Exhibit 10.6

PROMISSORY NOTE

 

U.S. $30,000,000.00

  April 4, 2006

FOR VALUE RECEIVED, and at the times hereinafter specified, RANCON REALTY FUND V
SUBSIDIARY TWO LLC, a Delaware limited liability company (“Maker”), whose
address is 400 South El Camino Real, 11th Floor, San Mateo, California 94402,
hereby promises to pay to the order of THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY, a Texas corporation (hereinafter referred to, together with each
subsequent holder hereof, as “Holder”), at c/o AIG Global Investment Corp.,
1 SunAmerica Center, 38th Floor, Century City, Los Angeles,
California 90067-6022, or at such other address as may be designated from time
to time hereafter by any Holder, the principal sum of THIRTY MILLION AND
NO/100THS DOLLARS ($30,000,000.00), together with interest on the principal
balance outstanding from time to time, as hereinafter provided, in lawful money
of the United States of America.

By its execution and delivery of this promissory note (this “Note”), Maker
covenants and agrees as follows:

1. Interest Rate and Payments.

(a) The balance of principal outstanding from time to time under this Note shall
bear interest at the rate of five and sixty–one one-hundredths percent
(5.61%) per annum (the “Original Interest Rate”), based on a three hundred sixty
(360) day year composed of twelve (12) months of thirty (30) days each; however,
interest for partial months shall be calculated by multiplying the principal
balance of this Note by the applicable interest rate (i.e., the Original
Interest Rate or the New Rate (hereinafter defined)), dividing the product by
three hundred sixty (360), and multiplying that result by the actual number of
days elapsed.

(b) Interest only shall be payable on the date the loan evidenced by this Note
(the “Loan”) is funded by Holder, in advance, for the period from and including
the date of funding through and including April 30, 2006.

(c) Commencing on June 1, 2006 and on the first day of each month thereafter
through and including April 1, 2016 combined payments of principal and interest
shall be payable, in arrears, in the amount of $172,412.91 each (such amount
representing an amount sufficient to fully amortize the original principal
amount of this Note over a three hundred sixty (360) month period (the
“Amortization Period”)).

(d) The entire outstanding principal balance of this Note, together with all
accrued and unpaid interest and all other sums due hereunder, shall be due and
payable in full on May 1, 2016 (the “Original Maturity Date”).

2. Holder’s Extension Option; Net Operating Income.

(a) If Maker shall fail to pay the outstanding principal balance of this Note
and all accrued interest and other charges due hereon at the Original Maturity
Date, Holder shall have the right, at Holder’s sole option and discretion, to
extend the term of the Loan for an additional period of five (5) years (the
“Extension Term”). If Holder elects to extend the term of the Loan, Maker shall
pay all fees of Holder incurred in connection with such extension, including,
but not limited to, attorneys’ fees and title insurance premiums. Maker shall
execute all documents reasonably requested by Holder to evidence and secure the
Loan, as extended, and shall obtain and provide to Holder any title insurance
policy or endorsement requested by Holder.

(b) Should Holder elect to extend the term of the Loan as provided above, Holder
shall (i) reset the interest rate borne by the then-existing principal balance
of the Loan to a rate per annum (the “New Rate”) equal to the greater of (A) the
Original Interest Rate, or (B) Holder’s (or comparable lenders’, if Holder is no

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longer making such loans) then-prevailing interest rate for five (5) year loans
secured by properties similar to the Property (hereinafter defined), as
determined by Holder in its sole discretion; (ii) re-amortize the then-existing
principal balance of the Loan over the remaining portion of the Amortization
Period (the “New Amortization Period”); (iii) have the right to require Maker to
enter into modifications of the non-economic terms of the Loan Documents as
Holder may request (the “Non-Economic Modifications”); and (iv) notwithstanding
any provision set forth in the Loan Documents to the contrary, have the right to
require Maker to make monthly payments into escrow for insurance premiums and
real property taxes, assessments and similar governmental charges. Hence,
monthly principal and interest payments during the Extension Term shall be based
upon the New Rate, and calculated to fully amortize the outstanding principal
balance of the Loan over the New Amortization Period.

(c) If Holder elects to extend the term of the Loan, Holder shall advise Maker
of the New Rate within fifteen (15) days following the Original Maturity Date.

(d) In addition to the required monthly payments of principal and interest set
forth above, commencing on the first day of the second month following the
Original Maturity Date and continuing on the first day of each month thereafter
during the Extension Term (each an “Additional Payment Date”), Maker shall make
monthly payments to Holder in an amount equal to all Net Operating Income
(hereinafter defined) attributable to the Property for the calendar month ending
on the last day of the month that is two months preceding each such Additional
Payment Date. For example, assuming the Original Maturity Date is January 1,
then Net Operating Income for the period from January 1 through January 31 shall
be payable to Holder on March 1; Net Operating Income for the period from
February 1 through February 28 shall be payable to Holder on April 1, and so on.

(e) Holder shall deposit all such Net Operating Income received from Maker into
an account or accounts maintained at a financial institution chosen by Holder or
its servicer in its sole discretion (the “Deposit Account”) and all such funds
shall be invested in a manner acceptable to Holder in its sole discretion. All
interest, dividends and earnings credited to the Deposit Account shall be held
and applied in accordance with the terms hereof.

(f) On the third Additional Payment Date and on each third Additional Payment
Date thereafter, Holder shall apply all Excess Funds (hereinafter defined), if
any, to prepayment of amounts due under this Note, without premium or penalty.

(g) As security for the repayment of the Loan and the performance of all other
obligations of Maker under the Loan Documents, Maker hereby assigns, pledges,
conveys, delivers, transfers and grants to Holder a first priority security
interest in and to: all Maker’s right, title and interest in and to the Deposit
Account; all rights to payment from the Deposit Account and the money deposited
therein or credited thereto (whether then due or in the future due and whether
then or in the future on deposit); all interest thereon; any certificates,
instruments and securities, if any, representing the Deposit Account; all
claims, demands, general intangibles, choses in action and other rights or
interests of Maker in respect of the Deposit Account; any monies then or at any
time thereafter deposited therein; any increases, renewals, extensions,
substitutions and replacements thereof; and all proceeds of the foregoing.

(h) From time to time, but not more frequently than monthly, Maker may request a
disbursement (a “Disbursement”) from the Deposit Account for capital expenses,
tenant improvement expenses, leasing commissions and special contingency
expenses. Holder may consent to or deny any such Disbursement in its sole
discretion.

(i) Upon the occurrence of any Event of Default (hereinafter defined) (i) Maker
shall not be entitled to any further Disbursement from the Deposit Account; and
(ii) Holder shall be entitled to take immediate possession and control of the
Deposit Account (and all funds contained therein) and to pursue all of its
rights and remedies available to Holder under the Loan Documents, at law and in
equity.

(j) All of the terms and conditions of the Loan shall apply during the Extension
Term, except as expressly set forth above, and except that no further extensions
of the Loan shall be permitted.

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(k) For the purposes of the foregoing:

(i) “Excess Funds” shall mean, on any Additional Payment Date, the amount of
funds then existing in the Deposit Account (including any Net Operating Income
due on the applicable Additional Payment Date), less an amount equal to the sum
of three regularly scheduled payments of principal and interest due on this
Note;

(ii) “Net Operating Income” shall mean, for any particular period of time, Gross
Revenue for the relevant period, less Operating Expenses for the relevant
period; provided, however, that if such amount is equal to or less than zero
(0), Net Operating Income shall equal zero (0);

(iii) “Gross Revenue” shall mean all payments and other revenues (exclusive,
however, of any payments attributable to sales taxes) received by or on behalf
of Maker from all sources related to the ownership or operation of the Property,
including, but not limited to, rents, room charges, parking fees, interest,
security deposits (unless required to be held in a segregated account), business
interruption insurance proceeds, operating expense pass-through revenues and
common area maintenance charges, for the relevant period for which the
calculation of Gross Revenue is being made; and

(iv) “Operating Expenses” shall mean the sum of all ordinary and necessary
operating expenses actually paid by Maker in connection with the operation of
the Property during the relevant period for which the calculation of Operating
Expenses is being made, including, but not limited to, (a) payments made by
Maker for taxes and insurance required under the Loan Documents, and (b) monthly
debt service payments as required under this Note.

3. Budgets During Extension Term.

(a) Within fifteen (15) days following the Original Maturity Date and on or
before December 1 of each subsequent calendar year, Maker shall deliver to
Holder a proposed revenue and expense budget for the Property for the remainder
of the calendar year in which the Original Maturity Date occurs or the
immediately succeeding calendar year (as applicable). Such budget shall set
forth Maker’s projection of Gross Revenue and Operating Expenses for the
applicable calendar year, which shall be subject to Holder’s reasonable
approval. Once a proposed budget has been reviewed and approved by Holder, and
Maker has made all revisions requested by Holder, if any, the revised budget
shall be delivered to Holder and shall thereafter become the budget for the
Property hereunder (the “Budget”) for the applicable calendar year. If Maker and
Holder are unable to agree upon a Budget for any calendar year, the budgeted
Operating Expenses (excluding extraordinary items) provided in the Budget for
the Property for the preceding calendar year shall be considered the Budget for
the Property for the subject calendar year until Maker and Holder agree upon a
new Budget for such calendar year.

(b) During the Extension Term, Maker shall operate the Property in accordance
with the Budget for the applicable calendar year, and the total of expenditures
relating to the Property exceeding one hundred and five percent (105%) of the
aggregate of such expenses set forth in the Budget for the applicable time
period shall not be treated as Operating Expenses for the purposes of
calculating “Net Operating Income,” without the prior written consent of Holder
except for emergency expenditures which, in the Maker’s good faith judgment, are
reasonably necessary to protect, or avoid immediate danger to, life or property.

4. Reports During Extension Term.

(a) During the Extension Term, Maker shall deliver to Holder all financial
statements reasonably required by Holder to calculate Net Operating Income,
including, without limitation, a monthly statement to be delivered to Holder
concurrently with Maker’s payment of Net Operating Income that sets forth the
amount of Net Operating Income accompanying such statement and Maker’s
calculation of Net Operating Income for the relevant calendar month. Such
statements shall be certified by an executive officer of Maker or Maker’s
manager, managing member or general partner (as applicable) as having been
prepared in accordance with the terms hereof and to be true, accurate and
complete in all material respects.

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(b) In addition, on or before February 1 of each calendar year during the
Extension Term, Maker shall submit to Holder an annual income and expense
statement for the Property which shall include the calculation of Gross Revenue,
Operating Expenses and Net Operating Income for the preceding calendar year and
shall be accompanied by Maker’s reconciliation of any difference between the
actual aggregate amount of the Net Operating Income for such calendar year and
the aggregate amount of Net Operating Income for such calendar year actually
remitted to Holder. All such statements shall be certified by an executive
officer of Maker or Maker’s manager, managing member or general partner (as
applicable) as having been prepared in accordance with the terms hereof and to
be true, accurate and complete in all material respects. If any such annual
financial statement discloses any inconsistency between the calculation of Net
Operating Income and the amount of Net Operating Income actually remitted to
Holder, Maker shall immediately remit to Holder the amount of any underpayment
of Net Operating Income for such calendar year or, in the event of an
overpayment by Maker, such amount may be withheld from any subsequent payment of
Net Operating Income required hereunder.

(c) Holder may notify Maker within ninety (90) days after receipt of any
statement or report required hereunder that Holder disputes any computation or
item contained in any portion of such statement or report. If Holder so notifies
Maker, Holder and Maker shall meet in good faith within twenty (20) days after
Holder’s notice to Maker to resolve such disputed items. If, despite such good
faith efforts, the parties are unable to resolve the dispute at such meeting or
within ten (10) days thereafter, the items shall be resolved by an independent
certified public accountant designated by Holder within fifteen (15) days after
such ten (10) day period. The determination of such accountant shall be final.
All fees of such accountant shall be paid by Maker. Maker shall remit to Holder
any additional amount of Net Operating Income found to be due for such periods
within ten (10) days after the resolution of such dispute by the parties or the
accountant’s determination, as applicable. The amount of any overpayment found
to have been made for such periods may be withheld from any required future
remittance of Net Operating Income.

(d) Maker shall at all times keep and maintain full and accurate books of
account and records adequate to reflect correctly all items required in order to
calculate Net Operating Income.

5. Loan Prepayment.

(a) During the first two (2) years after the date of this Note, Maker shall have
no right to prepay all or any part of this Note.

(b) At any time after the second (2nd) anniversary of the date of this Note,
Maker shall have the right to prepay the full principal amount of this Note and
all accrued but unpaid interest hereon as of the date of prepayment, and Maker
shall, subject to the terms and conditions set forth in that certain Loan and
Partial Release Agreement of even date herewith by and between Maker and Holder
(the “Loan Agreement”), be permitted to make one or more principal reduction
payments in the amount of the Allocated Release Price in connection with a
Permitted Release (as such terms are defined in the Loan Agreement), provided,
in each case, that (i) Maker gives not less than thirty (30) days’ prior written
notice to Holder of Maker’s election to prepay this Note, and (ii) Maker pays a
prepayment premium to Holder (A) in the case of prepayment in full, in an amount
equal to the greater of one percent (1%) of the outstanding principal balance of
this Note or the Present Value of this Note (hereinafter defined), less the
amount of principal being prepaid, calculated as of the prepayment date, and
(B) in the case of a partial prepayment in connection with a Permitted Release,
in an amount equal to the percentage that such Allocated Release Price so
applied to this Note bears to the entire then-existing principal balance of this
Note, multiplied by the prepayment premium that would be due if this Note were
prepaid in full on such date. In connection with any Permitted Release, Holder
shall re-amortize the then-outstanding principal balance of this Note over the
remainder of the Amortization Period and give notice to Maker in accordance with
the terms of the Deed of Trust of such revised amortization schedule.

(c) Holder shall notify Maker of the amount and basis of determination of the
prepayment premium. Holder shall not be obligated to accept any prepayment of
the principal balance of this Note unless such prepayment is accompanied by the
applicable prepayment premium and all accrued interest and other sums due under
this Note. Maker may not prepay the Loan on a Friday or on any day preceding a
public holiday, or the equivalent for banks generally under the laws of the
State in which the Property is located (the “State”).

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(d) Except for (i) making payments of Excess Funds as described above, (ii) the
application of insurance proceeds or condemnation awards to the principal
balance of this Note, as provided in the Deed of Trust (hereinafter defined),
and (iii) partial prepayments made in connection with a Permitted Release (as
defined in the Loan Agreement), in no event shall Maker be permitted to make any
partial prepayments of this Note.

(e) If Holder accelerates this Note upon an Event of Default, then in addition
to Maker’s obligation to pay the then outstanding principal balance of this Note
and all accrued but unpaid interest thereon, Maker shall pay an additional
amount equal to the prepayment premium that would be due to Holder if Maker were
voluntarily prepaying this Note at the time that such acceleration occurred, or
if under the terms hereof no voluntary prepayment would be permissible on the
date of such acceleration, Maker shall pay a prepayment premium calculated as
set forth in the Deed of Trust.

(f) For the purposes of the foregoing:

(i) The “Present Value of this Note” with respect to any prepayment of this
Note, as of any date, shall be determined by discounting all scheduled payments
of principal and interest remaining to maturity of this Note, attributed to the
amount being prepaid, at the Discount Rate. If prepayment occurs on a date other
than a regularly scheduled payment date, the actual number of days remaining
from the prepayment date to the next regularly scheduled payment date will be
used to discount within such period.

(ii) The “Discount Rate” is the rate which, when compounded monthly, is
equivalent to the Treasury Rate, when compounded semi-annually.

(iii) The “Treasury Rate” is the semi-annual yield on the Treasury Constant
Maturity Series with maturity equal to the remaining weighted average life of
this Note, for the week prior to the prepayment date, as reported in Federal
Reserve Statistical Release H.15–Selected Interest Rates, conclusively
determined by Holder on the prepayment date. The rate will be determined by
linear interpolation between the yields reported in Release H.15, if necessary.
In the event Release H.15 is no longer published, Holder shall select a
comparable publication to determine the Treasury Rate.

(g) Holder shall not be obligated actually to reinvest the amount prepaid in any
treasury obligations as a condition precedent to receiving any prepayment
premium.

