EXHIBIT 10.4
Loan No. 8079119402
THIS INSTRUMENT PREPARED BY:
Gibson Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attn: Mark Nicoletti
AND WHEN RECORDED MAIL TO:
Commercial Banking Group (AU #2702)
201 Third Street, 8th Floor
San Francisco, CA 94013
Attn: Records Management / Team 2
Loan No. 8079119402
THIS MORTGAGE SECURES A NOTE THAT
PROVIDES FOR A VARIABLE INTEREST RATE
AMENDED AND RESTATED MORTGAGE
WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
     THE PARTIES TO THIS AMENDED AND RESTATED MORTGAGE WITH ABSOLUTE ASSIGNMENT
OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this “Mortgage”),
made as of March 12, 2008, are VIRCO MFG. CORPORATION, a Delaware corporation
(“Mortgagor”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Mortgagee”). The
mailing address of Mortgagor and Mortgagee are the addresses for those parties
set forth or referred to in Section 7.10 below.
RECITALS
     WHEREAS, Mortgagor did execute and deliver that certain Mortgage with
Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing
dated January 26, 2004 (as amended, restated, supplemented or otherwise
modified, the “Original Mortgage”) to and for the benefit of Mortgagee; and
     WHEREAS, the Original Mortgage was recorded and filed in the Official
Records of the County of Faulkner, Arkansas (the “Official Records”) on
January 28, 2004, as Document No. 2004-1700 and re-recorded and filed
February 27, 2004, as Document No. 2004-3958, as modified by that certain
Modification Agreement (Secured Loan) executed by Mortgagor on January 27, 2005,
which was recorded and filed in the Official Records on February 3, 2005, as
Document No. 2005-2338, and by that certain Modification Agreement (Secured
Loan) executed by Mortgagor on December 8, 2005, which was recorded and filed in
the Official Records on

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December 15, 2005, as Document No. 2005-27794, and by that certain Modification
Agreement (Secured Loan) executed by Mortgagor on March 26, 2007, which was
recorded and filed in the Official Records on April 10, 2007, as Document
No. 2007-7273; and
     WHEREAS, Mortgagor and Mortgagee are parties to that certain Second Amended
and Restated Credit Agreement dated as of the date hereof (as amended, restated,
supplemented or otherwise modified, from time to time, the “Credit Agreement”),
which amends and restates, in its entirety, that certain Amended and Restated
Credit Agreement dated as of January 27, 2004; and
     WHEREAS, Mortgagor and Mortgagee, now desire to amend and restate the
Original Mortgage, in its entirety, and replace it with this Mortgage.
ARTICLE 1. GRANT OF MORTGAGE
     1.1 GRANT. For the purposes of and upon the terms and conditions in this
Mortgage and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Mortgagor irrevocably grants, bargains, sells,
conveys and assigns to Mortgagee, with power of sale and right of entry and
possession, all of that real property located in the City of Conway, County of
Faulkner, State of Arkansas, 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, all development rights or credits, air rights, water, water
rights and water stock related to the real property, and all minerals, oil and
gas, and other hydrocarbon substances in, on or under the real property, and all
appurtenances, easements, rights and rights of way appurtenant or related
thereto; 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.
     1.2 ADDRESS. The addresses of the Subject Property are (i) 1701 Sturgis
Road, (ii) 900 Robbins Street, and (iii) 701 Bruce Street. However, neither the
failure to designate an address nor any inaccuracy in the addresses designated
shall affect the validity or priority of the lien of this Mortgage on the
Subject Property as described on Exhibit A.
     1.3 INCORPORATION OF RECITALS. The Recitals (above) are true and correct
and are hereby incorporated herein by this reference.
ARTICLE 2. OBLIGATIONS SECURED
     2.1 OBLIGATIONS SECURED. Mortgagor makes this Mortgage for the purpose of
securing the following obligations (“Secured Obligations”):

