Exhibit 10.38

 

 

 

 

 

OPEN-END MORTGAGE

WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FIXTURE FILING

BY

KBSII I-81 INDUSTRIAL PORTFOLIO TRUST,

A Delaware Statutory Trust,

as Mortgagor,

TO

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Mortgagee

Dated as of February 8, 2011

THIS IS AN OPEN-END MORTGAGE AND SECURES FUTURE ADVANCES. THE MAXIMUM PRINCIPAL
AMOUNT SECURED BY THIS INSTRUMENT IS SUCH AMOUNT AS MAY BE DUE AND OWING ON THE
NOTE DESCRIBED HEREIN NOT TO EXCEED $372,000,000 PLUS ALL OTHER COSTS AND
INDEBTEDNESS DESCRIBED IN 42 Pa. C.S. §8143

RECORDING REQUESTED BY

AND WHEN RECORDED MAIL TO:

WELLS FARGO BANK, NATIONAL ASSOCIATION

Real Estate Group (AU #02955)

2030 Main Street, Suite 800

Irvine, CA 92614

Attn: Jeri Gehrer

Loan No. 1002835

THIS INSTRUMENT PREPARED BY:

Mark Appelbaum

Jones Day

555 California Street, 26th floor

San Francisco, CA 94104

Tax Parcel Number: 26-U6S3-001-36A-000

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THE PARTIES TO THIS OPEN-END MORTGAGE WITH ABSOLUTE ASSIGNMENT OF LEASES AND
RENTS, SECURITY AGREEMENT AND FIXTURE FILING (“Mortgage”), dated as of the 8th
day of February, 2011, but intended to be effective as of February 16, 2011, are
KBSII I-81 INDUSTRIAL PORTFOLIO TRUST, a Delaware statutory trust (“Mortgagor”),
for the benefit of WELLS FARGO BANK, NATIONAL ASSOCIATION, as administrative
agent for itself and certain additional lenders (“Mortgagee”).

ARTICLE 1. GRANT

 

  1.1

GRANT. For the purposes of and upon the terms and conditions in this Mortgage,
Mortgagor irrevocably grants, conveys, assigns and mortgages to Mortgagee and
its successors and assigns forever all of that real property located in the
Township of Hazle, County of Luzerne, Commonwealth of Pennsylvania, described on
Exhibit A attached hereto, together with all right, title, interest, and
privileges of Mortgagor in and to all streets, ways, roads, and alleys used in
connection with or pertaining to such real property and any improvements
thereon, all development rights or credits, air rights, water, water rights and
water stock related to the real property, all timber, and all minerals, oil and
gas, and other hydrocarbon substances in, on or under the real property, and all
licenses, appurtenances, reversions, remainders, easements, rights and rights of
way appurtenant or related thereto; and any and all rights of Mortgagor, as a
declarant, under any covenants, conditions, and restrictions now or hereafter
pertaining to the real property described on Exhibit A, hereto, provided,
however, that Mortgagee shall have no liability under such covenants,
conditions, and restrictions unless and until Mortgagee forecloses on the real
property; all buildings, other improvements and fixtures now or hereafter
located on the real property, including, but not limited to, all apparatus,
equipment, and appliances used in the operation or occupancy of the real
property, it being intended by the parties that all such items shall be
conclusively considered to be a part of the real property, whether or not
attached or affixed to the real property (the “Improvements”); all interest or
estate which Mortgagor may hereafter acquire in the property described above,
and all additions and accretions thereto, and the proceeds of any of the
foregoing; (all of the foregoing being collectively referred to as the “Subject
Property”). The listing of specific rights or property shall not be interpreted
as a limit of general terms.

TO HAVE AND TO HOLD the Subject Property, together with the Collateral (as
hereinafter defined) and all the rights, easements, profits and appurtenances
and other property described above, together with all proceeds, products,
replacements, additions, substitutions and renewals to or of any or all of the
foregoing belonging unto and to the use of the Mortgagee, its successors and
assigns, in fee simple forever;

PROVIDED, ALWAYS, that if Mortgagor shall pay unto Mortgagee the principal of
and interest on the Note, when and as the same shall become due and payable
whether by acceleration or otherwise, and shall pay all Secured Obligations (as
hereinafter defined), and performs all obligations on its behalf contained in
this Mortgage, the Loan Agreement (as such terms are defined below) or any of
the other documents evidencing any of the Secured Obligations, then and in that
case, the Subject Property and the Collateral hereby conveyed and all rights and
interests therein and thereto shall revert to Mortgagor and the estate, right,
title and interest of Mortgagee therein shall thereupon cease, determine and
become void and in such case Mortgagee shall execute and deliver to Mortgagor at
Mortgagor’s cost, an appropriate release and discharge of this Mortgage in form
to be recorded.

 

  1.2

ADDRESS. The address of the Subject Property is: 550 Oak Ridge Road, Hazle
Township, Pennsylvania. However, neither the failure to designate an address nor
any inaccuracy in the address designated shall affect the validity or priority
of the lien of this Mortgage on the Subject Property as described on Exhibit A.

 

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ARTICLE 2. OBLIGATIONS SECURED

 

  2.1

OBLIGATIONS SECURED. Mortgagor makes this Mortgage for the purpose of securing
the following obligations (“Secured Obligations”):

 

  (a)

Payment to Lenders (as defined in the Loan Agreement) of all sums at any time
owing under one or more secured promissory notes (initially dated January 27,
2011, and maturing on January 27, 2016 (subject to extension in accordance with
the Loan Agreement referenced below)) made in the aggregate principal amount of
Three Hundred and Sixty Million Dollars ($360,000,000) (the “Loan”) executed by
Mortgagor and certain other parties, as borrowers (“Borrowers”), from time to
time in connection with the Loan Agreement, and payable to the order of one or
more Lenders, including, without limitation (i) any replacement Note executed
pursuant to Section 2.15 of the Loan Agreement in connection with an increase of
the Loan to a maximum principal amount of Three Hundred and Seventy-Two Million
Dollars ($372,000,000) and (ii) any replacement Note executed pursuant to
Section 3.4 of the Loan Agreement in connection with the joinder of additional
Borrowers to the Loan Agreement including, without limitation, that certain
Second Amended and Restated and Consolidated Secured Promissory Note of even
date herewith (collectively, as the same may be amended, restated or replaced
from time to time, the “Note”); and

 

  (b)

Payment and performance of all covenants and obligations of Mortgagor under this
Mortgage; and

 

  (c)

Payment and performance of all covenants and obligations on the part of
Borrowers under that certain Amended and Restated and Consolidated Loan
Agreement (as the same may be amended, restated or replaced from time to time,
“Loan Agreement”), dated January 27, 2011, by and among Borrowers, Mortgagee,
and Lenders (as defined in the Loan Agreement), the Hazardous Materials
Indemnity Agreement (as defined in the Loan Agreement), and all other “Loan
Documents” as defined in the Loan Agreement; and

 

  (d)

Payment and performance of all covenants and obligations, if any, of any rider
attached as an Exhibit to this Mortgage; and

 

  (e)

Payment and performance of all future advances and other obligations that the
then record owner of all or part of the Subject Property may agree to pay and/or
perform (whether as principal, surety or guarantor) for the benefit of
Mortgagee, when such future advance or obligation is evidenced by a writing
which recites that it is secured by this Mortgage; and

 

  (f)

Payment and performance of all covenants and obligations of Borrowers (or any of
them) under (i) the Existing Swap and (ii) any other Swap Agreement (as such
terms are defined in the Loan Agreement, which agreement is evidenced by a
writing that recites it is secured by this Deed of Trust; and

 

  (g)

All modifications, extensions and renewals of any of the obligations secured
hereby, however evidenced, including, without limitation: (i) modifications of
the required principal payment dates or interest payment dates or both, as the
case may be, deferring or accelerating payment dates wholly or partly; or
(ii) modifications, extensions or renewals at a different rate of interest
whether or not in the case of a note, the modification, extension or renewal is
evidenced by a new or additional promissory note or notes.

 

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  2.2

OBLIGATIONS. The term “obligations” is used herein in its broadest and most
comprehensive sense and shall be deemed to include, without limitation, all
interest and charges, prepayment charges (if any), late charges and loan fees at
any time accruing or assessed on any of the Secured Obligations.

 

  2.3

INCORPORATION. All capitalized terms not defined herein shall have the meanings
given to them in the Loan Agreement. All terms of the Secured Obligations and
the documents evidencing such obligations are incorporated herein by this
reference. All persons who may have or acquire an interest in the Subject
Property shall be deemed to have notice of the terms of the Secured Obligations
and to have notice, if provided therein, that: (a) the Note or the Loan
Agreement may permit borrowing, repayment and re-borrowing so that repayments
shall not reduce the amounts of the Secured Obligations; and (b) the rate of
interest on one or more Secured Obligations may vary from time to time.

ARTICLE 3. ASSIGNMENT OF LEASES AND RENTS

 

  3.1

ASSIGNMENT. Mortgagor hereby irrevocably assigns to Mortgagee all of Mortgagor’s
right, title and interest in, to and under: (a) all leases of the Subject
Property or any portion thereof, and all other agreements of any kind relating
to the use or occupancy of the Subject Property or any portion thereof, whether
now existing or entered into after the date hereof (“Leases”); and (b) the
rents, revenue, income, issues, deposits and profits of the Subject Property,
including, without limitation, all parking income and all amounts payable and
all rights and benefits accruing to Mortgagor under the Leases (“Payments”). The
term “Leases” shall also include all guarantees of and security for the lessees’
performance thereunder, and all amendments, extensions, renewals or
modifications thereto which are permitted hereunder. This is a present and
absolute assignment, not an assignment for security purposes only, and
Mortgagee’s right to the Leases and Payments is not contingent upon, and may be
exercised without possession of, the Subject Property.

Nothing contained in this Mortgage is intended to diminish, alter, impair, or
affect any other rights and remedies of Mortgagee, including but not limited to,
the appointment of a receiver, nor shall any provision in this section diminish,
alter, impair or affect any rights or powers of the receiver in law or equity or
as set forth herein. In addition, this assignment shall be fully operative
without regard to value of the Subject Property or without regard to the
adequacy of the Subject Property to serve as security for the obligations owed
by Mortgagor to Mortgagee, and shall be in addition to any rights at law or in
equity. Further, except for the notices required hereunder, if any, Mortgagor
hereby waives any notice of default or demand for turnover of rents by
Mortgagee, together with any rights, if any, to apply to a court to deposit the
Payments into the registry of the court or such other depository as the court
may designate.

 

  3.2

GRANT OF LICENSE. Mortgagee confers upon Mortgagor a license (“License”) to
collect and retain the Payments as they become due and payable, until the
occurrence of a Default (as hereinafter defined). Upon a Default, the License
shall be automatically revoked and Mortgagee may collect and apply the Payments
pursuant to Section 6.4 without notice and without taking possession of the
Subject Property. Mortgagor hereby irrevocably authorizes and directs the
lessees under the Leases to rely upon and comply with any notice or demand by
Mortgagee for the payment to Mortgagee of any rental or other sums which may at
any time become due under the Leases, or for the performance of any of the
lessees’ undertakings under the Leases, and the lessees shall have no right or
duty to inquire as to whether any Default has actually occurred or is then
existing hereunder. Mortgagor hereby relieves the lessees from any liability to
Mortgagor by reason of relying upon and complying with any such notice or demand
by Mortgagee. Furthermore, upon any Default and

 

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revocation of the License as aforesaid, Mortgagee shall be entitled to receive
and Mortgagor covenants to deliver immediately to Mortgagee, upon demand, any
and all payments theretofore collected by Mortgagor which remain in the
possession or control of Mortgagor, whether or not commingled with other funds
of Mortgagor, and to the extent such Payments have not been delivered, the
Payments shall be held in trust from Mortgagee.