(h) Notwithstanding the foregoing, (i) at any time during the ninety (90) day
period immediately prior to the Original Maturity Date and during the Extension
Term, Maker shall have the right to prepay the full principal amount of this
Note and all accrued but unpaid interest thereon as of the date of prepayment,
without prepayment premium thereon, and (ii) no prepayment premium shall be due
in connection with the application of any insurance proceeds or condemnation
awards to the principal balance of this Note, as provided in the Deed of Trust.

6. Payments. Whenever any payment to be made under this Note shall be stated to
be due on a Saturday, Sunday or public holiday or the equivalent for banks
generally under the laws of the State (any other day being a “Business Day”),
such payment may be made on the next succeeding Business Day.

7. Default Rate.

(a) The entire balance of principal, interest, and other sums due upon the
maturity hereof, by acceleration or otherwise, shall bear interest from the date
due until paid at the greater of (i) eighteen percent (18%) per annum and (ii) a
per annum rate equal to five percent (5%) over the prime rate (for corporate
loans at large United States money center commercial banks) published in The
Wall Street Journal on the first

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business day of each month (the “Default Rate”); provided, however, that such
rate shall not exceed the maximum permitted by applicable state or federal law.
In the event The Wall Street Journal is no longer published or no longer
publishes such prime rate, Holder shall select a comparable reference.

(b) If any payment under this Note is not made when due, interest shall accrue
at the Default Rate from the date such payment was due until payment is actually
made.

8. Late Charges. In addition to interest as set forth herein, Maker shall pay to
Holder a late charge equal to four percent (4%) of any amounts due under this
Note in the event any such amount is not paid when due.

9. Application of Payments. All payments hereunder shall be applied first to the
payment of late charges, if any, then to the payment of prepayment premiums, if
any, then to the repayment of any sums advanced by Holder for the payment of any
insurance premiums, taxes, assessments, or other charges against the property
securing this Note (together with interest thereon at the Default Rate from the
date of advance until repaid), then to the payment of accrued and unpaid
interest, and then to the reduction of principal.

10. Immediately Available Funds. Payments under this Note shall be payable in
immediately available funds without setoff, counterclaim or deduction of any
kind, and shall be made by electronic funds transfer from a bank account
established and maintained by Maker for such purpose.

11. Security. This Note is secured by a Deed of Trust, Security Agreement,
Fixture Filing, Financing Statement and Assignment of Leases and Rents of even
date herewith granted by Maker for the benefit of the named Holder hereof (the
“Deed of Trust”) encumbering certain real property and improvements thereon
comprising four office and retail buildings in the Tri-City Corporate Center,
San Bernardino, California, as more particularly described in such Deed of Trust
(the “Property”).

12. Certain Definitions. Capitalized terms used herein and not otherwise defined
shall have the meanings set forth in the Deed of Trust.

13. Event of Default. Each of the following events will constitute an event of
default (an “Event of Default”) under this Note and under the Deed of Trust and
each other Loan Document, and any Event of Default under any Loan Document shall
constitute an Event of Default hereunder and under each of the other Loan
Documents:

(a) any failure to pay when due any sum under Section 1 of this Note;

(b) any failure to pay when due any other sum hereunder, provided, however, that
such failure shall not constitute an Event of Default unless such failure
continues for ten (10) days beyond the date that Holder delivers to Maker notice
that such payment is due;

(c) any failure of Maker to properly perform any obligation contained herein or
in any of the other Loan Documents (other than the obligation to make payments
under this Note or the other Loan Documents) and the continuance of such failure
for a period of ten (10) days following written notice thereof from Holder to
Maker; provided, however, that if such failure is not curable within such ten
(10) day period, then, so long as Maker commences to cure such failure within
such ten (10) day period and is continually and diligently attempting to cure to
completion, such failure shall not be an Event of Default unless such failure
remains uncured for ninety (90) days after such written notice to Maker; or

(d) if, at any time during the Extension Term, Gross Revenue for any calendar
month shall be less than ninety-three percent (93%) of the amount of projected
Gross Revenue for such month set forth in the applicable Budget.

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14. Acceleration. Upon the occurrence of any Event of Default, the entire
balance of principal, accrued interest, and other sums owing hereunder shall, at
the option of Holder, become at once due and payable without notice or demand.
Upon the occurrence of an Event of Default described in Section 13(d) hereof,
Holder shall have the option, in its sole discretion, to either (a) exercise any
remedies available to it under the Loan Documents, at law or in equity, or (b)
require Maker to submit a new proposed budget for Holder’s approval. If Holder
agrees to accept such new proposed budget, then such budget shall become the
Budget for all purposes hereunder.

15. Conditions Precedent. Maker hereby certifies and declares that all acts,
conditions and things required to be done and performed and to have happened
precedent to the creation and issuance of this Note, and to constitute this Note
the legal, valid and binding obligation of Maker, enforceable in accordance with
the terms hereof, have been done and performed and happened in due and strict
compliance with all applicable laws.

16. Certain Waivers and Consents. Maker and all parties now or hereafter liable
for the payment hereof, primarily or secondarily, directly or indirectly, and
whether as endorser, guarantor, surety, or otherwise, hereby severally (a) waive
presentment, demand, protest, notice of protest and/or dishonor, and all other
demands or notices of any sort whatever with respect to this Note, (b) consent
to impairment or release of collateral, extensions of time for payment, and
acceptance of partial payments before, at, or after maturity, (c) waive any
right to require Holder to proceed against any security for this Note before
proceeding hereunder, (d) waive diligence in the collection of this Note or in
filing suit on this Note, and (e) agree to pay all costs and expenses, including
reasonable attorneys’ fees, which may be incurred in the collection of this Note
or any part thereof or in preserving, securing possession of, and realizing upon
any security for this Note.

17. Usury Savings Clause. The provisions of this Note and of all agreements
between Maker and Holder are, whether now existing or hereinafter made, hereby
expressly limited so that in no contingency or event whatever, whether by reason
of acceleration of the maturity hereof, prepayment, demand for payment or
otherwise, shall the amount paid, or agreed to be paid, to Holder for the use,
forbearance, or detention of the principal hereof or interest hereon, which
remains unpaid from time to time, exceed the maximum amount permissible under
applicable law, it particularly being the intention of the parties hereto to
conform strictly to the laws of the State and Federal law, whichever is
applicable. If from any circumstance whatever, the performance or fulfillment of
any provision hereof or of any other agreement between Maker and Holder shall,
at the time performance or fulfillment of such provision is due, involve or
purport to require any payment in excess of the limits prescribed by law, then
the obligation to be performed or fulfilled is hereby reduced to the limit of
such validity, and if from any circumstance whatever Holder should ever receive
as interest an amount which would exceed the highest lawful rate, the amount
which would be excessive interest shall be applied to the reduction of the
principal balance owing hereunder (or, at Holder’s option, be paid over to
Maker) and shall not be counted as interest. To the extent permitted by
applicable law, determination of the legal maximum amount of interest shall at
all times be made by amortizing, prorating, allocating and spreading in equal
parts during the period of the full stated term of this Note, all interest at
any time contracted for, charged, or received from Maker in connection with this
Note and all other agreements between Maker and Holder, so that the actual rate
of interest on account of the indebtedness represented by this Note is uniform
throughout the term hereof.

18. Non-Recourse; Exceptions to Non-Recourse. Nothing contained in this Note or
any of the other Loan Documents shall be deemed to impair or limit Holder’s
rights: in foreclosure proceedings or in any ancillary proceedings brought to
facilitate Holder’s foreclosure on the Property or any portion thereof or to
exercise any specific rights or remedies afforded Holder under any other
provisions of the Loan Documents or by law or in equity, subject to the
non-recourse provisions set forth below; to recover under any guarantee given in
connection with the Loan; or to pursue any personal liability of Maker or any
Guarantor under the Environmental Indemnity Agreement or Section 5.10 of the
Deed of Trust. Except as expressly set forth in this Section 18, the recourse of
Holder with respect to the obligations evidenced by this Note shall be solely to
the Property, Chattels and Intangible Personalty (as defined in the Deed of
Trust) and any other collateral given as security for the Loan:

(a) Notwithstanding anything to the contrary contained in this Note or in any
Loan Document, nothing shall be deemed in any way to impair, limit or prejudice
the rights of Holder to collect or recover from Maker and Guarantor: (i) damages
or costs (including without limitation reasonable attorneys’ fees) incurred

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by Holder as a result of waste by Maker; (ii) any condemnation or insurance
proceeds attributable to the Property which were not paid to Holder or used to
restore the Property in accordance with the terms of the Deed of Trust;
(iii) any rents, profits, advances, rebates, prepaid rents or other similar sums
attributable to the Property collected by or for Maker following an Event of
Default (as defined in the Deed of Trust) and not properly applied to the
reasonable fixed and operating expenses of the Property, including payments of
this Note and other sums due under the Loan Documents; (iv) any security
deposits collected by or for Borrower and not applied in accordance with
applicable leases; (v) the amount of any accrued taxes, assessments, and/or
utility charges affecting the Property (whether or not the same have been billed
to Maker) that are either unpaid by Maker or advanced by Holder under the Deed
of Trust; (vi) any sums expended by Holder in fulfilling the obligations of
Maker, as lessor, under any leases affecting the Property; (vii) the amount of
any loss suffered by Holder (that would otherwise be covered by insurance) as a
result of Maker’s failure to maintain the insurance required under the terms of
any Loan Document; (viii) the amount of any loss suffered by Holder as a result
of any amendment, modification or termination of the lease to Northrop Grumman
Space & Mission Systems Corp., Chicago Title Company, or Arrowhead Central
Credit Union (collectively, the “Major Tenants”) or execution or subsequent
amendment, modification or termination of any lease for any space currently
occupied by the Major Tenants without the prior written consent of Holder, if
such consent is required under Section 5.3 of the Deed of Trust;

(b) The agreement set forth in the introductory paragraph of this Section 18 to
limit the personal liability of Maker shall become null and void and be of no
further force and effect, and Maker and each Guarantor shall be personally
liable for the obligations evidenced by this Note, in the event (i) that the
Property, or any part thereof or any interest therein, or any interest in Maker,
shall be further encumbered by a voluntary lien securing any obligation upon
which Maker, any direct or indirect general partner, manager or managing member
of Maker, any guarantor of the Loan, or any principal or affiliate of Maker
shall be personally liable for repayment, either as obligor or guarantor;
(ii) of any breach or violation of Section 5.4, 5.5 or 5.7 of the Deed of Trust;
(iii) of any fraud or material misrepresentation by Maker in connection with the
Property, the Loan Documents or the application made by Maker for the Loan;
(iv) that Maker forfeits the Property or Chattels or any portion of the Property
or Chattels due to criminal activity; and (v) of any attempt by Maker, any
Guarantor, or any other person directly or indirectly responsible for the
management of Maker or liable for repayment of Maker’s obligations under the
Loan (whether as maker, endorser, guarantor, surety, general partner or
otherwise) to materially delay any foreclosure against the Property, Chattels
and/or Intangible Personalty or any other exercise by Holder of its remedies
under the Loan Documents, which attempts shall include, without limitation,
(A) any claim that any Loan Document is invalid or unenforceable to an extent
that would preclude any such foreclosure or other exercise of remedies,
(B) Maker filing a petition in bankruptcy, Maker failing to oppose in good faith
the entry of an order for relief pursuant to any involuntary bankruptcy petition
filed against it or Maker seeking any reorganization, liquidation, dissolution
or similar relief under the bankruptcy laws of the United States or under any
other similar federal, state or other statute relating to relief from
indebtedness, or (C) the appointment of a receiver, trustee or liquidator with
respect to Maker or the Property or any part thereof. For purposes of the
foregoing, “affiliate” shall mean any individual, corporation, trust,
partnership or any other person or entity controlled by, controlling or under
common control with Maker. A person or entity of any nature shall be presumed to
have control when it possesses the power, directly or indirectly, to direct, or
cause the direction of, the management or policies of another person or entity,
whether through ownership of voting securities, by contract, or otherwise.

19. Severability. If any provision hereof or of any other document securing or
related to the indebtedness evidenced hereby is, for any reason and to any
extent, invalid or unenforceable, then neither the remainder of the document in
which such provision is contained, nor the application of the provision to other
persons, entities, or circumstances, nor any other document referred to herein,
shall be affected thereby, but instead shall be enforceable to the maximum
extent permitted by law.

20. Transfer of Note. Each provision of this Note shall be and remain in full
force and effect notwithstanding any negotiation or transfer hereof and any
interest herein to any other Holder or participant.

21. Governing Law. Regardless of the place of its execution, this Note shall be
construed and enforced in accordance with the laws of the State.

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22. Time of Essence. Time is of the essence with respect to all of Maker’s
obligations under this Note.

23. Remedies Cumulative. The remedies provided to Holder in this Note, the Deed
of Trust, and the other Loan Documents are cumulative and concurrent and may be
exercised singly, successively or together against Maker, the Property, and
other security, or any guarantor of this Note, at the sole and absolute
discretion of the Holder.

24. No Waiver. Holder shall not by any act or omission be deemed to waive any of
its rights or remedies hereunder unless such waiver is in writing and signed by
the Holder and then only to the extent specifically set forth therein. A waiver
of one event shall not be construed as continuing or as a bar to or waiver of
any right or remedy granted to Holder hereunder in connection with a subsequent
event.

25. Joint and Several Obligation. If Maker is more than one person or entity,
then (a) all persons or entities comprising Maker are jointly and severally
liable for all of the Maker’s obligations hereunder; (b) all representations,
warranties, and covenants made by Maker shall be deemed representations,
warranties, and covenants of each of the persons or entities comprising Maker;
(c) any breach, Default or Event of Default by any of the persons or entities
comprising Maker hereunder shall be deemed to be a breach, Default, or Event of
Default of Maker; and (d) any reference herein contained to the knowledge or
awareness of Maker shall mean the knowledge or awareness of any of the persons
or entities comprising Maker.

26. WAIVER OF JURY TRIAL. MAKER AND HOLDER KNOWINGLY, IRREVOCABLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS NOTE, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE, THE DEED OF TRUST, OR ANY OTHER LOAN
DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL
OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR TO ANY LOAN DOCUMENT. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR MAKER AND HOLDER TO ENTER INTO THE LOAN
TRANSACTION EVIDENCED BY THIS NOTE.

27. WAIVER OF PREPAYMENT RIGHT WITHOUT PREMIUM. MAKER HEREBY EXPRESSLY WAIVES
ANY RIGHT IT MAY HAVE UNDER APPLICABLE LAW (INCLUDING, WITHOUT LIMITATION,
CALIFORNIA CIVIL CODE SECTION 2954.10) TO PREPAY THIS NOTE, IN WHOLE OR IN PART,
WITHOUT PREPAYMENT PREMIUM, UPON ACCELERATION OF THE MATURITY DATE OF THIS NOTE,
AND AGREES THAT, IF FOR ANY REASON A PREPAYMENT OF ALL OR ANY PART OF THIS NOTE
IS MADE, WHETHER VOLUNTARILY OR FOLLOWING ANY ACCELERATION OF THE MATURITY DATE
OF THIS NOTE BY HOLDER ON ACCOUNT OF THE OCCURRENCE OF ANY EVENT OF DEFAULT
ARISING FOR ANY REASON, INCLUDING, WITHOUT LIMITATION, AS A RESULT OF ANY
PROHIBITED OR RESTRICTED TRANSFER, FURTHER ENCUMBRANCE OR DISPOSITION OF THE
PROPERTY OR ANY PART THEREOF SECURING THIS NOTE, THEN MAKER SHALL BE OBLIGATED
TO PAY, CONCURRENTLY WITH SUCH PREPAYMENT, THE PREPAYMENT PREMIUM PROVIDED FOR
IN THIS NOTE OR, IN THE EVENT OF PREPAYMENT FOLLOWING ACCELERATION OF THE
MATURITY DATE HEREOF WHEN THIS NOTE IS CLOSED TO PREPAYMENT, AS PROVIDED IN THE
DEED OF TRUST. MAKER HEREBY DECLARES THAT HOLDER’S AGREEMENT TO MAKE THE LOAN AT
THE INTEREST RATE AND FOR THE TERM SET FORTH IN THIS NOTE CONSTITUTES ADEQUATE
CONSIDERATION, GIVEN INDIVIDUAL WEIGHT BY MAKER, FOR THIS WAIVER AND AGREEMENT.