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          (a) Payment to Mortgagee of all sums at any time owing under that
certain Revolving Line of Credit Note of even date herewith in the principal
amount of Sixty-Five Million and No/100 Dollars ($65,000,000) (the “Note”),
executed by Mortgagor, as “Borrower,” and payable to the order of Mortgagee, as
“Lender;” and
          (b) Payment to Mortgagee of all sums representing Bank Product
Obligations, as defined in the Credit Agreement; and
          (c) Payment and performance of all covenants and obligations of
Mortgagor under this Mortgage; and
          (d) Payment and performance of all covenants and obligations on the
part of Mortgagor under the Credit Agreement and each other Loan Document
executed in connection therewith; 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) All amendments, restatements, 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) amendments, restatements, modifications,
extensions or renewals at a different rate of interest whether or not in the
case of a note, the amendment, restatement, modification, extension or renewal
is evidenced by a new or additional promissory note or notes.
     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, including,
without limitation, any interest or other payment obligations that would have
accrued on the Secured Obligations but for the application of the United States
Bankruptcy Code.
     2.3 INCORPORATION. 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 Credit 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

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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 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.
     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.
     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 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:
(a) the Schedule of Leases attached hereto as Schedule 1 is, as of the date
hereof, 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.

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     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 available remedies performance by the lessees of the obligations
of the lessees contained in the Leases; (b) give Mortgagee prompt written notice
of any 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 at all times at rentals not less than the fair market rental value;
(d) deliver to Mortgagee fully executed, counterpart original(s) of each and
every Lease if requested to do so; and (e) execute and record such additional
assignments of any Lease or 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 Credit Agreement:
(i) enter into any Leases after the date thereof; (ii) execute any other
assignment relating to any of the Leases; (iii) 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) 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) consent to
any assignment or subletting by any lessee; or (vi) subordinate or 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 to reduce the outstanding Secured
Obligations and any such sums received by Mortgagor shall be held in trust by
Mortgagor for such purpose.
     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 by each of the
lessees, 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 “Closing Date” (defined in the Credit Agreement) 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”):
          (a) All goods, building and other materials, supplies, inventory, work
in process, equipment, machinery, fixtures, furniture, furnishings, signs and
other personal property and embedded software included therein and supporting
information, wherever situated, which are or are to be incorporated into, used
in connection with, or appropriated for use on (i) the real

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property described on Exhibit A attached hereto and incorporated by reference
herein or (ii) any existing or future improvements on the real property (which
real property and improvements are collectively referred to herein as the
“Subject Property”); together with all rents and security deposits derived from
the Subject Property; all inventory, accounts, cash receipts, deposit accounts,
accounts receivable, contract rights, licenses, agreements, general intangibles,
payment intangibles, software, 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, proceeds of the sale of promissory notes, any
other rights to the payment of money, trade names, trademarks and service marks
arising from or related to the ownership, management, leasing, operation, sale
or disposition of the Subject Property or any business now or hereafter
conducted thereon by Mortgagor; all development rights and credits, and any and
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 water and water rights, wells and well rights, canals
and canal rights, ditches and ditch rights, springs and spring rights, and
reservoirs and reservoir rights appurtenant to or associated with the Subject
Property, whether decreed or undecreed, tributary, non-tributary or not
non-tributary, surface or underground or appropriated or unappropriated, and all
shares of stock in water, ditch, lateral and canal companies, well permits and
all other evidences of any of such rights; 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 thereof; together with all replacements and proceeds of, and
additions and accessions to, any of the foregoing; together with all books,
records and files relating to any of the foregoing.
          (b) 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 Arkansas Uniform Commercial Code, as
amended or recodified from time to time (“UCC”).
     4.2 REPRESENTATIONS AND WARRANTIES. Mortgagor represents and warrants that:
(a) Mortgagor has, or 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 7.10; 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

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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 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 § 9-620, or other applicable law.
     4.5 RIGHTS OF MORTGAGEE ON DEFAULT. Upon the occurrence 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:
          (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.
          (d) 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

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under UCC § 9-620, or other applicable law. 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, 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 Credit 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 Credit
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, 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.
     5.2 TAXES AND ASSESSMENTS. Subject to Mortgagor’s rights to contest payment
of taxes as may be provided in the Credit Agreement, 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.
     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
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

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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 Secured Obligation,
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 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 approved by Mortgagee in writing that has or may attain priority
over this Mortgage. Subject to the provisions of the Credit Agreement regarding
mechanics’ liens, 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.
     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, but not limited to, earthquake insurance and
terrorism insurance, if any) payable by reason of loss sustained to all or any
part of the Subject Property or Collateral; and (iv) all interest which may
accrue on any of the foregoing. Subject to applicable law, 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 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