 

  3.3

EFFECT OF ASSIGNMENT. The foregoing irrevocable assignment shall not cause
Mortgagee to be: (a) a mortgagee in possession; (b) responsible or liable for
the control, care, management or repair of the Subject Property or for
performing any of the terms, agreements, undertakings, obligations,
representations, warranties, covenants and conditions of the Leases; or
(c) responsible or liable for any waste committed on the Subject Property by the
lessees under any of the Leases or any other parties; for any dangerous or
defective condition of the Subject Property; or for any negligence in the
management, upkeep, repair or control of the Subject Property resulting in loss
or injury or death to any lessee, licensee, employee, invitee or other person.
Mortgagee shall not directly or indirectly be liable to Mortgagor or any other
person as a consequence of: (i) the exercise or failure to exercise by
Mortgagee, or any of its respective employees, agents, contractors or
subcontractors, any of the rights, remedies or powers granted to Mortgagee
hereunder; or (ii) the failure or refusal of Mortgagee to perform or discharge
any obligation, duty or liability of Mortgagor arising under the Leases.

 

  3.4

REPRESENTATIONS AND WARRANTIES. Mortgagor represents and warrants that, to the
best of Mortgagor’s knowledge: (a) Mortgagor has delivered to Mortgagee a rent
roll that, as of the date hereof, contains a true, accurate and complete list of
all Leases; (b) all existing Leases are in full force and effect and are
enforceable in accordance with their respective terms, and no breach or default,
or event which would constitute a breach or default after notice or the passage
of time, or both, exists under any existing Leases on the part of any party;
(c) no rent or other payment under any existing Lease has been paid by any
lessee for more than one (1) month in advance; and (d) none of the lessor’s
interests under any of the Leases has been transferred or assigned.

 

  3.5

COVENANTS. Mortgagor covenants and agrees at Mortgagor’s sole cost and expense
to: (a) perform the obligations of lessor contained in the Leases and enforce by
all appropriate remedies performance by the lessees of the obligations of the
lessees contained in the Leases; (b) give Mortgagee prompt written notice of any
material default which occurs with respect to any of the Leases, whether the
default be that of the lessee or of the lessor; (c) exercise Mortgagor’s best
efforts to keep all portions of the Subject Property that are capable of being
leased leased at rental rates pursuant to the terms of the Loan Agreement;
(d) deliver to Mortgagee fully executed, copies of each and every Lease that it
is required to deliver in accordance with the Loan Agreement; and (e) execute
and record such additional assignments of any Lease or, if required by the terms
of the Loan Agreement, use commercially reasonable efforts to obtain specific
subordinations (or subordination, attornment and non-disturbance agreements
executed by the lessor and lessee) of any Lease to the Mortgage, in form and
substance acceptable to Mortgagee, as Mortgagee may request. Mortgagor shall
not, without Mortgagee’s prior written consent or as otherwise permitted by any
provision of the Loan Agreement: (i) to the extent prohibited by the terms of
the Loan Agreement, enter into any Leases after the date hereof; (ii) execute
any other assignment relating to any of the Leases; (iii) to the extent
prohibited by the terms of the Loan Agreement, discount any rent or other sums
due under the Leases or collect the same in advance, other than to collect
rentals one (1) month in advance of the time when it becomes due; (iv) to the
extent prohibited by the terms of the Loan Agreement, terminate, modify or amend
any of the terms of the Leases or in any manner release or discharge the lessees
from any obligations thereunder; (v) to the extent prohibited by the terms of
the Loan Agreement, consent to any assignment or subletting by any lessee; or
(vi) subordinate or

 

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agree to subordinate any of the Leases to any other mortgage or encumbrance. Any
such attempted action in violation of the provisions of this Section 3.5 shall
be null and void. Without in any way limiting the requirement of Mortgagee’s
consent hereunder, any sums received by Mortgagor in consideration of any
termination (or the release or discharge of any lessee) modification or
amendment of any Lease shall be applied as set forth in the Loan Agreement.

 

  3.6

ESTOPPEL CERTIFICATES. Within thirty (30) days after written request by
Mortgagee, Mortgagor shall deliver to Mortgagee and to any party designated by
Mortgagee estoppel certificates executed by Mortgagor, and use its best efforts
to obtain such estoppel certificates executed by each of the lessees, in each
case in recordable form, certifying (if such be the case): (a) that the
foregoing assignment and the Leases are in full force and effect; (b) the date
of each lessee’s most recent payment of rent; (c) that there are no defenses or
offsets outstanding, or stating those claimed by Mortgagor or lessees under the
foregoing assignment or the Leases, as the case may be; and (d) any other
information reasonably requested by Mortgagee.

ARTICLE 4. SECURITY AGREEMENT AND FIXTURE FILING

 

  4.1

SECURITY INTEREST. Mortgagor hereby grants and assigns to Mortgagee as of the
date hereof a security interest, to secure payment and performance of all of the
Secured Obligations, in all of the following described personal property in
which Mortgagor now or at any time hereafter has any interest (collectively, the
“Collateral”):

All goods, building and other materials, supplies, work in process, equipment,
machinery, fixtures, furniture, furnishings, signs and other personal property
and embedded software included therein, wherever situated, which are or are to
be incorporated into, used in connection with, or appropriated for use on
(i) the real property described on Exhibit A attached hereto and incorporated by
reference herein (to the extent the same are not effectively made a part of the
real property pursuant to Section 1.1 above) or (ii) the Improvements; together
with all rents (to the extent, if any, they are not subject to Article 3); all
inventory, accounts, cash receipts, deposit accounts, accounts receivable,
contract rights, licenses, agreements, (including, without limitation, all
acquisition agreements with respect to the Subject Property); all of Mortgagor’s
rights under any Swap Agreement, including, without limitation, the Existing
Swap; all Contracts referenced in Section 5.16 below (including property
management and leasing agreements), architects’ agreements, and/or construction
agreements with respect to the completion of any improvements on the Subject
Property), general intangibles, chattel paper (whether electronic or tangible),
instruments, documents, promissory notes, drafts, letters of credit, letter of
credit rights, supporting obligations, insurance policies, insurance and
condemnation awards and proceeds, any other rights to the payment of money,
trade names, trademarks and service marks arising from or related to the
ownership, management, leasing or operation of the Subject Property or any
business now or hereafter conducted thereon by Mortgagor; all permits, consents,
approvals, licenses, authorizations and other rights granted by, given by or
obtained from, any governmental entity with respect to the Subject Property; all
deposits or other security now or hereafter made with or given to utility
companies by Mortgagor with respect to the Subject Property; all advance
payments of insurance premiums made by Mortgagor with respect to the Subject
Property; all plans, drawings and specifications relating to the Subject
Property; all loan funds held by Mortgagee, whether or not disbursed; all funds
deposited with Mortgagee pursuant to any loan agreement; all reserves, deferred
payments, deposits, accounts, refunds, cost savings and payments of any kind
related to the Subject Property or any portion

 

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thereof; together with all replacements and proceeds of, and additions and
accessions to, any of the foregoing; together with all books, records and files
to the extent relating to any of the foregoing.

As to all of the above described personal property which is or which hereafter
becomes a “fixture” under applicable law, this Mortgage constitutes a fixture
filing under the Pennsylvania Uniform Commercial Code, as amended or recodified
from time to time (“UCC”), and is acknowledged and agreed to be a “mortgage”
under the UCC.

Security Agreement. THIS MORTGAGE IS TO BE FILED AND RECORDED IN, AMONG OTHER
PLACES, THE REAL ESTATE RECORDS OF THE COUNTY IN WHICH THE PROPERTY IS LOCATED
AND THE FOLLOWING INFORMATION IS INCLUDED: (1) THE MORTGAGOR SHALL BE DEEMED TO
BE THE “DEBTOR” WITH AN ADDRESS OF: 620 NEWPORT CENTER DRIVE, SUITE 1300,
NEWPORT BEACH, CA 92660, WHICH THE MORTGAGOR CERTIFIES IS ACCURATE; (2) THE
MORTGAGEE SHALL BE DEEMED TO BE THE “SECURED PARTY” WITH THE ADDRESS OF: 2030
MAIN STREET, SUITE 800, IRVINE, CA 92614, AND SHALL HAVE ALL OF THE RIGHTS OF A
SECURED PARTY UNDER THE UCC; (3) THIS MORTGAGE COVERS GOODS WHICH ARE OR ARE TO
BECOME FIXTURES; (4) THE NAME OF THE RECORD OWNER OF THE LAND IS THE MORTGAGOR;
(F) THE ORGANIZATIONAL IDENTIFICATION NUMBER OF THE MORTGAGOR IS 4936754;
(6) THE MORTGAGOR IS A STATUTORY TRUST, ORGANIZED UNDER THE LAWS OF THE STATE OF
DELAWARE; AND (7) THE LEGAL NAME OF THE MORTGAGOR IS KBSII I-81 INDUSTRIAL
PORTFOLIO TRUST.

This Mortgage creates a security interest in the Collateral, and, to the extent
the Collateral is not real property, this Mortgage constitutes a security
agreement from Mortgagor to Mortgagee under the UCC.

 

  4.2

REPRESENTATIONS AND WARRANTIES. Mortgagor represents and warrants that:
(a) Mortgagor has, as of the date of recordation of this Mortgage, and will have
good title to the Collateral; (b) Mortgagor has not previously assigned or
encumbered the Collateral, and no financing statement covering any of the
Collateral has been delivered to any other person or entity; (c) Mortgagor’s
principal place of business is located at the address shown in Section 7.11; and
(d) Mortgagor’s legal name is exactly as set forth on the first page of this
Mortgage and all of Mortgagor’s organizational documents or agreements delivered
to Mortgagee are complete and accurate in every respect.

 

  4.3

COVENANTS. Mortgagor agrees: (a) to execute and deliver such documents as
Mortgagee deems necessary to create, perfect and continue the security interests
contemplated hereby; (b) not to change its name, and as applicable, its chief
executive office, its principal residence or the jurisdiction in which it is
organized and/or registered without giving Mortgagee prior written notice
thereof; (c) to cooperate with Mortgagee in perfecting all security interests
granted herein and in obtaining such agreements from third parties as Mortgagee
deems necessary, proper or convenient in connection with the preservation,
perfection or enforcement of any of its rights hereunder; and (d) that Mortgagee
is authorized to file financing statements in the name of Mortgagor to perfect
Mortgagee’s security interest in Collateral.

 

  4.4

RIGHTS OF MORTGAGEE. In addition to Mortgagee’s rights as a “Secured Party”
under the UCC, Mortgagee may, but shall not be obligated to, at any time without
notice and at the expense of Mortgagor: (a) give notice to any person of
Mortgagee’s rights hereunder and

 

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enforce such rights at law or in equity; (b) insure, protect, defend and
preserve the Collateral or any rights or interests of Mortgagee therein;
(c) inspect the Collateral; and (d) endorse, collect and receive any right to
payment of money owing to Mortgagor under or from the Collateral.
Notwithstanding the above, in no event shall Mortgagee be deemed to have
accepted any property other than cash in satisfaction of any obligation of
Mortgagor to Mortgagee unless Mortgagee shall make an express written election
of said remedy under UCC §9620, or other applicable law.