MAKER            

[Balance of Page Intentionally Left Blank]

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IN WITNESS WHEREOF and intending to be legally bound, Maker has duly executed
this Note as of the date first above written.

 

MAKER: RANCON REALTY FUND V SUBSIDIARY TWO LLC, a Delaware limited liability
company By:  

 

Name:   Daniel Lee Stephenson Title:   Manager

 

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STATE OF CALIFORNIA

COUNTY OF SAN BERNARDINO

Recording requested by:

And when recorded mail to:

Otten, Johnson, Robinson, Neff &

Ragonetti, P.C.

950 Seventeenth Street

Suite 1600

Denver, Colorado 80202

Attention: Aaron J. Hill, Esq.

DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING, FINANCING STATEMENT AND

ASSIGNMENT OF LEASES AND RENTS

 

TRUSTOR:

  

RANCON REALTY FUND V SUBSIDIARY TWO LLC,
a Delaware limited liability company

  

400 South El Camino Real, 11th Floor

  

San Mateo, California 94402

  

Attention: G. Lee Burns, Esq.

BENEFICIARY:

  

THE VARIABLE ANNUITY LIFE INSURANCE COMPANY,
a Texas corporation

  

c/o AIG Global Investment Corp.

  

1 SunAmerica Center, 38th Floor

  

Century City

  

Los Angeles, California 90067-6022

  

Attention: Director-Mortgage Lending and Real Estate

TRUSTEE:

  

CHICAGO TITLE INSURANCE COMPANY

  

700 South Flower Street, Suite 900

  

Los Angeles, California 90017

AMOUNT SECURED:

  

$30,000,000.00

GOVERNING LAW:

  

CALIFORNIA

 

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DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING, FINANCING STATEMENT AND

ASSIGNMENT OF LEASES AND RENTS

THIS DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING, FINANCING STATEMENT AND
ASSIGNMENT OF LEASES AND RENTS (this “Deed of Trust”) is given as of April 4,
2006, by RANCON REALTY FUND V SUBSIDIARY TWO LLC, a Delaware limited liability
company (“Trustor”), to CHICAGO TITLE INSURANCE COMPANY (“Trustee”), for the use
and benefit of THE VARIABLE ANNUITY LIFE INSURANCE COMPANY, a Texas corporation
(“Beneficiary”).

ARTICLE 1

PARTIES, PROPERTY, AND DEFINITIONS

The following terms and references shall have the meanings indicated:

1.1 Beneficiary: The Beneficiary named in the introductory paragraph of this
Deed of Trust, whose legal address is c/o AIG Global Investment Corp.,
1 SunAmerica Center, 38th Floor, Century City, Los Angeles,
California 90067-6022, together with any future holder of the Note.

1.2 Chattels: All goods, fixtures, inventory, equipment, building and other
materials, supplies, and other tangible personal property of every nature,
whether now owned or hereafter acquired by Trustor, used, intended for use, or
reasonably required in the construction, development, or operation of the
Property, together with all accessions thereto, replacements and substitutions
therefor, and proceeds thereof.

1.3 Controlling Persons: Collectively, (a) if Trustor is a partnership or joint
venture, all general partners or joint venturers of Trustor, (b) Guarantor,
(c) any other party directly or indirectly liable for payment of the Secured
Obligations, whether as maker, endorser, guarantor, surety, general partner, or
otherwise, and (d) any successor to any of the foregoing.

1.4 Default: Any matter which, with the giving of notice, passage of time, or
both, would constitute an Event of Default.

1.5 Environmental Indemnity Agreement: The Environmental Indemnity Agreement of
even date herewith made by Trustor and Guarantor for the benefit of Beneficiary.

1.6 ERISA: The Employee Retirement Income Security Act of 1974, as amended,
together with all rules and regulations issued thereunder.

1.7 Event of Default: As defined in Article 6.

1.8 Guarantor: Rancon Realty Fund V, a California limited partnership.

1.9 Guaranty Agreement: The Guaranty Agreement of even date herewith made by
Guarantor for the benefit of Beneficiary.

1.10 Insurance Agreement: The Agreement Concerning Insurance Requirements of
even date herewith executed by Trustor for the benefit of Beneficiary.

1.11 Intangible Personalty: All of Trustor’s right, title and interest in the
right to use all trademarks and trade names and symbols or logos used in
connection therewith, or any modifications or variations thereof, in connection
with the operation of the improvements existing or to be constructed on the
Property, together with all accounts, deposit accounts, letter of credit rights,
investment property, monies in the possession of Beneficiary (including, without
limitation, proceeds from insurance, retainages and deposits for taxes and
insurance), Permits, contract rights (including, without limitation, rights to
receive insurance proceeds) and general

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intangibles (whether now owned or hereafter acquired, and including proceeds
thereof) relating to or arising from Trustor’s ownership, use, operation,
leasing, or sale of all or any part of the Property, specifically including but
in no way limited to any right which Trustor may have or acquire to transfer any
development rights from the Property to other real property, and any development
rights which may be so transferred.

1.12 Lease Certificate: The Certificate of even date herewith made by Trustor to
Beneficiary concerning Leases of the Property.

1.13 Leases: Any and all leases, subleases and other like rental agreements,
other than any subleases to which Trustor is not a party, under the terms of
which any person other than Trustor has or acquires any right to occupy or use
the Property, or any part thereof.

1.14 Loan: The loan from Beneficiary to Trustor evidenced by the Note.

1.15 Loan Documents: The Note, all of the deeds of trust, mortgages, security
agreements and other documents securing or executed and delivered in connection
with the Note, including this Deed of Trust, the Insurance Agreement, the
Environmental Indemnity Agreement, the Guaranty Agreement, the Lockbox
Agreement, the Pledge Agreement, the Lease Certificate, the Partial Release
Agreement and each other document executed or delivered in connection with the
transaction pursuant to which the Note has been executed and delivered. The term
“Loan Documents” also includes all modifications, extensions, renewals, and
replacements of each document referred to above.

1.16 Lockbox Agreement: The Lockbox Deposit Service Agreement of even date
herewith among Trustor, Beneficiary, the “Servicer” referenced therein and the
“Depository Bank” referenced therein.

1.17 Note: Trustor’s promissory note of even date herewith, payable to the order
of Beneficiary in the principal face amount of $30,000,000.00, the last payment
under which is due on May 1, 2016, or, if extended by Beneficiary pursuant to
its terms, May 1, 2021, unless such due date is accelerated, together with all
renewals, extensions and modifications of such promissory note. All terms and
provisions of the Note are incorporated by this reference in this Deed of Trust.

1.18 Partial Release Agreement: The Loan and Partial Release Agreement of even
date herewith among Trustor and Beneficiary.

1.19 Permits: All permits, licenses, certificates and authorizations necessary
for the beneficial development, ownership, use, occupancy, operation and
maintenance of the Property.

1.20 Permitted Exceptions: The matters (excluding matters of survey) set forth
in Schedule B-I of the title insurance policy insuring the lien created by this
Deed of Trust, in form and substance satisfactory to, and accepted by,
Beneficiary, that Trustor has caused to be delivered to Beneficiary in
connection with the Loan.

1.21 Pledge Agreement: The Pledge and Cash Collateral Agreement of even date
herewith among Trustor, Beneficiary and the “Servicer” referenced therein.

1.22 Property: The tract or tracts of land described in Exhibit A attached,
together with all of Trustor’s right, title and interest in and to the
following:

(a) All buildings, structures, and improvements now or hereafter located on such
tract or tracts, as well as all rights-of-way, easements, and other
appurtenances thereto;

(b) Any land lying between the boundaries of such tract or tracts and the center
line of any adjacent street, road, avenue, or alley, whether opened or proposed;

 

2

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(c) All of the rents, income, receipts, revenues, issues and profits of and from
such tract or tracts and improvements;

(d) All (i) water and water rights (whether decreed or undecreed, tributary,
nontributary or not nontributary, surface or underground, or appropriated or
unappropriated); (ii) ditches and ditch rights; (iii) spring and spring rights;
(iv) reservoir and reservoir rights; and (v) shares of stock in water, ditch and
canal companies and all other evidence of such rights, which are now owned or
hereafter acquired by Trustor and which are appurtenant to or which have been
used in connection with such tract or tracts or improvements;

(e) All minerals, crops, timber, trees, shrubs, flowers, and landscaping
features now or hereafter located on, under or above such tract or tracts;

(f) All machinery, apparatus, equipment, fittings, fixtures (whether actually or
constructively attached, and including all trade, domestic, and ornamental
fixtures) now or hereafter located in, upon, or under such tract or tracts or
improvements and used or usable in connection with any present or future
operation thereof, including but not limited to all heating, air-conditioning,
freezing, lighting, laundry, incinerating and power equipment; engines; pipes;
pumps; tanks; motors; conduits; switchboards; plumbing, lifting, cleaning, fire
prevention, fire extinguishing, refrigerating, ventilating, cooking, and
communications apparatus; boilers, water heaters, ranges, furnaces, and burners;
appliances; vacuum cleaning systems; elevators; escalators; shades; awnings;
screens; storm doors and windows; stoves; refrigerators; attached cabinets;
partitions; ducts and compressors; rugs and carpets; draperies; and all
additions thereto and replacements therefor;

(g) All development rights associated with such tract or tracts, whether
previously or subsequently transferred to such tract or tracts from other real
property or now or hereafter susceptible of transfer from such tract or tracts
to other real property;

(h) All awards and payments, including interest thereon, resulting from the
exercise of any right of eminent domain or any other public or private taking
of, injury to, or decrease in the value of, any of such property; and

(i) All other and greater rights and interests of every nature in such tract or
tracts and in the possession or use thereof and income therefrom, whether now
owned or subsequently acquired by Trustor.

1.23 Secured Obligations: All present and future obligations of Trustor to
Beneficiary evidenced by or contained in the Note, this Deed of Trust and all
other Loan Documents (excluding the Environmental Indemnity Agreement, which is
not secured by this Deed of Trust), whether stated in the form of promises,
covenants, representations, warranties, conditions, or prohibitions or in any
other form. If the maturity of the Note secured by this Deed of Trust is
accelerated, the Secured Obligations shall include an amount equal to any
prepayment premium which would be payable under the terms of the Note as if the
Note were prepaid in full on the date of the acceleration. If under the terms of
the Note no voluntary prepayment would be permissible on the date of such
acceleration, then the prepayment fee or premium to be included in the Secured
Obligations shall be equal to one hundred fifty percent (150%) of the highest
prepayment fee or premium set forth in the Note, calculated as of the date of
such acceleration, as if prepayment were permitted on such date.

1.24 Trustee: The Trustee named in the introductory paragraph of this Deed of
Trust, whose address is 700 South Flower Street, Suite 900, Los Angeles,
California 90017.

1.25 Trustor: The Trustor named in the introductory paragraph of this Deed of
Trust (Organizational I.D. No. 4109622), whose legal address is 400 South
El Camino Real, 11th Floor, San Mateo, California 94402, together with any
future owner of the Property or any part thereof or interest therein.

 

3

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ARTICLE 2

GRANTING CLAUSE

2.1 Grant to Trustee. As security for the Secured Obligations, Trustor hereby
grants, bargains, sells, warrants and conveys the Property to Trustee, in trust,
with power of sale, for the use and benefit of Beneficiary, and subject to all
provisions hereof.

2.2 Security Interest to Beneficiary. As additional security for the Secured
Obligations, Trustor hereby grants to Beneficiary a security interest in the
Property, Chattels and Intangible Personalty. To the extent any of the Property,
Chattels or Intangible Personalty may be or have been acquired with funds
advanced by Beneficiary under the Loan Documents, this security interest is a
purchase money security interest. This Deed of Trust constitutes a security
agreement under the Uniform Commercial Code of the state in which the Property
is located (the “Code”) with respect to any part of the Property, Chattels and
Intangible Personalty that may or might now or hereafter be or be deemed to be
personal property, fixtures or property other than real estate (all collectively
hereinafter called “Collateral”); all of the terms, provisions, conditions and
agreements contained in this Deed of Trust pertain and apply to the Collateral
as fully and to the same extent as to any other property comprising the
Property, and the following provisions of this Section shall not limit the
generality or applicability of any other provisions of this Deed of Trust but
shall be in addition thereto:

(a) The Collateral shall be used by Trustor solely for business purposes, and
all Collateral (other than the Intangible Personalty) shall be installed upon
the real estate comprising part of the Property for Trustor’s own use or as the
equipment and furnishings furnished by Trustor, as landlord, to tenants of the
Property;

(b) The Collateral (other than the Intangible Personalty) shall be kept at the
real estate comprising a part of the Property, and shall not be removed
therefrom without the consent of Beneficiary (being the Secured Party as that
term is used in the Code); and the Collateral (other than the Intangible
Personalty) may be affixed to such real estate but shall not be affixed to any
other real estate;

(c) No financing statement covering any of the Collateral or any proceeds
thereof is on file in any public office; and Trustor will, at its cost and
expense, upon demand, furnish to Beneficiary such further information and will
execute and deliver to Beneficiary such financing statements and other documents
in form satisfactory to Beneficiary and will do all such acts and things as
Beneficiary may at any time or from time to time reasonably request or as may be
necessary or appropriate to establish and maintain a perfected first-priority
security interest in the Collateral as security for the Secured Obligations,
subject to no adverse liens or encumbrances; and Trustor will pay the cost of
filing the same or filing or recording such financing statements or other
documents and this instrument in all public offices wherever filing or recording
is deemed by Beneficiary to be necessary or desirable;

(d) The terms and provisions contained in this Section and in Section 7.6 of
this Deed of Trust shall, unless the context otherwise requires, have the
meanings and be construed as provided in the Code; and

(e) This Deed of Trust constitutes a financing statement under the Code with
respect to the Collateral. As such, this Deed of Trust covers all items of the
Collateral that are or are to become fixtures. The filing of this Deed of Trust
in the real estate records of the county where the Property is located shall
constitute a fixture filing in accordance with the Code. Information concerning
the security interests created hereby may be obtained at the addresses set forth
in Article 1 of this Deed of Trust. Trustor is the “Debtor” and Beneficiary is
the “Secured Party” (as those terms are defined and used in the Code) insofar as
this Deed of Trust constitutes a financing statement.

 

4

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ARTICLE 3

TRUSTOR’S REPRESENTATIONS AND WARRANTIES

3.1 Warranty of Title. Trustor represents and warrants to Beneficiary that:

(a) Trustor has good, marketable and indefeasible fee simple title (or easement
interest if so indicated on Exhibit A) in and to the Property, and such interest
is free and clear of all liens, encumbrances, security interests and other
claims whatsoever, subject only to the Permitted Exceptions;

(b) Trustor is the sole and absolute owner of the Chattels and the Intangible
Personalty, free and clear of all liens, encumbrances, security interests and
other claims whatsoever, subject only to the Permitted Exceptions;

(c) This Deed of Trust is a valid and enforceable first lien and security
interest on the Property, Chattels and Intangible Personalty, subject only to
the Permitted Exceptions;

(d) Trustor, for itself and its successors and assigns, hereby agrees to warrant
and forever defend, all and singular of the property and property interests
granted and conveyed pursuant to this Deed of Trust, against every person
whomsoever lawfully claiming, or to claim, the same or any part thereof; and

The representations, warranties and covenants contained in this Section shall
survive foreclosure of this Deed of Trust, and shall inure to the benefit of and
be enforceable by any person who may acquire title to the Property, the
Chattels, or the Intangible Personalty pursuant to any such foreclosure.

3.2 Due Authorization. If Trustor is other than a natural person, then each
individual who executes this document on behalf of Trustor represents and
warrants to Beneficiary that such execution has been duly authorized by all
necessary corporate, partnership, limited liability company or other action on
the part of Trustor. Trustor represents that Trustor has obtained all consents
and approvals required in connection with the execution, delivery and
performance of this Deed of Trust.