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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) At its sole option, Mortgagee may 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; and (ee) 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 thirty (30) 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.
     5.7 INSURANCE, MAINTENANCE AND PRESERVATION OF THE SUBJECT PROPERTY.
Subject to the provisions of the Credit Agreement, while any obligation of
Mortgagor or any guarantor under any Loan Document remains outstanding,
Mortgagor covenants:
          (a) to maintain at Mortgagor’s sole expense, with licensed insurers
approved by Mortgagee, the following policies of insurance in form and substance
satisfactory to Mortgagee, with Mortgagee named as first mortgagee on all such
policies: (i) title insurance (including a Title Policy, together with any
endorsements which Mortgagee may require, insuring Mortgagee in the principal
amount of the Notes), (ii) property insurance (including, without limitation,
such endorsements as Mortgagee may require, insuring Mortgagee against damage to
the Subject Property in an amount acceptable to Mortgagee, with Mortgagee named
on the policy under a Lender’s Loss Payable Endorsement), (iii) flood hazard
insurance, as required by applicable governmental regulations, or as deemed
necessary by Mortgagee, (iv) liability insurance (including a policy of
comprehensive general liability insurance) with limits as required by Mortgagee,
insuring against liability for injury and/or death to any person and/or damage
to any property occurring on the Subject Property and/or from any cause
whatsoever. Mortgagor shall provide to Mortgagee the originals of all required
insurance policies, or other evidence of insurance acceptable to Mortgagee. All
insurance policies shall provide that the

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insurance shall not be cancelable or materially changed without thirty
(30) days’ prior written notice to Mortgagee. Mortgagee shall be named under a
Lender’s Loss Payable Endorsement (form #438BFU or equivalent) on all insurance
policies which Mortgagor actually maintains with respect to the Property.
Mortgagor shall provide to Mortgagee evidence of any other hazard insurance
Mortgagee may deem necessary at any time during the loan secured by this
Mortgage;
          (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 (except in the ordinary course of business) and not to initiate or
acquiesce in any change in any zoning or other land classification which affects
the Subject Property without the Mortgagee’s prior written consent;
          (d) in the event of any damage or other casualty relating to the
Subject Property or the Collateral and so long as Mortgagee has released any
insurance claim proceeds relating thereto in accordance with Section 5.6 hereof,
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;
          (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 INTENTIONALLY OMITTED.
     5.9 APPROVAL OF LEASES. All leases of all or any part of the Subject
Property shall: (a) be upon terms and with tenants approved by Mortgagee prior
to Mortgagor’s execution of any such lease; and (b) include estoppel,
subordination, attornment and mortgagee protection provisions satisfactory to
Mortgagee. All standard lease forms and any material deviation from any form,
shall be approved by Mortgagee prior to execution of any lease using such form.
     5.10 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.
     5.11 CERTAIN POWERS OF MORTGAGEE.

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          (a) 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 may, without liability therefor and without notice:
(a) release from the lien of this Mortgage all or any part of the Subject
Property; (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.
          (b) Except as may be required by applicable law, Mortgagee may from
time to time apply to any court of competent jurisdiction for aid and direction
in the enforcement of the rights and remedies available hereunder, and may
obtain orders or decrees directing or confirming or approving the enforcement of
said remedies.
     5.12 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 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 OR PARTIAL RELEASE OF THIS MORTGAGE.

