee)

for the benefit of

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, as beneficiary

(Lender)

 

 

DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING

 

 

 

    Dated:    As of March 23, 2011     Location:   

3000 Wilson Boulevard,

3030 Clarendon Boulevard, and

1200 N. Garfield Street

Arlington, Virginia

    County:    Arlington

 

 

 

This Deed of Trust, Security Agreement and Fixture Filing (this “Deed of
Trust”), securing the principal sum of $125,000,000, is a permanent loan deed of
trust being recorded within three years after the recording of the construction
loan deed of trust encumbering the same real property, which construction loan
deed of trust secured the principal sum of $157,500,000 and was recorded May 14,
2008 in Deed Book 4189 at page 1758 among the Land Records of Arlington County,
VA, with recordation tax having been paid on such principal sum of $157,500,000.
Accordingly, pursuant to Section 58.1-804(C) of the Code of Virginia, this Deed
of Trust is exempt from recordation tax.

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TABLE OF CONTENTS

 

    

Page

ARTICLE I - OBLIGATIONS

   3

Section 1.01 Obligations

   3

Section 1.02 Documents

   3

ARTICLE II - REPRESENTATIONS AND WARRANTIES

   3

Section 2.01 Title, Legal Status and Authority

   3

Section 2.02 Validity of Documents

   3

Section 2.03 Litigation

   4

Section 2.04 Status of Property

   4

Section 2.05 Tax Status of Borrower

   5

Section 2.06 Bankruptcy and Equivalent Value

   5

Section 2.07 Disclosure

   5

Section 2.08 Illegal Activity

   5

Section 2.09 OFAC Lists

   5

Section 2.10 Property as Single Asset

   6

ARTICLE III - COVENANTS AND AGREEMENTS

   6

Section 3.01 Payment of Obligations

   6

Section 3.02 Continuation of Existence

   6

Section 3.03 Taxes and Other Charges

   7

Section 3.04 Defense of Title, Litigation and Rights under Documents

   8

Section 3.05 Compliance with Laws and Operation and Maintenance of Property

   8

Section 3.06 Insurance

   9

Section 3.07 Damage and Destruction of Property

   12

Section 3.08 Condemnation

   13

Section 3.09 Liens and Liabilities

   14

Section 3.10 Tax and Insurance Deposits

   15

Section 3.11 ERISA

   15

Section 3.12 Environmental Representations, Warranties, and Covenants

   16

Section 3.13 Electronic Payments

   18

Section 3.14 Inspection

   18

Section 3.15 Records, Reports, and Audits

   19

Section 3.16 Borrower’s Certificates

   21

Section 3.17 Intentionally Deleted

   21

Section 3.18 Additional Security

   21

Section 3.19 Further Acts

   21

Section 3.20 Compliance with Anti-Terrorism Regulations

   21

Section 3.21 Compliance with Property as Single Asset

   22

Section 3.22 Intentionally Deleted

   22

Section 3.23 Intentionally Deleted

   22

Section 3.24 Tax Status of Borrower

   23

Section 3.25 Disclosure

   23

Section 3.26 Illegal Activity

   23

ARTICLE IV - ADDITIONAL ADVANCES; EXPENSES; SUBROGATION

   23

Section 4.01 Expenses and Advances

   23

 

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Section 4.02 Subrogation

   23

ARTICLE V - SALE, TRANSFER, OR ENCUMBRANCE OF THE PROPERTY

   24

Section 5.01 Due-on-Sale or Encumbrance

   24

Section 5.02 One-Time Transfer

   26

Section 5.03 Partial Release

   28

ARTICLE VI - DEFAULTS AND REMEDIES

   30

Section 6.01 Events of Default

   30

Section 6.02 Remedies

   31

Section 6.03 Expenses

   33

Section 6.04 Rights Pertaining to Sales

   33

Section 6.05 Application of Proceeds

   33

Section 6.06 Additional Provisions as to Remedies

   34

Section 6.07 Waiver of Rights and Defenses

   34

Section 6.08 Additional Credit Bidding

   34

ARTICLE VII - SECURITY AGREEMENT

   34

Section 7.01 Security Agreement

   34

ARTICLE VIII - LIMITATION ON PERSONAL LIABILITY AND INDEMNITIES

   35

Section 8.01 Limited Recourse Liability

   35

Section 8.02 General Indemnity

   35

Section 8.03 Transaction Taxes Indemnity

   35

Section 8.04 ERISA Indemnity

   35

Section 8.05 Environmental Indemnity

   35

Section 8.06 Duty to Defend, Costs and Expenses

   36

Section 8.07 Recourse Obligation and Survival

   36

ARTICLE IX - ADDITIONAL PROVISIONS

   36

Section 9.01 Usury Savings Clause

   36

Section 9.02 Notices

   37

Section 9.03 Sole Discretion of Lender

   37

Section 9.04 Applicable Law and Submission to Jurisdiction

   37

Section 9.05 Construction of Provisions

   38

Section 9.06 Transfer of Loan

   38

Section 9.07 Miscellaneous

   39

Section 9.08 Entire Agreement

   39

Section 9.09 Concerning the Trustee

   40

Section 9.10 WAIVER OF TRIAL BY JURY

   40

ARTICLE X - LOCAL LAW PROVISIONS

   40

Section 10.01 Statutory Provisions

   40

 

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EXHIBITS

Exhibit A- Legal Description of Land

Exhibit B- Description of Personal Property

Exhibit C- Permitted Encumbrances

Exhibit D- North Block Legal Description

 

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DEFINITIONS

The terms set forth below are defined in the following sections of this
Instrument:

 

  Act   Section 3.22(y)     Action   Section 9.04     Additional Funds   Section
3.07(c)     Affecting the Property   Section 3.12(a)     Affiliate Loans  
Section 5.01(a)(vii)     All   Section 9.05(m)     Anti-Terrorism Regulations  
Section 3.20(b)     Any   Section 9.05(m)     Application Election   Section
5.03(c)     Assessments   Section 3.03(a)     Assignment   Recitals, Section
2(B)     Award   Section 3.08(b)     Bankruptcy Code   Recitals, Section
2(A)(ix)     Control Requirements   Section 5.01(b)(i)     Costs   Section 4.01
    Current Beneficial Owners   Section 5.01(b)(i)     Damage   Section 3.07(a)
    Debt Service Coverage Ratio   Section 5.02     Demand   Section 9.12(n)    
Deposits   Section 3.10     Documents   Section 1.02     Environmental Indemnity
  Section 8.05     Environmental Law   Section 3.12(a)     Environmental Liens  
Section 3.12(b)     Environmental Report   Section 3.12(a)     ERISA   Section
3.11     Event of Default   Section 6.01     Executive Order 13224   Section
2.09     First Notice   Section 3.15(b)     Flood Acts   Section 2.04(a)    
Foreign Person   Section 2.05     Grace Period   Section 6.01(b)     Hazardous
Materials   Section 3.12(a)     Impositions   Section 3.10     Improvements  
Recitals, Section 2(A)(ii)     Include, Including   Section 9.05(f)    
Indemnified Parties   Section 8.02     Indemnify   Section 8.02     Individual
Beneficiaries   Section 2.09     Individual Shareholders   Section 2.09    
Instrument   Preamble     Insurance Premiums   Section 3.10     Investors  
Section 9.06     Land   Recitals, Section 2(A)(i)     Laws   Section 3.05(c)    
Lease   Section 9.05(k)  

 

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  Leases   Recitals, Section 2(A)(ix)     Lender   Preamble     Lessee   Section
9.05(k)     Lessor   Section 9.05(k)     Loan   Recitals, Section 1     Loan to
Value Ratio   Section 5.02     Losses   Section 8.02     Merger   Section
5.01(c)(ii)     Microbial Matter   Section 3.12(a)     Net Proceeds   Section
3.07(d)     NOI   Section 5.02     North Parcel Allocated Loan           Amount
  Section 5.03(a)     Note   Recitals, Section 1     Notice   Section 9.02     O
& M Plan   Section 3.12(b)     Obligations   Section 1.01     OFAC   Section
2.09     OFAC Lists   Section 2.09     OFAC Violation   Section 3.20(c)     On
Demand   Section 9.05(n)     Organization State   Section 2.01     Owned  
Section 9.05(l)     Partial Release   Section 5.03     Permitted Encumbrances  
Recitals, Section 2(B)     Permitted Family Members   Section 5.01(b)(i)    
Person   Section 9.05(i)     Permitted Pledges   Section 5.01(b)(A)     Personal
Property   Section 6.02(j)     Property   Recitals, Section 2(A)     Property
Payables   Section 3.09     Property State   Section 2.01     Provisions  
Section 9.05(j)     Rating Agency   Section 9.06     Recourse Guaranty   Section
5.02     Release   Section 3.12(a)     Release Parcel   Section 5.03    
Remaining Property   Section 5.03     Rent Loss Proceeds   Section 3.07(c)    
Rents   Recitals, Section 2(A)(x)     Restoration   Section 3.07(a)     Revenue
Code   Section 2.05     Saul Parties   Section 5.01(b)(A)     Saul Parties’
Minimum         Ownership Percentage   Section 5.01(b)(A)     Saul Permitted
Transfers   Section 5.01(b)     SCI   Section 3.15(a)(i)     Second Notice  
Section 3.15(b)     Securities   Section 9.06     Security Agreement   Section
7.01  

 

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  SHLP   Section 2.05     TADS   Section 5.02     Taking   Section 3.08(a)    
Targeted Leasing Standard   Section 3.15(a)     Tenant   Recitals, Section
2(A)(vi)     Tenants   Section 9.05(k)     third parties   Section 5.01(c)(ii)  
  Transaction Taxes   Section 3.03(c)     Transfer   Section 5.01(b)(A)    
Trustee   Preamble, Section 9.05(o)     U.C.C.   Section 2.02     Unenforceable
Restrictions   Section 3.05(d)     Upon Demand   Section 9.05(n)     Violation  
Section 3.11  

 

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DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING

THIS DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING (this “Instrument”) is
made as of the 23rd day of March, 2011, by CLARENDON CENTER LLC, a Delaware
limited liability company, having its principal office and place of business at
7501 Wisconsin Avenue, Suite 1500 East, Bethesda, Maryland 20814, as grantor
(“Borrower”), to LAWYERS TITLE REALTY SERVICES, INC., a Virginia corporation,
Trustee, having its principal place of business at 7130 Glen Forest Dr # 403,
Richmond, VA 23226, and having a mailing address of c/o Commonwealth Land Title
Insurance Company, 1015 15th Street, N.W., Suite 300, Washington, DC 20005, as
trustee/grantee (“Trustee”), for the benefit of THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey corporation, having an office at c/o Prudential Asset
Resources, Inc., 2100 Ross Avenue, Suite 2500, Dallas, Texas 75201, Attention:
Asset Management Department; Reference Loan No. 706108495, as beneficiary
(“Lender”).

RECITALS:

1. Borrower, by the terms of its Promissory Note executed on the same date as
this Instrument (“Note”) and in connection with the loan (“Loan”) from Lender to
Borrower, is indebted to Lender in the principal sum of ONE HUNDRED TWENTY-FIVE
MILLION AND NO/100 U.S. DOLLARS ($125,000,000.00).

2. Borrower desires to secure the payment of and the performance of all of the
obligations of Borrower under the Note and certain additional Obligations (as
defined in Section 1.01).

IN CONSIDERATION of Lender making the Loan to Borrower, and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
Borrower irrevocably:

A. Grants, bargains, sells, assigns, transfers, pledges, mortgages, warrants,
and conveys to Trustee, for the benefit of Lender, and grants Trustee and Lender
a security interest in, the following property, rights, interests and estates
owned by Borrower (collectively, the “Property”):

(i) The real property in Arlington County, Virginia and described in Exhibit A
(“Land”);

(ii) All buildings, structures and improvements (including fixtures) now or
later located in or on the Land (“Improvements”);

(iii) All easements, estates, and interests including hereditaments, servitudes,
appurtenances, tenements, mineral and oil/gas rights, water rights, air rights,
development power or rights, options, reversion and remainder rights, and any
other rights owned by Borrower and relating to or usable in connection with or
providing access to the Land or Improvements;

(iv) All right, title, and interest owned by Borrower in and to all land lying
within the rights-of-way, roads, or streets, open or proposed, adjoining the
Land to the center line thereof, and all sidewalks, alleys, and strips and gores
of land adjacent to or used in connection with the Land;

(v) All right, title, and interest of Borrower in, to, and under, to the extent
assignable, all plans, specifications, surveys, studies, reports, permits,
licenses, agreements, contracts, instruments, books of account, insurance
policies, and any other documents relating to the use, construction, occupancy,
leasing, activity, or operation of the Land or Improvements;

 

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(vi) All of the fixtures and personal property described in Exhibit B owned by
Borrower and replacements thereof; but excluding all personal property owned by
any tenant (a “Tenant”) of the Property, the garage operator or any other
license and/or service provider;

(vii) All of Borrower’s right, title and interest in the proceeds (including
conversion to cash or liquidation claims) of (A) insurance relating to the
Property and (B) all awards made for the taking by eminent domain (or by any
proceeding or purchase in lieu thereof ) of the Property, including awards
resulting from a change of any streets (whether as to grade, access, or
otherwise) and for severance damages;

(viii) All of Borrower’s right, title and interest in and to all tax refunds,
including interest thereon, tax rebates, tax credits, and tax abatements, and
the right to receive the same, which may be payable or available with respect to
the Property;

(ix) All leasehold estates, ground leases, leases, subleases, licenses, or other
agreements affecting the use, enjoyment or occupancy of the Property now or
later existing (including any use or occupancy arrangements created pursuant to
Title 7 or 11 of the United States Code, as amended from time to time, or any
similar federal or state laws now or later enacted for the relief of debtors
[the “Bankruptcy Code”]) and all extensions and amendments thereto
(collectively, the “Leases”) and all of Borrower’s right, title and interest
under the Leases, including all guaranties thereof;

(x) All rents, issues, profits, royalties, receivables, use and occupancy
charges (including all oil, gas or other mineral royalties and bonuses), income
and revenue and other benefits now or later derived from any portion or use of
the Property (including, without limitation, any payments received with respect
to any Tenant or the Property pursuant to the Bankruptcy Code) and all cash,
security deposits, advance rentals, or similar payments relating thereto
(collectively, the “Rents”) and all proceeds from the cancellation, termination,
surrender, sale or other disposition of the Leases, and the right to receive and
apply the Rents to the payment of the Obligations; and

(xi) All of Borrower’s rights and privileges heretofore or hereafter otherwise
arising in connection with or pertaining to the Property, including, without
limiting the generality of the foregoing, all water and/or sewer capacity, all
water, sewer and/or other utility deposits or prepaid fees, and/or all water
and/or sewer and/or other utility tap rights or other utility rights, any right
or privilege of Borrower under any loan commitment, lease, contract, declaration
of covenants, restrictions and easements or like instrument, developer’s
agreement, or other agreement with any third party pertaining to the ownership,
development, construction, operation, maintenance, marketing, sale or use of the
Property.

B. Absolutely and unconditionally assigns, sets over, and transfers to Lender
all of Borrower’s right, title, interest and estates in and to the Leases and
the Rents, subject to the terms and license granted to Borrower under that
certain Assignment of Leases and Rents made by Borrower to Lender dated the same
date as this Instrument (the “Assignment”), which document shall govern and
control the provisions of this assignment.

TO HAVE AND TO HOLD the Property unto Lender and Trustee, and their successors
and assigns forever, subject to the matters listed in Exhibit C (“Permitted
Encumbrances”) and the provisions, terms and conditions of this Instrument.

 

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IN TRUST, WITH POWER OF SALE, to secure payment and performance of the
Obligations in the time and manner set forth in the Documents (defined below).

PROVIDED, HOWEVER, if Borrower shall pay and perform the Obligations as provided
for in the Documents (defined below) and shall comply with all the provisions,
terms and conditions in the Documents, these presents and the estates hereby
granted (subject to survival of certain obligations of Borrower set forth in
Sections 3.11 and 3.12 and Article VIII hereof) shall cease, terminate and be
void.

IN FURTHERANCE of the foregoing, Borrower warrants, represents, covenants and
agrees as follows:

ARTICLE I - OBLIGATIONS

Section 1.01 Obligations. This Instrument is executed, acknowledged, and
delivered by Borrower to secure and enforce the following obligations
(collectively, the “Obligations”):

(a) Payment of all obligations, indebtedness and liabilities under the Note and
the other Documents including any renewals, extensions, and amendments of the
Documents;

(b) Performance of every obligation, covenant, and agreement under the Documents
including renewals, extensions, and amendments of the Documents; and

(c) Payment of all sums advanced (including costs and expenses) by Lender
pursuant to the Documents including renewals, extensions, and amendments of the
Documents.

Section 1.02 Documents. The “Documents” shall mean this Instrument, the Note,
the Assignment, and any other written agreement executed by Borrower or any
guarantor in connection with the Loan (but excluding the Loan application and
Loan commitment) and by the party against whom enforcement is sought, including
those given to evidence or further secure the payment and performance of any of
the Obligations, and any written renewals, extensions, and amendments of the
foregoing, executed by the party against whom enforcement is sought. All of the
provisions of the Documents are incorporated into this Instrument as if fully
set forth in this Instrument.

ARTICLE II - REPRESENTATIONS AND WARRANTIES

Borrower hereby represents and warrants to Lender that the following are true
and correct on and as of the date hereof:

Section 2.01 Title, Legal Status and Authority. Borrower (i) to Borrower’s
knowledge, is seised of good and marketable fee title to the Land and the
Improvements, free and clear of all liens, charges, encumbrances, and security
interests, except the Permitted Encumbrances; (ii) will forever warrant and
defend its title to the Property and the validity, enforceability, and priority
of the lien and security interest created by this Instrument against the claims
of all persons; (iii) is a limited liability company duly organized, validly
existing, and in good standing and qualified to transact business under the laws
of its state of organization or incorporation (“Organization State”) and the
state where the Property is located (“Property State”); and (iv) has all
necessary approvals, governmental and otherwise, and full power and authority to
own its properties (including the Property) and carry on its business.

Section 2.02 Validity of Documents. The execution, delivery and performance of
the Documents and the borrowing evidenced by the Note (i) are within the power
of Borrower; (ii) have been authorized by all requisite action; (iii) have
received all necessary approvals and consents; (iv) will not violate, conflict
with, breach, or constitute (with notice or lapse of time, or both) a default
under (1) to Borrower’s

 

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knowledge (as to all but Borrower’s governing instrument), any law, order or
judgment of any court, governmental authority, or the governing instrument of
Borrower or (2) any indenture, agreement, or other instrument to which Borrower
is a party or by which it or any of its property is bound or affected; (v) will
not result in the creation or imposition of any lien, charge, or encumbrance
upon any of its properties or assets except for those in this Instrument; and
(vi) will not require any authorization or license from, or any filing with, any
governmental or other body (except for the recordation of this Instrument, the
Assignment and Uniform Commercial Code (“U.C.C.”) filings). The Documents
constitute legal, valid, and binding obligations of Borrower, subject to the
limitations and qualifications set forth in the opinion of counsel provided to
Lender in connection with the Loan.

Section 2.03 Litigation. Except as disclosed to Lender in the Closing
Certification, dated of even date herewith, there is no action, suit, or
proceeding, judicial, administrative, or otherwise (including any condemnation
or similar proceeding), pending or, to the best knowledge of Borrower,
threatened or contemplated against, or affecting, Borrower or the Property which
would have a material adverse effect on either the Property or Borrower’s
ability to perform its obligations.

Section 2.04 Status of Property.

(a) To Borrower’s knowledge, except as may be noted on the survey delivered to
Lender in connection with this Loan, the Land and Improvements are not located
in an area identified by the Secretary of Housing and Urban Development, or any
successor, as an area having special flood hazards pursuant to the National
Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973, or the
National Flood Insurance Reform Act of 1994, as each have been or may be
amended, or any successor law (collectively, the “Flood Acts”) or, if located
within any such area, Borrower has and will maintain the insurance prescribed in
Section 3.06 below.

(b) To Borrower’s knowledge, Borrower has all necessary (i) certificates,
licenses, and other approvals, governmental and otherwise, for the operation of
the Property and the conduct of its business and (ii) zoning, building code,
land use, environmental and other similar permits or approvals, all of which are
currently in full force and effect and not subject to revocation, suspension,
forfeiture, or modification. To Borrower’s knowledge, except as disclosed to
Lender in the Closing Certification, dated of even date herewith, the Property
and its use and occupancy is in compliance with all Laws and Borrower has
received no notice of any violation or potential violation of the Laws which has
not been remedied or satisfied.

(c) The Property is served by all utilities (including water and sewer) required
for its use.

(d) All public roads and streets necessary to serve the Property for its use
have been completed, are serviceable, are legally open, and have been dedicated
to and accepted by the appropriate governmental entities.

(e) The Property is free from damage caused by fire or other casualty.

(f) All costs and expenses for labor, materials, supplies, and equipment used in
the construction of the Improvements have been paid in full except for the
Permitted Encumbrances and costs for ongoing work which will be paid in the
ordinary course of business.