 

  4.5

RIGHTS OF MORTGAGEE ON DEFAULT. Upon the occurrence and during the continuance
of a Default (hereinafter defined) under this Mortgage, then in addition to all
of Mortgagee’s rights as a “Secured Party” under the UCC or otherwise at law,
and subject to applicable law:

 

  (a)

Mortgagee may (i) upon written notice, require Mortgagor to assemble any or all
of the Collateral and make it available to Mortgagee at a place designated by
Mortgagee; (ii) without prior notice, enter upon the Subject Property or other
place where any of the Collateral may be located and take possession of,
collect, sell, lease, license and dispose of any or all of the Collateral, and
store the same at locations acceptable to Mortgagee at Mortgagor’s expense;
(iii) sell, assign and deliver at any place or in any lawful manner all or any
part of the Collateral and bid and become the purchaser at any such sales;

 

  (b)

Mortgagee may, for the account of Mortgagor and at Mortgagor’s expense:
(i) operate, use, consume, sell, lease, license or dispose of the Collateral as
Mortgagee deems appropriate for the purpose of performing any or all of the
Secured Obligations; (ii) enter into any agreement, compromise, or settlement,
including insurance claims, which Mortgagee may deem desirable or proper with
respect to any of the Collateral; and (iii) endorse and deliver evidences of
title for, and receive, enforce and collect by legal action or otherwise, all
indebtedness and obligations now or hereafter owing to Mortgagor in connection
with or on account of any or all of the Collateral; and

 

  (c)

In disposing of Collateral hereunder, Mortgagee may disclaim all warranties of
title, possession, quiet enjoyment and the like. Any proceeds of any disposition
of any Collateral may be applied by Mortgagee to the payment of expenses
incurred by Mortgagee in connection with the foregoing, including reasonable
attorneys’ fees, and the balance of such proceeds may be applied by Mortgagee
toward the payment of the Secured Obligations in such order of application as
Mortgagee may from time to time elect.

Notwithstanding any other provision hereof, Mortgagee shall not be deemed to
have accepted any property other than cash in satisfaction of any obligation of
Mortgagor to Mortgagee unless Mortgagor shall make an express written election
of said remedy under UCC §9621, or other applicable law, and the provisions of
UCC §9620 have been satisfied. Mortgagor agrees that Mortgagee shall have no
obligation to process or prepare any Collateral for sale or other disposition.

 

  4.6

POWER OF ATTORNEY. Mortgagor hereby irrevocably appoints Mortgagee as
Mortgagor’s attorney-in-fact (such agency being coupled with an interest), and
as such attorney-in-fact Mortgagee may, without the obligation to do so, in
Mortgagee’s name, or in the name of Mortgagor, prepare, execute and file or
record financing statements, continuation statements, applications for
registration and like papers necessary to create, perfect or preserve any of
Mortgagee’s security interests and rights in or to any of the Collateral, and,
upon a Default hereunder, take any other action required of Mortgagor; provided,
however,

 

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that Mortgagee as such attorney-in-fact shall be accountable only for such funds
as are actually received by Mortgagee.

 

  4.7

POSSESSION AND USE OF COLLATERAL. Except as otherwise provided in this Section
or the other Loan Documents (as defined in the Loan Agreement), so long as no
Default exists under this Mortgage or any of the Loan Documents, Mortgagor may
possess, use, move, transfer or dispose of any of the Collateral in the ordinary
course of Mortgagor’s business and in accordance with the Loan Agreement.

ARTICLE 5. RIGHTS AND DUTIES OF THE PARTIES

 

  5.1

TITLE. Mortgagor represents and warrants that, except as disclosed to Mortgagee
in a writing which refers to this warranty and the Permitted Liens, Mortgagor
lawfully holds and possesses fee simple title to the Subject Property without
limitation on the right to encumber, and that this Mortgage is a first and prior
lien on the Subject Property. Mortgagor hereby represents and warrants that all
of the Subject Property is one or more tax parcels, and there are no properties
included in such tax parcels other than the Subject Property. Mortgagor further
covenants and agrees that it shall not cause all or any portion of the Subject
Property to be replatted or for any lots or boundary lines to be adjusted,
changed or altered for either ad valorem tax purposes or otherwise, and shall
not consent to the assessment of the Subject Property in more than one tax
parcel or in conjunction with any property other than the Subject Property.

 

  5.2

TAXES AND ASSESSMENTS.

 

  (a)

Subject to Mortgagor’s rights to contest in good faith payment of taxes as
provided in Section 5.2(b) below, Mortgagor shall pay prior to delinquency all
taxes, assessments, levies and charges imposed by any public or quasi-public
authority or utility company which are or which may become a lien upon or cause
a loss in value of the Subject Property or any interest therein. Mortgagor shall
also pay prior to delinquency all taxes, assessments, levies and charges imposed
by any public authority upon Mortgagee by reason of its interest in any Secured
Obligation or in the Subject Property, or by reason of any payment made to
Mortgagee pursuant to any Secured Obligation; provided, however, Mortgagor shall
have no obligation to pay taxes which may be imposed from time to time upon
Mortgagee and which are measured by and imposed upon Mortgagee’s net income.

 

  (b)

Mortgagor may contest in good faith any taxes or assessments if: (i) Mortgagor
pursues the contest diligently and in compliance with applicable laws, in a
manner which Mortgagee determines is not prejudicial to Mortgagee, and does not
impair the rights of Mortgagee under any of the Loan Documents; and
(b) Mortgagor deposits with Mortgagee any funds or other forms of assurance
which Mortgagee in good faith determines from time to time appropriate to
protect Mortgagee from the consequences of the contest being unsuccessful.
Mortgagor’s compliance with this Section shall operate to prevent such claim,
demand, levy or assessment from becoming a Default.

 

  5.3

TAX AND INSURANCE IMPOUNDS. At any time following the occurrence of a Default,
at Mortgagee’s option and upon its demand, Mortgagor, shall, until all Secured
Obligations have been paid in full, pay to Mortgagee monthly, annually or as
otherwise directed by Mortgagee an amount estimated by Mortgagee to be equal to:
(a) all taxes, assessments, levies and charges imposed by any public or
quasi-public authority or utility company which are or may become a lien upon
the Subject Property or Collateral and will become due for the tax year during
which such payment is so directed; and (b) premiums for fire, hazard and

 

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insurance required or requested pursuant to the Loan Documents when same are
next due. If Mortgagee determines that any amounts paid by Mortgagor are
insufficient for the payment in full of such taxes, assessments, levies, charges
and/or insurance premiums, Mortgagee shall notify Mortgagor of the increased
amounts required to pay all amounts when due, whereupon Mortgagor shall pay to
Mortgagee within thirty (30) days thereafter the additional amount as stated in
Mortgagee’s notice. All sums so paid shall not bear interest, except to the
extent and in any minimum amount required by law; and Mortgagee shall, unless
Mortgagor is otherwise in Default hereunder or under any Loan Document, apply
said funds to the payment of, or at the sole option of Mortgagee release said
funds to Mortgagor for the application to and payment of, such sums, taxes,
assessments, levies, charges, and insurance premiums. Upon Default by Mortgagor
hereunder or under any Loan Document, Mortgagee may apply all or any part of
said sums to any Secured Obligation and/or to cure such Default, in which event
Mortgagor shall be required to restore all amounts so applied, as well as to
cure any other events or conditions of Default not cured by such application.
Upon assignment of this Mortgage, Mortgagee shall have the right to assign in
writing all amounts collected and in its possession to its assignee whereupon
Mortgagee shall be released from all liability with respect thereto. Within
ninety-five (95) days following full repayment of the Secured Obligations (other
than full repayment of the Secured Obligations as a consequence of a foreclosure
or conveyance in lieu of foreclosure of the liens and security interests
securing the Secured Obligations) or at such earlier time as Mortgagee may
elect, the balance of all amounts collected and in Mortgagee’s possession shall
be paid to Mortgagor and no other party shall have any right or claim thereto.

 

  5.4

PERFORMANCE OF SECURED OBLIGATIONS. Mortgagor shall promptly pay and perform
each Secured Obligation when due.

 

  5.5

LIENS, ENCUMBRANCES AND CHARGES. Mortgagor shall immediately discharge any lien
not permitted under the Loan Documents or approved by Mortgagee in writing that
has or may attain priority over this Mortgage. Subject to the following
sentence, Mortgagor shall pay when due all obligations secured by or which may
become liens and encumbrances which shall now or hereafter encumber or appear to
encumber all or any part of the Subject Property or Collateral, or any interest
therein, whether senior or subordinate hereto. If a claim of lien is recorded
which affects the Subject Property or a bonded stop notice is served upon
Mortgagee, Mortgagor shall, within twenty (20) calendar days of such recording
or service or within five (5) calendar days of Mortgagee’s demand, whichever
occurs first: (a) pay and discharge the claim of lien or bonded stop notice;
(b) effect the release thereof by recording or delivering to Mortgagee a surety
bond in sufficient form and amount; or (c) provide Mortgagee with other
assurances which Mortgagee deems, in its sole discretion, to be satisfactory for
the payment of such claim of lien or bonded stop notice and for the full and
continuous protection of Mortgagee from the effect of such lien or bonded stop
notice.

 

  5.6

DAMAGES; INSURANCE AND CONDEMNATION PROCEEDS.

 

  (a)

The following (whether now existing or hereafter arising) are all absolutely and
irrevocably assigned by Mortgagor to Mortgagee and, at the request of Mortgagee,
shall be paid directly to Mortgagee: (i) all awards of damages and all other
compensation payable directly or indirectly by reason of a condemnation or
proposed condemnation for public or private use affecting all or any part of, or
any interest in, the Subject Property or Collateral; (ii) all other claims and
awards for damages to, or decrease in value of, all or any part of, or any
interest in, the Subject Property or Collateral; (iii) all proceeds of any
insurance policies (whether or not expressly required by Mortgagee to be
maintained by Mortgagor, including, without limitation, earthquake insurance,
environmental insurance and terrorism insurance, if any) payable by reason of
loss sustained to all or any part of the Subject Property or

 

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Collateral; and (iv) all interest which may accrue on any of the foregoing.
Subject to applicable law and Section 5.6(b) below, and without regard to any
requirement contained in Section 5.7(d), Mortgagee may at its discretion apply
all or any of the proceeds it receives to its expenses in settling, prosecuting
or defending any claim and may apply the balance to the Secured Obligations in
any such order acceptable to Mortgagee, and/or Mortgagee may release all or any
part of the proceeds to Mortgagor upon any conditions Mortgagee may impose.
Mortgagee may commence, appear in, defend or prosecute any assigned claim or
action and may adjust, compromise, settle and collect all claims and awards
assigned to Mortgagee; provided, however, in no event shall Mortgagee be
responsible for any failure to collect any claim or award, regardless of the
cause of the failure, including, without limitation, any malfeasance or
nonfeasance by Mortgagee or its employees or agents.

 

  (b)

Mortgagee shall permit insurance or condemnation proceeds held by Mortgagee to
be used for repair or restoration but may condition such application upon
reasonable conditions, including, without limitation: (i) the deposit with
Mortgagee of such additional funds which Mortgagee determines are needed to pay
all costs of the repair or restoration, (including, without limitation, taxes,
financing charges, insurance and rent during the repair period); (ii) the
establishment of an arrangement for lien releases and disbursement of funds
acceptable to Mortgagee; (iii) the delivery to Mortgagee of plans and
specifications for the work, a contract for the work signed by a contractor
acceptable to Mortgagee, a cost breakdown for the work and a payment and
performance bond for the work, all of which shall be acceptable to Mortgagee;
and (iv) the delivery to Mortgagee of evidence acceptable to Mortgagee (aa) that
after completion of the work the income from the Subject Property will be
sufficient to pay all expenses and debt service for the Subject Property; (bb)
of the continuation of Leases acceptable to and required by Mortgagee; (cc) that
upon completion of the work, the size, capacity and total value of the Subject
Property will be at least as great as it was before the damage or condemnation
occurred; (dd) that there has been no material adverse change in the financial
condition or credit of Mortgagor since the date of this Mortgage; (ee) no
Default shall have occurred, and (ff) of the satisfaction of any additional
conditions that Mortgagee may reasonably establish to protect its security.
Mortgagor hereby acknowledges that the conditions described above are
reasonable, and, if such conditions have not been satisfied within sixty
(60) days of receipt by Mortgagee of such insurance or condemnation proceeds,
then Mortgagee may apply such insurance or condemnation proceeds to pay the
Secured Obligations in such order and amounts as Mortgagee in its sole
discretion may choose.