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          (c) Mortgagor shall pay all amounts and indebtedness arising under
this Section 5.12 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 Notes as specified therein.
     5.13 INTENTIONALLY OMITTED.
     5.14 DUE ON SALE OR ENCUMBRANCE. If the Subject Property or any interest
therein shall be sold, transferred (including, without limitation, through sale
or transfer of a majority or controlling interest of the corporate stock or
general partnership interests or limited liability company interests of
Mortgagor), mortgaged, assigned, further encumbered or leased, whether directly
or indirectly, whether voluntarily, involuntarily or by operation of law,
without the prior written consent of Mortgagee, THEN Mortgagee, in its sole
discretion, may declare all Secured Obligations immediately due and payable.
     5.15 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.
     5.16 INTENTIONALLY OMITTED.
     5.17 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.
     5.18 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.
     5.19 INTENTIONALLY OMITTED.
     5.20 HAZARDOUS MATERIALS. Mortgagor agrees as follows:
          (a) No Hazardous Activities. Mortgagor shall not cause or permit the
Subject Property to be used as a site for the use, generation, manufacture,
storage, treatment, release, discharge, disposal, transportation or presence of
any “hazardous substances,” “hazardous wastes,” “hazardous materials,” “toxic
substances,” “wastes,” “regulated substances,” “industrial solid wastes,” or
“pollutants” under the Hazardous Materials Laws, as described below, and/or
other applicable environmental laws, ordinances and regulations (collectively,
the “Hazardous Materials”). “Hazardous Materials” shall not include commercially
reasonable

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amounts of such materials used in the ordinary course of operation of the
Property which are used and stored in accordance with all applicable
environmental laws, ordinances and regulations. “Hazardous Materials Laws” are
defined as laws, ordinances and regulations relating to Hazardous Materials,
including, without limitation: the Clean Air Act, as amended, 42 U.S.C.
Section 7401 et seq.; the Federal Water Pollution Control Act, as amended, 33
U.S.C. Section 1251 et seq.; the Resource Conservation and Recovery Act of 1976,
as amended, 42 U.S.C. Section 6901 et seq.; the Comprehensive Environment
Response, Compensation and Liability Act of 1980, as amended (including the
Superfund Amendments and Reauthorization Act of 1986, “CERCLA”), 42 U.S.C.
Section 9601 et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C.
Section 2601 et seq.; the Occupational Safety and Health Act, as amended, 29
U.S.C. Section 651, the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977,
as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking Water Act, as
amended, 42 U.S.C. Section 300f et seq.; and all comparable state and local
laws, laws of other jurisdictions or orders and regulations.
          (b) Compliance. Mortgagor shall comply and cause the Subject Property
to comply with all Hazardous Materials Laws.
          (c) Notices. Mortgagor shall immediately notify Mortgagee in writing
of: (i) the discovery of any Hazardous Materials on, under or about the
Property; (ii) any knowledge by Mortgagor that the Property does not comply with
any Hazardous Materials Laws; and (iii) any claims or actions (“Hazardous
Materials Claims”) pending or threatened against Mortgagor or the Property by
any governmental entity or agency or by any other person or entity relating to
Hazardous Materials or pursuant to the Hazardous Materials Laws.
          (d) Remedial Action. In response to the presence of any Hazardous
Materials on, under or about the Property, Mortgagor shall immediately take, at
Mortgagor’s sole expense, all remedial action required by any Hazardous
Materials Laws or any judgment, consent decree, settlement or compromise in
respect to any Hazardous Materials Claims.
     5.21 HAZARDOUS MATERIALS INDEMNITY. MORTGAGOR HEREBY AGREES TO DEFEND,
INDEMNIFY AND HOLD HARMLESS MORTGAGEE, ITS DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY AND ALL LOSSES, DAMAGES,
LIABILITIES, CLAIMS, ACTIONS, JUDGMENTS, COURT COSTS AND LEGAL OR OTHER EXPENSES
(INCLUDING, WITHOUT LIMITATION, ATTORNEYS’ FEES AND EXPENSES) WHICH MORTGAGEE
MAY INCUR AS A DIRECT OR INDIRECT CONSEQUENCE OF THE USE, GENERATION,
MANUFACTURE, STORAGE, DISPOSAL, THREATENED DISPOSAL, TRANSPORTATION OR PRESENCE
OF HAZARDOUS MATERIALS IN, ON, UNDER OR ABOUT THE PROPERTY. MORTGAGOR SHALL
IMMEDIATELY PAY TO MORTGAGEE UPON DEMAND ANY AMOUNTS OWING UNDER THIS INDEMNITY,
TOGETHER WITH INTEREST FROM THE DATE THE INDEBTEDNESS ARISES UNTIL PAID AT THE
RATE OF INTEREST APPLICABLE TO THE PRINCIPAL BALANCE OF THE NOTES. MORTGAGOR’S
DUTY AND OBLIGATIONS TO DEFEND, INDEMNIFY AND HOLD HARMLESS MORTGAGEE SHALL
SURVIVE THE CANCELLATION OF THE NOTES AND THE RELEASE, OR PARTIAL RELEASE OF
THIS MORTGAGE.