(g) Borrower owns and has paid in full for all furnishings, fixtures, and
equipment (other than property of Tenants, licensees and service providers) used
in connection with the operation of the Property, free of all security
interests, liens, or encumbrances except the Permitted Encumbrances and those
created by this Instrument.

 

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(h) The Property is assessed for real estate tax purposes as one or more wholly
independent tax lot(s), separate from any adjoining land or improvements, and no
other land or improvements are assessed and taxed together with the Property.

Section 2.05 Tax Status of Borrower. Borrower is not a “foreign person” within
the meaning of Sections 1445 and 7701 of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder (the “Revenue Code”). Borrower further
represents and warrants to Lender that Borrower is a “disregarded entity” as
defined in Section 1.1445-2(b)(2)(iii) of the Income Tax Regulations issued
under the Revenue Code; however, Borrower further represents and warrants to
Lender that Saul Holdings Limited Partnership (“SHLP”), Borrower’s sole member,
is not a “disregarded entity” as defined in said Section 1.1445-2(b)(2)(iii) of
the Income Tax Regulations issued under the Revenue Code.

Section 2.06 Bankruptcy and Equivalent Value.

(a) No bankruptcy, reorganization, insolvency, liquidation, or other proceeding
for the relief of debtors has been instituted by or, to Borrower’s knowledge,
against Borrower, any general partner of Borrower (if Borrower is a
partnership), or any manager or managing member of Borrower (if Borrower is a
limited liability company);

(b) The Obligations incurred by Borrower under the Documents, the obligations of
Borrower under the Note, and the mortgaging of the Property pursuant to this
Instrument are not made or incurred with the intent to hinder, delay, or defraud
any present or future creditor of Borrower;

(c) Borrower has not received less than reasonably equivalent value in exchange
for incurring the Obligations and/or the mortgaging of the Property in
connection with the Loan;

(d) Borrower is solvent as of the date hereof, and Borrower will not become
insolvent as a result of incurring the Obligations and/or the mortgaging of the
Property pursuant to this Instrument;

(e) Borrower is not engaged, and Borrower is not about to engage, in business or
a transaction for which any property remaining with Borrower is an unreasonably
small capital;

(f) Borrower has not and does not intend to incur, and Borrower does not believe
that it will incur, debts that would be beyond Borrower’s ability to pay as such
debts mature; and

(g) Borrower is not mortgaging the Property and/or incurring the Obligations to
or for the benefit of an insider (as defined in 11 U.S.C. § 101(31)), under an
employment contract and not in the ordinary course of business.

Section 2.07 Disclosure. Borrower has disclosed to Lender all material facts and
has not failed to disclose any material fact that could cause any representation
or warranty made herein to be materially misleading. There has been no adverse
change in any condition, fact, circumstance, or event that would make any such
information materially inaccurate, incomplete or otherwise misleading.

Section 2.08 Illegal Activity. No portion of the Property has been or will be
purchased, improved, fixtured, equipped or furnished by Borrower with proceeds
of any illegal activity and, to the best of Borrower’s knowledge, there are no
illegal activities at or on the Property.

Section 2.09 OFAC Lists. That (i) neither Borrower, nor any persons or entities
holding any legal or beneficial interest whatsoever in Borrower (whether
directly or indirectly), are named on any list of persons, entities, and
governments issued by the Office of Foreign Assets Control of the United States

 

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Department of the Treasury (“OFAC”) pursuant to Executive Order 13224 – Blocking
Property and Prohibiting Transactions with Persons Who Commit, Threaten to
Commit, or Support Terrorism (“Executive Order 13224”), as in effect on the date
hereof, or any similar list issued by OFAC or any other department or agency of
the United States of America (collectively, the “OFAC Lists”); provided,
however, that (A) with respect to individual beneficiaries of any governmental
plans or employee benefit plans holding interests in Borrower (collectively, the
“Individual Beneficiaries”), the foregoing representations and warranties are
limited to Borrower’s actual knowledge, and (B) with respect to individual
shareholders of any publicly-traded company holding an interest in Borrower
(collectively, the “Individual Shareholders”), the foregoing representations and
warranties are limited to Borrower’s actual knowledge; (ii) neither Borrower,
nor any persons or entities holding any legal or beneficial interest whatsoever
in Borrower (whether directly or indirectly), are included in, owned by,
controlled by, acting for or on behalf of, providing assistance, support,
sponsorship, or services of any kind to, or otherwise associated with any of the
persons or entities referred to or described in the OFAC Lists; provided,
however, that (A) with respect to any Individual Beneficiaries holding interests
in Borrower, the foregoing representations and warranties are limited to
Borrower’s actual knowledge, and (B) with respect to any Individual Shareholders
holding interests in Borrower, the foregoing representations and warranties are
limited to Borrower’s actual knowledge; (iii) neither any guarantor, nor any
persons or entities holding any legal or beneficial interest whatsoever in any
guarantor (whether directly or indirectly), are named on any OFAC Lists;
provided, however, that (A) with respect to any Individual Beneficiaries holding
interests in any guarantor, the foregoing representations and warranties are
limited to Borrower’s actual knowledge, and (B) with respect to any Individual
Shareholders holding interests in any guarantor, the foregoing representations
and warranties are limited to Borrower’s actual knowledge; (iv) neither any
guarantor, nor any persons or entities holding any legal or beneficial interest
whatsoever in any guarantor (whether directly or indirectly), are included in,
owned by, controlled by, acting for or on behalf of, providing assistance,
support, sponsorship, or services of any kind to, or otherwise associated with
any of the persons or entities referred to or described in the OFAC Lists;
provided, however, that (A) with respect to any Individual Beneficiaries holding
interests in any guarantor, the foregoing representations and warranties are
limited to Borrower’s actual knowledge, and (B) with respect to any Individual
Shareholders holding interests in any guarantor, the foregoing representations
and warranties are limited to Borrower’s actual knowledge; and (v) neither
Borrower nor any guarantor has knowingly conducted business with or engaged in
any transaction with any person or entity named on any of the OFAC Lists or any
person or entity included in, owned by, controlled by, acting for or on behalf
of, providing assistance, support, sponsorship, or services of any kind to, or
otherwise associated with any of the persons or entities referred to or
described in the OFAC Lists.

Section 2.10 Property as Single Asset. That (i) Borrower’s only asset is the
Property, and (ii) the Property generates substantially all of the gross income
of Borrower and there is no substantial business being conducted by Borrower
other than the business of operating the Property and the activities incidental
thereto.

ARTICLE III - COVENANTS AND AGREEMENTS

Borrower covenants and agrees with Lender as follows:

Section 3.01 Payment of Obligations. Borrower shall timely pay and cause to be
performed the Obligations.

Section 3.02 Continuation of Existence. Borrower shall not (a) dissolve,
terminate, or otherwise dispose of, directly, indirectly or by operation of law,
all or substantially all of its assets; (b) reorganize or change its legal
structure without Lender’s prior written consent, except as otherwise expressly
permitted under Article V below; (c) change its name, address, or the name under
which Borrower conducts its

 

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business without promptly notifying Lender; or (d) do anything to cause the
representations in Section 2.02 to become untrue. Borrower shall (a) maintain
its existence as a limited liability company duly organized, validly existing,
and in good standing and qualified to transact business under the laws of its
Organization State and the Property State and (b) shall maintain all necessary
approvals, governmental and otherwise, and full power and authority to own its
properties (including the Property) and carry on its business.

Section 3.03 Taxes and Other Charges.

(a) Payment of Assessments. Borrower shall pay when due all taxes, liens,
assessments, utility charges (public or private and including sewer fees),
ground rents, maintenance charges, dues, fines, impositions, and public and
other charges of any character (including penalties and interest) assessed
against, or which could become a lien against, the Property (“Assessments”) and
in all events prior to the date any fine, penalty, interest or charge for
nonpayment may be imposed. Unless Borrower is making deposits per Section 3.10,
Borrower shall provide Lender with receipts evidencing such payments (except for
income taxes, franchise taxes, ground rents, maintenance charges, and utility
charges) within thirty (30) days after their due date.

(b) Right to Contest. So long as no Event of Default (defined below) has
occurred (unless Lender has accepted cure of such Event of Default by specific
written statement from Lender to Borrower acknowledging Lender’s acceptance of
such cure, and Borrower specifically understands and agrees that Lender shall
have no obligation to accept the cure of any Event of Default), Borrower may,
prior to delinquency and at its sole expense, contest any Assessment, but this
shall not change or extend Borrower’s obligation to pay the Assessment as
required above unless (i) Borrower gives Lender prior written notice of its
intent to contest an Assessment; (ii) Borrower demonstrates to Lender’s
reasonable satisfaction that (A) the Property will not be sold to satisfy the
Assessment prior to the final determination of the legal proceedings,
(B) Borrower has taken such actions as are required or permitted to accomplish a
stay of any such sale, and (C) Borrower has timely paid the uncontested portion
of the Assessment and has furnished Lender evidence of such payment; and
(iii) such proceeding shall be permitted under any other instrument to which
Borrower or the Property is subject (whether superior or inferior to this
Instrument); provided, however, that the foregoing shall not restrict the
contesting of any income taxes, franchise taxes, ground rents, maintenance
charges, and utility charges.

(c) Documentary Stamps and Other Charges. Borrower shall pay all taxes,
assessments, charges, expenses, costs and fees (including registration and
recording fees and revenue, transfer, stamp, intangible, and any similar taxes)
(collectively, the “Transaction Taxes”) required in connection with the making
and/or recording of the Documents. If Borrower fails to pay the Transaction
Taxes after demand, Lender may (but is not obligated to) pay these and Borrower
shall reimburse Lender on demand for any amount so paid with interest at the
applicable interest rate specified in the Note, which shall be the Default Rate
unless prohibited by Laws.

(d) Changes in Laws Regarding Taxation. If any law (i) deducts from the value of
real property for the purpose of taxation any lien or encumbrance thereon,
(ii) taxes deeds of trust or debts secured by deeds of trust for federal, state
or local purposes or changes the manner of the collection of any such existing
taxes, and/or (iii) imposes a tax, either directly or indirectly, on any of the
Documents or the Obligations, Borrower shall, if permitted by law, pay such tax
within the statutory period or within twenty (20) days after demand by Lender,
whichever is less; provided, however, that if, in the opinion of Lender based on
advice of counsel, Borrower is not permitted by law to pay such taxes, Lender
shall have the option to declare the Obligations immediately due and payable
(without any Prepayment Premium) upon one hundred twenty (120) days’ notice to
Borrower.

 

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Section 3.04 Defense of Title, Litigation and Rights under Documents. Borrower
shall forever warrant, defend and preserve Borrower’s title to the Property, the
validity, enforceability and priority of this Instrument and the lien or
security interest created thereby, and any rights of Lender and/or Trustee under
the Documents against the claims of all persons, and shall promptly notify
Lender and Trustee of any such claims. Lender and/or Trustee (whether or not
named as a party to such proceedings) is authorized and empowered (but shall not
be obligated) to take such additional steps as it may deem necessary or proper
for the defense of any such proceeding or the protection of the lien, security
interest, validity, enforceability, or priority of this Instrument, title to the
Property, or any rights of Lender and/or Trustee under the Documents, including
the employment of counsel, the prosecution and/or defense of litigation, the
compromise, release, or discharge of such adverse claims, the purchase of any
tax title, the removal of any such liens and security interests, and any other
actions Lender and/or Trustee deems necessary to protect its or their interests.
Borrower authorizes Lender and/or Trustee to take any actions required to be
taken by Borrower, or permitted to be taken by Lender and/or Trustee, in the
Documents in the name and on behalf of Borrower if Borrower fails to take action
timely. Borrower shall reimburse Lender and Trustee on demand for all expenses
(including reasonable attorneys’ fees) incurred by it/them in connection with
the foregoing and Lender’s or Trustee’s exercise of its or their rights under
the Documents. All such expenses of Lender and/or Trustee, until reimbursed by
Borrower, shall be part of the Obligations, bear interest upon demand at the
Default Rate and shall be secured by this Instrument.

Section 3.05 Compliance with Laws and Operation and Maintenance of Property.

(a) Repair and Maintenance. Borrower will operate and maintain the Property in
good order, repair, and operating condition. Borrower will promptly make all
necessary repairs, replacements, additions, and improvements necessary to ensure
that the Property shall not in any way be diminished or impaired. Borrower will
not cause or allow any of the Property to be misused, wasted, or to deteriorate
and Borrower will not abandon the Property. No new building, structure, or other
improvement shall be constructed on the Land nor shall any material part of the
Improvements be removed, demolished, or structurally or materially altered,
without Lender’s prior written consent.

(b) Replacement of Property. Borrower will keep the Property fully equipped and
will replace all worn out or obsolete personal property in a commercially
reasonable manner with comparable fixtures or personal property. Borrower will
not, without Lender’s prior written consent, remove any personal property
covered by this Instrument unless the same is replaced by Borrower in a
commercially reasonable manner with a comparable article (i) owned by Borrower
free and clear of any lien or security interest (other than the Permitted
Encumbrances and those created by this Instrument) or (ii) leased by Borrower
(A) with Lender’s prior written consent or (B) if the replaced personal property
was leased at the time of execution of this Instrument.

(c) Compliance with Laws. Borrower shall comply with and shall cause the
Property to be maintained, used, and operated in compliance with all (i) present
and future laws, Environmental Laws (defined below), ordinances, regulations,
rules, orders and requirements (including zoning and building codes) of any
governmental or quasi-governmental authority or agency applicable to Borrower or
the Property (collectively, the “Laws”); (ii) orders, rules, and regulations of
any regulatory, licensing, accrediting, insurance underwriting or rating
organization, or other body exercising similar functions; (iii) duties or
obligations of any kind imposed under any Permitted Encumbrance (except with
respect to covenants prohibiting the sale of liquor) or by law, covenant,
condition, agreement, or easement, public or private; and (iv) policies of
insurance at any time in force with respect to the Property. If proceedings are
initiated or Borrower receives notice that Borrower or the Property is not in
compliance with any of the foregoing, Borrower will promptly send Lender notice
and a copy of the proceeding or violation notice. Without limiting Lender’s
rights and remedies under Article VI or otherwise, if Borrower or the Property
are not in compliance with all Laws and Borrower does not promptly cure such
non-compliance within

 

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the applicable grace or cure period provided thereunder, Lender may impose
additional requirements upon Borrower for the purpose of securing such
compliance obligation, including monetary reserves or financial equivalents.
Borrower shall maintain all necessary (i) certificates, licenses, and other
approvals, governmental and otherwise, for the operation of the Property and the
conduct of its business and (ii) zoning, building code, land use, environmental
and other similar permits or approvals, in full force and effect.

(d) Zoning and Title Matters. Borrower shall not, without Lender’s prior written
consent, (i) initiate or support any zoning reclassification of the Property or
variance under existing zoning ordinances; (ii) modify or supplement any of the
Permitted Encumbrances; (iii) impose any restrictive covenants or encumbrances
upon the Property; (iv) execute or file any subdivision plat affecting the
Property; (v) consent to the annexation of the Property to any municipality;
(vi) permit the Property to be used by the public or any person in a way that
might make a claim of adverse possession or any implied dedication or easement
possible; (vii) cause or permit the Property to become a non-conforming use
under zoning ordinances or any present or future non-conforming use of the
Property to be discontinued; or (viii) fail to comply with the terms of the
Permitted Encumbrances, except with respect to covenants prohibiting the sale of
liquor, prohibiting uses that may be nuisances to other lot owners in the
subdivision, such as a soap factory or like industry, 15-foot building set-back
line, and Caucasians-only restrictions, all as more particularly set forth in
the deeds identified in Item 2 of the Permitted Encumbrances (collectively, the
“Unenforceable Restrictions”); provided that, Lender shall not unreasonably
withhold its consent to any easements or special exceptions requested by retail
Tenants pursuant to Leases approved by Lender (or Leases for which Lender’s
approval is not required) under the Assignment and related solely to the
Tenant’s use of sidewalk space pursuant to the terms of its Lease.

(e) Utility Service. The Property shall be served by all utilities (including
water and sewer) required for its use.

(f) Roads and Streets. All public roads and streets necessary to serve the
Property for its use shall be completed, serviceable, legally open, and
dedicated to and accepted by the appropriate governmental entities.

(g) Ownership of FF&E. Borrower shall own and shall have paid in full for all
furnishings, fixtures, and equipment (other than Tenants’ property) or property
leased by Borrower pursuant to equipment leases in compliance with the terms of
the Documents used in connection with the operation of the Property, free of all
security interests, liens, or encumbrances except the Permitted Encumbrances and
those created by this Instrument.

(h) Separate Tax Lot. The Property shall be assessed for real estate tax
purposes as one or more wholly independent tax lot(s), separate from any
adjoining land or improvements and no other land or improvements shall be
assessed and taxed together with the Property.

Section 3.06 Insurance.

(a) Property and Time Element Insurance. Borrower shall keep the Property
insured for the benefit of Borrower and Lender (with Lender named as mortgagee)
by (i) a “special form cause of loss” property insurance policy with an agreed
amount endorsement for full replacement cost (defined below) without any
coinsurance provisions or penalties, or the broadest form of coverage available,
in an amount sufficient to prevent Lender from ever becoming a coinsurer under
the policy or Laws, and with a deductible not to exceed One Hundred Thousand
Dollars ($100,000.00); (ii) a policy or endorsement insuring against acts of
terrorism, if reasonably available; (iii) [INTENTIONALLY OMITTED]; (iv) a policy
or endorsement providing business income insurance (including business
interruption insurance,

 

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and extra expense insurance and/or rent insurance) on an actual loss sustained
basis in an amount equal to at least eighteen (18) months’ total income from the
Property including all Rents, which business interruption insurance shall also
provide coverage as aforesaid for any additional hazards as may be required
pursuant to the terms of this Instrument; (v) a policy or endorsement insuring
against damage by flood if the Property is located in a Special Flood Hazard
Area identified by the Federal Emergency Management Agency or any successor or
related government agency as a 100 year flood plain currently classified as
Flood Insurance Rate Map Zones “A”, “AO”, “AH”, “A1-A30”, “AE”, “A99”, “V”,
“V1-V30”, and “VE” in an amount not less than $25,000,000.00 (unless coverage in
such amount is not available at commercially reasonable rates, in which case
Borrower shall obtain as much coverage as possible [up to the aforesaid limit]
at commercially reasonable rates); (vi) a policy or endorsement covering against
damage or loss from (A) sprinkler system leakage and (B) boilers, boiler tanks,
HVAC systems, heating and air-conditioning equipment, pressure vessels,
auxiliary piping, and similar apparatus, in the amount reasonably required by
Lender; (vii) during the period of any construction, repair, restoration, or
replacement of the Property or any portion thereof, a standard builder’s risk
policy with extended coverage in an amount at least equal to the full
replacement cost of the Property (or such applicable portion thereof that is
being constructed, repaired, restored or replaced); and (viii) a policy or
endorsement covering against damage or loss by earthquake and other natural
phenomenon in an amount not less than $25,000,000.00 (unless coverage in such
amount is not available at commercially reasonable rates, in which case Borrower
shall obtain as much coverage as possible [up to the aforesaid limit] at
commercially reasonable rates). “Full replacement cost” shall mean the one
hundred percent (100%) replacement cost of the Property, without allowance for
depreciation and exclusive of the cost of excavations, foundations, footings,
and value of land, and shall be subject to verification by Lender. Full
replacement cost will be determined, at Borrower’s expense, periodically upon
policy expiration or renewal by the insurance company or an appraiser, engineer,
architect, or contractor approved by said company and Lender.

(b) Liability and Other Insurance. Borrower shall maintain commercial general
liability insurance with per occurrence limits of $1,000,000, a
products/completed operations limit of $2,000,000, and a general aggregate limit
of $2,000,000, with an excess/umbrella liability policy of not less than
$10,000,000 per occurrence and annual aggregate covering Borrower, with Lender
named as an additional insured, against claims for bodily injury or death or
property damage occurring in, upon, or about the Property. In addition to any
other requirements, such commercial general liability and excess/umbrella
liability insurance shall provide insurance against acts of terrorism, if
reasonably available, or such coverage shall be provided by separate policies or
endorsements. Upon request, Borrower shall also carry additional insurance or
additional amounts of insurance covering Borrower or the Property as Lender
shall reasonably require to the extent such additional coverage is available on
commercially reasonable terms and at commercially reasonable rates.

(c) Form of Policy. All insurance required under this Section shall be fully
paid for (it being understood that the premiums for any coverage required under
this Section 3.06 may be paid by Borrower in quarterly installments),
non-assessable, and the policies shall contain such provisions, endorsements,
and expiration dates as Lender shall reasonably require. The policies shall be
issued by insurance companies authorized to do business in the Property State,
approved by Lender, and must have and maintain a current financial strength
rating of “A-, X” (or higher) from A.M. Best or equivalent (or if a rating by
A.M. Best is no longer available, a similar rating from a similar or successor
service). In addition, all policies shall (i) include a standard mortgagee
clause, without contribution, in the name of Lender, (ii) provide that they
shall not be canceled, amended, or materially altered (including reduction in
the scope or limits of coverage) with respect to the Property without at least
thirty (30) days’ prior written notice to Lender except in the event of
cancellation for non-payment of premium, in which case only ten (10) days’ prior
written notice will be given to Lender, and (iii) include a waiver of
subrogation clause substantially equivalent to the following: “The Company may
require from the Insured an assignment of

 

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all rights of recovery against any party for loss to the extent that payment
therefor is made by the Company, but the Company shall not acquire any rights of
recovery which the Insured has expressly waived prior to loss, nor shall such
waiver affect the Insured’s rights under this policy.”