3.3 Other Representations and Warranties. Trustor represents and warrants to
Beneficiary as follows:

(a) Trustor is a limited liability company, duly organized, validly existing and
in good standing under the laws of the State of Delaware. Trustor is duly
authorized to transact business in and is in good standing under the laws of the
State of California. The sole Controlling Person of Trustor is Guarantor;

(b) The execution, delivery and performance by Trustor of the Loan Documents are
within Trustor’s power and authority and have been duly authorized by all
necessary action;

(c) This Deed of Trust is, and each other Loan Document to which Trustor or
Guarantor is a party will, when delivered hereunder, be valid and binding
obligations of Trustor and/or Guarantor, as applicable, enforceable against
Trustor and/or Guarantor, as applicable, in accordance with their respective
terms, except as limited by equitable principles and bankruptcy, insolvency and
similar laws affecting creditors’ rights;

(d) The execution, delivery and performance by Trustor and Guarantor of the Loan
Documents will not contravene any contractual or other restriction binding on or
affecting Trustor or any Controlling Person and will not result in or require
the creation of any lien, security interest, other charge or encumbrance (other
than pursuant hereto) upon or with respect to any of its properties;

(e) The execution, delivery and performance by Trustor and Guarantor of the Loan
Documents does not contravene any applicable law;

 

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(f) No authorization, approval, consent or other action by, and no notice to or
filing with, any court, governmental authority or regulatory body is required
for the due execution, delivery and performance by Trustor and Guarantor of any
of the Loan Documents or the effectiveness of any assignment of any of Trustor’s
rights and interests of any kind to Beneficiary;

(g) No part of the Property, Chattels, or Intangible Personalty is in the hands
of a receiver, no application for a receiver is pending with respect to any
portion of the Property, Chattels, or Intangible Personalty, and no part of the
Property, Chattels, or Intangible Personalty is subject to any foreclosure or
similar proceeding;

(h) Neither Trustor nor any Controlling Person has made any assignment for the
benefit of creditors, nor has Trustor or any Controlling Person filed, or had
filed against it, any petition in bankruptcy;

(i) There is no pending or, to the best of Trustor’s knowledge, threatened,
litigation, action, proceeding or investigation against Trustor, any Controlling
Person or the Property before any court, governmental or quasi-governmental,
arbitrator or other authority, which could have a materially adverse effect on
Trustor, any such Controlling Person or the Property. There is no pending or, to
the best of Trustor’s knowledge, threatened, condemnation proceeding against the
Property before any court, governmental or quasi-governmental, arbitrator or
other authority;

(j) Trustor is a “non-foreign person” within the meaning of Sections 1445 and
7701 of the United States Internal Revenue Code of 1986, as amended, and the
regulations issued thereunder;

(k) Access to and egress from the Property are available and provided by public
streets, and Trustor has no knowledge of any federal, state, county, municipal
or other governmental plans to change the highway or road system in the vicinity
of the Property or to restrict or change access from any such highway or road to
the Property;

(l) All public utility services necessary for the operation of all improvements
constituting part of the Property for their intended purposes are available at
the boundaries of the land constituting part of the Property, including water
supply, storm and sanitary sewer facilities, and natural gas, electric,
telephone and cable television facilities;

(m) The Property is located in a zoning district designated CR-3, by the County
of San Bernardino, California. Such designation permits the development, use and
operation of the Property as it is currently operated as a permitted, and not as
a non-conforming use. The Property complies in all respects with all zoning
ordinances, regulations, requirements, conditions and restrictions, including
but not limited to deed restrictions and restrictive covenants, applicable to
the Property;

(n) Except as disclosed to Beneficiary in writing, there are no special or other
assessments for public improvements or otherwise now affecting the Property, nor
does Trustor know of any pending or threatened special assessments affecting the
Property or any contemplated improvements affecting the Property that may result
in special assessments. There are no tax abatements or exceptions affecting the
Property;

(o) Trustor and each Controlling Person has filed all tax returns it is required
to have filed, and has paid all taxes as shown on such returns or on any
assessment received pertaining to the Property;

(p) Trustor has not received any notice from any governmental body having
jurisdiction over the Property as to any violation of any applicable law, or any
notice from any insurance company or inspection or rating bureau setting forth
any requirements as a condition to the continuation of any insurance coverage on
or with respect to the Property or the continuation thereof at premium rates
existing at present which have not been remedied or satisfied;

 

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(q) Neither Trustor nor any Controlling Person is in default, in any manner
which would adversely affect its properties, assets, operations or condition
(financial or otherwise), in the performance, observance or fulfillment of any
of the obligations, covenants or conditions set forth in any agreement or
instrument to which it is a party or by which it or any of its properties,
assets or revenues are bound;

(r) Except as set forth in the Lease Certificate and/or the Permitted
Exceptions, there are no occupancy rights (written or oral), Leases or tenancies
presently affecting any part of the Property. The Lease Certificate contains a
true and correct description of all Leases presently affecting the Property. No
written or oral agreements or understandings exist between Trustor and the
tenants under the Leases described in the Lease Certificate that grant such
tenants any rights greater than those described in the Lease Certificate or that
are in any way inconsistent with the rights described in the Lease Certificate;

(s) There are no purchase options, purchase contracts or other similar
agreements of any type (written or oral) presently affecting any part of the
Property;

(t) Other than with respect to the leasing brokerage agreement with CB Richard
Ellis disclosed to Beneficiary, there exists no brokerage agreement with respect
to any part of the Property;

(u) Except as otherwise disclosed to Beneficiary in writing prior to the date
hereof, (i) there are no contracts presently affecting the Property
(“Contracts”) having a term in excess of one hundred eighty (180) days or not
terminable by Trustor (without penalty) on thirty (30) days’ notice;
(ii) Trustor has heretofore delivered to Beneficiary true and correct copies of
each of the Contracts together with all amendments thereto; (iii) Trustor is not
in default of any obligations under any of the Contracts; and (iv) the Contracts
represent the complete agreement between Trustor and such other parties as to
the services to be performed or materials to be provided thereunder and the
compensation to be paid for such services or materials, as applicable, and
except as otherwise disclosed herein, such other parties possess no unsatisfied
claims against Trustor. Trustor is not in default under any of the Contracts and
no event has occurred which, with the passing of time or the giving of notice,
or both, would constitute a default under any of the Contracts;

(v) Trustor has obtained all Permits necessary for the operation, use,
ownership, development, occupancy and maintenance of the Property as retail and
office buildings, as it is currently being operated. None of the Permits has
been suspended or revoked, and all of the Permits are in full force and effect,
are fully paid for, and Trustor has made or will make application for renewals
of any of the Permits prior to the expiration thereof;

(w) All insurance policies held by Trustor relating to or affecting the Property
are in full force and effect and shall remain in full force and effect until all
Secured Obligations are satisfied. Trustor has not received any notice of
default or notice terminating or threatening to terminate any such insurance
policies. Trustor has made or will make application for renewals of any of such
insurance policies prior to the expiration thereof;

(x) Trustor currently complies with ERISA. Neither the making of the Loan nor
the exercise by Beneficiary of any of its rights under the Loan Documents
constitutes or will constitute a non-exempt, prohibited transaction under ERISA;
and

(y) Trustor’s exact legal name is correctly set out in the introductory
paragraph of this Deed of Trust. Trustor’s organizational identification number
is correctly set forth in the definition of “Trustor” set forth in Article 1
hereof. Trustor’s location (as such term is used in Section 5.8 hereof) is the
State of Delaware.

3.4 Continuing Effect. Trustor shall be liable to Beneficiary for any damage
suffered by Beneficiary if any of the foregoing representations are inaccurate
as of the date hereof, regardless when such inaccuracy may be discovered by, or
result in harm to, Beneficiary. Trustor further represents and warrants that the
foregoing representations and warranties, as well as all other representations
and warranties of Trustor to Beneficiary relative to the Loan Documents, shall
remain true and correct during the term of the Note and shall survive
termination of this Deed of Trust.

 

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ARTICLE 4

TRUSTOR’S AFFIRMATIVE COVENANTS

4.1 Payment of Note. Trustor will pay all principal, interest, and other sums
payable under the Note, on the date when such payments are due, without notice
or demand.

4.2 Performance of Other Obligations. Trustor will promptly and strictly perform
and comply with all other covenants, conditions, and prohibitions required of
Trustor by the terms of the Loan Documents.

4.3 Other Encumbrances. Trustor will promptly and strictly perform and comply
with all covenants, conditions, and prohibitions required of Trustor in
connection with any other encumbrance affecting the Property, the Chattels, or
the Intangible Personalty, or any part thereof, or any interest therein,
regardless of whether such other encumbrance is superior or subordinate to the
lien hereof.

4.4 Payment of Taxes.

(a) Property Taxes. Unless Trustor is depositing money into escrow pursuant to
Section 4.4(b), Trustor will (i) pay, before delinquency, all taxes and
assessments, general or special, which may be levied or imposed at any time
against Trustor’s interest and estate in the Property, the Chattels, or the
Intangible Personalty, and (ii) within ten days after each payment of any such
tax or assessment, Trustor will deliver to Beneficiary, without notice or
demand, an official receipt for such payment (or as soon thereafter as it is
available). At Beneficiary’s option, Beneficiary may retain the services of a
firm to monitor the payment of all taxes and assessments relating to the
Property, the cost of which shall be borne by Trustor.

(b) Deposit for Taxes. Upon demand made by Beneficiary following the occurrence
of a Default or an Event of Default, Trustor shall deposit with Beneficiary an
amount equal to 1/12th of the amount which Beneficiary estimates will be
required to make the next annual payment of taxes, assessments, and similar
governmental charges referred to in this Section, multiplied by the number of
whole or partial months that have elapsed since the date one month prior to the
most recent due date for such taxes, assessments and similar governmental
charges. Thereafter, with each monthly payment under the Note, Trustor shall
deposit with Beneficiary an amount equal to 1/12th of the amount which
Beneficiary estimates will be required to pay the next annual payment of taxes,
assessments, and similar governmental charges referred to in this Section. The
purpose of these provisions is to provide Beneficiary with sufficient funds on
hand to pay all such taxes, assessments, and other governmental charges thirty
(30) days before the date on which they become past due. If the Beneficiary, in
its sole discretion, determines that the funds escrowed hereunder are, or will
be, insufficient, Trustor shall upon demand pay such additional sums as
Beneficiary shall determine necessary and shall pay any increased monthly
charges requested by Beneficiary. Provided no Default or Event of Default exists
hereunder, Beneficiary will apply the amounts so deposited to the payment of
such taxes, assessments, and other charges when due, but in no event will
Beneficiary be liable for any interest on any amount so deposited, and any
amount so deposited may be held and commingled with Beneficiary’s own funds.

(c) Intangible Taxes. If by reason of any statutory or constitutional amendment
or judicial decision adopted or rendered after the date hereof, any tax,
assessment, or similar charge is imposed against the Note, against Beneficiary,
or against any interest of Beneficiary in any real or personal property
encumbered hereby, Trustor will pay such tax, assessment, or other charge before
delinquency and will indemnify Beneficiary against all loss, expense, or
diminution of income in connection therewith. In the event Trustor is unable to
do so, either for economic reasons or because the legal provisions or decisions
creating such tax, assessment or charge forbid Trustor from doing so, then the
Note will, at Beneficiary’s option, become due and payable in full upon ninety
(90) days’ notice to Trustor.

 

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(d) Right to Contest. Notwithstanding any other provision of this Section,
Trustor will not be deemed to be in default solely by reason of Trustor’s
failure to pay any tax, assessment or similar governmental charge so long as, in
Beneficiary’s judgment, each of the following conditions is satisfied:

(i) Trustor is engaged in and diligently pursuing in good faith administrative
or judicial proceedings appropriate to contest the validity or amount of such
tax, assessment, or charge; and

(ii) Trustor’s payment of such tax, assessment, or charge would necessarily and
materially prejudice Trustor’s prospects for success in such proceedings; and

(iii) Nonpayment of such tax, assessment, or charge will not result in the loss
or forfeiture of any property encumbered hereby or any interest of Beneficiary
therein; and

(iv) Trustor deposits with Beneficiary, as security for such payment which may
ultimately be required, a sum equal to the amount of the disputed tax,
assessment or charge plus the interest, penalties, advertising charges, and
other costs which Beneficiary estimates are likely to become payable if
Trustor’s contest is unsuccessful.

If Beneficiary determines that any one or more of such conditions is not
satisfied or is no longer satisfied, Trustor will pay the tax, assessment, or
charge in question, together with any interest and penalties thereon, within ten
days after Beneficiary gives notice of such determination.

4.5 Maintenance of Insurance.

(a) Coverages Required. Trustor shall maintain or cause to be maintained, with
financially sound and reputable insurance companies or associations satisfactory
to Beneficiary, all insurance required under the terms of the Insurance
Agreement, and shall comply with each and every covenant and agreement contained
in the Insurance Agreement.

(b) Renewal Policies. Not less than thirty (30) days prior to the expiration
date of each insurance policy required pursuant to the Insurance Agreement,
Trustor will deliver to Beneficiary an appropriate renewal policy (or a
certified copy thereof), together with evidence satisfactory to Beneficiary that
the applicable premium has been prepaid.

(c) Deposit for Premiums. Upon demand made by Beneficiary following the
occurrence of a Default or an Event of Default, Trustor shall deposit with
Beneficiary an amount equal to 1/12th of the amount which Beneficiary estimates
will be required to make the next annual payments of the premiums for the
policies of insurance referred to in this Section, multiplied by the number of
whole and partial months which have elapsed since the date one month prior to
the most recent policy anniversary date for each such policy. Thereafter, with
each monthly payment under the Note, Trustor will deposit an amount equal to
1/12th of the amount which Beneficiary estimates will be required to pay the
next required annual premium for each insurance policy referred to in this
Section. The purpose of these provisions is to provide Beneficiary with
sufficient funds on hand to pay all such premiums thirty (30) days before the
date on which they become past due. If the Beneficiary, in its sole discretion,
determines that the funds escrowed hereunder are, or will be, insufficient,
Trustor shall upon demand pay such additional sums as Beneficiary shall
determine necessary and shall pay any increased monthly charges requested by
Beneficiary. Provided no Default or Event of Default exists hereunder,
Beneficiary will apply the amounts so deposited to the payment of such insurance
premiums when due, but in no event will Beneficiary be liable for any interest
on any amounts so deposited, and the money so received may be held and
commingled with Beneficiary’s own funds.

(d) Application of Hazard Insurance Proceeds. Trustor shall promptly notify
Beneficiary of any damage or casualty to all or any portion of the Property or
Chattels. Beneficiary may participate in all negotiations and appear and
participate in all judicial arbitration proceedings concerning any insurance

 

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proceeds which may be payable as a result of any casualty or damage in excess of
$200,000.00 (the “Insurance Threshold”). Any insurance proceeds relating to any
casualty in excess of the Insurance Threshold shall be paid to Beneficiary and
shall be applied first to reimburse Beneficiary for all costs and expenses,
including attorneys’ fees, incurred by Beneficiary in connection with the
collection of such insurance proceeds. The balance of any insurance proceeds
received by Beneficiary with respect to an insured casualty may, in
Beneficiary’s sole discretion, either (i) be retained and applied by Beneficiary
toward payment of the Secured Obligations, or (ii) be paid over, in whole or in
part and subject to such conditions as Beneficiary may impose, to Trustor to pay
for repairs or replacements necessitated by the casualty; provided, however,
that if all of the Secured Obligations have been performed or are discharged by
the application of less than all of such insurance proceeds, then any remaining
proceeds will be paid over to Trustor. Notwithstanding the preceding sentence,
if (A) no Default or Event of Default shall exist hereunder, and (B) the
proceeds received by Beneficiary (together with any other funds delivered by
Trustor to Beneficiary for such purpose) shall be sufficient, in Beneficiary’s
reasonable judgment, to pay for any restoration necessitated by the casualty,
and (C) either (1) the damage involves a loss of less than fifty percent
(50%) of the rentable square footage at the damaged building, or (2) Trustor is
required to restore the Property pursuant to the terms of the Lease or Leases of
that portion of the Property affected by the casualty, and (D) such restoration
can be completed, in Beneficiary’s reasonable judgment, by the earliest of
(x) the 180th day following Trustor’s receipt of the insurance proceeds, (y) the
180th day prior to the maturity date of the Note, or (z) the expiration of the
payment period on the rental-loss insurance coverage in respect of such
casualty, then Beneficiary shall apply such proceeds as provided in clause (ii)
of the preceding sentence. Beneficiary will have no obligation to see to the
proper application of any insurance proceeds paid over to Trustor, nor will any
such proceeds received by Beneficiary bear interest or be subject to any other
charge for the benefit of Trustor. Beneficiary may, prior to the application of
insurance proceeds, commingle them with Beneficiary’s own funds and otherwise
act with regard to such proceeds as Beneficiary may determine in Beneficiary’s
sole discretion.