 

  (c)

Notwithstanding the foregoing provisions of this Section 5.6, if the insurance
or condemnation proceeds equal $1,000,000 or less, Mortgagee shall release such
proceeds to Mortgagor for repair or restoration of the Subject Property without
any additional requirements or conditions.

 

  5.7

MAINTENANCE AND PRESERVATION OF THE SUBJECT PROPERTY. Subject to the provisions
of the Loan Agreement, Mortgagor covenants: (a) to insure the Subject Property
and Collateral against such risks as Mortgagee may require pursuant to the Loan
Agreement and, at Mortgagee’s request (but not more than fifteen (15) days prior
to the termination date of any existing coverage), to provide evidence of such
insurance to Mortgagee, and to comply with the requirements of any insurance
companies providing such insurance; (b) to keep the Subject Property and
Collateral in good condition and repair; (c) not to remove or demolish the
Subject Property or Collateral or any part thereof, not to alter, restore or add
to the Subject Property or Collateral and not to initiate or acquiesce in any
change in any

 

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zoning or other land classification which affects the Subject Property without
Mortgagee’s prior written consent or as provided in the Loan Agreement; (d) to
complete or restore promptly and in good and workmanlike manner the Subject
Property and Collateral, or any part thereof which may be damaged or destroyed,
without regard to whether Mortgagee elects to require that insurance proceeds be
used to reduce the Secured Obligations as provided in Section 5.6; (e) to comply
with all laws, ordinances, regulations and standards, and all covenants,
conditions, restrictions and equitable servitudes, whether public or private, of
every kind and character which affect the Subject Property or Collateral and
pertain to acts committed or conditions existing thereon, including, without
limitation, any work, alteration, improvement or demolition mandated by such
laws, covenants or requirements; (f) not to commit or permit waste of the
Subject Property or Collateral; and (g) to do all other acts which from the
character or use of the Subject Property or Collateral may be reasonably
necessary to maintain and preserve its value.

 

  5.8

DEFENSE AND NOTICE OF LOSSES, CLAIMS AND ACTIONS. At Mortgagor’s sole expense,
Mortgagor shall protect, preserve and defend the Subject Property and Collateral
and title to and right of possession of the Subject Property and Collateral, the
security hereof and the rights and powers of Mortgagee hereunder against all
adverse claims. Mortgagor shall give Mortgagee prompt notice in writing of the
assertion of any claim, of the filing of any action or proceeding, of the
occurrence of any damage to the Subject Property or Collateral and of any
condemnation offer or action.

 

  5.9

ACTIONS BY MORTGAGEE. From time to time and without affecting the personal
liability of any person for payment of any indebtedness or performance of any
obligations secured hereby, Mortgagee, without liability thereof and without
notice, may: (a) release all or any part of the Subject Property from this
Mortgage; (b) consent to the making of any map or plat thereof; and (c) join in
any grant of easement thereon, any declaration of covenants and restrictions, or
any extension agreement or any agreement subordinating the lien or charge of
this Mortgage.

 

5.10

COMPENSATION; EXCULPATION; INDEMNIFICATION.

 

  (a)

Mortgagor shall pay to Mortgagee reasonable compensation for services rendered
concerning this Mortgage, including without limit any statement of amounts owing
under any Secured Obligation. Mortgagee shall not directly or indirectly be
liable to Mortgagor or any other person as a consequence of (i) the exercise of
the rights, remedies or powers granted to Mortgagee in this Mortgage; (ii) the
failure or refusal of Mortgagee to perform or discharge any obligation or
liability of Mortgagor under any agreement related to the Subject Property or
Collateral or under this Mortgage; or (iii) any loss sustained by Mortgagor or
any third party resulting from Mortgagee’s failure (whether by malfeasance,
nonfeasance or refusal to act) to lease the Subject Property after a Default
(hereinafter defined) or from any other act or omission (regardless of whether
same constitutes negligence) of Mortgagee in managing the Subject Property after
a Default unless the loss is caused by the gross negligence or willful
misconduct of Mortgagee and no such liability shall be asserted against or
imposed upon Mortgagee, and all such liability is hereby expressly waived and
released by Mortgagor.

 

  (b)

Mortgagor indemnifies Mortgagee against, and holds Mortgagee harmless from, all
losses, damages, liabilities, claims, causes of action, judgments, court costs,
attorneys’ fees and other legal expenses, cost of evidence of title, cost of
evidence of value, and other expenses which it may suffer or incur: (i) by
reason of this Mortgage; (ii) by reason of the execution of this Mortgage or in
performance of any act required or permitted hereunder or by law; (iii) as a
result of any failure of Mortgagor to

 

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perform Mortgagor’s obligations; or (iv) by reason of any alleged obligation or
undertaking on Mortgagee’s part to perform or discharge any of the
representations, warranties, conditions, covenants or other obligations
contained in any other document related to the Subject Property. The above
obligation of Mortgagor to indemnify and hold harmless Mortgagee shall survive
the release and cancellation of the Secured Obligations and the release of this
Mortgage.

 

  (c)

Mortgagor shall pay all amounts and indebtedness arising under this Section 5.10
immediately upon demand by Mortgagee together with interest thereon from the
date the indebtedness arises at the rate of interest then applicable to the
principal balance of the Note as specified therein.

 

  5.11

DUE ON SALE OR ENCUMBRANCE. The terms “Loan” and “Loan Documents” have the
meaning given them in the Loan Agreement described in Section 2.1. Mortgagor
represents, agrees and acknowledges that:

 

  (a)

Improvement and operation of real property is a highly complex activity which
requires substantial knowledge of law and business conditions and practices, and
an ability to control, coordinate and schedule the many factors affecting such
improvement and operation. Experience, financial stability, managerial ability
and a good reputation in the business community enhance an owner’s and
operator’s ability to obtain market rents and to induce cooperation in
scheduling and are taken into account by Mortgagee in approving loan
applications.

 

  (b)

Mortgagor has represented to Mortgagee, not only in the representations and
warranties contained in the Loan Documents, but also in its initial loan
application and in all of the negotiations connected with Mortgagee making the
Loan, certain facts concerning Mortgagor’s financial stability, managerial and
operational ability, reputation, skill, and creditworthiness. Mortgagee has
relied upon these representations and warranties as a substantial and material
consideration in its decision to make the Loan.

 

  (c)

The conditions and terms provided in the Loan Agreement were induced by these
representations and warranties and would not have been made available by
Mortgagee in the absence of these representations and warranties.

 

  (d)

Mortgagee would not have made this Loan if Mortgagee did not have the right to
sell, transfer, assign, or grant participations in the Loan and in the Loan
Documents, and that such participations are dependent upon the potential
participants’ reliance on such representations and warranties.

 

  (e)

Mortgagor’s financial stability and managerial and operational ability and that
of those persons or entities having a direct or beneficial interest in Mortgagor
are a substantial and material consideration to any third parties who have
entered or will enter into agreements with Mortgagor.

 

  (f)

Mortgagee has relied upon the skills and services offered by such third parties
and the provision of such skills and services is jeopardized if Mortgagor
breaches its covenants contained below regarding Transfers.

 

  (g)

A transfer of possession of or title to the Subject Property, or a change in the
person or entity operating, developing, constructing or managing the Subject
Property, would substantially increase the risk of Default under the Loan
Documents and significantly and materially impair and reduce Mortgagee’s
security for the Note.

 

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  (h)

As used herein, the term “Transfer” shall mean each of the following actions or
events: the sale, transfer, assignment, lease as a whole, encumbrance,
hypothecation, mortgage or pledge in any manner whatsoever, whether voluntarily,
involuntarily or by operation of law of: (i) the Subject Property or Collateral
or any interest therein; (ii) title to any other security more specifically
described in any Loan Document; (iii) Mortgagor’s right, title and/or interest
in the Loan Documents and any subsequent documents executed by Mortgagor in
connection therewith; (iv) legal or beneficial ownership of any partnership
interest in Mortgagor if Mortgagor is a partnership; (v) legal or beneficial
ownership of any membership interest in Mortgagor if Mortgagor is a limited
liability company; (vi) legal or beneficial ownership of any partnership
interest in any general partner, venturer or member of Mortgagor; or (vii) legal
or beneficial ownership of any of the stock in Mortgagor if Mortgagor is a
corporation or in any general partner, venturer or member in Mortgagor that is a
corporation.

 

  (i)

Mortgagor shall not make or commit to make any Transfer without Mortgagee’s
prior written consent, which it may grant or withhold at its sole discretion
(except with respect to those Transfers reasonably approved by Mortgagee or
otherwise expressly permitted under Sections 9.17, 9.18 and 9.19 of the Loan
Agreement). It is expressly agreed that Mortgagee may predicate Mortgagee’s
decision to grant consent to a Transfer on such terms and conditions as
Mortgagee may require, in Mortgagee’s sole discretion, including without
limitation (i) consideration of the creditworthiness of the party to whom such
Transfer will be made and its development and management ability with respect to
the Subject Property, (ii) consideration of whether the security for repayment,
performance and discharge of the Secured Obligations, or Mortgagee’s ability to
enforce its rights, remedies, and recourses with respect to such security, will
be impaired in any way by the proposed Transfer, (iii) an increase in the rate
of interest payable under the Note or any other change in the terms and
provisions of the Note and other Loan Documents, (iv) reimbursement of Mortgagee
for all costs and expenses incurred by Mortgagee in investigating the
creditworthiness and management ability of the party to whom such Transfer will
be made and in determining whether Mortgagee’s security will be impaired by the
proposed Transfer, (v) payment to Mortgagee of a transfer fee to cover the cost
of documenting the Transfer in its records, (vi) payment of Mortgagee’s
reasonable attorneys’ fees in connection with such Transfer, (vii) endorsements
(to the extent available under applicable law) to any existing mortgagee title
insurance policies or construction binders insuring Mortgagee’s liens and
security interests covering the Subject Property, and (viii) require additional
security for the payment, performance and discharge of the Secured Obligations.
If Mortgagee’s consent should be given, any Transfer shall be subject to the
Loan Documents and any transferee of Mortgagor’s interest shall: (i) assume all
of Mortgagor’s obligations thereunder; and (ii) agree to be bound by all
provisions and perform all obligations contained therein; provided, however,
that such assumption shall not release Mortgagor or any maker or any guarantor
of the Note from any liability thereunder or under any other Loan Documents
without the prior written consent of Mortgagee. In the event of any Transfer
without the prior written consent of Mortgagee, whether or not Mortgagee elects
to enforce its right to accelerate the Loan pursuant to Sections 6.1 and 6.2,
all sums owing under the Note, as well as all other charges, expenses and costs
owing under the Loan Documents, shall at the option of Mortgagee, automatically
bear interest at five percent (5%) above the rate provided in the Note, from the
date (or any date thereafter) of such unconsented to Transfer. Mortgagor
acknowledges that the automatic shift(s) to this alternate rate is reasonable
since the representations that Mortgagee relied upon in making the Loan

 

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may no longer be relied upon. A consent by Mortgagee to one or more Transfers
shall not be construed as a consent to further Transfers or as a waiver of
Mortgagee’s consent with respect to future Transfers.

 

  5.12

RELEASES, EXTENSIONS, MODIFICATIONS AND ADDITIONAL SECURITY. Without notice to
or the consent, approval or agreement of any persons or entities having any
interest at any time in the Subject Property and Collateral or in any manner
obligated under the Secured Obligations (“Interested Parties”), Mortgagee may,
from time to time, release any person or entity from liability for the payment
or performance of any Secured Obligation, take any action or make any agreement
extending the maturity or otherwise altering the terms or increasing the amount
of any Secured Obligation, or accept additional security or release all or a
portion of the Subject Property and Collateral and other security for the
Secured Obligations. None of the foregoing actions shall release or reduce the
personal liability of any of said Interested Parties, or release or impair the
priority of the lien of and security interests created by this Mortgage upon the
Subject Property and Collateral.