(d) Original Policies. Borrower shall deliver to Lender (i) original or
certified copies of all policies (and renewals) required under this Section and
(ii) receipts evidencing payment of all premiums on such policies (or premiums
then due under an installment payment plan) at least ten (10) days prior to
their expiration. If original and renewal policies are unavailable or if
coverage is under a blanket policy, Borrower shall deliver duplicate originals,
or, if unavailable, (1) an MBA Evidence of Insurance - Commercial Property form
certificate with respect to all insurance coverage required under
Section 3.06(a) above and (2) an original ACORD 25 certificate with respect to
all insurance coverage required under Section 3.06(b) above (or equivalent
certificates acceptable to Lender; provided, however, that any property
insurance certificate containing language to the effect that the certificate is
provided “for information only” shall not qualify as adequate evidence, unless
certificates containing such language become prevailing industry norm for
property insurance certificates) evidencing that such policies are in full force
and effect, together with certified copies of the original policies. Without
limiting Lender’s other rights with respect to the foregoing obligations, if,
within ten (10) days prior to the expiration of the current applicable policy,
Lender has not received the foregoing items in form and substance acceptable to
Lender (as being in compliance with the terms of this Instrument), Lender may
retain a commercial property insurance consultant to assist Lender in obtaining
adequate evidence that the required insurance coverage is in effect, in which
event Borrower shall (i) cooperate with such consultant in confirming that
adequate evidence that the required insurance coverage is in effect, and
(ii) pay all of the reasonable costs and expenses of such consultant.

(e) General Provisions. Borrower shall not carry separate or additional
insurance concurrent in form or contributing in the event of loss with that
required under this Section unless endorsed in favor of Lender as per this
Section and approved by Lender in all respects. In the event of foreclosure of
this Instrument or other transfer of title or assignment of the Property in
extinguishment, in whole or in part, of the Borrower Obligations, all right,
title, and interest of Borrower in and to all pending claims and claim rights
under all policies of insurance then in force regarding the Property, all
proceeds payable thereunder and unearned premiums thereon shall immediately vest
in the purchaser or other transferee of the Property. No approval by Lender of
any insurer shall be construed to be a representation, certification, or
warranty of its solvency. No approval by Lender as to the amount, type, or form
of any insurance shall be construed to be a representation, certification, or
warranty of its sufficiency. Borrower shall comply with all insurance
requirements and shall not cause or permit any condition to exist which would be
prohibited by any insurance requirement or would invalidate the insurance
coverage on the Property. Borrower shall not be exempt from any of the
requirements set forth in this Section 3.06 to the extent that a Tenant has
agreed to provide the required insurance or a portion thereof pursuant to the
terms and provisions of its respective Lease. If a Tenant is carrying any
insurance required on the Property, such insurance must fully comply with this
Section 3.06. Borrower shall obtain from any such Tenant(s) and provide to
Lender documentation sufficient to satisfy the requirements of Section 3.06(d)
above. Lender has no duty or obligation to contact any Tenant(s) regarding proof
of insurance for the Property.

(f) Waiver of Subrogation. A waiver of subrogation shall be obtained by Borrower
from its insurers and, consequently, Borrower for itself, and on behalf of its
insurers, hereby waives and releases any and all right to claim or recover
against Lender, its officers, employees, agents and representatives, for any
loss of or damage to Borrower, other Persons, the Property, Borrower’s property
or the property of other Persons from any cause required to be insured against
by the provisions of this Instrument or otherwise insured against by Borrower.

 

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Section 3.07 Damage and Destruction of Property.

(a) Borrower’s Obligations. If any damage to, loss, or destruction of the
Property occurs (any “Damage”), (i) Borrower shall promptly notify Lender and
take all necessary steps to preserve any undamaged part of the Property and
(ii) if the insurance proceeds are made available for Restoration (defined
below) (but regardless of whether any proceeds are sufficient for Restoration),
Borrower shall promptly commence and diligently pursue to completion the
restoration, replacement, and rebuilding of the Property as nearly as possible
to its value and condition immediately prior to the Damage or a Taking (defined
below) in accordance with plans and specifications approved by Lender
(“Restoration”). Borrower shall comply with other reasonable requirements
established by Lender to preserve the security under this Instrument.

(b) Lender’s Rights. If any Damage occurs and some or all of it is covered by
insurance, then (i) Lender may, but is not obligated to, make proof of loss if
not made promptly by Borrower and Lender is authorized and empowered by Borrower
to settle, adjust, or compromise any claims for the Damage; (ii) each insurance
company concerned is authorized and directed to make payment directly to Lender
for the Damage; and (iii) Lender may apply the insurance proceeds in any order
it determines (1) to reimburse Lender for all Costs (defined below) related to
collection of the proceeds, and (2) subject to Section 3.07(c) and at Lender’s
option, to (A) payment (without any Prepayment Premium) of all or part of the
Obligations, whether or not then due and payable, in the order determined by
Lender (provided that if any Obligations remain outstanding after this payment,
the unpaid Obligations shall continue in full force and effect and Borrower
shall not be excused in the payment thereof, except that the monthly principal
and interest payment amount due under Section 1(b) of the Note may be adjusted
in accordance with the provisions of Section 1(e) of the Note); (B) the cure of
any Event of Default under the Documents; or (C) the Restoration.
Notwithstanding the foregoing, if there shall then be no Event of Default,
Borrower shall have the right to settle, adjust or compromise any claim for
Damage and receive immediate payments of proceeds if the total amount of such
claim is less than $1,250,000.00, provided, that Borrower promptly uses the full
amount of such insurance proceeds for Restoration of the Damage and provides
evidence thereof to Lender in a manner acceptable to Lender. Any insurance
proceeds held by Lender shall be held without the payment of interest thereon.
Notwithstanding anything to the contrary hereinabove, provided there is no Event
of Default, and subject to Lender’s reasonable approval, Borrower shall have the
right to settle, adjust or compromise any claim for Damage in excess of
$1,250,000.00. If Borrower receives any insurance proceeds for the Damage in
excess of $1,250,000.00, Borrower shall promptly deliver the proceeds to Lender.
Notwithstanding anything in this Instrument or at law or in equity to the
contrary, none of the insurance proceeds paid to Lender shall be deemed trust
funds and Lender may dispose of these proceeds as provided in this Section.
Borrower expressly assumes all risk of loss from any Damage, whether or not
insurable or insured against.

(c) Application of Proceeds to Restoration. Notwithstanding the provisions of
Section 3.07(b) above, Lender shall make the Net Proceeds (defined below)
available to Borrower for Restoration if: (i) there shall then be no Event of
Default; (ii) Lender shall be satisfied that (A) Restoration can and will be
completed at least six (6) months prior to the maturity of the Note, and
(B) Leases which are terminated or terminable as a result of the Damage cover an
aggregate of less than fifteen percent (15%) of the total rentable square
footage contained in the Property at the closing of the Loan or such Tenants
agree in writing to continue their Leases; (iii) Borrower shall have entered
into a general construction contract acceptable in all respects to Lender for
Restoration, which contract must include provision for commercially reasonable
retainage; and (iv) in Lender’s reasonable judgment, after Restoration has been
completed, the net cash flow of the Property will be sufficient to cover all
costs and operating expenses of the Property, including payments due and
reserves required under the Documents. Notwithstanding any provision of this
Instrument to the contrary, Lender shall not be obligated to make any portion of
the Net Proceeds available for Restoration (whether as a result of Damage or a
Taking) unless, at the time of the disbursement request, Lender has determined
in its reasonable discretion that (y) Restoration can be completed at a cost
which does not exceed the aggregate of the remaining Net Proceeds and any funds

 

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deposited with Lender by Borrower (“Additional Funds”) and (z) the aggregate of
any loss of rental income insurance proceeds which the carrier has acknowledged
to be payable (“Rent Loss Proceeds”) and any funds deposited with Lender by
Borrower are sufficient to cover all costs and operating expenses of the
Property, including payments due and reserves required under the Documents.

(d) Disbursement of Proceeds. If Lender elects or is required to make insurance
proceeds or the Award (defined below), as the case may be, available for
Restoration, Lender shall, through a disbursement procedure established by
Lender, periodically make available to Borrower in installments the net amount
of all insurance proceeds or the Award, as the case may be, received by Lender
after deduction of all reasonable costs and expenses incurred by Lender in
connection with the collection and disbursement of such proceeds (“Net
Proceeds”) and, if any, the Additional Funds. The amounts periodically disbursed
to Borrower shall be based upon the amounts currently due under the construction
contract for Restoration and Lender’s receipt of (i) appropriate lien waivers,
(ii) a certification of the percentage of Restoration completed by an architect
or engineer acceptable to Lender, and (iii) title insurance protection against
materialmen’s and mechanics’ liens. At Lender’s election, a disbursing agent
selected by Lender shall disburse such funds, and Borrower shall pay such
agent’s reasonable fees and expenses. The Net Proceeds, Rent Loss Proceeds, and
any Additional Funds shall constitute additional security for the Loan and
Borrower shall execute, deliver, file and/or record, at its expense, such
instruments as Lender requires to grant to Lender a perfected, first-priority
security interest in these funds. If the Net Proceeds are made available for
Restoration and (x) Borrower refuses or fails to complete the Restoration,
(y) an Event of Default occurs, or (z) the Net Proceeds or Additional Funds are
not applied to Restoration, then any undisbursed portion may, at Lender’s
option, be applied to the Obligations in any order of priority, and any such
application to principal shall be deemed a voluntary prepayment subject to the
Prepayment Premium.

Section 3.08 Condemnation.

(a) Borrower’s Obligations. Borrower will promptly notify Lender of any
threatened or instituted proceedings for the condemnation or taking by eminent
domain of the Property including any change in any street (whether as to grade,
access, or otherwise) (a “Taking”). Borrower shall, at its expense,
(i) diligently prosecute these proceedings, (ii) deliver to Lender copies of all
papers served in connection therewith, and (iii) consult and cooperate with
Lender in the handling of these proceedings. No settlement of these proceedings
shall be made by Borrower without Lender’s prior written consent not to be
unreasonably withheld. Lender may participate in these proceedings (but shall
not be obligated to do so) and Borrower will sign and deliver all instruments
requested by Lender to permit this participation.

(b) Lender’s Rights to Proceeds. All condemnation awards, judgments, decrees, or
proceeds of sale in lieu of condemnation (“Award”) are assigned and shall be
paid, to Lender. Borrower authorizes Lender to collect and receive them, to give
receipts for them, to accept them in the amount received without question or
appeal, and/or to appeal any judgment, decree, or award. Borrower will sign and
deliver all instruments requested by Lender to permit these actions.

(c) Application of Award. Lender may apply any Award in any order it determines
(1) to reimburse Lender for all Costs related to collection of the Award and
(2) subject to Section 3.08(d) and at Lender’s option, to (A) payment (without
any Prepayment Premium) of all or part of the Obligations, whether or not then
due and payable, in the order determined by Lender (provided that if any
Obligations remain outstanding after this payment, the unpaid Obligations shall
continue in full force and effect and Borrower shall not be excused in the
payment thereof, except that the monthly principal and interest payment amount
due under Section 1(b) of the Note may be adjusted in accordance with the
provisions of Section 1(e) of the Note); (B) the cure of any Event of Default
under the Documents; or (C) the Restoration. If Borrower receives any Award,
Borrower shall promptly deliver such Award to Lender.

 

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Notwithstanding anything in this Instrument or at law or in equity to the
contrary, none of the Award paid to Lender shall be deemed trust funds and
Lender may dispose of these proceeds as provided in this Section.

(d) Application of Award to Restoration. Lender shall permit the application of
the Award to Restoration if: (i) no more than (A) twenty percent (20%) of the
gross area of the Improvements; or (B) twenty percent (20%) of the parking
spaces is affected by the Taking, (ii) the amount of the loss does not exceed
twenty percent (20%) of the original amount of the Note; (iii) the Taking does
not affect access to the Property from any public right-of-way; (iv) there is no
Event of Default at the time of the Taking or the application of the Award;
(v) after Restoration, the Property and its use will be in compliance with all
Laws; (vi) in Lender’s reasonable judgment, Restoration is practical and can be
completed at least six (6) months prior to the maturity of the Note; (vii) the
Tenants under Major Leases (as defined in the Assignment) agree in writing to
continue their Leases without abatement of rent (other than for any portion of
their Lease premises which was taken in the Taking); (viii) Borrower shall have
entered into a general construction contract acceptable in all respects to
Lender for Restoration, which contract must include provision for commercially
reasonable retainage; and (ix) in Lender’s reasonable judgment, after
Restoration has been completed the net cash flow of the Property will be
sufficient to cover all costs and operating expenses of the Property, including
payments due and reserves required under the Documents. Any portion of the Award
that is (i) for loss of value or property or (ii) in excess of the cost of any
Restoration permitted above, may, in Lender’s sole discretion, be applied
against the Obligations or paid to Borrower. If the Award is disbursed to
Borrower under the provisions of this Section 3.08(d), then such Award shall be
disbursed to Borrower in accordance with the terms and conditions of
Section 3.07(d).

(e) Effect on the Obligations. Notwithstanding any Taking, Borrower shall
continue to pay and perform the Obligations as provided in the Documents, as
they may be adjusted pursuant to Paragraph 1(e) of the Note. Any reduction in
the Obligations due to application of the Award shall take effect only upon
Lender’s actual receipt and application of the Award to the Obligations. If the
Property shall have been foreclosed, sold pursuant to any power of sale granted
hereunder, or transferred by deed-in-lieu of foreclosure prior to Lender’s
actual receipt of the Award, Lender may apply the Award received to the extent
of any deficiency upon such sale and Costs incurred by Lender in connection with
such sale.

Section 3.09 Liens and Liabilities. Borrower shall pay when due all claims and
demands of mechanics, materialmen, laborers and others for any work performed or
materials delivered for the Property or the Improvements (collectively,
“Property Payables”); provided, however, Borrower shall have the right to
contest in good faith any such claim or demand, so long as it does so
diligently, by appropriate proceedings and without prejudice to Lender and
provided that neither the Property nor any interest therein would be in any
danger of sale, loss or forfeiture as a result of such proceeding or contest. In
the event Borrower shall contest any such claim or demand, Borrower shall
promptly notify Lender of such contest and thereafter shall, upon Lender’s
request, promptly provide a bond, cash deposit or other security satisfactory to
Lender to protect Lender’s interest and security should the contest be
unsuccessful, unless the lien has already been bonded off in which case no
additional security shall be required. If Borrower shall fail to discharge or
provide security against any such claim or demand within sixty (60) days after
the filing of a mechanic’s lien, Lender or Trustee may do so and any and all
expenses incurred by Lender or Trustee, together with interest thereon at the
Default Rate from the date incurred by Lender until actually paid by Borrower,
shall be immediately paid by Borrower on demand and shall be secured by this
Instrument and by all other Documents securing all or any part of the
Obligations. Borrower shall, at its sole expense, do everything necessary to
preserve the lien and security interest created by this Instrument and its
priority. Nothing in the Documents shall be deemed or construed as constituting
the consent or request by Lender or Trustee, express or implied, to any
contractor, subcontractor, laborer, mechanic or materialman for the performance
of any labor or the furnishing of any

 

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material for any improvement, construction, alteration, or repair of the
Property. Borrower further agrees that neither Lender nor Trustee stands in any
fiduciary relationship to Borrower. Any contributions made, directly or
indirectly, to Borrower by or on behalf of any of its partners, members,
principals or any party related to such parties shall be treated as equity or
Affiliate Loans (to the extent permitted by Section 5.01 hereof) and shall be
subordinate and inferior to the rights of Lender under the Documents.

Section 3.10 Tax and Insurance Deposits. At Lender’s option (i) following an
Event of Default (unless Lender has accepted cure of such Event of Default by
specific written statement from Lender to Borrower acknowledging Lender’s
acceptance of such cure, and Borrower specifically understands and agrees that
Lender shall have no obligation to accept the cure of any Event of Default) or
(ii) in the event that Borrower fails, within thirty (30) days after request
from Lender, to timely deliver to Lender evidence of payment of Assessments or
evidence that required insurance policies have been renewed, as required by
Section 3.03(a) and Section 3.06(d), respectively, Borrower shall make monthly
deposits (“Deposits”) with Lender equal to one-twelfth (1/12) of the annual
Assessments (except for income taxes, franchise taxes, ground rents, maintenance
charges and utility charges) and the premiums for insurance required under
Section 3.06 (the “Insurance Premiums”) together with amounts sufficient to pay
these items thirty (30) days before they are due (collectively, the
“Impositions”). Lender shall estimate the amount of the Deposits until
ascertainable. At that time, Borrower shall promptly deposit any deficiency.
Borrower shall promptly notify Lender of any changes to the amounts, schedules
and instructions for payment of the Impositions. Borrower authorizes Lender or
its agent to obtain the bills for Assessments directly from the appropriate tax
or governmental authority. All Deposits are pledged to Lender and shall
constitute additional security for the Obligations. The Deposits shall be held
by Lender without interest (except to the extent required under Laws) and may be
commingled with other funds. If (i) there is no Event of Default at the time of
payment, (ii) Borrower has delivered bills or invoices to Lender for the
Impositions in sufficient time to pay them when due, and (iii) the Deposits are
sufficient to pay the Impositions or Borrower has deposited the necessary
additional amount, then Lender shall pay the Impositions prior to their due
date. Any Deposits remaining after payment of the Impositions shall, at Lender’s
option, be credited against the Deposits required for the following year or paid
to Borrower. If an Event of Default occurs, the Deposits may, at Lender’s
option, be applied to the Obligations in any order of priority. Any application
to principal shall be deemed a voluntary prepayment subject to the Prepayment
Premium. Borrower shall not claim any credit against the principal and interest
due under the Note for the Deposits. Upon an assignment or other transfer of
this Instrument, Lender may pay over the Deposits in its possession to the
assignee or transferee and then it shall be completely released from all
liability with respect to the Deposits. Borrower shall look solely to the
assignee or transferee with respect thereto. This provision shall apply to every
transfer of the Deposits to a new assignee or transferee. Subject to Article V,
a transfer of title to the Land shall automatically transfer to the new owner
the beneficial interest in the Deposits. Upon full payment and satisfaction of
this Instrument or, at Lender’s option, at any prior time, the balance of the
Deposits in Lender’s possession shall be paid over to the record owner of the
Property and no other party shall have any right or claim to the Deposits.
Lender may transfer all its duties under this Section to such servicer or
financial institution as Lender may periodically designate and Borrower agrees
to make the Deposits to such servicer or institution.

Section 3.11 ERISA.

(a) Borrower understands and acknowledges that, as of the date hereof, the
source of funds from which Lender is extending the Loan will include one or more
of the following accounts: (i) an “insurance company general account,” as that
term is defined in Prohibited Transaction Class Exemption (“PTE”) 95-60 (60 Fed.
Reg. 35925 (Jul. 12, 1995)), as to which Lender meets the conditions for relief
in Sections I and IV of PTE 95-60, and as to which no plan exceeds the 10% limit
in Section I(a) of PTE 95-60; (ii) [INTENTIONALLY OMITTED]; and (iii) one or
more insurance company separate accounts maintained solely in connection with
fixed contractual obligations of the insurance company, under which the amounts
payable or credited to the plan are not affected in any manner by the investment
performance of the separate account.

 

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(b) Borrower represents and warrants to Lender that (i) Borrower is not an
“employee benefit plan” as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), or a “governmental plan”
within the meaning of Section 3(32) of ERISA; (ii) [INTENTIONALLY OMITTED];
(iii) Borrower is not subject to state statutes regulating investments and
fiduciary obligations with respect to governmental plans, or if subject to such
statutes, is not in violation thereof in the execution of the Documents and the
making of the Loan thereunder; (iv) the assets of Borrower do not constitute
“plan assets” of one or more plans within the meaning of 29 C.F.R.
Section 2510.3-101; and (v) one or more of the following circumstances is true:
(1) equity interests in Borrower are publicly offered securities, within the
meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) less than twenty-five percent
(25%) of all equity interests in Borrower are held by “benefit plan investors”
within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (3) Borrower
qualifies as an “operating company,” a “venture capital operating company” or a
“real estate operating company” within the meaning of 29 C.F.R.
Section 2510.3-101(c), (d) or (e), respectively.

(c) Borrower shall deliver to Lender such certifications and/or other evidence
periodically requested by Lender, in its sole discretion, to verify the
representations and warranties in Section 3.11(b) above. Failure to deliver
these certifications or evidence, breach of these representations and
warranties, or consummation of any transaction which would cause this Instrument
or any exercise of Lender’s rights under this Instrument to (i) constitute a
non-exempt prohibited transaction under ERISA or (ii) violate ERISA or any state
statute regulating governmental plans (collectively, a “Violation”), shall be an
Event of Default. Notwithstanding anything in the Documents to the contrary, no
sale, assignment, or transfer of any direct or indirect right, title, or
interest in Borrower or the Property (including creation of a junior lien,
encumbrance or leasehold interest) shall be permitted which would, in Lender’s
opinion, negate Borrower’s representations in this Section or cause a Violation.
Except with respect to transfers not subject to Lender consent pursuant to
Section 5.01(b) hereof (but without limiting the certification requirements set
forth in Section 5.01), at least fifteen (15) days before consummation of any of
the foregoing, Borrower shall obtain from the proposed transferee or lienholder
(i) a certification to Lender that the representations and warranties of
Section 3.11(b) will be true after consummation and (ii) an agreement to comply
with this Section 3.11.