(e) Successor’s Rights. Any person who acquires title to the Property or the
Chattels upon foreclosure hereunder will succeed to all of Trustor’s rights
under all policies of insurance maintained pursuant to this Section.

4.6 Maintenance and Repair of Property and Chattels. Trustor will at all times
maintain the Property and the Chattels in good condition and repair, will
diligently prosecute the completion of any building or other improvement which
is at any time in the process of construction on the Property, and will, subject
to Beneficiary’s releasing the insurance or condemnation proceeds applicable
thereto and subject to applicable legal restrictions, promptly repair, restore,
replace, or rebuild any part of the Property or the Chattels which may be
affected by any casualty or any public or private taking or injury to the
Property or the Chattels. All costs and expenses arising out of the foregoing
shall be paid by Trustor whether or not the proceeds of any insurance or eminent
domain shall be sufficient therefor. Trustor will comply with all statutes,
ordinances, and other governmental or quasi-governmental requirements and
private covenants relating to the ownership, construction, use, or operation of
the Property, including but not limited to any environmental or ecological
requirements; provided, that so long as Trustor is not otherwise in default
hereunder, Trustor may, upon providing Beneficiary with security reasonably
satisfactory to Beneficiary, proceed diligently and in good faith to contest the
validity or applicability of any such statute, ordinance, or requirement.
Beneficiary and any person authorized by Beneficiary may enter and inspect the
Property at all reasonable times, and may inspect the Chattels, wherever
located, at all reasonable times.

4.7 Leases. Trustor shall timely pay and perform each of its obligations under
or in connection with the Leases, and shall otherwise pay such sums and take
such action as shall be necessary or required in order to maintain each of the
Leases in full force and effect in accordance with its terms. Trustor shall
immediately furnish to Beneficiary copies of any notices given to Trustor by the
lessee under any Lease, alleging the default by Trustor in the timely payment or
performance of its obligations under such Lease and any subsequent communication
related thereto. Trustor shall also promptly furnish to Beneficiary copies of
any notices given to Trustor by the lessee under any Lease, extending the term
of any Lease, requiring or demanding the expenditure of any sum by Trustor (or
demanding the taking of any action by Trustor), or relating to any other
material obligation of Trustor under such Lease and any subsequent communication
related thereto. Trustor agrees that Beneficiary, in its reasonable discretion,
may advance any sum or take any action which Beneficiary believes is necessary
or required to maintain the Leases in full force and effect, and all such sums
advanced by Beneficiary, together with all

 

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costs and expenses incurred by Beneficiary in connection with action taken by
Beneficiary pursuant to this Section, shall be due and payable by Trustor to
Beneficiary upon demand, shall bear interest until paid at the Default Rate (as
defined in the Note), and shall be secured by this Deed of Trust.

4.8 Eminent Domain; Private Damage. If all or any part of the Property is taken
or damaged by eminent domain or any other public or private action, Trustor will
notify Beneficiary promptly of the time and place of all meetings, hearings,
trials, and other proceedings relating to such action. Beneficiary may
participate in all negotiations and appear and participate in all judicial or
arbitration proceedings concerning any award or payment which may be due as a
result of such taking or damage in excess of $200,000.00 (the “Condemnation
Threshold”), and may, in Beneficiary’s reasonable discretion, compromise or
settle, in the names of both Trustor and Beneficiary, any claim for any such
award or payment in excess of the Condemnation Threshold. Any such award or
payment is to be paid to Beneficiary and will be applied first to reimburse
Beneficiary for all costs and expenses, including attorneys’ fees, incurred by
Beneficiary in connection with the ascertainment and collection of such award or
payment. The balance, if any, of such award or payment may, in Beneficiary’s
sole discretion, either (a) be retained by Beneficiary and applied toward the
Secured Obligations, or (b) be paid over, in whole or in part and subject to
such conditions as Beneficiary may impose, to Trustor for the purpose of
restoring, repairing, or rebuilding any part of the Property affected by the
taking or damage. Notwithstanding the preceding sentence, if (i) no Default or
Event of Default shall have occurred and be continuing hereunder, and (ii) the
proceeds received by Beneficiary (together with any other funds delivered by
Trustor to Beneficiary for such purpose) shall be sufficient, in Beneficiary’s
reasonable judgment, to pay for any restoration necessitated by the taking or
damage, and (iii) either (1) the condemnation involves a loss of less than fifty
percent (50%) of the rentable square footage at the condemned building, or
(2) Trustor is required to restore the Property pursuant to the terms of the
Lease or Leases of that portion of the Property affected by the condemnation,
and (iv) such restoration can be completed, in Beneficiary’s reasonable
judgment, by the earliest of (x) the 180th day following Trustor’s receipt of
the condemnation proceeds, or (y) the 180th day prior to the maturity date of
the Note, and (v) the remaining Property shall constitute, in Beneficiary’s sole
judgment, adequate security for the Secured Obligations, then Beneficiary shall
apply such proceeds as provided in clause (b) of the preceding sentence.
Trustor’s duty to pay the Note in accordance with its terms and to perform the
other Secured Obligations will not be suspended by the pendency or discharged by
the conclusion of any proceedings for the collection of any such award or
payment, and any reduction in the Secured Obligations resulting from
Beneficiary’s application of any such award or payment will take effect only
when Beneficiary receives such award or payment. If this Deed of Trust has been
foreclosed prior to Beneficiary’s receipt of such award or payment, Beneficiary
may nonetheless retain such award or payment to the extent required to reimburse
Beneficiary for all costs and expenses, including attorneys’ fees, incurred in
connection therewith, and to discharge any deficiency remaining with respect to
the Secured Obligations.

4.9 Mechanics’ Liens. Trustor will keep the Property free and clear of all liens
and claims of liens by contractors, subcontractors, mechanics, laborers,
materialmen, and other such persons, and will cause any recorded statement of
any such lien to be released of record within thirty (30) days after the
recording thereof. Notwithstanding the preceding sentence, however, Trustor will
not be deemed to be in default under this Section if and so long as Trustor
(a) contests in good faith the validity or amount of any asserted lien and
diligently prosecutes or defends an action appropriate to obtain a binding
determination of the disputed matter, and (b) provides Beneficiary with such
security as Beneficiary may require to protect Beneficiary against all loss,
damage, and expense, including attorneys’ fees, which Beneficiary might incur if
the asserted lien is determined to be valid.

4.10 Defense of Actions. Trustor will defend, at Trustor’s expense, any action,
proceeding or claim which affects any property encumbered hereby or any interest
of Beneficiary in such property or in the Secured Obligations, and will
indemnify and hold Beneficiary harmless from all loss, damage, cost, or expense,
including attorneys’ fees, which Beneficiary may incur in connection therewith.

4.11 Expenses of Enforcement. Trustor will pay all costs and expenses, including
attorneys’ fees, which Beneficiary may incur in connection with any effort or
action (whether or not litigation or foreclosure is involved) to enforce or
defend Beneficiary’s rights and remedies under any of the Loan Documents,
including but not limited to all attorneys’ fees, appraisal fees, consultants’
fees, and other expenses incurred by Beneficiary in securing title to or
possession of, and realizing upon, any security for the Secured Obligations. All
such costs and expenses (together with interest thereon at the Default Rate from
the date incurred) shall constitute part of the Secured Obligations, and may be
included in the computation of the amount owed to Beneficiary for purposes of
foreclosing or otherwise enforcing this Deed of Trust.

 

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4.12 Financial Reports. During the term of the Loan, Trustor shall supply to
Beneficiary (a) within thirty (30) days following the end of each quarter,
Trustor’s quarterly and annual operating statements for the Property as of the
end of and for the preceding quarter and fiscal year, as applicable, in each
case prepared against the budget for such year; (b) contemporaneously with
Trustor’s delivery of each of such operating statements, a certified rent roll
signed and dated by Trustor detailing the names of all tenants under the Leases,
the portion of the improvements on the Property occupied by each tenant, the
rent and any other charges payable under each Lease, and the term of each Lease;
and (c) within ninety (90) days following the end of each year, an annual
balance sheet and profit and loss statement of Trustor and each Guarantor. The
financial statements and reports described in (a) and (c) above shall be in such
detail as Beneficiary may require, shall be prepared in accordance with
generally accepted accounting principles consistently applied, and shall be
certified as true and correct by Trustor or the applicable Guarantor (or, if
required by Beneficiary, by an independent certified public accountant
acceptable to Beneficiary). Trustor shall also furnish to Beneficiary within
thirty (30) days of Beneficiary’s request, any other financial reports or
statements of Trustor as Beneficiary may request. Upon Beneficiary’s demand
after any Default or Event of Default, or if Beneficiary securitizes the Loan,
Trustor shall supply to Beneficiary the items required in (a) and (b) above on a
monthly basis.

4.13 Priority of Leases. To the extent Trustor has the right, under the terms of
any Lease, to make such Lease subordinate to the lien hereof, Trustor will, at
Beneficiary’s request and Trustor’s expense, take such action as may be required
to effect such subordination. Conversely, Trustor will, at Beneficiary’s request
and Trustor’s expense, take such action as may be necessary to subordinate the
lien hereof to any future Lease designated by Beneficiary.

4.14 Inventories; Assembly of Chattels. Trustor will, from time to time at the
request of Beneficiary, supply Beneficiary with a current inventory of the
Chattels and the Intangible Personalty, in such detail as Beneficiary may
require. Upon the occurrence of any Event of Default hereunder, Trustor will at
Beneficiary’s request assemble the Chattels and make them available to
Beneficiary at any place designated by Beneficiary which is reasonably
convenient to both parties.

4.15 Compliance with Laws, Etc. Trustor shall comply in all material respects
with all applicable laws, rules, regulations and orders, such compliance to
include, without limitation, maintaining all Permits and paying before the same
become delinquent all taxes, assessments and governmental charges imposed upon
Trustor or the Property.

4.16 Records and Books of Account. Trustor shall keep accurate and complete
records and books of account, in which complete entries will be made in
accordance with generally accepted accounting principles consistently applied,
reflecting all financial transactions relating to the Property.

4.17 Inspection Rights. At any reasonable time, and from time to time, upon not
less than ten (10) days’ prior notice, Trustor shall permit Beneficiary, or any
agents or representatives thereof, to examine and make copies of and abstracts
from the records and books of account of, and visit the Property and to discuss
with Trustor the affairs, finances and accounts of Trustor.

4.18 Change of Trustor’s Address or State of Organization. Trustor shall
promptly notify Beneficiary if changes are made in Trustor’s address from that
set forth in Section 9.10 hereof, or if Trustor shall either change its
“location” (as such term is used in Section 5.8 hereof), its state of
organization or if Trustor shall organize in any state other than the State of
Delaware.

4.19 Further Assurances; Estoppel Certificates. Trustor will execute and deliver
to Beneficiary upon demand, and pay the costs of preparation and recording
thereof, any further documents which Beneficiary may request to confirm or
perfect the liens and security interests created or intended to be created
hereby, or to confirm or perfect any evidence of the Secured Obligations.
Trustor will also, within ten days after any

 

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request by Beneficiary, deliver to Beneficiary a signed and acknowledged
statement certifying to Beneficiary, or to any proposed transferee of the
Secured Obligations, (a) the balance of principal, interest, and other sums then
outstanding under the Note, and (b) whether Trustor claims to have any offsets
or defenses with respect to the Secured Obligations and, if so, the nature of
such offsets or defenses.

4.20 Costs of Closing. Trustor shall on demand pay directly or reimburse
Beneficiary for any costs or expenses pertaining to the closing of the Loan,
including, but not limited to, fees of counsel for Beneficiary, costs and
expenses for which invoices were not available at the closing of the Loan, or
costs and expenses which are incurred by Beneficiary after such closing. All
such costs and expenses shall constitute a part of the Secured Obligations, and
may be included in the computation of the amount owed to Beneficiary for
purposes of foreclosing or otherwise enforcing this Deed of Trust.

4.21 Fund for Electronic Transfer. All monthly payments of principal and
interest on the Note, and escrow deposits under this Deed of Trust, shall be
made by Trustor by electronic funds transfer from a bank account established and
maintained by Trustor for such purpose. Trustor shall establish and maintain
such an account until the Note is fully paid and shall direct the depository of
such account in writing to so transmit such payments on or before the respective
due dates to the account of Beneficiary as shall be designated by Beneficiary in
writing.

4.22 Use. Trustor shall use the Property solely for the operation of retail and
office buildings, and for no other use or purpose.

4.23 Management. The Property shall be managed by Glenborough Properties, LP
(“Property Manager”) under a management agreement previously delivered to, and
approved, by Beneficiary (the “Management Agreement”). Trustor shall not permit
any amendment to or modification of the Management Agreement, or management of
the Property by any person or entity other than Property Manager, without the
prior written consent of Beneficiary.

ARTICLE 5

TRUSTOR’S NEGATIVE COVENANTS

5.1 Waste and Alterations. Trustor will not commit or permit any waste with
respect to the Property or the Chattels. Trustor shall not cause or permit any
part of the Property, including but not limited to any building, structure,
parking lot, driveway, landscape scheme, timber, or other ground improvement, to
be removed, demolished, or materially altered without the prior written consent
of Beneficiary.

5.2 Zoning and Private Covenants. Trustor will not initiate, join in, or consent
to any change in any zoning ordinance or classification, any change in the “zone
lot” or “zone lots” (or similar zoning unit or units) presently comprising the
Property, any transfer of development rights, any change in any private
restrictive covenant, or any change in any other public or private restriction
limiting or defining the uses which may be made of the Property or any part
thereof, without the prior written consent of Beneficiary. If under applicable
zoning provisions the use of all or any part of the Property is or becomes a
nonconforming use, Trustor will not cause such use to be discontinued or
abandoned without the prior written consent of Beneficiary, and Trustor will use
its best efforts to prevent the tenant under any Lease from discontinuing or
abandoning such use.

5.3 Interference with Leases.

(a) Subject to Section 5.3(c) Trustor will neither do, nor neglect to do,
anything which may cause or permit the termination of any Lease of all or any
part of the Property, or cause or permit the withholding or abatement of any
rent payable under any such Lease.

(b) Without Beneficiary’s prior written consent, which may be granted or
withheld in Beneficiary’s sole discretion, Trustor shall not enter into or
modify any Lease of all or any part of the Property.

 

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Notwithstanding the foregoing, Trustor may, without Beneficiary’s prior consent,
enter into or modify any Lease other than (i) Leases with a Major Tenant (as
defined in the Note); (ii) Leases concerning office space previously leased to a
Major Tenant demising greater than 15,000 square feet, and (iii) Leases
concerning retail space previously leased to a Major Tenant. Any submission by
Trustor for Beneficiary’s approval of a Lease or modification thereof shall be
accompanied by a copy of such Lease or modification, a Lease abstract, a
then-current rent roll for the Property, year-to-date and prior year operating
statements for the Property, and a cover letter requesting Beneficiary’s
approval (an “Approval Request”) which contains a signature line on which
Beneficiary may evidence its approval of such Lease or modification and a
statement (a “Reminder Notice”) which provides “LENDER’S FAILURE TO RESPOND TO
BORROWER’S REQUEST FOR APPROVAL WITHIN FIFTEEN (15) DAYS SHALL CONSTITUTE
LENDER’S APPROVAL OF SUCH REQUESTED ACTION.” If Beneficiary shall fail to
respond within fifteen (15) days following receipt of any submission for
approval, then such Lease or modification shall be deemed approved; provided,
however, if the Approval Request does not include the Reminder Notice, then
Beneficiary shall not be deemed to have approved the request of Trustor, and
Beneficiary’s consent to any such action may only be obtained by written notice
thereof by Beneficiary to Trustor.