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     5.22 LEGAL EFFECT OF SECTION. Mortgagor and Mortgagee agree that
Mortgagor’s duty to indemnify Mortgagee hereunder shall survive: (a) any
judicial or non-judicial foreclosure under this Mortgage, or transfer of the
Subject Property in lieu thereof, (b) the release or cancellation of this
Mortgage; and (c) the satisfaction of all of Mortgagor’s obligation under the
Loan Documents.
ARTICLE 6. DEFAULT PROVISIONS
     6.1 DEFAULT. For all purposes hereof, the term “Default” shall mean (a) at
Mortgagee’s option, the failure of Mortgagor to make any payment of principal or
interest on the Notes or to pay any other amount due hereunder or under the
Notes when the same is due and payable, whether at maturity, by acceleration or
otherwise; (b) 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 Credit
Agreement for such failure, (c) the condemnation, seizure or appropriation of,
or occurrence of an uninsured casualty with respect to any material portion of
the Subject Property; (d) the sequestration or attachment of, or any levy or
execution upon any of the Subject Property, which sequestration, attachment,
levy or execution is not released, expunged or dismissed prior to the earlier of
thirty (30) days or the sale of the assets affected thereby; (e) the failure at
any time of this Mortgage to be a valid first lien upon the Subject Property or
any portion thereof, other than as a result of any release of the Mortgage with
respect to all or any portion of the Subject Property pursuant to the terms and
conditions of the Credit Agreement; (f) the discovery of any Hazardous
Materials, which in Mortgagee’s sole discretion, have a materially adverse
impact on the value of the Subject Property, in, on or about the Subject
Property subsequent to the Closing Date, as defined in the Credit Agreement; or
(g) the existence of any Default as defined in the Credit Agreement.
     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

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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 the fullest extent permitted by law, to seek non-judicial
foreclosure pursuant to Ark. Code Ann. Section 18-50-101, et seq.
          (e) 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, and
Mortgagor hereby consents to such appointment.
          (f) 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.
          (g) To give such notice of such Default and of its election to cause
the Subject Property to be sold as may be required by law or as may be necessary
to cause the Mortgagee to exercise the power of sale granted herein. 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, as deemed
advisable by Mortgagee, or by Mortgagor to the extent required by law, at public
auction to the highest bidder for cash, in lawful money of the United States,
payable at time of sale. Except as required by law, neither Mortgagor 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. Mortgagor hereby expressly
waives any right of redemption, including any rights under the Act passed by the
Arkansas General Assembly on May 8, 1899, and all acts amendatory or in
replacement thereof or supplemental thereto.
          (h) 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.

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          (i) Upon sale of the Subject Property at any judicial or non-judicial
foreclosure, 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 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.
          (j) Upon the completion of any foreclosure sale of all or a portion of
the Subject Property, commence an action to recover any of the Secured
Obligations that remains unpaid or unsatisfied.
     6.3 APPLICATION OF FORECLOSURE SALE PROCEEDS. Except as may be otherwise
required by applicable law, after deducting all costs, fees and expenses
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 four percent (4%)
above the Prime Rate in effect from time to time; (b) to payment of all other
Secured Obligations; and (c) the remainder, if any, to the person or persons
legally entitled thereto. As used herein, the term “Prime Rate” means at any
time the rate of interest most recently announced within Wells Fargo Bank,
National Association (“WFB”) at its principal office, as its Prime Rate, with
the understanding that the Prime Rate is one of WFB’s base rates and serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as WFB may designate.
     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

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under 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 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 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 interests 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 incurred by
Mortgagee pursuant to Section 6.2 (including, without limitation, court costs
and attorneys’ fees, whether incurred in litigation or not) 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 Notes as specified therein. In
the event of any legal proceedings, court costs and attorneys’ fees shall be set
by the court and not by jury and shall be included in any judgment obtained by
Mortgagee.
     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

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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 reminder of the Secured Obligations or its right to consider the
failure to so pay or perform a Default.
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.
     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 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 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”)
marshaled 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.
     7.5 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.
     7.6 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