 

  5.13

RELEASE OF ASSIGNMENT. When this Mortgage has been fully released, the last such
release shall operate as a reassignment of all future rents, issues and profits
of the Subject Property to the person or persons legally entitled thereto.
Notwithstanding anything contained herein to the contrary, Mortgagee hereby
agrees, subject to the provisions of Section 2.10 of the Loan Agreement, to
release this Mortgage notwithstanding the fact that all of the Secured
Obligations have not been satisfied.

 

  5.14

SUBROGATION. Mortgagee shall be subrogated to the lien of all encumbrances,
whether released of record or not, paid in whole or in part by Mortgagee
pursuant to the Loan Documents or by the proceeds of any loan secured by this
Mortgage.

 

  5.15

RIGHT OF INSPECTION. Mortgagee, its agents and employees, may enter the Subject
Property at any reasonable time for the purpose of inspecting the Subject
Property and Collateral and ascertaining Mortgagor’s compliance with the terms
hereof.

 

  5.16

CONTRACTS. Mortgagor will deliver to Mortgagee a copy of each Contract promptly
after the execution of same by all parties thereto and subject to any approval
of Mortgagee required by any of the Loan Documents. Within twenty (20) days
after a request by Mortgagee, Mortgagor shall prepare and deliver to Mortgagee a
complete listing of all Contracts, showing date, term, parties, subject matter,
concessions, whether any defaults exist, and other information specified by
Mortgagee, of or with respect to each of such Contracts, together with a copy
thereof (if so requested by Mortgagee). Mortgagor represents and warrants that
none of the Contracts encumber or create a lien on the Subject Property, but are
personal with Mortgagor. As used herein, the term “Contract” shall mean any
management agreement, leasing and brokerage agreement, and operating or service
contract with respect to the Subject Property or Collateral.

ARTICLE 6. DEFAULT PROVISIONS

 

  6.1

DEFAULT. For all purposes hereof, the term “Default” shall mean (a) the
existence of any Event of Default as defined in the Loan Agreement; (b) at
Mortgagee’s option, the failure of Mortgagor to make any payment of principal or
interest on the Note or to pay any other amount due hereunder or under the Note
when the same is due and payable, whether at maturity, by acceleration or
otherwise; (c) the failure of Mortgagor to perform any non-monetary obligation
hereunder, or the failure to be true of any representation or warranty of
Mortgagor contained herein and the continuance of such failure for ten (10) days
after notice, or within any longer grace period, if any, allowed in the Loan
Agreement for such failure; or, (d) if Mortgagor or any other Person shall make
a Transfer without the prior

 

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written consent of Mortgagee (which consent may be withheld in Mortgagee’s sole
discretion (except for those Transfers reasonably approved by Mortgagee or
otherwise expressly permitted under Sections 9.17, 9.18, and 9.19 of the Loan
Agreement) or conditioned as provided in Section 5.11 above).

 

  6.2

RIGHTS AND REMEDIES. At any time after Default, Mortgagee shall have all the
following rights and remedies:

 

  (a)

With or without notice, to declare all Secured Obligations immediately due and
payable;

 

  (b)

With or without notice, and without releasing Mortgagor from any Secured
Obligation, and without becoming a mortgagee in possession, to cure any breach
or Default of Mortgagor and, in connection therewith, to enter upon the Subject
Property and do such acts and things as Mortgagee deems necessary or desirable
to protect the security hereof, including, without limitation: (i) to appear in
and defend any action or proceeding purporting to affect the security of this
Mortgage or the rights or powers of Mortgagee under this Mortgage; (ii) to pay,
purchase, contest or compromise any encumbrance, charge, lien or claim of lien
which, in the sole judgment of Mortgagee, is or may be senior in priority to
this Mortgage, the judgment of Mortgagee being conclusive as between the parties
hereto; (iii) to obtain insurance; (iv) to pay any premiums or charges with
respect to insurance required to be carried under this Mortgage; or (v) to
employ counsel, accountants, contractors and other appropriate persons;

 

  (c)

To commence and maintain an action or actions in any court of competent
jurisdiction to foreclose this instrument as a mortgage or to obtain specific
enforcement of the covenants of Mortgagor hereunder, and Mortgagor agrees that
such covenants shall be specifically enforceable by injunction or any other
appropriate equitable remedy and that for the purposes of any suit brought under
this subparagraph, Mortgagor waives the defense of laches and any applicable
statute of limitations;

 

  (d)

To apply to a court of competent jurisdiction for and obtain appointment of a
receiver of the Subject Property as a matter of strict right and without regard
to the adequacy of the security for the repayment of the Secured Obligations,
the existence of a declaration that the Secured Obligations are immediately due
and payable, or the filing of a notice of default, or the commencement of a
foreclosure, and Mortgagor hereby consents to such appointment by a court of
competent jurisdiction upon ex parte application, and without notice; notice
being hereby expressly waived. Such receiver and his agents shall be empowered
(i) to take possession of the Subject Property and any businesses conducted by
Mortgagor or any other person thereon and any business assets used in connection
therewith and, if the receiver deems it appropriate, to operate the same,
(ii) to exclude Mortgagor and Mortgagor’s agents, servants, and employees from
the Subject Property, (iii) to collect all Payments and the rents, issues,
profits, and income from the Subject Property, (iv) to complete any construction
which may be in progress, (v) to do such maintenance and make such repairs and
alterations as the receiver deems necessary, (vi) to use all stores of
materials, supplies, and maintenance equipment on the Subject Property and
replace such items as may be reasonably necessary at the expense of the
receivership estate, (vii) to pay all taxes and assessments against the Subject
Property and the Collateral, all premiums for insurance thereon, all utility and
other reasonable operating expenses, and all sums due under any prior or
subsequent encumbrance, and (viii) generally to do anything which Mortgagor
would reasonably do in its course of business at the Subject Property if
Mortgagor were in possession of the Subject

 

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Property. All reasonable expenses incurred by the receiver or his agents shall
constitute a part of the Secured Obligations. Any revenues collected by the
receiver shall be applied first to the expenses of the receivership, including
attorneys’ fees incurred by the receiver and by Mortgagee, together with
interest thereon from the date incurred until repaid at the rate of interest
applicable under the Note upon its maturity (whether by acceleration or
otherwise), and the balance shall be applied toward the Secured Obligations or
in such other manner as the court may direct. Unless sooner terminated with the
express consent of Mortgagee, any such receivership will continue until the
Secured Obligations have been discharged in full, or until title to the Subject
Property has passed after foreclosure sale and all applicable periods of
redemption have expired;

 

  (e)

To enter upon, possess, manage and operate the Subject Property or any part
thereof, to take and possess all documents, books, records, papers and accounts
of Mortgagor or the then owner of the Subject Property, to make, terminate,
enforce or modify Leases of the Subject Property upon such terms and conditions
as Mortgagee deems proper, to make repairs, alterations and improvements to the
Subject Property as necessary, in Mortgagee’s sole judgment, to protect or
enhance the security hereof. Mortgagee may also take possession of any and all
Payments that may previously have been collected by or on behalf of Mortgagor
following the Default and that remain in the possession or control of Mortgagor,
whether or not commingled with other funds of Mortgagor, and together with any
bank or similar accounts in which such Payments may be deposited or held;

 

  (f)

To execute a written notice of such Default and of its election to cause the
Subject Property to be sold to satisfy the Secured Obligations. As a condition
precedent to any such sale, Mortgagee shall give and record such notice as the
law then requires. When the minimum period of time required by law after such
notice has elapsed, Mortgagee, without notice to or demand upon Mortgagor except
as required by law, shall sell the Subject Property at the time and place of
sale fixed by it in the notice of sale, at one or several sales, either as a
whole or in separate parcels and in such manner and order, all as Mortgagee in
its sole discretion may determine, at public auction to the highest bidder for
cash, in lawful money of the United States, payable at time of sale. Neither
Mortgagee nor any other person or entity other than Mortgagee shall have the
right to direct the order in which the Subject Property is sold. Subject to
requirements and limits imposed by law, Mortgagee may from time to time postpone
sale of all or any portion of the Subject Property by public announcement at
such time and place of sale. Mortgagee shall deliver to the purchaser at such
sale a deed conveying the Subject Property or portion thereof so sold, but
without any covenant or warranty, express or implied. The recitals in the deed
of any matters or facts shall be conclusive proof of the truthfulness thereof.
Any person, including Mortgagor or Mortgagee may purchase at the sale;

 

  (g)

To resort to and realize upon the security hereunder and any other security now
or later held by Mortgagee concurrently or successively and in one or several
consolidated or independent judicial actions or lawfully taken non-judicial
proceedings, or both, and to apply the proceeds received upon the Secured
Obligations all in such order and manner as Mortgagee determines in its sole
discretion;

 

  (h)

Upon sale of the Subject Property at any judicial or non-judicial foreclosure
sale, Mortgagee may credit bid (as determined by Mortgagee in its sole and
absolute discretion) all or any portion of the Secured Obligations. In
determining such credit bid, Mortgagee may, but is not obligated to, take into
account all or any of the

 

16

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following: (i) appraisals of the Subject Property as such appraisals may be
discounted or adjusted by Mortgagee in its sole and absolute underwriting
discretion; (ii) expenses and costs incurred by Mortgagee with respect to the
Subject Property prior to foreclosure; (iii) expenses and costs which Mortgagee
anticipates will be incurred with respect to the Subject Property after
foreclosure, but prior to resale, including, without limitation, costs of
structural reports and other due diligence, costs to carry the Subject Property
prior to resale, costs of resale (e.g. commissions, attorneys’ fees, and taxes),
costs of any hazardous materials clean-up and monitoring, costs of deferred
maintenance, repair, refurbishment and retrofit, costs of defending or settling
litigation affecting the Subject Property, and lost opportunity costs (if any),
including the time value of money during any anticipated holding period by
Mortgagee; (iv) declining trends in real property values generally and with
respect to properties similar to the Subject Property; (v) anticipated discounts
upon resale of the Subject Property as a distressed or foreclosed property;
(vi) the fact of additional collateral (if any), for the Secured Obligations;
and (vii) such other factors or matters that Mortgagee (in its sole and absolute
discretion) deems appropriate. In regard to the above, Mortgagor acknowledges
and agrees that: (w) Mortgagee is not required to use any or all of the
foregoing factors to determine the amount of its credit bid; (x) this Section
does not impose upon Mortgagee any additional obligations that are not imposed
by law at the time the credit bid is made; (y) the amount of Mortgagee’s credit
bid need not have any relation to any loan-to-value ratios specified in the Loan
Documents or previously discussed between Mortgagor and Mortgagee; and
(z) Mortgagee’s credit bid may be (at Mortgagee’s sole and absolute discretion)
higher or lower than any appraised value of the Subject Property;

 

  (i)

Upon the completion of any foreclosure of all or a portion of the Subject
Property, commence an action to recover any of the Secured Obligations that
remains unpaid or unsatisfied;

 

  (j)

Exercise any and all remedies at law, equity, or under the Note, this Mortgage
or other Loan Documents for such Default.

 

  6.3

APPLICATION OF FORECLOSURE SALE PROCEEDS. After deducting all costs, including,
without limitation, cost of evidence of title and attorneys’ fees in connection
with sale and costs and expenses of sale and of any judicial proceeding wherein
such sale may be made, all proceeds of any foreclosure sale shall be applied:
(a) to payment of all sums expended by Mortgagee under the terms hereof and not
then repaid, with accrued interest at the rate of interest specified in the Note
to be applicable on or after maturity or acceleration of the Note; (b) to
payment of all other Secured Obligations; and (c) the remainder, if any, to the
person or persons legally entitled thereto.