(c) Except with the prior written consent of Beneficiary, which may be granted
or withheld in Beneficiary’s sole discretion, Trustor will not (i) collect rent
from all or any part of the Property for more than one month in advance,
(ii) assign the rents from the Property or any part thereof, or (iii) consent to
the premature cancellation or surrender of all or any part of any Lease, except
that Trustor may in good faith terminate any Lease for nonpayment of rent or
other material breach by the tenant.

(d) Without limiting the generality of the foregoing, whether or not
Beneficiary’s consent to the cancellation or surrender of any Lease is required
hereunder, Beneficiary may (i) require that Trustor deposit into an escrow
account acceptable to Beneficiary in its reasonable discretion all cancellation
penalties or other consideration paid to Trustor in connection with any
cancellation or surrender of any Lease to a Major Tenant (the “Termination
Fees”), and (ii) require that vacant space previously leased to a Major Tenant
be relet in accordance with the provisions of Section 5.3(b), above (an
“Approved Lease”). Upon execution of an Approved Lease, Beneficiary shall refund
a pro rata portion of the Termination Fees equal to the ratio of the number of
square feet of newly leased space under the Approved Lease divided by the total
square feet of space vacated pursuant to the subject Major Tenant Lease. If the
Property and the amount of the debt service payments then becoming due under the
Note; or (B) provided that the Property is at least 87% occupied and the income
from the Property is sufficient, in Trustor’s determination, to pay all
operating expenses of the Property and debt service payments due under the Note,
then Beneficiary shall deliver any Termination Fees then held in escrow to
Trustor.

5.4 Transfer or Further Encumbrance of Property.

(a) Subject to the Partial Release Agreement, without Beneficiary’s prior
written consent, which consent may be granted or withheld in Beneficiary’s sole
and absolute discretion, Trustor shall not (i) sell, assign, convey, transfer or
otherwise dispose of any legal, beneficial or equitable interest in all or any
part of the Property, (ii) permit or suffer any owner, directly or indirectly,
of any beneficial interest in the Property or Trustor to transfer such interest,
whether by transfer of partnership, membership, stock or other beneficial
interest in any entity or otherwise, or (iii) mortgage, hypothecate or otherwise
encumber or permit to be encumbered or grant or permit to be granted a security
interest in all or any part of the Property or Trustor or any beneficial or
equitable interest in either the Property or Trustor. The provisions of this
Section shall not prohibit transfers of title or interest under any will or
testament or applicable law of descent.

(b) Notwithstanding the provisions of Section 5.4(a) to the contrary,
Beneficiary shall permit a one-time transfer of the Property in its entirety
provided that all of the following conditions are satisfied: (i) no Default has
occurred and is continuing and no Event of Default has occurred; (ii) Trustor
has paid to Beneficiary an assumption fee of one percent (1%) of the outstanding
principal balance of the Loan; (iii) if the proposed transferee is a land trust,
Beneficiary has received a first-lien collateral assignment of all beneficial
interest therein; (iv) Beneficiary has received and has had a reasonable
opportunity to review all documents and agreements executed or to be executed in
connection with the proposed transfer; (v) the non-economic terms (e.g., those
terms other than interest rate, payment schedule, principal balance, and
non-recourse nature (subject to exceptions thereto customarily included by
Beneficiary in loan documents)) of the Loan Documents have been modified as
Beneficiary may request in good faith; (vi) the proposed transferee has assumed
all of Trustor’s obligations under the Loan

 

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Documents; (vii) Beneficiary has received at least thirty (30) days’ prior
written notice of the proposed transfer; (viii) the proposed transferee and, if
applicable, its general partners or managing members have, in the sole judgment
of Beneficiary exercised in good faith, a net worth equal to the net worth of
Trustor as of the date hereof or otherwise satisfactory to Beneficiary, and a
satisfactory history of owning, operating and leasing property similar to the
Property; (ix) the proposed transferee and, if applicable, its general partners
or managing members have, in the sole judgment of Beneficiary exercised in good
faith, a satisfactory credit history and professional reputation and character;
(x) the Debt Service Coverage Ratio (as hereinafter defined) is not less than
1.20, and Beneficiary receives satisfactory evidence that such ratio will be
maintained for the succeeding twelve (12) months; (xi) the Loan-to-Value Ratio
(as hereinafter defined), taking into account all obligations secured by liens
on the Property does not exceed 65%; (xii) Trustor pays all costs and expenses
incurred by Beneficiary in connection with such transfer, including, without
limitation, all legal, processing, accounting, title insurance, and appraisal
fees, whether or not such transfer is actually consummated; (xiii) Beneficiary
has received an endorsement to its mortgagee’s title insurance policy at
Trustor’s expense, which endorsement states that the lien of this Deed of Trust
remains a first and prior lien against the Property subject to no exceptions
other than as approved by Beneficiary; (xiv) principals of the proposed
transferee acceptable to Beneficiary in its sole discretion execute a guaranty
agreement in the form of the Guaranty Agreement and an environmental indemnity
agreement in the form of the Environmental Indemnity Agreement; and
(xv) proposed transferee shall deliver an opinion of counsel to Beneficiary
regarding the due authorization, execution, delivery and enforceability of all
of the loan documents executed in connection with such assumption and the
continued enforceability of the Loan Documents. Upon the satisfaction of the
foregoing conditions, Beneficiary shall release Trustor and Guarantor from
liability under the Loan Documents except to the extent that, prior to such
release, any full-recourse liability has arisen under any of the Loan Documents.
The foregoing right to transfer the Property shall terminate upon conveyance of
the Property by the initial Trustor named herein.

(c) The term “Debt Service Coverage Ratio” shall mean the ratio, as reasonably
determined by Beneficiary, of (i) Net Operating Income for the Property for the
preceding twelve (12) calendar months, to (ii) the annual debt service payments
due under the loan evidenced by the Note (the “Loan”) and on all other
indebtedness secured, or to be secured, by a lien on all or any part of the
Property, where “Net Operating Income” shall mean all gross revenues generated
by the Property (excluding loans or contributions to capital), less operating
expenses (other than debt service payments due under the Loan), as determined on
a cash accounting basis, as of the date of such calculation for the period in
question, adjusted, however, so that (A) operating expenses shall be deemed to
include (1) a management fee equal to the greater of the actual management fee
for the Property or three percent (3%) of gross revenues, and (2) a tenant
improvement, leasing commission, and capital improvement reserve equal to $0.75
per rentable square foot in the case of office properties and retail properties,
(B) payments of operating expenses, including property taxes and assessments and
insurance expenses, are to be spread out over the period during which they
accrued and shall be adjusted for any known future changes to any such expenses,
(C) prepaid rents and other prepaid payments received are to be spread out over
the periods during which such rents or payments are earned or applicable,
(D) security deposits shall not be included as items of income until duly
applied or earned, (E) gross revenue shall be based on a lease-in-place analysis
which reflects then current Leases in place, as determined by Beneficiary, in
its reasonable discretion, in accordance with its standard underwriting
criteria, consistently applied, and excluding extraordinary, or one time items,
and (F) any refunds or rebates to operating expenses are to be applied and
credited against the applicable operating expenses for the period that such
operating expenses were incurred. Debt Service Coverage Ratio shall be
calculated on a cash flow basis. The “Loan-to-Value Ratio” shall be the ratio,
as determined by Beneficiary, of the aggregate principal balance of the Note and
all other indebtedness secured by liens or encumbrances against the Property to
the fair market value of the Property, as such fair market value is determined
by an M.A.I. appraisal satisfactory to Beneficiary (the “Appraisal”). Upon
Beneficiary’s request, Trustor shall deliver the Appraisal to Beneficiary at
Trustor’s sole cost and expense.

(d) Notwithstanding the provisions of Section 5.4(a) to the contrary,
Beneficiary’s consent shall not be required for transfers or encumbrances of
limited partnership interests in Guarantor.

(e) Notwithstanding the provisions of Section 5.4(a) to the contrary,
Beneficiary’s consent shall not be required for transfers of general partnership
interests in Guarantor and the stock of Rancon Financial Corporation (“RFC”) to
or among the Stephenson Family (i) for estate planning purposes if, following
any

 

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such transfer, Daniel Stephenson retains the ultimate authority to control the
Guarantor, or (ii) as a result of death or legal incompetency of Daniel
Stephenson if, following any transfer described in (i) or (ii) above,
Guarantor’s partnership agreement remains in effect and Guarantor is not
dissolved and remains in existence as a limited partnership; however, if at any
time thereafter any transferee of such ownership interests in Guarantor or RFC
stock, or any beneficial owner of a Permitted Trust as herein defined, sells,
assigns or transfers any portion of its ownership interests in Guarantor, in RFC
stock, or any portion of its beneficial interest in a Permitted Trust to a
person other than a member of the Stephenson Family or encumbers such ownership
interest or beneficial interest, a change in the beneficial ownership of Trustor
shall be deemed to have taken place in violation of this provision (unless
undertaken with the written consent of the Beneficiary). For the purposes
hereof, the “Stephenson Family” shall mean Daniel Stephenson, his spouse, his
descendants and their spouses, any trust or estates for the benefit of said
parties (a “Permitted Trust”), and any entities owned and controlled (ownership
and voting interests in excess of 50%) by said parties.

5.5 Further Encumbrance of Chattels. Trustor will neither create nor permit any
lien, security interest or encumbrance against the Chattels or Intangible
Personalty or any part thereof or interest therein, other than the liens and
security interests created by the Loan Documents, without the prior written
consent of Beneficiary, which may be withheld for any reason.

5.6 Assessments Against Property. Trustor will not, without the prior written
approval of Beneficiary, which may be withheld for any reason, consent to or
affirmatively act to create any future or additional so-called special
districts, special improvement districts, benefit assessment districts or
similar districts, or any other body or entity of any type or any additional
taxes (other than annual changes in existing taxes or changes related to
additional improvements), assessments or other monetary obligations or burdens
on the Property, and this provision shall serve as RECORD NOTICE to any such
district or districts or any governmental entity under whose authority such
district or districts exist or are being formed that, should Trustor or any
other person or entity include all or any portion of the Property in such
district or districts, whether formed or in the process of formation, without
first obtaining Beneficiary’s express written consent, the rights of Beneficiary
in the Property pursuant to this Deed of Trust or following any foreclosure of
this Deed of Trust, and the rights of any person or entity to whom Beneficiary
might transfer the Property following a foreclosure of this Deed of Trust, shall
be senior and superior to any taxes, charges, fees, assessments or other
impositions of any kind or nature whatsoever, or liens (whether statutory,
contractual or otherwise) levied or imposed, or to be levied or imposed, upon
the Property or any portion thereof as a result of inclusion of the Property in
such district or districts.

5.7 Transfer or Removal of Chattels. Trustor will not sell, transfer or remove
from the Property all or any part of the Chattels, unless the items sold,
transferred, or removed are simultaneously replaced with similar items of equal
or greater value.

5.8 Change of Name, Organizational I.D. No. or Location. Trustor will not change
its name or the name under which it does business (or adopt or begin doing
business under any other name or assumed or trade name), change its
organizational identification number, or change its location, without first
notifying Beneficiary of its intention to do so and delivering to Beneficiary
such organizational documents of Trustor and executed modifications or
supplements to this Deed of Trust (and to any financing statement which may be
filed in connection herewith) as Beneficiary may require. For purposes of the
foregoing, Trustor’s “location” shall mean (a) if Trustor is a registered
organization, Trustor’s state of registration, (b) if Trustor is an individual,
the state of Trustor’s principal residence, or (c) if Trustor is neither a
registered organization nor an individual, the state in which Trustor’s place of
business (or, if Trustor has more than one place of business, the Trustor’s
chief executive office) is located.

5.9 Improper Use of Property or Chattels. Trustor will not use the Property or
the Chattels for any purpose or in any manner which violates any applicable law,
ordinance, or other governmental requirement, the requirements or conditions of
any insurance policy, or any private covenant.

5.10 ERISA. Trustor shall not engage in any transaction which would cause the
Note (or the exercise by Beneficiary of any of its rights under the Loan
Documents) to be a non-exempt, prohibited transaction under ERISA (including for
this purpose the parallel provisions of Section 4975 of the Internal Revenue
Code of

 

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1986, as amended), or otherwise result in Beneficiary being deemed in violation
of any applicable provisions of ERISA. Trustor shall indemnify, protect, defend,
and hold Beneficiary harmless from and against any and all losses, liabilities,
damages, claims, judgments, costs, and expenses (including, without limitation
attorneys’ fees and costs incurred in the investigation, defense, and settlement
of claims and in obtaining any individual ERISA exemption or state
administrative exception that may be required, in Beneficiary’s sole and
absolute discretion) that Beneficiary may incur, directly or indirectly, as the
result of the breach by Trustor of any warranty or representation set forth in
Section 3.3(x) hereof or the breach by Trustor of any covenant contained in this
Section. This indemnity shall survive any termination, satisfaction or
foreclosure of this Deed of Trust and shall not be subject to the limitation on
personal liability described in the Note.

5.11 Use of Proceeds. Trustor will not use any funds advanced by Beneficiary
under the Loan Documents for household or agricultural purposes, to purchase
margin stock, or for any purpose prohibited by law.

5.12 Single-Purpose Entity. Trustor will not engage in any business other than
the ownership, development, operation and disposition of the Property.

ARTICLE 6

EVENTS OF DEFAULT

Each of the following events will constitute an event of default (an “Event of
Default”) under this Deed of Trust and under each of the other Loan Documents:

6.1 Failure to Pay Note.

(a) Trustor’s failure to make any payment when due under Section 1 of the Note
or Sections 4.4 or 4.5 of this Deed of Trust.

(b) Trustor’s failure to make any payment when due under any other provisions of
any Loan Document, provided, however, that such failure shall not constitute an
Event of Default unless such failure continues for ten (10) days beyond the date
that Beneficiary delivers to Trustor notice that such payment is due.

6.2 Due on Sale or Encumbrance. The occurrence of any violation of any covenant
contained in Section 5.4, 5.5 or 5.7 hereof.

6.3 Other Obligations. The failure of Trustor to properly perform any obligation
contained herein or in any of the other Loan Documents (other than the
obligation to make payments under the Note or the other Loan Documents) and the
continuance of such failure for a period of ten (10) days following written
notice thereof from Beneficiary to Trustor; provided, however, that if such
failure is not curable within such ten (10) day period, then, so long as Trustor
commences to cure such failure within such ten (10) day period and is
continually and diligently attempting to cure to completion, such failure shall
not be an Event of Default unless such failure remains uncured for ninety
(90) days after such written notice to Trustor.

6.4 Levy Against Property. The levy against any of the Property, Chattels or
Intangible Personalty, of any execution, attachment, sequestration or other
writ.

6.5 Liquidation. The liquidation, termination or dissolution of Trustor or any
Controlling Person.

6.6 Appointment of Receiver. The appointment of a trustee or receiver for the
assets, or any part thereof, of Trustor, or any Controlling Person, or the
appointment of a trustee or receiver for any real or personal property, or the
like, or any part thereof, representing the security for the Secured
Obligations.

6.7 Assignments. The making by Trustor or any Controlling Person of a transfer
in fraud of creditors or an assignment for the benefit of creditors.

 

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6.8 Order for Relief. The entry in bankruptcy of an order for relief for or
against Trustor or any Controlling Person.

6.9 Bankruptcy. The filing of any petition (or answer admitting the material
allegations of any petition), or other pleading, seeking entry of an order for
relief for or against Trustor or any Controlling Person as a debtor or bankrupt
or seeking an adjustment of any of such parties’ debts, or any other relief
under any state or federal bankruptcy, reorganization, debtor’s relief or
insolvency laws now or hereafter existing, including, without limitation, a
petition or answer seeking reorganization or admitting the material allegations
of a petition filed against any such party in any bankruptcy or reorganization
proceeding, or the act of any of such parties in instituting or voluntarily
being or becoming a party to any other judicial proceedings intended to effect a
discharge of the debts of any such parties, in whole or in part, or a
postponement of the maturity or the collection thereof, or a suspension of any
of the rights or powers of a trustee or of any of the rights or powers granted
to Beneficiary herein, or in any other document executed in connection herewith.

6.10 Misrepresentation. If any representation or warranty made by Trustor or any
Controlling Person, or in any of the other Loan Documents or any other
instrument or document modifying, renewing, extending, evidencing, securing or
pertaining to the Note is false, misleading or erroneous in any material
respect.