Section 3.12 Environmental Representations, Warranties, and Covenants.

(a) Environmental Representations and Warranties. Borrower represents and
warrants, to the best of Borrower’s knowledge and additionally based upon the
environmental site assessment report of the Property prepared by ATC Associates
Inc., dated February 21, 2011 (the “Environmental Report”), that except as
disclosed in the Environmental Report: (i) there are no Hazardous Materials
(defined below) or underground storage tanks affecting the Property (“affecting
the Property” shall mean “in, on, under, stored, used or migrating to or from
the Property”) except for (A) routine office, cleaning, janitorial and other
materials and supplies necessary to operate the Property for its current use and
(B) Hazardous Materials that are (1) in compliance with Environmental Laws
(defined below), (2) have all required permits, and (3) are in only the amounts
necessary to operate the Property; (ii) there are no past, present or threatened
Releases (defined below) of Hazardous Materials in violation of any
Environmental Law affecting the Property except for Releases which have been
fully remediated in accordance with Environmental Laws; (iii) there is no past
or present non-compliance with Environmental Laws or with permits issued
pursuant thereto except for Releases which have been fully remediated in
accordance with Environmental Laws; (iv) Borrower does not know of, and has not
received, any written or oral notice or communication from any person relating
to Hazardous Materials affecting the Property; and (v) Borrower has provided to
Lender, in writing, all information relating to violations of Environmental Laws
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the Property known to Borrower or contained in Borrower’s files (unless such
violations have been cured in accordance with Environmental Laws).
“Environmental Law” means any present and future federal, state and local laws,
statutes, ordinances, rules, regulations, standards, policies and other
government directives or requirements, as well as common law, that apply to
Borrower or the Property and relate to Hazardous Materials including the
Comprehensive Environmental Response, Compensation and Liability Act and the
Resource Conservation and Recovery Act. “Hazardous Materials” shall mean
petroleum and petroleum products and compounds containing them, including
gasoline, diesel fuel and oil; explosives, flammable materials; radioactive
materials; polychlorinated biphenyls (“PCBs”) and compounds containing them;
lead and lead-based paint; Microbial Matter, infectious substances, asbestos or
asbestos-containing materials in any form that is or could become friable;
underground or above-ground storage tanks, whether empty or containing any
substance; any substance the presence of which on the Property is prohibited by
any federal, state or local authority; any substance that requires special
handling; and any other material or substance now or in the future defined as a
“hazardous substance,” “hazardous material,” “hazardous waste,” “toxic
substance,” “toxic pollutant,” “contaminant,” or “pollutant” within the meaning
of any Environmental Law. “Release” of any Hazardous Materials includes any
release, deposit, discharge, emission, leaking, spilling, seeping, migrating,
pumping, pouring, escaping, dumping, disposing or other movement of Hazardous
Materials. “Microbial Matter” shall mean the presence of fungi or bacterial
matter which reproduces through the release of spores or the splitting of cells,
including, but not limited to, mold, mildew and viruses, whether or not such
Microbial Matter is living.

(b) Environmental Covenants. Borrower covenants and agrees that: (i) Borrower
shall use and operate (and shall use commercially reasonable efforts to cause
all tenants, invitees and other parties having access to the Premises to use and
operate) the Property in compliance with all Environmental Laws and required
permits; (ii) it shall use all reasonable efforts to prevent Releases of
Hazardous Materials on or in the operation of the Property in violation of
Environmental Laws; (iii) there shall be no Hazardous Materials on or in the
operation of the Property except (A) routine office, cleaning and janitorial
supplies, (B) in compliance with all Environmental Laws, (C) in compliance with
all required permits, and (D) (1) in only the amounts necessary to operate the
Property or (2) as shall have been fully disclosed to and approved by Lender in
writing; (iv) Borrower shall keep the Property free and clear of all liens and
encumbrances imposed by any Environmental Laws due to any act or omission by
Borrower or any person (the “Environmental Liens”); (v) Borrower shall, at its
sole expense, fully and expeditiously cooperate in all activities performed
under Section 3.12(c) including providing all relevant information and making
knowledgeable persons available for interviews; (vi) Borrower shall, at its sole
expense, (A) cause to be performed any environmental site assessment or other
investigation of environmental conditions at the Property upon Lender’s request
based on Lender’s reasonable belief that the Property is not in compliance with
all Environmental Laws, (B) share with Lender the results and reports and Lender
and the Indemnified Parties (defined below) shall be entitled to rely on such
results and reports, and (C) complete any remediation of Hazardous Materials
affecting the Property or other actions required by any Environmental Laws;
(vii) Borrower shall use commercially reasonable efforts to prevent any Tenant
or other user of the Property from violating any Environmental Law;
(viii) Borrower shall immediately notify Lender in writing after it becomes
aware of (A) the presence, Release, or threatened Release of Hazardous Materials
affecting the Property, (B) any non-compliance of the Property with any
Environmental Laws, (C) any actual or potential Environmental Lien, (D) any
required or proposed remediation of environmental conditions relating to the
Property, or (E) any written communication or notice from any person relating to
Hazardous Materials, or any oral communication relating to or alleging any
violation or potential violation of Environmental Law, and (ix) if an Asbestos
Operation and Maintenance Plan and any other Operation and Maintenance Plan
(collectively, the “O&M Plan”) is in effect (or required by Lender to be
implemented) at the time of the closing of the Loan, then Borrower shall, at its
sole expense, implement and continue the O&M Plan (with any modifications
required to comply with applicable Laws) until payment and full satisfaction of
the Obligations.

 

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(c) Lender’s Rights. Lender and any person designated by Lender may enter the
Property to assess the environmental condition of the Property and its use
including (i) conducting any environmental assessment or audit (the scope of
which shall be determined by Lender) and (ii) taking samples of soil,
groundwater or other water, air, or building materials, and conducting other
invasive testing at all reasonable times when (A) an Event of Default has
occurred under the Documents, (B) Lender reasonably believes that a Release has
occurred or the Property is not in compliance with all Environmental Laws, or
(C) the Loan is being considered for sale (any out-of-pocket expenses incurred
in connection with the entry under clause (C) only shall be at Lender’s
expense). Borrower shall cooperate with and provide access to Lender and such
person, and/or grant licenses to Lender enabling Lender to conduct any testing
and remediation that Lender is entitled to undertake pursuant to the terms
hereof.

(d) Confirmation of Termination. This Section 3.12 (and the Environmental
Indemnity) shall terminate if: (i) the Loan is paid in full in accordance with
the terms of the Documents other than through or as a result of Lender taking
enforcement action (including, but not limited to, foreclosure, trustee’s sale,
or deed-in-lieu of foreclosure), (ii) Borrower requests in writing, pursuant to
a notice delivered to Lender not sooner than twenty-four (24) months after the
date of the payment of the Loan in full by Borrower pursuant to the terms of the
Documents (other than through or as a result of Lender taking enforcement
action, including, but not limited to, foreclosure, trustee’s sale, or
deed-in-lieu of foreclosure), that Lender provide the Confirmation of
Termination (as defined below), (iii) at the time Borrower requests that Lender
deliver the Confirmation of Termination, Borrower shall deliver to Lender a
then-current environmental report of the Property from an environmental
consultant acceptable to Lender showing neither any violation of Environmental
Laws nor the presence of any Hazardous Materials on the Property in violation of
Environmental Laws and in all other respects acceptable in form and substance to
Lender, and (iv) there is no pending or threatened environmental claim,
investigation, violation or action related to the Property or related to this
Section 3.12 (or the Environmental Indemnity) at the time Borrower requests
Lender to provide the Confirmation of Termination. If each of the foregoing
conditions is complied with, then Lender shall provide Borrower with the
Confirmation of Termination. The “Confirmation of Termination” shall mean that
Lender shall provide Borrower with a written confirmation that this Section 3.12
of the Instrument and the Environmental Indemnity are terminated.

Section 3.13 Electronic Payments. Unless directed otherwise in writing by
Lender, all payments due under the Documents shall be made by electronic funds
transfer debit entries to Borrower’s account at an Automated Clearing House
member bank satisfactory to Lender or by similar electronic transfer process
selected by Lender. Each payment due under the Documents shall be initiated by
Lender through the Automated Clearing House network (or similar electronic
process) for settlement on the Due Date (as defined in the Note) for the
payment. Borrower shall, at Borrower’s sole cost and expense, direct its bank in
writing to permit such electronic fund transfer debit entries (or similar
electronic transfer) to be made by Lender. Prior to each payment Due Date under
the Documents, Borrower shall deposit and/or maintain sufficient funds in
Borrower’s account to cover each debit entry. Any charges or costs, if any, by
Borrower’s bank for the foregoing shall be paid by Borrower.

Section 3.14 Inspection. Borrower shall allow Lender and any person designated
by Lender to enter upon the Property and conduct tests or inspect the Property
at all reasonable times. Borrower shall assist Lender and such person in
effecting said inspection.

 

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Section 3.15 Records, Reports, and Audits.

(a) Records and Reports. (i) Borrower shall maintain complete and accurate books
and records with respect to all operations of, or transactions involving, the
Property. Annually (and upon Lender’s request, quarterly) Borrower shall furnish
Lender financial statements for the most current fiscal year (including a
schedule of all related Obligations and contingent liabilities) for
(A) Borrower, (B) any general partner or managing member of Borrower, and any
general partner or managing member of any general partner of Borrower, (C) Saul
Centers, Inc. (“SCI”) and any other guarantors or sureties of the Note, and
(D) any Major Tenants to the extent Borrower can obtain them with commercially
reasonable efforts. Annually (and upon Lender’s request, quarterly), Borrower
shall furnish Lender (1) operating statements showing cash flow and capital
expenditures for the Property including income and expenses (before and after
Obligations service), major capital improvements, a schedule showing tenant
sales and percentage rent for retail properties where sales are reported, and
the average daily rate and average daily occupancy for hotel properties;
(2) copies of paid tax receipts for the Property; (3) a certified rent roll
including security deposits held, the expiration of the terms of the Leases, and
identification and explanation of any Tenants to whom Borrower has sent a notice
of default, which default has not been cured; (4) a budget showing projected
income and expenses (before and after Obligations service) for the next twelve
(12) month budget period; (5) any appraisals of the Property performed on behalf
of any Recourse Parties and/or SHLP during the previous year; and (6) upon
Lender’s request following an Event of Default, (x) a schedule showing
Borrower’s tax basis in the Property, (y) the distribution of economic interests
in the Property, and (z) copies of any other loan documents affecting the
Property.

(ii) Notwithstanding anything to the contrary in Section 3.15 (a) (i) above,
Borrower shall, until the Property has achieved the Targeted Leasing Standard
(as defined below), deliver the following information to Lender within sixty
(60) days following the end of each calendar quarter:

(1) An operating statement showing cash flow and capital expenditures for the
Property including income and expenses (before and after the debt service on the
Loan), major capital improvements, and if applicable, a schedule showing tenant
sales and percentage rent for retail properties;

(2) A certified rent roll including security deposits held, the expiration of
the terms of the Leases, and identification and explanation of any tenants in
default;

(3) Borrower’s written analysis (with the format of such analysis being
reasonably satisfactory to Lender) of (A) the Property’s actual property
performance during the most recent quarter, including leasing velocity, rental
rates and cash flow in comparison to the pro forma Borrower delivered to Lender
prior to date of this Instrument, (B) the concessions granted in connection with
Leases entered into during the most recent quarter, the average rental rate
achieved on such Leases, and projections of leasing expected to be achieved
during the current quarter as well as projections of concessions that will be
offered during the current quarter, and (C) whether Borrower is on time and on
budget with respect to capital improvements to the Property, renovation and
rehabilitation expenses, and tenant finish costs; and

(4) A comparison of the budget for the Property to actual quarterly results with
both monthly and year-to-date information included.

The “Targeted Leasing Standard” shall be achieved when the Property is
ninety-two percent (92%) leased to tenants in physical occupancy, paying full
rent, open for business (with respect to retail tenant only), with credit
reasonably acceptable to Lender (with respect to office and retail tenants under
Leases first entered into after the Closing of the Loan only), and not in
monetary default or material non-monetary default under the terms of such
tenant’s Lease and the Debt Service Coverage Ratio (as defined below) is at
least 1.35 to 1.00. The term “Debt Service Coverage Ratio” shall mean the ratio,
as

 

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reasonably determined by Lender, calculated by dividing (i) net operating income
(“NOI”) by (ii) total annual debt service (“TADS”). NOI is the gross annual
income realized from operations of the Property for the applicable twelve
(12) month period after subtracting all necessary and ordinary operating
expenses (both fixed and variable) for that twelve (12) month period (assuming
for expense purposes only that the Property is ninety-five percent (95%) leased
and occupied if actual leasing is less than ninety-five percent [95%]),
including, without limitation, utilities, administrative, cleaning, landscaping,
security, repairs, and maintenance, ground rent payments, management fees,
reserves for replacements, real estate and other taxes (on a fully-assessed
basis after transfer of the Property), assessments and insurance, but excluding
deduction for federal, state and other income taxes, debt service expense,
depreciation or amortization of capital expenditures (including but not limited
to initial construction), and other similar non-cash items. Gross income shall
be based on the cash actually received for the preceding twelve months and
projected income based on leases in place for the next succeeding twelve months,
and ordinary operating expenses shall not be prepaid. Documentation of NOI and
expenses shall be certified by an officer of Borrower with detail satisfactory
to Lender and shall be subject to the approval of Lender. TADS shall mean the
aggregate debt service payments for any given calendar year on the Loan and on
all other indebtedness secured, or to be secured, by any part of the Property.
Notwithstanding anything to the contrary in this paragraph, for the purposes of
calculating NOI in connection with determining whether the Targeted Leasing
Standard has been achieved, or the minimum Debt Service Coverage Ratio has been
achieved pursuant to Section 2(c) of the Escrow Agreement (Debt Service) or
Section 24(c) of the Partial Recourse Guaranty, gross annual income realized
from operations of the Property shall be calculated based on the cash actually
received for the preceding three months and then annualized. For the avoidance
of doubt, the immediately preceding sentence shall only be applicable in
connection with calculations made pursuant to this Section 3.15(a)(ii) or
elsewhere in the Documents where this Section 3.15 is specifically referenced in
connection with the calculation of NOI.

(b) Delivery of Reports. All of the reports, statements, and items required
under this Section shall be (i) certified as being true, correct, and accurate
by an authorized person, partner, or officer of the delivering party or, at the
deliverer’s option, audited by a Certified Public Accountant; (ii) satisfactory
to Lender in form and substance (Lender acknowledges that the form and substance
of the financial statements submitted to Lender in connection with the
Application were satisfactory); and (iii) delivered within (A) ninety (90) days
after the end of Borrower’s fiscal year for annual reports and (B) forty-five
(45) days after the end of each calendar quarter for quarterly reports. If any
one report, statement, or item is not received by Lender on its due date, a late
fee of Five Hundred and No/100 Dollars ($500.00) per month shall be due and
payable by Borrower; provided, that before the first late fee is imposed each
calendar year, Lender will give Borrower written notice of such failure and
fifteen (15) days to deliver such report, statement or item. If any one report,
statement, or item is not received after the expiration of (y) thirty (30) days
after written notice from Lender (the “First Notice”) and (z) ten (10) days
after delivery of a second written notice from Lender (the “Second Notice”),
which Second Notice shall not be delivered before the date that is thirty
(30) days after delivery of the First Notice, Lender may immediately declare an
Event of Default under the Documents. Borrower shall (i) provide Lender with
such additional financial, management, or other information regarding Borrower,
the sole member of Borrower, or the Property, as Lender may reasonably request
and (ii) upon Lender’s request, deliver all items required by Section 3.15 in an
electronic format (i.e. on computer disks) or by electronic transmission
acceptable to Lender.

(c) Inspection of Records. Borrower shall allow Lender or any person designated
by Lender to examine, audit, and make copies of all such books and records and
all supporting data at the place where these items are located at all reasonable
times after reasonable advance notice; provided that no notice shall be required
after any Event of Default under the Documents. Borrower shall assist Lender in
effecting such examination. Upon five (5) days’ prior notice, Lender may inspect
and make copies of Borrower’s or the sole member of Borrower’s income tax
returns with respect to the Property for the purpose of verifying any items
referenced in this Section.

 

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Section 3.16 Borrower’s Certificates. Within ten (10) days after Lender’s
request, Borrower shall furnish a written certification to Lender and any
Investors (defined below) as to (a) the amount of the Obligations outstanding;
(b) the interest rate, terms of payment, and maturity date of the Note; (c) the
date to which payments have been paid under the Note; (d) whether any offsets or
defenses exist against the Obligations and a detailed description of any listed;
(e) whether all Leases are in full force and effect and have not been modified
(or if modified, setting forth all modifications); (f) the date to which the
Rents have been paid; (g) whether, to the best knowledge of Borrower, any
material defaults exist under the Leases and a detailed description of any
listed; (h) the security deposit held by Borrower under each Lease and that such
amount is the amount required under such Lease; (i) whether there are any
defaults (or events which with the passage of time and/or giving of notice would
constitute a default) under the Documents and a detailed description of any
listed; (j) whether the Documents are in full force and effect; and (k) any
other matters reasonably requested by Lender related to the Leases, the
Obligations, the Property, or the Documents. For all non-residential properties
and promptly upon Lender’s request, Borrower shall use good faith, commercially
reasonable efforts to deliver a written certification to Lender and Investors
from Tenants specified by Lender that: (a) their Leases are in full force and
effect; (b) there are no defaults (or events which with the passage of time
and/or notice would constitute a default) under their Leases and a detailed
description of any listed; (c) none of the Rents have been paid more than one
month in advance; (d) there are no offsets or defenses against the Rents and a
detailed description of any listed; and (e) any other matters reasonably
requested by Lender related to the Leases; provided, however, that Borrower
shall not have to pay money to a Tenant to obtain such certification, but it
will deliver a landlord’s certification for any certification it cannot obtain.

Section 3.17 Intentionally Deleted.

Section 3.18 Additional Security. No other security now existing or taken later
to secure the Obligations shall be affected by the execution of the Documents
and all additional security shall be held as cumulative. The taking of
additional security, execution of partial releases, or extension of the time for
the payment obligations of Borrower shall not diminish the effect and lien of
this Instrument and shall not affect the liability or obligations of any maker
or guarantor. Neither the acceptance of the Documents nor their enforcement
shall prejudice or affect Lender’s or Trustee’s right to realize upon or enforce
any other security now or later held by Lender or Trustee. Lender and/or Trustee
may enforce the Documents or any other security in such order and manner as
either of them may determine in its respective discretion.

Section 3.19 Further Acts. Borrower shall take all necessary actions to (i) keep
valid and effective the lien and rights of Lender and Trustee under the
Documents and (ii) protect the lawful owner of the Documents. Promptly upon
request by Lender or Trustee, and at Borrower’s expense, Borrower shall execute
additional instruments and take such actions as Lender and/or Trustee reasonably
believes are necessary or desirable to (a) maintain or grant Lender and Trustee
a first-priority, perfected lien on the Property, (b) grant to Lender and
Trustee, to the fullest extent permitted by Laws, the right to foreclose on, or
transfer title to, the Property non-judicially, (c) correct any error or
omission in the Documents, and (d) effect the intent of the Documents, including
filing/recording the Documents, additional mortgages or deeds of trust,
financing statements, and other instruments.

Section 3.20 Compliance with Anti-Terrorism Regulations.

(a) Borrower hereby covenants and agrees that (i) neither Borrower nor any
guarantor, will knowingly conduct business with or engage in any transaction
with any person or entity named on any of the OFAC Lists or any person or entity
included in, owned by, controlled by, acting for or on behalf of,

 

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providing assistance, support, sponsorship, or services of any kind to, or
otherwise associated with any of the persons or entities referred to or
described in the OFAC Lists; and (ii) Borrower shall take such actions as may be
required by Laws to prevent any persons or entities holding any legal or
beneficial interests whatsoever in Borrower or any guarantor (whether directly
or indirectly), from knowingly conducting business with or engaging in any
transaction with any person or entity named on any of the OFAC Lists or any
person or entity included in, owned by, controlled by, acting for, or on behalf
of, providing assistance, support, sponsorship or services of any kind to, or
otherwise associated with any of the persons or entities referred to or
described in the OFAC Lists.