 

  6.4

APPLICATION OF OTHER SUMS. All sums received by Mortgagee under Section 6.2 or
Section 3.2, less all costs and expenses incurred by Mortgagee or any receiver
under either Section 6.2 or Section 3.2, including, without limitation,
attorneys’ fees, shall be applied in payment of the Secured Obligations in such
order as Mortgagee shall determine in its sole discretion; provided, however,
Mortgagee shall have no liability for funds not actually received by Mortgagee.

 

  6.5

NO CURE OR WAIVER. Neither Mortgagee’s nor any receiver’s entry upon and taking
possession of all or any part of the Subject Property and Collateral, nor any
collection of rents, issues, profits, insurance proceeds, condemnation proceeds
or damages, other security or proceeds of other security, or other sums, nor the
application of any collected sum to any Secured Obligation, nor the exercise or
failure to exercise of any other right or remedy by Mortgagee or any receiver
shall cure or waive any breach, Default or notice of

 

17

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default under this Mortgage, or nullify the effect of any notice of default or
sale (unless all Secured Obligations then due have been paid and performed and
Mortgagor has cured all other defaults), or limit or impair the Secured
Obligations or Mortgagor’s liability thereof, or impair the status of the
security, or prejudice Mortgagee in the exercise of any right or remedy, or be
construed as an affirmation by Mortgagee of any tenancy, lease or option or a
subordination of the lien of or security interest created by this Mortgage.

 

  6.6

PAYMENT OF COSTS, EXPENSES AND ATTORNEYS’ FEES. Mortgagor agrees to pay to
Mortgagee immediately and without demand all costs and expenses of any kind
incurred by Mortgagee pursuant to Section 6.2 (including, without limitation,
court costs and attorneys’ fees, whether incurred in litigation or not, and
appraisal fees) with interest from the date of expenditure until said sums have
been paid at the rate of interest then applicable to the principal balance of
the Note as specified therein.

 

  6.7

POWER TO FILE NOTICES AND CURE DEFAULTS. Mortgagor hereby irrevocably appoints
Mortgagee and its successors and assigns, as its attorney-in-fact, which agency
is coupled with an interest, (a) to execute and/or record any notices of
completion, cessation of labor, or any other notices that Mortgagee deems
appropriate to protect Mortgagee’s interest, (b) upon the issuance of a deed
pursuant to the foreclosure of the lien of this Mortgage or the delivery of a
deed in lieu of foreclosure, to execute all instruments of assignment or further
assurance with respect to the Subject Property and Collateral, Leases and
Payments in favor of the grantee of any such deed, as may be necessary or
desirable for such purpose, (c) to prepare, execute and file or record financing
statements, continuation statements, applications for registration and like
papers necessary to create, perfect or preserve Mortgagee’s security interests
and rights in or to any of the Subject Property and Collateral, and (d) upon the
occurrence of an event, act or omission which, with notice or passage of time or
both, would constitute a Default, Mortgagee may perform any obligation of
Mortgagor hereunder; provided, however, that: (i) Mortgagee as such
attorney-in-fact shall only be accountable for such funds as are actually
received by Mortgagee; and (ii) Mortgagee shall not be liable to Mortgagor or
any other person or entity for any failure to act (whether such failure
constitutes negligence) by Mortgagee under this Section.

 

  6.8

REMEDIES CUMULATIVE. All rights and remedies of Mortgagee provided hereunder are
cumulative and are in addition to all rights and remedies provided by applicable
law (including specifically that of foreclosure of this instrument as though it
were a mortgage) or in any other agreements between Mortgagor and Mortgagee. No
failure on the part of Mortgagee to exercise any of its rights hereunder arising
upon any Default shall be construed to prejudice its rights upon the occurrence
of any other or subsequent Default. No delay on the part of Mortgagee in
exercising any such rights shall be construed to preclude it from the exercise
thereof at any time while that Default is continuing. Mortgagee may enforce any
one or more remedies or rights hereunder successively or concurrently. By
accepting payment or performance of any of the Secured Obligations after its due
date, Mortgagee shall not thereby waive the agreement contained herein that time
is of the essence, nor shall Mortgagee waive either its right to require prompt
payment or performance when due of the remainder of the Secured Obligations or
its right to consider the failure to so pay or perform a Default.

 

  6.9

CONFESSION OF JUDGMENT. FOR THE PURPOSE OF OBTAINING POSSESSION OF THE SUBJECT
PROPERTY IN THE EVENT OF ANY DEFAULT HEREUNDER, MORTGAGOR HEREBY AUTHORIZES AND
EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA
OR ELSEWHERE, AS ATTORNEY FOR MORTGAGOR AND ALL PERSONS CLAIMING UNDER OR
THROUGH MORTGAGOR, TO APPEAR FOR AND CONFESS JUDGMENT AGAINST

 

18

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MORTGAGOR, AND AGAINST ALL PERSONS CLAIMING UNDER OR THROUGH MORTGAGOR, IN AN
ACTION IN EJECTMENT FOR POSSESSION OF THE SUBJECT PROPERTY, IN FAVOR OF
MORTGAGEE, FOR WHICH THIS MORTGAGE, OR A COPY THEREOF VERIFIED BY AFFIDAVIT,
SHALL BE A SUFFICIENT WARRANT; AND THEREUPON A WRIT OF POSSESSION MAY
IMMEDIATELY ISSUE FOR POSSESSION OF THE SUBJECT PROPERTY, WITHOUT ANY PRIOR WRIT
OR PROCEEDING WHATSOEVER AND WITHOUT ANY STAY OF EXECUTION. IF FOR ANY REASON
AFTER SUCH ACTION HAS BEEN COMMENCED IT SHALL BE DISCONTINUED, OR POSSESSION OF
THE SUBJECT PROPERTY SHALL REMAIN IN OR BE RESTORED TO MORTGAGOR, MORTGAGEE
SHALL HAVE THE RIGHT FOR THE SAME DEFAULT OR ANY SUBSEQUENT DEFAULT TO BRING ONE
OR MORE FURTHER ACTIONS AS ABOVE PROVIDED TO RECOVER POSSESSION OF THE SUBJECT
PROPERTY. MORTGAGEE MAY CONFESS JUDGMENT IN AN ACTION IN EJECTMENT BEFORE OR
AFTER THE INSTITUTION OF PROCEEDINGS TO FORECLOSE THIS MORTGAGE OR TO ENFORCE
THE NOTE, OR AFTER ENTRY OF JUDGMENT THEREIN OR ON THE NOTE, OR AFTER A
SHERIFF’S SALE OR JUDICIAL SALE OR OTHER FORECLOSURE SALE OF THE SUBJECT
PROPERTY IN WHICH MORTGAGEE IS THE SUCCESSFUL BIDDER, IT BEING THE UNDERSTANDING
OF THE PARTIES THAT THE AUTHORIZATION TO PURSUE SUCH PROCEEDINGS FOR CONFESSION
OF JUDGMENT THEREIN IS AN ESSENTIAL PART OF THE REMEDIES FOR ENFORCEMENT OF THIS
MORTGAGE, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND SHALL SURVIVE ANY EXECUTION
SALE TO MORTGAGEE.

ARTICLE 7. MISCELLANEOUS PROVISIONS

 

  7.1

ADDITIONAL PROVISIONS. The Loan Documents contain or incorporate by reference
the entire agreement of the parties with respect to matters contemplated herein
and supersede all prior negotiations. The Loan Documents grant further rights to
Mortgagee and contain further agreements and affirmative and negative covenants
by Mortgagor which apply to this Mortgage and to the Subject Property and
Collateral and such further rights and agreements are incorporated herein by
this reference.

 

  7.2

MERGER. No merger shall occur as a result of Mortgagee’s acquiring any other
estate in, or any other lien on, the Subject Property unless Mortgagee consents
to a merger in writing. Furthermore, the assignment of the Payments and other
liens, security interests, rights and remedies granted hereunder to Mortgagee,
and the covenants, representations, warranties and obligations of Mortgagor
which are not satisfied or discharged by any foreclosure of the Subject
Property, shall survive such foreclosure and remain in force and effect
thereafter, it being acknowledged and agreed that all obligations of Mortgagor
and rights and remedies of Mortgagee set forth herein are contractual in nature,
and such obligations, rights and remedies, and all liens assignments, security
interests and other security provided to Mortgagee hereunder and under the other
Loan Documents (but excluding the lien against the Subject Property or portions
thereof that are foreclosed) shall not be extinguished by the subject
foreclosure.

 

  7.3

OBLIGATIONS OF MORTGAGOR, JOINT AND SEVERAL. If more than one person has
executed this Mortgage as “Mortgagor”, the obligations of all such persons
hereunder shall be joint and several.

 

  7.4

INTENTIONALLY OMITTED.

 

  7.5

WAIVER OF MARSHALLING RIGHTS. Mortgagor, for itself and for all parties claiming
through or under Mortgagor, and for all parties who may acquire a lien on or
interest in the

 

19

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Subject Property and Collateral, hereby waives all rights to have the Subject
Property and Collateral and/or any other property which is now or later may be
security for any Secured Obligation (“Other Property”) marshalled upon any
foreclosure of the lien of this Mortgage or on a foreclosure of any other lien
or security interest against any security for any of the Secured Obligations.
Mortgagee shall have the right to sell, and any court in which foreclosure
proceedings may be brought shall have the right to order a sale of, the Subject
Property and any or all of the Collateral or Other Property as a whole or in
separate parcels, in any order that Mortgagee may designate.

 

  7.6

RULES OF CONSTRUCTION. When the identity of the parties or other circumstances
make it appropriate the masculine gender includes the feminine and/or neuter,
and the singular number includes the plural. The term “Subject Property” and
“Collateral” means all and any part of the Subject Property and Collateral,
respectively, and any interest in the Subject Property and Collateral,
respectively.

 

  7.7

SUCCESSORS IN INTEREST. The terms, covenants, and conditions herein contained
shall be binding upon and inure to the benefit of the heirs, successors and
assigns of the parties hereto; provided, however, that this Section 7.7 does not
waive or modify the provisions of Section 5.11.

 

  7.8

EXECUTION IN COUNTERPARTS. To facilitate execution, this document may be
executed in as many counterparts as may be convenient or required. It shall not
be necessary that the signature or acknowledgment of, or on behalf of, each
party, or that the signature of all persons required to bind any party, or the
acknowledgment of such party, appear on each counterpart. All counterparts shall
collectively constitute a single document. It shall not be necessary in making
proof of this document to produce or account for more than a single counterpart
containing the respective signatures of, or on behalf of, and the respective
acknowledgments of, each of the parties hereto. Any signature or acknowledgment
page to any counterpart may be detached from such counterpart without impairing
the legal effect of the signatures or acknowledgments thereon and thereafter
attached to another counterpart identical thereto except having attached to it
additional signature or acknowledgment pages.

 

  7.9

CHOICE OF LAW. WITH RESPECT TO MATTERS RELATING TO THE CREATION, PERFECTION AND
PROCEDURES RELATING TO THE ENFORCEMENT OF THE LIENS CREATED PURSUANT TO THIS
MORTGAGE, THIS MORTGAGE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, IT BEING UNDERSTOOD THAT, EXCEPT
AS EXPRESSLY SET FORTH ABOVE IN THIS PARAGRAPH AND TO THE FULLEST EXTENT
PERMITTED BY THE LAW OF SUCH STATE, THE LAWS OF THE STATE OF CALIFORNIA SHALL
GOVERN ALL MATTERS RELATING TO THIS MORTGAGE, THE LOAN AGREEMENT AND THE OTHER
LOAN DOCUMENTS AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING THEREUNDER OR
HEREUNDER.

 

  7.10

INCORPORATION. Exhibits A, and B, all as attached, are incorporated into this
Mortgage by this reference.