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the parties hereto; provided, however, that this Section 7.6 does not waive or
modify the provisions of Section 5.14.
     7.7 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.
     7.8 CHOICE OF LAW. The entire transaction contemplated by this Mortgage and
the Credit Agreement and all terms and provisions of this Mortgage, the Credit
Agreement and the other Loan Documents shall be governed by the laws of the
State of California, except for the creation, perfection and enforcement of
certain lien rights and remedies provided herein which must be governed by the
laws of the situs of the Subject Property, that being Arkansas, regarding which
lien rights and remedies Arkansas law shall govern.
     7.9 INCORPORATION. Exhibit A and Schedule 1, all as attached, are
incorporated into this Mortgage by this reference.
     7.10 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 first class United States Postal Service mail, postage prepaid, except
that notice of Default may be sent by certified mail, return receipt requested,
or by Overnight Express Mail or by overnight commercial courier service, charges
prepaid. Notices so sent shall be effective three (3) days after mailing, if
mailed by first class mail, and otherwise 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 delivery shall be deemed receipt of such
communication. For purposes of notice, the address of the parties shall be:

         
 
  Mortgagor:   VIRCO MFG. CORPORATION
 
      2027 Harpers Way
 
      Torrance, California 90501
 
      Attn: Robert E. Dose,
 
      Chief Financial Officer

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  Mortgagee:   WELLS FARGO BANK, NATIONAL ASSOCIATION
 
      Commercial Banking Group (AU #2702)
 
      201 Third Street, 8th Floor
 
      San Francisco, CA 94013
 
      Attn: Records Management / Team 2
 
      Loan #: 8079119402
 
       
 
  With a copy to:   WELLS FARGO BANK, NATIONAL ASSOCIATION
 
      San Gabriel Valley Regional Commercial Banking Office
 
      1000 Lakes Drive, Suite 250
 
      West Covina, CA 91790
 
      Attn: Randall J. Repp
 
       
 
  With a copy to:   WELLS FARGO BANK, NATIONAL ASSOCIATION
 
      Disbursement and Operations Center
 
      2120 East Park Place, Suite 100
 
      El Segundo, CA 90245
 
      Attention: DISBURSEMENT REPRESENTATIVE

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 any similar designation as addressee, or which could
reasonably be deemed to affect the ability of Mortgagor to perform its
obligations to Mortgagee under the Notes or the Credit Agreement.
     7.11 ARBITRATION. THE PROVISIONS OF SECTION 7.11 OF THE CREDIT AGREEMENT
ARE INCORPORATED HEREIN IN THEIR ENTIRETY, MUTATIS MUTANDIS.
     7.12 PATRIOT ACT NOTICE COMPLIANCE. The USA Patriot Act of 2001 (Public Law
107-56) and federal regulations issued with respect thereto require all
financial institutions to obtain, verify and record certain information that
identifies individuals or business entities which open an “account” with such
financial institution. Consequently, Lender may from time-to-time request, and
Mortgagor shall provide to Lender, Mortgagor’s name, address, tax identification
number and/or such other identification information as shall be necessary for
Lender to comply with federal law. An “account” for this purpose may include,
without limitation, a deposit account, cash management service, a transaction or
asset account, a credit account, a loan or other extension of credit, and/or
other financial services product.
[Signature Page Follows]

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     IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the day and
year set forth above.

            MORTGAGOR:

VIRCO MFG. CORPORATION,
a Delaware corporation
      By:   /s/ Robert E. Dose        Name:   Robert E. Dose        Title:  
Chief Financial Officer     

(ALL SIGNATURES MUST BE ACKNOWLEDGED)

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]

Loan No. 8079119402
TABLE OF CONTENTS

              Page  
 
       
ARTICLE 1. GRANT OF MORTGAGE
    2  
 
       
1.1 GRANT
    2  
1.2 ADDRESS
    2  
1.3 INCORPORATION OF RECITALS
    2  
 
       
ARTICLE 2. OBLIGATIONS SECURED
    2  
 
       
2.1 OBLIGATIONS SECURED
    2  
2.2 OBLIGATIONS
    3  
2.3 INCORPORATION
    3  
 
       
ARTICLE 3. ASSIGNMENT OF LEASES AND RENTS
    3  
 
       
3.1 ASSIGNMENT
    3  
3.2 GRANT OF LICENSE
    4  
3.3 EFFECT OF ASSIGNMENT
    4  
3.4 REPRESENTATIONS AND WARRANTIES
    4  
3.5 COVENANTS
    5  
3.6 ESTOPPEL CERTIFICATES
    5  
 