(b) Borrower hereby covenants and agrees that it will comply at all times with
the requirements of Executive Order 13224; the International Emergency Economic
Powers Act, 50 U.S.C. Sections 1701-06; the United and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001, Pub. L. 107-56; the Iraqi Sanctions Act, Pub. L. 101-513, 104 Stat.
2047-55; the United Nations Participation Act, 22 U.S.C. Section 287c; the
Antiterrorism and Effective Death Penalty Act, (enacting 8 U.S.C. Section 219,
18 U.S.C. Section 2332d, and 18 U.S.C. Section 2339b); the International
Security and Development Cooperation Act, 22 U.S.C. Section 2349 aa-9; the
Terrorism Sanctions Regulations, 31 C.F.R. Part 595; the Terrorism List
Governments Sanctions Regulations, 31 C.F.R. Part 596; and the Foreign Terrorist
Organizations Sanctions Regulations, 31 C.F.R. Part 597 and any similar laws or
regulations currently in force or hereafter enacted (collectively, the
“Anti-Terrorism Regulations”).

(c) Borrower hereby covenants and agrees that if it becomes aware or receives
any notice that Borrower, any guarantor or the Property, or any person or entity
holding any legal or beneficial interest whatsoever (whether directly or
indirectly) in Borrower, any guarantor or in the Property, is named on any of
the OFAC Lists (such occurrence, an “OFAC Violation”), Borrower will immediately
(i) give notice to Lender of such OFAC Violation, and (ii) comply with all Laws
applicable to such OFAC Violation (regardless of whether the party included on
any of the OFAC Lists is located within the jurisdiction of the United States of
America), including, without limitation, the Anti-Terrorism Regulations, and
Borrower hereby authorizes and consents to Lender’s taking any and all steps
Lender deems necessary, in its sole discretion, to comply with all Laws
applicable to any such OFAC Violation, including, without limitation, the
requirements of the Anti-Terrorism Regulations (including the “freezing” and/or
“blocking” of assets).

(d) Upon Lender’s request from time to time during the term of the Loan,
Borrower agrees to deliver a certification confirming that the representations
and warranties set forth in Section 2.09 above remain true and correct as of the
date of such certificate and confirming Borrower’s and any guarantor’s
compliance with this Section 3.20.

Section 3.21 Compliance with Property as Single Asset. Borrower hereby covenants
and agrees that (i) during the term of the Loan, Borrower shall not own any
assets in addition to the Property, (ii) the Property shall remain as a single
property or project comprised of three (3) separate buildings (prior to any
Partial Release that may occur pursuant to Section 5.03 hereof), and
(iii) during the term of the Loan, the Property shall generate substantially all
of the gross income of Borrower and there shall be no substantial business being
conducted, either directly or indirectly, by Borrower other than the business of
operating the Property and the activities incidental thereto.

Section 3.22 Intentionally Deleted.

Section 3.23 Intentionally Deleted.

 

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Section 3.24 Tax Status of Borrower. Borrower shall not be a “foreign person”
within the meaning of Sections 1445 and 7701 of the Revenue Code. Borrower
currently is a “disregarded entity” as defined in Section 1.1445-2(b)(2)(iii) of
the Income Tax Regulations issued under the Revenue Code, and Borrower shall not
change such tax status if such change would violate the provisions of
Section 5.01 below.

Section 3.25 Disclosure. Borrower shall disclose to Lender any material fact
that could cause any representation or warranty made in this Instrument to be
materially misleading.

Section 3.26 Illegal Activity. No portion of the Property will be purchased,
improved, fixtured, equipped or furnished by Borrower with proceeds of any
illegal activity, and neither Borrower nor Borrower shall engage in, and
Borrower shall take commercially reasonable efforts to prevent others from
engaging in, illegal activities at or on the Property.

ARTICLE IV - ADDITIONAL ADVANCES; EXPENSES; SUBROGATION

Section 4.01 Expenses and Advances. Borrower shall pay all reasonable appraisal,
recording, filing, registration, brokerage, abstract, title insurance (including
premiums), title searches and examinations, surveys and similar data and
assurances with respect to title, U.C.C. search, escrow, attorneys’ (both
in-house staff and retained attorneys), engineers’, environmental engineers’,
environmental testing, and architects’ fees, costs (including travel), expenses,
and disbursements incurred by Borrower, Lender, or Trustee and reasonable fees
charged by Lender and/or Trustee in connection with the granting, closing,
servicing (other than routine loan servicing performed in the ordinary course of
business and for the performance of which Lender is not routinely reimbursed by
other borrowers in the ordinary course of Lender’s business), and enforcement of
the Loan and the Documents or other costs and expenses payable by Borrower or
reimburseable to Lender under the Documents. The term “Costs” shall mean any of
the foregoing incurred in connection with (a) any default by Borrower under the
Documents, (b) the servicing (other than routine loan servicing performed in the
ordinary course of business and for the performance of which Lender is not
routinely reimbursed by other borrowers in the ordinary course of Lender’s
business) of the Loan, or (c) the exercise, enforcement, compromise, defense,
litigation, or settlement of any of Lender’s and Trustee’s rights or remedies
under the Documents or relating to the Loan or the Obligations. If Borrower
fails to pay any amounts or perform any actions required under the Documents and
the same is not cured within applicable grace or cure periods, Lender or Trustee
may (but shall not be obligated to) advance sums to pay such amounts or perform
such actions. Borrower grants Lender or Trustee the right to enter upon and take
possession of the Property to remedy any such failure and the right to take such
actions in Borrower’s name if such failure is not cured within applicable grace
or cure period. No advance or performance shall be deemed to have cured a
default by Borrower. All (a) sums advanced by or payable to Lender or Trustee
per this Section or under applicable Laws, (b) except as expressly provided in
the Documents, payments due under the Documents which are not paid in full when
due (subject to applicable notice, grace and cure periods), and (c) Costs,
shall: (i) be deemed demand obligations, (ii) bear interest upon demand at the
Default Rate until paid if not paid on demand, (iii) be part of, together with
such interest, the Obligations, and (iv) be secured by the Documents. Lender or
Trustee, upon making any such advance, shall also be subrogated to rights of the
person receiving such advance.

Section 4.02 Subrogation. If any proceeds of the Note were used to extinguish,
extend or renew any indebtedness on the Property, then, to the extent of the
funds so used, (a) Lender and Trustee shall be subrogated to all liens, titles
and interests existing on the Property held by the holder of such indebtedness
and (b) these liens, titles and interests are not waived but rather shall
(i) continue in full force and effect in favor of Lender and Trustee and
(ii) are merged with the lien and security interest created by the Documents as
cumulative security for the payment and performance of the Obligations.

 

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ARTICLE V - SALE, TRANSFER, OR ENCUMBRANCE OF THE PROPERTY

Section 5.01 Due-on-Sale or Encumbrance.

(a) It shall be an Event of Default and, at the sole option of Lender, Lender
may accelerate the Obligations and the entire Obligations (including any
Prepayment Premium) shall become immediately due and payable, if, without
Lender’s prior written consent (which consent may be given or withheld for any
or for no reason or given conditionally, in Lender’s sole discretion) any of the
following shall occur:

(i) Borrower shall sell, convey, assign, transfer, dispose of or be divested of
its title to, convey security title to, mortgage, encumber or cause to be
encumbered (except for the imposition of mechanics’ or materialmen’s liens which
are removed, bonded off, or otherwise discharged within sixty (60) days after
the filing of such mechanics’ or materialmen’s lien) the Property or any
interest therein, in any manner or way, whether voluntary or involuntary; or

(ii) in the event of any merger, consolidation, sale, transfer, assignment,
liquidation, or dissolution involving any or all of the assets of Borrower
(except for the sale or transfer of physical personal property at the end of its
useful life) or all or substantially all of the assets of any general partner or
managing member of Borrower; or

(iii) in the event of the assignment, transfer, pledge, voluntary or involuntary
sale, or encumbrance (or any of the foregoing at one time or over any period of
time) of:

(1) (1) any ownership interests in Borrower, regardless of the type or form of
entity of Borrower, (2) the voting stock or ownership interest of any
corporation or limited liability company which is, respectively, general partner
or managing member of Borrower or any corporation or limited liability company
directly or indirectly owning ten percent (10%) or more of any such corporation
or limited liability company, or (3) the ownership interests in any owner of ten
percent (10%) or more of the beneficial interests of Borrower if Borrower is a
trust; or

(2) any general partnership, managing member or controlling interest in
(1) Borrower, (2) an entity which is in Borrower’s chain of ownership and which
is derivatively liable for the obligations of Borrower, or (3) any entity that
has the right to participate directly or indirectly in the control of the
management or operations of Borrower; or

(iv) in the event of the conversion of any general partnership interest in
Borrower to a limited partnership interest, if Borrower is a partnership; or

(v) in the event of any substitution, removal, or resignation of any general
partner of Borrower, if Borrower is a partnership; or

(vi) in the event of any change, removal, addition or resignation of a managing
member of Borrower (or if no managing member, any member) if Borrower is a
limited liability company; or

(vii) Borrower shall (A) guarantee, or otherwise agree to be liable for (whether
conditionally or unconditionally), any obligations of any person or entity or
(B) obtain any unsecured debt except for (1) customary and reasonable short-term
trade payables obtained by Borrower and repaid by Borrower in the ordinary
course of Borrower’s business and (2) as long as there is no Event of Default
under the Loan, loans to Borrower from natural persons or entities that directly
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interest in Borrower or share common ownership with Borrower (“Affiliate
Loans”), provided such Affiliate Loans shall be unsecured, shall be expressly
subordinate in all respects to the Loan and the rights of Lender (which
subordination shall be pursuant to documentation acceptable to Lender and shall
contain such controls with respect to such subordination as Lender shall
require, including, but not limited to, the payment obligations under such
Affiliate Loans and the collection rights of the holders of such Affiliate Loans
shall be subordinate in all respects to the Loan), and do not exceed in the
aggregate Ten Million and No/100 Dollars ($10,000,000.00), and Borrower shall
pay (x) all costs and expenses incurred by Lender for the processing of
Borrower’s request for such Affiliate Loans including a processing fee of $1,500
and (y) all other costs and expenses (including attorneys’ fees and expenses for
Lender’s outside counsel) involved in such proposed Affiliate Loans, the
drafting and negotiation of the subordination and intercreditor agreement (which
shall provide for certain controls over such Affiliate Loans in the event of a
bankruptcy of Borrower), and the preparation, review and negotiation of any
other documents deemed reasonably necessary by Lender.

(b) Notwithstanding any of the foregoing to the contrary, the provisions of
Section 5.01(a) above will not apply to transfers by B.F. Saul II or B.F. Saul
III of ownership interests in SHLP and SCI as a result of the death of either of
them, or in connection with conveyances by either B.F. Saul II or B.F. Saul III
in connection with estate planning to a spouse, son or daughter or descendant of
either, or to a stepson or stepdaughter or descendant of either. Additionally,
provided that no non-monetary Event of Default for which Borrower has received
written notice from Lender or monetary Event of Default exists at the time of
any transfer described in items (A) and (B) of this Section 5.01(b) below, then
the provisions of Section 5.01(a) shall not apply to the following ( the “Saul
Permitted Transfers”):

(A) transfers of interests, admissions of additional members, limited partners
or shareholders, and other structural changes, in SHLP or SCI, or any owner of a
direct or indirect legal or beneficial interest in either of them, including,
but not limited to, their respective partners, members or shareholders (a
“Transfer”), provided after giving effect thereto (i) no Merger (as defined
below) shall result from such Transfer, whether considered individually or when
considered in the aggregate with other related transactions; (it being agreed by
the parties that a Merger shall require the prior written consent of Lender,
which consent shall be in the sole discretion of Lender); (ii) Borrower remains
owned 100% by SHLP; (iii) B.F. Saul II or B.F. Saul III, each an individual,
members of their respective families, trusts for the benefit of any of the same,
and/or companies or entities controlled, directly or indirectly, by any of the
same (individually or collectively the “Saul Parties”), continue to own,
directly or indirectly, at least ten percent (10%) of the partnership units of
SHLP, whether directly or indirectly through ownership of limited partnership
interests or directly or indirectly through ownership of the common stock of
SHLP’s sole managing general partner, SCI on a fully diluted basis (the “Saul
Parties’ Minimum Ownership Percentage”); and (iv) SCI remains at all times the
sole managing general partner of SHLP, with not less than a 51% partnership
interest in SHLP as general partner, and maintains, at all times, effective
legal and day to day management control of Borrower, SHLP and the Property; and

(B) pledges of direct or indirect ownership interests in SHLP, including pledges
of stock of SCI but excluding any pledge by SCI of its general partnership
interest in SHLP (collectively, “Permitted Pledges”); provided that (i) the Saul
Parties continue to own the Saul Parties’ Minimum Ownership Percentage; (ii) SCI
remains at all times the sole managing general partner of SHLP, with not less
than a 51% partnership interest in SHLP as general partner, and maintains, at
all times, effective legal and day to day management control of Borrower, SHLP
and the Property; and (iii) no Merger (as defined below) shall result from such
Transfer, whether considered individually or when

 

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considered in the aggregate with other related transactions; (it being agreed by
the parties that a Merger shall require the prior written consent of Lender,
which consent shall be in the sole discretion of Lender); it is further agreed
that (i) any transfer of a direct or indirect interest in Borrower, whether
through foreclosure of a pledge or transfer in lieu of foreclosure of a pledge
or otherwise, that results in a violation of subparts (i), (ii) or (iii) above
shall constitute an Event of Default under the Documents and shall not be deemed
a Saul Permitted Transfer; and (y) any Permitted Pledge shall not be deemed a
transfer of the interest so pledged and, therefore, shall not reduce the Saul
Parties’ Minimum Ownership Percentage unless and until it is foreclosed or
transferred in lieu of foreclosure.

Borrower shall pay all costs and expenses, including reasonable attorneys’ fees
and disbursements, incurred by Lender in connection with any transfer.

(c) (i) Within thirty (30) days following a written request to Borrower by
Lender, Borrower shall deliver to Lender (a) a statement showing the current
direct ownership of the Borrower (and a then current organizational chart of
SHLP and SCI), (b) a certification from Borrower that Borrower remains in
compliance with Section 3.11 of this Instrument, (c) a certification from
Borrower that Borrower remains in compliance with the representations,
warranties and covenants in Section 2.09 and 3.20 of this Instrument; provided,
however, that with respect to shareholders in SCI any such certification shall
be made to Borrower’s actual knowledge. Without limiting the provisions of the
preceding sentence, in the event of a Saul Permitted Transfer, Borrower and the
transferee of the ownership interests in Borrower being transferred shall be
deemed to have made the certification, as of the date of the applicable
transfer, described in subsections (b) and (c) (in the immediately preceding
sentence) in favor of Lender, as a result of the transfer, and the acceptance
thereof, of the applicable ownership interests in Borrower.

(ii) The term “Merger” shall mean when (w) at one time or over time, fifty-one
percent (51%) or more by value of the assets of SHLP and/or SCI are sold,
transferred or assigned to one or more third parties (“third parties” being
parties other than SCI, SHLP and any entities 100% owned by either SCI or SHLP),
other than for the reasonable market value of such assets at the time of
transfer; or (x) any Person or two or more Persons, other than Saul Parties,
acting in concert shall have acquired beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the Securities Act
of 1934), of voting equity interests of SCI representing fifty-one percent
(51%) or more of all voting equity interests in SCI; or (y) any Person or two or
more Persons, other than Saul Parties, acting in concert shall have acquired by
contract or otherwise control over voting equity interests in the SCI (or other
interests convertible into such interests) representing fifty-one percent
(51%) or more of all voting equity interests in the SCI. For purposes of this
provision, the term “Person” shall mean and include an individual, a
partnership, a joint venture, a corporation, a limited liability company, a
limited liability partnership, any other entity having limited liability for its
owners under the law of its creation, a trust, an unincorporated organization
and a government or any department or agency thereof.

Section 5.02 One-Time Transfer. Notwithstanding Section 5.01 above, and so long
as (i) a transfer pursuant to this Section 5.02 shall not occur prior to the
first day following the full release of that certain Partial Recourse Guaranty
of even date herewith from SCI in favor of Lender (the “Recourse Guaranty”), and
(ii) there is no default under the Documents, Lender agrees, upon thirty
(30) days’ prior written request, to consent to the original Borrower’s one
transfer of the entire Property if:

(a) the proposed transferee of the Property shall be a newly formed special
purpose entity that meets the special purpose entity requirements set forth in
Section 3.22 of this Instrument and that is wholly owned and controlled by a
person which, in the judgment of Lender, has financial capability and

 

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creditworthiness, reputation and experience in the ownership, operation,
management, and leasing of similar properties, equal to or greater than that of
Borrower’s principals; it being understood, without limiting the foregoing, that
the proposed transferee shall not be acceptable if (i) upon assumption of the
Loan, such transferee’s and/or its parent, affiliates’, and/or related entities’
credit obligations shall exceed Lender’s individual or related borrower limits
as established by Lender from time to time in its sole discretion or (ii) the
proposed transferee is related to Lender or advised by Lender or any affiliate
of Lender;

(b) at the time of transfer the Loan to Value Ratio (defined below) does not
exceed fifty five percent (55 %);

(c) Borrower pays Lender a non-refundable servicing fee (as specified by Lender)
at the time of the request and an additional fee equal to sixty-five hundredths
percent (0.65%) of the outstanding principal balance of the Loan at the time of
the transfer, less the amount of the non-refundable servicing fee paid to
Lender;

(d) at Lender’s option, Lender’s title policy is endorsed to verify the first
priority of the Documents at Borrower’s expense;

(e) the Debt Service Coverage Ratio (defined below) is at least 1.75 to 1.00 for
the preceding twelve (12) month period, and Lender receives satisfactory
evidence that this Debt Service Coverage Ratio will be maintained for the next
succeeding twelve (12) months;

(f) the transferee expressly assumes all obligations under the Documents and
executes any documents reasonably required by Lender, and all of these documents
are satisfactory in form and substance to Lender, and a guarantor acceptable to
Lender executes a guaranty and indemnities (pursuant to documents satisfactory
in form and substance to Lender) with respect to all of the obligations
contained in Paragraphs 8 and 9 of the Note, Sections 3.11, 3.12, 8.04 and 8.05
of this Instrument, and the Environmental Indemnity;

(g) Lender reasonably approves the form and content of all transfer documents
and the transferee’s organizational documents, and Lender is furnished with a
certified copy of the recorded transfer documents;

(h) the transferee complies with and delivers the ERISA certification required
under Section 3.11 of this Instrument and the Environmental Indemnity of even
date herewith;

(i) Borrower shall provide a copy of (i) the purchase and sale agreement (and
all amendments thereto) for the Property at the time of the transfer request or
within five (5) days of execution, (ii) all amendments to the purchase and sale
agreement after delivery of said agreement to Lender, and (iii) a fully-executed
closing statement upon closing of the transfer;

(j) the transferee shall sign and deliver Lender’s current credit certification
at the time of the request, which shall include a representation that the
proposed transferee and all persons or entities holding any legal or beneficial
interest whatsoever in the proposed transferee are not included in, owned by,
controlled by, acting for or on behalf of, providing assistance, support,
sponsorship, or services of any kind to, or otherwise associated with any of the
persons or entities referred to or described in the OFAC Lists; and

(k) Borrower or the transferee pays all reasonable fees, costs, and expenses
incurred by Lender in connection with the proposed transfer, including, without
limitation, all legal fees and

 

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disbursements (for both outside counsel and Lender’s staff attorneys),
accounting, title insurance, documentary stamps taxes, intangible taxes,
mortgage taxes, recording fees, and appraisal fees, whether or not the transfer
is actually consummated.

The term “Loan to Value Ratio” shall mean the ratio, as reasonably determined by
Lender, of (i) the aggregate principal balance of all encumbrances against the
Property to (ii) the fair market value of the Property. The term “Debt Service
Coverage Ratio” shall mean the ratio, as reasonably determined by Lender,
calculated by dividing (i) net operating income (“NOI”) by (ii) total annual
debt service (“TADS”). NOI is the gross annual income realized from operations
of the Property for the applicable twelve (12) month period after subtracting
all necessary and ordinary operating expenses (both fixed and variable) for that
twelve (12) month period (assuming for expense purposes only that the Property
is ninety-five percent [95%] leased and occupied if actual leasing is less than
ninety-five percent [95%]), including, without limitation, utilities,
administrative, cleaning, landscaping, security, repairs, and maintenance,
ground rent payments, management fees, reserves for replacements, real estate
and other taxes (on a fully-assessed basis after transfer of the Property),
assessments and insurance, but excluding deduction for federal, state and other
income taxes, debt service expense, depreciation or amortization of capital
expenditures, and other similar non-cash items (including, but not limited to,
initial construction). Gross income shall be based on the cash actually received
for the preceding twelve months and projected income based on leases in place
for the next succeeding twelve months, and ordinary operating expenses shall not
be prepaid. Documentation of NOI and expenses shall be certified by an officer
of Grantor with detail satisfactory to Lender and shall be subject to the
approval of Lender. TADS shall mean the aggregate debt service payments for any
given calendar year on the Loan and on all other indebtedness secured, or to be
secured, by any part of the Property.

Notwithstanding anything to the contrary in this Section 5.02, Borrower shall
not have the right to a one-time transfer until such time as Lender has fully
released the Recourse Guaranty in accordance with the terms of such guaranty.

Section 5.03 Partial Release.