6.11 Judgments. The failure of Trustor or any Controlling Person to pay any
money judgment in excess of $10,000.00 against any such party before the
expiration of thirty (30) days after such judgment becomes final and no longer
appealable.

6.12 Admissions Regarding Debts. The admission of Trustor or any Controlling
Person in writing of any such party’s inability to pay such party’s debts as
they become due.

6.13 Assertion of Priority. Other than with respect to the Permitted Exceptions,
the assertion of any claim of priority over this Deed of Trust, by title, lien,
or otherwise, unless Trustor within thirty (30) days after such assertion either
causes the assertion to be withdrawn or provides Beneficiary with such security
as Beneficiary may require to protect Beneficiary against all loss, damage, or
expense, including attorneys’ fees, which Beneficiary may incur in the event
such assertion is upheld.

6.14 Other Loan Documents. The occurrence of any default by Trustor, after the
lapse of any applicable grace or cure period, or the occurrence of any event or
circumstance defined as an Event of Default, under any of the Loan Documents
other than this Deed of Trust.

6.15 Other Liens. The occurrence of any default by Trustor, after the lapse of
any applicable grace or cure period, or the occurrence of any event or
circumstance defined as an Event of Default, under any other consensual lien
encumbering the Property, or any part thereof or interest therein, or any
document or instrument evidencing obligations secured thereby.

6.16 Other Indebtedness. The occurrence of any default by Trustor, after the
lapse of any applicable grace or cure period, or the occurrence of any event or
circumstance defined as an Event of Default, under any other indebtedness
incurred or owing by Trustor, or any document or instrument evidencing any
obligation to pay such indebtedness.

ARTICLE 7

BENEFICIARY’S REMEDIES

Immediately upon or any time after the occurrence of any Event of Default
hereunder, Beneficiary may exercise any remedy available at law or in equity,
including but not limited to those listed below and those listed in the other

 

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Loan Documents, in such sequence or combination as Beneficiary may determine in
Beneficiary’s sole discretion:

7.1 Performance of Defaulted Obligations. Beneficiary may make any payment or
perform any other obligation under the Loan Documents or under Leases which
Trustor has failed to make or perform, and Trustor hereby irrevocably appoints
Beneficiary as the true and lawful attorney-in-fact for Trustor to make any such
payment and perform any such obligation in the name of Trustor. All payments
made and expenses (including attorneys’ fees and expenses) incurred by
Beneficiary in this connection, together with interest thereon at the Default
Rate from the date paid or incurred until repaid, will be part of the Secured
Obligations and will be immediately due and payable by Trustor to Beneficiary.
In lieu of advancing Beneficiary’s own funds for such purposes, Beneficiary may
use any funds of Trustor which may be in Beneficiary’s possession, including but
not limited to insurance or condemnation proceeds and amounts deposited for
taxes, insurance premiums, or other purposes.

7.2 Specific Performance and Injunctive Relief. Notwithstanding the availability
of legal remedies, Beneficiary will be entitled to obtain specific performance,
mandatory or prohibitory injunctive relief, or other equitable relief requiring
Trustor to cure or refrain from repeating any Default.

7.3 Acceleration of Secured Obligations. Beneficiary may, without notice or
demand, declare all of the Secured Obligations immediately due and payable in
full.

7.4 Suit for Monetary Relief. Subject to the non-recourse provisions of the
Note, with or without accelerating the maturity of the Secured Obligations,
Beneficiary may sue from time to time for any payment due under any of the Loan
Documents, or for money damages resulting from Trustor’s default under any of
the Loan Documents.

7.5 Possession of Property. Beneficiary may enter and take possession of the
Property without seeking or obtaining the appointment of a receiver, may employ
a managing agent for the Property, and may lease or rent all or any part of the
Property, either in Beneficiary’s name or in the name of Trustor, and may
collect the rents, issues, and profits of the Property. Any revenues collected
by Beneficiary under this Section will be applied first toward payment of all
expenses (including attorneys’ fees) incurred by Beneficiary, together with
interest thereon at the Default Rate from the date incurred until repaid, and
the balance, if any, will be applied against the Secured Obligations in such
order and manner as Beneficiary may elect in its sole discretion.

7.6 Enforcement of Security Interests. Beneficiary may exercise all rights of a
secured party under the Code with respect to the Chattels and the Intangible
Personalty, including but not limited to taking possession of, holding, and
selling the Chattels and enforcing or otherwise realizing upon any accounts and
general intangibles. Any requirement for reasonable notice of the time and place
of any public sale, or of the time after which any private sale or other
disposition is to be made, will be satisfied by Beneficiary’s giving of such
notice to Trustor at least five days prior to the time of any public sale or the
time after which any private sale or other intended disposition is to be made.

7.7 Foreclosure Against Property.

(a) Beneficiary may foreclose this Deed of Trust, insofar as it encumbers the
Property, either by judicial action or through Trustee. Should Beneficiary elect
to foreclose by exercise of the power of sale herein contained, Beneficiary
shall notify Trustee and shall deposit with Trustee this Deed of Trust and the
Note and such receipts and evidence of expenditures made and secured hereby as
Trustee may require.

(b) Upon receipt of such notice from Beneficiary, Trustee shall cause to be
recorded, published and delivered to Trustor such Notice of Default and Election
to Sell as is then required by law and by this Deed of Trust. Trustee shall,
without demand on Trustor, after lapse of such time as may then be required by
law and after recordation of such Notice of Default and after Notice of Sale
having been given as required by law, sell the Property at the time and place of
sale fixed by it in said Notice of Sale, either as a whole, or in separate lots
or parcels or items as Trustee shall deem expedient, and in such order as it may
determine, at public auction to the highest bidder for cash in lawful money of
the United States payable at the time of Sale. Trustee shall

 

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deliver to such purchaser or purchasers thereof its good and sufficient deed or
deeds conveying the property so sold, but without any covenant or warranty,
express or implied. The recitals in such deed of any matters or facts shall be
conclusive proof of the truthfulness thereof. Any person, including, without
limitation, Trustor, Trustee or Beneficiary, may purchase at such sale and
Trustor hereby covenants to warrant and defend the title of such purchaser or
purchasers. Trustor hereby constitutes and appoints Trustee as its
attorney-in-fact with full power and authority to execute, deliver, file, record
or process on behalf of Trustor any and all instruments or documents or to take
any other action on behalf of Trustor reasonably required to accomplish the
vesting of the Property, or any part thereof, in the purchaser or purchasers at
any sale conducted hereunder.

(c) All fees, costs and expenses of any kind incurred by Beneficiary in
connection with foreclosure of this Deed of Trust, including, without
limitation, the costs of any appraisals of the Property obtained by Beneficiary,
the cost of any title reports or abstracts, all costs of any receivership for
the Property advanced by Beneficiary, and all attorneys’ and consultants’ fees
and expenses incurred by Beneficiary, shall constitute a part of the Secured
Obligations and may be included as part of the amount owing from Trustor to
Beneficiary at any foreclosure sale. The proceeds of any sale under this Section
shall be applied first to the fees and expenses of the Trustee or other officer
conducting the sale, and then to the reduction or discharge of the Secured
Obligations; any surplus remaining shall be paid over to Trustor or to such
other person or persons as may be lawfully entitled to such surplus.

(d) Subject to California Civil Code § 2924g, Trustee may postpone sale of all
or any portion of the Property by public announcement at such time and place of
sale, and from time to time thereafter may postpone such sale by public
announcement at the time fixed by the preceding postponement or subsequently
noticed sale, and without further notice make such sale at the time fixed by the
last postponement, or may in its discretion, give a new notice of sale.

(e) A sale of less than the whole of the Property or any defective or irregular
sale made hereunder shall not exhaust the power of sale provided for herein; and
subsequent sales may be made hereunder until all obligations secured hereby have
been satisfied, or the entire Property sold, without defect or irregularity.

7.8 Appointment of Receiver. Beneficiary shall be entitled, as a matter of
absolute right and without regard to the value of any security for the Secured
Obligations or the solvency of any person liable therefor, to the appointment of
a receiver for the Property upon ex-parte application to any court of competent
jurisdiction. Trustor waives any right to any hearing or notice of hearing prior
to the appointment of a receiver. Such receiver and its agents shall be
empowered, but shall not be obligated, to (a) take possession of the Property
and any businesses conducted by Trustor or any other person thereon and any
business assets used in connection therewith, (b) exclude Trustor and Trustor’s
agents, servants, and employees from the Property, (c) collect the rents,
issues, profits, and income therefrom, (d) complete any construction which may
be in progress, (e) do such maintenance and make such repairs and alterations as
the receiver deems necessary, (f) use all stores of materials, supplies, and
maintenance equipment on the Property and replace such items at the expense of
the receivership estate, (g) pay all taxes and assessments against the Property
and the Chattels, all premiums for insurance thereon, all utility and other
operating expenses, and all sums due under any prior or subsequent encumbrance,
and (h) generally do anything which Trustor could legally do if Trustor were in
possession of the Property. All expenses incurred by the receiver or its 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 Beneficiary, together
with interest thereon at the Default Rate from the date incurred until repaid,
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 Beneficiary, any such receivership will continue until the Secured
Obligations have been discharged in full, or until title to the Property has
passed after foreclosure sale and all applicable periods of redemption have
expired.

7.9 Right to Make Repairs, Improvements. Should any part of the Property come
into the possession of Beneficiary, Beneficiary may, but shall not be obligated
to, use, operate, and/or make repairs, alterations, additions and improvements
to the Property for the purpose of preserving it or its value. Trustor covenants
to promptly reimburse and pay to Beneficiary, at the place where the Note is
payable, or at such other

 

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place as may be designated by Beneficiary in writing, the amount of all
reasonable expenses (including the cost of any insurance, taxes, or other
charges) incurred by Beneficiary in connection with its custody, preservation,
use or operation of the Property, together with interest thereon from the date
incurred by Beneficiary at the Default Rate, and all such expenses, costs,
taxes, interest, and other charges shall be a part of the Secured Obligations.
It is agreed, however, that the risk of accidental loss or damage to the
Property is undertaken by Trustor and Beneficiary shall have no liability
whatsoever for decline in value of the Property, for failure to obtain or
maintain insurance, or for failure to determine whether any insurance ever in
force is adequate as to amount or as to the risks insured.

7.10 Surrender of Insurance. Beneficiary may surrender the insurance policies
maintained pursuant to the terms hereof, or any part thereof, and receive and
apply the unearned premiums as a credit on the Secured Obligations and, in
connection therewith, Trustor hereby appoints Beneficiary (or any officer of
Beneficiary), as the true and lawful agent and attorney-in-fact for Trustor
(with full powers of substitution), which power of attorney shall be deemed to
be a power coupled with an interest and therefore irrevocable, to collect such
premiums.

7.11 Prima Facie Evidence. Trustor agrees that, in any assignments, deeds, bills
of sale, notices of sale, or postings, given by Beneficiary, any and all
statements of fact or other recitals therein made as to the identity of
Beneficiary, or as to the occurrence or existence of any Event of Default, or as
to the acceleration of the maturity of the Secured Obligations, or as to the
request to sell, posting of notice of sale, notice of sale, time, place, terms
and manner of sale and receipt, distribution and application of the money
realized therefrom, and without being limited by the foregoing, as to any other
act or thing having been duly done by Beneficiary, shall be taken by all courts
of law and equity as prima facie evidence that such statements or recitals state
facts and are without further question to be so accepted, and Trustor does
hereby ratify and confirm any and all acts that Beneficiary may lawfully do by
virtue hereof.

ARTICLE 8

ASSIGNMENT OF LEASES AND RENTS

8.1 Assignment of Leases and Rents. Trustor hereby unconditionally and
absolutely grants, transfers and assigns unto Beneficiary all of Trustor’s
right, title and interest in all rents, royalties, issues, profits and income
(“Rents”) now or hereafter due or payable for the occupancy or use of the
Property, and all Leases, whether written or oral, with all security therefor,
including all guaranties thereof, now or hereafter affecting the Property; on
the condition that Beneficiary hereby grants to Trustor a license to collect and
retain such Rents prior to the occurrence of any Event of Default hereunder.
Such license shall be revocable by Beneficiary without notice to Trustor at any
time after the occurrence of an Event of Default. Trustor represents that the
Rents and the Leases have not been heretofore sold, assigned, transferred or set
over by any instrument now in force and will not at any time during the life of
this assignment be sold, assigned, transferred or set over by Trustor or by any
person or persons whomsoever; and Trustor has good right to sell, assign,
transfer and set over the same and to grant to and confer upon Beneficiary the
rights, interest, powers and authorities herein granted and conferred. Failure
of Beneficiary at any time or from time to time to enforce the assignment of
Rents and Leases under this Section shall not in any manner prevent its
subsequent enforcement, and Beneficiary is not obligated to collect anything
hereunder, but is accountable only for sums actually collected.

8.2 Further Assignments. Trustor shall give Beneficiary at any time upon demand
any further or additional forms of assignment of transfer of such Rents, Leases
and security as may be reasonably requested by Beneficiary, and shall deliver to
Beneficiary executed copies of all such Leases and security.

8.3 Application of Rents. Beneficiary shall be entitled to deduct and retain a
just and reasonable compensation from monies received hereunder for its services
or that of its agents in collecting such monies. Any monies received by
Beneficiary hereunder may be applied when received from time to time in payment
of any taxes, assessments or other liens affecting the Property regardless of
the delinquency, such application to be in such order as Beneficiary may
determine. The acceptance of this Deed of Trust by Beneficiary or the exercise
of any rights by it hereunder shall not be, or be construed to be, an
affirmation by it of any Lease nor an assumption of any liability under any
Lease.

 

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8.4 Collection of Rents. Upon or at any time after an Event of Default shall
have occurred and be continuing, Beneficiary may declare all sums secured hereby
immediately due and payable, and may, at its option, without notice, and whether
or not the Secured Obligations shall have been declared due and payable, either
in person or by agent, with or without bringing any action or proceeding, or by
a receiver to be appointed by a court, (i) enter upon, take possession of,
manage and operate the Property, or any part thereof (including without
limitation making necessary repairs, alterations and improvements to the
Property); (ii) make, cancel, enforce or modify Leases; (iii) obtain and evict
tenants; (iv) fix or modify Rents; (v) do any acts which Beneficiary deems
reasonably proper to protect the security thereof; and (vi) either with or
without taking possession of the Property, in its own name sue for or otherwise
collect and receive such Rents, including those past due and unpaid. In
connection with the foregoing, Beneficiary shall be entitled and empowered to
employ attorneys, and management, rental and other agents in and about the
Property and to effect the matters which Beneficiary is empowered to do, and in
the event Beneficiary shall itself effect such matters, Beneficiary shall be
entitled to charge and receive reasonable management, rental and other fees
therefor as may be customary in the area in which the Property is located; and
the reasonable fees, charges, costs and expenses of Beneficiary or such persons
shall be additional Secured Obligations. Beneficiary may apply all funds
collected as aforesaid, less costs and expenses of operation and collection,
including reasonable attorneys’ and agents’ fees, charges, costs and expenses,
as aforesaid, upon any Secured Obligations, and in such order as Beneficiary may
determine. The entering upon and taking possession of the Property, the
collection of such Rents and the application thereof as aforesaid shall not cure
or waive any default or waive, modify or affect notice of default under the Note
or this Deed of Trust or invalidate any act done pursuant to such notice.

8.5 Authority of Beneficiary. Any tenants or occupants of any part of the
Property are hereby authorized to recognize the claims of Beneficiary hereunder
without investigating the reason for any action taken by Beneficiary, or the
validity or the amount of indebtedness owing to Beneficiary, or the existence of
any default in the Note or this Deed of Trust, or under or by reason of this
assignment of Rents and Leases, or the application to be made by Beneficiary of
any amounts to be paid to Beneficiary. The sole signature of Beneficiary shall
be sufficient for the exercise of any rights under this assignment and the sole
receipt of Beneficiary for any sums received shall be a full discharge and
release therefor to any such tenant or occupant of the Property. Checks for all
or any part of the rentals collected under this assignment of Rents and Leases
shall be drawn to the exclusive order of Beneficiary.