       
ARTICLE 4. SECURITY AGREEMENT AND FIXTURE FILING
    5  
 
       
4.1 SECURITY INTEREST
    5  
4.2 REPRESENTATIONS AND WARRANTIES
    6  
4.3 COVENANTS
    6  
4.4 RIGHTS OF MORTGAGEE
    7  
4.5 RIGHTS OF MORTGAGEE ON DEFAULT
    7  
4.6 POWER OF ATTORNEY
    8  
4.7 POSSESSION AND USE OF COLLATERAL
    8  
 
       
ARTICLE 5. RIGHTS AND DUTIES OF THE PARTIES
    8  
 
       
5.1 TITLE
    8  
5.2 TAXES AND ASSESSMENTS
    8  
5.3 TAX AND INSURANCE IMPOUNDS
    8  
5.4 PERFORMANCE OF SECURED OBLIGATIONS
    9  
5.5 LIENS, ENCUMBRANCES AND CHARGES
    9  
5.6 DAMAGES; INSURANCE AND CONDEMNATION PROCEEDS
    9  
5.7 INSURANCE, MAINTENANCE AND PRESERVATION OF THE SUBJECT PROPERTY
    10  
5.8 INTENTIONALLY OMITTED
    11  
5.9 APPROVAL OF LEASES
    11  

 

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Loan No. 8079119402
Table of Contents
(Continued)

              Page  
 
       
5.10 DEFENSE AND NOTICE OF LOSSES, CLAIMS AND ACTIONS
    11  
5.11 CERTAIN POWERS OF MORTGAGEE
    11  
5.12 COMPENSATION; EXCULPATION; INDEMNIFICATION
    12  
5.13 INTENTIONALLY OMITTED
    13  
5.14 DUE ON SALE OR ENCUMBRANCE
    13  
 
       
5.15 RELEASES, EXTENSIONS, MODIFICATIONS AND ADDITIONAL SECURITY
    13  
 
       
5.16 INTENTIONALLY OMITTED
    13  
5.17 SUBROGATION
    13  
5.18 RIGHT OF INSPECTION
    13  
5.19 INTENTIONALLY OMITTED
    13  
5.20 HAZARDOUS MATERIALS
    13  
5.21 HAZARDOUS MATERIALS INDEMNITY
    14  
5.22 LEGAL EFFECT OF SECTION
    15  
 
       
ARTICLE 6. DEFAULT PROVISIONS
    15  
 
       
6.1 DEFAULT
    15  
6.2 RIGHTS AND REMEDIES
    15  
6.3 APPLICATION OF FORECLOSURE SALE PROCEEDS
    17  
6.4 APPLICATION OF OTHER SUMS
    17  
6.5 NO CURE OR WAIVER
    18  
6.6 PAYMENT OF COSTS, EXPENSES AND ATTORNEYS’ FEES
    18  
6.7 POWER TO FILE NOTICES AND CURE DEFAULTS
    18  
6.8 REMEDIES CUMULATIVE
    18  
 
       
ARTICLE 7. MISCELLANEOUS PROVISIONS
    19  
 
       
7.1 ADDITIONAL PROVISIONS
    19  
7.2 MERGER
    19  
7.3 OBLIGATIONS OF MORTGAGOR, JOINT AND SEVERAL
    19  
7.4 WAIVER OF MARSHALLING RIGHTS
    19  
7.5 RULES OF CONSTRUCTION
    19  
7.6 SUCCESSORS IN INTEREST
    19  
7.7 EXECUTION IN COUNTERPARTS
    20  
7.8 CHOICE OF LAW
    20  
7.9 INCORPORATION
    20  
7.10 NOTICES
    20  
7.11 ARBITRATION
    21  
7.12 PATRIOT ACT NOTICE COMPLIANCE
    21