(a) Upon not less than thirty (30) days’ prior written notice from Borrower,
Lender shall release (the “Partial Release”) from the lien of this Instrument
that portion of the Property known as the “North Block” and more particularly
described in Exhibit D attached hereto (the “Release Parcel”), provided that
(i) at the time such request is made and at the time of the Partial Release,
there is no Event of Default under the Documents; (ii) Borrower pays to Lender
at the time of the release an amount equal to the sum of (a) an amount equal to
28.8% of the unpaid principal balance of the Loan at that time (the “North
Parcel Allocated Loan Amount”) plus (b) the Prepayment Premium applicable to the
North Parcel Allocated Loan Amount; plus (c) all accrued interest with respect
to the North Parcel Allocated Loan Amount, (iii) Borrower delivers to Lender, at
Borrower’s sole cost, such title insurance coverage as Lender may deem
reasonably necessary to insure that this Instrument remains a valid first lien
against the remainder of the Property (the “Remaining Property”), with access to
all of the public sidewalks surrounding the Remaining Property and with access
at the same access points as exist on the date hereof to the publicly dedicated
streets of North Garfield Street and North Highland Street, subject only to such
exceptions to title as were evidenced in the title policy insuring this
Instrument, current taxes due but not yet payable, such exceptions approved in
writing by Lender after the date hereof, and such other exceptions as may be
approved by Lender, in its sole discretion; (iv) Lender shall have received
evidence satisfactory to it that the Debt Service Coverage Ratio (using the Debt
Service Coverage Ratio and NOI definitions contained in Section 5.02) is at
least 1.60 to 1.00 for the preceding twelve (12) month period and Lender
receives satisfactory evidence that this Debt Service Coverage Ratio will be
maintained for the next succeeding twelve (12) months with respect to the
Remaining Property; (v) the Loan to Value Ratio (as defined in Section 5.02) of
the Loan (after the payment of the North Parcel Allocated Loan

 

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Amount) to the Remaining Property shall not exceed fifty-five percent (55%);
(vi) Lender shall have received satisfactory evidence that both the Release
Parcel and the Remaining Property shall be in compliance with all applicable
laws, ordinances, rules and regulations, including, but not limited to, lot
split and platting requirements, building codes, subdivision, zoning, and land
use laws; (vii) Lender shall have received satisfactory evidence that both the
Release Parcel and the Remaining Property will constitute separate real estate
tax parcels, and accordingly each will be separately taxed and assessed;
(viii) any space lease applicable to the Release Parcel shall be separate from
all space leases applicable to the Remaining Property and any lease on the
Remaining Property shall not be dependent on or tied in any way to any space
lease on the Release Parcel; (ix) Borrower shall pay, at the time of the request
for the Partial Release, a servicing fee of $10,000 and Lender’s legal fees and
disbursements and expenses incurred in connection with the request for the
Partial Release whether or not the request for the Partial Release is granted by
Lender; (x) Lender shall have determined, in its sole discretion, that the
Remaining Property will have all of the underground parking below the Remaining
Property (which is comprised of 460 spaces) and no other property or property
owner shall be granted an easement to use any of such 460 parking spaces under
the Remaining Property except for an easement (in form and substance reasonably
satisfactory to Lender) for use by the public and customers of the retail
tenants on the Release Parcel; (xi) Lender shall have received evidence
satisfactory to Lender that all necessary Tenant approvals (if any) have been
obtained in connection with the Partial Release; (xii) Borrower and any
guarantor shall reaffirm their respective obligations under the Documents;
(xiii) the Partial Release shall not affect any obligations of Borrower or any
guarantor under the Documents, except that the monthly principal and interest
payment amount due under Section 1(b) of the Note shall be adjusted in
accordance with the provisions of Paragraph 1(e) of the Note; (xiv) Borrower
shall have created easements for utilities, signage, drainage, parking, ingress
and egress and other appropriate purposes in, on and over the Release Parcel for
the benefit of the Remaining Property to the extent required by Lender and such
easements shall be insured as appurtenances in Lender’s title insurance policy
via appropriate endorsements; and (xv) Lender shall receive an updated survey
and legal descriptions of the Release Parcel and the Remaining Property.
Notwithstanding anything contained herein to the contrary, if after payment of
the North Parcel Allocated Loan Amount the financial tests set forth in clauses
(iv) and (v) above would not be satisfied, then Borrower shall have the right to
increase the North Parcel Allocated Loan Amount to the amount that would need to
be repaid in order to cause the conditions set forth in clauses (iv) and (v) to
be satisfied.

(b) This Section 5.03 shall be personal to the original Borrower under the Loan,
and no transferee (including, but not limited to a transferee pursuant to
Section 5.02) shall have any rights under this Section 5.03.

(c) In the event there is Damage to only the Release Parcel or a Taking
involving only the Release Parcel, and Lender elects, pursuant to
Section 3.07(b) or 3.08(c), to apply the insurance proceeds or the Award to
payment of the Obligations (the “Application Election”), then Borrower may
elect, by written notice to Lender within 10 days after Borrower has been given
notice of the Application Election by Lender, to obtain the Partial Release so
long as Borrower complies with all the requirements of Section 5.03(a) above. In
such event Borrower will be entitled to a credit against the payment of the
North Parcel Allocated Loan Amount equal to the net payment received by Lender
pursuant to Section 3.07(b)(iii)(2)(A) or Section 3.08(c)(2)(A) (the “Paydown
Credit”). No Prepayment Premium will be due in connection with the Paydown
Credit, but Borrower will be required to pay a Prepayment Premium on the
difference between the North Parcel Allocated Loan Amount and the Paydown
Credit.

(d) Notwithstanding the provisions of Section 3.05(d) above, Lender agrees to
consider in good faith requests from Borrower for Lender’s consent to any
easements over the Remaining Property for the benefit of the Release Parcel in
connection with the Partial Release.

 

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ARTICLE VI - DEFAULTS AND REMEDIES

Section 6.01 Events of Default. The following shall be an “Event of Default”:

(a) if Borrower fails to make any payment required under the Note or other
Documents when due and such failure continues for five (5) days after written
notice; provided, however, that if Lender gives one (1) notice of such a
monetary default within any twelve (12) month period, Borrower shall not have
any further right to any notice of a monetary default during the next following
twelve (12) month period; provided, further, however, Borrower shall not have
any right to any such notice upon the maturity date of the Note;

(b) except for defaults listed in the other subsections of this Section 6.01, if
Borrower fails to perform or comply with any other provision contained in the
Documents and the default is not cured within thirty (30) days of Lender’s
providing written notice thereof (the “Grace Period”); provided, however, that
Lender will extend the Grace Period up to an additional ninety (90) days (for a
total of one hundred twenty (120) days from the date of default) if (i) Borrower
promptly commences and diligently pursues the cure of such default and delivers
(within the Grace Period) to Lender a written request for more time and
(ii) Lender determines in good faith that (1) such default cannot be cured
within the Grace Period but can be cured within one hundred twenty (120) days
after the default, (2) no lien or security interest created by the Documents
will be impaired prior to completion of such cure, and (3) Lender’s immediate
exercise of any remedies provided hereunder or by law is not necessary for the
protection or preservation of the Property or Lender’s or Trustee’s security
interest;

(c) if any representation made (i) in connection with the Loan or the
Obligations or (ii) in the Loan application or Documents shall be false or
misleading in any material respect;

(d) if there is a transfer of the Property or any direct or indirect interest
therein in violation of Article V;

(e) if Borrower shall (i) become insolvent, (ii) make a transfer in fraud of
creditors, (iii) make an assignment for the benefit of its creditors, (iv) not
be able to pay its debts as such debts become due, or (v) admit in writing its
inability to pay its debts as they become due;

(f) if any bankruptcy, reorganization, arrangement, insolvency, or liquidation
proceeding, or any other proceedings for the relief of debtors, is instituted by
or against Borrower, and, if instituted against Borrower, is allowed, consented
to, or not dismissed within the earlier to occur of (i) ninety (90) days after
such institution or (ii) the filing of an order for relief;

(g) if any of the events in Sections 6.01 (e) or (f) shall occur with respect to
any (i) managing member of Borrower (if Borrower is a limited liability
company), (ii) general partner of Borrower (if Borrower is a partnership), or
(iii) guarantor of payment and/or performance of any of the Obligations;

(h) if the Property shall be taken, attached, or sequestered on execution or
other process of law in any action against Borrower (including, by way of
example, a Federal seizure of the Property on account of illegal activity, but
excluding condemnation and the filing of Liens [which are addressed in Sections
3.08, 3.09 and 5.01(a)(i) hereinabove]) and such default is not cured within
thirty (30) days after notice from Lender; provided, that if Lender reasonably
determines that title to the Property is in danger of being irretrievably lost,
then Tenant shall not be entitled to any notice or cure period;

(i) if any default occurs under the Environmental Indemnity (defined below) and
such default is not cured within the cure period set forth in Section 6.01(b)
above;

 

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(j) if Borrower shall fail at any time to obtain, maintain, renew, or keep in
force the insurance policies required by Section 3.06 within ten (10) days after
written notice;

(k) if Borrower shall be in default beyond applicable cure period under any
other mortgage, deed of trust, or security agreement covering any part of the
Property, whether it be superior or junior in lien to this Instrument;

(l) if any claim of priority (except based upon a Permitted Encumbrance) to the
Documents by title, lien, or otherwise shall be upheld by any court of competent
jurisdiction or shall be consented to by Borrower;

(m) (i) the consummation by Borrower of any transaction which would cause
(A) the Loan or any exercise of Lender’s rights under the Documents to
constitute a non-exempt prohibited transaction under ERISA or (B) a violation of
a state statute regulating governmental plans; (ii) the failure of any
representation in Section 3.11 to be true and correct in all respects; or
(iii) the failure of Borrower to provide Lender with the written certifications
required by Section 3.11(c), unless such default is cured within the lesser of
(x) fifteen (15) days after written notice of such default to Borrower or
(y) the shortest cure period, if any, provided for under any Laws applicable to
such matters (including, without limitation, ERISA); and

(n) (i) the consummation by Borrower of any transaction which would cause an
OFAC Violation; (ii) the failure of any representation in Section 2.09 to be
true and correct in all respects; or (iii) the failure of Borrower to comply
with the provisions of Section 3.20, unless such default is cured within the
lesser of (A) fifteen (15) days after written notice of such default to Borrower
or (B) the shortest cure period, if any, provided for under any Laws applicable
to such matters (including, without limitation, the Anti-Terrorism Regulations).

Section 6.02 Remedies. If an Event of Default occurs (unless Lender has accepted
cure of such Event of Default by specific written statement from Lender to
Borrower acknowledging Lender’s acceptance of such cure, and Borrower
specifically understands and agrees that Lender shall have no obligation to
accept the cure of any Event of Default), Lender, or any person designated by
Lender or Lender acting by or through Trustee, may (but shall not be obligated
to) take any enforcement action (separately, concurrently, cumulatively, and at
any time and in any order) permitted under any Laws, without notice, demand,
presentment, or protest (all of which are hereby waived), to protect and enforce
Lender’s or Trustee’s rights under the Documents or Laws including the following
actions:

(a) accelerate and declare the entire unpaid Obligations immediately due and
payable, except for defaults under Section 6.01 (f), (g), or (h) which shall
automatically make the Obligations immediately due and payable;

(b) judicially or otherwise, (i) completely foreclose this Instrument or
(ii) partially foreclose this Instrument for any portion of the Obligations due
and the lien and security interest created by this Instrument shall continue
unimpaired and without loss of priority as to the remaining Obligations not yet
due;

(c) sell for cash or upon credit the Property and all right, title and interest
of Borrower therein and rights of redemption thereof, pursuant to power of sale;

(d) subject to the limitations referred to in Section 8.01 hereof, recover
judgment on the Note either before, during or after any proceedings for the
enforcement of the Documents and without any requirement of any action being
taken to (i) realize on the Property or (ii) otherwise enforce the Documents;

 

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(e) seek specific performance of any provisions in the Documents;

(f) apply for the appointment of a receiver, custodian, trustee, liquidator, or
conservator of the Property without (i) notice to any person, (ii) regard for
(A) the adequacy of the security for the Obligations or (B) the solvency of
Borrower or any person liable for the payment of the Obligations; and Borrower
and any person so liable waives or shall be deemed to have waived the foregoing
and any other objections to the fullest extent permitted by Laws and consents or
shall be deemed to have consented to such appointment;

(g) with or without entering upon the Property, (i) exclude Borrower and any
person from the Property without liability for trespass, damages, or otherwise
(other than that arising directly from Lender’s gross negligence or willful
misconduct); (ii) take possession of, and Borrower shall surrender on demand,
all books, records, and accounts relating to the Property; (iii) give notice to
Tenants or any person, make demand for, collect, receive, sue for, and recover
in its own name all Rents and cash collateral derived from the Property;
(iv) use, operate, manage, preserve, control, and otherwise deal with every
aspect of the Property including (A) conducting its business, (B) insuring it,
(C) making all repairs, renewals, replacements, alterations, additions, and
improvements to or on it, (D) completing the construction of any Improvements in
manner and form as Lender deems advisable, and (E) executing, modifying,
enforcing, and terminating new and existing Leases on such terms as Lender deems
advisable and evicting any Tenants in default; (v) apply the receipts from the
Property to payment of the Obligations, in any order or priority determined by
Lender, after first deducting all Costs, expenses, and liabilities incurred by
Lender or Trustee in connection with the foregoing operations and all amounts
needed to pay the Impositions and other expenses of the Property, as well as
just and reasonable compensation for the services of Lender, Trustee, and their
attorneys, agents, and employees; and/or (vi) in every case in connection with
the foregoing, exercise all rights and powers of Borrower, or Lender or Trustee
with respect to the Property, either in Borrower’s name or otherwise;

(h) release any portion of the Property for such consideration, if any, as
Lender may require without, as to the remainder of the Property, impairing or
affecting the lien or priority of this Instrument or improving the position of
any subordinate lienholder with respect thereto, except to the extent that the
Obligations shall have been actually reduced, and Lender may accept by
assignment, pledge, or otherwise any other property in place thereof as Lender
may require without being accountable for so doing to any other lienholder;

(i) apply any Deposits to the following items in any order and in Lender’s sole
discretion: (A) the Obligations, (B) Costs, (C) advances made by Lender or
Trustee under the Documents, and/or (D) Impositions;

(j) take all actions permitted under the U.C.C. of the Property State including
(i) the right to take possession of all tangible and intangible personal
property now or hereafter included within the Property (“Personal Property”) and
take such actions as Lender or Trustee deems advisable for the care, protection
and preservation of the Personal Property and (ii) request Borrower at its
expense to assemble the Personal Property and make it available to Lender or
Trustee at a convenient place acceptable to Lender or Trustee. Any notice of
sale, disposition or other intended action by Lender or Trustee with respect to
the Personal Property sent to Borrower at least five (5) days prior to such
action shall constitute commercially reasonable notice to Borrower; or

(k) take any other action permitted under any Laws.

 

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If Lender or Trustee exercises any of its rights under Section 6.02(g), Lender
and Trustee shall not (a) be deemed to have entered upon or taken possession of
the Property except upon the exercise of its option to do so, evidenced by its
demand and overt act for such purpose; (b) be deemed a beneficiary or mortgagee
in possession by reason of such entry or taking possession; nor (c) be liable
(i) to account for any action taken pursuant to such exercise other than for
Rents actually received by Lender or Trustee, (ii) for any loss sustained by
Borrower resulting from any failure to lease the Property, or (iii) any other
act or omission of Lender or Trustee except for losses caused by Lender’s or
Trustee’s willful misconduct or gross negligence. Borrower hereby consents to,
ratifies, and confirms the exercise by Lender and Trustee of its or their rights
under this Instrument and appoints Lender and Trustee as its attorney-in-fact,
which appointment shall be deemed to be coupled with an interest and
irrevocable, for such purposes.

Section 6.03 Expenses. All Costs, expenses, or other amounts paid or incurred by
Lender or Trustee in the exercise of its or their rights under the Documents,
together with interest thereon at the applicable interest rate specified in the
Note, which shall be the Default Rate unless prohibited by Laws, shall be
(a) part of the Obligations, (b) secured by this Instrument, and (c) allowed and
included as part of the Obligations in any foreclosure, decree for sale, power
of sale, or other judgment or decree enforcing Lender’s and/or Trustee’s rights
under the Documents.

Section 6.04 Rights Pertaining to Sales. To the extent permitted under (and in
accordance with) any Laws, the following provisions shall, as Lender or Trustee
may determine in its or their sole discretion, apply to any sales of the
Property under Article VI, whether by judicial proceeding, judgment, decree,
power of sale, foreclosure or otherwise: (a) Lender or Trustee may conduct a
single sale of the Property or multiple sales of any part of the Property in
separate tracts or in its entirety or any other manner consistent with
applicable Laws as Lender deems in its best interests and each of Borrower
waives any right to require otherwise; (b) if Lender elects more than one sale
of the Property, Lender may at its option cause the same to be conducted
simultaneously or successively, on the same day or on such different days or
times and in such order as Lender may deem to be in its best interests, no such
sale shall terminate or otherwise affect the lien of this Instrument on any part
of the Property not then sold, and Borrower shall pay the costs and expenses of
each such sale; (c) any sale may be postponed or adjourned by public
announcement at the time and place appointed for such sale or for such postponed
or adjourned sale without further notice or such sale may occur, without further
notice, at the time fixed by the last postponement or a new notice of sale may
be given; and (d) Lender may acquire the Property and, in lieu of paying cash,
may pay by crediting against the Obligations the amount of its bid, after
deducting therefrom any sums which Lender or Trustee is authorized to deduct
under the provisions of the Documents. After any such sale, Trustee shall
deliver to the purchaser at such sale the Trustee’s deed conveying the property
so sold, but without any covenant or warranty, express or implied. The recitals
in any such deed of any matters or facts shall be conclusive proof of the
truthfulness thereof. Any Person, including Borrower, Trustee or Lender, may
purchase at such sale.

Section 6.05 Application of Proceeds. Any proceeds received from any sale or
disposition under Article VI or otherwise, together with any other sums held by
Lender or Trustee, shall, except as expressly provided to the contrary, be
applied in the order determined by Lender to: (a) payment of all Costs and
expenses of any enforcement action, or foreclosure sale, transfer of title by
power of sale (including the expenses of the Trustee), or otherwise, including
interest thereon at the applicable interest rate specified in the Note, which
shall be the Default Rate unless prohibited by Laws, (b) all taxes, Assessments,
and other charges unless the Property was sold subject to these items;
(c) payment of the Obligations in such order as Lender may elect; (d) payment of
any other sums secured or required to be paid by Borrower; and (e) payment of
the surplus, if any, to any person lawfully entitled to receive it. Borrower and
Lender intend and agree that during any period of time between any foreclosure
judgment that may be obtained and the actual foreclosure sale that the
foreclosure judgment will not extinguish the Documents or any rights contained
therein including the obligation of Borrower to pay all Costs and to pay
interest at the applicable interest rate specified in the Note, which shall be
the Default Rate unless prohibited by Laws.

 

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Section 6.06 Additional Provisions as to Remedies. No failure, refusal, waiver,
or delay by Lender or Trustee to exercise any rights under the Documents upon
any default or Event of Default shall impair Lender’s or Trustee’s rights or be
construed as a waiver of, or acquiescence to, such or any subsequent default or
Event of Default. No recovery of any judgment by Lender or Trustee and no levy
of an execution upon the Property or any other property of Borrower shall affect
the lien and security interest created by this Instrument and such liens,
rights, powers, and remedies shall continue unimpaired as before. Lender or
Trustee may resort to any security given by this Instrument or any other
security now given or hereafter existing to secure the Obligations, in whole or
in part, in such portions and in such order as Lender or Trustee may deem
advisable, and no such action shall be construed as a waiver of any of the
liens, rights, or benefits granted hereunder. Acceptance of any payment after
any Event of Default shall not be deemed a waiver or a cure of such Event of
Default and such acceptance shall be deemed an acceptance on account only
(unless Lender has accepted cure of such Event of Default by specific written
statement from Lender to Borrower acknowledging Lender’s acceptance of such
cure, and Borrower specifically understands and agrees that Lender shall have no
obligation to accept the cure of any Event of Default). If Lender or Trustee has
started enforcement of any right by foreclosure, sale, entry, or otherwise and
such proceeding shall be discontinued, abandoned, or determined adversely for
any reason, then Borrower, Lender and Trustee shall be restored to their former
positions and rights under the Documents with respect to the Property, subject
to the lien and security interest hereof.

Section 6.07 Waiver of Rights and Defenses. To the fullest extent Borrower may
do so under Laws, Borrower (a) will not at any time insist on, plead, claim, or
take the benefit of any statute or rule of law now or later enacted providing
for any appraisement, valuation, stay, extension, moratorium, or redemption;
(b) for itself, its successors and assigns, and for any person ever claiming an
interest in the Property (other than Lender), waives and releases all rights of
redemption, reinstatement, valuation, appraisement, notice of intention to
mature or declare due the whole of the Obligations, all rights to a marshaling
of the assets of Borrower, including the Property, or to a sale in inverse order
of alienation, in the event of foreclosure (or extinguishment by transfer of
title by power of sale) of the liens and security interests created under the
Documents; (c) shall not be relieved of its obligation to pay the Obligations as
required in the Documents nor shall the lien or priority of the Documents be
impaired by any agreement renewing, extending, or modifying the time of payment
or the provisions of the Documents (including a modification of any interest
rate), unless expressly released, discharged, or modified by such agreement.
Regardless of consideration and without any notice to or consent by the holder
of any subordinate lien, security interest, encumbrance, right, title, or
interest in or to the Property, Lender may (a) release any person liable for
payment of the Obligations or any portion thereof or any part of the security
held for the Obligations or (b) modify any of the provisions of the Documents
without impairing or affecting the Documents or the lien, security interest, or
the priority of the modified Documents as security for the Obligations over any
such subordinate lien, security interest, encumbrance, right, title, or
interest.