8.6 Indemnification of Beneficiary. Nothing herein contained shall be deemed to
obligate Beneficiary to perform or discharge any obligation, duty or liability
of any lessor under any Lease of the Property, and Trustor shall and does hereby
indemnify and hold Beneficiary harmless from any and all liability, loss or
damage which Beneficiary may or might incur under any Lease of the Property or
by reason of this assignment; and any and all such liability, loss or damage
incurred by Beneficiary, together with the costs and expenses, including
reasonable attorneys’ fees, incurred by Beneficiary in defense of any claims or
demands therefor (whether successful or not), shall be additional Secured
Obligations, and Trustor shall reimburse Beneficiary therefor on demand.

ARTICLE 9

MISCELLANEOUS PROVISIONS

9.1 Time of the Essence. Time is of the essence with respect to all of Trustor’s
obligations under the Loan Documents.

9.2 Joint and Several Obligations. If Trustor is more than one person or entity,
then (a) all persons or entities comprising Trustor are jointly and severally
liable for all of the Secured Obligations; (b) all representations, warranties,
and covenants made by Trustor shall be deemed representations, warranties, and
covenants of each of the persons or entities comprising Trustor; (c) any breach,
Default or Event of Default by any persons or entities comprising Trustor
hereunder shall be deemed to be a breach, Default or Event of Default of
Trustor; (d) any reference herein contained to the knowledge or awareness of
Trustor shall mean the knowledge or awareness of any of the persons or entities
comprising Trustor; and (e) any event creating personal liability of any of the
persons or entities comprising Trustor shall create personal liability for all
such persons or entities.

 

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9.3 Waiver of Homestead and Other Exemptions. To the extent permitted by law,
Trustor hereby waives all rights to any homestead or other exemption to which
Trustor would otherwise be entitled under any present or future constitutional,
statutory, or other provision of applicable state or federal law. Trustor hereby
waives any right it may have to require Beneficiary to marshal all or any
portion of the security for the Secured Obligations.

9.4 Non-Recourse; Exceptions to Non-Recourse. Except as expressly set forth in
the Note, the recourse of Beneficiary with respect to the obligations evidenced
by the Note and the other Loan Documents shall be solely to the Property,
Chattels and Intangible Personalty, and any other collateral given as security
for the Note.

9.5 Rights and Remedies Cumulative. Beneficiary’s rights and remedies under each
of the Loan Documents are cumulative of the right and remedies available to
Beneficiary under each of the other Loan Documents and those otherwise available
to Beneficiary at law or in equity. No act of Beneficiary shall be construed as
an election to proceed under any particular provision of any Loan Document to
the exclusion of any other provision in the same or any other Loan Document, or
as an election of remedies to the exclusion of any other remedy which may then
or thereafter be available to Beneficiary.

9.6 No Implied Waivers. Beneficiary shall not be deemed to have waived any
provision of any Loan Document unless such waiver is in writing and is signed by
Beneficiary. Without limiting the generality of the preceding sentence, neither
Beneficiary’s acceptance of any payment with knowledge of a Default by Trustor,
nor any failure by Beneficiary to exercise any remedy following a Default by
Trustor shall be deemed a waiver of such Default, and no waiver by Beneficiary
of any particular Default on the part of Trustor shall be deemed a waiver of any
other Default or of any similar Default in the future.

9.7 No Third-Party Rights. No person shall be a third-party beneficiary of any
provision of any of the Loan Documents. All provisions of the Loan Documents
favoring Beneficiary are intended solely for the benefit of Beneficiary, and no
third party shall be entitled to assume or expect that Beneficiary will waive or
consent to modification of any such provision in Beneficiary’s sole discretion.

9.8 Preservation of Liability and Priority. Without affecting the liability of
Trustor or of any other person (except a person expressly released in writing)
for payment and performance of all of the Secured Obligations, and without
affecting the rights of Beneficiary with respect to any security not expressly
released in writing, and without impairing in any way the priority of this Deed
of Trust over the interests of any person acquired or first evidenced by
recording subsequent to the recording hereof, Beneficiary may, either before or
after the maturity of the Note, and without notice or consent: (a) release any
person liable for payment or performance of all or any part of the Secured
Obligations; (b) make any agreement altering the terms of payment or performance
of all or any of the Secured Obligations; (c) exercise or refrain from
exercising, or waive, any right or remedy which Beneficiary may have under any
of the Loan Documents; (d) accept additional security of any kind for any of the
Secured Obligations; or (e) release or otherwise deal with any real or personal
property securing the Secured Obligations. Any person acquiring or recording
evidence of any interest of any nature in the Property, the Chattels, or the
Intangible Personalty shall be deemed, by acquiring such interest or recording
any evidence thereof, to have agreed and consented to any or all such actions by
Beneficiary.

9.9 Subrogation of Beneficiary. Beneficiary shall be subrogated to the lien of
any previous encumbrance discharged with funds advanced by Beneficiary under the
Loan Documents, regardless of whether such previous encumbrance has been
released of record.

9.10 Notices. Any notice required or permitted to be given by Trustor or
Beneficiary under this Deed of Trust shall be in writing and will be deemed
given (a) upon personal delivery, (b) on the first business day after receipted
delivery to a courier service which guarantees next-business-day delivery, or
(c) on the third business day after mailing, by registered or certified United
States mail, postage prepaid, in any case to the appropriate party at its
address set forth below:

 

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If to Trustor:

Rancon Realty Fund V Subsidiary Two LLC

400 South El Camino Real, 11th Floor

San Mateo, California 94402

Attention: G. Lee Burns, Esq.

with a copy to:

Glenborough

400 South El Camino Real, 11th Floor

San Mateo, California 94402

Attention: Chip Burns, Esq.

If to Beneficiary:

The Variable Annuity Life Insurance Company

c/o AIG Global Investment Corp.

1 SunAmerica Center, 38th Floor

Century City

Los Angeles, California 90067-6022

Attention: Director-Mortgage Lending and Real Estate

with a copy to:

Otten, Johnson, Robinson, Neff & Ragonetti, P.C.

950 Seventeenth Street, Suite 1600

Denver, Colorado 80202

Attention: Aaron J. Hill, Esq.

Either party may change such party’s address for notices or copies of notices by
giving notice to the other party in accordance with this Section.

9.11 Release of Lien. Upon payment and performance in full of all of the Secured
Obligations, Beneficiary will execute and deliver to Trustor such documents as
may be required to release this Deed of Trust of record.

9.12 Illegality. If any provision of this Deed of Trust is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
of this Deed of Trust, the legality, validity, and enforceability of the
remaining provisions of this Deed of Trust shall not be affected thereby, and in
lieu of each such illegal, invalid or unenforceable provision there shall be
added automatically as a part of this Deed of Trust a provision as similar in
terms to such illegal, invalid, or unenforceable provision as may be possible
and be legal, valid, and enforceable. If the rights and liens created by this
Deed of Trust shall be invalid or unenforceable as to any part of the Secured
Obligations, then the unsecured portion of the Secured Obligations shall be
completely paid prior to the payment of the remaining and secured portion of the
Secured Obligations, and all payments made on the Secured Obligations shall be
considered to have been paid on and applied first to the complete payment of the
unsecured portion of the Secured Obligations.

9.13 Usury Savings Clause. It is expressly stipulated and agreed to be the
intent of Beneficiary and Trustor at all times to comply with the applicable law
governing the highest lawful interest rate. If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under the
Note or under any of the other Loan Documents, or contracted for, charged,
taken, reserved or received with respect to the Loan, or if acceleration of the
maturity of the Note, any prepayment by Trustor, or any other circumstance
whatsoever, results in Trustor having paid any interest in excess of that
permitted by applicable law, then it is the

 

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express intent of Trustor and Beneficiary that all excess amounts theretofore
collected by Beneficiary be credited on the principal balance of the Note (or,
at Beneficiary’s option, paid over to Trustor), and the provisions of the Note
and other Loan Documents immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced, without the necessity
of the execution of any new document, so as to comply with the applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder and thereunder. The right to accelerate maturity of the Note does not
include the right to accelerate any interest which has not otherwise accrued on
the date of such acceleration, and Beneficiary does not intend to collect any
unearned interest in the event of acceleration. All sums paid or agreed to be
paid to Beneficiary for the use, forbearance or detention of the Secured
Obligations evidenced hereby or by the Note shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of such Secured Obligations until payment in full so that the rate or
amount of interest on account of such Secured Obligations does not exceed the
maximum rate or amount of interest permitted under applicable law. The term
“applicable law” as used herein shall mean any federal or state law applicable
to the Loan.

9.14 Obligations Binding Upon Trustor’s Successors. This Deed of Trust is
binding upon Trustor and Trustor’s successors and assigns, and shall inure to
the benefit of Beneficiary, and its successors and assigns, and the provisions
hereof shall likewise be covenants running with the land. The duties, covenants,
conditions, obligations, and warranties of Trustor in this Deed of Trust shall
be joint and several obligations of Trustor and Trustor’s successors and
assigns.

9.15 Construction. All pronouns and any variations of pronouns herein shall be
deemed to refer to the masculine, feminine, or neuter, singular or plural, as
the identity of the parties may require. Whenever the terms herein are singular,
the same shall be deemed to mean the plural, as the identity of the parties or
the context requires.

9.16 Attorneys’ Fees. Any reference in this Deed of Trust to attorneys’ or
counsel’s fees paid or incurred by Beneficiary shall be deemed to include
paralegals’ fees and legal assistants’ fees. Moreover, wherever provision is
made herein for payment of attorneys’ or counsel’s fees or expenses incurred by
Beneficiary, such provision shall include but not be limited to, such fees or
expenses incurred in any and all judicial, bankruptcy, reorganization,
administrative, or other proceedings, including appellate proceedings, whether
such fees or expenses arise before proceedings are commenced, during such
proceedings or after entry of a final judgment.

9.17 Waiver and Agreement. TRUSTOR HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE
UNDER APPLICABLE LAW, INCLUDING, WITHOUT LIMITATION, CALIFORNIA CIVIL CODE
SECTION 2954.10, TO PREPAY THE NOTE, IN WHOLE OR IN PART, WITHOUT PREPAYMENT
CHARGE, UPON ACCELERATION OF THE MATURITY DATE OF THE NOTE, AND AGREES THAT, IF
FOR ANY REASON A PREPAYMENT OF ALL OR ANY PART OF THE NOTE IS MADE, WHETHER
VOLUNTARILY OR FOLLOWING ANY ACCELERATION OF THE MATURITY DATE OF THE NOTE BY
BENEFICIARY ON ACCOUNT OF THE OCCURRENCE OF ANY EVENT OF DEFAULT ARISING FOR ANY
REASON, INCLUDING, WITHOUT LIMITATION, AS A RESULT OF ANY PROHIBITED OR
RESTRICTED TRANSFER, FURTHER ENCUMBRANCE OR DISPOSITION OF THE PROPERTY OR ANY
PART THEREOF SECURING THE NOTE, THEN TRUSTOR SHALL BE OBLIGATED TO PAY,
CONCURRENTLY WITH SUCH PREPAYMENT, THE PREPAYMENT PREMIUM PROVIDED FOR IN THE
NOTE (OR, IN THE EVENT OF ACCELERATION WHEN THE NOTE IS CLOSED TO PREPAYMENT, AS
PROVIDED IN THE DEFINITION OF “SECURED OBLIGATIONS” SET FORTH IN ARTICLE 1
HEREOF). TRUSTOR HEREBY DECLARES THAT BENEFICIARY’S AGREEMENT TO MAKE THE LOAN
AT THE INTEREST RATE AND FOR THE TERM SET FORTH IN THE NOTE CONSTITUTES ADEQUATE
CONSIDERATION, GIVEN INDIVIDUAL WEIGHT BY TRUSTOR, FOR THIS WAIVER AND
AGREEMENT.

             Trustor’s Initials

9.18 Waiver of Jury Trial. BENEFICIARY AND TRUSTOR KNOWINGLY, IRREVOCABLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS

 

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DEED OF TRUST, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED OF TRUST
OR ANY LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR TO ANY LOAN
DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BENEFICIARY AND TRUSTOR TO
ENTER INTO THE LOAN.

9.19 Governing Laws. The substantive laws of the State of California shall
govern the validity, construction, enforcement, and interpretation of this Deed
of Trust.

9.20 Inconsistency. In the event of any inconsistency between the terms of the
Loan Documents and the terms of that certain First Mortgage Loan Application
between Trustor and Beneficiary, as amended, the terms of the Loan Documents
shall govern and control in all respects.

9.21 Anti-Terrorism. Trustor represents, warrants and covenants to Beneficiary
that:

(a) None of Trustor, Guarantor or, to the best of Trustor’s knowledge, any of
their respective constituents or affiliates is in violation of any laws relating
to terrorism or money laundering, including without limitation, Executive Order
No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to
Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten
to Commit, or Support Terrorism, (as the same has been, or may hereafter be,
renewed, extended, amended or replaced, the “Executive Order”) and the Bank
Secrecy Act (31 U.S.C. § 5311 et seq.), as amended by the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (Public Law 107-56, as the same has been, or may
hereafter be, renewed, extended, amended or replaced, the “Patriot Act”). As
used herein, “Anti-Terrorism Laws” shall mean any laws relating to terrorism or
money laundering, including the Executive Order, the Patriot Act, the laws
comprising or implementing the Bank Secrecy Act, and the laws administered by
the United States Treasury Department’s Office of Foreign Asset Control (as any
of the foregoing laws may from time to time be renewed, extended, amended, or
replaced).

(b) None of Trustor, Guarantor, or, to the best of Trustor’s knowledge, their
respective constituents or affiliates, any person having a beneficial interest
in Trustor or Guarantor, any person for whom Trustor or Guarantor is acting as
agent or nominee, any of their respective brokers or other agents acting in any
capacity in connection with the Loan or Trustor’s predecessor in interest to the
Property is a “Prohibited Person,” which is defined as follows:

(i) a person or entity that is listed in the Annex to, or is otherwise subject
to the provisions of, the Executive Order;

(ii) a person or entity owned or controlled by, or acting for or on behalf of,
any person or entity that is listed in the Annex to, or is otherwise subject to
the provisions of, the Executive Order;

(iii) a person or entity with whom Beneficiary or any bank or other
institutional lender is prohibited from dealing or otherwise engaging in any
Anti-Terrorism Law;

(iv) a person or entity who commits, threatens or conspires to commit or
supports “terrorism” as defined in the Executive Order;

(v) a person or entity that is named as a “specially designated national” or
“blocked person” on the most current list published by the U.S. Treasury
Department Office of Foreign Assets Control at its official Website,
http://www.treas.gov/ofac/t11sdn.pdf or at any replacement Website or other
replacement official publication of such list; and

(vi) a person or entity who is affiliated with a person or entity listed above.

 

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(c) None of Trustor, Guarantor, or, to the best of Trustor’s knowledge, any of
their respective affiliates or constituents, any of their respective brokers or
other agents acting in any capacity in connection with the Loan or the seller of
the Property (if any portion of the Property is being acquired with proceeds of
the Loan), does or shall (i) conduct any business or engage in any transaction
or dealing with any Prohibited Person, including making or receiving any
contribution of funds, goods or services to or for the benefit of any Prohibited
Person or leasing any portion of the Property to any Prohibited Person,
(ii) deal in, or otherwise engage in any transaction relating to, any property
or interests in property blocked pursuant to the Executive Order, or
(iii) engage in or conspire to engage in any transaction that evades or avoids,
or has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law.

(d) Trustor shall promptly deliver to Beneficiary any certification or other
evidence reasonably requested from time to time by Beneficiary confirming
Trustor’s compliance with this Section. The representations, warranties and
covenants set forth in this Section shall be deemed repeated and reaffirmed by
Trustor as of each date that Trustor makes a payment to Beneficiary under the
Note, this Deed of Trust and the other Loan Documents or receives any payment
from Beneficiary. Trustor shall promptly notify Beneficiary in writing should
Trustor become aware of any change in the information set forth in these
representations, warranties and covenants.

[Balance of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, Trustor has executed and delivered this Deed of Trust as of
the date first mentioned above.

 

RANCON REALTY FUND V SUBSIDIARY TWO LLC, a Delaware limited liability company
By:  

 

Name:   Daniel Lee Stephenson Title:   Manager