 

  7.11

NOTICES. All notices, demands or other communications required or permitted to
be given pursuant to the provisions of this Mortgage shall be in writing and
shall be considered as properly given if delivered personally or sent by
certified United States mail, return receipt requested, or by Overnight Express
Mail or by overnight commercial courier service, charges prepaid. Notices so
sent shall be effective upon receipt at the address set forth below; provided,
however, that non-receipt of any communication as the result of any change of
address of which the sending party was not notified or as the result of a
refusal to accept

 

20

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delivery shall be deemed receipt of such communication. For purposes of notice,
the address of the parties shall be:

 

Mortgagor:

  

KBSII I-81 INDUSTRIAL PORTFOLIO TRUST

c/o KBS Capital Advisors LLC

590 Madison Avenue, 26th Floor

New York, NY 10022

Attention: Mr. Charles Valentino

Tel: (212) 644-6662

Fax: (212) 644-1372

E-mail: cvalentino@kbsrealty.com

Mortgagee:

  

WELLS FARGO BANK, NATIONAL ASSOCIATION

Real Estate Group (AU #02955)

Orange County

2030 Main Street, Suite 800

Irvine, CA 92614

Attn: Bryan Stevens, Senior Vice President

Tel: (949) 251-4125

Fax: (949) 851-9728

Loan #: 1002835

With a copy to:

  

Wells Fargo Bank, National Association

Los Angeles Loan Center

2120 East Park Place, Suite 100

El Segundo, California 90245

Attention: Eva Lopez

Any party shall have the right to change its address for notice hereunder to any
other location within the continental United States by the giving of thirty
(30) days notice to the other party in the manner set forth hereinabove.
Mortgagor shall forward to Mortgagee, without delay, any notices, letters or
other communications delivered to the Subject Property or to Mortgagor naming
Mortgagee, “Lender” or the “Construction Lender” or any similar designation as
addressee, or which could reasonably be deemed to affect the construction of the
Improvements or the ability of Mortgagor to perform its obligations to Mortgagee
under the Note or the Loan Agreement.

 

  7.12

LIMITATIONS ON RECOURSE. The limitations on personal liability of shareholders,
partners and members of Borrower contained in Section 13.27 of the Loan
Agreement shall apply to this Mortgage.

 

  7.13

PURCHASE MONEY MORTGAGE. This Mortgage is intended to be a “purchase money
mortgage” as defined in 42 Pa. C.S.A. §8141.

 

  7.14

OPEN-END MORTGAGE. This Mortgage shall constitute an “Open-End Mortgage” as such
term is defined in 42 Pa.C.S. §8143(f), and shall secure Future Advances and
shall have lien priority in accordance with the provisions of 42 Pa.C.S. §§8143
and 8144. Notwithstanding the foregoing, to the maximum extent permitted by law,
Mortgagor hereby unconditionally and irrevocably waives its right to submit a
notice to Mortgagee under 42 Pa.C.S. §8143(c). In addition to the other remedies
available under the Loan Agreement and any other document evidencing the Secured
Obligations, any advances made after receipt of any such notice, whether or not
made pursuant to 42 Pa.C.S. §8143 and/or §8144, shall be secured hereby and
shall relate back to the date when this Mortgage was left for recording with the
recorder of deeds. In the event any person or entity shall submit a notice to
Mortgagee under 42 Pa.C.S. §8143(b), in addition to the other remedies available
under this Mortgage, the Loan Agreement and any other document evidencing the
Secured Obligations, Mortgagor

 

21

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shall have the lien or encumbrance which is the subject of such notice removed
of record in accordance with this Mortgage; and any advances made by Mortgagee
after receipt of any such notice whether or not made under 42 Pa.C.S. §8143(b)
shall be deemed to be obligatory advances made under, shall be secured hereby,
and shall relate back to the date when this Mortgage was left for recording with
the recorder of deeds. By placing or accepting any such lien or encumbrance
against any or all of the Subject Property, the holder thereof shall be deemed
to have agreed to the maximum extent permitted by law that its lien or
encumbrance shall be subject and subordinate in lien priority to this Mortgage
and to any subsequent advances made under the Loan Agreement and any other
document evidencing the Secured Obligations, to all accrued and unpaid interest
and to all other sums secured hereby. This Mortgage is given to secure the
obligations of the Mortgagor and certain of Mortgagor’s Affiliates under, or in
respect of, the Loan Documents to which Mortgagor and its Affiliates are
parties, up to that amount which is equal to the amount of the aggregate maximum
permitted principal indebtedness provided under the terms of the Loan Documents
and shall secure not only obligations with respect to presently existing
indebtedness under the foregoing documents and agreements, but also any and all
other indebtedness now owing or which may hereafter be owing by Mortgagor and
its Affiliates to Mortgagee and/or Lenders, however incurred, whether interest,
discount or otherwise, and whether the same shall be deferred, accrued or
capitalized, including future advances and re-advances, pursuant to the Loan
Documents, advances for the payment of taxes and assessments and municipal
claims, maintenance charges, insurance premiums, costs incurred for the
protection of the property or the lien of this Mortgage, expenses incurred by
Mortgagee or any Lender by reason of a Default under this Mortgage, or for any
other permissible purpose, whether such advances are obligatory or are to be at
the option of Lenders, or otherwise, to the same extent as if such future
advances were made on the date of the execution of this Mortgage. The lien of
this Mortgage shall be valid as to all indebtedness secured hereby, including
future advances, from the time of its filing for record in the recorder’s office
of the county in which the property is located; and the lien of all present and
future advances shall relate back to the date of this Mortgage. This Mortgage is
intended to and shall be valid and have priority over all subsequent liens and
encumbrances, including statutory liens, excepting solely taxes and assessments
levied on the real estate, to the extent of the maximum amount secured hereby.
The amount of principal indebtedness that may be secured by this Mortgage may
increase or decrease from time to time. The maximum amount of principal
indebtedness outstanding at any one time shall not exceed $372,000,000 exclusive
of accrued and unpaid interest and unpaid balances of advances and other
extensions of credit secured by this Mortgage made for the payment of taxes,
assessments, maintenance charges, insurance premiums and costs incurred for the
protection of the Subject Property within the meaning of 42 Pa. C.S.A. §
8143(f), and expenses incurred by the Mortgagee or any Lender by reason of the
occurrence of a Default under this Mortgage and other costs and advances to the
fullest extent permitted by the terms of 42 Pa. C.S.A. § 8144.

SECTION 6.9 OF THIS MORTGAGE PROVIDES FOR THE REMEDY OF CONFESSION OF JUDGMENT
IN EJECTMENT. IN CONNECTION THEREWITH, MORTGAGOR VOLUNTARILY AND KNOWINGLY
WAIVES ITS RIGHTS, IF ANY, TO NOTICE AND TO BE HEARD BEFORE THE ENTRY OF OR
EXECUTION UPON SUCH JUDGMENT. MORTGAGOR ACKNOWLEDGES THAT IT IS REPRESENTED BY
COUNSEL AND THAT COUNSEL HAS REVIEWED WITH AND EXPLAINED TO MORTGAGOR THE
MEANING OF THIS WAIVER AND THE AFORESAID REMEDY.

 

22

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IN WITNESS WHEREOF, Mortgagor, intending to be legally bound, has executed this
Mortgage.

 

“MORTGAGOR”

KBSII I-81 INDUSTRIAL PORTFOLIO TRUST,

a Delaware Statutory Trust

By:        

 

KBSII I-81 INDUSTRIAL PORTFOLIO, LLC,

 

a Delaware limited liability company,

as Administrative Trustee

 

By:        

 

KBSII REIT ACQUISITION XXI, LLC,

   

a Delaware limited liability company,

its sole member

   

By:        

 

KBS REIT PROPERTIES II, LLC,

     

a Delaware limited liability company,

its sole member

     

By:        

 

KBS LIMITED PARTNERSHIP II,

       

a Delaware limited partnership,

its sole member

       

By:        

 

KBS REAL ESTATE INVESTMENT TRUST II, INC.,

a Maryland corporation,

general partner

                   

By:        

 

/s/ Charles J. Schreiber, Jr.

           

Charles J. Schreiber, Jr.

           

Chief Executive Officer

(ALL SIGNATURES MUST BE ACKNOWLEDGED)

--------------------------------------------------------------------------------

CERTIFICATE OF RESIDENCE

I hereby certify that the precise residence of Mortgagee is:

WELLS FARGO BANK, NATIONAL ASSOCIATION

Real Estate Group

2030 Main Street, Suite 800

Irvine, CA 92614

Attn: Bryan Stevens, Senior Vice President

WELLS FARGO BANK, NATIONAL ASSOCIATION

By: /s/ Bryan Stevens

Name: Bryan Stevens

Its: Senior Vice President

--------------------------------------------------------------------------------

STATE OF CALIFORNIA

COUNTY OF     Orange             SS.

On February 8, 2011 before me, K. Godin, Notary Public, personally appeared
Charles J. Schreiber, Jr., who proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument. I certify under PENALTY OF
PERJURY under the laws of the State of California that the foregoing paragraph
is true and correct.

WITNESS my hand and official seal

Signature /s/ K. Godin

My commission expires June 5, 2013.

--------------------------------------------------------------------------------

EXHIBIT A

 

DESCRIPTION OF SUBJECT PROPERTY

Exhibit A to Open-End Mortgage with Absolute Assignment of Leases and Rents,
Security Agreement and Fixture Filing executed by KBSII I-81 INDUSTRIAL
PORTFOLIO TRUST, a Delaware statutory trust, as Mortgagor for the benefit of
WELLS FARGO BANK, NATIONAL ASSOCIATION, acting as Administrative Agent for
certain lenders, as Mortgagee, dated as of February 8, 2011.

All the certain real property located in the County of Luzerne, Commonwealth of
Pennsylvania, described as follows:

PARCEL 1:

ALL that certain parcel of land known as Lot (40B), as shown on drawing number
(S-100), dated 04/25/08 last revised 05/09/08, entitled “Preliminary/Final Minor
Subdivision for Mericle Humboldt 40 LLC, situate in a park known as Humboldt
Industrial Park - Southwest Corner, situate in the Township of Hazle, County of
Luzerne, Commonwealth of Pennsylvania, bounded and described as follows to wit:

BEGINNING at a point on the southerly line of an (80.00) foot wide right of way
known as Oak Ridge Road, said point being further described as being the
northeasterly corner of Lot (45);

THENCE along the southerly line of said right of way (N 81°53’00” E) for a
distance of (911.34) feet to a point;

THENCE continuing along the southerly line of said right of way the following
courses and distances:

on a curve to the left having a radius of (1040.00) feet, an arc length of
(272.27) feet to a point;

(N 66°53’00” E) for a distance of (315.06) feet to a point;

on a curve to the right having a radius of (960.00) feet, an arc length of
(251.33) feet to a point;

(N 81°53’00” E) for a distance of (176.79) feet to a point;

THENCE through lands of the grantor herein (S 21°18’17” E) for a distance of
(89.20) feet to a point;

THENCE through the same (N 84°53’00” E) for a distance of (56.27) feet to a
point;

THENCE through the same (S 14°39’03” E) for a distance of (97.82) feet to a
point;

THENCE through the same (S 14°57’06” E) (erroneously set forth as 063” in deed
of prior record) for a distance of (136.07) feet to a point;

THENCE through the same (S 08°08’20” E) for a distance of (826.34) feet to a
point;

THENCE through the same (S 81°53’00” W) for a distance of (2014.29) feet to a
point along lands now or formerly of NBTY PAH, LLC;

THENCE along the easterly line of said lands, and continuing along the easterly
line of the aforementioned Lot (45) (N 08°07’00” W) for a distance of
(998.72) feet to a point and the PLACE OF BEGINNING.

CONTAINING approximately 48.28 acres more or less.