Section 6.08 Additional Credit Bidding. In connection with any sale of the
Property pursuant to Section 363 of the Bankruptcy Code or any plan under the
Bankruptcy Code, Lender shall have the right to acquire the Property and, in
lieu of paying cash, Lender shall have the right (at its option) to pay by
crediting against the Obligations the amount of its bid, after deducting
therefrom any sums which Lender is authorized to deduct under the provisions of
the Documents.

ARTICLE VII - SECURITY AGREEMENT

Section 7.01 Security Agreement. This Instrument constitutes both a real
property deed of trust and a “security agreement” within the meaning of the
U.C.C. The Property includes real and personal property

 

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and all tangible and intangible rights and interest of Borrower in the Property.
Borrower grants to Lender and Trustee, as security for the Obligations, a
security interest in the Personal Property to the fullest extent that the
Personal Property may be subject to the U.C.C. Borrower authorizes Lender to
file any financing or continuation statements and amendments thereto relating to
the Personal Property without the signature of Borrower if permitted by Laws.

ARTICLE VIII - LIMITATION ON PERSONAL LIABILITY AND INDEMNITIES

Section 8.01 Limited Recourse Liability. Notwithstanding anything to the
contrary contained herein, the liability of Borrower hereunder and under the
other Documents is limited in the same manner and to the same extent as
Borrower’s liability is limited as provided in Paragraphs 8, 9 and 10 of the
Note.

Section 8.02 General Indemnity. Borrower agrees that while Lender has no
liability to any person in tort or otherwise as lender and that Lender is not an
owner or operator of the Property, Borrower shall, at its sole expense (but
subject to the provisions of Section 8.01 above), protect, defend, release,
indemnify and hold harmless (“indemnify”) the Indemnified Parties from any
Losses (defined below) imposed on, incurred by, or asserted against the
Indemnified Parties, directly or indirectly, arising out of or in connection
with the Property, the Loan, or the Documents, including Losses; provided,
however, that the foregoing indemnities shall not apply to any Losses caused by
(i) the gross negligence of Lender, (ii) the willful misconduct of Lender,
(iii) an illegal act by Lender, or (iv) fraud on the part of Lender; and
provided further that the foregoing indemnities shall not apply to claims
brought by or on behalf of Lender or any of the other Indemnified Parties unless
such claims are for indemnification against claims imposed on, incurred by, or
asserted against Lender or such other Indemnified Parties by a third party. The
term “Losses” shall mean any claims, suits, liabilities (including strict
liabilities), actions, proceedings, obligations, debts, damages, losses
(including, without limitation, unrealized loss of value of the Property),
Costs, expenses, fines, penalties, charges, fees, judgments, awards, and amounts
paid in settlement of whatever kind including attorneys’ fees (both in-house
staff and retained attorneys) and all other costs of defense. The term
“Indemnified Parties” shall mean (a) Lender, (b) any prior owner or holder of
the Note, (c) any existing or prior servicer of the Loan, (d) Trustee, (e) the
officers, directors, shareholders, partners, members, employees and trustees of
any of the foregoing, and (f) the heirs, legal representatives, successors and
assigns of each of the foregoing.

Section 8.03 Transaction Taxes Indemnity. Borrower shall, at its sole expense,
indemnify the Indemnified Parties from all Losses imposed upon, incurred by, or
asserted against the Indemnified Parties or the Documents relating to
Transaction Taxes.

Section 8.04 ERISA Indemnity. Borrower shall, at its sole expense, indemnify the
Indemnified Parties against all Losses imposed upon, incurred by, or asserted
against the Indemnified Parties (a) as a result of a transaction by Borrower
that causes a Violation, (b) in the investigation, defense, and settlement of a
Violation caused by a transaction of Borrower, (c) as a result of a breach of
Borrower’s representations in Section 3.11 or default thereunder, (d) in
correcting any prohibited transaction or the sale of a prohibited loan, by
reason of Borrower’s breach of the representations contained in Section 3.11(b),
and (e) in obtaining any individual prohibited transaction exemption under ERISA
that may be required, in Lender’s sole discretion, by reason of Borrower’s
breach of the representations contained in Section 3.11(b).

Section 8.05 Environmental Indemnity. Borrower and other persons, if any, have
executed and delivered the Environmental and ERISA Indemnity Agreement dated the
date hereof to Lender (“Environmental Indemnity”).

 

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Section 8.06 Duty to Defend, Costs and Expenses. Upon request, whether
Borrower’s obligation to indemnify Lender arises under Article VIII or in the
Documents, Borrower shall defend the Indemnified Parties (in Borrower’s or the
Indemnified Parties’ names) for the matters specified in Sections 8.03, 8.04 and
8.05 above by attorneys and other professionals approved by the Indemnified
Parties. Notwithstanding the foregoing, the Indemnified Parties may, in their
sole discretion, engage their own attorneys and professionals to defend or
assist them and, at their option, their attorneys shall control the resolution
of any claims or proceedings. Upon demand, Borrower shall pay or, in the sole
discretion of the Indemnified Parties, reimburse and/or indemnify the
Indemnified Parties for all Costs imposed on, incurred by, or asserted against
the Indemnified Parties by reason of any items set forth in this Article VIII
and/or the enforcement or preservation of the Indemnified Parties’ rights under
the Documents. Any amount payable to the Indemnified Parties under this Section
shall (a) be deemed a demand obligation, (b) be part of the Obligations,
(c) bear interest upon demand at the Default Rate until paid if not paid on
demand, and (d) be secured by this Instrument.

Section 8.07 Recourse Obligation and Survival. Notwithstanding anything to the
contrary in the Documents and in addition to the recourse obligations in the
Note, the obligations of Borrower under Sections 8.03, 8.04, 8.05, and 8.06
shall be a full recourse obligation of Borrower, shall not be subject to any
limitation on personal liability in the Documents, and shall survive
(a) repayment of the Obligations, (b) any termination, satisfaction, transfer of
title by power of sale, assignment or foreclosure of this Instrument, (c) the
acceptance by Lender (or any nominee) of a deed in lieu of foreclosure, (d) a
plan of reorganization for Borrower filed under the Bankruptcy Code, or (e) the
exercise by Lender of any rights in the Documents. Notwithstanding the
foregoing, the liability of Borrower under the Environmental Indemnity shall be
subject to the limitations set forth in Sections 6 and 19 of such document.
Borrower’s obligations under Article VIII shall not be affected by the absence
or unavailability of insurance covering the same or by the failure or refusal by
any insurance carrier to perform any obligation under any applicable insurance
policy.

ARTICLE IX - ADDITIONAL PROVISIONS

Section 9.01 Usury Savings Clause. All agreements in the Documents are expressly
limited so that in no event whatsoever shall the amount paid or agreed to be
paid under the Documents for the use, forbearance, or detention of money exceed
the highest lawful rate permitted by Laws. If, at the time of performance,
fulfillment of any provision of the Documents shall involve transcending the
limit of validity prescribed by Laws, then, ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity. If Lender shall ever
receive as interest an amount which would exceed the highest lawful rate, the
receipt of such excess shall be deemed a mistake and (a) shall be canceled
automatically or (b) if paid, such excess shall be (i) credited against the
principal amount of the Obligations to the extent permitted by Laws or
(ii) rebated to Borrower if it cannot be so credited under Laws. Furthermore,
all sums paid or agreed to be paid under the Documents for the use, forbearance,
or detention of money shall to the extent permitted by Laws be amortized,
prorated, allocated, and spread throughout the full stated term of the Note
until payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the maximum lawful rate of interest from time to
time in effect and applicable to the Obligations for so long as the Obligations
are outstanding.

 

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Section 9.02 Notices. Any notice, request, demand, consent, approval, direction,
agreement, or other communication (any “notice”) required or permitted under the
Documents shall be in writing and shall be validly given if sent by a
nationally-recognized courier that obtains receipts, delivered personally by a
courier that obtains receipts, or mailed by United States certified mail (with
return receipt requested and postage prepaid) addressed to the applicable person
as follows:

 

If to Borrower:   With a copy of notices sent to Borrower to:

CLARENDON CENTER LLC

c/o Saul Centers, Inc.

7501 Wisconsin Avenue, Suite 1500 East

Bethesda, Maryland 20814

Attention: Scott V. Schneider, Senior Vice President and Chief Financial Officer

 

PILLSBURY WINTHROP SHAW PITTMAN LLP

2300 N Street, NW

Washington, District of Columbia 20037

Attention: Diane Shapiro Richer, Esq.

  and  

Clarendon Center LLC

c/o B.F. Saul Company

7501 Wisconsin Avenue, Suite 1500 East

Bethesda, Maryland 20814

Attention: Victoria J. Perkins, Esq.

If to Lender:   With a copy of notices sent to Lender to:

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

Prudential Asset Resources, Inc.

2100 Ross Avenue, Suite 2500

Dallas, Texas 75201

Attention: Asset Management Department

Reference Loan No. 706108495

 

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

Prudential Asset Resources, Inc.

2100 Ross Avenue, Suite 2500

Dallas, Texas 75201

Attention: Legal Department

Reference Loan No. 706108495

If to Trustee:  

LAWYERS TITLE REALTY SERVICES, INC.

c/o Commonwealth Land Title Insurance Company

1015 15th Street, N.W., Suite 300

Washington, DC 20005

 

Each notice shall be effective upon being so sent, delivered, or mailed, but the
time period for response or action shall run from the date of receipt as shown
on the delivery receipt. Refusal to accept delivery or the inability to deliver
because of a changed address for which no notice was given shall be deemed
receipt. Any party may periodically change its address for notice and specify up
to two (2) additional addresses for copies by giving the other party at least
ten (10) days’ prior notice.

Section 9.03 Sole Discretion of Lender. Except as otherwise expressly stated,
whenever Lender’s judgment, consent, or approval is required or Lender shall
have an option or election under the Documents, such judgment, the decision as
to whether or not to consent to or approve the same, or the exercise of such
option or election shall be in the sole and absolute discretion of Lender
(exercised in good faith).

Section 9.04 Applicable Law and Submission to Jurisdiction. The Documents shall
be governed by and construed in accordance with the laws of the Property State
and the applicable laws of the United States of America. Without limiting
Lender’s or Trustee’s right to bring any action or proceeding against Borrower
or the Property relating to the Obligations (an “Action”) in the courts of other
jurisdictions, Borrower irrevocably (a) submits to the jurisdiction of any state
or federal court in the Property State, (b) agrees that any Action may be heard
and determined in such court, and (c) waives, to the fullest extent permitted by
Laws, the defense of an inconvenient forum to the maintenance of any Action in
such jurisdiction.

 

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Section 9.05 Construction of Provisions. The following rules of construction
shall apply for all purposes of this Instrument unless the context otherwise
requires: (a) all references to numbered Articles or Sections or to lettered
Exhibits are references to the Articles and Sections hereof and the Exhibits
annexed to this Instrument and such Exhibits are incorporated into this
Instrument as if fully set forth in the body of this Instrument; (b) all
Article, Section, and Exhibit captions are used for convenience and reference
only and in no way define, limit, or in any way affect this Instrument;
(c) words of masculine, feminine, or neuter gender shall mean and include the
correlative words of the other genders, and words importing the singular number
shall mean and include the plural number, and vice versa; (d) no inference in
favor of or against any party shall be drawn from the fact that such party has
drafted any portion of. this Instrument; (e) all obligations of Borrower
hereunder shall be performed and satisfied by or on behalf of Borrower at
Borrower’s sole expense; (f) the terms “include,” “including,” and similar terms
shall be construed as if followed by the phrase “without being limited to”;
(g) the terms “Property,” “Land,” “Improvements,” and “Personal Property” shall
be construed as if followed by the phrase “or any part thereof”; (h) the term
“Obligations” shall be construed as if followed by the phrase “or any other sums
secured hereby, or any part thereof”; (i) the term “person” shall include
natural persons, firms, partnerships, limited liability companies, trusts,
corporations, governmental authorities or agencies, and any other public or
private legal entities; (j) the term “provisions,” when used with respect hereto
or to any other document or instrument, shall be construed as if preceded by the
phrase “terms, covenants, agreements, requirements, and/or conditions”; (k) the
term “lease” shall mean “tenancy, subtenancy, lease, sublease, or rental
agreement,” the term “lessor” shall mean “landlord, sublandlord, lessor, and
sublessor,” and the term “Tenants” or “lessee” shall mean “tenant, subtenant,
lessee, and sublessee”; (l) the term “owned” shall mean “now owned or later
acquired”; (m) the terms “any” and “all” shall mean “any or all”; (n) the term
“on demand” or “upon demand” shall mean “within five (5) business days after
written notice”; and (o) the term “Trustee” shall mean “Trustee, its successors
and assigns, and any substitute or successor Trustee of the estates, properties,
powers, trusts and rights conferred upon Trustee pursuant to the Documents”.

Section 9.06 Transfer of Loan.

(a) Lender may, at any time, (i) sell, transfer or assign the Documents and any
servicing rights with respect thereto or (ii) grant participations therein or
issue mortgage or deed of trust pass-through certificates or other securities
evidencing a beneficial interest in a rated or unrated public offering or
private placement (collectively, the “Securities”). Lender may forward to any
purchaser, transferee, assignee, servicer, participant, or investor in such
Securities (collectively, “Investors”), to any Rating Agency (defined below)
rating such Securities and to any prospective Investor, all documents and
information which Lender now has or may later acquire relating to the
Obligations, Borrower, any guarantor, any indemnitor(s), the Leases, and the
Property, whether furnished by Borrower, any guarantor, any indemnitor(s) or
otherwise, as Lender determines advisable. Borrower, any guarantor and any
indemnitor agree to cooperate with Lender in connection with any transfer made
or any Securities created pursuant to this Section including the delivery of an
estoppel certificate in accordance with Section 3.16 and such other documents as
may be reasonably requested by Lender. Borrower shall also furnish consent of
any borrower, any guarantor and any indemnitor in order to permit Lender to
furnish such Investors or such prospective Investors or such Rating Agency with
any and all information concerning the Property, the Leases, the financial
condition of Borrower, any guarantor and any indemnitor, as may be reasonably
requested by Lender, any Investor, any prospective Investor or any Rating Agency
and which may be complied with without undue expense. “Rating Agency” shall mean
any one or more credit rating agencies approved by Lender.

 

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(b) Borrower agree that upon any assignment or transfer of the Documents by
Lender to any third party, Lender shall have no obligations or liabilities under
the Documents, such third party shall be substituted as the lender under the
Documents for all purposes and Borrower shall look solely to such third party
for the performance of any obligations under the Documents or with respect to
the Loan.

Section 9.07 Miscellaneous. If any provision of the Documents shall be held to
be invalid, illegal, or unenforceable in any respect, this shall not affect any
other provisions of the Documents and such provision shall be limited and
construed as if it were not in the Documents. If title to the Property becomes
vested in any person other than Borrower, Lender and Trustee may, without notice
to Borrower, deal with such person regarding the Documents or the Obligations in
the same manner as with Borrower without in any way vitiating or discharging
Borrower’s liability under the Documents or being deemed to have consented to
the vesting. If both the lessor’s and lessee’s interest under any Lease ever
becomes vested in any one person, this Instrument and the lien and security
interest created hereby shall not be destroyed or terminated by the application
of the doctrine of merger and Lender and Trustee shall continue to have and
enjoy all its rights and privileges as to each separate estate. Upon foreclosure
(or transfer of title by power of sale) of this Instrument, none of the Leases
shall be destroyed or terminated as a result of such foreclosure (or sale), by
application of the doctrine of merger or as a matter of law, unless Lender or
Trustee takes all actions required by law to terminate the Leases as a result of
foreclosure or sale. All of Borrower’s covenants and agreements under the
Documents shall run with the land and time is of the essence. Borrower appoints
Lender as its attorney-in-fact, which appointment is irrevocable and shall be
deemed to be coupled with an interest, with respect to the execution,
acknowledgment, delivery, filing or recording for and in the name of Borrower of
any of the documents listed in Sections 3.04, 3.19, 4.01 and 6.02, provided that
Lender will not exercise such power unless Borrower fails to act within the
timeframes required under the Documents. The Documents cannot be amended,
terminated, or discharged except in a writing signed by the party against whom
enforcement is sought. No waiver, release, or other forbearance by Lender will
be effective unless it is in a writing signed by Lender and then only to the
extent expressly stated. The provisions of the Documents shall be binding upon
Borrower and its heirs, devisees, representatives, successors, and assigns
including successors in interest to the Property and inure to the benefit of
Lender and Trustee and its or their heirs, successors, substitutes, and assigns.
Where two or more persons have executed the Documents, the obligations of such
persons shall be joint and several, except to the extent the context clearly
indicates otherwise. The Documents may be executed in any number of counterparts
with the same effect as if all parties had executed the same document. All such
counterparts shall be construed together and shall constitute one instrument,
but in making proof hereof it shall only be necessary to produce one such
counterpart. Upon receipt of an affidavit of an officer of Lender as to the
loss, theft, destruction or mutilation of any Document which is not of public
record, and, in the case of any mutilation, upon surrender and cancellation of
the Document, Borrower will issue, in lieu thereof, a replacement Document,
dated the date of the lost, stolen, destroyed or mutilated Document containing
the same provisions. Any reviews, inspections, reports, approvals or similar
items conducted, made or produced by or on behalf of Lender with respect to
Borrower, the Property or the Loan are for loan underwriting and servicing
purposes only, and shall not constitute an acknowledgment, representation or
warranty of the accuracy thereof, or an assumption of liability with respect to
Borrower, Borrower’s contractors, architects, engineers, employees, agents or
invitees, present or future tenants, occupants or owners of the Property, or any
other party.

Section 9.08 Entire Agreement. (a) the Documents constitute the entire
understanding and agreement between Borrower, Lender and Trustee with respect to
the Loan and supersede all prior written or oral understandings and agreements
with respect to the Loan including the Loan application and Loan commitment and
(b) Borrower is not relying on any representations or warranties of Lender
except as expressly set forth in the Documents.

 

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Section 9.09 Concerning the Trustee. By recording a written substitution in the
county where the Property is located or by any other means permitted by Laws,
Lender may (a) remove Trustee or any successor Trustee at any time (or times)
without notice or cause and (b) replace any Trustee who dies or resigns. To the
extent permitted by Laws, Trustee waives any statutory fee for its services and
agrees to accept reasonable compensation in lieu thereof. Trustee may resign
upon thirty (30) days notice to Lender and Borrower. If more than one person is
appointed Trustee, all rights granted to Trustee under this Instrument may be
exercised by any of them, without the others, with the same effect as if
exercised by all of them jointly. In addition to exercising all rights set forth
in this Instrument, Trustee may exercise all rights under Laws.

Section 9.10 WAIVER OF TRIAL BY JURY. EACH OF BORROWER AND LENDER HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM FILED BY EITHER PARTY, WHETHER IN CONTRACT,
TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE DOCUMENTS,
OR ANY ALLEGED ACTS OR OMISSIONS OF LENDER OR BORROWER IN CONNECTION THEREWITH.

ARTICLE X - LOCAL LAW PROVISIONS

Section 10.01 Statutory Provisions. The following short form provisions are
hereby made applicable and are incorporated into this Instrument as permitted
under the Code of Virginia (1950), Section 55-60 (1986 Rep. Vol. and 1988 Cum.
Supp.) and shall have the meanings set forth therein: (a) “Exemptions Waived,”
(b) “Subject to call upon default,” (c) “Substitution of trustee permitted,” and
(d) “Any trustee may act.”

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURES ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, the undersigned has executed this Instrument as of the day
first set forth above.

 

BORROWER: CLARENDON CENTER LLC, a Delaware limited liability company By:   Saul
Centers, Inc., a Maryland corporation, its Manager   By:  

/s/ B. Francis Saul II

  Name:  

B. Francis Saul II

  Title:  

Chief Executive Officer

[CORPORATE SEAL]

STATE OF MARYLAND)

COUNTY OF MONTGOMERY)

I, Laurenia Jenkins, a notary public in and for the state and county aforesaid
do certify that B. Francis Saul II, whose name is signed to the writing above,
being the Chief Executive Officer of SAUL CENTERS, INC., a Maryland corporation,
as Manager of CLARENDON CENTER LLC, a Delaware limited liability company, has
acknowledged the same before me this 22nd day of March, 2011, in my county
aforesaid.