--------------------------------------------------------------------------------

EXHIBIT A

 

BEING ALL of New Lot 40B as shown on that certain Preliminary/Final Subdivision
Plan prepared by Vincent J. Stranch, P.L.S., and last revised on May 9, 2008,
and recorded in the Office of the Recorder of Deeds in and for Luzerne County in
Map Book 207 at Page 48.

PARCEL 2 (Appurtenant Easement Parcel):

TOGETHER WITH the irrevocable easement in, through, over and across and under
the Easement Areas (as defined in the Easement Agreements , as hereinafter
defined) for the purposes of (a) installing, constructing, replacing,
maintaining and operating the Utilities (as defined in the Easement Agreements,
as hereinafter defined) and (b) ingress, egress and regress for the purpose of
access contained in those certain Easement Agreements recorded in Record Book
3002, page 229222 and Book 3002, page 229240, Luzerne County, Pennsylvania
(collectively, the “Easement Agreements”).

Tax ID / Parcel No. 26-U6S3-001-36A-000

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EXHIBIT B

 

 

NON-BORROWER MORTGAGOR RIDER

Exhibit B to Open-End Mortgage with Absolute Assignment of Leases and Rents,
Security Agreement and Fixture Filing executed by KBSII I-81 INDUSTRIAL
PORTFOLIO TRUST, a Delaware statutory trust, as Mortgagor, for the benefit of
WELLS FARGO BANK, NATIONAL ASSOCIATION, acting as Administrative Agent for
certain lenders, as Mortgagee, dated as of February 8, 2011.

To the extent the Mortgage secures a promissory note and other loan documents
(“Loan Documents”) made by a party or parties (“Borrower”) not identical to the
party or parties constituting Mortgagor, the party or parties constituting
Mortgagor agree as follows:

 

1.

CONDITIONS TO EXERCISE OF RIGHTS. Mortgagor hereby waives any right it may now
or hereafter have to require Mortgagee, as a condition to the exercise of any
remedy or other right against Mortgagor hereunder or under any other document
executed by Mortgagor in connection with any Secured Obligation: (a) to proceed
against any Borrower or other person, or against any other collateral assigned
to Mortgagee by Mortgagor or any Borrower or other person; (b) to pursue any
other right or remedy in Mortgagee’s power; (c) to give notice of the time,
place or terms of any public or private sale of real or personal property
collateral assigned to Mortgagee by any Borrower or other person (other than
Mortgagor), or otherwise to comply with the UCC (as defined in the Mortgage)
with respect to any such personal property collateral; or (d) to make or give
(except as otherwise expressly provided in the Loan Documents) any presentment,
demand, protest, notice of dishonor, notice of protest or other demand or notice
of any kind in connection with any Secured Obligation or any collateral (other
than the Subject Property) for any Secured Obligation.

 

2.

DEFENSES. Mortgagor hereby waives any defense it may now or hereafter have that
relates to: (a) any disability or other defense of any Borrower or other person;
(b) the cessation, from any cause other than full performance, of the
obligations of Borrower or any other person; (c) the application of the proceeds
of any Secured Obligation, by any Borrower or other person, for purposes other
than the purposes represented to Mortgagor by any Borrower or otherwise intended
or understood by Mortgagor or any Borrower; (d) any act or omission by Mortgagee
which directly or indirectly results in or contributes to the release of any
Borrower or other person or any collateral for any Secured Obligation; (e) the
unenforceability or invalidity of any collateral assignment (other than this
Mortgage) or guaranty with respect to any Secured Obligation, or the lack of
perfection or continuing perfection or lack of priority of any lien (other than
the lien hereof) which secures any Secured Obligation; (f) any failure of
Mortgagee to marshal assets in favor of Mortgagor or any other person; (g) any
modification of any Secured Obligation, including any renewal, extension,
acceleration or increase in interest rate; (h) any and all rights and defenses
arising out of an election of remedies by Mortgagee, even though that election
of remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed Mortgagor’s rights of subrogation and
reimbursement against the principal by operation of Section 580d of the
California Code of Civil Procedure or otherwise; (i) any law which provides that
the obligation of a surety or guarantor must neither be larger in amount nor in
other respects more burdensome than that of the principal or which reduces a
surety’s or guarantor’s obligation in proportion to the principal obligation;
(j) any failure of Mortgagee to file or enforce a claim in any bankruptcy or
other proceeding with respect to any person; (k) the election by Mortgagee, in
any bankruptcy proceeding of any person, of the application or non-application
of Section 1111(b)(2) of the United States Bankruptcy Code; (l) any extension of
credit or the grant of any lien under Section 364 of the United States
Bankruptcy Code; (m) any use of cash collateral under Section 363 of the United
States Bankruptcy Code; or (n) any agreement or stipulation with respect to the
provision of adequate protection in any bankruptcy proceeding of any person.
Mortgagor further waives any and all rights and defenses that Mortgagor may have
because Borrower’s debt is secured by real

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EXHIBIT B

 

 

property; this means, among other things, that: (1) Mortgagee may collect from
Mortgagor without first foreclosing on any real or personal property collateral
pledged by Borrower; (2) if Mortgagee forecloses on any real property collateral
pledged by Borrower, then (A) the amount of the debt may be reduced only by the
price for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price, and (B) Mortgagee may collect from
Mortgagor even if Mortgagee, by foreclosing on the real property collateral, has
destroyed any right Mortgagor may have to collect from Borrower. The foregoing
sentence is an unconditional and irrevocable waiver of any rights and defenses
Mortgagor may have because Borrower’s debt is secured by real property. These
rights and defenses being waived by Mortgagor include, but are not limited to,
any rights or defenses based upon Section 580a, 580b, 580d or 726 of the
California Code of Civil Procedure. Without limiting the generality of the
foregoing or any other provision hereof, Mortgagor further expressly waives to
the extent permitted by law any and all rights and defenses, including without
limitation any rights of subrogation, reimbursement, indemnification and
contribution, which might otherwise be available to Mortgagor under California
Civil Code Sections 2787 to 2855, inclusive, 2899 and 3433, or under California
Code of Civil Procedure Sections 580a, 580b, 580d and 726, or any of such
sections..

 

3.

SUBROGATION. Mortgagor hereby waives, until such time as all Secured Obligations
are fully performed: (a) any right of subrogation against any Borrower that
relates to any Secured Obligation; (b) any right to enforce any remedy Mortgagor
may now or hereafter have against any Borrower that relates to any Secured
Obligation; and (c) any right to participate in any collateral now or hereafter
assigned to Mortgagee with respect to any Secured Obligation.

 

4.

BORROWER INFORMATION. Mortgagor warrants and agrees: (a) that Mortgagee would
not make the Loan but for this Mortgage; (b) that Mortgagor has not relied, and
will not rely, on any representations or warranties by Mortgagee to Mortgagor
with respect to the credit worthiness of any Borrower or the prospects of
repayment of any Secured Obligation from sources other than the Subject
Property; (c) that Mortgagor has established and/or will establish adequate
means of obtaining from each Borrower on a continuing basis financial and other
information pertaining to the business operations, if any, and financial
condition of each Borrower; (d) that Mortgagor assumes full responsibility for
keeping informed with respect to each Borrower’s business operations, if any,
and financial condition; (e) that Mortgagee shall have no duty to disclose or
report to Mortgagor any information now or hereafter known to Mortgagee with
respect to any Borrower, including, without limitation, any information relating
to any of Borrower’s business operations or financial condition; and (f) that
Mortgagor is familiar with the terms and conditions of the Loan Documents and
consents to all provisions thereof.

 

5.

REINSTATEMENT OF LIEN. Mortgagee’s rights hereunder shall be reinstated and
revived, and the enforceability of this Mortgage shall continue, with respect to
any amount at any time paid on account of any Secured Obligation which Mortgagee
is thereafter required to restore or return in connection with a bankruptcy,
insolvency, reorganization or similar proceeding with respect to any Borrower.

 

6.

SUBORDINATION. Until all of the Secured Obligations have been fully paid and
performed: (a) Mortgagor hereby agrees that all existing and future indebtedness
and other obligations of each Borrower to Mortgagor (collectively, the
“Subordinated Debt”) shall be and are hereby subordinated to all Secured
Obligations which constitute obligations of the applicable Borrower, and the
payment thereof is hereby deferred in right of payment to the prior payment and
performance of all such Secured Obligations; (b) Mortgagor shall not collect or
receive any cash or non-cash payments on any Subordinated Debt or transfer all
or any portion of the Subordinated Debt; and (c) in the event that,
notwithstanding the foregoing, any payment by, or distribution of assets of, any
Borrower with respect to any Subordinated Debt is received by Mortgagor, such
payment or distribution shall be held in trust and immediately paid over to
Mortgagee, is hereby assigned to Mortgagee as security

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EXHIBIT B

 

 

for the Secured Obligations, and shall be held by Mortgagee in an interest
bearing account until all Secured Obligations have been fully paid and
performed.

 

7.

LAWFULNESS AND REASONABLENESS. Mortgagor warrants that all of the waivers in
this Mortgage are made with full knowledge of their significance, and of the
fact that events giving rise to any defense or other benefit waived by Mortgagor
may destroy or impair rights which Mortgagor would otherwise have against
Mortgagee, Borrower and other persons, or against collateral. Mortgagor agrees
that all such waivers are reasonable under the circumstances and further agrees
that, if any such waiver is determined (by a court of competent jurisdiction) to
be contrary to any law or public policy, the other waivers herein shall
nonetheless remain in full force and effect.

 

8.

ENFORCEABILITY. Mortgagor hereby acknowledges that: (a) the obligations
undertaken by Mortgagor in this Mortgage are complex in nature, and (b) numerous
possible defenses to the enforceability of these obligations may presently exist
and/or may arise hereafter, and (c) as part of Mortgagee’s consideration for
entering into this transaction, Mortgagee has specifically bargained for the
waiver and relinquishment by Mortgagor of all such defenses, and (d) Mortgagor
has had the opportunity to seek and receive legal advice from skilled legal
counsel in the area of financial transactions of the type contemplated herein.
Given all of the above, Mortgagor does hereby represent and confirm to Mortgagee
that Mortgagor is fully informed regarding, and that Mortgagor does thoroughly
understand: (i) the nature of all such possible defenses, and (ii) the
circumstances under which such defenses may arise, and (iii) the benefits which
such defenses might confer upon Mortgagor, and (iv) the legal consequences to
Mortgagor of waiving such defenses. Mortgagor acknowledges that Mortgagor makes
this Mortgage with the intent that this Mortgage and all of the informed waivers
herein shall each and all be fully enforceable by Mortgagee, and that Mortgagee
is induced to enter into this transaction in material reliance upon the presumed
full enforceability thereof.

 

9.

WAIVER OF RIGHT TO TRIAL BY JURY. TO THE EXTENT PERMITTED BY THEN APPLICABLE
LAW, EACH PARTY TO THIS MORTGAGE, AND BY ITS ACCEPTANCE HEREOF, MORTGAGEE,
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (a) ARISING UNDER THE LOAN DOCUMENTS, INCLUDING, WITHOUT
LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS (AS NOW OR HEREAFTER MODIFIED) OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND EACH PARTY AND MORTGAGEE HEREBY AGREES AND CONSENTS THAT ANY
PARTY TO THIS MORTGAGE AND MORTGAGEE MAY FILE AN ORIGINAL COUNTERPART OR A COPY
OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO AND MORTGAGEE TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

10.

INTEGRATION; INTERPRETATION. This Mortgage and the other Loan Documents contain
or expressly incorporate by reference the entire agreement of the parties with
respect to the matters contemplated therein and supersede all prior negotiations
or agreements, written or oral. This Mortgage and the other Loan Documents shall
not be modified except by written instrument executed by all parties. Any
reference to the Loan Documents includes any amendments, renewals or extensions
now or hereafter approved by Mortgagee in writing.