 

/s/ Laurenia Jenkins

Notary Public Name:  

Laurenia Jenkins

My Commission Expires:  

October 17, 2011

Notary Registration No.                        [NOTARY SEAL]

 

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EXHIBIT A

LEGAL DESCRIPTION

TRACT ONE

All of Parcel “B”, Block E, Lyon’s Addition to Clarendon, as the same is shown
on a plat attached to the Deed of Resubdivision and Easements recorded in Deed
Book 4160 at page 294, among the Land Records of Arlington County, Virginia,
being more particularly described by metes and bounds as follows:

Beginning at a point where the southerly right-of-way line of Wilson Boulevard
(variable width) intersects the westerly right-of-way line of North Garfield
Street (variable width); thence with the said line of North Garfield Street:

S 06° 32’ 23” E, 158.46 feet to a point where the said line of North Garfield
Street intersects the northerly right-of-way line of Clarendon Boulevard
(variable width); thence with the said line of Clarendon Boulevard

S 55° 15’ 05” W, 188.53 feet to a point marking a corner to a part of Lot 3,
Block E, Lyons Addition to Clarendon; thence departing the said line of
Clarendon Boulevard and running with the line of said part of Lot 3 and part of
Lot 2, Block E, Lyons Addition to Clarendon and also a portion of the
aforementioned right-of-way line of Wilson Boulevard

N 21° 51’ 21” W, 115.66 feet to a point; thence with the said line of Wilson
Boulevard on the following three (3) courses and distances:

N 45° 11’ 50” E, 56.60 feet to a point; thence

S 12° 33’ 46” E, 17.72 feet to a point; thence

N 45° 12’ 07” E, 191.52 feet to the point of beginning. Containing 25,201 square
feet, or 0.57854 acres of land, more or less.

TOGETHER WITH the beneficial easements and other items in the nature of real
property rights contained in the Declaration of Covenants and Easements recorded
in Deed Book 4009 at page 639 among the aforesaid Land Records.

TOGETHER WITH the rights in the nature of real property rights arising from the
Encroachment Ordinance recorded in Deed Book 4108 at page 1998, among the
aforesaid Land Records.

FURTHER TOGETHER WITH the Party Wall Agreements dated October 2, 1937 and
recorded May 31, 1938 in Deed Book 436 at page 41; dated January 15, 1938 and
recorded May 31, 1938 in Deed Book 436 at page 42; dated June 28, 1938 and
recorded August 26, 1938 in Deed Book 442 at page 577, as affected by Agreement
and dated May 9, 1939 and recorded December 26, 1940 in Deed Book 527 at page
45; as supplemented by Declaration (Supplemental Party Wall Agreement) dated
December 19, 1990 and recorded January 4, 1991 in Deed Book 2459 at page 1712,
among the aforesaid Land Records

NOTE FOR INFORMATIONAL PURPOSES ONLY:

RPC Number:    18012004

 

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TRACT TWO

All of Parcel “A”, Block F, Lyon’s Addition to Clarendon, as the same is shown
on a plat attached to the Deed of Resubdivision and Easements recorded in Deed
Book 4156 at page 723, among the Land Records of Arlington County, Virginia,
being more particularly described by metes and bounds as follows:

Beginning at a point where the southerly right-of-way line of Clarendon
Boulevard (variable width) intersects the westerly right-of-way line of North
Garfield Street (variable width); thence with the said line of North Garfield
Street on the following three (3) courses and distances:

S 06° 32’ 23” E, 121.34 feet to a point; thence

N 55° 15’ 07” E, 5.67 feet to a point; thence

S 06° 32’ 23” E, 245.33 feet to a point where the said line of North Garfield
Street intersects the northerly right-of-way line of 11th Street North (variable
width); thence with the said line of 11th Street North on the following three
(3) courses and distances:

S 84° 33’ 37” W, 110.02 feet to a point; thence

N 06° 32’ 23” W, 15.00 feet to a point; thence

S 84° 33’ 37” W, 5.00 feet to the southeasterly corner to Outlot “A”:, Block F,
Lyon’s Addition to Clarendon; thence departing the said line of 11th Street
North and running with the easterly line of said Outlot “A”

N 06° 32’ 23” W, 96.72 feet to a point; thence with the northerly line of Outlot
“A” and also Lot 110, Block F, Lyon’s Addition to Clarendon

S 83° 27’ 41” W, 102.50 feet to a point in the easterly right-of-way line of
North Highland Street (variable width) thence departing the line of said Lot 110
and running with the said line of North Highland Street

N 06° 32’ 23” W, 136.08 feet to a point where the said line of North Highland
Street intersects the aforementioned line of Clarendon Boulevard; thence with
the said line of Clarendon Boulevard

N 55° 15’ 07” E, 241.14 feet to the point of beginning. Containing 54,578 square
feet or 1.25293 acres of land, more or less.

TOGETHER WITH Terms and conditions contained in Agreement dated January 16, 1946
and recorded September 17, 1947 in Deed Book 793 at page 310, among the
aforesaid Land Records.

TOGETHER WITH the beneficial easements and other items in the nature of real
property rights contained in the Declaration of Covenants and Easements recorded
in Deed Book 4009 at page 639 among the aforesaid Land Records.

TOGETHER WITH the rights in the nature of real property rights arising from the
Encroachment Ordinance recorded in Deed Book 4108 at page 2009 among the
aforesaid Land Records.

TOGETHER WITH the rights in the nature of real property rights arising from the
Development Agreement dated June 7, 2006, as evidenced by Memorandum of
Development Agreement recorded in Deed Book 4008 at page 2113 as amended by
unrecorded First Amendment to Development Agreement dated September 5, 2007, as
evidenced by Memorandum of First Amendment to Development Agreement recorded in
Deed Book 4136 at page 152 both among the aforesaid Land Records.

TOGETHER WITH the easement granted Saul Holdings Limited Partnership by Sanitary
Sewer Easement Agreement from Leadership Institute dated April 9, 2008 and
recorded in Deed Book 4181 at page 1624, among the aforesaid Land Records.

FURTHER TOGETHER WITH the easement granted Saul Holdings Limited Partnership by
Encroachment Easement Agreement dated June 29, 2010 and recorded July 2, 2010 in
Deed Book 4375 at page 669, among the aforesaid Land Records.

NOTE FOR INFORMATIONAL PURPOSES ONLY:

RPC Number:    18013011

(End of Exhibit A)

 

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EXHIBIT B

DESCRIPTION OF PERSONAL PROPERTY SECURITY

All of Borrower’s right, title and interest in, to and under the following:

1. All machinery, apparatus, goods, equipment, materials, fittings, fixtures,
chattels, and tangible personal property, and all appurtenances and additions
thereto and betterments, renewals, substitutions, and replacements thereof,
owned by Borrower, wherever situate, and now or hereafter located on, attached
to, contained in, or used in connection with the real property described in
Exhibit A attached hereto and incorporated herein (the “Land”), and all
improvements located thereon (the “Improvements”) or placed on any part thereof,
though not attached thereto, including all screens, awnings, shades, blinds,
curtains, draperies, carpets, rugs, furniture and furnishings, heating,
electrical, lighting, plumbing, ventilating, air-conditioning, refrigerating,
incinerating and/or compacting plants, systems, fixtures and equipment,
elevators, hoists, stoves, ranges, vacuum and other cleaning systems, call
systems, sprinkler systems and other fire prevention and extinguishing apparatus
and materials, motors, machinery, pipes, ducts, conduits, dynamos, engines,
compressors, generators, boilers, stokers, furnaces, pumps, tanks, appliances,
equipment, fittings, and fixtures.

2. All funds, accounts, deposits, instruments, documents, contract rights,
general intangibles, notes, and chattel paper arising from or by virtue of any
transaction related to the Land, the Improvements, or any of the personal
property described in this Exhibit B.

3. All permits, licenses, franchises, certificates, and other rights and
privileges now held or hereafter acquired by Borrower in connection with the
Land, the Improvements, or any of the personal property described in this
Exhibit B, to the extent assignable.

4. All right, title, and interest of Borrower in and to the name by which the
Land and/or the Improvements are known, including trademarks and trade names
relating thereto.

5. All right, title, and interest of Borrower in, to, and under all plans,
specifications, maps, surveys, reports, permits, licenses, architectural,
engineering and construction contracts, books of account, insurance policies,
and other documents of whatever kind or character, relating to the use,
construction upon, occupancy, leasing, sale, or operation of the Land and/or the
Improvements, to the extent assignable.

6. All interests, estates, or other claims or demands, in law and in equity,
which Borrower now has or may hereafter acquire in the Land, the Improvements,
or the personal property described in this Exhibit B.

7. All right, title, and interest owned by Borrower in and to all options to
purchase or lease the Land, the Improvements, or any other personal property
described in this Exhibit B, or any portion thereof or interest therein, and in
and to any greater estate in the Land, the Improvements, or any of the personal
property described in this Exhibit B.

8. All of the estate, interest, right, title, other claim or demand, both in law
and in equity, including claims or demands with respect to the proceeds of
insurance relating thereto, which Borrower now has or may hereafter acquire in
the Land, the Improvements, or any of the personal property described in this
Exhibit B, or any portion thereof or interest therein, and any and all awards
made for the taking by eminent domain, or by any proceeding or purchase in lieu
thereof, of the whole or any part of such property, including without
limitation, any award resulting from a change of any streets (whether as to
grade, access, or otherwise) and any award for severance damages.

 

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9. All right, title, and interest of Borrower in and to all contracts, permits,
certificates, licenses, approvals, utility deposits, utility capacity, and
utility rights issued, granted, agreed upon, or otherwise provided by any
governmental or private authority, person or entity relating to the ownership,
development, construction, operation, maintenance, marketing, sale, or use of
the Land and/or the Improvements (to the extent assignable), including all of
Borrower’s rights and privileges hereto or hereafter otherwise arising in
connection with or pertaining to the Land and/or the Improvements, including,
without limiting the generality of the foregoing, all water and/or sewer
capacity, all water, sewer and/or other utility deposits or prepaid fees, and/or
all water and/or sewer and/or other utility tap rights or other utility rights,
any right or privilege of Borrower under any loan commitment, lease, contract,
declaration of covenants, restrictions and easements or like instrument,
developer’s agreement, or other agreement with any third party pertaining to the
ownership, development, construction, operation, maintenance, marketing, sale,
or use of the Land and/or the Improvements, to the extent assignable.

AND ALL PROCEEDS AND PRODUCTS OF THE FOREGOING PERSONAL PROPERTY DESCRIBED IN
THIS EXHIBIT B.

A PORTION OF THE ABOVE DESCRIBED GOODS ARE OR ARE TO BE AFFIXED TO THE REAL
PROPERTY DESCRIBED IN EXHIBIT A.

BORROWER IS THE RECORD TITLE HOLDER AND OWNER OF THE REAL PROPERTY DESCRIBED IN
EXHIBIT A.

ALL TERMS USED IN THIS EXHIBIT B (AND NOT OTHERWISE DEFINED IN THIS EXHIBIT B)
SHALL HAVE THE MEANING, IF ANY, ASCRIBED TO SUCH TERM UNDER THE UNIFORM
COMMERCIAL CODE AS ADOPTED AND IN FORCE IN THE JURISDICTION IN WHICH THIS
FINANCING STATEMENT HAS BEEN FILED/RECORDED (THE “U.C.C.”).

WITH RESPECT TO ANY FINANCING STATEMENT TO WHICH THIS EXHIBIT B IS ATTACHED, THE
TERM “BORROWER” SHALL MEAN “DEBTOR” AS SUCH TERM IS DEFINED IN THE CODE.

 

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EXHIBIT C

PERMITTED ENCUMBRANCES

THE FOLLOWING ITEMS AFFECT BOTH TRACT ONE AND TRACT TWO:

 

1. Taxes for the first half of 2011 and subsequent years, which are not yet due
and payable.

 

2. The restrictions contained in instruments dated June 3, 1904 and recorded
June 3, 1904 in Deed Book 110 at page 81; dated September 1, 1904 and recorded
September 1, 1904 in Deed Book 110 at page 329; dated September 1, 1904 and
recorded September 8, 1904 in Deed Book 110 at page 367; dated October 1, 1904
and recorded October 15, 1904 in Deed Book 110 at page 434; dated October 1,
1904 and recorded October 13, 1904 in Deed Book 110 at page 435; dated November
1, 1904 and recorded November 5, 1904 Deed Book 110 at page 481; dated February
13, 1905 and recorded February 14, 1905 in Deed Book 111 at page 32; dated March
20, 1905 and recorded March 21, 1905 in Deed Book 111 at page 81; dated March 1,
1905 and recorded March 29, 1905 in Deed Book 111 at page 92; dated January 28,
1909 and recorded February 8, 1909 in Deed Book 119 at page 418; dated July 17,
1912 and recorded July 18, 1912 in Deed Book 133 at page 584 and dated January
2, 1913 and recorded January 4, 1913 in Deed Book 136 at page 57, among the Land
Records of Arlington County, Virginia.

 

3. Declaration of Covenants and Easements dated August 3, 2007 and recorded
August 7, 2007 in Deed Book 4009 at page 639, among the aforesaid Land Records.

THE FOLLOWING ITEMS AFFECT TRACT ONE:

 

4. Party Wall Agreements dated October 2, 1937 and recorded May 31, 1938 in Deed
Book 436 at page 41; dated January 15, 1938 and recorded May 31, 1938 in Deed
Book 436 at page 42; dated June 28, 1938 and recorded August 26, 1938 in Deed
Book 442 at page 577, as affected by Agreement dated May 9, 1939 and recorded
December 26, 1940 in Deed Book 527 at page 45; as supplemented by Declaration
(Supplemental Party Wall Agreement) dated December 19, 1990 and recorded January
4, 1991 in Deed Book 2459 at page 1712, among the aforesaid Land Records.

 

5. Encroachment Ordinance dated June 15, 2007 and recorded June 19, 2007 in Deed
Book 4108 at page 1998, among the aforesaid Land Records.

 

6. Deed of Covenant (North Block) dated November 5, 2007 and recorded December
20, 2007 in Deed Book 4149 at page 2772, among the aforesaid Land Records.

 

7. Deed of Resubdivision and Easements for the benefit of County Board of
Arlington County, Virginia as per the plat attached thereto dated January 4,
2008 and recorded January 8, 2008 in Deed Book 4160 at page 294, among the
aforesaid Land Records.

 

8. Stormwater Facility Maintenance and Monitoring Agreement dated September 18,
2008 and recorded October 1, 2008 in Deed Book 4218 at page 1803, among the
aforesaid Land Records.

 

9. Underground Right of Way Easement and Vault Agreement for the benefit of
Virginia Electric and Power Company dated June 18, 2010 and recorded July 7,
2010 in Deed Book 4375 at page 2246, among the aforesaid Land Records.

THE FOLLOWING ITEMS AFFECT TRACT TWO:

 

10. Easement granted to American Telephone and Telegraph Company of Virginia
dated July 31, 1918 and recorded Octobers 29, 1918 in Deed Book 159 at page 39,
among the aforesaid Land Records.

 

11. Agreement dated January 16, 1946 and recorded September 17, 1947 in Deed
Book 793 at page 310, among the aforesaid Land Records.

 

12. Easements reserved by The County Board of Arlington County, Virginia as set
forth in Deed dated April 10, 1978 and recorded May 10, 1978 in Deed Book 1966
at page 1139, among the aforesaid Land Records.

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13. Perpetual easement for public street and utility purposes granted to The
County Board of Arlington County, Virginia by Deed of Easement dated April 14,
1978 and recorded May 10, 1978 in Deed Book 1966 at page 1146, among the
aforesaid Land Records.

 

14. Unrecorded Development Agreement dated June 7, 2006, as evidenced by
Memorandum of Development Agreement dated July 7, 2006 and recorded August 4,
2006 in Deed Book 4008 at page 2113; as amended by unrecorded First Amendment to
Development Agreement dated September 5, 2007, as evidenced by Memorandum of
First Amendment to Development Agreement dated September 5, 2007 and recorded
September 20, 2007 in Deed Book 4136 at page 152, among the aforesaid Land
Records.

 

15. Encroachment Ordinance dated June 15, 2007 and recorded June 19, 2007 in
Deed Book 4108 at page 2009, among the aforesaid Land Records.

 

16. Deed of Covenant (South Block) dated November 5, 2007 and recorded December
20, 2007 in Deed Book 4149 at page 2764, among the aforesaid Land Records.

 

17. Deed of Resubdivision and Easements for the benefit of the County Board of
Arlington County, Virginia as per the plat attached thereto dated December 18,
2007 and recorded December 19, 2007 in Deed Book 4156 at page 723; as affected
by Deed of Vacation which vacated a sanitary sewer easement and gas pipeline
easement dated June 6, 2008 and recorded June 9, 2008 in Deed Book 4195 at page
2637, among the aforesaid Land Records.

 

18. Sanitary Sewer Easement Agreement between Leadership Institute and Saul
Holdings Limited Partnership dated April 9, 2008 and recorded April 10, 2008 in
Deed Book 4181 at page 1624, among the aforesaid Land Records.

 

19. Surface easement and right of way and perpetual easement granted to the
Washington Metropolitan Transit Authority by Deed of Easement dated November 24,
1975 and recorded January 20, 1976 in Deed Book 1904 at page 693; as affected by
Quitclaim Deed dated January 23, 2008 and recorded February 7, 2008 in Deed Book
4165 at page 2491, by which the sanitary sewer easement granted by the above
instrument was vacated.

 

20. Subsurface easement and right of way granted to the Washington Metropolitan
Transit Authority by Deed of Easement dated December 19, 1975 and recorded
December 23, 1975 in Deed Book 1902 at page 837; as affected by Quitclaim Deed
dated January 23, 2008 and recorded February 7, 2008 in Deed Book 4165 at page
2491, by which the sanitary sewer easement granted by the above instrument was
vacated.

 

21. Stormwater Facility Maintenance and Monitoring Agreement dated September 18,
2008 and recorded October 1, 2008 in Deed Book 4218 at page 1809, among the
aforesaid Land Records.

 

22. Underground Right of Way Easement and Vault Agreement for the benefit of
Virginia Electric and Power Company dated November 9, 2009 and recorded December
15, 2009 in Deed Book 4331 at page 1418, among the aforesaid Land Records.

 

23. Encroachment Easement Agreement dated June 29, 2010 and recorded July 2,
2010 in Deed Book 4375 at page 669, among the aforesaid Land Records.

 

24. Easements granted to the County Board of Arlington County, Virginia by
virtue of Deed of Easement dated October 18, 2010 and recorded October 27, 2010
in Deed Book 4406 at page 1424, among the aforesaid Land Records.

 

25. Matters shown on the ALTA/ACSM Land Title Survey on Parcel “A” Block “F” and
Parcel “B”, Block “E”, Clarendon Center, Lyon’s Addition to Clarendon prepared
by Bowman Consulting Group, Ltd. dated February 15, 2011, last revised March 14,
2011, and designated Project No. 7018-03-001.

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EXHIBIT D

NORTH BLOCK LEGAL DESCRIPTION

All of Parcel “B”, Block E, Lyon’s Addition to Clarendon, as the same is shown
on a plat attached to the Deed of Resubdivision and Easements recorded in Deed
Book 4160 at page 294, among the Land Records of Arlington County, Virginia,
being more particularly described by metes and bounds as follows:

Beginning at a point where the southerly right-of-way line of Wilson Boulevard
(variable width) intersects the westerly right-of-way line of North Garfield
Street (variable width); thence with the said line of North Garfield Street:

S 06° 32’ 23” E, 158.46 feet to a point where the said line of North Garfield
Street intersects the northerly right-of-way line of Clarendon Boulevard
(variable width); thence with the said line of Clarendon Boulevard

S 55° 15’ 05” W, 188.53 feet to a point marking a corner to a part of Lot 3,
Block E, Lyons Addition to Clarendon; thence departing the said line of
Clarendon Boulevard and running with the line of said part of Lot 3 and part of
Lot 2, Block E, Lyons Addition to Clarendon and also a portion of the
aforementioned right-of-way line of Wilson Boulevard

N 21° 51’ 21” W, 115.66 feet to a point; thence with the said line of Wilson
Boulevard on the following three (3) courses and distances:

N 45° 11’ 50” E, 56.60 feet to a point; thence

S 12° 33’ 46” E, 17.72 feet to a point; thence

N 45° 12’ 07” E, 191.52 feet to the point of beginning. Containing 25,201 square
feet, or 0.57854 acres of land, more or less.

TOGETHER WITH the beneficial easements and other items in the nature of real
property rights contained in the Declaration of Covenants and Easements recorded
in Deed Book 4009 at page 639 among the aforesaid Land Records.

TOGETHER WITH the rights in the nature of real property rights arising from the
Encroachment Ordinance recorded in Deed Book 4108 at page 1998. among the
aforesaid Land Records.

FURTHER TOGETHER WITH the Party Wall Agreements dated October 2, 1937 and
recorded May 31, 1938 in Deed Book 436 at page 41; dated January 15, 1938 and
recorded May 31, 1938 in Deed Book 436 at page 42; dated June 28, 1938 and
recorded August 26, 1938 in Deed Book 442 at page 577, as affected by Agreement
and dated May 9, 1939 and recorded December 26, 1940 in Deed Book 527 at page
45; as supplemented by Declaration (Supplemental Party Wall Agreement) dated
December 19, 1990 and recorded January 4, 1991 in Deed Book 2459 at page 1712,
among the aforesaid Land Records

NOTE FOR INFORMATIONAL PURPOSES ONLY:

RPC Number: 18012004

 

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Prudential Loan No. 706108495

Clarendon Center/Deed of Trust